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UNION BUDGET 2012-13

Impact Analysis

UNION BUDGET 2012-13: Impact Analysis

CONTENTS

BUDGET AT A GLANCE ............................................................................................ 1

UNION BUDGET 2012-13 : A MACROECONOMIC PERSPECTIVE .......................... 2-3

SECTORAL IMPACT ............................................................................................. 4-27

CHANGE IN CENTRAL PLAN OUTLAY ..................................................................... 29

RECEIPTS .......................................................................................................... 29-30

EXPENDITURE .................................................................................................. 31-32

KEY ECONOMIC INDICATORS (Absolute Values) ................................................... 33

KEY ECONOMIC INDICATORS (Percentage Change Over Previous Year) ............... 34

GLOSSARY ........................................................................................................ 35-36


1

BUDGET AT A GLANCE

(` bn) 2011-12 2012-13 Revised Estimates Budget Estimates

1) Revenue Receipts 7,669.89 9,356.85 Tax Revenue (net to centre) 6,422.52 7,710.71 Non-Tax Revenue 1,247.37 1,646.14

4) Capital Receipts (5+6+7)$ 5,517.30 5,552.41 Recoveries of loans 142.58 116.50 Other receipts 154.93 300.00 Borrowings and other liabilities * 5,219.80 5,135.90

8) Total Receipts (1+4)$ 13,187.20 14,909.25

9) Non-Plan Expenditure 8,921.16 9,699.00 On Revenue Account of which 8,157.40 8,655.96 Interest Payments 2,756.18 3,197.59 On Capital Account 763.76 1,043.04

13) Plan Expenditure 4,266.04 5,210.25 On Revenue Account 3,462.01 4,205.13 On Capital Account 804.04 1,005.12

16) Total Expenditure (9+13) 13,187.20 14,909.25 Revenue Expenditure (10+14) 11,619.40 12,861.09 Of Which, Grants for creation of Capital Assets 1,375.05 1,646.72 Capital Expenditure (12+15) 1,567.80 2,048.16

20) Revenue Deficit (17-1) 3,949.51 3,504.24 % of GDP (4.4) (3.4)

21) Effective Revenue Deficit (20-18) 2,574.46 1,857.52 % of GDP (2.9) (1.8)

22) Fiscal Deficit {16-(1+5+6)} 5,219.80 5,135.90 % of GDP (5.9) (5.1)

23) Primary Deficit (22-11) 2,463.62 1,938.31 % of GDP (2.8) (1.9)

$ Excluding receipts under Market Stabilisation Scheme. * Includes draw-down of Cash Balance.Note: 1). GDP for BE 2012-2013 has been projected at ` 101599 bn assuming 14% growth over the Advance Estimates of 2011-2012 (` 89122 bn) released by CSO. 2) Individual items in this document may not sum up to the totals due to rounding off.


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UNION BUDGET 2012-13 : A MACROECONOMIC PERSPECTIVE

The Union Budget for FY13 is presented at a time when the domestic economy is in the midst of a slowdown with the downturn in the global economic environment further impeding the growth momentum. Measures for boosting demand, especially on the investment front through progressive policy action and at the same time laying a credible fiscal consolidation road map were widely anticipated in this budget. However, the announcements in the Union Budget for FY13 could best be described as workmanlike in nature. Acknowledging that the government has limited fiscal space to manoeuvre, the realistically high fiscal deficit target of 5.1% could ensure that going ahead the economic agents would set their expectations on growth on the right path.

The Union Budget FY13, though lacks major big bang announcements, it has made an attempt to manage the government finances in a much prudent manner. Hike in the excise duties and service tax was required to garner more revenue. The increase in the tax limits though marginal, would ensure some savings to the middle income group which constitute the majority of the population, thereby boosting demand. Further, the intention to implement the Advance Pricing Agreement which would significantly bring down tax litigation and provide tax certainty to foreign investors is a positive development.

On the expenditure front, government’s decision to stay away from allocating a major proportion of funds towards the social sector or new announcements is a welcome move as it would lead to divergence of funds towards other productive areas. The government has also emphasised the need to accelerate infrastructure development. Allowing irrigation terminal markets, common infrastructure in agriculture markets, soil testing laboratories and capital investment in fertiliser sector, Oil and Gas/LNG storage facilities and oil and gas pipelines, fixed network for telecommunication and telecommunication towers eligible for Viability Gap Funding (VGF) for support to Public Private Participation (PPP) projects would enhance financing. However, it would be the effective realization of the scheme which would boost infrastructure development as during the previous budget announcements lack of implementation had created bottlenecks.

The focus of the government on capital market is a positive given it would accelerate capital generation and funding requirement for the Indian corporate thereby boosting investment. Besides, allowing External Commercial Borrowings (ECBs) to part finance Rupee debt of existing power projects, for capital expenditure on the maintenance and operations of toll systems for roads and highways and also for working capital requirements of the airline industry is commendable as it would ensure securing of funds by these sectors which are facing financing crunch.

The biggest disappointment in the budget was that the government did not lay down a strong reform agenda. While it was highly expected that specific progressive policy action would be taken regarding subsidies, FDI, labour laws or land acquisitions, the budget failed to deliver on


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that front. Moreover, the government also did not set out effective timelines for implementation of the much anticipated Direct Tax Code (DTC) & Goods & Services Tax (GST). Nonetheless, government’s efforts are expected to continue outside the Budget which is required to boost the growth momentum. Fiscal Arithmetic for FY13The fiscal year FY13 is expected to witness a slow pace of recovery in growth, thus entailing lower revenue generation and exacting higher expenditure from the government. For FY13, total expenditure is budgeted to increase by 13.1% to ` 14,909.25 bn as compared to the revised estimates (RE) of ` 13,187.20 bn for FY12. As in the last budget, the plan expenditure received a major boost with an allocation of ` 5,210.25 bn, an increase of 22.1% over FY12 (RE). However, unlike the previous budget where the non-plan expenditure was budgeted to decline, this time around it is budgeted to increase by 8.7% to ` 9,699 bn. The subsidy burden during FY13 though budgeted to decrease by 12.2% during FY13 from the revised estimates of FY12; it is budgeted to increase by over 32.0% over the budget estimate of FY12. The government aims to restrict the expenditure on Central subsidies to under 2% of GDP in FY13 through better targeting and leakage proof delivery of the subsidies.

For FY13, the Gross Tax Receipts are estimated to increase by 15.6% over FY12 (BE) and by 19.5% over the FY12 (RE) given the moderation in the economic growth. On the direct tax front, corporate profitability is expected to remain subdued; revenue from corporate tax is budgeted to increase only by 13.9% (RE). In spite of broadening of the income tax slabs, the personal income tax collection is budgeted to increase by 13.9% in FY13 over FY12 (RE). The 2% increase in excise duties from 10% to 12% is expected to lead to larger collection of indirect taxes; revenue from Union excise duty is budgeted to increase by 29.0%. Further as a result of an increase in service tax from 10% to 12%, services tax is budgeted to increase by 30.5% by FY13.

Unlike in the previous budget, Non-tax revenue is budgeted to record an increase of 32% during FY13 as compared to (RE) of FY12. This would be achieved primarily owing to significant 82.0% increase in other Non-tax revenue collections as external grants as well as interest receipts have been budgeted to register a decline. During this budget, the Government plans to generate only ` 300.00 bn through disinvestments. During the previous year against a target of ` 400.00 bn, the Government had been able to raise only about ` 140.00 bn from disinvestment. As a result of expected lower revenue regeneration as compared to higher expenditure the government has pegged the fiscal deficit target of 5.1% during FY13 as compared to an estimated of 5.95% during FY12. Market borrowings are slated to increase by around 9.8% to around ` 4790.00 bn as compared to ` 4364.14 bn in FY12 (RE).


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SECTORAL IMPACT

Sector Rating

1. Agriculture Positive+

2. Social Sector Positive

3. Infrastructure Positive

Services

4. Banking, Financial Services and Insurance (BFSI) Positive+/Positive/Marginally Positive

5. Hospitality Neutral

6. IT&ITeS Marginally Positive

7. Media & Entertainment Marginally Positive

8. Real Estate & Construction Positive

9. Telecom Neutral

Manufacturing

10. Automotive Neutral

11. Capital Goods & Engineering Positive

12. Cement Marginally Positive

13. Consumer Goods Positive

14. Gems & Jewellery Negative

15. Leather Marginally Positive

16. Metals & Mining Positive

17. MSMEs Positive

18. Oil & Gas Marginally Positive

19. Pharma & Healthcare Marginally Positive

20. Power Positive

21. Textiles Marginally Positive

Ratings:

Positive+ Predominantly positive proposals

Positive Positive proposals

Marginally Positive Positive proposals but not upto industry expectations

Neutral Negative proposals offsetting positive proposals

Negative Negative proposals impacting the sector


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Agriculture

Plan outlay for the Department of Agriculture and Co-operation increased by 18%.•

Outlay for the Rashtriya Krishi Vikas Yojana (RKVY) increased to • ` 92.17 bn in FY13.

Target for agricultural credit raised by • ` 1,000 bn to ` 5,750 bn in FY13.

Interest subvention scheme for providing short term crop loans to farmers at 7% interest per • annum to be continued in FY13. Additional subvention of 3% available for prompt paying farmers.

