Budget Preview FY13
Government
Concerns:
- High Inflation in Wholesale price index, food and fuel inflation
- Exponentially growing fiscal deficit
- Current account deficit is at elevated levels
- Rising crude price, skyrocketing around 110 $ a barrel is causing the government to take a major hit due to the fuel subsidy.
- Slowing economy plummeted growth during the year.
India has
been battling inflation for the last 2 years. Since January 2010 up
till November 2011 the wholesale price index inflation has been over
8% concerning the policy makers. Insufficient rains were the cause
for excessive increase in the food prices.
Higher
crude prices have crippled the economy in 2011. Crude has
consistently been trading above 100$ a barrel for most part of the
year.
Combining
this with unprecedented rupee depreciation has not helped the cause.
Crude prices have risen 40% in the last 4 months, which remains a
major concern.
Interest
Rates have been hiked 13 times in 19 months to curb inflation.
Currently the repo rate stands at 8.5% and reverse repo stands at
7.5%.
This has
led to a slowdown in the economy as cost to raise capital gets more
expensive. The,
RBI
has downwardly revised GDP
growth projections for
fiscal 2011-12 to 7.6% on account of slackened investment demand,
stalled project execution, downward risks emanating from shaky global
economics and concerns about inflation and rising interest rates
eating into demand for assets fuelled by borrowed money.
However,
a silver lining in the cloud being that the RBI has hinted at a
reversal in policy stance by saying the likelihood of a hike in
December is ‘relatively
low’,
given the need to balance concerns about persistent inflation and
moderating growth.
In
addition, RBI
expects inflationary pressures to subside in December and continue on
that trajectory into
2012-13, based on normal south-west monsoon and first advance
estimates that suggest a record kharif
production.
Possible
Implementations:
Higher
tariff's on personal diesel vehicles: Diesel
cars, which
were about 23% of the overall car market in 2005-06 , now command
close to a 40% share, and this is rising rapidly. Their popularity is
largely driven by the controlled price of the fuel, which many
sections of the government are opposed to as diesel car owners are
seen as benefiting from the subsidy directed to keep public and goods
transport costs lower.
Petroleum
minister jaipal reddy has approached the finance minstry to impose
tax on personal diesel vehicles as the oil companies continue to
bleed severely due to the diesel subsidy.
The
tax difference between the low end and the high end diesel car
remains unclear, however we may see an increase in the tariff's in
both the segment.
Income
tax exemption limit may be set between Rs 2- 3 lakh:
Prior to
the budget the MP panel are likely to revise the income tax exemption
limit between Rs 2- 3 lacs and tax break on investments upto Rs 2
lakhs.
This would
be a great relief as the nation suffers from high inflation, thereby
stripping their purchasing power parity.
Members
also felt that the total tax saving deduction limit, which include
investment in provident fund, life insurance, children education and
infrastructure bonds, should be raised to Rs 2.5 lakh from Rs 1.2
lakh.
Implementation of the Direct tax code bill: The direct tax is to be implemented for 1 April 2012.
Features of the Direct Taxes Code bill
- Common threshold income tax exemption limit for men and women proposed at Rs. 3 lakh per annum (proposed), up from Rs. 1.8 lakh
- 10 per cent tax on annual income between Rs. 2-5 lakh, 20 per cent on between Rs. 5-10 lakh, 30 per cent for above Rs. 10 lakh
- Tax burden at highest level will come down by Rs. 41,040 annually
- Proposal to raise tax exemption for senior citizens to Rs. 2.5 lakh from Rs. 2.4 lakh currently.
- Corporate tax to remain at 30 per cent but without surcharge and cess
- MAT to be 20 per cent of book profit, up from 18.5 per cent
- Proposal to levy dividend distribution tax at 15 per cent
- Exemption for investment in approved funds and insurance schemes proposed at Rs. 1.5 lakh annually, against Rs. 1.2 lakh currently
- Proposed bill has 319 sections and 22 schedules against 298 sections and 14 schedules in existing IT Act
- Once enacted, DTC will replace archaic Income Tax Act.
- However, many provisions in Income Tax Act will be a part of DTC as well.
- FBT
will be charged to the employee rather than the employer.
Industry
wishlist:
Infrastructure:
The
sector wants the government to stick to the plans of heavy investing
in the sector.The government had laid out plans to invest one
trillion dollars in the course of the next five years, out of which
around half of it comes from private firms, however,with
a slowing economy, high interest rates and more importantly delayed
decision making, infra projects and infra companies face an uncertain
future.
The
government should increase spending in development under various
development schemes.
Banking:
Top demands include
security
transaction tax
(STT) reduction
and tax exemptions for non-performing assets (NPAs),
the
banks have hit in sectors
like
aviation, power, textile etc, currently the tax on NPA's is at
7.5%.Bankers
want more diversion of domestic savings in to equity markets and
transactions should be simplified as well as they want higher
deposits in the banking system.
Automobile:
The
automobile sector is against extra tax on diesel vehicles as it could
plummet the sales of diesel cars. Instead they want the government to
increase the price of diesel as diesel cars contibute about 15% of
the total diesel consumed.This step would be negative for Tata Motors
and M&M. R&D benefits could be provided to the sector to be
extended to attract incremental investments in the sector.
Information
technology: IT sector
finds that from an investment perspective, infrastructure, education
and skill building are the areas which require investment because the
industry requires talent and requires investment in infrastructure.
Retail:
The
retail sector hopes
the Budget this year brings in pricing policies and taxation schemes
which benefit the textile sector.FDI in single brand segment is
already benefitting the sector and 100% FDI in multi brand retail
segment would be a welcomed initiative. In the textile sector, the
probability of extending the TUF (Technology Upgradation Fund) Scheme
is high. This will surely boost the cost effectiveness, productivity
and the quality of garments for the future.
Real
estate: The
sector demands
for setting up of a
real estate regulator to ensure fair play and transparency in the
industry and protection of consumer interests. The main idea behind
having a regulator is to create a level-playing field.The government
should provide appropriate subsidies to the builders and help in
lowering carbon emissions. On the other hand the consumers should
also be given reduction in stamp duty for opting for green
development.
Power:
Power
sector wants benefit in terms of relief in the service tax.
There
is a severe shortage in terms of the investments.But even the more
serious problem is of under investment in the transmission and
distribution (T&D) sector. The transmission lines are loaded 90%
as against the world standard of 60-65%, allocation of funds in
transmission will benefit the sector.Non availabilty on coal along
with subsidy on power prices is causing a severe distress in the
sector.
Healthcare:India
is producing
anywhere around 25,000 doctors and the supply needs to be doubled
to 50,000 to meet the current demands. So we actually need to modify
the rules of creation for medical schools and other paramedical
facilities.Healthcare
allocation this Budget needs to atleast double of what it was last
time, which was Rs 26,000
