(Article) Budget 2012-13: Reality Check - Civil Services Mentor Magazine May 2012

The Union Budget 2012-13 presented by the Finance Minister PranabMukherjee in Lok Sabha on 16thMarch, identified five objectives to be addressed effectively in the ensuing fiscalyear. Theyinclude focus on domestic demand driven growth recovery; create conditions for rapid revival of high growth in private investment; address supply bottlenecks in agriculture, energy and transport sectors particularly in coal, power,  ational highways, railways and civil aviation; intervene decisively to address the problemofmalnutrition especially in the 200 high-burden districts and expedite coordinated implementation of decisions being takento improve delivery systems , governance, and transparency; and address the problemof blackmoney and corruption in public life.

If the Union Budget was expected to make some special concessions for West Bengal to placate Chief Minister Mamata Banerjee, there was no hint of it in Finance Minister Pranab Mukherjee’s speech on Friday. Indeed, it was a speech singularly short of anypoliticalmessage; nor indeed, did it have a strong social message, as most of the schemes mentioned are alreadyinplace,with the government just making additional allocations. Perhaps,
the only social sector issue that Mr. Mukherjee highlighted in this fiscal year was to “intervene decisively to address the problem of malnutrition, especially in the 200high burden districts.”

Interestingly, that message appeared to have got across to the TrinamoolCongress. For despite the fact that West Bengal only got a flood management project inMurshidabad, a Congress-controlled district, andRs. 50 crore to establishaworld-class centre to improve water quality in Kolkata, the Trinamool MPs seemed low key, describing the budget as “tolerable.” Of course, Trinamool Leader in the Lok Sabha SudipBandopadhyay didmention the fact thatWest Bengal, likePunjab and Kerala, was “in a debt trap” andwanted a three-yearmoratorium.But government sources told that theCentre hadmade it clear to all three States that it wanted to see some signs on the part of these State governments that additional funding “would not be like pouring water into a bucketwithholes in it.”Themessage that theUPAgovernment, evidently,wants to send out through this budget is that its focus will be on strengthening the economy, stimulating growth and on revenue generating measures. “If India can continue to build on its economic strength, it can be a sourceof stability for the world economy and provide a safe destination for restless global capital.” Probably themessageof this budget: that the government intends to govern, and  the alliesneedto get onboard.Mukherjee said that India’sGDP growth in 2012-13 is expected to be 7.6 per cent +/-0.25 per cent. He said that in 2011-12, India’s GDP is estimated to grow at 6.9 per cent after having grown at the rate of 8.4 per cent in each of the two preceding years He said though the  lobal crisis had affected India, it still remains among the front runners in economic growth. Mukherjee saidtheslowdownis primarily due to decelerationin industrial growth. Stating that the headline inflation remained high for most part of the year, theFinanceMinisterexpressed hope that it will moderate further in the next few months and remainstable thereafter.FM laid emphasis on striking a balance between fiscal consolidation and strengthening macroeconomic fundamentals. He announced introductionof amendmentsto the Fiscal Responsibility and Budget Management Act, 2003 (FRBM Act) as part of the Finance Bill 2012. He said that concept of “Effective Revenue Deficit” and “Medium Term Expenditure Framework” statementare twoimportant features of Amendment to FRBMAct in the direction of expenditure reforms. This statement shall set forth a three year rolling targetsfor expenditure indicators.

The FM called for a need to have a close look at the growth of revenue expenditure, particularly, on subsidies. He announced that from 2012-13 while subsidies related to food and for administering the FoodSecurityActwill be fully provided for, all other subsidies would be funded to the extent that they can be borne by the economy without anyadverse implications.He said that the Governmentwill endeavor to restrict the expenditure on central subsidies under 2 per cent ofGDP in 2012-13 and over the next three years, it would be further brought down to 1.75 per cent of GDP. Finance Minister said that based on recommendations of the Task Force headed by Nandan Nilekani, a mobilebased FertilizerManagement Systemhas been designed to provide end-to-end information on movement of fertilizers and subsidies which will be rolled out nation-wide during 2012. He said that transfer of subsidy to the retailer and eventually to the farmers will be implementedinsubsequent phaseswhich will benefit 12 crore farmer families. On the tax reforms,the FinanceMinister said that the Direct Taxes Code (DTC) Bill will be enacted at the earliest after expeditious examination of the report of the Parliamentary Standing Committee.