Short term Regional Rural Bank (RRB) credit refinance fund being set up to enhance the capacity • of the RRBs to disburse short term crop loans to small and marginal farmers. Kisan Credit Card (KCC) scheme to be modified to make KCC a smart card which could be used at ATMs.

The scheme of capitalisation of weak RRBs extended by another 2 years to enable all the • states to contribute their share.

A sum of • ` 2 bn set aside for incentivising research with rewards.

Investment-linked deduction of capital expenditure incurred in cold chain facility and • warehouses for storage of food grains is proposed to be provided at the enhanced rate of 150% as against the current rate of 100%.

Warehouse for storage of sugar to be included for the purpose of investment-linked • deduction.

Allocation for Accelerated Irrigation Benefit Programme (AIBP) in FY13 stepped up by 13% to • ` 142.42 bn.

Initiative of bringing Green Revolution to Eastern India (BGREI) has resulted in increased • production and productivity of paddy. Allocation for the scheme increased to ` 10 bn in FY13 from ` 4 bn in FY12.

`• 3 bn allocated to Vidarbha Intensified Irrigation Development Programme under the RKVY.

`• 5 bn provided to broaden scope of production of fish to coastal aquaculture.

A new centrally sponsored scheme titled “National Mission on Food Processing” to be started • in FY13 in co-operation with state governments.

Basic customs duty on some water soluble fertilisers and liquid fertilisers, other than urea, • reduced from 7.5% to 5% and from 5% to 2.5% respectively.

Weighted deduction of 150% on expenditure incurred for agri-extension services.•

Positive+

The Budget FY13 is positive for agriculture and rural development. Raising the target for agricultural credit is a welcome step as it has played a critical role in supporting agriculture production in India. Moreover, there were several gaps in the present institutional credit delivery


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system which the Budget has tried to address. One such measure being the setting up of a short-term RRB credit refinance fund which will facilitate provision of credit to small and marginal farmers. The extension of recapitalisation scheme of weak RRBs is also a positive development as they extend credit mostly to small and marginal farmers, agricultural labourers and rural artisans operating in a few districts in a state. The tax proposals for cold chain facility are in line with the Government’s policy shift towards incentivising investments.

However, the present strategy of pumping credit into agriculture will not, by itself, translate into commensurate increase in agricultural output. It needs to be accompanied by investments in other support services. The Budget has remained silent regarding the reforms in the APMC Act, which is critical for improving the quality and quantity of farm yield and better remuneration.

Social SectorHuman Resource Development and Social Justice

Allocation of • ` 158.50 bn for Integrated Child Development Service (ICDS) scheme, representing an increase of 58% over BE FY12.

Allocation for Scheduled Castes Sub Plan at • ` 371.13 bn, representing an increase of 18% over BE FY12.

Allocation for Tribal Sub Plan at • ` 217.10 bn, representing an increase of 17.6%.

Allocation of • ` 7.50 bn proposed for Rajiv Gandhi Scheme for Empowerment of Adolescent Girls, SABLA.

A national information utility for computerisation of PDS is being created; to become • operational by December 2012.

Allocation under National Social Assistance Programme (NSAP) raised by 37% to • ` 84.47 bn in FY13.

In the ongoing Indira Gandhi National Widow Pension Scheme and Indira Gandhi National • Disability Pension Scheme for BPL beneficiaries, pension amount to be raised from ` 200 to ` 300 per month.

Lumpsum grant on the death of primary breadwinner of a BPL family, in the age group of • 18-64 years, doubled to ` 20,000.

To enhance access under Swavalamban scheme, LIC appointed as an aggregator and all public • sector banks appointed as Points of Presence (PoP) and Aggregators.

Backward Regions Grant Fund scheme to continue in the Twelfth Plan with enhanced allocation • of ` 120.40 bn in FY13, representing an increase of 22% over the BE FY12.

Education

For FY13, • ` 255.55 bn provided for Right to Education - Sarva Shiksha Abhiyan (RTE-SSA), representing an increase of 21.7% over FY12.


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6,000 schools proposed to be set up at block level as model schools in the Twelfth Plan.•

`• 31.24 bn provided for Rashtriya Madhyamik Shiksha Abhiyan (RMSA), representing an increase of 29% over BE FY12.

To ensure better flow of credit to students, a Credit Guarantee Fund proposed to be set up.•

`• 119.37 bn allocated for National Programme of Mid Day Meals in schools.

Special grant provided to various universities and academic institutions.•

Health & Sanitation

Existing vaccine units to be modernised and new integrated vaccine unit to be set up in Chennai.•

Scope of Accredited Social Health Activist– ‘ASHA’ is being enlarged. This will also enhance • their remuneration.

Allocation for National Rural Health Mission (NRHM) proposed to be increased from • ` 181.15 bn in FY12 to ` 208.22 bn in FY13.

National Urban Health Mission is being launched.•

Pradhan Mantri Swasthya Suraksha Yojana being expanded to cover upgradation of 7 more • Government medical colleges.

Budgetary allocation for rural drinking water and sanitation increased from • ` 110 bn to ` 140 bn, representing an increase of over 27%.

Employment and Skill Development

Allocation of • ` 39.15 bn made for National Rural Livelihood Mission, representing an increase of 34%.

To ease access to bank credit, corpus for ‘Women’s SHG’s Development Fund’ enlarged.•

Proposal to establish Bharat Livelihoods Foundation of India through Aajeevika scheme.•

Allocation for Prime Minister’s Employment Generation Programme increased by 23% to • ` 12.76 bn in FY13.

Projects approved by National Skill Development Corporation expected to train 62 mn persons • at the end of 10 years.

`• 10 bn allocated for National Skill Development Fund in FY13.

To improve the flow of institutional credit for skill development, a separate Credit Guarantee • Fund to be set up.

“Himayat” scheme introduced in J&K to provide skill training to 100,000 youth in the next • 5 years. The entire cost to be borne by the Centre.

Weighted deduction at the rate of 150% provided on expenditure incurred on skill development • in manufacturing.


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Positive

The Budget has made significant effort to realise the dream of inclusive development despite the constraints being faced on the fiscal front. This time around, the Finance Minister has opted to focus on existing schemes by way of increased allocations. Additional budgetary resources, particularly towards RTE-SSA are likely to address the critical gaps in social infrastructure and could go a long way in meeting the needs of the rural poor. Besides, it is a welcome move that school education has been exempted from service tax. The weaker section has received a special attention in the Budget through proposals such as higher allocation towards National Social Assistance Programme and doubling of lumpsum grant. The Budget has rightly emphasised on activities related to skill development, which are essential for improving the educational and economic conditions. The launch of credit guarantee fund and exempting vocational training institutions from service tax will make skills training affordable.

InfrastructureInfrastructure Financing

Capital market reforms like Qualified Foreign Investors (QFIs) allowed to access the Indian • capital bond market, simplifying IPO process, two way fungibility in Indian Depositary Receipts permitted with the objective of encouraging greater foreign participation in the Indian capital market.

Proposal to add sectors such as irrigation (including dams, channels and embankments), • terminal markets, common infrastructure in agriculture markets, soil testing laboratories and capital investment in fertiliser sector as eligible sectors for Viability Gap Funding (VGF) under the Scheme for Support to PPP in infrastructure. Oil and gas/LNG storage facilities and oil and gas pipelines, fixed network for telecommunication and telecommunication towers will also be made eligible sectors for VGF.

Approved guidelines for establishing joint venture companies by defence PSUs in PPP mode. •

Permit to issue tax free bonds of • ` 600 bn by various Government undertakings for financing infrastructure projects in FY13 including ` 100 bn for National Highway Authority of India (NHAI), ̀ 100 bn for Indian Railway Finance Corporation (IRFC), ̀ 100 bn for India Infrastructure Finance Company Limited (IIFCL), ` 50 bn for HUDCO, ` 50 bn for National Housing Bank, ` 50 bn for SIDBI, ` 50 bn for ports and ` 100 bn for the power sector.

IIFCL has put in place a structure for credit enhancement and take-out finance for easing • access of credit to infrastructure projects.

Creation of a consortium for direct lending and grant of in-principle approval to developers • before the submission of bids for PPP projects.

External Commercial Borrowings (ECB) allowed to part finance rupee debt of existing power • projects.

ECBs allowed for low-cost affordable housing projects.•


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Credit Guarantee Trust Fund set up to ensure better flow of institutional credit for housing • loans.

ECBs permitted for working capital requirement of airline industry for a period of one year, • subject to a total ceiling of US$ 1 bn.

To provide low cost funds to stressed infrastructure sectors such as power, airlines, roads and • bridges, port and shipyards, affordable housing, fertiliser and dams, rate of withholding tax on interest payment on ECBs reduced from 20% to 5% for 3 years.

Rationalisation of Dividend Distribution Tax to remove its cascading effect in a multi-tier • corporate structure.

Roads and Highways

Target of covering a length of 8,800 kms under National Highway Development Programme • (NHDP) during FY13.

Allocation of the Road Transport and Highways Ministry enhanced by 14% to • ` 253.6 bn.

ECB allowed for capital expenditure on the maintenance and operations of toll systems for • roads and highways, if they are part of the original project.

Rural Infrastructure

Budgetary allocation for rural drinking water and sanitation increased from • ` 110 bn to ` 140 bn, representing an increase of over 27%.

