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Table of Content

1. ABC of Budget

2. From the MD’s desk

3. Budget 2011-2012 at a Glance a. Key Takeaways from Pranab’s speech b. Budget & Economy c. Budget Implications for a Retail Investor d. Budget Implications for NRIs e. Budget for India Inc f. Taxation

4. After-Effects of Budget

a. Equity Markets b. Mutual Funds c. Forex d. Commodity

5. Industry and experts reaction

6. Economy scorecard

7. Rail Budget

8. Personality Check : P. Chidambaram vs Pranab Mukherjee

UNION Budget 2012-13


ABC of Budget

Do we have enough cash? Are we spending a lot? Are we living beyond our means? So many questions but only one answer

which is- a ‘Budget’. In simple terms, a budget is a financial tool which tells us whether we will be able to achieve our planned

financial goals with our current strategies and helps us to establish control over our finances. It is a systematic plan used for

the projection of future income and expenditure. Budgeting is an important tool for decision making and plays a crucial role

in monitoring financial performance. The Union Budget, which is a comprehensive presentation of government’s finances, is

presented in the Lok Sabha by the Finance Minister normally on the last working day of February each year. The Union

budget is an elaborate account of revenues and expenses of the government from all sources and contains budgeted

forecasts for the next financial year. The Union budget allocates funds to various sectors of the economy and lays down the

means of raising funds for meeting the expenditure.

Constituents of the Union Budget

I. Revenue budget - It consists of revenue receipts of the government and the expenditure to be met from these revenues.

II. Revenue receipts - These are recurring in nature and are used for meeting the day to day expenses of the government.

They are divided into tax and non-tax revenue of the government.

Tax revenue- These include income tax, corporate tax, excise duties, customs and other duties levied by the government.

Direct taxes - These are levied on the income of individuals or organizations; example – income tax and corporate tax.

Indirect taxes - Taxes paid by consumers on the purchase of goods and services by them. These also include excise and

custom duties.

Custom duty - It is a charge levied on the import of goods to the country.

Excise duty - It is a levy paid by the manufacturer on goods manufactured within the country.

Non-tax revenue- Non-tax revenue consists of interest and dividend on investments made by government, fees and other

receipts for services rendered by the government.

III. Revenue expenditure -It is the payment made for the normal day-to-day running of government departments and various

services that it offers to its citizens. It also includes subsidies and interest payments made the government on its debt.

Subsidies - It is a financial aid provided by the government to a sector or a group of individuals to be more competitive. It may

be in the form of cash payments.

Capital receipts - These include loans raised by the government from public, borrowings by government from the RBI through

sale of treasury bills and loans received from foreign governments among others.

Capital payments - These consist of capital expenditure such as acquisition of assets like land, buildings, machinery,

equipments and loans granted by the central government to State and Union Territory governments.

Fiscal deficit -The excess of the government’s total expenditure over its revenue receipts.


http://choiceindia.com/budget/ABCBudget.aspx



From the MD’s Desk…..

I am highly delighted to welcome you to the world of Union Budget. Before taking a quick walk

around the budget, I wish to extend my gratitude to the senior editors’ team at the Choice India

and all the members of the budget project as they were the backbone of this Big-Budget

endeavour. I could not envisage presenting this newsletter and the complete budget coverage

without the support and professionalism of our creative team who have made this budget

project a complete success.

Somebody has rightly said, “A budget should reflect the values and priorities of our nation and its people.”

This truly, has been reflected in the country’s 81st Union Budget presented by our respectable Finance Minister Pranab

Mukherjee on March 16. For a person who can visualize the situation of Indian economy-- that is more critical than it was in

2008—the finance minister did his job of balancing all the heads. Of course, we can say that, India won that budget game

though finance minister might have faced some criticism for delaying reforms agenda.

Our finance minister faced the situation of balancing the tight fiscal situation and at the same time enhancing consumption

and investment in the economy. Mukherjee, by rolling back excise duty benefits and increasing service taxes, made the

economically sound decision and for that the budget could not termed as populist, at least.

The move to widen the tax bracket would be positive for India in the long run as India currently stands way behind in terms

of tax-to-GDP ratio. In fact, the only thing that could deter the growth might be the slippage in subsidy targets set by FM.

Subsidies in fuel and fertilizers appeared to be under-stated and any slippage on such accounts might choke the target to

achieve fiscal deficit at 5.1 per cent by next fiscal end.

All the things set apart, Mukherjee made no mistake in boosting the investor sentiments by announcing reforms like

reduction in STT, introduction of Rajiv Gandhi Equity Saving Scheme, doubling the infrastructure tax free bonds, among

some others. Also in the light of threats to the reserves of India, FM’s decision to levy 2 per cent extra duty on gold imports

emerged as a positive sign.

Mukherjee Sir also announced a package of measures in a bid to stimulate the dipping industrial production, especially in

infra sector. The reduction of withholding tax for interest payment on ECBs from 20 per cent to 5 per cent reflected the

right approach of finance minister this time. Another aspects that sounded lucrative were the liberalization of venture

capital funds industry, higher depreciation rates to boost investments, reduction of import duty on coal, and an ambitious

plan for the infra sector in the upcoming five-year plan.

My message to the consumers, investors and corporate is just that the Union Budget of 2012-13 was limited by some

economic fundamentals and political constraints and our finance minister finally took some baby steps to revive growth

that could have been taken much earlier.

Hope that the Union Budget 2012-2013 revives the confidence of our countrymen in the growth story of our own India

which still remains intact.


Budget at a Glance: Pranab Mukherjee’s risk-aversion turns out a

damp squib

The risk aversion of Finance Minister Pranab Mukherjee has prevailed in Budget 2012

– 13. The flat Budget has come as a disappointment, to say the least. In its last

budget before the election year, the government shied away from making any

structural reforms that could have given a boost to India’s economy. The

disappointed equity markets ended the day in red with the Sensex losing 209.65

points and Nifty losing 62 points.

The Economic Survey 2011-12 of yesterday identified six areas of focus for rapid

economic growth. These are: efficient contracts; minimal intervention in fixing

prices; acquisition of land by government for industrial projects; giving subsidies

directly to users, and a fixed subsidy on diesel. Out of these six areas today’s Budget

only mentioned giving direct subsidy while remaining silent on all the others.


What’s taking over the sleep of

Pranab Da:

I had to bring the economic

growth back on track.

Secondly, I had focus on bringing

the inflation down, which has

weighed over the growth of India

for over two years.

Last but not the least; I had to

bring the fiscal consolidation. We

can’t allow fiscal profligacy.

Mukherjee, as expected could not come out of political gimmicks and ended up with large subsidies to the most stressed

nerves of India currently. Fuel, fertilizers, and food subsidies proposed for FY13 have instead of paving the way for

government to rein in fiscal deficit, would now only do the job of raising the yields on 10-year government bonds. The

threat of the populism show by Pranab, turned into reality today.

Dirty Picture at a glance

9.6% 9.3%

6.7%

8.4% 8.4%

6.9%7.6%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 (BE)

GDP growth rate

3.3%

2.5%

6.0%

6.5%

4.8%

5.9%

5.1%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 (BE)

2012-13 (BE)

Fiscal Deficit



Key take-aways from the budget

Pranab sets the fiscal projections right, finally!

The fiscal deficit projections for 2012 – 13 have been conservative and this has

restored some of the credibility of Finance Minister. The government has

missed its fiscal deficit target by a great margin. Fiscal deficit for 2011 – 12 stood

at 5.9 per cent against the target of 4.6 per cent set in Budget 2011 – 12. The

failure at the disinvestment front and the burgeoning populist subsidies spoiled

the fiscal deficit calculations of the central government.

For 2012 – 13 the finance minister has projected fiscal deficit at 5.1 per cent of

GDP. The fiscal deficit is the difference between the expenditures and revenues

of the government. A higher fiscal deficit projection for 2012 – 13 means that

the borrowings of the government are bound to go up. Net market borrowing

required to finance the deficit has been estimated at Rs 4.79 lakh crore in 2012-

13. The yield on 10-year government bonds was already up to 8.9 per cent after

the Finance Minister’s Budget speech

“For the better part of the past two

years, we had to battle near double

digit headline inflation. Our monetary

and fiscal policy response during this

period was geared towards taming

domestic inflationary pressures.

A tight monetary policy impacted

investment and consumption growth.”

-- Pranab Mukherjee

The effective Revenue Deficit for 2012-13 has been estimated at 1.8 per cent of GDP. Revenue deficit is the excess of

revenue expenditures over revenue receipts.

Current Account Deficit: India in dark with overseas

The Current Account Deficit for 2011 – 12 stood at 3.6 per cent of GDP. The reduced capital inflows because of decline in

foreign institutional investments and foreign direct investments during the second and third quarters of 2011-12 financial

year put severe pressure on the current account situation and consequently on the exchange rate of rupee

GDP: Pranab Da aims to come back on path of higher growth trajectory

The Gross Domestic Product (GDP) for 2011 – 12 has been estimated at 6.9 per cent, much below the projections in Budget

2011 – 12. The Budget has projected GDP growth of 7.6 per cent for 2012 – 13.

However, in the mirror of the real factsheet, this dream of Pranab Da seems to be far from reality. But, dear finance

minister, there is a silver lining for you to make-up for the losses in this budget. The inflationary pressures have started

coming down, and fortunately in the comfort zone of RBI. This now makes the room for monetary easing in a gradual

manner.

“Taking a bird’s eye view of the entire economy and keeping in mind the difficult global environment, I expect India’s GDP

growth in 2012-13 to be 7.6 per cent, +/- 0.25 per cent”.



Pranab tweaks the 60-year old I-Tax Act. DTC not on cards yet!

Budget 2012 – 13 has raised the tax exemption limit to `2 lakh from the current `1.8 lakh. Income between `2 lakh and `5

lakh will be taxed at 10 per cent; between `5 lakh and `10 lakh will be taxed at 20 per cent; and above `10 lakh will be

taxed at 30 per cent. The higher exemption limit will have an adverse impact on the revenues of the government. On the

positive side it may increase the savings rate in the economy.

The corporate tax rate has been kept unchanged at 30 per cent giving great relief to the corporate sector. The government

has restrained itself from increasing the tax burden of the companies for financing its wasteful expenditure on subsidies.

Subsidies: FM could bite the bullets, but he didn’t!

The Union Budget 2012 – 13 has proposed to keep central subsidies under 2 per cent of GDP. The Finance Minister said that

fuel subsidies will be trimmed. The Budget didn’t detail how the subsidies will be brought down. The fuel subsidies are

bound to exceed `150,000 crore while those on urea will be exceeding `100,000 crore.

The Budget has proposed direct transfer of subsidy on food and fuel to beneficiaries as a way to bring down the subsidy bill.

Finance Minister Pranab Mukherjee conceded that the subsidies were having an adverse impact on the financial health of

the country. However he still didn’t shy away from committing full subsidy support for the food security, the pet project of

UPA chairperson Sonia Gandhi.

“Fiscal consolidation calls for efforts both to raise the tax-GDP ratio and to lower the expenditure. In this context, we

need to take a close look at the growth of our revenue expenditure, particularly on subsidies.”

Revenues and Expenditures: Optimistic targets not backed by desired plan, again!

Direct tax collection fell short by `32,000 crore in financial year 2011 – 12. The slower than expected GDP growth rate was

the main reason for this. The Budget projects gross tax receipts of `10,77,612 crore for 2012 – 13. Non-tax Revenue

Receipts are estimated at `1, 64,614 crore. Total expenditure for 2012-13 has been budgeted at `14,90,925 crore. Non-plan

expenditure has been estimated at `9,69,900 crore. It will be a challenge for the government to check the growth in non-

plan expenditure. `3,65,216 crore is estimated to be transferred to States including direct transfers to States and district

level implementing agencies.

The Central Government debt has been estimated at 45.5 per cent of GDP in 2012-13 as compared to Thirteenth Finance

Commission target of 50.5 per cent.

Indirect Taxes

The Budget proposes to tax all services except the seventeen on the negative list. Service tax has also been raised from 10

per cent to 12 per cent. The government expects to generate additional revenues of `18,660 crore from this hike in service

taxes.


Budget & Economy

The Union Budget of 2012-13 and the plans chalked by the government to walk the

desired lines would be the health of Indian economy after a year. The budget task of

every fiscal starts with finance minister’s consistent efforts to formulate tangy reforms

that translate the failures of previous fiscal in to the success in upcoming fiscal. There are

always some questions that the finance minister needs to address. What is the health of

economy now? What chapters were left unread during the year that translated into

failure? And finally they have to decide what’s more important; populism or reformism?

How the government generates revenue and spends it affects everyone directly in the

short term as consumers, investors and taxpayers, and indirectly, over the long term,

through the direction in which these proposals move the economy.

Budget 2011-12 and Indian economy

The finance minister, Pranab Mukherjee, gave his 7th Union Budget speech on March 16,

2012, that was found inspired from history of worst budgets. But if, compared to his

previous budget speech, Mukherjee played safer and cleaner this time.

Mukherjee, in his 2011-12 budget speech, was betting high on revenue side with equally

sharp expenditure plans. As expected, Pranab’s partially thought-full budget of 2011-12

turned out to be a mass disaster that was fired by lack of policy initiatives to back feel-

good plans. The budget of 2011-12, if analyzed on the parameters of success, shows that

it was a big failure. The economic growth targeted at 9 per cent is now finally ready to

choke below 7 per cent. The fiscal deficit targeted at 4.6 per cent has now finally settled

with 5.9 per cent.

“The word Budget

was derived from

the Middle English

bowgette, which

came from Middle

French bougette,

which in turn is a

diminutive of bouge,

meaning a leather

bag.”