He said drafting of model legislation for Centre and StateGoods andServices Tax (GST) in concert with States is under progress. He added that the GST network will be set up as a National Information Utility and will become operational byAugust 2012. On the disinvestment policy, FM said that the Central Public Sector Enterprises (CPSEs) are being given a level playing field vis-à-vis private sector with regard to practices like buy- acks andlisting atstock exchange. Stating that while in 2011-12, the Government will raise about Rs 14,000 crore from disinvestment as against a target of Rs 40,000 crore, the Finance Minister proposed to raiseRs 30,000 crore through disinvestment in 2012-13.He said at least 51 per cent ownership andmanagement of CPSEs will remain with the government. Calling for strengthening investment environment, FM said that efforts are on to arrive at a broad-based consensus in respect of decision to allow FDI in multi-brand retail up to 51 per cent. He proposed to introduce a new scheme called Rajiv Gandhi Equity Savings Scheme to allow for income tax deduction of 50 per cent to new retail investors who invest up to Rs 50,000 directly in equities and whose annual income is below Rs 10 lakh. The scheme will have a lock-in period of 3 years Regarding capital markets, the Finance Minister proposed to allow Qualified ForeignInvestors (QFIs)to access Indian Corporate Bond market. He also proposed simplifying theprocess of Initial PublicOffer (IPO).

The FMsaid that the government is committed to protect the financial health of Public Sector Banks and Financial Institutions. He proposed to provide Rs 15,888 crore for capitalization of Public Sector Banks, Regional Rural Banks and other financial institutions including NABARD. He added that a Central Know Your Customer (KYC) depositary will be developed in 2012-13 to avoidmultiplicity of registration and data upkeep. The Finance Minister informed that out of 73,000 identified habitations thatwereto be coveredunder “Swabhimaan” campaign for providing banking facilities byMarch 2012, about 70,000 habitations have been covered while the rest are likely to be covered by March 31, 2012.He added that as a next step Ultra Small Branches are being set up at these habitations. In 2012-13, Swabhimaan campaignwill be extended tomore habitations. Emphasizing oninfrastructure and industrial development,Mukherjee said that during the12th Plan, infrastructure investment will go up to Rs 50 lakh crore with half of this expected from private sector. Stating that in 2011-12 tax free bonds for Rs 30,000 crore were announced for financing infrastructure projects, heproposed to double it to raise Rs 60,000 crore in 2012-13. TheMinister proposed to allow ExternalCommercial Borrowings (ECB) to part finance Rupee debt of existing power projects.

The FinanceMinister announced a target of covering 8,800 km. under NHDP next year andincrease in allocationoftheRoad Transport andHighwaysMinistry by14 per cent to Rs 25,360 crore in 2012-13. Heproposed to permit ECB for working capital requirements of the Airline Industry for a period of one year, subject to a total ceiling ofUS dollar 1 billion to address theimmediate financial concerns of the CivilAviation Sector.He addedthat a proposal to allow foreign airlines to participate upto 49 per cent in the equity of an air transport undertaking is under active consideration. Expressing concern over shortage in housing sector, the FinanceMinister proposed various measures to address the shortage of housing for low income groups in major cities and towns including ECB for low cost housing projects and setting up of a Credit Guarantee Trust Fund. Regarding textile sector, the FinanceMinister announced setting upoftwomoremega clusters, one to cover PrakasamandGuntur districts in Andhra Pradeshand other for Godda and neighboring districts in Jharkhand in addition to 4 mega handloom clusters already operationalized. He also proposed setting up of three Weavers Service Centres, one each in Mizoram, Nagaland and Jharkhand. TheMinister proposed a Rs 500 crore pilot scheme in twelfth plan for promotion and application of Geo-textiles in the North East. ApowerloomMega Clusterwill be set up inIchalkaranji inMaharashtra.FM proposed to set up a Rs 5000 crore India Opportunities VentureFundwith SIDBI to enhance availabilityof equity tomicro, small and medium enterprises. Stating that agriculture will continue to be a priority for the government,Mukherjee proposed an increase by 18 per cent to Rs 20,208 crore in the total Plan Outlay for the Department of Agriculture and Cooperation in 2012-13.He said that the outlay for RashtriyaKrishi Vikas Yojana (RKVY) is being increasedtoRs 9217crore in 2012-13.

