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Top 5 Expectations from Union Budget 2012 !

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The centre of attraction Assembly Election 2012 results is out of the way now. All spotlights will now focus on the Union Budget 2012 announcement on March 16. Prior to that, the Union Minister of Railways Dinesh Trivedi will narrate the Railways Budget on March 14.

In fact, days before the Budget, the Indian Railways has dropped the bomb on the industry by hiking freight charges by up to 25% for most commodities including coal, food grains and fertilizers, raising fresh fears of stoking inflation further. However, railways have reduced rates for iron ore exports by up to 4%, by shifting it away from the most expensive class and reworking the distance slabs.

In this post, we will try to put across expectations from the Union Budget 2012 from the aam-aadmi and corporate India’s point of view. Hopefully, Finance Minister Pranab’da comes true to the public expectations by balancing both the social and industrial obligations of the government.

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1) Modernization of Railways: Most of Indian railway infrastructure was built during the British rule in the country and has outlived its utility to say the least. India now needs complete up-gradation of railway’s communication system and centralized train motoring system. Sam Pitroda has pegged the total expenses for railway modernization roadmap at Rs.8 lakh crore, over the next 5 years. The big question – how will government arrange for such a huge sum, though gradually?

2) Implementation of Tax Reforms: The top-most priority at the Centre should be fast implementation of the two main tax reforms – Direct Tax Code (DTC) and the Goods and Service Tax (GST) – that has been on the back-burner since last two years.

In fact, prompt implementation of GST in itself is likely to add around 1%-1.5% to GDP growth. It would also result in moderation of rates, simplification of laws and better compliance.

3) Start Fiscal Consolidation: With the election season come to a draw, its high time that the government withdraw some of the highly populist measures played as a part of its vote bank politics.

The gross fiscal deficit in the 2011-12 at 5.5% of GDP is unlikely to meet the government’s fiscal projection of 4.6%, in the back drop of faltering economic growth and skewed tax revenue collection. The only possibility of a bailout in the new fiscal year could be windfall gains from auction of 2G or 4G telecom licenses.

4) Align Personal Tax slabs to DTC thresholds: Common man automatically comes under the radar when we speak about personal tax slabs; it goes without saying that the expectations of an aam-aadmi is almost always skewed towards increase in tax exemption limits, as a relief from high inflation eating into their wealth.

This year should be no different – Pranab Mukherjee is expected to align the personal tax slabs in this budget to proposed DTC thresholds, to narrow down the differences in the structure and swift carry over to the new direct tax law. We can expect the minimum income limit not subject to tax to be raised to Rs.2 lakh from the prevailing Rs.1.9 lakh threshold.

5) Deregulation of Diesel prices: The government has de-regulated petrol prices in the past, but it still provides subsidies on other fuel products such as diesel and kerosene oil to enable the common man to have access to these basic necessities at affordable prices.

The under-recoveries on the sale of price-controlled fuels for FY12 has left a hole in the exchequer’s pocket to the tune of almost Rs.97,313 crore up to December 2011, as per a report. Moreover, under-recoveries from subsidized diesel sales has ballooned to more than Rs.56,700 crore in the first nine months of FY12.

What say? Do you have any special expectation from Pranab’da?

  1. […] ‘B’-Day is approaching soon. But, the budget session of the Parliament has kicked off in a style with President Pratibha […]

  2. Banyan Financial Advisors says

    Hi,
    I think the Finance Minister did what he could do best in the current fiscal deficit situation. Have a read at http://insight.banyanfa.com/?p=546 where I have given my analysis on top items coming out of Indian Budget 2012.

  3. Facility management says

    The countdown begin now! get ready for the FM surprise package. I am really looking forward to it as this budget will give market a direction.

  4. Ravi P says

    Controlling inflation and creating employment opportunities should be the main target. Govt. must not waste money in populist schemes.
    People want real development. Give us means to earn for buying breads, not breads.And bread must be affordable.

  5. Altaf Rahman says

    I was expecting this article from you just a week before budget.

    With every budget, the markets move in a certain way depending on where govt was soft and provided relief, rebates etc, and where it toughened and imposed more taxes etc.

    I look forward to see an article from you to guess the most probable acts of the budget so that you can recommend few stocks to buy before post budget rally takes place.

    Just my two paisa :)

    1. Viral Dholakia says

      Altaf,

      Pre-budget bets can be made in sectors such as Education, Defense and Infrastructure looking at the general trend of increased spending by the government in these areas.

      Post-budget could see an unusual winner in the ‘Power’ sector, which might well hog the limelight in terms of policy reforms to get it out of the current rut.

  6. Facility management says

    The important aspect of budget would be how strong the government sends a ‘credibility signal’ and how it separates politics from economics. The government has been falling back on several of its committed objectives, such as fiscal deficit, investments etc. The government now needs to narrow the larger gap between targets set in the budget and the achievement of the same, such as fiscal deficits and divestments. The budget would be influenced by the Uttar Pradesh election results due on March 6th, especially on its ability to bring about reforms.

    1. Viral Dholakia says

      Very true, the government has also lagged big time in coming true on its disinvestment targets. Fortunately, somehow the Centre got through the ONGC auction sale, otherwise the exchequer had gone completely awry on its FY12 disinvestment targets.

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