In other words, the entire credit of deadly results should not go to the global economic weakness during 2011. But the credit

partially and significantly goes to the long saga of populism shown by Pranab Mukherjee in his past three budgets. Since the

first budget of latest three, Mukherjee has made his intentions clear that goals would remain same as long as they are not

achieved.

Mukherjee has tried to keep economic growth at close to double digits, ensure that fiscal health remains in control and

finally some systems that define inclusive growth in the country. The goals of Mukherjee were always complete but never

had the right approach to meet them.




Budget 2012-13 and the Indian economy

Had there been a performance appraisal of Pranab Mukherjee after every budget then he would have definitely scored an

extra mark this time than the last one. The extra mark to the FM would have come for the realistic budget he has presented

despite of the pressure to save government’s lost credibility in UP elections. The finance minister came up with plans to

nurture growth in gradual manner with emphasis on domestic sectors to drive growth. Moreover, he actually opened the

right door where problems are lying, though he made little efforts to break the door.

Firstly, he projected the fiscal numbers right at 5.9 per cent for current fiscal and 5.1 per cent for next fiscal. He mentioned

the need to revive private investments in the economy. He also expressed desire to reduce subsidy burden and address

challenges of subsidy leakages and subsequently check the black money and corruption in the economy. Moreover, he again

tried to address concerns of supply bottlenecks in the economy in sectors like agriculture, energy, national highways, and

some others.

But it remains to be seen how this changed approach works in favour of UPA government that faced criticism for huge

subsidies, reckless spending on social programmes and policy paralysis. The strategy of spending without concrete plans to

boost revenues worked fine till 2008, but it has now transformed into a poor combination of growth falling apart and

inflation rising up. The GDP growth and headline inflation have exchanged places that demand the courage to bite bullets to

get them back on their positions.

The Congress government seems like, failed to leverage upon its star chance to save its lost credibility in the previous year

and recently in the UP elections. The government could neutralize the negative by announcing bold reforms that would raise

business confidence and put the economic growth on track again. But nothing like that actually happened. From tax reforms

to the land acquisition, reforms remained only on promises and could not come on papers.

The economic growth goes for a toss now. Even if in the coming few months, the government tries to take bold steps and

show case its intentions to rein in fiscal deficit, it is very next to impossible to re-create the confidence in industry that has so

far found holes in the plans of government.

And finally the Manmohan Singh & Co, now have very small chance to revive its fortunes before they go to fields again to

muster the votes for upcoming general elections of 2014. This budget of March 16 is a signal that the party is on the edge to

lose the elections with significant gap.

Highest budget deficit among BRICS shows India’s worsening public finances!

The Indian government’s failure to rein in spending and implement bold structural reforms has seen the nation post the

widest fiscal gap among the BRICS countries.

The Indian government expects to post a fiscal deficit of 5.9 per cent of the nation’s GDP in 2011-12, well above the

targeted 4.6 per cent.

Next fiscal, the budget deficit is expected to be 5.1 per cent of the nation’s GDP.

Compared to its BRICS peers, namely Brazil, Russia, China and South Africa, India has the widest fiscal shortfall.



Budget impact on Retail investors

Budget 2012-13 was reform-less event that lasted for more hours than it was worth. But

still it offered some reasons to the retail investors to cheer. Retail investors cheered the

steps like reduction in securities transaction tax (STT) by 20 per cent on delivery

transactions, the introduction of Rajiv Gandhi Equity Saving Scheme, increase in the tax

exemption limit by `20,000 and an increase in limit for tax free bonds to `60,000 crore. But

as said earlier, the budget was disappointment for everyone, and retail investors too were

in the picture. The small benefits that retail investors and individuals would get from such

schemes and proposals, would get offset by the rise in expenses due to 2 per cent rise in

service and excise taxes.

Impact of STT cut

Pranab Mukherjee announced the plan to cut the securities transaction tax (STT) by 20 per

cent to 0.1 per cent. But the disappointing factor was that the cut would apply only on

delivery transactions. These delivery transactions account for only 35 per cent of the nearly

8 per cent cash based transactions in the total stock exchange volumes. Although it was a

welcome move, but still there would be very marginal benefit of such STT cut.

IPO process simplification

The budget has proposed to simplify the process of Initial Public Offers (IPO) issues that will

boost the retail investor participation in the stock markets. FM announced the plans to

make it mandatory for the companies to issue IPOs of `10 crore or more in electronic form.

Under the new mechanism, the IPO would be uploaded by companies electronically on the

stock exchange platform, which can be accessed through brokers. This would be positive for

retail investors who might find investing in an IPO easier as it also reduces the chances of

error.

Infra-tax free bonds doubled

Moving a step closer to revive the infrastructure health of Indian economy, the finance

minister announced plans to double the infrastructure tax-free bonds to `60,000 crore in

the upcoming fiscal.

The National Highways Authority of India (NHAI), the Indian Railways Finance Corporation

(IRFC) and the India Infrastructure Finance Company Ltd (IIFCL) would now be able to raise

`10,000 crore each by issuing tax-free bonds in the next fiscal. Also at the current rates

when prices are low, these bonds would be very attractive to retail investors as well as high

net-worth individuals.

New Equity Scheme to

attract first time investors

to the market

If you are an investor, the

most exciting thing about

the budget 2012-13, which

otherwise was a damp

squib, should be the Rajiv

Gandhi Equity Saving

Scheme (RGESS).

The scheme is designed to

lure you out of your bank

account deposits and

mutual fund investments

towards direct equity

investments. RGESS is

tailor-made for individual

investors with income

below `10,00,000. The

scheme allows income tax

deduction of 50 per cent

on a maximum investment

of `50,000 and has a lock

in period of 3 years. So, if

you invest `50,000

(maximum allowed) you

can claim a tax deduction

of `25,000. Therefore, the

maximum saving for

people earning `10,

00,000 would be `5,000.

RGESS is designed to

encourage flow of savings

in financial instruments

and improve depth of the

domestic capital market. It

also has the potential to

bring in 1.5 crore new

investors to the equity

markets.



Budget impact on foreign investors: A mixed bag for QFIs, NRIs and FIIs

Budget brings few cheers and many disappointments for the overseas community

Introduction

Budget 2012 – 13 held some cheers and many disappointments for non-resident Indians (NRIs), qualified foreign investors

(QFIs) and Foreign Institutional Investors (FIIs). Indian economy is a capital scarce one. By bringing in much needed capital

inflows, QFIs, FIIs and NRIs play a critical role in the growth of the economy. The stratospheric growth that the Indian

economy has witnessed since the economic liberalization of 1991 has mainly been due to the strong capital and technology

inflows from abroad that followed.

55.6

53.6

52.5

53

53.5

54

54.5

55

55.5

56

remittances from NRIs and overseas indians during first half

of 2011 -12 (in billion dollars)

remittances from NRIs and overseas indians during first half

of 2010 -11

Remittances continue to grow

Remittances from Non Resident Indians play

a crucial role in financing India’s current

account balance. During the first half of 2011

– 12 remittances from NRIs and Indians

working abroad stood at a whopping USD

55.6 billion – a year- on- year growth of 3.7

per cent. NRI deposits during the first half of

the financial year increased to USD 3.9 billion,

up from USD 2.2 billion in the corresponding

period of the previous year.



3.9

2.2

0

0.5

1

1.5

2

2.5

3

3.5

4

4.5

NRI deposits during first half of 2011 - 12 ( in billion dollars)

NRI deposits during first half of 2010 - 11 ( in billion dollars)

NRI deposits

1.3

23.8

0

5

10

15

20

25

FII investments in first half of 2011 - 12 in billion dollars

FII investments in the corresponding period of 2010 - 11

Decline in FII investments

The objective of any budget of a developing

economy like India should be to encourage

foreign investments. Budget 2012 – 13

generally fails on this account. The finance

minister announced some minor measures

for increasing foreign investments but what

played the spoilsport was the

announcement to retrospectively tax cross-

border asset sales like that of Vodafone

from April 1st 1962.The intention of this

retrospective announcement seems to be

malicious and it intends to challenge the

Supreme Court judgement against

Vodafone. This will in general send a very

wrong signal among the foreign investor

community. It is reflection of the

arbitrariness and high-handedness of the

Indian government and the command

economy mindset of socialist India. The

announcement will affect many other

transactions including those of companies

like GE and AT & T.

Net Foreign Institutional Investment during

the first half of the financial year 2011 – 12

stood at USD 1.3 billion while foreign direct

investment during the period stood at USD

12.3 billion



Some favourable announcements for QFIs and NRIs include the provision that opens up investment in corporate bonds for

foreign institutional investors (FIIs). Mandatory reporting of foreign asset provision can increase the reporting requirements

and psychic costs of NRIs.

Increase in customs duty on gold will discourage NRIs from bringing gold and gold jewellery into the country. The deferment

of the Direct Tax Code (DTC) comes as a favourable development for NRIs as the DTC proposes some harsh tax measures for

NRIs.

Allowing two-way fungibility of IDRs will encourage UK and foreign companies to raise money from Indian markets and get

their IDRs listed here. This two-way fungibility will allow foreign investors to buy Indian listed IDRs and sell them in the

London stock markets. However what would have really given a boost to sentiments was non-directional general fungibility

instead of two-way fungibility limited to London markets only.

Key takeaways for QFIs, NRIs and FIIs in Budget 2012 -13

Qualified Foreign Investors (QFIs): Silver lining in dark clouds

Investment in corporate bonds

Budget 2012 – 13 has proposed to allow qualified foreign investors (QFIs) to invest directly in corporate bonds of Indian

companies. Qualified foreign investors are foreign individuals, groups or association of persons registered outside India who

do not violate any eligibility norms for investment in Indian markets.

This measure will benefit both the QFIs and Indian companies as this will enhance the liquidity of the debt market and is likely

to bring down their cost of borrowing as well. Indian companies are currently paying one of the highest bond yields in the

world. Average yield on five year bonds of Indian companies during much of 2011 hovered at around 9.57 per cent. The

average yield on Chinese corporate bonds during this period was 4.88 per cent. QFIs can earn these high yields by investing in

corporate bonds of Indian companies. India’s bond market currently lacks the kind of depth which is necessary for an efficient

market and this move will go a long way in increasing it.

Non- Resident Indians:

Investment in corporate Bonds by QFIs

Non-Resident Indians too will benefit from the move to allow QFIs to invest directly in corporate bond markets. NRIs were

technically allowed to invest in Indian corporate bonds. However companies issuing bonds needed to take permission from

RBI for allowing subscription by NRIs. Now that QFIs can invest in corporate bonds, Indian companies will no longer have to

take special permission from NRIs. NRI investments in Indian corporate bond market will therefore see a rise.



Mandatory foreign asset Reporting

Budget 2012 – 13 has proposed mandatory foreign asset reporting by Indian residents. This announcement may affect those

Non – Resident Indians who have returned to India after long stints abroad. They will have to report any foreign assets that

they acquired during their stay abroad.

Also the budget has raised the retrospective tax investigation limit to 16 years. This means that income tax authorities can

now open tax investigations dating back to 16 years. This may again have some adverse impact over those NRIs who return

back to the country.

Deferment of the Direct Tax Code

The Direct Tax Code, which will replace Income Tax Act, 1961, will not be tabled in the Budget session of the parliament. This

is good news for NRIs. Some of the provisions of the current DTC code go against them. One of these provisions is that NRIs

and Persons of Indian origins (PIOs) will be classified as Indian residents if they stay in India during the financial year for more

than 60 days. They will also be classified as Indian resident if they stay for more than 365 days or more over a period of four

years prior to the assessment (financial) year. The classification as an Indian resident means that the global income of NRIs /

PIOs during the financial year in which they are classified as such will be taxed in India.

Increase in customs duty on gold

This states that NRIs who bring gold from abroad to India will find it more expensive to do so now. Since prices of gold and

gold jewellery is lower in many developed countries than in India (because of huge demand for gold in India), it has been a

usual practice by NRIs to bring gold into India while visiting it. The increase of customs duty on gold will discourage this

practice.

Foreign Institutional Investors and Foreign Companies

Two way fungibility of IDRs

Budget 2012 – 13 has proposed to allow two-way fungibility of Indian Depository Receipts (IDRs).This allows foreign investors

to buy Indian listed IDRs and sell them in the London stock markets. The move will encourage many UK and other foreign

companies to raise money from Indian markets by getting their shares listed in Indian markets through IDRs. However, the

government still shied away from proposing non-directional (not limited to some countries only) fungibility. For a capital –

scarce economy non-directional fungibility of IDRs is an indispensable requirement.

FIIs too will benefit from this provision because it will increase the investment avenues currently available to them in the

Indian markets. It will also increase the liquidity of the markets leading to a more efficient mechanism for price discovery.

After this announcement Standard Chartered’s IDR broke its circuit limit of 20 per cent and touched an intra-day high of

`94.20.



Retrospective taxation of foreign asset transactions for assets located in India

The announcement to tax foreign asset transactions for assets located in India retrospectively from 1961 comes as a big jolt

to foreign investors. The proposal aims at overturning the Supreme Court verdict in the Vodafone case that had gone in

favour of the company and had raised the spirits of foreign investors.

Conclusion

The flat Budget has come as a disappointment, to say the least. In its last budget before the election year, the government

shied away from making any structural reforms that could have given a boost to India’s economy. The disappointed equity

markets ended the day in red with the Sensex losing 209.65 points and Nifty losing 62 points. For the overseas community,

which continue to pin their hopes on India, Budget 2012- 13 was one more disappointment in a long chain.

