Expectations from coming Union Budget 2012-13

[Ankit Shukla Mil ke Bhi Hum Na Mile ...................]

This year budget session will commence on March 12 with the customary address by President Pratibha Patil to both the Houses of the Parliament. Finance Minister Pranab Mukherjee will unveil the union budget on March 16. The budget session, which generally starts in the third week of February, has been delayed this time due to the ongoing Assembly elections in five states, including Uttar Pradesh. 

 

The model code of conduct is in force till March 9, before which the government is constraint to make any announcement. One expect the initiation of new reform measures as many reforms are waiting for implementation since long which may get some heed in this budget like Goods and Service Tax (GST), implementation of Direct Tax Code (DTC) etc.

 

On the tax front, Centre is planning to increase the income tax exemption for up to Rs 3 lakh from the current 1.8lakhs. However, some members of a Parliamentary panel scrutinizing the DTC Bill had pressed for raising the income tax exemption limit to Rs 5 lakh per annum. Due to ailing aviation sector, some respite may be given to this sector through tax rebate. More or less, more services are likely to be added to the service sector net to enlarge the service sector base and the custom duty are likely to remain same. In the last few years, fiscal situation of the government has deteriorated. Therefore prudent fiscal measures are expected now onwards as the story of global slowdown is over. Moreover, disinvestment in government companies is likely to get a boost to boost the economy. Stock exchanges have pitched for abolition of the Securities Transaction Tax (STT) on equity trades and one can expect the abolition of this tax.

 

Agriculture expects some good news from the budget 2012-13 as for most part of the year 2011-12 food inflation has been high and therefore, major sops to agriculture are expected to boost the supply of food grains. Agriculture Ministry has demanded lowering of interest rate on crop loans to 3% for those farmers who pay in time, from the existing 4%. The farm loan waiver credited to P Chidambaram was a short-term measure that has led to long-term pain. The farm loan waiver caused a hole in the government’s finances of Rs 65,000 crore and it has turned an important sector of the country into a bad lending proposition. Though increase in overall lending to agriculture in this year’s budget is expected but no more waivers are in pipeline.

NREGA has also led to wage rates rising across the agricultural sector leading to rise in food production costs and creating a spiraling inflation effect.  The food security bill will lead to a sharp rise in food prices as the government ensures sufficient stock to store in inefficient storage facilities for providing food security. Therefore, major reforms to improve the performance of agriculture are expected. 

 

In their pre-budget meeting with FM Pranab Mukherjee, bank officials had emphasized the need to mobilize more deposits to meet the rising credit needs of the economy and pointed out that only a third of the country's savings of 32% of GDP are intermediated through banks. Therefore some streamlining in bank rates and the returns on investments like mutual funds are expected. 

 

It is quite evident from the previous experience of the country that in order to sustain a healthy GDP growth rate, equivalent investment in infrastructure is required. In the last Budget the government announced tax rebate under 80CCF for investments in infrastructure bonds. This has helped institutions such as National Highway Authority of India (NHAI), Rural Electricity Corporation (REC) and others to raise large amount of funds from public for infrastructure investment during the year and hopefully this tempo continues for the coming year too. The Budget should continue to focus on other such fiscal incentives which help in increasing the infrastructure spending in the country. Power, an important sector for the long-term health of the country, is in dire need of reforms. 

 

The losses suffered by state distributors of power are affecting production and distribution, causing lenders’ balance sheets to weaken and sending power prices shooting up for consumers. If the country has to bounce back to the higher rates of growth to accelerate poverty alleviation, it is important that the Budget as a statement of intent expresses the long term game plan for infrastructure improvement in the economy and through that process stepping up the country's economic development.

 

Union Budget 2012 is expected to witness Union Finance Minister Mr. Pranab Mukherjee attempt to push the entrepreneurs for more investment by introducing major investor-friendly policies. Centre may unveil a series of measures in the Union Budget 2012-2013 to help the export sector and also the micro, small and medium enterprises (MSMEs) in India. Further, new measures to increase the FDI flow into the country are expected to improve the investment climate in the country and to promote the sustainable growth.

 

The performance of export industry is not very appreciable in the year 2011-12 due to sluggish demand from the European and US market and renewed competition from the developing world. Therefore, the existing export promotion schemes are likely to continue and some new schemes may be introduced

 

The Central government may incentivize the Pharma sector to boost the higher spending in research and development and also to lower the taxes and duties on life saving drugs and active pharmaceutical ingredients (API) to offer fillip to the growth of the industry.

 

Inflation has been trending at over 9 percent over the last couple of years, much above the low-single digit levels seen in the first half of the past decade. Higher inflation was seen for most of the year 2011-12 is likely to continue in 2012-13 as there are no signs that government will resort to cut in public spending as this year budget is likely to witness allocation of more funds for the income generating schemes like MNREGA. Further non plan expenditure is likely to increase due to the upcoming defense deals and the continuous defense expenditure due to rising security concerns.

 

Budget 2012-13 is likely to witness the increased subsidy bill as the consumption of fuel consumption and increasing international crude oil prices. Food security bill will further inflate the expenditure on food subsidy. Employment generation has always been a priority and since future jobs will be for skilled labour, allocation for National Skilled Development Programme must be increased.

 

Food processing industry is a sunrise industry which on one hand boost agriculture income and on other hand sector is employment intensive. Therefore tax sops are expected from this sector.

 

In 2011-12, social sector spending was increased by 17 percent and it likely to further increased in budget 2012-13 further maximum increase in allocation is likely to be for infrastructure sector.  

 

Since budget 2012-13 is also the first year of the 12 five year plan, therefore some prudent measures must be initiated in this budget to make the Indian juggernaut moving at the high speed which must be the inclusive one and a berth for every Indian must be ensured on it.

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Ankit Shukla

Kanpur
+91-9717194718