Union Budget FY 2013

Union Budget – F 13

The budget was prepared under Political and Economic Constraints. The options available to address the various issues were limited. The oil price was much higher than the budgeted levels. In FY 12, the revenue generation was not up to expected levels. There was a good balancing act done by the government. The government could have continued the stimulus for one more year by keeping the Excise duty and Service tax at 10% levels. But there was no visibility of immediate availability of funding from other sources. The government has prepared notes on strategy, Medium term fiscal plan ,etc. In the long run, many options to increase the revenue are  possible through widening the tax net. But the efforts could start this year and there was an effort towards brining more into the tax net.

Since there is a pressure from higher levels of deficit and this is likely to persist going forward, there is an immediate need to look at non conventional sources of finance. The government could consider, capitalising the land available with government departments, Central PSU’s. The sick PSU’s can be turned around within a short period if they have assets which are of very high present and market value.

The increase in Excise and Service tax is likely to increase the cost of inputs and final products. This is likely to have a cascading effect on price levels and likely to keep the inflation rates at very high levels. The oil price risk is a game changer and this could increase the inflation as well as put more strain on the government financees.

Financials

As against the budgeted gross tax revenue of Rs 9,32,440 crore for 2011-12, the revised estimate has been pegged at Rs 9,01,664 crore. Shortfall in corporate taxes is expected to be Rs 30,000 crore, there will only be marginal shortfall in personal income tax.

For F13, the Centre is targeting a 15.5 per cent increase in gross tax revenues. Indirect tax proposals to result in a net revenue gain of Rs 45,940 crore during next financial year. Direct tax proposals are likely to result in loss of Rs 4,500 crore. In all these years, the share of direct tax was going up .

Service tax. For the first time this will cross Rs.1,00,000 cr and projected at Rs 1,24,000 crore. But the actual collection might be higher than the budget .

Total revenue receipts is budgeted at Rs.935685 cr,21.99% growth over Rev. F12 budget. Rev. F12 revised estimate is 2.72% lower than the F11 at Rs.766989 cr.

Net tax Revenue: Estimate for F13 is kept 20.06% higher than the revised estimate of F12. It is at Rs.771071.00 cr. Forecast for  F12  is 12.7% higher than the F11 figure.

Non Tax revenue: It is at Rs. 164614 cr, 31.97% higher than the revised F12 forecast. Where as  F12 estimate is at Rs.124737 cr, 43% lower than the actual F11 actual performance.

Capital Receipts is estimated at Rs.555241 cr, 3.67% lower than the  F12 forecast. While F12 is estimated at Rs. 576395 cr, 43% higher than the F11. Out of which 92.5% would come from debt receipts and rest from Non debt receipts.

Total Receipts is targeted at Rs.1490925 cr, 13% higher than the revised forecast for F12.where as estimate for F 12 is  at Rs.1318720 cr,10% higher than the F11.

Total Non Plan Expenses: Non Plan expenditure for F13 is estimated at Rs. 969900 cr, 8.72% higher than the revised F12 forecast. Out of which capital expenses is kept at Rs.104304 cr , 36.5% higher than the Rev.F12.

Revised F12 non plan expenses was at Rs.892116 cr , 9% increase over F11 figure.

Plan Expenses: Total plan expenses are budgeted at Rs.521025 cr, 22% higher than the rev. F12. where as Rev. F12 was higher than F11 by 12.5% YoY.

Out of total plan expenses capital plan expenses is targeted at Rs.100512 cr , 25% higher than rev.F12.Rest are from revenue Expenses.

Overall Expenditure is estimated at Rs.1490925 cr, 13% rise over Rev. F12 forecast where as Rev. F12 estimate is at Rs.1318720 cr, 10% rise over F11.

Thus Total Expenditure is budgeted at 159% of the total revenue receipt for F13.And For Rev. F12 it is estimated at 172%.

Overall  Capital expenditure is budgeted to grow at 30.7 per cent as against 10.6 per cent growth in revenue expenditure.

The fiscal deficit target at 5.1 per cent for 2012-13 is lower than 5.9 per cent achieved in the current year.

GDP is projected at 7.6% +  0.25%

Direct tax receipts as percentage of GDP remains stagnant at 5.8 %. This could be increased substantially by improving the tax administration to bring those who are paying no tax and those who are liable to pay higher tax. The direct tax could be increased at least 20% a year and this would go a long way in reducing the fiscal deficit.

Interest costs. Expected to increase from Rs.275168 cr to Rs.319759 cr, 16% increase over the previous year. The net market borrowing through dated securities to finance this deficit is Rs 4.79 lakh crore. This is going to keep the interest rates at very high levels.

The fiscal deficit is pegged at Rs 5,13,590 crore, which is 5.1 per cent of GDP. This time budget is higher than for the last year but still there is risk that as we go along , this might be higher than the budget.

Disinvestment. The target is Rs 30,000 cr. If a few issues are planned from May, then a target of Rs.50,000 cr could be looked at. In F12 the government could mobilise only Rs.14,000 cr.

Subsidies . Capping  subsidies within 2 per cent of GDP requires fine balancing. By improving the implementation of the schemes, the subsides could be targeted towards those who require these subsidies. The government has planned Rs 60,974 crore fertilizer subsidies. This is  lower than expected subsidy requirement  of Rs 90,000 crore in F12. Since the Farm produce prices at retail level has gone up significantly, there is a scope by which within three years, the fertilizer  subsidies could be brought down to Zero within three years. This could be ensured through higher realisation for produce for farmers at the farm level.

The petroleum subsidies have to be better targeted and here again, government could look at a reduction of these subsidies of 20% year on year. Even if decontrol will take time, by better administration the subsidies could be brought down substantially.