78.5

94.2

0

10

20

30

40

50

60

70

80

90

100

Price of Standard Chartered iDR before the Budget speech

Price after Budget

IDRs to benefit from Budget

Allowing Investments in long term infrastructure

bonds

Budget 2012 – 13 allows foreign institutional investors

to invest in long term infrastructure bonds. This is an

announcement in favour of Foreign Institutional

Investors as it will increase the investment

opportunities available to them in India.



Budget and India Inc

India Inc stands at such a phase of economic growth

that even a small kick of poor reforms could push them

into a dark and bottomless pit and there would be no

traces of the confidence and optimism again. India Inc,

crushed between global economic woes and policy

paralysis at home, have found the FM’s speech high on

promises and low on reforms. All the wishes were torn

apart and the additional burden of tax hikes could be

the next big setback for the Indian corporate.

India Inc struggles hard to meet borrowing needs as

high interest costs as well as plunging profits hits all the

targeted goals during the year. Moreover, un-clarity in

the government laws continued to hamper the

investment plans of India Inc.

Now with the new budget plan in hand, India Inc might

feel the crunch of confidence that the new tax

provisions of Mukherjee aim to achieve. The

unchecked and liberalization handed over to tax

authorities in this budget could lead to many more

stand-offs between the government and India Inc in

the coming months. The budget of March 16 increased

service taxes and excise taxes by 2 per cent each and

gave almost super-natural powers to tax authorities

that shows the intent of government to boost revenues

without considering the damage it might cause to the

plans to India Inc.

Cooking the chaos…

1.Proposal

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 land.

Impact

Vodafone could

face a tax bill of at

least $2 billion for

the near $11.2-

billion deal with

Hutchison in 2007.

Other deals like

AT&T and Idea

cellular might also

come into court.

2.Proposal

Proposal to amend

section 9 (1) (1) to

state that the

payment for use of

computer software

in businesses is a

kind of royalty and

thus taxable.

Impact

Going to affect all

the firms that have

been using

softwares in

conducting

business.

3. Proposal

FM proposed to

amend section 40

(A) of the T-Tax act,

thus empowering

tax officers to

decide on taxability

of expenditure

incurred on

transaction

between group

companies.

Impact

Will make the

process

burdensome for

such companies

that have

transacting on

routine basis.

4.Proposal

To raise the excise

rates and service

taxes by 2 per cent

each.

Impact

The proposal will

only fuel

inflationary

pressures and will

put additional

burden on India Inc

who have been

struggling with

rising input costs as

well as high interest

costs.

"It is not going to stimulate the economy,"

--said FICCI President R V Kanoria.

Mukherjee, in his 7thbudget, gave powers to the tax

authorities to check all the transactions between

companies and its subsidiaries, investors and foreign

partners for taxation eligibility.



Budget Impact on Various sectors

Auto Sector

Ensuring a smooth long drive for the auto sector, the Finance Minister Pranab

Mukherjee in his Union Budget 2012-13, speech announced that no additional tax

will be imposed on diesel cars from various sections.

No addition in tax or excise duty on diesel vehicle

Car makers heaved a sigh of relief post budget announcement as there was

speculation in the corporate lobby that additional tax or excise duty would be

levied on diesel vehicles to reduce the subsidy burden on diesel.

With the announcement of Union budget, the wait for Indian car makers to chalk

the investment plans has got over. Car makers like Maruti Suzuki, Hyundai Motors

are now likely to speed up investments in diesel cars over the period as finance

minister dashed the demands of additional tax on diesel cars from various sections.

Driving into GST, not sure!

The Auto players and even most

of the industry players are

subject to multiple taxes in the

forms of customs, excise and

service taxes. A simplified and

effective tax system as proposed

under GST law could have been a

big victory for such auto players,

but Pranab Mukherjee

announced the bill to be effective

from August 2012.

Everyone knows that unless

there is a consensus between

centre and states and the

political logjam is resolved,

implementation of the GST will

not move forward.

The possibility of diesel tax and lack of certainty in diesel pricing before the budget

announcement had led the auto makers to hold their investment plans of more

than `3,000 crore in India. Diesel cars have enjoyed high sales during the past few

years as the regulated fuel costs much lower than the petrol. Due to rising

demands for such diesel cars and subsequent subsidy burden, there was a strong

demand from various sections for an additional tax on diesel cars.

Maruti Suzuki, India’s largest car maker, which has also been awaiting clarity on

the issue, is now likely to launch some new models as well as finalize the plan to

kick-start a new diesel engine manufacturing facility in India. Some media reports

have stated that Maruti Suzuki would spend around `1,000 crore in diesel engine

manufacturing.



Hike in the excise duty from existing 10% to 12%

However, hike in the excise duty from existing 10 per cent to 12 per cent will

negatively impact the already struggling automobile sector. The proposed

enhancement in the excise duty will adversely impact the prices of vehicles and

in turn sales, while the industry is already struggling with sluggish demand

during the current financial year due to rising fuel prices, inflation and high

interest rates.

Increase in customs duty on the 'flat-rolled' steel from 5% to 7.5%

Further, increase in customs duty on the 'flat-rolled' steel from 5 per cent to

7.5 per cent may unfavourably affect the auto component sector as this is one

of the key input materials for the auto industry.

Flat rolled steel is used in sheet metal works that goes into many parts of a

vehicle like body panels and chassis.

Hike in the custom duty on import of large cars/UVs costing above USD

40,000 from 60 per cent to 75 per cent

The finance ministry has also proposed hike in the custom duty on import of

large cars/UVs costing above USD 40,000 from 60 per cent to 75 per cent. This

would lead to the increase in the price of the luxury car such as BMW,

Mercedes over `60,000 in India.

All in one, the key highlights of

Automobile sector in Union budget

2012-13 are:

Excise duty raised from 10

per cent to 12 per cent

across segments

Custom duty on import of

large cars/UVs costing above

USD 40,000 from 60 per cent

to 75 per cent

Flushing the market

expectations, no additional

tax or excise duty levied on

diesel vehicles

Customs duty on the 'flat-

rolled' steel increased from 5

per cent to 7.5 per cent

“The Budget is the most extensive account of the Government finances,

in which revenues from all sources and expenses of all activities

undertaken are aggregated. It comprises the revenue budget and the

capital budget. It also contains estimates for the next fiscal year

called budgeted estimates.”



Banking sector: a mixed bag!

Pranab Sir probably tried to make some directional changes for banking sector by

announcing reforms for power sector which are high on NPAs in banking right now.

Also the capital infusion in public sector banks came at the right time as even most of

the banks are riding much slow in capital adequacy limit coupled with falling asset

quality.

However banks might miss the Pranab’s efforts to reduce fiscal deficit that were

largely missing. High deficits are expected to haunt banking stocks as it puts pressure

on inflation directly and interest rates indirectly. The union budget for the banking

sector was a mixed bag as it had some positives as well as negatives for the banking

sector.

Capital will not be inadequate anymore!

FM proposed to provide the sum of`15,888 crore for capitalization of public sector

banks, regional rural banks and other financial institutions that also include NABARD.

In the previous year, the budget had estimated the capital infusion of `6,000 crore

but due to consistent liquidity crunch and rising bad loans, the government is now

close to infusing over `16,000 crore in the banks during 2012-13.

FM has proposed to develop a central Know Your Customer (KYC) depository in 2012-

13. The depository is aimed at avoiding multiplicity of data and loss of data. The

proposed plan is aimed at making the banks maintain a systematic record of their

customers.

Fiscal pressure on govt, would be something that may matter!

Banks are under consistent pressure to finance the rising fiscal deficit of the

government which is slated to touch 5.9 per cent during the current fiscal and 5.1 per

cent during the next fiscal. The government is expected to borrow `4,79,000 crore in

the upcoming fiscal to finance its deficit in FY13.

Something that’s Okay with

banks!

Creation of public financial holding

company to raise resources for the

PSU banks which need capital for

their operations. The creation of

such an entity is not likely to have

an immediate impact, although it

would be positive in the long term.

This budget is a good friend of

banks!

Capital infusion support from the government.

Promotion of private sector investments

Steps to remove infra bottlenecks

Allow to raise funds via long term infrastructure bonds that qualify for a deduction under sec 80CCF.

Banks demanded that provision for non-performing assets (NPAs) should be allowed for full deductions.

Higher borrowings of the government are likely to push interest rates up as they are

already close to double digits. It might also block the path of RBI to consider interest rates

reversal in the April month.

Overall the budget 2012-13 was mixed bag for banking sector and it now depends upon

the finance minister whether his promises would remain on paper or they would turn

into reality. It seems like Pranab Mukherjee has again rolled the ball into the RBI’s court

to decide about interest rate and inflation movements.



Infrastructure: FM presents a new wine and a new bottle this time

Someone has rightly said that one hundred rupees spent in infrastructure activities

can create one thousand opportunities for the economy. So, infrastructure

development is very crucial for the development for the economy. Unfortunately,

the sector has witnessed lacklustre development during the past few years as

government struggles with high fiscal deficit as well as high interest rates. This

budget of 2012-13 made right steps towards increasing infrastructure activities in

the coming period as even Mukherjee said that there was a great need to remove

infrastructure bottlenecks in the economy.

The budget showed the intention of FM to boost infrastructure spending during the

12th five year plan. FM proposed the investment of `50 lakh crore during the

upcoming five year plan with equal participation from public and private sector.

FM’s budget exercise showed that he made a concrete effort to reduce funding

constraints for the sector. Infrastructure spending in the economy has increased to 8

per cent in FY11 as compared to 5.7 per cent in FY07, while Pranab Sir has aimed to

achieve the target of pushing the number to 9-10 per cent by the end of 2012-13.

Manmohan Singh

during his speech for

the 1992-93 Budget,

said, "It is said that

child is the fatherof the

man, but some of our

taxpayers have

converted children into

tax shelters for their

fathers."

Doubled tax free infra bonds, another ray of hope for country’s infra sector!

Infra tax free bonds limit doubled to `60,000 crore: As earlier said, the

government has tried to ease the funding constraints for the infrastructure sector.

Most crucial in this direction, FM raised the tax free bonds limit to `60,000 crore

from `30,000 crore earlier. Also in an attempt to reduce the cost of funding for

some ailing infra sectors, FM announced the rate of withholding tax on interest

payments on ECBs to 5 per cent from 20 per cent.

Addressing the need for increasing the infrastructure benefits to more sectors of

economy, FM announced the plans to bring sectors like irrigation, oil and gas

storage, fertilizers and telecommunication towers under Viability Gap Funding

scheme.



Incentives for Rural Development: Finance Minister announced the proposal to enhance the allocation under Rural

Infrastructure Development Fund to `20,000 crore. The allocation is aimed at bringing more inclusive growth as well as

employment in the country.

Road development with higher allocation: FM announced the proposal to cover roads of length 8,800 kms under the

National Highways Development Project in 2012-13. For this the finance ministry has allocated the `25,360 crore for next

fiscal reflecting an increase of 14 per cent.

Removal of high custom duties on imported equipments: FM proposed the complete exemption from basic custom

duties, countervailing duty, and special additional duties on the import of equipments used by various infrastructure

sectors. The development is likely to benefit both small as well as large infrastructure players.

Some missed spots!

The benefits offered above are likely to take a hit from 2 per cent hike in excise duties which might raise the costs of raw

materials used in various projects including steel, cement. And lastly, the burden of government’s high borrowings and

high interest rates are likely to be a major road block for infrastructure development in the country.

“The precedent for the convention of the budget speech started at 5:00 pm was set

by Sir Basil Blackett in 1924. According to him, this was done to give some relief

to officials who worked all night to present a financial statement”



Realty Sector

Balancing reality with hope, the Finance Minister Pranab Mukherjee in his Union

Budget 2012-13, speech announced mixed bag for the realty players. The budget

cheers the real estate firms on some points while hurts on setback of some

demands.

External commercial borrowings (ECBs) allowed in the low-cost housing segment

Addressing the shortage of housing for low income groups in major cities and

towns, the finance minister has proposed allowing external commercial borrowing

(ECB) for low cost housing projects. This move will give fillip to the already

struggling sector and will help in filling the shortage of 26.3 million housing units in

the country.

Tax exemption on interest paid on housing loans raised to up to `2 lakh

Giving much-needed respite to the home buyers, the Finance Minister has raised

the tax exemption on interest paid on housing loans to up to `2 lakh annually from

the existing limit of `1.5 lakh this budget.

Proposal to reduce withholding tax on ECB interest from 20 per cent to 5 per cent

Ensuring liquidity, the Finance Minister has also proposed reduction in the withholding tax on ECB interest from 20 per

cent to 5 per cent for three years. The reduction would help the sector in assessing cheaper funding.

Establishment of Credit Guarantee Trust Fund

The Finance Minister has set up Credit Guarantee Trust Fund to ensure better flow of institutional credit for housing loans.

This new initiative may be useful in the long run, however, it will have no immediate impact on the housing loan scenario.

Increase in service tax and excise duty from 10 per cent to 12 per cent

With the proposed hike in the excise duty and service tax by two per cent each to 12 per cent from the earlier 10 per cent,

property prices will rise by a minimum of two per cent. This has dented the sentiment of the industry, which is already

struggling with persistent inflation, high interest rate and rising prices. The budget does not hold much hope with high

property prices will significantly slow down housing demand.

However, service tax was exempted on construction activities in specified infrastructure, canals, irrigation works, post-

harvest infrastructure, residential dwelling and low-cost mass housing up to an area of 60 sq meters under the affordable

housing scheme in partnership.



