Union Budget 2012-13 [updates]

[think-tank]

I thought it'd be a great idea to discuss pre and post budget news here, I'd also welcome your views and predictions. Thanks..


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Download Budget Speech

Budget Highlights

Annual Finance Statement

Expenditure Budget

The Macro Economic Framework Statement

More at: http://indiabudget.nic.in/index.asp

Salient Points from 2011-12 budget

FY'11 FISCAL DEFICIT TARGET REVISED TO 5.1%

PLANNED EXPENDITURE UP 18.3% (YOY) AT Rs. 14.41 LAKH CR

NET TAX RECEIPTS FOR FY'12 SEEN AT Rs. 6.64 LAKH CR

GROSS TAX RECEIPTS FOR FY'12 SEEN AT Rs. 9.32 LAKH CR

NON TAX REVENUE FOR FY'12 SEEN AT Rs. 1.25 LAKH CR

TOTAL EXPENDITURE UP 13.4% AT Rs. 12.57 LAKH CR

ALLOCATED Rs. 69199 CR FOR DEFENCE CAPEX IN FY'12

Rs. 8000 CRORE FOR NORTHEAST INDIA

Rs. 8000 CRORE FOR DEVELOPMENT NEEDS OF JAMMU & KASHMIR

OLD AGE PENSION FOR PEOPLE OVER 80 YRS HIKED TO Rs. 500/MONTH

NATIONAL MISSION ON HYBRID VEHICLES TO BE STARTED

PROPOSE Rs. 5000 CR FOR TAKEOUT FINANCING SCHEME

PROPOSE A 5 FOLD STRATEGY TO DEAL WITH BLACK MONEY

TO EXTEND INFRA TAX BREAKS FOR THE FERTILISER SECTOR

CLOSE TO FINALISING NATIONAL FOOD SECURITY BILL

PLAN Rs. 1.6 LAKH CR SPENDING FOR SOCIAL SECTOR PROJECTS

TO BRING BROADBAND CONNECTIVITY TO ALL VILLAGES

ALLOCATION FOR BHARAT NIRMAN RAISED TO Rs. 58000 CR

NREGA WAGE RATE INDEXED TO CONSUMER PRICE INDEX

SCHEDULED TRIBES ALLOCATION RAISED TO Rs. 2.44 LAKH CR

ALLOCATION FOR EDUCATION RAISED TO Rs. 52057 CR

PLANNED ALLOCATION FOR HEALTHCARE UP 20% TO Rs. 27,600 CR

IIFCL'S FY'12 DISBURSEMENT TARGET AT Rs. 25,000 CR

SPEND ON INFRA SECTOR TO BE HIKED BY 23%

GOVT AGENCIES CAN RAISE Rs. 30,000 CR FROM TAX FREE BONDS

COLD STORAGE TO BE BOUGHT UNDER AMBIT OF INFRA SECTOR

FURTHER SUBVENTION OF 3% FOR REPAYING FARM LOANS ON TIME

INTEREST SUBVENTION FOR FARM LOANS AT 7% TO CONTINUE

FII LIMIT IN INFRA SECTOR CORP BONDS RAISED TO $25 BN

TO SIMPLIFY SERVICE TAX REFUND PROCESS

MFG SHARE IN GDP TO RISE TO 25% OVER NEXT 10 YEARS

TO SET UP 15 MORE MEGA FOOD PARKS

RBI TO BRING OUT GUIDELINES ON NEW BANKING LICENCES

Rs. 6000 CR TO ENABLE BANKS TO MAINTAIN 8% TIER 1 CAPITAL

TO MOVE INSURANCE, PENSION AND BANKING BILLS IN PARLIAMENT

TO INFUSE Rs. 500 CR IN REGIONAL RURAL BANKS

ROLLOUT OF DTC TO BE EFFECTIVE FROM APRIL 1, 2012

TO SET UP INDIA MICROFINANCE EQUITY FUND WITH Rs. 100 CR

PROPOSE TO GIVE Rs. 3000 CR TO NABARD

TO GIVE Rs. 5000 CR TO SIDBI TO REFINANCE SMALL FIRMS

LIBERALISE INTEREST SUBVENTION OF HOME LOAN UP TO Rs. 15 LAKH

TO ENHANCE FUNDS UNDER RURAL HOUSING FUND TO Rs. 30,000 CR

MORTGAGE RISK GUARANTEE FUND FOR HOME LOANS TO POOR

HAVE HIKED PRIORITY HOME LOAN LIMIT TO Rs. 25 LAKH