Allocation for Pradhan Mantri Gram Sadak Yojna (PMGSY) increased by 20% to • ` 240 bn to accelerate connectivity in the states.

Allocation under the Rural Infrastructure Development Fund (RIDF) enhanced to • ` 200 bn. ` 50 bn earmarked exclusively for creating warehousing facilities under the RIDF.

Positive

Government strategy to increase investment in infrastructure through a combination of public investment and public private partnerships indicates an increased thrust on the sector. Over 14% rise in budgetary allocation to the Ministry of Road Transport and Highway is expected to encourage the transportation and logistics sector in India. Also, a 27% increase in budgetary allocation for rural drinking water and sanitation and a 20% increase in PMGSY is expected to improve overall rural infrastructure and connectivity in the states.

To boost infrastructure financing, the Budget provides various financing measures. Proposal to add certain sectors as eligible sectors for Viability Gap Funding is expected to provide support to PPP in infrastructure. Additionally, allowing for tax free bonds to the tune of ` 600 bn by various Government undertakings would further support infrastructure financing. Also reduction of withholding tax on interest payments on ECBs is expected to provide low-cost funding to stressed infrastructure sectors.


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Rationalisation of Dividend Distribution Tax to remove its cascading effect is expected to make investment in infrastructure sector more attractive.

Given the increased plan outlay for road transport and highway and for rural infrastructure, combined with increased thrust on plugging the gap in infrastructure financing, the Budget is expected to be positive for the infrastructure sector.

Services

Banking, Financial Services and Insurance (BFSI)Banking

Agricultural and Rural Finance

The target for credit flow to farmers has been raised from • ` 4,750 bn in FY12 to ` 5,750 bn in FY13.

The existing interest subvention scheme of providing short term crop loans to farmers at 7% • interest has been extended to FY13. An additional subvention of 3% will be available to prompt paying farmers.

The Government has allocated • ` 100 bn to NABARD for refinancing of Regional Rural Banks (RRBs) to disburse short term crop loans to the small and marginal farmers.

Kisan Credit Card (KCC) scheme will be modified to make KCC a smart card which could be • used at ATMs.

The Government has proposed to provide interest subvention to Women Self Help Groups • (SHGs) to avail loans up to ` 0.30 mn at 7% per annum. Women SHGs repaying loans in time will get additional 3% subvention, reducing the effective rate to 4% for certain districts.

Financial Inclusion

In FY13, the Government has extended the “Swabhimaan” campaign to habitations with • population of more than 1,000 in north eastern and hilly states and to other habitations which have crossed population of 2,000 as per Census 2011.

Housing Credit

The existing scheme of interest subvention of 1% on housing loan up to • ` 1.5 mn where the cost of the house does not exceed ` 2.5 mn has been extended for FY13.

The provision under Rural Housing Fund has been enhanced from • ` 30 bn to ` 40 bn.

Credit Guarantee Trust Fund set up to ensure better flow of institutional credit for housing loans.•

The Government has permitted ECBs for low-cost affordable housing projects.•

The limit of indirect finance under priority sector has been enhanced from • ` 0.5 mn to ` 1 mn.


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Capital Support and Funding

A sum of • ` 158.80 bn capital has been allocated to all Public Sector Banks (PSBs) and financial institutions for FY13, keeping in view Basel III norms. This is in addition to the infusion of ` 120 bn in PSBs in FY12. The Government is evaluating a possibility of creating a financial holding company to raise resources to meet the capital requirements of PSBs.

A central Know Your Customer (KYC) depository will be developed in FY13 to avoid multiplicity • of registration and data upkeep to bring banking payment structure at par with global standards.

Extension of the scheme of capitalisation of weak RRBs by another two years to enable all • states to contribute their share.

To ease access to bank credit, corpus for ‘Women’s SHG’s Development Fund’ enlarged to • ` 3 bn.

To enhance availability of equity to the MSME sector, the Government has set up a • ` 50 bn India Opportunities Venture Fund with SIDBI.

Enhanced allocation under the Rural Infrastructure Development Fund (RIDF) to • ` 200 bn. An amount of ` 50 bn from the above allocation is exclusively for creating warehousing facilities under the RIDF.

Tax free bonds of • ` 600 bn to be allowed for financing infrastructure projects during FY13. This includes ` 100 bn for NHAI, ` 100 bn for IRFC, ` 100 bn for IIFCL, ` 50 bn for HUDCO, ` 50 bn for National Housing Bank and ` 50 bn for SIDBI, among others.

Others

A scheme for education loans is being implemented by banks. To ensure better flow of credit • to deserving students, a Credit Guarantee Fund is being set up.

For improvement of the flow of institutional credit for skill development, a separate Credit • Guarantee Fund is being set up to benefit youth in acquiring market oriented skills.

UID, Aadhar – Adequate funds to be allocated to complete enrolment of another 400 mn • persons.

Legislative Reforms

The Micro Finance Institutions (Development and Regulation) Bill, 2012; The National Housing • Bank (Amendment) Bill, 2012; The Small Industries Development Bank of India (Amendment) Bill, 2012; National Bank for Agriculture and Rural Development (Amendment) Bill, 2012; Regional Rural Banks (Amendment) Bill, 2012 to be proposed in the Budget session of the Parliament.

Official amendment to “The Pension Fund Regulatory and Development Authority Bill, 2011”, • “The Banking Laws (Amendment) Bill, 2011” and “The Insurance Law (Amendment) Bill, 2008” to be moved in this session.


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Positive+

The Budget is expected to have a positive impact on the banking industry. A number of measures have been announced towards enabling better flow of credit to various sectors, including agriculture, housing, education and MSMEs which is expected to encourage overall credit growth in FY13. The guidelines on priority sector lending are expected to be issued in FY13.

In addition, the Budget has emphasised on the financial strengthening of PSBs, RRBs and other financial institutions. The allocations made towards capital infusion in PSBs and RRBs is expected to bring more stability to the sector. The Government aims to keep all the PSBs adequately capitalised so that the growth momentum of the economy is sustained. This will help maintain their minimum tier - I capital. In turn, lenders can expand their asset base maintaining the growth momentum. Banks would be able to manage their asset-liability better on the back of availability of long-term funds for infrastructure lending. Further, credit schemes and interest subvention on loans to small farmers would enhance their ability to pay interest on time thereby helping PSBs to contain their NPAs and helping recovery efforts of banks.

Overall, the Budget is likely to have a positive impact on the banking industry by boosting credit growth and supporting capital base of banks.

Capital Markets

Investment Environment

Rajiv Gandhi Equity Saving Scheme to allow for income tax deduction of 50% to new retail • investors, who invest up to ` 50,000 directly in equities and whose annual income is below ` 1 mn to be introduced. The scheme will have a lock-in period of three years.

Others

Various steps have been taken for deepening the reforms in the capital markets, including • simplifying process of IPOs, allowing QFIs to access the Indian bond market, etc.

The Government has made it mandatory for companies to issue IPOs of • ` 100 mn and above in electronic form through nationwide broker network of stock exchanges.

The Government provides opportunities for wider shareholder participation through electronic • voting facilities which would be mandatory initially for top listed companies.

Permit for two-way fungibility in Indian Depository Receipts (IDRs), subject to a ceiling.•

Removal of the cascading effect of Dividend Distribution Tax (DDT) in a multi-tier corporate • structure. Continuation to allow repatriation of dividends from foreign subsidiaries of Indian companies at a lower tax rate of 15% up to March 31, 2013.

Reduction in securities transaction tax by 20% from 0.125% to 0.1% on cash delivery transactions.•


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Positive

The measures undertaken by the Government to boost the equity market are positive. The initiatives are for efficient market intermediation between savers and investors. Reduction of STT will reduce transaction cost, revive intra-day trading, promote retail participation. Reduction on taxation of foreign dividends would have a positive impact. Measures have been taken to boost greater foreign participation in the Indian capital market and to encourage flow of savings in financial instruments.

Finance

Fiscal Consolidation

The Government is to introduce amendments to the FRBM Act as part of Finance Bill, 2012. • Concept of “effective revenue deficit” and “medium term expenditure framework” are two important features of amendment to FRBM Act in the direction of expenditure reforms.

Taxation

Exemption limit for the general category of individual taxpayers increased from • ` 180,000 to ` 200,000 giving tax relief of ` 2,000. Upper limit of 20% tax slab proposed to be raised from ` 0.8 mn to ` 1 mn.

Proposal to allow individual tax payers a deduction of up to • ` 10,000 for interest from savings bank accounts.

Senior citizens not having income from business proposed to be exempted from payment of • advance tax.

Provision of low cost funds to stressed infrastructure sectors, rate of withholding tax on interest • payment on ECBs proposed to be reduced from 20% to 5% for three years for certain sectors.

Investment-linked deduction of capital expenditure for certain businesses proposed to be • provided at the enhanced rate of 150%.

Proposal to extend the levy of Alternate Minimum Tax to all persons, other than companies, • claiming profit-linked deductions.

Service tax confronts challenges of its share being below its potential, complexity in tax law, • and need to bring it closer to Central Excise Law for eventual transition to GST.

Proposal to tax all services except those in the negative list comprising of 17 heads.•

Service tax law to be shorter by nearly 40%.•

Revision Application Authority and Settlement Commission being introduced in service tax for • dispute resolution.