FMCG and cigarettes: What the Budget 2012 – 13 really means for them

The increase in excise duty from 10 per cent to 12 per cent in Budget 2012 - 13 will

inflate the price of fast moving consumer goods as manufacturers are likely to pass the

burden to the customers. The margins of FMCG companies are already under pressure

and they are not in a position to absorb a hit in margins because of increase in general

excise duty.

The Budget by reducing customs duty on imported cigarettes sent a psychological

message that the government is not all out after the cigarette industry because of the

general health hazard that it poses. That explains the rise that ITC shares saw

immediately after this announcement in the Budget.

However, the Budget will make domestically manufactured cigarettes dearer. An ad valorem duty (based on prices) has

been levied on 50 per cent of the Maximum Retail Price of filter cigarettes of length greater than 65 mm. The net impact of

this will be that the overall tax burden of domestic cigarette manufacturers like ITC and Godfrey Phillips India will increase

by somewhere between 15 per cent and 16 per cent. Cigarette prices are therefore likely to go up by around 10 per cent at

least in the near term as manufacturers will pass on chunk of the increase in duties to customers. Empirical evidence

suggests that cigarette has a very low price elasticity of demand in the short term and cigarette manufacturers will take

advantage of this.

Budget 2012 – 13: What it means for metal and steel companies

The increase in excise duty from 10 per cent to 12 per cent will affect metal and

steel companies. They are likely to pass some or all of the cost increase brought by

this price hike to the end customers. The proportion that the manufacturers will be

able to pass on to customers will depend on their respective price elasticity of

demand.

Another budget provision that has gone in favour of the domestic steel industry is

the increase in import duty on non-alloy flat-rolled steel to 7.5 per cent from 5 per

cent. This will make imported flat-rolled steel dearer and increase the

competitiveness of the domestic steel companies that manufacture flat – rolled

steel.



Oil & Gas

Despite of the role that the oil and gas sector plays in the development of India, there was not much stimulus for the sector

in the India’s 81st Union budget. Brent oil surged above USD 125 a barrel on February 24 touching its 10-month high after

the International Atomic Energy Agency (IAEA) said Iran had sharply stepped up work on nuclear programmes. With the

Iranian crisis pushing up the global oil prices, the benchmark Indian crude oil basket is expected to hit the highest level since

2008.

Also if the current rally in the oil and gas sector continues unchecked, it is expected to widen the gross revenue loss of oil

marketing companies (OMCs) even way more than the earlier estimations of `1,40,000crore for 2011-12. Adding fuel to the

fire, the value of the rupee has also depreciated much during the year. It now stands at around `49 a dollar as compared to

about `44 during April 2011.

Key announcements for the Oil and Gas sector

Roll back of custom duty on imported gas or LNG.

FM proposed to extend the viability gap funding for various oil and gas installations, pipelines and LNG storage

terminals.

FM proposed to rationalize the excise duty structure on most petroleum products. FM also announced an ad

valorem levy of duty at the rate of 14 per cent on most products.

The increase in cess on oil produced from `2,500 per tonne ($6.8 per barrel) to `4,500 ($12.3 per barrel).

The general increase in excise duties / service tax rates shall definitely increase the overall costs for the sector also

set to impact the sector

Feeling the Pinch…

Hike in cess on oil producers to

`4,500 per barrel would be a

blow to ONGC, Oil India and Cairn

India. ONGC’s annual cess

spending likely to go up by

`4,600 crore.

Cess hike to hit ONGC hard…

Proposal to increase the rate of

cess to `4,500 per tonne on crude.

The profitability of ONGC likely to

take hit as it already faces the

burden of share in subsidies.

ONGC’s subsidy burden in

December month rose to as high as

`12,536 crore.

No fuel to the expectations….

The industry was hoping that the tax holiday provisions will be extended.

The sector had expected complete deregulation of diesel, freedom to revise petrol prices, removal of excise duties and special duties prevailing on branded fuels.

Companies sought clarity on deduction available in expenditure on exploration activities for the Indian Companies having overseas production blocks.

De-regulation of diesel and LPG to ease the rising pressure of under recoveries.

Hindustan Petroleum (HPCL),

Bharat Petroleum (BPCL) and

Indian Oil Corp (IOC) were hoping

to see diesel and LPG de-

controlled but nothing of the sort

was highlighted in the Budget.



Budget Winners and Losers

Sector Winner/Losers Agri Input

FM exempted the sector from paying custom duty;

further increased capex deduction to 150 per cent

Major Players such as Chambal, Tata Chemical, RCF,

National Fertiliser, Zuari welcomed the changes

announced

Automobiles

The sector remained neutral after Budget

increased excise duty to 12 per cent on CVs and

levied additional 3 per cent for the vehicle from

chassis form.

In case of UVs, excise duty was changed to ad

valorem rate of 27 per cent.

Large vehicles/UVs above USD 40k attract 60 per

cent-75 per cent custom duty on imports.

The announcement brought cheers to Ashok Leyland due

to higher production from tax free Plants, while UV

manufacturers remained stressed. M&M reflected a

neutral reaction while Tata Motors expressed a bit

dismay

Banking and Financial Services

Recapitalization fund of `159bn

Proposed two way fungibility in IDRs

No mention of Rs20,000 deduction in taxable

income u/s80CCF

Positive for PSU banks primarily those

constrained with Tier I Capital - , UNBK, CBI, BOI,

SBI, IDBI, IOB

Big positive for StanChart IDR

Negative for IDFC

Cement

Removing the currently existing differential

rates, Budget 2012-13 levied a unified excise

duty of 12 per cent + `120/t for large cement

plants.

Duty to be charged on the Retail Sale Price less

abatement of 30 per cent

The sector is to gain further from the

abolishment of 5 per cent import duty on coal

The sector will see some positive development following

the reduction in effective excise duty by Re Re1/bag or

`20/ton.


Consumers

Reduced import duty by 250 bps to 7.5 per cent

on Titanium dioxide

Enhanced custom duty on standard gold bar to

4 per cent, non-standard gold to 10 per cent and

excise duty on refined gold to 3 per cent

Positive for Asian Paints and Berger Paints,

Gives gross margin lever of 50 bps

Negative for Titan and other branded gold

companies

Metals & Mining

Full exemption of basic custom duty and

reduction in CVD to 1 per cent on thermal coal

Cess on crude oil production increased to `4575

per ton

Positive for Nalco, Sterlite Ind, Hindalco, Tata

Steel and JSW Steel by 0.2 per cent to 1.3 per

cent

Cairn India’s EPS to be down by 11 per cent - to

have negative impact on fair value of Sesa

Sterlite and thus to Sterlite Industries

Oil & Gas

Custom duty on LNG 5% to Nil

Cess on crude oil production increased to `4575

per ton

Positive for Petronet LNG and GAIL as they

import LNG and Gas Transmission companies

like GSPL & GAIL as transmission volume would

increase in the future.

Negative for Oil Producers like ONGC, OIL and

Cairn India

Pharmaceuticals

AMT rate applicable for Partnership Firms based

in SEZs

Negative for Sun Pharma & Cadila Healthcare.

Applying 20 per cent MAT on profits from

partnership firms, the additional tax burden will

impact FY13 EPS by `2.5 for Sun Pharma and by

`4.4 for Cadila.

Power

0 per cent basic customs duty and 1 per cent

CVD on imported coal

Positive for JSW Energy (7%), CESC (1.5%), Lanco

(3.5%), IB Power (1.5%), NBVL (4.5%), KSK (1.5%)




Taxation announcements at a glance

Direct Taxes

Taxation remained the major attraction in Budget 2012-13 with Pranab Mukherjee

announcing some revision in outlining Direct Taxes Code 2010 (DTC) and others. Direct

taxes are generally the taxes that are directly paid to the government. The tax is

imposed on one’s property or income.

For Corporate

Although no major tax changes were announced in corporate sector, some minor

changes were as follows:

With no change in corporate tax rate and MAT rate, Sec 80-IA was extended by

one year till March 31, 2013.

STT was reduced by 20 per cent (from 0.125 per cent to 0.1 per cent) on all

cash delivery transactions

Benefit of additional depreciation of 20 per cent on new acquired assets w.e.f.

Apr 1, 2013 was announced for power companies

For infrastructure sector, affordable housing, fertilizers and dams, rate of

withholding tax was reduced from 20 per cent to 5 per cent on ECB

R&D expenditure for in-house facility, which has weighted deduction of 200 per

cent, extended for 5 more years

Weighted deduction of 150 per cent on expenditure incurred for agri - related

services

Tax rate on dividends received by an Indian company from its foreign subsidiary

for FY13 marginally extended to 15 per cent

Increase in investment linked deduction of capital expenditure from 100 per

cent to 150 per cent for services such as cold chain facility, warehouses for

storage of food grains, hospitals, fertilizers, affordable housing

Levy of Alternate Minimum Tax (AMT) on all persons other than companies and

individuals, claiming profit linked deductions.

DTC to get implemented at

earliest: FM

With a notion that ‘Budget is

all about taxes’, the Finance

Minister Pranab Mukkerjee

spoke in bit details about the

tax reforms to be introduced in

the upcoming fiscal. Though, at

the end the Budget turned out

to be a non-event, it tried to

show some move towards the

tax reforms. Direct Taxes Code

(DTC) bill which was designed

to replace the existing Income

Tax Act, would be imposed at

the earliest, said Mukherjee, in

his budget speech.

“Last year, I had set the

compass for movement

towards the DTC in Direct

Taxes… My tax proposals for

fiscal year 2012-13 mark

further progress in that

direction,” said Mukherjee.



Direct Tax proposals: For Individuals

The main attraction in the segment was the introduction of the Rajiv Gandhi Equity Savings Scheme with a lock in period of

3 years. Other major announcements that hogged the limelight were as follows:

Rajiv Gandhi Equity Savings Scheme to allow deduction of 50 per cent to new retail investors who invest up to

Rs.50,000 directly in equities & whose annual income is below `10,00,000

The extension of basic exemption limit from `1.8 lakh to `2 lakh

Upper end (20 per cent bracket) has been raised to `1,000,000from `800,000

Individual tax payers granted a deduction of up to `10,000 for interest from savings bank account

Preventive health check up to get deduction of up to `5000

Exemption from Capital Gains tax on sale of residential property, if sale consideration is used for subscription in

equity of a manufacturing SME for purchase of new plant and machinery

The renewed tax slab stands as below

Old slab Tax rate New slab proposed

Up to Rs 180,000 0 Up to Rs 200,000

`180,000 to `500,000 10 `200,000 to `500,000

`500,000 to `800,000 20 `500,000 to `1,000,000

Above Rs 800,000 30 Above `1,000,000

FM’s tax proposals for INVESTOR?

Reinvest in Start-ups to Save Tax

Individuals and HUFs can invest their gains from selling residential

property in start-ups to save on tax. But these small enterprises

will have to use the money to buy plant and machinery. This can

pave the way for new type of entities. At present, such gains have

to be parked in certain bonds or reinvested in properties

Property Deals to Come Under TDS Bracket

A property buyer has to deduct 1% tax if a deal exceeds

`50 lakh for urban properties and `20 lakh in other

areas. So, for a `1crore transaction, the seller will

receive `99 lakh while a tax of`1 lakh will be deposited

by the buyer

Gain in STT, Lose in Services

The proposed 20 per cent cut in securities transaction tax (STT) on

delivery-based cash trades fell short of expectations. The market

had expected a 40-50% reduction across transactions — delivery

and non-delivery cash, futures and options. At the new rate, STT

will be charged at 0.10%, or 10,000 per 1-crore turnover on both

purchase and sale against the existing 0.125 per cent, or 12,500.

But the net impact will be insignificant as the service tax that

brokers recover from investors will go up to 12 per cent from 10

per cent.

Cash Purchases of Gold to be Taxed

All cash transactions for buying gold will come under the

tax net. This move may discourage hoarding in gold. A

seller of bullion or jewellery will collect 1 per cent tax

from the buyer if the deal value exceeds `2 lakh. Tax has

to be paid even if the seller is not a trader or a jeweller



Budget and Indirect taxes

Unlike direct tax, Indirect tax is applicable on intermediary such as a retail store, from the person who bears the ultimate

economic burden of the tax such as the consumer. It can broadly be divided into service, excise and custom tax.

Service tax

The sector remained a great concern and major point of discussion for the finance minister while presenting the budget.

The major announcement in the segment was the increase of service tax from 10 per cent to 12 per cent. The other

proposals announced in the segment were:

Target of `186 billion for FY13 set as additional tax revenue

Total 290 definitions under exemption list.

Full exemption for the items 17 categorised under negative list, which includes entertainment and amusement,

renting of residential dwellings, urban railways and metered cabs and others.

Exemption for services such as health care, service by charities, few professions (individuals), animal care, car

parking and insurance.

Excise duty

It is inland tax where the tax is applicable on a good produced for sale, or sold, within a country or licenses for specific

activities. Therefore, the proposal announced in Budget 2012-13 under Excise duty are as follows:

Hike in excise duty and service tax from 10 per cent to 12 per cent remained one of the highlights of the budget.

Hike from 22 per cent to 24 per cent on larger cars/UV.

For the CV sols in Chassis form, 3 per cent additional duty in place of specific additional duty of Rs10,000/unit.

Branded clothes to bear excise duty of 12 per cent, while branded jewellery to attract extra 1 per cent excise duty.

Imposition of unified rate of 12 per cent + `120/t for large plants, while 6 per cent+ `120/t for mini cement plants in

case of cement industry.

Increase in cess on domestic oil Production from `2500/ton to `4500/ton.

Excise duty on paper and formulation increased from 5 per cent to 6 per cent, while on API from 10 per cent to 12

per cent.