TO GIVE PSU BANKS Rs. 20157 CR TO RAISE TIER 1 CAPITAL

NEW COMPANIES BILL TO BE INTRODUCED IN THE CURRENT SESSION

MINORITIES' LOAN TARGET UP AT 15% OF PRIORITY LOANS

ALLOCATION FOR FARM DEVELOPMENT HIKED TO Rs. 7860 CR

DISCUSSIONS ON TO FURTHER LIBERALISE THE FDI POLICY

GOVT TO MAINTAIN MOMENTUM OF DIVESTMENT

GOVT TO MOVE TOWARD DIRECT SUBSIDY TO PEOPLE LIVING BPL

DIRECT CASH SUBSIDY ON KEROSENE, FERTILISERS FOR BPL

EXTENDING NBS TO COVER UREA UNDER CONSIDERATION

PREPARATION OF GST ROLLOUT IN FINAL STAGES

MUST REVISIT EXACT CLASSIFICATION OF EXPENDITURE

TO INTRODUCE GST BILL AMENDMENTS IN THIS SESSION

AIM FOR FISCAL DEFICIT OF 3% BY FY'14

GST AND DTC REFORMS TO MODERATE RATES AND SIMPLIFY NORMS

PROPOSE INTRODUCING PUBLIC DEBT MGMT OF INDIA BILL

EXPECT RBI MEASURES TO MODERATE INFLATION

EXPECT CURRENT ACCOUNT DEFICIT TO COME DOWN NEXT YEAR

EXPECT INFLATION TO COME DOWN NEXT YEAR

CURRENT ACCOUNT DEFICIT STILL A CONCERN

HUGE PRICE GAP IN WHOLESALE & RETAIL NOT ACCEPTABLE

PRICES OF KEY AGRI COMMODITIES HAVE DECLINED

ECONOMY RESILIENT TO EXTERNAL AND LOCAL SHOCKS

EXPECT AGRI SECTOR TO GROW AT 5.4% IN FY'11

GDP ESTIMATED TO GROW 8.6% IN FY'11 IN REAL TERMS

SIMPLIFYING TAXATION, TRADE AND TARIFFS PROCEDURES

MUST ADDRESS STRUCTURAL CONCERNS ON INFLATION MGMT

NEED TO FIGHT CORRUPTION ON ALL FRONTS

NEED TO BALANCE SUPPLY AND DEMAND COMPONENTS

NEED TO BALANCE SUPPLY AND DEMAND COMPONENTS

NEED TO TACKLE SUPPLY SIDE ISSUES IN AGRICULTURE

REVIVAL IN PRIVATE INVESTMENT SHOULD BE SUSTAINABLE

FOOD INFLATION REMAINS A CONCERN

GOVERNANCE PRACTICE REMAINS A PRIORITY

PRIORITIES REMAIN GROWTH, PUBLIC DELIVERY

FY'11 FISCAL CONSOLIDATION IMPRESSIVE

SERVICE GROWING IN DOUBLE DIGITS

INDUSTRY REGAINING ITS MOMENTUM

PRANAB MUKHERJEE PRESENTS THE UNION BUDGET 2011

GOVT SHOULD TAKE MEASURES TO PROMOTE FDI IN ALL SECTORS

SOME AMOUNT OF LIQUIDITY INFUSION IS POSSIBLE

REDUCING FISCAL, INFRA DEFICIT CRUCIAL

MEASURES TO CONTAIN INFLATION ARE VERY CRUCIAL

EXPECT MEASURES FOR FINANCIAL SAVINGS

EXPECT VOLATILITY ON FII FLOWS TO CONTINUE

COMMITTED TO PROVIDING CHEAPER COOKING FUEL

NEED TO PLUG PDS SLIPPAGES TO EXPAND COVERAGE

INITIALLY LICENCES SHOULD BE GIVEN TO NBFCS, MFIS

GIVE TWO KINDS OF BANK LICENCES

EXPECT VOLATLITY ON FII FLOWS TO CONTINUE

SLOWDOWN IN FDI PARTLY OFFSET BY FII FLOWS

BUREAUCRACY IMPEDING FDI FLOWS

STRONG GROWTH IN EXPORTS AT 29.5% FOR APRIL-DECEMBER

DEVELOPMENTS IN MID-EAST, EUROPE NEED TO BE WATCHED

URGENT NEED TO EXPAND STORAGE SPACE, FACILITIES

NEED TO REVIEW GRAIN RELEASE

FAVOURS SMART CARDS FOR KEROSENE, FERTILISER SUBSIDY

SMART CARD, COUPON TO HELP TARGET FOOD SUBSIDIES BETTER

BETTER SUBSIDY TARGETING FOR BETTER FISCAL MGMT

