Union Budget 2012: Under-performs Aam-aadmi Expectations !
In his Union budget 2012 speech, Finance Minster Pranab Mukherjee started off by identifying 5 objectives relating to Growth, Investment, Supply bottlenecks, Governance and removing Malnutrition. Yet, he signed off with a warning that “India stands on the brink of a recession”.
Neither was Pranab Mukherjee in any mood to sing those customary verses of poetry to enthuse his audience, like his counterpart Dinesh Trivedi did during the Rail budget 2012 speech; nor were his Union Budget as forward looking and visionary as that of the Indian Railways.
As the year passed was a difficult one to reckon with, I was expecting a radical budget this year. But the FM has disappointed me. There is no radical changes and tweaks in this Budget. There’s just a few tinkering from the last year’s budget plan to accommodate newer set of numbers.
The fiscal deficit for FY13 has been targeted at 5.1% of India’s GDP, as against 5.9% in revised estimate of fiscal year 2011-12. While the FM set the government’s target for Disinvestment of the state-run firms at Rs.30,000 crore for the fiscal year 2012-13, his FY12 PSU disinvestment target to raise Rs.40,000 crore has been in absolute disarray despite pushing for the last minute ONGC share sale auction.
On the other hand, the budget proposes to allow 49% investment threshold for foreign airlines, in a bid to address concerns of cash-strapped Indian civil aviation sector. However, the government has failed to reach consensus to clear FDI in multi-brand retail that is likely to have sobering effect on India’s headline inflation.
As expected, Pranab Mukherjee doled out goodies to individual tax-payers by increasing tax exemption limits for the aam-aadmi as under:
- Upto Rs.2 Lakh: No Tax
- Rs.2 Lakh to Rs.5 Lakh: 10%
- Rs.5 Lakh to Rs.10 Lakh: 20%
- Above Rs.10 Lakh: 30%
In effect, most of the Personal Tax-slab thresholds have been aligned in line with those proposed under the Direct Tax Code regime, in order to ensure swift passage to the new tax law. But, if I heard FM’s Budget correctly, there was no mention of special tax exemptions for women and senior citizen quotas.
For Stock market enthusiasts, the FM has cut the Securities Transaction Tax (STT) by 20%, from 0.125% to 0.1% on cash delivery transactions, a move that will bring down costs of equity transactions.
This Budget could prove to be a big negative for the Services sector as the Finance Minister has increased the service tax from 10% to 12%. For sure, this could have negative rumblings on the Services sector, whose weightage as a share in GDP has climbed to 59% in FY12. At the same time, FM has widened the service tax net to include most sectors, in a bid to raise additional revenues of Rs.18660 crore from service tax.
The Power sector had hogged the limelight last year for all the wrong reasons, and I expected a few radical reforms to turn up the sector, striving with problems of fuel linkages and bad debts from SEBs.
All that the Budget said was that the government has directed Coal India to sign fuel supply agreement with beleaguered power producers and agreed to additional depreciation to the power sector. But, the annual commentary was muted on the import of power equipments.
On the Banking front, FM allocated a capital support to all public sector banks to the extent of Rs.15880 crore, in a bid to help them maintain tier I capital and expand their asset base. In my opinion, this aid is too little, too late.
Last year, SBI’s standalone credit was downgraded by ratings agencies for this very reason – probably, the announced sum could barely make up for the capital requirements of the country top PSU bank, SBI.
On most counts, the Budget 2012 has been a dampener of sorts.