6 specified lifesaving drugs/vaccines granted full exemption from Excise duty/CVD


Custom duty

Opposite to excise duty, custom charges are applicable on borders and imposed on goods of international trade. It is of two

kinds: import duty, which is applicable on goods that are imported from other countries and export duty, which is applicable

on the goods exported out of the country.

Basic custom duty on thermal coal, natural gas, LNG removed, further reduction in CVD from 5 per cent to 1 per cent

Gold to attract double import duty

Paint companies granted relief as Titanium dioxide to bear reduced duty from 10 per cent to 7.5 per cent

Coal mining equipment gets full exemption from custom duty

Duty reduced from 10 per cent or 7.5 per cent to 2.5 per cent in case of an imported plant and machinery for

surveying and prospecting for mining, while it was cut from 10 per cent to 5 per cent on tunnel boring machines and

parts, fertilizer plant equipment, aircraft parts

Customs duty was cut from 10 to 7.5 per cent on specified high speed rail equipments, minerals surveying &

prospecting equipment

Custom duties: Finally rich won’t get richer anymore

A customs duty is a tariff or tax levied on the import of goods and sometimes on exports also. If any businessman in India

wants to sell the imported products, then he would have to pay custom duty to the government for importing it. However,

with the recent budget of Pranab Mukherjee, it seems like the common man got some relief finally while rich class would

have to pay more for the luxury.

Good for common man, Pranab proposed ‘no change’ in peak rate of custom duties of 10 per cent on non-agriculture goods.

Also basic customs duty has been reduced for certain agricultural equipment and their parts.

Not just that, common man’s health has also been taken care of by reducing the basic customs duty on Iodine. Also the basic

customs duty has been reduced on Soya products to address protein deficiency among women and children.

However, there were certain proposals that might weigh on the rich this time. Gold, the much sought after precious metal,

would now be dearer as FM has proposed to increase the import duty on the yellow metal to 4 per cent from the earlier 2

per cent.

Be it imported car or imported bi-cycle, it is the time to pay more. In the budget, Mukherjee proposed increasing the

customs duty on import of completely built cars and SUVs to 75 per cent from 60 per cent earlier.



Taxation explained with impact on a Common Man and a Home Maker

The common man has bitten the bullet in the battle of expectations after the Finance Minister Pranab Mukherjee, in its

Union budget 2012-13, overlooked the grievances of the 120 crore Indians and bombarded them with a number of Tax

proposals. His kindness came largely in the form of I-T exemption limit that was extended to `2 lakh from the existing `1.8

lakh, giving a relief of `20,000. However, playing it smartly, FM has taken more than what he has been given by imposing

‘Vicious Tax Circle’ of service Tax, Excise and Custom duty.

With the spiral of Tax regime, Finance Minister Pranab Mukherjee had made the life of common man even more difficult,

who was already buried under rising prices of food grains, household goods, LPG cylinders, and fuel prices.

In a nut shell, with marginal increase in income tax limit and additional burden of service tax and excise duty further bringing

down disposable and investable income, it may well prove to be a setback to demand, with budget bringing hardly any

cheers to ‘aam-aadmi’!

The increase of excise duty and service tax from 10 per cent to 12 per cent will straight away affect the end consumer, right

from lower middle class to upper class of the society.


The finance minister turned a deaf ear to household -cries. The budget proposals to increase tax rates will hit households as

early as this week with a host of products and services set to cost 2-5 per cent more:

Buying of consumer electronics like LCD TV, LED TV, air-conditioners, refrigerators, washing machine and microwave

ovens become costlier by 2-4 per cent.

The glitter of gold will not attract anymore, as import duty on gold doubled from 2 to 4 per cent and for non-standard

gold from 5 to 10 per cent.

Dreams for a car will rest for a while as increase in the excise duty will hike the prices of vehicles like Maruti Suzuki,

Mahindra & Mahindra and Honda.

Get ready to pay more on everything as service tax raised from 10 per cent to 12 per cent

Even buying a bi-cycle will become costlier by more than Rs 100 per unit due to 1 per cent increase in excise duty and

2 per cent hike in basic excise duty and the service tax.

The chance to refresh the mood with ice cream and flavoured milk will be costlier by about 5 per cent.

Personal computing gadgets and accessories, including desktops, laptops, tablets, printers, UPS and mobile phones,

will cost more thanks to a hike in excise duty. The prices of all PCs will rise by 2 per cent, for say `25,000 PC will now

cost an extra `500.

Visiting a doctor will make a hole in your pocket as consultation fee of the Doctor and prices of life saving drugs have

been increased.

Quenching thrust with cold drink will also cost 4 to 5 per cent more as top beverages maker Coca-Cola, Thumbs Up

and Sprite plan to increase the prices in a month.

Air travel or hiring a law firm to become dearer after hike in the service tax

Adding fire to the fuel for common man, mobile calls, dine-outs, and all the other services would now cost more after

the levy of additional service tax



However, to accomplish the dream of ‘Rising India’ under the regime of United Progressive Alliance (UPA), the Finance

Minister Pranab Mukherjee has proposed number of plans to cheer the common man.

Buying of imported LCD and LED TV panels of over 20 inch become cheaper

Making branded silver jewellery and garments in reach of every woman's dream, as the FM has fully exempted the

excise duty from branded silvery jewellery and garments.

Mobile phone parts will become cheaper as excise duty has been cut to 2 per cent from the existing 10 per cent.

This clearly suggests that the Budget 2012-2013 miserably failed in benefitting the ‘aam aadmi’, already suffering from

the policy paralysis of the government.

Though Union Budget may not prove tonic for the struggling economy constrained with basic economic fundamentals, but

putting forward the policies like Goods and Services (GST), Direct Tax Bill (DTC), and the Fiscal Responsibility and Budget

Management Act, 2003 (FRBM Act) at Centre and state level can surely help tackle slowdown.

Take a look at how much more you will pay every year as service tax and other indirect taxes increases.

Items Expenses Service Tax Pre-Budget Post-Budget 10% 12%

Mobile bills 20,000 2,000 2,400

Restaurant bills 25,000 2,500 3,000

Coaching classes 20,000 2,000 2,400

Gym 10000 1000 1,200

Rent 60,000 6,000 7,200

Cable charge 6000 600 720

Healthcare 5,000 500 600

Beauty parlor 10,000 1,000 1,200

Parties (catering, tent, musician, photography)

20,000 2,000 2,400

Hiring of car 10,000 1,000 1,200

Jewellery 20,000 2,000 2,400

Entertainment 10,000 1,000 1,200

Hotel room 1,000 100 120

Air ticket 5,000 500 600

Rail ticket 1,000 100 120

Fuel cost 10,000 1,000 1,200

LPG cylinder 5000 500 600

Real estate Agent 10,000 1,000 1,200

Total Expenses 248,000 24,800 29,760



Pranab bites the

common man, instead

of bullets!

Starting with the tax

exemption limits,

which the finance

minister raised to `2

lakh from `1.8 lakh

earlier, providing a tax

relief of just `2,000,

dashed the hopes of

common man. The sad

story of budget,

however, does not

end here.

Common man had

expected the minister

to increase the limit to

at least `3 lakh as

average income of

such class lies

between `2.5-3 lakh.

So the tax exemption

on additional `20,000

would not go well with

the common man.

Moreover the

additional 2 per cent

service tax charge

proposed by the

finance minister would

add fire to the fuel for

common man of India.

Get ready to pay 2 per cent extra service tax

Common Man’s extra burden!

10% Current rate of

service tax

Proposed rate of

service tax 12%

All services, except 17, would be taxed now!

Govt aiming to mop up additional revenues of `18,660 crore in the

upcoming fiscal.

Cases where higher %age of service might are proposed to come under tax

30

50

50

40

60

60

0 10 20 30 40 50 60 70

Eating out in Restaurants

Outdoor catering service

Hotel stay

Proposed

Current

Some services which will get costlier now….

Insurance Policy

DTH services

Air travel

Mobile bill

Phone bill

Cab rental

Cab parlour gym

Broadband charges

Services which were not taxed earlier, but are proposed to be taxed now!

Travelling in AC and

1st class by train

Museum tickets

to be taxed

Fee paid to various

agents

One time use of

libraries..

Competitive

exams TOEFL

Transport Hired

for Tourism

New-comers to the service tax class!

Actors, Translators,

Catering Services

Brand endorsement

Biz renting

Non-compete fee,

Non-government

events e.g. IPL


Freaky Friday for D-Street!

Investors stayed away from their desks on March 16 after Pranab Mukherjee announced his 7th Union budget. It could have

been possible that the investors who were hoping for the FM to score a century, decided to chase cricket rather than a ‘non-

event’ budget. The 30-share benchmark index of BSE, Sensex, ended up the day with 1.19 per cent decline to close at

17,675.85, while the broader 50-share index of NSE, Nifty, closed with the decline of 1.16 per cent at 5,317.9 on Friday.

Pranab’s largely muted budget failed to meet most of the market expectations and apart from projecting the fiscal numbers

right, he didn’t give any surprises. During the whole budget game, his political acumen was completely missing, rather he

played safe game by not announcing any bold reforms.

Most of the sectors found their hands on their heads after the budget, as shown by stocks reaction. Apart from Auto,

Consumer Durables, IT and TECk stocks, all the sectoral indices ended up with significant losses. The BSE Banking closed

down lower by 1.92 per cent despite some capital infusion plans into public sector banks. Banking stocks, struggling to bring

down their bad loans, were battered by the proposal to increase agriculture loans.

Situation was no better for the capital good stocks that plunged 2.94 per cent as there was no oxygen for such stocks.

Mukherjee failed to provide them the much needed cushion by hiking excise duty for cheaper imports from China

particularly in Power space. Besides, the excise duty has been raised by 2 per cent, which again, would be a dampener for the

companies.

No respite to health care companies too. The BSE HealthCare closed down by 2.02 per cent as investors hoped the

government to increase the spending in the sector. The proposal to hike MAT, services tax, and excise duties fell heavily on

the face of investors in stocks like Cadila, Sun Pharma and Torrent Pharma.

Metals finally found rust in government’s intention to revive the ailing sector. The BSE Metal closed down 2.22 per cent even

as the reduction in basic custom duty in Coal mining & Iron ore would have positive impact on steel players. The sector was

largely disappointed by the FM’s creaky plans to boost the infrastructure sector.

Besides, the Oil and Gas, Power PSUs all ended up with declines in the range of 2-3 per cent as the broader disappointments

on the economic fundamentals made investors doubt the economic growth projections ahead. Bullets like FDI in retail and

aviation, which Pranab could bite, were also missed by investors.

The dismal performance of Indian markets on March 16 showed the falling confidence of investors in the credibility of the

government to lead the economic recovery ahead.




Indices Prev. Close

(Mar 15,

2012)

Last Close (Mar

16, 2012)

% Chg Impact

Sensex 17675.85 17466.2 -1.19 Broader market shed 444 points during intraday trade on

below expected budget outcome. ▲

Nifty 5380.5 5317.9 -1.16

Reduction in the Securities Transaction Tax (STT) by 20 per

cent on delivery transactions from 0.125 per cent to 0.10 per

cent.

▲

BSE Mid Cap 6405.36 6361.59 -0.68 Broad based selling pulled midcap companies lower.

AUTO 10,132.48 10,154.48 0.22

The increase in excise duty by 2%, hit the auto industry as it

would impact demand, however an increase in import taxes

for assembled SUVs and utility vehicles costing more than

$40,000, seen as positive for car makers.

◄►

BANKEX 12,203.29 11,969.50 -1.92

The proposal to inject about`16,000crore worth of capital is

certainly a positive for the industry, especially so for smaller

banks. However, the proposal to increase agricultural loans

made investors sceptical about the rise in bad loans.

▲

Consumer

Durables 6,522.24 6,486.73 -0.54

The increase in tax slabs for individual tax payers and hopes

of early implementation of GST will marginally affect the

industry.

▲

Capital

Goods 10,556.58 10,246.18 -2.94

Nothing major was there for the Capital Good Companies as

the budget didn’t provides them the much needed cushion

by hiking excise duty for cheaper imports from China

particularly in Power space. Besides all this excise duty has

been raised by 2 per cent would also be dampening for the

companies.

◄►

FMCG 4,206.64 4,287.16 1.91

Reduction the custom duty on cigarettes will improve

demand. A hike in excise duty on beedis and tobacco

products will result in rise in prices.

▲

Health Care 6,485.22 5,354.34 -2.02

The implementation of Alternative Minimum Tax (AMT)

would negatively impact stocks like Cadila, Sun Pharma and

Torrent Pharma due to increased tax outgo, as they would

have to pay 18.5 per cent MAT on book profits earned for

the fiscal year. Besides, the hike in excise duty will further

put additional burden on pharma companies.

▼

Information

Technology 6,080.88 6,069.03 -0.19

Reforms missed in the budget while implementation of

technology is the key focus which is positive for the sector.

For UID project, `14,000crore is approved. Other projects in

focus are DTC and GST Bills, Introduction of mobile-based

Fertilizer Management System, A central “Know Your

Customer” depository to be developed in 2012-13.

▲

METAL 11,776.91 11,515.35 -2.22 Reduction in basic custom duty in Coal mining & Iron ore

would have a positive impact on Steel players. ▲



OIL &GAS 8,523.55 8,240.78 -3.32

Oil & gas sector would be affected negatively as the

budget proposed to raise cess on crude oil to `4,500 per

tonne from `2,500 per tonne but from an Indirect tax

perspective removal of customs duty on LNG, coal etc

are steps in the right direction but the general increase

in excise duties / service tax rates shall definitely

increase the overall costs for the sector.

