Expectations from India's Union Budget 2012-13

Indians are anxiously awaiting for the Union budget 2012-13 to be presented by Finance Minister Pranab Mukherjee on March 16,2012. It will strive for major policy direction and reforms so as address the ailing economic growth conditions in the country and revive optimism in the  minds of Common man and Corporate India about the future of India presently plagued by high inflationary pressures  , stagnant Investment opportunities and  rising Fiscal deficits in the Economy .

Major Market Expectations arising from present Economic and Political picture of the country now are :

1) Implementation of Tax Reforms -
 The highest priority for the centre would be expedient implementation of the two main reforms - Direct Tax Code (DTC) and the Goods and Services Tax (GST) which has been facing stiff resistance from several Political parties and Trade associations within the country . The right implementation of GST only will add around 1% - 1.5 % to GDP .It would also lead to moderation of rates ,simplification of laws and better compliance .

2)  Reducing & Controlling  the rising Fiscal deficit -
With UPA led govt failing in State elections held last month , it would withdraw some of its  highly populist measures from its agenda.

The gross fiscal deficit in the 2011-12 at 5.5% of GDP is unlikely to meet the government’s fiscal projection of 4.6%, in the back drop of falling economic growth and skewed tax revenue collection. The only possibility of controlling this fiscal problem in the new fiscal year is through huge gains from auction of 2G or 4G telecom licenses.
 It will forced to  reduce its subsidies which has balloned to 30 % of tax revenues in last fiscal year.

 3)  Promoting  Investment Opportunities & aiding  Investment backed Incentives -

Paucity of  resources with the government and the 400 bps increase in interest rate on private debt combined to reduce investment in the economy. In the fourth quarter of 2011, investment dropped from 30 to 28 per cent of GDP. Industry is not inclined to add to capacity because demand for homes, for white goods, automobiles, and so on which are purchased on credit has shrunk. The result was GDP growth  down to 6.1 percent which is low for World's second fastest economy.

Finance Minister will budget  for investment-linked incentives like an increase in the rate of depreciation, reduction of Minimum Alternative Tax (MAT), cut in corporate tax and Securities Transaction Tax (STT), which together can bolster capital market, investment and growth.

4) New sources of Tax collection funds -
 As ,per the latest surveys almost 75 % of country 's population is not under the purview of Income Tax department and the brunt of Taxes is borne by Manufacturing sector which has contracted rapidly in this quarter. Hence ,the govt will vouch for higher tax collection by bringing all sectors and sections under the ambit of tax obligations from this financial year introducing reforms and policy to address this alarming situation .Most important among them being extension of service tax to all services with a negative list and increase in excise duty from 10 to 12 percent to bring it in alignment with the Goods and Services Tax (GST).

5)  Modernization of Infrastructure 
- As per the 12th Five year Plan , Indian infrastructure requires an investment of over 1 trillion $ ( 50,00,000 crores approx) - assuming 1 $ = Rs 50 ) so as to sustain and expand to meet the national and planning objectives of the country.

Budget will focus on attracting both National and Foreign capital for national infrastructure development backed by Fiscal Incentives like tax-free bonds and tax rebate under 80 CCF for investments in infrastructure bonds introduced in last budget .

6)  Deregulation of Diesel prices.- 

The government has de-regulated petrol prices in the past, but it still provides subsidies on other fuel products such as diesel and kerosene oil to enable the common man to have access to these basic necessities at affordable prices. Loss to Exchequer from subsidized diesel only has galloped to Rs 56,700 crores out of total  Rs 97,313 crores subsidies given  last year.Hence ,it becomes imperative for govt to find remedies to this problem with the necessiate reforms in this direction .

7)  Reforms for Inclusive National growth- 

Inclusive growth  results in lower incidence of poverty, broad based and significant improvement in health outcomes, universal access  for children to school, increased access to higher education and improved standards of education, including skill development.  It should also be reflected in better opportunities for both wage employment and livelihoods and in improvement in provision of basic amenities like water, electricity, roads, sanitation and housing. 

 Particular attention needs to be paid to the needs of the SC/ST and OBC population, women and children as also minorities and other excluded groups. To achieve inclusiveness in all these dimensions requires multiple interventions, and success depends not only on introducing new policies and government programmes, but on institutional and attitudinal changes, which take time.

8)  Resurgence of FDI reforms in Multi-brand retail  & Aviation Industry.

FDI in Multibrand retail was stalled last month in Indian Parliament owing to huge protests and pressure all across the country by Opposition parties & trade unions across the country. We can expect the govt to push legislations & reforms on this cause by  building consensus with the opposing factions of the society.