India’s Annual Budget Highlights for FY2012-13

India’s Finance Minister Pranab Mukherjee has presented the annual budget today for the next financial year 2012-13. The budget aims to create a path for strong economic growth in the future though no big reforms was announced this time. Excise duty on some products and Service tax have been hiked to check the fiscal deficit in the coming financial years.

The fiscal deficit for current financial year 2011-12 jumped to 5.9% of GDP compared to earlier projection of 4.6% of GDP. The next financial year fiscal deficit was projected at 5.1% of GDP. The key highlights of the budget are provided below.

Key Fiscal Highlights

• High crude oil prices hit growth, averaged USD 115/bbl in 2011-12
• Expect current account deficit to decrease next year
• Inflation & current account deficit to come down next year
• FY 12 was a year of recovery interrupted, said FM
• Need to improve supply side in economy
• Tight monetary policy hit consumption and growth
• Global crisis hit Indian growth
• Middle East crisis, debt worries in EU have intensified
• Performance this year was disappointing but as compared to peers India was better
• GDP expected to grow at 6.9% for current fiscal year

Fiscal Related Details

• Fiscal deficit rose due to subsidy
• Current account deficit to be at 3.6%
• To bring down subsidy to 1.7 % of GDP in the next 3 years
• Economy to grow at 7.6% in 2012/13
• Central subsidies to be under 2% of GDP
• Non plan expenditure at Rs 9.7 lakh crore
• Fiscal deficit at 5.9% in FY 12
• Gross tax receipts at 10.77 lakh crore
• Gross tax at 10.6% of GDP
• Fiscal deficit target set at 5.1% of GDP in Budget 2012-13
• FY 13 net market borrowing at Rs 4.8 lakh crores
• 10 year benchmark at 8.40%
• Government targets Rs 30,000 crore from asset sales (Through divestment)

Tax Related

• Income Tax at 20% for Rs 5 lakh to Rs 10 lakh
• Income Tax at 30% for income of over Rs 10 lakh
• Interest from savings bank account up to Rs 10,000 not to be taxed
• 10% tax rate for income between Rs 2-5 lakh
• STT reduced by 20% on delivery transactions
• Withholding tax reduced to 5% from 20%
• Exemption up to Rs 2 lakh for individuals
• Common tax code for service tax and excise
• Standard excise duty hiked to 12%
• Rs 18660 crores will result from service tax rise
• Service tax up from 10% to 12%
• All services to be taxed except those in negative list
• No change in peak customs duty
• Large cars duty raised to 24% from 22%
• Some infra construction services exempt from service tax
• LNG out of customs duty
• Full exemption on customs duty on coal
• Customs duty reduced from 7.5% to 2.5% for iron ore equipment
• Mobile phone parts exempted from basic customs duty
• Automated shuttle looms exempted from customs duty
• School education exempt from service tax
• 12% excise duty imposed on branded retail garments
• LCD and LED panels exempted from custom duty
• Customs duty on refined gold doubled
• Import of aircraft parts exempt from basic customs duty
• Basic customs duty on cigarettes reduced
• Customs duty on some gold and platinum products increased
• Cuts customs duty on rail equipment to 7.5% from 10%
• Thermal power companies exempted from customs duty for 2 years
• 5% customs duty exempted on equipment for fertilizer plants
• Excise duty raised to 12% from 10%
• Branded silver jewellery fully exempt from excise duty
• Increased customs duty on gold and platinum to 4% from 2%
• Duty on hand rolled beedis increased
• Diamonds emerald and ruby prices will increase
• Advalorem duty on some cigarettes

Allocation

• Rs 15890 crores to be provided for recapitalization of PSU banks
• Extend RRB capitalization for 2 years
• 12th plan infra investment at Rs 50 lakh crore
• Agri credit target for FY13 at Rs 5.75 lakh cr, up Rs 1 lakh cr from FY12
• Government hikes defense spending to Rs 1,93,007 crore
• Govt sees expenditure rising 29% in 2012/13
• Allocated Rs 25,555 cr for Right to Education in FY13; cuts interest rates on loans to women self help groups
• Rural development fund of 20000 crores
• NRHM allocation hiked to 20820 crores
• Rs 14000 crore for rural drinking and sanitation in FY 13
• FM accepts Nandan Nilekani panel’s recommendation on direct transfer of subsidy, to allocate Rs 14232 cr to UID project, up 13% in FY 13
• Govt doubles allocation for tax-free bonds to Rs 60,000 crore for financing infrastructure projects in 2012/13
• 10000 crores allocated to NABARD to fund RRBs
• Plan outlay for agriculture raised by 18% to Rs 20208 crore in FY 13
• Rs 300 crore for intensified irrigation program
• Plan outlay raised 18% to Rs 20,208 cr for agriculture

Other Initiatives

• Infrastructure sector to get Rs 50,00,000 lakh crore investment
• Direct, indirect tax reforms to miss deadline
• To allow external commercial borrowing to part finance rupee debt in power projects
• Proposes to remove sector-specific restriction on venture capital fund investments
• Tables a white paper on black money issue
• Coal India advised to sign FSA with power plants to provide uninterrupted coal supply to the power plants
• To introduce new law for micro finance institutions
• Government aims to trim subsidy burden
• Efforts on for consensus on 51% FDI in multi-brand retail
• FM announces new equity savings scheme
• To allow qualified foreign investors in Indian corporate debt markets
• New state owned irrigation company to be set up
• Propose National mission for food processing
• Interest subvention for short term crop loan continues
• Will allow external commercial borrowing for power, housing road construction companies
• To make 8,800 km of highways in FY13; outlay raised
• Change in IPO guidleines to promote small town participation
• To allow ECB funding to finance working capital needs of airlines for 1 year
• FDI in aviation is under active consideration
• Rs 10000 crore of tax fee bonds for power sector
• To become self-sufficient in urea production in next 5 years
• Share of manufacturing in GDP will be increased
• To allow ECB to fund part finance power rupee debt
• Oil and gas pipelines to be eligible for viable gap funding
• Double infra debt amount to Rs 60,000 crore
• To allow qualified FII into domestic corporate bonds
• Propose Central KYC depository
• Focus on removing infrastructure bottlenecks
• Changes in IPO norms to increase participation in small towns
• To introduce new Rajiv Gandhi equity scheme
• Government to include advance pricing in Finance Bill 2012
• Direct transfer of subsidy for kerosene initiated
• To implement DTC at the earliest
• GST to be operational by August 2012
• To roll out computerized scheme for fertilizer subsidy transfer
• To continue to hold 51% stake in state owned companies