▼

POWER 2,258.76 2,191.42 -2.98

Full exemption from basic customs duty and a

concessional CVD of 1 per cent to steam coal for a

period of two years till March 31, 2014 will help thermal

power companies in mitigating higher coal prices.

Allowing power companies to tap ECB to part re-finance

rupee debt on power plants and increasing power

sector's tax-free bonds limit to `10,000 crore from

`5,000 crore will help in raising money. Full exemption

from basic duty will help reduce costs for power

generation. Withholding tax on interest payment on ECB

would be cut to 5 per cent from 20 per cent for 3 years,

which would reduce overall debt cost. To seek tax

holiday, the last date for power generating projects has

been extended by one more year till March 31, 2013,

which will help in reducing costs

▲

PSU 7,684.01 7,481.78 -2.63 `30,000 crore to be raised through disinvestment,

keeping 51 per cent stake with Government. ▲

REALITY 1,821.35 1,798.33 -1.26

Through PPP, investment in infrastructure could go upto

`50 lakh crore. In addition to this, tax free bonds of

`60,000 crore to be allowed for financing infrastructure

projects.

▲

TECK 3,567.40 3,546.61 -0.58

The rise in Service Tax from 10 per cent to 12 per cent

will increase cost of services to customers and also

impact the P&L of telecom companies.

◄►



Impact on Commodities market

Pranab Mukherjee’s 7th Union Budget was a mixed bag for the commodity markets

though it was fairly successful in making the right moves at the capital markets. Apart

from some equity market reforms, Pranab Da made the bold moves required in

commodities market as well. Pranab Da rightly proposed some starter reforms

required for reducing current account deficit. FM announced the plans to increase

custom duty on gold imports from 2 per cent to 4 per cent in an effort to check the

hurting love affair of country with the yellow metal.

Moreover the finance minister also gave surprise to the commodities market by

keeping the demands of commodities transaction tax (CTT) on hold. Some experts

had demanded the re-introduction of CTT as it would improve the transparency and

speculation from the system. However there was no such proposal in Pranab Da’s

budget.

“The Ministry of Finance,

Planning Commission,

Administrative

Ministries and the

Comptroller & Auditor

General are the main

players in the

declaration of the Union

Budget.”

The Golden move

India is the world’s largest bullion consumer and in 2010, it imported almost 958 MTs of

Gold which rose to approximately 1000 MTs in 2011. With the rising deficit concerns on

account of overseas balances, the finance minister made the economically right

decision to announce the hike in custom duty on gold by 2 per cent.

At USD 1730 per ounce, India imported gold worth USD 57.56 billion! Compare this with

India’s fiscal deficit for the 2011 which is expected to be around USD 91 billion with

India’s GDP at USD 1.4 trillion. This means that around 60 per cent of India’s fiscal

deficit goes to propel the world economy and only the remaining is used to push India’s

domestic demand. It can be easily deduced then, that the deflationary impact on our

economy is due to our rising gold imports which have continuously risen with the rising

gold prices since 2008.

Gold imports have overtaken software exports and is said to be more than the total

investment that comes into the Indian economy.



Budget bite for Mutual Fund Industry

The Finance Minister, Pranab Mukherjee in its seventh Union Budget 2012-13, ‘lost the

opportunity’ to address the long due concerns that threaten the longevity of the

mutual fund industry. The budget does little to address the structural concerns, long

terms capital inflows and incentives to keep investor’s funds locked-in for an extended

period of time.

Proposal to remove the Dividend Distribution Tax (DDT) in a multi-tier corporate

structure

Mutual fund industry got little soap from Finance Minister, Pranab Mukherjee this

budget. Impact on the Mutual Fund industry is very specific by way of the proposed

Dividend Distribution Tax (DDT) from June 01, 2011.

The Finance Minister in Union Budget 2012-13 said, “The restriction on Venture Capital

Funds to invest only in nine specified sectors is proposed to be removed. It is further

proposed to remove the cascading effect of Dividend Distribution Tax (DDT) in a multi-

tier corporate structure.”

This particular measure would lead to stiff competition for corporate investments in

money market and liquid funds from banks fixed deposits.

Further, proposal to allow repatriation of dividends from foreign subsidiaries of Indian

companies to India at a lower tax rate of 15 per cent as against the tax rate of 30 per

cent for one more year might boost investments from foreign investors in mutual funds

equity schemes. It may set to grow with the new proposal on the same which is a

rainbow on the competitive horizon.

Post budget, we expect government to explore for opening up fund flow channels like

allowing provident funds to invest in the markets through mutual funds, which could

be seen as an opportunity to systematically increase exposure in the industry.

Finance minister also came up

with the reduction in Securities

transaction tax (STT) on delivery,

which was first introduced in

2004. Pranab Mukherjee

announced a 20 per cent

reduction in STT to 0.1 per cent

from earlier 0.125 per cent. STT

is generally considered as the big

concern for the investors, as

according to some estimates it

accounts for 51 per cent of

transaction cost on selling and

buying of the stocks.

The move will provide some

assistance to the industry which

has witnessed a tough past in the

light of shrinking global

economies.

ICICI Prudential AMC Managing

Director and Chief Executive

Nimesh Shah said “the

introduction of the Rajiv Gandhi

Savings Scheme is a clear

positive for the equity market by

way of increased long-term

investor participation. In

addition, reduction in STT on

delivery by 20 per cent has

added to the investors' return

potential for equity.”



Impact of Union Budget 2012-13 on rupee

The general verdict for the Budget was neutral as the government refrained from any severe measures that could affect the

economy or push foreign investors at a time of global uncertainty. Inflation, budget deficit and interest rate structure

continue to be the key areas of focus. The government remains determined to cut down deficit from 5.9 per cent of GDP to

5.1 per cent in 2012-13. The move seems difficult with higher crude oil price and thereby bulging subsidy bill. In the absence

of new solutions for addressing the country’s fiscal constraints, the only positive news for domestic currency were rise in

import duty on gold, and proposals to allow overseas borrowing for more sectors.

After the Budget, the Indian Rupee, on Friday, ended on a positive note against the U.S. dollar in the domestic currency

market as Budget proposals to allow overseas borrowing for more sectors and doubling import duty on gold boosted the

sentiment on domestic currency. In futures trading, USDINR for March 2012 contract appreciated as much as 26.50 paise to

`50.285 per dollar, and settled at `50.3250, up by 0.44 per cent, on MCX-SX. While, Rupee spot appreciated as much as 20.5

paise to `50.165 per dollar, and settled at `50.165, up by 0.41 per cent.

Investor’s sentiment firmed on proposals to allow External Commercial Borrowing (ECBs) for aviation, power, road and

other sectors which raised hopes of more fund flows to the country. In the Union Budget 2012-13, union Finance Minister

Pranab Mukherjee citing "financing concerns" of airline companies, proposed external commercial borrowings for them

(ECBs) in the new financial year with a cap of US$1 billion.

Apart from this, the government’s move to hike import duty on gold also boosted the rupee sentiment on expectation that

increased tax on gold impact the gold import and reduce dollar demand. India, the world’s biggest bullion buyer, increased

import duty to 4 per cent on gold for the second time this year after record purchase of gold which widened the current

account deficit.

However, Indian subsidy burden will continue to remain high and this will keep pressure on the Indian currency. The

uncertain outlook for global economies will also weigh on the currency. Hence, forex dealers are expecting that rupee could

trade in the range of 52-49 in short term as quarter end in the month of March may encourage the investors to pull out their

funds from the financial markets in search of better earning avenues, and the Reserve Bank of India (RBI) may go for

monetary easing over coming months to ease up liquidity.



Industry reactions

The objective of the union budget 2012-13 was to come up with structural reforms and give a boost to India’s economy and

reduce fiscal deficit. Given the slow global economic recovery, budget 2012-13 was also the best vehicle that could have been

used to attract a lot of foreign investment. But, alas! Pranab Da failed to match the industry expectations. Below are the

industry wise reactions to the Budget 2012-13.

Below are the industry wise reactions to the Budget 2012-13

Aviation. Finance Minister gave all the necessary positive signs that the sector wanted. He

said that the government was considering a proposal on FDI in the sector and also allowed the

airlines to raise working capital through External Commercial Borrowings (ECB’s).

Welcoming the move, Vijay Mallya, Chairman Kingfisher Airlines, said, “ECB’s for working capital are

very welcome. Interest rates and hedging costs will be much less than Indian rupee denominated

costs.” Further expressing his views on FDI, Mallya said, “Permitting foreign airlines to invest up to 49

per cent as and when implemented will be very welcome... direct import of fuel was earlier

announced, but now confirmed, will greatly reduce net fuel cost.”

FMCG. Finance minister proposed a hike in excise duty and service tax, from 10 to 12 per

cent. The hike is seen as an attempt to move closer to the GST regime but common man is

wary of its inflationary impact.

Speaking on the government’s move Godrej Consumer Products Managing Director, A

Mahendran, said, “I expect this Budget to have a slightly inflationary effect due to the

cascading effect of companies passing on the excise duty increase to consumers.”


Information Technology. IT industry has been left high and dry by the FM’s budget. The sector was

expecting reduction in Minimum Alternate Tax (MAT) and clarity on the application of tax laws.

Terming the budget as “lost opportunity” National Association of Software and Services

Companies (NASSCOM) expressed its disappointment with the Union Budget Proposals 2012-

13. On the issue of Advanced Pricing Scheme NASSCOM said, “The APA is a long drawn out

process and it is not clear how the current issues will be resolved.”

Auto. Finance Minister has proposed to increase basic excise and custom duties to make

foreign car makers to indigenize completely.

Reacting to the budget, Head Audi India, said “The increase in excise and customs duty on

large cars in this Budget is very surprising. This increase comes at a time when the Indian

automotive industry was finding favour with customers looking for better and efficient cars.

We may now need to re-evaluate our pricing strategy in India.”

Real Estate. The budget has been a mixed bag for the sector as nothing much has been done to boost

either demand or supply. The sector was looking at fiscal incentives enabled by development and

regulatory environment

Anshuman Magazine, Chairman & Managing Director CBRE South Asia Pvt Ltd, said “the

budget was a balancing act when bold steps were required. I hope post budget the

Government focuses on timely implementation of infrastructure projects and various other

schemes announced in the budget and more importantly announce major economic reforms

required to stimulate the economy for a higher growth




Banking and Financial Services. Bankers, for the most part, gave thumbs up to the budget and

termed it pragmatic and growth-oriented with focus on fiscal consolidation.

ICICI Bank Managing Director and Chief Executive Officer Chanda Kochhar said that "the

Budget is aimed at growth and stability in the backdrop of the challenging year gone by.”

Oil &Gas. Budget has proposed to enhance cess on crude petroleum oil produced in India by 80

per cent to `4500 from `2500 per metric home.

Essar Oil Managing Director and CEO L K Gupta said, “We are slightly disappointed that the

government has overlooked the sector by delaying any announcement on fuel price deregulation

which could have provided level playing field to the private oil marketing companies.

Telecom. Union budget had nothing for telecom companies except for the proposed a 2 per cent

service tax which would increase the mobile bills.

CEO of Bharti Airtel, Sanjay Kapoor said, “The telecom sector is already burdened with multiple

and high tax levies which account for 30 per cent of the telecom services revenue. The rise in

Service Tax from 10 per cent to 12 per cent will increase cost of services to customers and also

impact the P&L of telecom companies.



Indian Economic Survey 2011-12: Ambitions, achievements, lost opportunities and hopes of

future

The Indian Economic Survey of 2011-12 has estimated GDP growth rate of 6.9 per cent for the Indian economy during the

fiscal year 2011 – 12. It has forecasted GDP growth rate of 7.6 per cent for 2012 – 13 and 8.6 per cent for 2013 – 14.

At 6.9 per cent, it was the slowest pace of growth for the Indian economy since 2008 – the year marred by the global

financial crisis. The Economic survey noted that the International Monetary Fund has projected a 7 per cent growth rate for

the Indian economy in the medium term. This will make India the second fastest growing economy in the world after China.

The Economic Survey has estimated fiscal deficit for 2011-12 at 4.8 per cent of Gross Domestic Product. This is still below

the 4.6 per cent fiscal deficit target set in Budget 2011 – 12. The Survey, however notes that fiscal deficit has come down

considerably from 6.5 per cent of GDP in 2009-10. The Economic Survey informs that the states have performed better

than expected on the fiscal deficit front. This is likely to keep in check the combined deficit of the state and centre for 2011

– 12. The Economic Survey goes on to add that the fiscal consolidation process will be prolonged because of failure in

achieving of fiscal deficit targets due to endogenous and exogenous factors.

The Survey concedes that the projected growth rate of 16 per cent envisaged in Budget 2011 – 12 will not be achieved

because of slowdown in the GDP growth rate. It attributes the slowdown partly to the contractionary monetary stance of

the central bank, which affected the growth rate of the economy in the short term, the Economic Survey noted.

The Economic Survey has reiterated the importance of allowing FDI in multi-brand retail in giving a long term

boost to the Indian economy. It advocates direct cash transfer of fuel and other subsidies. It also cautions that

escalation of the Iranian situation may spoil the fiscal deficit calculations by increasing the fuel subsidy bill of

the government.



Some choked nerves found in the survey.....

Inflation

Headline WPI inflation remained persistently high and relatively sticky at around 9 per

cent during 2011. The economic survey estimates that wholesale price inflation will

come down to 6.5 - 7 per cent by March 2012. It attributes the moderation in inflation

to lower global food prices, global economic slowdown and the contractionary

monetary policy that is being pursued for the last two years by the central bank.

The Economic survey notes that India’s wholesale price inflation was in line with the

trend in other Emerging and Developing Economies (EDEs). Average consumer price

inflation in EDEs during 2011 was 7.2 per cent while that for Advanced Economies

(AEs) it was 2.7 per cent.