Study team to examine the possibility of common tax code for central excise and service tax.•

New scheme announced for simplification of refunds.•


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Rules pertaining to point of taxation are being rationalised. •

Insurance

Proposal to move Insurance Laws (Amendment) Bill and LIC Amendment Bill in the current • session.

Services provided by life insurance companies in the area of investment are also proposed to • be brought into the service tax net on the same lines as ULIPs.

The Rashtriya Swasthya Bima Yojana (RSBY) to be extended to cover unorganised sector • workers in hazardous mining and associated industries like slate and slate pencil, dolomite, mica and asbestos etc.

Black Money

Proposal to lay a white paper on black money in current session of Parliament. •

Measures proposed to deter the generation and use of unaccounted money.•

Others

Indian Stamp (Amendment) Bill, 2012; and Public Debt Management Agency of India Bill, 2012 • to be proposed in the Budget session of the Parliament.

On the death of the primary breadwinner of a below poverty line family, in the age group of • 18 to 64 years, a lumpsum grant of ` 10,000 has been doubled to ` 20,000 with a matching contribution by the State Governments under the National Family Benefit scheme.

Restriction on Venture Capital Funds to invest only in nine specified sectors proposed to be • removed.

Marginally Positive

The Budget has few announcements having a marginally positive impact on the finance sector.Individuals will benefit marginally from increased exemption limit. However, the rise in service tax will result in high service charges.

HospitalityCascading of taxes has been significantly reduced by permitting utilisation of input tax credits • in a number of services such as catering, restaurants, hotel accommodation, pandal and shamiana and transport sectors.

Neutral

An announcement was made permitting utilisation of input tax credits in various services such as catering, restaurants, hotel accommodation, pandal and shamiana and transport sectors thereby


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reducing cascading of taxes. This announcement is expected to marginally reduce the total cost of travel operators thereby improving their profit margin. The overall impact of the Budget will be neutral.

IT & ITeSIntroduction of advance pricing agreement (APA) in the Finance Bill of 2012.•

Central plan outlay by the Department of Information Technology (DIT) increased by 86.7% to • ` 53.6 bn.

`• 391.1 bn to be spent on modernisation of signaling system of railways.

A National Information Utility (NIU) for the computerisation of Public Distribution System • (PDS) is being created. It is expected to become operational by December 2012.

Marginally Positive

Provision regarding implementation of APAs to be introduced in Finance Bill 2012 will help in addressing concerns over the certainty of transfer pricing arrangements. Proposal to improve service tax refunds process as well as enhance the scope for input credits for service tax will benefit the IT-ITeS sector since substantial amount of cash flow is tied up in refund claims. The central plan outlay for DIT growing by 86.7%, allocation of funds for modernising signaling system of railways and creating a NIU for computerisation of PDS will have a positive impact on the IT sector. The industry was expecting to see the revival of tax benefits under the STPI scheme. However, there was no mention in respect of extension of this clause. Thus, the overall Budget has a marginally positive impact on the sector.

Media & Entertainment Entertainment and amusement services have been included in the negative list of service tax.•

The industry has been exempted from service tax on copyrights relating to recording of • cinematographic films.

Marginally Positive

Exclusion of the entertainment and amusement services from service tax is expected to boost the industry. Also, exemption of copyrights relating to recording of cinematographic films from service tax will impact the industry positively.

Overall, the announcements in the Budget are expected to have a marginally positive impact on the sector.

Real Estate and Construction External Commercial Borrowings (ECBs) are allowed for low cost affordable housing projects.•

For affordable housing, the rate of withholding tax on interest payments on ECBs is proposed • to reduce from 20% to 5% for three years.


16

Set up Credit Guarantee Trust Fund to ensure better flow of institutional credit for housing • loans.

Enhance provisions under Rural Housing Fund from • ` 30 bn to ` 40 bn.

Extend the scheme of interest subvention of 1% on housing loan up to • ` 1.5 mn where the cost of the house does not exceed ` 2.5 mn for another year.

Enhance the limit of indirect finance under priority sector from • ` 0.5 mn to ` 1 mn.

Investment-linked deduction of capital expenditure incurred in affordable housing business is • proposed to be provided at the enhanced rate of 150%, as against the current rate of 100%.

Construction services relating to residential dwelling and low-cost mass housing up to an area • of 60 sq. mtr. under the scheme of Affordable Housing in partnership are also included in the exemptions. For people already owning an apartment, there is a rise in exemption for the monthly charges payable by a member to a housing society from ` 3,000 to ` 5,000.

Positive

The Budget’s focus on providing low-cost and affordable housing is laudable. The extension of enhanced limit for interest subvention and increase in the priority sector lending limit are expected to benefit buyers in tier-II, III cities and towns. The accessibility of ECBs and ease in withholding tax on interest payments may encourage private developers to invest in affordable housing projects. The incentives given to the construction sector are likely to have a multiplier effect on the economy via growth in downstream sectors and increase in employment. Overall the Budget is positive for the sector.

TelecomFixed network for telecommunication and telecom towers to be made eligible for Viability • Gap Funding (VGF).

Exemption of customs duty on mobile phone and memory cards.•

Neutral

The investment scenario for infrastructure development has received a boost through its eligibility for viability gap funding scheme. Under this scheme, projects receive financial support in the form of grants, one time or deferred, through public private partnerships with a view to make them commercially viable. Customs duty exemption on mobile and memory card is also expected to have a positive impact on the mobile handset industry. However, service tax and excise duty hike are expected to offset the gains for the telecom sector in this Budget.


17

Manufacturing

AutomotiveIncrease in the excise duty on petrol-driven cars with length exceeding 4,000 mm and engine • capacity under 1,200 cc from 22% to 24%, and on petrol-driven vehicles having length exceeding 4,000 mm and engine capacity exceeding 1,500 cc from 22% plus ` 15,000 to 27% .

Increase in the excise duty on diesel-driven cars with length exceeding 4,000 mm and engine • capacity under 1,500 cc from 22% to 24%, and on diesel-driven vehicles having length exceeding 4,000 mm and engine capacity exceeding 1,500 cc from 22% plus ` 15,000 to 27%.

Increase in the excise duty on petrol/LPG/CNG-driven cars, with length not exceeding 4,000 mm • and engine capacity not exceeding 1,200 cc from 10% to 12% and on diesel-driven vehicles having length not exceeding 4,000 mm and engine capacity not exceeding 1,500 cc from 10% to 12%.

Reduction in the excise duty from 10% to 6% on replacement batteries for supply to electric • vehicle manufacturers who are registered with IREDA or any State Nodal Agency notified for the purpose by the Ministry of New & Renewable Energy for Central finance assistance till March 31, 2013.

Building of commercial vehicle bodies to attract an ad valorem duty of 3% as against the • earlier specific rate of ` 10,000 on chassis.

Reduction in the excise duty from 10% to 6% on specified parts of hybrid vehicles including • battery pack, battery charger, AC/DC motor, AC/DC motor controller, engine for HV, transaxle for HV, power control unit, control ECU for HV, generator, brake system for recovering, energy monitor and electric compressor.

Increase in the basic customs duty from 60% to 75% on completely built units of large cars/• MUVs/SUVs with engine capacity exceeding 3,000 cc for petrol and 2,500 cc for diesel, and whose value exceeds US$ 40,000 per vehicle.

Lithium ion batteries imported for the manufacture of battery packs for supply to electric or • hybrid vehicle manufacturers to enjoy full exemption from basic customs duty and special CVD with concessional excise duty/CVD of 6%.

Neutral

Vehicle manufacturers are likely to pass on the increased excise duties to the consumers by way of vehicle price hikes. However, this is not expected to have any significant impact on demand in the medium-to-long term. Reduction in the excise duty on parts used in hybrid vehicles is aimed at making these vehicles more affordable.

Hike in the customs duty on large passenger vehicles would increase vehicle prices. However, given the relatively lower price sensitivity of the customers in this segment, this is not expected to have any significant impact on demand. The Government’s increased focus on infrastructure development would benefit manufacturers of commercial vehicles in the medium-to-long term.


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The Budget has proposed to allocate ` 10 bn to the National Skill Development Fund. The increased allocation is expected to address, to some extent, the manpower challenges faced by the automotive industry. Extension of weighted deduction of 200% for in-house R&D expenditure is expected to encourage the Original Equipment Manufacturers (OEM) to increase focus on R&D initiatives. From a short-to-medium term perspective, the Budget announcements would have a neutral impact on the industry.

Capital and Engineering GoodsFull exemption from basic customs duty on equipment imported for road and highway • construction projects.

Import of equipment for expansion or setting up of fertiliser projects to be fully exempt from • basic customs duty of 5% for three years.

Basic customs duty to be reduced from 10% or 7.5% to 2.5% on machinery and instruments • needed for surveying and prospecting for minerals.

Basic customs duty to be reduced from 10% to 7.5% for equipment required for installation of • train protection and warning system and upgradation of track structure for high speed trains.

Full exemption from import duty on certain categories of specified equipment needed for • road construction, tunnel boring machines and parts of their assembly.

Tax concessions proposed for parts of aircraft and testing equipment for third party • maintenance, repair and overhaul of civilian aircraft.