Underlining importance of timely access to affordable credit for farmers, the FinanceMinister proposed to raise the target for agricultural credit toRs 5,75,000 crore,which represents an increase of Rs 1,00,000 crore over the target for the current year. Hesaid that a short termRRBCredit RefinanceFund is being set up to enhance the capacity of Regional Rural Banks to disburse short termcroploans to the small andmarginal farmeRs Headdedthat KisanCreditCard Scheme will be modified to make it a smart cardwhich can be used at ATMs. The FinancedMinister said that in order to have a better out reach of the food processing sector, a new centrally sponsored scheme titled National Mission on Food Processing will be started in cooperationwith the States in 2012-13.Minister proposed an increase of 18 per cent to Rs 37,113crore for Scheduled Castes Sub Plan and an increase of 17.6 per cent to Rs 21,710 crore for Tribal Sub Plan during 2012- 13. Regarding food security,Mukherjee said thatNational Food SecurityBill 2011 is before Parliamentary Standing Committee. He said a multi-sectoral programme to address maternal and child malnutrition in selected 200 high burdened districts is being rolled out during 2012-13. He further said that an  allocation of Rs 15,850 crore has been made for ICDS scheme which is an increase of 58% and Rs 11,937 crore for National Programme ofMid-DayMeals in schools for the year 2012-13.He added that an allocation of Rs 750 crore is proposed for Rajiv Gandhi Scheme for Empowerment of Adolescent Girls, SABLA.

The allocation for rural drinking water and sanitation is proposed to be increased by over 27 per cent toRs 14,000 crore and for Pradhan Mantri Road SadakYojana by 20 per cent to Rs 24,000 crore in 2012-13. He proposed to enhance the allocation under Rural Infrastructure Development Fund to Rs 20,000 crore with Rs 5,000 crore exclusively earmarked for .creating warehousing facilities. The Finance Minister proposed an increase in allocation by 21.7 per cent for Right to Education – Sarva Shiksha Abhiyan to Rs 25,555 crore and by 29 per cent for RashtriyaMadhyamik Shiksha Abhiyan toRs 3,124 crore.He proposed to set up a CreditGuarantee Fund to ensure better flow of funds to students. Regarding health sector heproposed an increase in allocation for NRHMto Rs 20,822 crore in 2012-13. He also said that National UrbanHealthMissionis being launched.

The Finance Minister said that Mahatma Gandhi National Rural EmploymentGuaranteeScheme has had a positive impact. He proposed an allocation of Rs 3915 crore for National RuralLivelihoodMission (NRLM)which represents an increase of 34 per cent. He proposed to provide Rs 200 crore to enlarge the corpus to Rs 300 crore of the Women’s SHG’sDevelopment Fund. He said the fund will also support the objectives of Aajeevikai.e. NRLM and will empower women SHGs to access bank credit. He also proposed to establish a Bharat Livelihoods Foundation of India throughAajeevikawhichwill support and scale up civil society initiatives and interventions particularly in the tribal regions covering around 170 districts.

Allocation under National Social Assistance Programme (NSAP) is proposed to be raised by 37 per cent to Rs 8447 crore. Under the Indira Gandhi National Widow Pension Scheme and IndiraGandhiNationalDisabilityPension Scheme for BPL beneficiaries, the monthly pension amount per person is being raised from Rs 200 to Rs 300. FM announced a provision of Rs 1,93,407crore for Defence Services including Rs 79,579 crore for capital expenditure. He said the allocation is based on present needs and any further requirement would bemet. Addressing governance related issues, Mukherjee said adequate funds are proposed to be allocated to complete enrollments of another 40 crore persons under UID Mission.Outlining the steps taken by the Government to addressthe issueofblack money, the Minister proposed to lay a White Paper on Black Money in the current session of Parliament. In the Budget estimates for 2012-13, theGross Tax Receipts are estimated at Rs 10, 77,612 crorewhich is an increase of 15.6 per cent over the Budget Estimates and 19.5 per cent over the revised estimates for 2011-12. After devolution to States, the net tax to the Centre in 2012-13 is estimated at Rs 7,71,071crore. TheNon TaxRevenueReceipts are estimated at Rs 1,64,614crore and Nondebt Capital Receipts at Rs 41,650 crore. The total expenditure for 2012-13 is budgeted at Rs 14,90,925 crore. Of this Rs 5,21,025crore is the Plan Expenditure whileRs 9,69,900 crore is budgetedasNon Plan Expenditure. The tax proposals are guided by the need to move towards the Direct Tax Code(DTC) in the case of direct taxes and Goods & Services Tax