Agriculture. Continued interest subvention on crop loans, an additional subvention up to 3 per cent for prompt loan payments and a 21 per cent increase in agricultural credit will give a boost to farm sector. The access to viability gap funding for irrigation projects will attract private investors. There was a plan to provide Rs.10000 cr to NABARD for supporting the RRB’s. This will increase the lending capacity of RRB’s.

The thrust on Agriculture and providing funds to leading Agri Universities is likely to provide a momentum to increase the productivity in agriculture and the we could achieve a higher growth projected than in the budget, provided, the funds are utilised for productivity improvement . We could target a higher growth in Agriculture than what was projected in the Eco Survey since our productivity levels are still low compared to many other countries in the world.

Automobiles. The Budget has proposed an increase in excise duty on large cars to 24 per cent. But, large cars with engine capacity above 1,500 litres will attract an additional three per cent ad valorem rate — expected to work out significantly higher than the previously fixed Rs 15,000 extra excise on such vehicles.The customs rate on completely-built unit imports will see a 15 per cent increase, apart from an around two per cent increase in countervailing duty (in lieu of excise).

Banks. Public sector banks (PSBs) are likely to receive a major portion of the Rs 15,900 cr  allocated for recapitalisation of government financial institutions. This will improve the capital adequacy ratio of the banks and help to raise additional resources of  Rs.150,000 cr which will increase the liquidity position and funds disbursement.

Capital Markets. Qualified foreign investors (QFIs) have been permitted to access the Indian corporate bond market. Additional Tax benefits in Infra bonds and widening the limit would help to attract funds from abroad. This could be the starting point for deepening the market. Reduction of STT will reduce the cost for Institutional players in the market. Reducing the withholding tax on ECB’s would reduce the cost of borrowing from abroad for the issuers of ECBs.

FDI. The proposed amendment in the Income Tax Act retrospectively from April 1, 1962. Under the proposed amendment, all persons, whether resident or non-residents, having business connection in India will be required to deduct tax at source and pay it to the government even if the transaction is executed on a foreign soil. This has created lot of confusion and those who brought FDI in earlier years are worried and there were about more than 500 such transactions. The amendment will apply to all past transactions concerning assets in India. The immediate one to be impacted will be a company like  Vodafone.

GST.  The intention is to start t his process in the middle of the year  but it might take more time since still many of the issues are to be sorted out.

Housing. There was a thrust on affordable housing and ECB tax guidelines and interest subvention up to Rs.15 L of loan for an individual will help to boost the demand of houses in this segment. It will also help to reduce the cost for the borrower.

Infrastructure sector. Steps to improve access to funding and tax  concessions will help to increase  investments in the infrastructure . The limit for tax free bonds in the infrastructure sector has been doubled to Rs 60,000 cr. The relaxation in withholding tax for ECB’s will reduce the foreign borrowing cost.

Oil . The proposed increase in cess on production of crude oil, to Rs 4,500 per tonne from Rs 2,500 per tonne, will increase the cost of domestic oil production by Rs.250  to Rs.300 per barrel. Oil prices can play spoilsport in determining the fiscal deficit for the year. The government may have to provide higher subsidies. But the scope for very high subsidies is limited. There may be a need to increase the fuel prices which would have a cascading effect on the entire costs in the economy.

The budget also has a provision to exempt payment to certain foreign companies in India in Indian currency for import of crude oil. While the intended beneficiaries have not been explicitly mentioned, this provision would enable ease of crude oil imports from Iran. This would aid refiners such as MRPL, which depend on Iran for the bulk of their requirement.

Power . Exemption of 5 per cent customs duty on thermal coal,natural gas and liquified natural gas (LNG) will make the cost of power cheaper. The extension of 10-year tax holiday and additional depreciation of 20 per cent in the first year will marginally improve the performance of this sector.The dividend distribution tax (DDT) rationalisation will help improve return on equity for the multi-tiered structure of most power companies.

The  duty cut on imported coal will result in a saving of  Rs. 480 a tonne to the power producers in case of Indonesian coal and higher for for African coal. India imported nearly 84 million tonne of coal in 2011. This will result in lowering the power generation cost by 25 paisa per unit.

Telecom. The government has estimated  a revenue of Rs.40000 cr from the auction of Spectrum. The government should initiate the process immediately after the start of financial year and try and mobilise these funds by the first half. Despite the scope exists for looking at a higher revenue through this mode, the government should make sure that there is no exhorbitant cost for spectrum, so that the cost of communication remains at competitive levels in India.

Road ways.The allocation to the highways sector has been increased by 14 per cent to Rs 25,360 crore in F13 and the government has set a target of covering a length of 8,800 km roads under NHDP next fiscal.

SME’s. The financing available under the proposed ‘India Opportunities Venture Fund' will be routed through the Small Industries Development Bank of India  and Rs.5000 cr fund would be created to support SMEs. They are the major suppliers to the large corporates and facilitating the growth of SMEs would result in higher level of industrial growth. Exemption from capital gains tax on sale of a residential property has also been proposed, if the funds raised are used for subscription in equity of a manufacturing company for purchase of new plant and machinery.

UID. Budget  gave a big-boost to the Unique Identification Number (UID) initiative, with an allocation of  Rs 14,000 crore for the Aadhaar scheme. The budget has a target to cover 40 cr Indians. This is the starting point for moving towards better management of Subsidies and tax administration. The Unique Identification Authority of India (UIDAI) has completed coverage of 20 crore Indians.

Venture Capital. Liberalising the operation of Venture capital Funds will increase one more window of financing for sectors which are not able to attract funds from Venture capital companies.

R.Kannan