Basic customs duty to be reduced from 7.5% to 2.5% on plant and machinery imported for • setting up or substantial expansion of iron ore pellet plants or iron ore beneficiation plants.

Full exemption from basic customs duty to automatic silk reeling and processing machinery as • well as its parts.

Plant and equipment required for the initial setting up of solar thermal projects are fully • exempted from special CVD.

Reduction in basic customs duty from 7.5% to 5% on specified coffee plantation and processing • machinery.

Reduction in basic customs duty from 7.5% to 2.5% on sugarcane planter, roof or tuber crop • harvesting machine and rotary tiller and weeder.

Concessional import duty available for installation of mechanised handling systems and pallet • racking systems in mandis or warehouses for horticultural produce to be extended.

Full exemption from import duty on tunnel boring machines and parts of their assembly. •

Positive

Several positive measures focusing on the agricultural and related sectors were announced, including reduced customs duty on specified agricultural machinery and processing equipment.


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Apart from this, equipment imported for road construction and fertilizer projects also received a whole bunch of duty exemptions. However, increase in standard rate of excise duty from 10% to 12% has partially offset the significant positive impact of reduction or exemption in import and customs duties to some extent on the capital and engineering goods sector.

The Union Budget FY13 also outlines the importance of the infrastructure sector with greater emphasis on capital investment required in construction of national highways and encouraging PPP projects. Demand for construction equipment is likely to be boosted owing to several positive proposals in the infrastructure sector. Allocation of ` 795.79 bn for capital expenditure made in the defence services will also provide a boost to the capital and engineering goods industry in FY13.

Overall, the Budget is anticipated to have a positive impact on the capital and engineering goods sector

Cement Excise duty on the packaged cement rationalised. It is proposed to prescribe a unified rate of • 12% plus ` 120 per metric tonne (PMT) for non-mini cement plants and 6% plus ` 120 PMT for mini-cement plants. It is proposed to charge this duty on the retail sale price less abatement of 30%.

Full exemption from basic customs duty and a concessional countervailing duty of 1% on • steam coal for a period of two years till March 31, 2014.

Marginally Positive

Currently packaged cement, whether manufactured by mini-cement plants or others, attracts differential excise duty depending on the retail sale price per bag. The move to prescribe a unified rate is likely to have a positive impact on the industry. Also, removal of customs duty is likely to have a positive impact on cement input prices since the cement industry is heavily dependent on imported coal.

Further, initiatives such as the investments in infrastructure to the tune of ` 50,000 bn in the 12th Five Year Plan, proposed tax free bonds, development of national highways etc will also boost the demand for cement in the country.

Consumer GoodsBasic customs duty reduced from 7.5% to 5% on specified coffee plantation and processing • machinery.

Full exemption from basic customs duty on waste paper, LCD and LED TV panels and parts of • memory card for mobile phones.

Reduction of basic customs duty on specified raw materials for the manufacture of adult • diapers from 10% or 7.5% to 5% with countervailing duty of 6% and nil special countervailing duty.


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Basic customs duty on bicycles increased from 10% to 30% and on bicycle parts from 10% to • 20%.

Basic customs duty on soya protein concentrate and isolated soya protein reduced from 30% • and 15% respectively to 10%. Simultaneously, excise duty on all processed soya food products is being reduced to 6%.

Concessional basic customs duty of 2.5% along with reduced excise duty of 6% on iodine.•

Basic customs duty on probiotic products reduced from 10% to 5%.•

Coating chemical used for compact fluorescent lamps is proposed to be fully exempt from • basic customs duty.

Excise duty on LED lamps reduced to 6%.•

Increase in basic excise duty on cigarettes of more than 65 mm length by adding an ad valorem • component of 10% to the existing specific rates. The ad valorem duty would be chargeable on 50% of the retail sale price declared on the pack.

Increase in basic excise duty on hand-rolled bidis from • ` 8 to ̀ 10 per thousand and on machine-rolled bidis from ` 19 to ` 21 per thousand. The existing exemption available to hand-rolled bidis for clearances up to 2 mn bidis per annum is being retained.

The rates of duty specified under the compounded levy scheme per packing machine for pan • masala, gutkha, chewing tobacco, unmanufactured tobacco and zarda scented tobacco in pouches are being stepped up taking into account improvements in the efficiency of machines used by this industry.

A new centrally sponsored scheme titled “National Mission on Food Processing” would be • started, in cooperation with the State Governments in FY13.

Investment-linked deduction of capital expenditure incurred on cold chain facility is proposed • to be provided at the enhanced rate of 150% as against the current rate of 100%.

Bee keeping and production of honey and beeswax is proposed to be added for the purposes • of investment-linked deduction.

Weighted deduction at the rate of 150% of expenditure incurred on skill development in the • manufacturing sector is proposed to be provided in accordance with specified guidelines.

Exemption limit for the general category of individual taxpayers enhanced from • ` 0.18 mn to ` 0.20 mn. Also, the upper limit of 20% tax slab raised from ` 0.80 mn to ` 1.00 mn.

Positive

Enhancement of the exemption limit for the general category of individual taxpayers is expected to leave the consumers with a higher disposable income adding to the demand for consumer goods. The reduction in central excise duty on processed soya food products, iodine and LED lamps is likely to result in a fall in prices of these and related products.


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Reduction/exemption in customs duty on coffee plantation and processing machinery, LCD and LED TV panels, parts of memory card for mobile phones, raw materials for the manufacture of adult diapers, soya protein concentrate and isolated soya protein, probiotic products, iodine and coating chemical used for compact fluorescent lamps is likely to boost domestic production of the final products manufactured using the above raw materials/machinery, thereby providing a boost to the domestic industry.

Increase in the basic customs duty on bicycles and bicycle parts will discourage imports of such products, thereby protecting the domestic manufacturers.

Increased thrust on measures to incentivise food processing by launching the ‘National Mission on Food Processing’ and by increasing the investment-linked deduction on cold chain facilities is likely to have a positive impact on the processed food category of the consumer goods sector in the medium to long term period.

Deduction on the expenditure incurred on skill development in the manufacturing sector is likely to impact the sector positively.

In the medium term, the consumer goods sector is expected to remain buoyant on the backdrop of positive announcements in the FY13 Budget coupled with strong domestic consumption. Negative announcements of an increase in basic excise duty on cigarettes and hand-rolled bidis and increase in the rates of duty specified under the compounded levy scheme on pan masala, gutkha, chewing tobacco, unmanufactured tobacco and zarda scented tobacco in pouches are likely to have a marginally negative impact on the sector. However, on the overall basis, FY13 Budget is positive for the consumer goods sector.

Gems & JewelleryIncrease basic customs duty from 2% to 4% on standard gold bars, gold coins of purity exceeding • 99.5% and platinum.

Increase basic customs duty from 5% to 10% on non-standard gold. •

Increase basic customs duty from 1% to 2% on gold ores and concentrates for use in the • manufacture of gold for refining.

Increase excise duty from 1.5% to 3% on refined gold. •

Imposition of basic customs duty of 2% on cut and polished colored gem stones.•

Full exemption from excise duty on branded silver jewellery.•

Excise duty of 1% on branded precious metal jewellery to be extended to include unbranded • jewellery.

Negative

Driven by the high spending on gold consumption, the customs duty on standard and non-standard gold has been doubled in order to curb imports of gold and other precious metals. To minimise its impact on small artisans and goldsmiths and simplify operations, certain measures are proposed


22

to be taken. The overall additional tax burden is expected to have a negative impact on the gems and jewellery sector, as it will make gold and jewellery more expensive. However, exempting silver jewellery from the levy of excise duty is a positive move.

LeatherProposal to set up • ` 50 bn India Opportunities Venture Fund with SIDBI to aid Micro, Small and Medium Enterprises (MSMEs).

Government has introduced Public Procurement Policy for Micro and Small Enterprises (MSEs) • under which ministries and CPSEs are required to make a minimum of 20% of their annual purchase from MSEs. Also, 4% of this purchase will be earmarked for procurement from MSEs owned by SC/ST entrepreneurs.

The Government has proposed to provide assistance in setting up of dormitories for women • workers in the 5 mega clusters relating to handloom, power loom and leather sectors.

Marginally Positive

Since the leather sector occupies a prominent place among MSMEs, the creation of ̀ 50 bn Venture Fund with SIDBI and an introduction of Public Procurement Policy for Micro and Small Enterprises are expected to have a marginally positive impact on the leather sector as it will enhance the availability of equity funding and provide greater market access to the industry players.

The assistance announced towards setting up of dormitories is a step towards providing a higher level of social infrastructure facilities which is a positive for the leather industry viewed from the perspective of organising the leather industry in a structured manner.

The announcements made in the Budget would have a marginally positive impact on the leather sector, particularly in the medium term.

Metals & MiningCoal India Limited (CIL) has been advised to sign fuel supply agreements with power plants • which have entered into long-term Power Purchase Agreements with distribution companies (DISCOM) and would get commissioned on or before March 31, 2015. Further, an inter-ministerial group has been set up to undertake periodic review of the allocated coal mines and shall make recommendations on de-allocations, if required.

Full exemption of basic customs duty and a 1% concessional Counter Vailing Duty (CVD) to • steam coal for a period of two years i.e. till March 31, 2014.