(GST) in the case of indirect taxes. Individual income up to Rs 2 lakh will be free from income tax; income uptoRs 1.8 lakh was exempt in 2011-12. Income above Rs 5 lakh and upto Rs 10 lakh now carries tax at the rate of 20 per cent; the 20% tax slab was from Rs 5 lakh to Rs 8 lakh in 2011-12. A deduction of up to Rs 10,000 is now available for interest from savings bank accounts.Within the existing limit for deduction allowed for health insurance, a deduction of up to Rs 5000 is being allowed for preventive health check-up. Senior citizens not having income frombusinesswill nownot need to pay advance tax.

While no changes have beenmade in corporate taxes, the budget proposes a number of measures to promote investment in specific sectors. In order to providelow cost funds tosome stressed infrastructure sectors,withholding tax on interest paymentsonexternal borrowings (ECBs) is being reduced from20 percent to 5 per cent for 3 years. These sectors are – power, airlines, roads and bridges, ports andshipyards, affordable housing, fertilizer, and dam. Investment linked deduction of capital expenditure in some businesses is proposed to be provided at 150 per cent as against the current rate of 100 per cent. These sectors include cold chain facility,warehouses for storing foodgrain, hospitals, fertilizers and affordable housing. Bee keeping, container freight and warehousing for storage of sugar will now also be eligible for investment linked deduction. The budget alsoproposesweighted deduction for R&D expenditure, agri-extension services and expenditure on skill development inthemanufacturing sector. For small andmediumenterprises (SMEs)the turnoverlimit for compulsory tax audit of accounts as well as for presumptive taxation is proposed to be raised from Rs 60 lakh to Rs 1 crore. In order to augment funds for SMEs, sale of residential property will be exempt from capital gains tax, if the proceeds are used for purchase ofplant andmachinery, etc. AGeneralAnti-AvoidanceRule (GAAR) is being introduced in order to counter aggressive tax avoidance. Securities transaction tax (STT) is being reduced by 20 per cent on cash delivery transactions, from 0.125% to 0.1%. AlternativeMinimumTax is proposed to be levied from all persons, other than companies, claiming profit linked deductions.

The FinanceMinister has proposed a series of measures to deter the generation and use of unaccounted money. In the case of assets held abroad, compulsoryreporting is being introduced and assessment up to 16 years will now be allowed to be re-opened. Tax will be collected at source on trading in coal, lignite and iron ore; purchase of bullion or jewellery above Rs 2 lakh in cash; and transfer of immovable property (other than agricultural land) above a specified threshold. Unexplainedmoney, credits, investments, expenditures etc. will be taxed at the highest rate of 30 per cent irrespective of the slab of income. The Finance Minister has made an effort to widen the service tax base, strengthen its enforcement and bring it as close as possible to the central excise.Acommon simplified registration form and a common return arebeing introduced for central excise and service tax. All serviceswillnowattract service tax, except those in the negative list. The negative list has 17 heads and includes specified services provided by the government or local authorities, and services inthe fields of education, renting of residential dwellings, entertainment and amusement,public transportation, agriculture and animal husbandry. A number ofotherservices includinghealth care, and services provided by charities, independent journalist, sport persons, performing artists infolk andclassicalarts, etc are exempt from service tax. Film industry also gets tax exemption on copyrights relating to recording of cinematographic films. Service tax rate is being increased from 10 per cent to 12 per cent, with consequential change in rates for services that have individual tax rates. The standard rate of excise duty for non-petroleum goods is also being raised from 10 per cent to 12 per cent. No change is proposed in peak rate of customs duty of 10 per cent on nonagricultural goods.

TheBudget offers relief to different sectors of economy, especially those under stress. Import of equipment for fertilizer projects are being fully exempted from basic customs duty of 5 per cent for 3 years Basic customs duty is also being lowered for a number of equipment usedinagriculture andrelated areas. In the realm of infrastructure, customs relief is being given to power, coal andrailwayssectors while steamcoal gets full customs duty exemption for 2 years (with the concessional counterveiling duty of 1 per cent), natural gas, LNG and certain uranium fuel get full duty exemption this year.Different levels of duty concessions are being provided to help mining, railways, roads, civil aviation, manufacturing, health and nutrition and environment. So as to help modernization of the textile industry, a number of equipment are being fully exempted from basic customs duty, and lower customs dutyis being proposed for some other items used by the textile industry.