ANTI-INFLATIONARY STANCE WARRANTED

FOOD PRICES, DEMAND PRESSURE TO SHAPE INFLATION OUTLOOK

RISE IN PURCHASING POWER LEADING TO INFLATION UPTREND

SIGNS OF FOOD, FUEL PRICE INCREASES SPILLING OVER

SHARP RISE IN FOOD PRICES A CAUSE OF CONCERN

EXPENDITURE GROWS AT 11.2% FOR FIRST NINE MONTHS

REVENUE RECEIPTS GREW BY 50% FOR FIRST NINE MONTHS

NON TAX REVENUES GREW BY 136.4% FOR FIRST NINE MONTHS

GROSS TAX REVENUES GREW BY 26.8% FOR FIRST NINE MONTHS

NEED EXPENDITURE REFORMS TO REACH PROJECTED DEFICIT

PROSPECT OF REVENUE LED FISCAL CONSOLIDATION

FY'11 REV DEFICIT EXPECTED TO BE AT 3.5% OF GDP

FY'11 FISC DEFICIT EXPECTED TO BE AT 4.8% OF GDP

EFFICIENT TAXATION BY A NEW GST

IMPROVING NREGA BY FOCUSSING ON PERMANENT ASSET

SECOND GREEN REVOLUTION IN AGRI

NEED TO STREAMLINE LAND ACQUISITION, ENV CLEARANCES

PRIVATE SECTOR PARTICIPATION IN SOCIAL SECTORS

PLAN TO INCREASE DIESEL PRICES IN A STAGGERED MANNER

GOVT TO CAP AUTO FUEL PRICES IF CRUDE OIL SPURTS

CURRENT ACCOUNT GAP TO MODERATE ON HIGHER EXPORTS

FY'11 FISCAL GAP SEEN AT 4.8% ON HIGHER GDP BASE

INFLATION TO MODERATE ON FISCAL, MONETARY STEPS

INFLATION REMAINS A DARK CLOUD FOR THE ECONOMY

ECONOMY TO GROW BY 8.75% - 9.25% IN FY'12

GOVT TO CAP AUTO FUEL PRICES IF CRUDE OIL SPURTS

PLAN TO INCREASE DIESEL PRICES IN STAGGERED MANNER

COMMITTED TO COOKING FUEL AT AFFORDABLE PRICE

FAVOURS SMART CARDS ALSO FOR KEROSENE, FERTILISER SUBSIDY

NEED TO PLUG PDS SLIPPAGES TO EXPAND IMPROVE COVERAGE

SMART CARD, COUPONS TO HELP TARGET FOOD SUBSIDY BETTER

ECONOMY TO GROW AT 8.75%-9.25% FOR FY’12

FY’11 REVENUE GAP SEEN 3.8% OF GDP

PROSPECTS OF REVENUE-LED FISCAL CONSOLIDATION

BETTER SUBSIDY TARGETING IMPROVING FISCAL MANAGEMENT

BUREAUCRACY IMPEDING FDI INFLOWS

NEED PERSISTENT ANTI-INFLATION MONETARY STANCE

INFLATION SIGNIFICANTLY ABOVE COMFORT LEVEL

NEED TO BE VIGILANT AGAINST DEMAND SIDE PRESSURES

LIQUIDITY MGMT MAJOR CHALLENGE FOR RBI

DIRECT TAX CODE PROPOSED TO BE LAUNCHED APRIL 2012

FY’11 FISCAL GAP SEEN 4.8% ON HIGHER GDP BASE

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Budget 2011 could extend tax benefit on infrastructure bonds by a year

NEW DELHI: The Union budget for 2011-12 could extend the tax benefit on investments made in infrastructure bonds by a year while giving banks access to this special window in an effort to raise debt funds for building physical assets of the country. The last budget had allowed a deduction of an additional Rs 20,000 for investment in longterm infrastructure bonds, over and above the Rs 1 lakh limit prescribed for investments in tax saving schemes. Only dedicated infrastructure companies or lenders were allowed to raise funds through these tax savings bonds.