Full exemption of basic customs duty on coal mining projects.•

Reduction in the basic customs duty from 10% or 7.5% to 2.5% on machinery and instruments • used in the mining sector for surveying and prospecting of minerals.

Reduction in the basic customs duty from 7.5% to 2.5% on plant and machinery imported for • setting up or substantial expansion of iron ore pellet plants or iron ore beneficiation plants.


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Reduction in the basic customs duty from 7.5% to 5% on coating material used to manufacture • electrical steel.

Reduction in the basic customs duty from 2.5% or 7.5% to nil on nickel ore and concentrate • nickel oxide/ hydroxide.

Increase in the export duty from • ` 3,000 per tonne to 30% ad valorem on chromium ore.

Increase in the basic customs duty from 5% to 7.5% on non-alloy, flat-rolled steel. •

Introduction of TDS on trading in coal, lignite and iron ore.•

Positive

A higher budgetary allocation for the infrastructure sector would have positive implications for the mining as well as the metal sector driven by demand for core metals and minerals like steel, iron ore, coal, etc. Through the proposals, such as power companies signing an agreement with CIL, reducing the duty on steam coal, and exemption of basic customs duty on coal mining projects is expected to increase domestic supply of coal in tandem with the rising coal demand. This announcement is considered as positive for the coal mining companies.

Further, reducing the basic customs duty on surveying and prospecting used for the survey of minerals is expected to have a positive impact on the mining sector as it would improve the process and quality of extracting and refining of minerals and further encourage more players to enter this market. Reduction of import duty on plants and machinery for iron ore, basic customs duty on coating material as well as nickel ore will encourage more players to enter the metal and mining sector and consequently decrease the raw material cost.

Increase in the export duty on chromium ore will encourage companies to increase its domestic supply. Further, introduction of TDS in coal, lignite and iron ore trading will help the companies to track the unaccounted money. Overall, the Budget is anticipated to have a positive impact on the metals and mining sector.

MSMEsTo set up a • ` 50 bn India Opportunities Fund with Small Industries Development Bank of India (SIDBI).

Allocation for the Prime Minister’s Employment Generation Programme increased by 23% • from ` 10.37 bn to ` 12.76 bn.

Under the Public Procurement Policy for Micro and Small Enterprises (MSEs), Ministries and • Central Public Sector Enterprises (CPSEs) are required to make a minimum of 20% of their annual purchase from MSEs. Of this purchase, 4% to be earmarked for procurement from MSEs owned by SC/ST entrepreneurs.

Increase in the turnover limit from • ` 6 mn to ` 10 mn for SMEs for compulsory tax audit of accounts and for presumptive taxation.


24

Exemption of capital gains tax on sale of a residential property, if the sale consideration is • used for subscription in equity of a manufacturing SME company for purchase of new plant and machinery.

Reduction in the basic customs duty to 2.5% with concessional CVD of 6% on specified parts, • components and raw materials for the manufacture of medical devices such as disposables and instruments.

Full exemption from basic customs duty and CVD to specified raw materials for the manufacture • of coronary stents and heart valves.

Reduction in the excise duty from 10% to 6% on matches manufactured by semi-mechanised • units.

Positive

The biggest announcement for the SME sector has been an allocation of ̀ 50 bn to SIDBI for venture fund. This is expected to enhance availability of equity to MSMEs, as credit crunch continues to remain a major challenge for SMEs. The hike in turnover limit for compulsory tax audit of accounts would also bring some relief to the SMEs. To a small extent, the announcement of exemption of capital gains tax on sale of residential property could also enhance credit availability to the SMEs. Measures announced for SME-centric sectors such as leather, handloom, powerloom, matches, food processing, textiles etc are beneficial for the SME sector’s prospects.

Oil & GasCess on crude petroleum oil produced in India increased to • ` 4,500/MT from ` 2,500/MT.

Full exemption from basic duty on natural gas and Liquified Natural Gas (LNG).•

Oil & Gas / LNG storage facilities and Oil & Gas pipelines to be included in the eligible sectors • for Viability Gap Funding (VGF).

Marginally Positive

The Indian oil & gas sector is one of the core industries in the country. The increase in petroleum cess on crude petroleum oil produced in India is likely to adversely impact the bottom-line of oil producing companies.

The full exemption of basic duty on natural gas and LNG is likely to reduce the cost of imported fuel for core sectors such as fertilizers and power plants. The core sectors are expected to benefit from this exemption.

Introduction of VGF for oil & gas/LNG storage facilities and oil & gas pipelines is likely to fuel the sectoral growth as many projects with high economic returns but low financial returns can possibly be executed in the coming period.

The oil & gas companies had built expectations from the Budget for a 10-year tax holiday alongwith inclusion of crude oil and petroleum products under the recommended Goods and Service Tax


25

(GST) regime. In the absence of announcement of tax holiday and low clarity on proposed GST structure, the Budget will have a marginally positive impact on the oil & gas sector.

Pharmaceuticals & HealthcarePharmaceuticals

The concessional basic customs duty of 5% with full exemption from excise duty/CVD has • been extended to six specified life-saving drugs/ vaccines.

List of drugs & medical devices eligible for lower import duty and excise duty exemption • expanded to include additional life science drugs.

Advance pricing agreement proposed to be implemented in Finance Bill, 2012.•

Marginally positive

Research and development (R&D) in the pharmaceutical sector received significant impetus through the extension of 200% weighted deduction on in-house R & D expenditure. Capital expenditure on R & D for an industry such as pharmaceutical is critical for the growth of the industry and the proposal is expected to boost the active pharmaceutical ingredient (API) market in India. Implementation of advance pricing agreement is also expected to help the pharmaceutical industry to reduce its tax litigation cases. On the other hand, excise duty hike is expected to increase raw material prices for the industry.

Healthcare

The outlay for the National Rural Health Mission (NRHM) hiked by nearly 15% to • ` 208.2 bn for FY13. National Urban Health Mission (NUHM) will be launched, which is expected to encompass primary healthcare needs of people in the urban areas.

The Pradhan Mantri Swasthya Suraksha Yojana (PMSSY) aimed at setting up of All India Institute • of Medical Sciences (AIIMS)-like institutions and upgradation of existing Government medical colleges is being expanded to cover upgradation of 7 more Government medical colleges.

The rate of investment-linked deduction of capital expenditure enhanced to 150% from the • existing 100% for hospitals.

Marginally Positive

The Budget has focused towards improving healthcare services at the rural as well as urban region. The increased NRHM outlay is expected to further improve access to healthcare in the rural areas. Under the PMSSY scheme, the Government aims at setting up eight AIIMS-like institutions and upgradation of existing Government medical colleges. The healthcare service in the urban region is also expected to increase with the launch of NUHM. Enhanced rate of deduction linked to capital expenditure is expected to increase investments in hospitals in the coming years. These measures are expected to have a marginally positive impact on the healthcare sector.


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PowerAllocation of tax-free bonds amounting to • ` 100 bn towards the power sector, out of the ` 600 bn tax free bonds for financing infrastructure projects during FY13.

Permitting External Commercial Borrowings (ECBs) to part finance rupee debt of existing • power projects.

Coal India Limited (CIL) has been advised to sign fuel supply agreements with power plants • which have entered into long-term Power Purchase Agreements with distribution companies (DISCOM) and would get commissioned on or before March 31, 2015. Further, an inter ministerial group has been set up to undertake periodic review of the allocated coal mines and shall make recommendations on de-allocations, if required.

Extension of the sunset date by one year i.e. on or before March 31, 2013 to claim 100% • deduction of profits for 10 years.

Reduction in the rate of withholding tax on interest payments on external commercial • borrowings from 20% to 5% for three years to provide low cost funds to the sector.

Additional 20% depreciation in the initial year to be extended to new assets acquired by power • generation companies.

100% Counter Vailing Duty (CVD) or excise duty exemption in plants, equipment etc used in • the initial set up of solar energy and solar thermal projects.

Full exemption of basic customs duty and a 1% concessional CVD to steam coal used in thermal • power projects for a period of two years i.e. till March 31, 2014.

Positive

The overall focus of the Government has been towards increasing investments through the allocation of ` 100 bn tax free bonds as well as increasing the financing options in the sector through the introduction of ECBs as well as reducing their interest rates. This is expected to improve the working capital requirements of the companies in this sector. The Government also focuses on reducing the raw material cost through the agreement with CIL and reducing the duties imposed on the steam coal used as an input in the thermal power plants. This measure will help the power generation companies to stabilise the volatile prices of raw materials.

Proposals such as extension of the sunset date, providing additional 20% depreciation during the initial years etc are expected to encourage more companies to enter the power sector or the existing companies to expand operations. Reducing the CVD by 100% in the initial set up of solar power plants is expected to have a positive impact as it is expected to promote the renewable energy generation and usage in India. This will further encourage new players or existing players to enter into the renewable segment of the power sector. These measures are expected to have a positive impact on the power sector.


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TextilesAutomated shuttle-less looms exempted from basic customs duty of 5%.•

Full exemption from basic customs duty to automatic silk reeling and processing machinery as • well as its parts.

Currently excise duty of 10% is applicable to branded readymade garments with abatement of • 55% from the retail sale price. Now with the proposed increase in duty to 12%, the abatement has been enhanced to 70%. As a result, the incidence of duty as a percentage of the retail sale price would come down from 4.5% to 3.6%.