Customs duty is being raised for gold bars and coins of certain categories, platinumand gold ore. Customs duty is to be imposed on coloured gem stones. Excise duty on certain categories of cigarettes and bidis, pan masala and chewing tobacco is being increased. Customs duty is being increased on completely built largecars/ SUVs/MUVs of value exceeding $40,000. Silver jewellery will now be fully exempt from excise duty. Unbranded precious metal jewellery will attract excise duty on the lines ofbrandedjewellery.Operations are being simplified and measures taken to minimize impact of this provision on small artisans and goldsmiths. While direct tax proposals in the Budget will result in a net revenue loss of Rs 4,500crore, indirect taxeswill result in a net revenue gain ofRs 45,940 crore. Thus, the tax proposalswill lead to anet gain of Rs 41,440crore.

HIGHLIGHTS OF BUDGET :

• Cars to attract ad valorem rate of 27 per cent.
• Upper limit raised from Rs 8 lakh to Rs 10 lakh for 20 per cent bracket
• Individual income tax payer exemption limit to be raised to Rs 200,000 from Rs 180,000.
• Capital gains tax on residential property exempted if sale proceeds used for SMEs.
• Customs duty on bicycles and parts increased
• Customs duty onstandard gold bar and coins exceeding 99.5 per cent purity, platinumand non-standard gold raised
• Import duty on large cars,MUVs, SUVs enhanced
• Gold jewellery not bearing brand name to be included in the one per cent levy on precious metal jewellery
• Branded silver jewellery fully exempted fromexcise duty
• Baggage allowance for people of Indian origin increased from Rs 25,000 to Rs 35,000 and for children fromRs 12,000 toRs 15,000
• Customs and central excise proposals to net a revenue of Rs 27,280 crore
• Installationofsolar plants exempted from CVD.
• Oil cess on domestic crude raised toRs 4,500 per ton fromRs 2,500 per ton.
• Standard excise duty rate raised from 10 per cent to 12 per cent.
• Service tax to yield additional revenue of Rs 18,650 crore.
• No change in the peak rate customs duty.
• Full exemptionfrombasic customs duty on natural gas, LNG, uranium for generation of electricity for two years.
• Import of equipment for fertilizer plants fully exempt from customs duty for three years
• Full exemptionfrombasic customs duty for equipment for road and highway construction
• Customs duty on import of parts of aircraft, tyres andtesting equipment fully exempted.
• Excise dutyonhandmade andsemimechanisedmatches reduced from 10 to 6 per cent
• Introduction of compulsory reporting of assets held abroad.
• Securities Transaction Tax (STT) reduced from 0.125 per cent to 0.1 per cent.
• Withholding tax on power, airlines, road and brides, ports and shipyard, fertilisers, dams and affordable houses lowered to 5 pc from 20 pc for 3 years.
• No change in corporate tax rate.
• The Budget also exempts up to Rs 10,000 of interest income from tax.
• No IT for income up toRs 2,00,000; 10 pc on income between Rs 2-5 lakh; 20 pc on income between Rs 5-10 lakh and 30 pc on income above Rs 10 lakh.
• Tax exemption of up toRs 5,000 for health insurance for annual preventive health checkup
• Direct taxes proposals to result in net revenue loss of Rs 4,500 crore.
• All services except 17 in the negative list to be brought under service tax net.
• Copyright relating to cinematography in film industry exempted fromservice tax
• Team to study common tax code for service tax and central excise to be set up
• No change in the peak rate customs duty
• Service tax to yield additional revenue of Rs 18,650 crore.
• Standard excise duty rate raised from 10 per cent to 12 per cent.
• Determined to bring down fiscal deficit to 5.1 per cent of GDP next fiscal
• Total debt of the Centre will be 45 per cent of GDP
• Revenue deficit for 2012-13 projected at Rs 1,85,752 crore.
• Non-plan expenditure Rs 9,69,900 crore in 2012-13; 8.7 per cent higher than current year
• Direct tax collection fell short by Rs 32,000 crore in current fiscal.
• Fiscal deficit at 5.9 per cent ofGDP in revised estimates for 2011-12.
• Determined to bring down fiscal deficit to 5.1 per cent of GDP next fiscal.
• Urban health schemes get higher allocation.
• 40 croreAadhar enrollment in year beginning April 2012.
• White Paper on black money to be tabled in current session of Parliament.