"In India, the slowdown in GDP

growth witnessed over the last

two quarters is likely to extend

into the coming fiscal year

because of the weakness in

investment,"

--Organisation for Economic

Cooperation and Development

(OECD)

Supply side bottlenecks have long been a bane for India’s inflation situation. The country cannot achieve the ultimate

economic objectives of high economic growth and low price inflation without drastic supply side reforms.

The Survey proposes to control inflation in the medium through supply side measures and fiscal consolidation through

rationalization of subsidies.

Ballooning fiscal deficit- An issue in the sky

India’s fiscal deficit concerns have already taken the sleep of finance minister, Pranab Mukherjee. The deficit which

dropped to 4.8 per cent in 2010-11 from 6.5 per cent in 2009-10, is now again heading to the troubled level and the worries

are not mild this time. Government’s ballooning fiscal deficit has even become the centre of attraction for rating agencies

who have already warned India of ‘unwanted consequences’ in the future, if not corrected in time.

The matter has been taking heat from rising subsidies bills, unchecked leakages in the system, reckless spending on social

programmes, and in general, policy paralysis. Central government’s expenditure on social services and rural development

has increased from 13.38 per cent of total central government expenditure in 2006-7 to 18.47 per cent in 2011-12.

International Trade

India’s exports during the first half of the financial year grew by 40.5 per cent while its imports grew by 30.9 per cent. Total

value of the exports during the April- January period stood at USD 23.5 billion while total value of imports stood at USD

29.4 billion.

The Economic Survey notes that 2011-12 was a tough year for International trade with the fall in global world trade being

steeper than the decline in real Gross Domestic Product (GDP). India’s exports felt the heat of this slowdown in

international trade.



Agriculture and Food

The Economic Survey 2011-12 estimates a growth rate of 3.28 per cent

against the target of 4 per cent for the agriculture sector during the current

five year plan period which will end on March 31st, 2012. The twelfth five

year plan (2012 – 17) has set a target growth rate of 4 per cent for the

Agricultural sector.

The Economic survey notes that without incremental productivity gains

and technology diffusion across regions, achieving this higher growth may

not be feasible. This will have serious implications for the macroeconomic

stability given the rising demand of the 1.2 billion people for food.

The Economic Survey predicts a growth rate of 2.5 per cent for the

Agricultural sector in the fiscal year 2011-12.

Manufacturing

Manufacturing sector has fallen from 9 per cent in April-December 2010 to

3.9 per cent in April-December 2011. Considered as a major source of

growth, the negative trend in the manufacturing sector has been mainly a

result of global economic slowdown and rising interest & input costs.

PE: Provisional Estimate

QE: Quick Estimate

AE: Advance Estimate

5.1%

4.2%

5.8%

0.1%

1.0%

7.0%

2.5%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

20

05

-06

20

06

-07

20

07

-08

20

08

-09

20

09

-10

(PE)

20

10

-11

(QE)

20

11

-12

(AE)

Rate of Growth of GDP at Factor Cost at 2004-2005 Prices

Agriculture, forestry & fishin

The Indian government needs to act fast and stop being lazy in policymaking. Need of the hour is a manufacturing policy that

spurs the sector by getting rid of infrastructural bottlenecks and facilitating growth in the manufacturing sector of the Indian

economy.

The Economic survey notes that industrial growth in the long run has lagged behind the growth in GDP. Long-term average

annual growth of industries comprising mining, manufacturing, and electricity, during the post-reform period between 1991-2

and 2011-12, averaged 6.7 per cent as against GDP growth of 6.9 per cent.

If the construction industry is included then this number will rise to 7 per cent. Manufacturing remained the most dominant

sector accounting for 14 per cent to 15 per cent of the total industrial output during the post-reform period. The Economic

Survey points out that this number is modest when compared to that of China (above 40 per cent) and some of the East Asian

countries (above 30 per cent).



Ban on mining pulls the sector from posting growth

Dwelling with issue of illegal mining, which resulted in ban of mining activities

in many parts of the country, pushed mining sector to contract at -2.2 per cent

in FY12, as per Economic Survey 2011-12. The sector’s performance was

further affected by the ban and issues related to environmental concerns and

land and acquisition matter.

Mining sector has been posting a decline in its growth since FY 10 when it was

recorded growing at 6.3 per cent. It dipped to 5 per cent in the succeeding

fiscal and finally decelerated further at -2.2 per cent in 2011-12.

The sector currently is in need of urgent revamping and as the current methods

would lead to further environmental disasters.

Human Development

India continues to perform dismally on the human development front. In 2011,

it was placed at 134th rank in the Human Development Index (HDI) of

countries of the world. The Economic Survey says that performance on this

front can only be improved through a more equitable distribution of

development benefits and opportunities, better living environment and

empowerment of the poor and marginalized.

PE: Provisional Estimate

QE: Quick Estimate

32.8%

34.7%

35.7%

38.1%

34.3%

36.6%

35.1%

30.0%

31.0%

32.0%

33.0%

34.0%

35.0%

36.0%

37.0%

38.0%

39.0%

Ratio of Investment to GDP (at current market prices)

Balance of Payments

The current account deficit for the first half of 2011 – 12 stands at USD 32.84 billion. The Economic survey notes that higher

current account deficit can be attributed to declining capital inflows. Foreign Institutional Investment during the first half of

2011-12 came down to USD 1.346 billion from USD 23.796 billion in the corresponding period of the previous financial year.

Foreign Direct Investments during the first half of 2011-12, however, increased to USD 12.31 billion from USD 7.040 billion in

the corresponding period of the previous year.

The Economic Survey notes that a further deterioration in the current account deficit situation will put further pressure on

the value of rupee. The rupee touched its lowest ever value of `54.23 per US dollar on December 15th, 2011.



Thumbs Up in the survey…

Services

The Economic Survey projects that the services sector is likely to grow by 9.4 per cent in 2011-12 and its share in GDP will go

up to 59 per cent.

The Survey says that the services sector has been a major and vital force steadily driving growth in the Indian economy for

more than a decade.

Energy, Infrastructure and Communications

The Economic Survey says that total investments in infrastructure during 2011-12 are expected to exceed 8 per cent of GDP.

The private sector is expected to be contributing nearly 36 per cent of this investment.

During the April- December 2011 period, power sector output grew by 9.3 per cent; coal sector output declined by 2.7 per

cent; finished steel industry output grew by 5.7 per cent of the output; fertilizer industry output declined by 0.5 per cent;

cement industry output grew by 5.1 per cent; crude oil output grew by 1.9 per cent; refinery output grew by 4.1 per cent

while natural gas output declined by 8.8 per cent.

Foreign exchange reserves shows increasing trend in FY12

World’s sixth largest foreign exchange reserves holder, India continues to be one of the largest holders of foreign exchange

reserves. A comparative picture of foreign exchange reserves in the revised estimates for the current fiscal 2011-12 shows

an increasing trend and reached USD 6.7 billion from USD 304.8 billion at end March 2011 to USD 311.5 billion at end

September 2011. Out of this total increase, USD 5.7 billion was on Balance of Payment (BoP) basis and the balance USD 1.0

billion was on account of valuation effect.

Financial Markets and Intermediation

The Economic Survey notes that the funding constraints in International Financial Markets could raise the cost of financing

for banks and Indian companies. Indian companies are already paying very high interest rates on their commercial

borrowings. Increased borrowings by the government are crowding out private investments. The Economic Survey makes a

case for further globalization, consolidation, deregulation and diversification of the Indian financial system. Bank credit till

December 16th 2011 grew year – on –year by 8.2 per cent to `39,42,083 crore. `82,905 crore of this went to food credit

while `41,84,077 crore went into non-food credit.

Demand deposits till December 16th 2011 decreased year – on – year by 12.7 per cent to `559,935 crore. Time deposits

during this period increased by 12 per cent to `51,12,657 crore. Investments by banks in government securities during the

year till December 16th 2011 increased year-on-year by 11.9 per cent to `16,75,247 crore.



Manmohan Singh 1991-92: ‘Miraculous as a finance minister’

Manmohan Singh made history in 1991-92 by doing something that the entire

nation has, till now, enjoyed growth with both hands. In a single master budget,

he changed the entire picture of policy making process in India. Identifying the

concepts of fiscal stabilization and making the structural changes that

introduced Indian economy with the world, he did nothing less than a miracle.

Manmohan Singh, the then finance minister of India, simply changed the rules

of the game that India is now enjoying as the ‘third largest economy of Asia’.

Starting from economic administration, currency issues, licensing, export-

import policies, or simply the boldness, he opened them all.

.

With liberalized norms, the doors were opened for foreign investments first by Manmohan Singh and the foreign investment

limit in high-priority industries was raised to 51 per cent. Moreover, he altered the interest rate system so such that they

were left with greater flexibility and liberty to commercial banks to tweak on their own as per need.

Singh’s 1991-92 avatar was a master peace of imagination abilities, and for decades now, no one has been able to match up

to his level of political profile.

Time changed, position changed and so did Country’s fate. Manmohan Singh took oath as the Prime Minister in 2004 and

his success story as the country’s FM fell prey to the political gimmicks.

Prime Minister Manmohan Singh 2004-2012: An unending term of ‘leadership crisis’

Manmohan Singh, now going to complete his second term as the prime minister of India, is the only minister in history, who

has completed over 7 years at this post. However, with time his credibility has also got depleted. Singh, who was seen as ‘Man

of reforms’ then, is now seen as a roadblock to the reforms. His poor policy management body has done nothing but to throw

the country in a mess, creating head-ache for the reformists. A minister, if tries to make some reforms is discarded from the

cabinet, just to stay in the chair for whole term. Manmohan Singh, alone can’t be responsible for the political crisis in India

now, but his poor leadership skills have partially contributed to it.

India is now growing at 6.9 per cent, the slowest growth in three years. None of the

fundamentals are in shape including fiscal deficit, inflation, balance of payments,

exchange rate, and what not. Singh has struggled so far to bring reforms in the

economy ranging from FDI in retail, land acquisition bill, Goods and Services Tax

(GST), and some more.

The current situation of Indian politics shows India has been landing into a state of

‘political crisis’ rising from ‘leadership crisis’.



RBI opts to test FM’s credibility again!

The waning confidence of RBI in the central government’s reform process was again visible in the Mid-quarter monetary

policy review on March 15. Reserve Bank of India (RBI) kept the repo rate and reverse-repo rates unchanged at 8.5 per cent

and 7.5 per cent under the Liquidity Adjustment facility (LAF). Repo rate is the rate at which RBI lends to commercial banks,

while reverse repo rate is that at which banks lend it back to RBI.

Now with the WPI inflation for February dipping below 7 per cent, RBI has ample space to reverse the interest rates. Even

RBI has already blown the whistle by slashing the CRR by 125 basis points in two tranches which also aimed at injecting Rs

80,000 crore in to the system. However, it seems like RBI has lost confidence in government and wants it to correct the

supply-bottlenecks that have distressed the inflation and has also triggered fiscal deficit.

Prospects ahead—Really shaky!

The prospects, no doubt, are related to how the global economies perform during the year ahead. The financial crisis in

Europe and certain exogenous shocks like the Japanese nuclear disaster, have resulted in a sharp global economic slowdown

during 2011-12. However it can’t be denied that current slowdown in India has partial roots in domestic causes. After 15

years of robust growth and nearly a decade of over 30 per cent investment rate, it seems like that the growth engine is

finally losing its steam.

The Rail minister recently has said in very bold terms that “Railways are going through very difficult phase and to avert

another crisis in the sector, we would have to bite the bullets”. The same holds true with Indian economy too.

“Vigilance will nevertheless be required and steps need to be taken to quickly deal with any unexpected developments

and global shocks such as increases in the price of crude oil”.



Trivedi’s Maiden Rail Budget: A nice blend of smart

politics and good economics….

The youngest child of a Gujarati family and the Rail Minister, Dinesh Trivedi,

did a fairly good job in his debut budget on March 14. This time, after so

many years, industry saw a budget that was aimed at the welfare of 14 lakh

people of India rather than a few ministers. Right from the start, and till the

end, he stressed over hundred times on ‘Safety Concerns’ in the Indian

Railways. He proposed, for the first time in Indian history, to set up an

independent Railway Safety Authority to parallel the international

standards of safety.

Taking the theme of safety to next level, he calls for modernization of

Indian railways and proposed setting up of expert group under Sam Pitroda.

The group plans to spend `5.6 lakh crore in the modernization of Indian

Railways in the next five years.

I also have a clearer perspective of what

railways mean to the common man and how

the railways have been a true catalyst of

integration. Just as we cannot imagine India

without Himalayas, we cannot imagine India

without the holy river Ganga. Similarly we

cannot imagine India without Indian Railways.

The Railways are the symbol and substance of

India’s unity. Railways have their wheels on

earth, not in the sky or just urban streets. If

we do not strengthen Indian Railways, we

weaken our country.

--Dinesh Trivedi,

Union Railway Minister

Amidst such big-ticket plans, the rail minister didn’t miss the silver lining in expectation of gold. Taking a bold step and

daring to go against the wishes of his party chief Mamata Banerjee, he raised the passenger fares for the first time in last

ten years, aiming to help the government to rein in ballooning fiscal deficit. He also showed his eagerness to ‘bite every

possible bullet’ in order to bring down the operating ratio of railways from 95 per cent currently to 84.9 per cent in 2012-13

and 74 per cent by 2017. The operating ratio shows the amount spend to earn every single rupee.