Reduction in the basic customs duty from 15% to 5% on wool waste and wool tops.•

Reduction in the customs duty from 10% to 7.5% on titanium dioxide. •

Financial package of • ` 38,840 mn for waiver of loans to handloom weavers and their co-operative societies.

New handloom cluster in Prakasam and Guntur districts of Andhra Pradesh and leather cluster • in Jharkhand.

Weaver Service Center in Mizoram, Nagaland and Jharkhand.•

Powerloom mega cluster in Maharashtra with a budget allocation of • ` 700 mn.

`• 5,000 mn pilot scheme in the 12th Five Year Plan for promotion and application of geo-textiles in the North-Eastern region.

Marginally Positive

Reduction of excise duty on readymade garments would result in decline in the cost burden of the manufacturers. It is expected that manufacturers may pass on the reduced burden to the consumers by way of reduction in prices. Further, a reduction in customs duty on titanium dioxide would make imports of titanium dioxide cheaper.

Two more mega handloom clusters were announced in addition to four mega handloom clusters already operational. These clusters will help the weavers in technology upgradation and product diversification. Besides that, a power loom mega cluster is also proposed to be set up in Maharashtra. It is expected that the power loom cluster will have modern machinery, testing services and have a computer-aided design studio to address the need of the local artisans and weavers. In addition to this, a pilot scheme has also been proposed for promotion of geo-textiles. These proposed initiatives to open clusters will have a marginally positive impact on the industry.


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CHANGE IN CENTRAL PLAN OUTLAY

(` bn)2011-12 2012-13

% ChangeRevised Estimates Budget Estimates

Ministry of Agriculture 128.61 161.21 25.35Ministry of Chemicals and Fertilisers 47.45 52.76 11.19Ministry of Civil Aviation 56.21 72.93 29.75Ministry of Coal 73.67 96.33 30.76Ministry of Commerce and Industry 29.73 34.65 16.55Ministry of Communications and Information Technology 151.01 213.94 41.67Ministry of Consumer Affairs, Food and Public Distribution 4.16 5.45 31.01Ministry of Corporate Affairs 0.28 0.32 14.29Ministry of Culture 8.05 8.64 7.33Ministry of Development of North Eastern Region 0.91 2.05 125.27Ministry of Drinking Water and Sanitation 100.00 140.00 40.00Ministry of Earth Sciences 8.55 12.81 49.82Ministry of Environment and Forests 19.02 24.30 27.76Ministry of External Affairs 11.25 15.00 33.33Ministry of Finance 171.30 201.32 17.52Ministry of Food Processing Industries 5.50 6.60 20.00Ministry of Health and Family Welfare 243.15 304.77 25.34Ministry of Heavy Industries and Public Enterprises 21.33 26.48 24.14Ministry of Home Affairs 61.52 105.00 70.68Ministry of Housing and Urban Poverty Alleviation 128.27 133.31 3.93Ministry of Human Resource Development 517.72 614.27 18.65Ministry of Information and Broadcasting 7.87 13.05 65.82Ministry of Labour and Employment 12.54 24.70 96.97Ministry of Law and Justice 7.72 10.50 36.01Ministry of Micro, Small and Medium Enterprises 28.52 31.76 11.36Ministry of Mines 19.42 29.43 51.54Ministry of Minority Affairs 27.50 31.35 14.00Ministry of New and Renewable Energy 29.56 33.55 13.50Ministry of Panchayati Raj 1.97 3.00 52.28Ministry of Personnel, Public Grievances and Pensions 1.83 2.79 52.46Ministry of Petroleum and Natural Gas 698.83 797.28 14.09Ministry of Planning 13.30 21.00 57.89Ministry of Power 627.92 624.25 -0.58Ministry of Road Transport and Highways 326.19 330.00 1.17Ministry of Rural Development 695.64 763.76 9.79Ministry of Science and Technology 54.32 59.75 10.00Ministry of Shipping 53.67 56.75 5.74Ministry of Social Justice and Empowerment 51.23 59.15 15.46Ministry of Statistics and Programme Implementation 4.58 6.31 37.77Ministry of Steel 168.57 218.02 29.33Ministry of Textiles 55.03 70.00 27.20Ministry of Tourism 10.61 12.10 14.04Ministry of Tribal Affairs 15.97 15.73 -1.50Ministry of Urban Development 87.89 95.45 8.60Ministry of Water Resources 6.20 15.00 141.94Ministry of Women and Child Development 161.00 185.00 14.91Ministry of Youth Affairs and Sports 8.84 10.41 17.76Ministry of Railways 484.07 589.98 21.88GRAND TOTAL 5581.72 6515.09 16.72


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RECEIPTS

(` bn) 2011-12 Revised Estimates

2012-13 Budget Estimates

REVENUE RECEIPTS1) Tax Revenue

Gross Tax Revenue 9,016.64 10,776.12 Corporation Tax 3,276.80 3,732.27 Taxes on Income 1,718.79 1,957.86 Wealth Tax 10.92 12.44 Customs 1,530.00 1,866.94 Union Excise Duties 1,506.96 1,943.50 Service Tax 950.00 1,240.00 Taxes on Union Territories 23.17 23.10

Less - NCCD transferred to the National Calamity Contigency Fund/National Disaster Response Fund

39.98 46.20

Less States' Share 2,554.14 3,019.21 1 a) Centre's Net Tax Revenue 6,422.52 7,710.71

2) Non-Tax RevenueInterest receipts 201.25 192.31 Dividend and Profits 501.22 501.53 External Grants 34.77 28.87 Other Non Tax Revenue 499.09 912.07 Receipts of Union Territories 11.05 11.36

Total Non-tax Revenue 1,247.37 1,646.14

Total Revenue Receipts (1a+2) 7,669.89 9,356.85


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RECEIPTS (Contd...)



3) CAPITAL RECEIPTSA) Non-debt Receipts

Recoveries of loans and advances@ 142.58 116.50 Miscellaneous Capital Receipts 154.93 300.00 Total 297.51 416.50

B) Debt Receipts*Market Loans 4,364.14 4,790.00 Short term borrowings 1160.84 90.00 External Assistance (Net) 103.11 101.48 Securities issued against Small Savings -103.02 11.98 State Provident Fund (Net) 100.00 120.00 Other Receipts (Net) -158.62 22.45 Total 5,466.44 5,135.90 Total Capital Receipts (A+B) 5,763.95 5,552.41

4) DRAW-DOWN OF CASH BALANCE -246.64 N.A Total Receipts (1a+2+3+4) 13,187.20 14,909.25 Financing of Fiscal Deficit (3B+4) 5,219.80 5,135.90 Receipts under MSS (Net) N.A 200.00@ excludes recoveries of short-term loans and advances from States, loans to Government servants, etc.

137.45 114.45

* The receipts are net of repayments.


31

EXPENDITURE



1. NON-PLAN EXPENDITURE1 A. Revenue Expenditure

1 Interest Payments and Prepayment Premium 2,756.18 3,197.59 2 Defence Services 1,047.93 1,138.29 3 Subsidies 2,162.97 1,900.15 4 Grants to State and U.T. Governments 553.22 642.11 5 Pensions 561.90 631.83 6 Police 333.02 356.11 7 Assistance to States from National Calamity

Contingency Fund (NCCF)/NDRF 45.25 46.20

8 Other General Services (Organs of State, tax collection, external affairs etc.)

193.95 213.82

9 Social Services (Education, Health, Broadcasting etc.) 197.09 207.84 10 Economic Services (Agriculture, Industry, Power,

Science & Technology, etc.) 237.02 241.05

11 Postal Deficit 55.73 57.27 12 Expenditure of U.T. without Legislature 37.35 38.75 13 Amount met from NCCF/NDRF -45.25 -46.20 14 Grants to Foreign Govts. 21.05 31.14

Total Revenue Non-Plan Expenditure 8,157.40 8,655.96

1 B. Capital Expenditure1 Defence Services 661.44 795.79 2 Other Non-Plan Capital Outlay 96.17 239.71 3 Loans to Public Enterprises 5.93 4.65 4 Loans to State and U.T. Governments 0.75 0.85 5 Loans to Foreign Governments 2.50 5.50 6 Others -3.03 -3.46

Total Capital Non-Plan Expenditure 763.76 1,043.04 Total Non-Plan Expenditure 8,921.16 9,699.00


32

EXPENDITURE (Contd...)



2. PLAN EXPENDITURE 2 A. Revenue Expenditure

1 Central Plan 2,525.97 3,035.28 2 Central Assistance for States & Union Territory Plans 936.04 1,169.85

State Plan 910.38 1,131.70 Union Territory Plan 25.66 38.15

Total Revenue Plan Expenditure 3,462.01 4,205.13

2 B. Capital Expenditure

1 Central Plan 688.09 874.99 2 Central Assistance for State & Union Territory Plans 115.95 130.13

State Plan 100.67 110.79 Union Territory Plan 15.28 19.34

Total Capital Plan Expenditure 804.04 1,005.12

Total-Plan Expenditure 4,266.04 5,210.25

Total Budget Support for Central Plan 3,214.06 3,910.27

Total Central Assistance for State & UT Plans 1,051.99 1,299.98

TOTAL EXPENDITURE* 13,187.20 14,909.25

DEBT SERVICING1 Repayment of Debt** 1,239.29 1,243.02 2 Total Interest Payments 2,756.18 3,197.59 3 Total Debt Servicing (1+2) 3,995.47 4,440.61 4 Revenue Receipts 7,669.89 9,356.85 5 Pecentage of 2 to 4 35.90% 34.20%

** Excludes expenditure matched by receipts** The figures exclude discharge of all Treasury bills, discharge of Cash Management Bills, discharge of Ways and Means Advances including Overdraft, repayment under MSS and all Public Account Disbursements (except discharge of Special Securities issued in lieu of Subsidies).