"Various options for infrastructure financing are being examined," said a government official, adding “extending this window is one of them” . The budget for 2009-10 had limited the tax benefit on infrastructure bonds for one year. This was because the government was hoping to roll out of the Direct Taxes Code from April this year. But now that the new code is unlikely to be implemented before April 2012, the government could extend the tax relief on these bonds.

“Keeping in view the infrastructure fund requirements of the country and also to make the to make the tax deduction more meaningful, the government should enhance the investment limit to . 50,000,” said Vikas Vasal, executive director, KPMG. Infrastructure Development Finance Company (IDFC), IFCI and L&T Infrastructure Finance have already raised about Rs 5000 crore so far in the fiscal through these bonds. IDFC has already raised over . 1,200 crore in two tranches of its infrastructure bond issue in the current financial year. The rate of interest offered on these bonds has been in the range of 8% simple interest per annum.

The tax-free infrastructure bonds have a minimum tenure of 10 years and a lock-in period of at least five years to ensure the much-needed long-term funds for the sector. Investors can exit from these bonds only after five years in the secondary market if the bonds are being traded or go in for a redemption if they have opted for bonds that allow this option . According to the planning commission, the sector would require $500 billion worth of funds in the 11Five Year Plan ending in March 2012 and $1 trillion in the 12Plan.

Equity funds are relatively easy to raise for long gestation infrastructure projects, but raising debt funds have been difficult in the absence of a vibrant debt market in India. Giving banks access to this window is another measure the government is thinking about. Bankers had sought this access in their pre-budget interaction with FMPranab Mukherjee. Banks have stepped up infrastructure lending, which has exposed them to asset-liability mismatch of providing long-term funds from deposits that usually mature in three to five year. There is a restriction on the amount lenders can raise through these bonds — a maximum of 25% of their incremental lending to infrastructure sector over the previous financial year.

Savings Calculation

The last Budget allowed tax saving of Rs 20,000 for investment in long-term infrastructure bonds

The Govt had limited the tax benefit on infrastructure bonds for one year as it expected to roll out new tax regime, DTC, from April this yr

Some experts seek enhanced investment limit of Rs 50,000

IDFC, IFCI AND L&T Infrastructure Finance have already raised about Rs 5000 crore so far in the fiscal through these bonds.

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Budget 2011: Inflation, current account deficit main concerns; says DK Srivastava, Director, Madras School of Economics

Fiscal consolidation seems to be on target and we expect the revised estimates for 2010-11 to be marginally better than the budgeted 5.5% of GDP. This would happen for two reasons. First, the nominal GDP growth assumed for 2010-11 was 12.5%, but it may turn out to be higher than 16% given real growth of 8.6% and more than 7% inflation in the implicit price deflator . Second, the government borrowing benefited from an upsurge in non-tax revenues, aided by the 3G spectrum sales, as also from reasonably buoyant tax revenues.

By November 2010, the revenue receipts were 70% of full year target as compared to 50% in the corresponding period last year. By November 2010, the cumulative monthly central tax revenues showed a growth of about 26%, implying a buoyancy of about 1.6 assuming a 16% nominal growth rate. Fiscal deficit was less than 50% of the budgeted by November 2010. In comparison, it was more than 76% of the annual target in November last year. Given this performance for 2010-11 , we expect the government to persist with fiscal consolidation during 2011-12 , largely based on 8.5% plus growth and reasonable tax buoyancy.

With both the Direct Taxes Code and the Goods And Services Tax pushed to April 2012, no major structural impact on tax revenues is expected in 2011-12 . The budget 2011-12 faces major macro risks arising from two sources: food prices and current account deficit. High inflation, mainly due to high food and fuel prices, has been a source of persistent discomfort for policymakers this fiscal year in spite of a comfortable growth story. Both of these pressures are likely to continue in the coming year. There is disturbing news about crop risk in China and many countries trying to stock up grains.

International food prices have been firming up. The FAO food price index rose for the seventh consecutive month in January 2011, up 3.4% from December 2010. It has recorded the highest level since 1990. Sourcing grains from international markets will require paying high price as many countries have suffered from extreme weather both in terms of winter and floods. The crude oil prices internationally have also been hovering around $100 a barrel and are not likely to ease.

The expenditure side of the budget may therefore face significant pressures. First, because of the relatively higher inflation rates, the adjustment in DA for salaries and pensions are likely to be high. Second, higher outlays are expected for food subsidies, since the government may have to mount an aggressive procurement programme at high average costs. The proposed Food Security Act would also put pressure. This combined with high crude prices will push the current account deficit further up.