However what made him better Rail worker compared to few of his predecessors was the smart economics he tried to mix

with politics. He planned to go slower on expansion for the upcoming fiscal year, paving way for the government to control

deficits, inflation as well as give some room to RBI to start reversing the monetary policy.

Moreover, he understood the need to revive the creaky infrastructure of India and hence chalked out an investment plan of

USD 1 trillion in the infrastructure sector with half the investment or `25 lakh crore expected from private sector, and

remaining `25 lakh crore being planned by the government from its own resources. He desired `14 lakh crore investment

from the government in the next ten years to take the Indian Railways ahead of the time.



Trivedi’s debut strokes, mastered the experience!

Dinesh Trivedi gets bolder by announcing rail fare hike after 9 years!

Bringing an end to the era of stagnant fares and going against the “Mamata-way”,

Dinesh Trivedi, in his first rail budget, took a bold step of hiking the passenger fares

after nine long years.

Stressing that there is “no steep increase in fares”, Trivedi announced the hike in

passenger fares ranging from 2 paise to 30 paise depending upon on the class and

distance travelled. Earlier, the rates were last revised in 2002-2003.

Ensuring smiles to over 1 lakh people in next fiscal!

Indian Railways plans to recruit over 1 lakh people in 2012, Dinesh Trivedi said while

presenting his maiden Rail Budget speech.

Trivedi said that the recruitment would not only generate employment in the nation,

but will also help railways to clear its backlog of vacancies. The recruitment will cover

the vacancies in the schedule cast, schedule tribes and critically challenged person

segment as well, he added.

“In today’s world, safety is driven by

improved technology. Hence safety

standards cannot be achieved

without modernization, as safety

and modernization are two sides of

the same coin. At the same time,

modernization cannot take place

without financial resources and

professionalization of manpower.

There is also an emergent need to

connect the remote and backward

areas through socially desirable rail

connectivity schemes to foster

growth”.

--said Dinesh Trivedi,

Union Railway Minister

Promises new lines of 725 Km in underdeveloped areas

In a bid to extend reach in the underdeveloped and underprivileged areas, Dinesh Trivedi in his rail budget speech, said that

725 km new lines will be constructed.

Disappointed with the plenty of projects lying pending with the Railways, he promised completing 45 new projects covering

700 km new lines in the fiscal year 2013.

Rail Budget 2012 – 13 emphasises the importance of PPP

Rail Budget 2012 – 13 proposed setting up of Indian Railway Station Development Corporation for redeveloping stations

through public private partnership (PPP) mode. The railway minister also announced that a Logistics Corporation will be set up

through PPP for development and management of existing railway goods sheds and multi-modal logistics park.

The Budget announced that private investments will be encouraged in wagon leasing, sidings, private freight terminals,

container train operations and rail connectivity projects. The huge investment plans that the Railways have set for themselves

cannot be achieved without effective participation from the private sector.



Ambitious plans and the Minister…

After missing the surplus target, Rail Budget 2012 – 13 sets surplus target of `10476

crore

The Rail Budget 2012 – 13 has set an ambitious surplus target of `10,476 crore for the

next financial year. The Rail Budget 2012 – 13 has set gross tariff receipt target of

`1,32,552 crore. This is a year-on-year increase of 27.6 per cent over revenues of

2011-12.

The Rail Budget estimates that dividend payments of `6,676 crore will be made

during the year. The surplus is expected to be further depleted by the repayment of a

loan of `3,000 crore that was taken in 2011-12.

What experts have to say--

“The capital funding plan of

Trivedi showed that the

minister tried to settle short

term losses with long term

gains”.

“The minister tried not to

throw all the desired reforms

in one shot, rather adopted the

policy of generational

reforms”.

Trivedi aims to reduce operating ratio to 74% by terminal year of 12th Five Year Plan

Union Railway Minister Dinesh Trivedi said that he aims to bring down the operating ratio to 74 per cent by the terminal year

of 12th five year plan.

“I propose to bring down operating ratio from 95 to 84.9 per cent in 2012-13 and lower it to 74 per cent by terminal year of

12th plan,” Trivedi said.

“Be Ready to bite the bullets to modernize railways”

Kick-starting the bold reforms, Dinesh Trivedi said that “Be ready to bite the bullets to modernize railways”. The statement of

Trivedi reflected that despite of increase in fares, revenue crunch won’t be solved and modernization of railways would

require efforts of freedom fight.

Smart shift into generational reforms

Dinesh Trivedi’s rail budget is betting high on generational reforms in the sector rather than incremental annual changes.

Trivedi acted very smartly considering the ongoing tensions in the fiscal section of India. Currently, India faces shortage of

funds and along with that, it also faces high inflation.

Riding on the challenge to drive the growth without overburdening the financials of India, Trivedi planned to increase the

budgetary support by just `4,000 crore in upcoming fiscal as compared to previous fiscal. However, he demanded that `14

lakh crore would be required in the next ten years.



In the right corner….

Railways passing through difficult phase, standing at a cructial juncture: Dinesh Trivedi

Under precarious financial position and creaky infrastructure, Indian Railways is passing through difficult phase, said Railway

Minister Dinesh Trivedi in its maiden Railway Budget.

In its maiden budget for 2012-13, the minister has breached the customary of ‘no hike in fare price’ by raising the fare prices

after 8 years. The department has also given an indication that fares may further increase in the future, depending on the rise

of fuel prices.

However, the railways posted a growth of 10 per cent in revenue between April 1, 2011 and February 29, 2012, said the data

released last week.

Railways Budget 2012-13: Railways partner with state govt to start new projects

Anchoring a significant role in social development of the country by providing rail connectivity to the remote, backward, and

tribal regions and generating employment opportunity to the local peoples, railways has signed Memorandum of

Understanding (MoU) with several state government.

The Railway Minister Dinesh Trivedi, in its maiden budget has urged State Governments to come forward for sharing cost of

new railway lines, gauge conversion and doubling projects which are considered important by them for development of the

state. As of now, 31 projects covering a length of more than 5000 km in 10 states are being executed with contribution from

state governments.

Railway ministry in partnership with Government of Chhattisgarh and user industries in the region has proposed to develop

three rail corridors in the northern part of the state for movement of passengers and freight, with the active participation of all

stakeholders.

Railways budget 2012: Budget bonanza for metropolitans

Railway Minister Dinesh Trivedi, in its maiden budget, has proved the spectators wrong by announcing a lot of plans for

metropolitan cities, other than Kolkata. There was speculation in the political arena that Trivedi will follow the footprints of his

boss Mamata Banerjee, but surprised everyone with his innovative plan, especially for Mumbai.

Extending the Kolkata Metro project started by Banerjee, the ministry has initiated some new projects to bring more areas in

the link of metro. Mr. Trivedi in his statement also added, “Works announced by Mamata Banerjee in previous two budgets,

are progressing satisfactorily.”



A quick comparison of Trivedi’s debut budget with Mamata didi’s trash

“I am ready to

bite the bullets”

“We have tried to

meet”

Emphasis on strengthening Safety, Safety and Safety.

Setting up an independent Railway Safety Authority to

match Indian Railways with International Standards.

Proposal to invest USD 1 trillion in improving infrastructure,

with an equal participation from private sector.

Shifting the focus on safety, consolidation, decongestion,

and Modernization.

Bringing the operating ratio down from 95 per cent now to

84.9 per cent in 2012-13 and 74 per cent by 2017.

Opting for generational reforms rather than keeping the

railways in status quo mode.

Allocation of `4,410 crore in capacity augmentation.

Keeping the budgetary support lower at Rs 24,000 for FY13,

as against the need for Rs 45,000 crore.

Boosting the bilateral trade by enhancing the connectivity

with neighbouring countries.

Broad based IT reforms including GPS facility, SMS for e-

tickets, up-gradation of 929 stations.

Increased number of ‘Green Initiatives’ to comply with

environmental standards.

Recruitment to over 1 lakh people in FY13.

Focus remained on West Bengal, and the budget was

seen more as an election manifesto.

Fairs remained unchanged, despite the fact that Indian

railways continue to lose on operating profits.

Mamata failed to announce any provisions for then

going projects.

No efforts to bring the financial stress down.

Unreal targets missed the reality as planned capital

outlay remained on papers only.

Mamata failed to improve safety and hygiene factors in

the travel life of millions of Indians.

Mamata announced `1,700 crore (`17 billion) less as

dividend, in an attempt to show improved operating

ratio.

Dedicated Freight Corridor Project remained a dream in

Mamata’s budget.


Trivedi’s first rail budget becomes his swan song; PM’s regretting eyes bid goodbye to Trivedi

The much beating around the bush finally came to an end, when Prime Minister Manmohan Singh finally announced the

acceptance of Dinesh Trivedi’s resignation. Trivedi, fulfilling his commitment, submitted his resignation on Sunday, in line

with the orders of his party chief. “I received late last night an email message followed by a formal letter from Dinesh

Trivedi tendering his resignation as Railway Minister. I regret the departure of Shri Trivedi who presented a Railway

Budget that had promised to carry out the Vision 2020 outlined by his predecessor," exclaimed Singh.

The resignation from Trivedi came at the backdrop of the order from his party chief Banerjee to submit his resignation,

after he denied rolling back the passenger price hike announced in Railway Budget 2012-13.

Singh further added that the resignation would be forwarded to President for the final acceptance.

Meanwhile, Singh added that the new railway minister would have to carry the load and responsibility of carrying forward

the challenging task of modernizing our railway system.

"A new railway minister will be sworn in shortly,” added Singh.




Personality Check: P. Chidambaram vs Pranab Mukherjee

The comparison between Pranab Mukherjee and P Chidambaram, one an old warhorse who had to slog for decades to

rise to a position closer to Nehru-Gandhi family and other, a younger Harvard educated, P. Chidambaram who is also

politically astute, could make for a great case study for our next-gen political aspirants.

Both, Pranab Mukherjee and P. Chidambaram, have been the pillars for United Progressive Alliance (UPA) and have

sought the same chair in the government which has, more often than not, brought them on a collision course. Political

analysts, though, have always felt that none of them ever got their due.

A brief comparison below would give you an insight into their political life till date.

Pranab Mukherjee : Born on 11th December 1935 at

Mirati; West Bengal

P Chidambaram : Born on 16th September 1945 at

Kandanur; Tamil Nadu

1969: First elected as the member of Rajya Sabha from

the Congress Party.

1984: First elected as the member of Lok Sabha from the

Shivaganga constituency of Tamil Nadu.

1973: Joined the cabinet as Union Deputy Minister,

Industrial Development.

1985:Joined the cabinet as a Deputy Minister in the

Ministry of Commerce and then in the Ministry of

Personnel.

1982-1984: Served as the Finance Minister of India in

the Congress government

1 June 1996 – 21 April 1997: Served as the Finance

Minister of India in the United Front led coalition.

1986: Quits Congress after Indira Gandhi’s assassination

to form Rashtriya Samajwadi Congress (National

Socialist Congress) in West Bengal.

1996:QuitsCongress party and joins a breakaway faction

of the Tamil Nadu state unit of the Congress party called

the Tamil Maanila Congress

Rejoins Congress in 1989 Rejoins Congress in 2004

2004-2006 & 2006-2009: Minister of Defense &

Minister of External Affairs

2004-2008: Minister of Finance

24 January 2009- Till date: Minister of Finance 30 November 2008-till date: Minister of Home Affairs



Pranab Mukherjee almost went the distance in 2004 before Manmohan Singh, backed by Sonia Gandhi, tipped him from

being India’s Prime Minister. Insiders too favoured Pranab over Manmohan Singh, but only in hushed voices. On the other

hand, Chidambram is a man who can sit and negotiate with the devil. But the recent 2G spectrum fiasco has kept him quite.

Pranab Mukherjee’s first stint as the Finance Minister, in 1982, got him the rave

reviews and he was featured in Euro money magazine as the best Finance

Minister of the world. Pranab Mukherjee presented his first annual budget as a

Finance Minister of India during the Indira Gandhi government. He again became

the Finance Minister in 2009 under Manmohan Singh’s government.

In his July 9, 2009 budget speech, Pranab announced several tax reforms and

implemented Goods and Services Tax. He also implemented several social sector

schemes, like the National Rural Employment Guarantee Act, girl's literacy, and

health care.

“I must be cruel only to be

kind.”

However during his time as a FM, the country’s fiscal deficit rose to the highest levels since 1991. He also presented

2010-11 budget and included the country's first explicit target to cut public debt as a proportion of GDP.

Finance Minister latest budget speech, 2012-13 has got the mixed reviews by both the industry and common man alike.

Lot was expected from Pranab Da, but he didn’t do much to push and stimulate the economy. Critics have termed the

budget as one that hints at the return of “License Raj.” The budget has granted more power to the government and has

brought in, as many as, 25 retrospective amendments.

How Stocks Fared During PranabDa’s Tenure

Pranab Mukherjee’s tenure has characterized by global economic crisis and he was tasked with the job of taking India

through the difficult times



P. Chidambram, the savvy technocrat presented his first Union Budget as the Finance

Minister in 1997-98. It was widely termed as a ‘Dream Budget’ and was hailed by the

corporate houses. In his budget, he presented the roadmap for the economic reforms in

India. He lowered the income tax rates, removed the surcharge on corporate taxes, and also

reduced corporate tax rates.

From 2004-08, Union budgets presented by Chidambram were marked by stock market

exuberance and the gains in the sensex were better than ever before.

The tenure of P. Chidambram was, however, not clouded by economic slowdown but he

had left parties trying to choke any reformist move of the minister

"The more one does, the

more one attempts, the

more one is capable of

doing". "Can we do

better?” My answer would

be "we can and we

should."

How Stocks Fared During P. Chidambaram’s Tenure


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