33

2009-10 2010-11 2011-12

Gross Domestic Product at factor cost (Rs. bn)

At current market prices 64573.52 PE 76741.48 QE 89121.78 AE At 2004-05 prices 45076.37 PE 48859.54 QE 52220.27 AE

Output

Foodgrains (mn tonnes) 218.1 244.8 250.4 b

Power generation ( by utilities) (bn kWh) 771.6 811.4 653.5 e

Prices

Wholesale Price Index (All commodities, average) 130.4 143.3 155.5 c

CPI-IW (Average) 162.8 179.8 193.8 d

External Sector (US$ mn)

Exports 178,751 251,105 242792 d

Imports 288,373 369,769 391459 d

Current Account Balance (net) -38181 R -45945 PR -32842 f

Foreign Direct Investment (net) 17,966 9,360 12311 f

Monetary and Finance

Money Supply (M3) (Rs. bn) 56,027 64,995 72,263 g Foreign Exchange Reserves (US$ Bn.) 279.1 304.8 295.1 h Exchange rate (Rs./US$) (Average) 47.44 45.56 47.73 i

Source: RBI, CSO, Commerce Ministry, Economic Survey, 2011-12

FootnotesQE: Quick Estimates AE: Advance Estimates; PE: Provisional Estimates R: Revised; b: Second Advance Estimates; c Apr-Feb-2012; d: Apr-11-Jan-12; e: Apr-Dec-11; f: Apr-Sept-11; g: Outstanding as on 24 Feb-2012; h: As on 24-Feb-2012; i: Apr-11- 29 Feb-2012, PR : Provisionally Revised

KEY ECONOMIC INDICATORS (Absolute values)


34

2009-10 2010-11 2011-12Gross Domestic Product at factor cost

At current prices 14.7 PE 18.8 QE 16.1 AE At 2004-05 prices 8.4 PE 8.4 QE 6.9 AE

Sectoral Growth Rates at Constant (2004-05) pricesAgriculture & allied 1.0 PE 7.0 QE 2.5 AE

Industry 8.4 PE 7.2 QE 3.9 AE

Services 10.5 PE 9.3 QE 9.4 AE

Prices Wholesale Price Index e (All Commodities) 3.6 9.9 8.9 c

CPI-IW f (Average) 12.4 10.5 8.4 d

External Sector Export -3.5 40.5 23.5 d

Import -5.0 28.2 29.4 d

Foreign Direct Investment (net) -19.7 -47.9 PR 74.9 f

Monetary and Finance Money Supply (M3) 16.8 16.0 13.5 g

Foreign Exchange Reserves 10.7 9.2 -1.9 h

Exchange rate n (Rs/US$) (Average) 3.15 -3.96 4.6 i

Source: RBI, Economic Survey, 2011-12

FootnotesQE: Quick Estimates; AE: Advance Estimates; PE: Provisional Estimatesc Apr-Feb-2012; d: Apr-11-Jan-12; e: Apr-Dec-11; f: Apr-Sept-11; g: Outstanding as on 24 Feb-2012; h: As on 24-Feb-2012; i: Apr-11- 29 Feb-2012

KEY ECONOMIC INDICATORS (Percentage change over previous year)


35

Appropriation Bill: This Bill entails the Parliament’s approval for withdrawal of money from the Consolidated Fund to pay off expenses. After the Demands for Grants are voted by the Lok Sabha, the Parliament approves this bill. Under Article 114(3) of the Constitution, no amount can be withdrawn from the Consolidated Fund without the enactment of such a law by the Parliament.

Capital Expenditure: It is the expenditure incurred on acquisition of assets like land, buildings, machinery, equipment etc and also loans and advances granted by the Central Government to State and Union territories, Public sector enterprises and other parties. This expenditure is also categorised as plan and non-plan capital expenditure.

Capital Receipts: Capital receipts include loans raised by the Government from public which are called Market Loans, borrowings by the Government from the Reserve Bank of India and other parties through sale of Treasury Bills, loans received from foreign Governments and bodies and recoveries of loans granted by Central Government to State and Union Territory Governments and other parties.

Consolidated Fund: All revenues received by the Government, loans raised by it, and also its receipts from recoveries of loans granted by it, form the Consolidated Fund. All expenditure of the Government is incurred from the Consolidated Fund and no amount can be withdrawn from the Fund without authorisation from the Parliament.

Contingency Fund: It is an imprest from the Consolidated Fund, and may be used by the Government without waiting for an appropriation bill to be passed by the Parliament. If it becomes necessary for the Government to incur expenditure not included in the budget, it can do so from the Contingency Fund.

Customs Duties: Customs duty is a type of indirect tax levied on goods imported into India as well as on goods exported from India.

Effective Revenue Deficit: Effective Revenue Deficit is the difference between revenue deficit and grants for creation of capital assets.

Exceptional Grant: Through the Exceptional Grant the House of People can make provision for an exceptional grant that does not form part of the current service of any financial year.

Excise Duties: Central excise duty is an indirect tax levied on those goods which are manufactured in India and are meant for home consumption.

Finance Bill: At the time of presentation of the Annual Financial Statement before the Parliament, a Finance Bill is also presented in fulfilment of the requirement of Article 110(1) (a) of the Constitution, detailing the imposition, abolition, remission, alteration or regulation of taxes proposed in the Budget. A Finance Bill is a Money Bill as defined in Article 110 of the Constitution.

Fiscal Deficit: The difference between the total expenditure of the Government by way of revenue, capital and loans net of repayments on the one hand and revenue receipts of the Government and capital receipts which are not in the nature of borrowing but which finally accrue to the Government on the other, constitutes fiscal deficit.

Non-Plan Expenditure: It includes expenses that do not form a part of the Government’s five year plan. These expenses consist of revenue and capital expenditure on defense, subsidies, interest payments, postal deficit, pensions, police, loans to public sector enterprises, economic services and loans as well as grants to State Governments, Union Territories and foreign Governments.

Non-Tax Revenues: Revenues earned by the Government from sources other than taxes are termed as non-tax revenues. The sources of non-tax revenues may include; dividends and profits received from

GLOSSARY


public sector companies, interest receipts, fines, penalties and fees for various services rendered by the Government.

Plan Expenditure: It consists of both revenue expenditure and capital expenditure of the Centre on the Central Plan and Central Assistance to States and Union Territories. Plan expenditure reflects the Government’s investment in enhancing the economy’s productive aptitude. It arises out of schemes freshly introduced in an ongoing Five Year Plan (FYP) period.

Plan Outlay: Plan Outlay refers to the amount sanctioned for expenditure on projects, schemes and programmes announced in the Plan. The provision for this amount is made through extra budgetary resources and from provisions in the Demands for Grants. The budgetary support is also reflected as plan expenditure in Government accounts.

Primary Deficit: The amount by which the Government’s total expenditure exceeds its total revenue generated, excluding the interest payments on debt. It is primarily the difference between the gross fiscal deficit and gross interest payments.

Public Account: Besides the normal receipts and expenditure of the Government which relate to the Consolidated Fund, certain other transactions enter Government accounts, in respect of which the Government acts more as a banker. For example, transactions relating to provident funds, small savings collections, other deposits, etc. The money thus received is kept in the Public Account and the connected disbursements are also made therefrom.

Public Debt: It refers to the total debt of the central and the State Governments. Public debt can be classified into internal debt (comprising of money borrowed within the country) and external debt (comprising of funds borrowed from non-Indian sources). The net accretion to public debt is the difference in borrowing and repayments during a fiscal year.

Revenue Deficit: Revenue Deficit is the excess of Government’s revenue expenditure over revenue receipts.

Revenue Expenditure: It is the expenditure incurred by the Government for running of Government departments and conducting various economic, social and general services, interest payments, subsidies, grants and assistance to State and Union territories etc. This expenditure is also categorised as plan and non-plan revenue expenditure.

Revenue Receipts: It includes revenues garnered by the Government through taxes and other non-tax sources. Other receipts of the Government mainly consist of interest and dividend on investments made by the Government, fees, and other receipts for services rendered by it.

Tax Revenues: It comprises of revenue receipts through taxes and other duties levied by the Government. Tax revenue includes revenue generated through both direct taxes (personal income tax, corporate tax, capital gain tax and wealth tax) and indirect taxes (central excise duty, customs duty, service tax and VAT).

Vote on Account: It means a grant made in advance by the Parliament, in respect of the estimated expenditure for a part of the new financial year, pending the completion of the procedure relating to the voting of the demand for grants and the passing of the Appropriation Act.

Vote of Credit: Through the Vote of Credit the House of People can approve grant for meeting an unexpected demand upon the resources of India when on account of the magnitude or the indefinite character of the service, the demand cannot be stated with the details ordinarily given in an annual financial statement.

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