The government may have to cut some agricultural exports putting additional pressure on the current account deficit. I expect fiscal consolidation to be pursued but an uncomfortable year ahead of us because of continued supply-side pressure on inflation and a large current account deficit. The longer term challenge would be to uplift investment in agriculture as the food shortages appear to be chronic and affecting major suppliers across the world because of neglect of environment.

Distorted fertilizer subsidy regime has also done a long-term damage to the productivity of soil in many parts in India. Maintaining fiscal consolidation, resisting the pressure to increase revenue expenditures, using a large part of borrowing on investment in agriculture, and attempting support to infrastructure through private-public partnerships and a suitable special purpose vehicle appear to be workable and desirable options.

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Budget 2011: Subsidise tech R&D

One decade of the new millennium is over and companies, especially in consumer electronics , are wooing customers with new models. Mobile handset vendors are releasing, on an average , about 35 new models in the domestic market every month, indicating a drastic reduction in product lifetime. However, new technology is also at the risk of becoming obsolete very fast. What do rapid evolution of technology and the resultant obsolescence mean for the stakeholders?

Should a customer change her mobile, desktop or laptop every year? How do companies generate economic value out of obsolescence ? Should the government step up investment in public IT infrastructure? First, let us take the effect of technological obsolescence on companies. Technology obsolescence impacts the future economic value of a product or a component, which increases the risk involved in financing its development.

Companies may resort to different strategies to tackle the problem. These include differentiated pricing for an upgraded product, forward or backward integration to gain control of the market for the product, greater R&D intensity to introduce differentiated products or diversification to derisk. In telecom, the move away from proprietary to opensource software adoption, especially in mobile handsets — such as Android — reduces technology obsolescence cost, both for handset-makers and consumers.

Another trend is the emergence of managed services wherein mobile service providers such as Airtel have outsourced network deployment and management to network equipment makers such as Ericsson and Nokia-Siemens . Airtel transfers the obsolescence risk to the network equipment makers. BSNL has gone a step further, adopting a franchisee model in broadband wireless access. Here, the obsolescence risk is transferred to the franchisee. Also, in technology, obsolescence may not be related to the whole product, but might occur for components that make up the product.

Sometimes , obsolescence rate is faster than the component’s lifetime. Technology refresh is required either because the component ages or has reached end-of-life . It is also possible that the technology refresh makes the system much more efficient that the extra features make it worth the refresh , or the maintenance costs go down substantially justifying the refresh cycle. Besides industry, technology obsolescence also impacts the consumer. The customer upgrades the hardware or software to stay on top of the technology trend. Pricebased competition is likely to provide similar alternative products to the subscriber and enable her to reduce the technology obsolescence cost.

The success of featurerich mobiles from domestic handset companies such as Micromax, Lava and Karbonn as reasonable cost-effective alternatives to handsets from multinational companies illustrates this customer rationality. A customer can also trade her old incompatible version to reduce costs.

Technology refresh at low prices, or made available for free, encourages the consumer to stay with the same brand. For example, when Apple introduced the iPhone 4 with a more powerful operating system, it allowed owners of the previous model, iPhone 3GS, to download the new software . Thus, consumers of the older version were able to do a refresh and get access to the new experience without having to spend anything extra.

Adobe does not let us forget that its Flash needs refreshing . So, technology refresh promotes customer lock-ins to products and brands. Against this backdrop is our wishlist for Budget 2011. Domestic R&D will help tide over technological obsolescence since cost-effective indigenous technology, rather than imported one, is more suited to Indian consumer’s needs. The government should encourage R&D for fostering home-grown products and process innovation, using directly-targeted R&D subsidies than tax incentives for imported packaged software.

It is unfortunate that domestic companies spend a relatively smaller proportion of their revenues on R&D . Further, the mere existence of an R&D lab as a counterpart to a foreign R&D lab will not result in technology absorption. Indeed, such domestic R&D labs require producers to convert their ideas into usable innovations. Hence, there is a need for strong industry-lab partnerships. The government should foster better linkages of the industry with publicly-funded research laboratories and IITs as well as universities.

Given that there will be a huge offtake in consumer electronics, hardware and software in future, we should encourage home-grown R&D and innovation to tide over technology obsolescence. Domestic manufacture of hardware and associated software for our consumption — much like what China is attempting to do — will help us reduce the obsolescence risk.

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