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Union Budget 2012-13


Union Budget 2012-13: Review



The Finance Minister presented the Union Budget for 2012-13 on 16-Mar-12 amidst much
expectations and hope. In this report, we look at the key highlights of the Union Budget mainly from
fixed income market perspective.


Financial Highlights of Budget 2012-13:
* Direct proposals to give in net revenue loss of Rs. 4,500 crore and net gain of Rs. 45,940 crore from indirect
taxes, resulting into a net gain of Rs. 41,440 crore.
* Fiscal deficit targeted at 5.1 per cent of GDP in 2012-13, down from 5.9 per cent in 2011-12; Central
Government debt at 45.5 per cent of GDP
* Total expenditure budgeted at Rs. 14,90,925 crore; plan expenditure at Rs. 5,21,025 crore, 18 per cent higher
than 2011-12 budget; non-plan expenditure at Rs. 9,69,900 crore.
* Gross Tax Receipts estimated at Rs. 10,77,612 crore, 15.6 per cent higher than original budget estimates and
19.5 per cent over the revised estimates for 2011-12.
* Net tax to the Centre in 2012-13 estimated at Rs. 7,71,071 crore; Non-Tax Revenue Receipts estimated at Rs.
1,64,614 crore and Non-debt Capital Receipts at Rs. 41,650 crore.
* Total expenditure for 2012-13 budgeted at Rs. 14,90,925 crore, including Rs. 5,21,025 crore of Plan
Expenditure and Rs. 9,69,900 crore as Non-Plan Expenditure.
* Defence services get Rs. 1,93,407 crore; any further requirement to be met.

I. Revenue Side


Domestic and global factors combined have had a bearing on the tax revenues during 2011-12, which
comprises the bulk of the total receipts of the government. Total revenue growth for 2011-12 which
was estimated at 3.6%, is expected to show negative growth of 3.3% as per revised estimates of the
government. However hoping a revival in economic conditions, for 2012-13 the government has
estimated a robust increase of 22.7% in total receipts at Rs 9.77 lakh cr.

Table 1: Government Revenue (in Rs Cr)

2011-12
(BE)
2011-12
(RE)
2012-13
(BE)
Revenue Receipts 789892 766989 935685
Tax 664457 642252 771071
Non Tax 125435 124737 164614
Non Debt Capital Receipts 55020 29751 41650
Recovery of loans 15020 14258 11650
Other Receipts 40000 15493 30000
Total Receipts 844912 796740 977335
Source: Union Budget Documents

Taxes are expected to contribute close to 78% to the total revenues of the government in 2012-13.





- Mar-20


Taxes on Union Territories 1982 2317 2310
Less - Transfers to Funds 3900 3998 4620
Less - State's share 219303 255414 301921
Centre's Net Tax Revenue 569869 642252 771071
Source: Union Budget Documents

On expected lines the government brought the service tax rate and excise duty from 10% to pre
crisis level of 12% along with increase in number of services to be taxed. The government has
proposed to tax all services except those in the negative list comprising 17 heads. The government
has estimated additional revenue of Rs 18,660 Cr from the above mentioned changes in the service
tax regime. For eventual transition to GST, the government will make efforts to align service tax and
excise duty. The peak customs duty of 10% on non agricultural goods has been left unchanged.

Apart from routine items like dividends and profits under Non Tax revenues, government has
estimated to garner Rs 40,000 Cr from the sale of spectrum in 2012-13. Non debt capital receipts
include Rs 30,000 Cr through disinvestment of part of equity in various state owned enterprises.
Receipts from disinvestment remain vulnerable to performance of Equity markets as is evident from
the fact that the government has been unable to meet the target disinvestment in the last two years.
Against the BE of Rs 40,000 Cr worth of disinvestment each in 2010-11 and 2011-12, only 57% and
39% respectively were realized in each of the years. Disinvestment proceeds though are estimated to
contribute only about 3% to the total receipts in 2012-13, nevertheless in trying times every penny
counts as much.

II. Expenditure Side

Table: 3 Government Expenditure ( In Rs Cr)

Actual 2010-11 RE 2011-12 BE 2012-13
Non Plan Expenditure 818299 892116 969900
Plan Expenditure 379029 426604 521025
Total Expenditure 1197328 1318720 1490925
Source: Union Budget Documents

For 2012-13, the government appears to have forecasted more realistic growth on Total Expenditure
after failing to achieve the over optimistic targets set in the previous budget. According to the revised
estimates of 2011-12, total expenditure is estimated to record an annual growth of 10.1% against the
originally budgeted growth of 3.4%. As against an envisaged decline of 0.7% in Non Plan
Expenditure, in 2011-12 the growth has been revised up sharply to 9%. This is largely on account of
higher outgo towards subsidy payment. The government had to shell out an additional Rs 72,727 Cr
on subsidy payments over an above Rs 143,570 Cr estimated in Budget 2011.

Table: 4 Total Subsidies ( In Rs Cr)
2010-11
Actual

BE 2011-12

RE 2011-12

BE 2012-13
Petroleum Subsidy 38,371 23,640 68,481 43580.0
Food Subsidy 63,844 60,573 72,823 75000.0
Fertilizer Subsidy 62,301 49,998 67,199 60974.0
Other Subsidies 8,904 9,359 7,794 10461.0
Total Subsidies 1,73,420 1,43,570 2,16,297 190015.0
Source: Union Budget Documents

2










For 2012-13 once again the government has estimated a lower outgo towards subsidy compared to
the revised estimates of 2011-12. Fuel subsidy which comprises about 23% of the total subsidy in
2012-13 is estimated at Rs 43,580 Cr. Out of the total fuel subsidy Rs 40,000 Cr is meant for
compensating Oil Marketing Companies (OMCs) for selling diesel, PDS kerosene and Domestic
LPG at below market price. As there is an upside risk to oil prices which are currently above $125
per barrel, the only other way OMCs can be compensated is by raising prices. While this will put an
upward pressure on inflation in the short term, subsidizing these items is inflationary in the long
term.

Figure 1 Figure 2



Source: Union Budget Documents Source: Union Budget Documents

However in its bid to provide a road map for fiscal consolidation the government in the Budget 2012
has suggested some caps on subsidies. The budget says that From 2012-13 subsidies related to food and
for administrating the Food Security Bill will be fully provided for. All other subsidies would be funded to the extent
that they can be borne by the economy without any adverse implications. Accordingly the government has
proposed:
To restrict the expenditure on Central subsidies to under 2% of GDP in 2012-13
To be brought down to 1.75% of GDP over the next three years

This is a welcome step towards restricting Non Plan revenue expenditure but adherence to the
projections still remains to be tested. Interest and Defense expenditure still forms about 53% of the
total non-plan expenditure. These two categories continue to grow in double digits in line with the
trend.

Table 5: Major Heads of Non Plan Expenditure (In Rs Cr)

2010-11 Actuals 2011-12 BE 2011-12 RE 2012-13 BE
Interest Payments 234022 267986 275618 319759
Defense Expenditure 154117 164415 170937 193407
Subsidies 173420 143570 216297 190015
Pensions 57405 54521 56190 63183
Total Non Plan Expenditure 818299 816182 892116 969900
Source: Union Budget Documents


3

SECTOR BASED ALLOCATION:
The Union Minister of Finance came up with an increased budgetary allocation for various sectors
including agriculture, rural development, defence etc. While, the Plan Outlay for Department of
Agriculture and Co-operation increased by 18 percent, the target for agricultural credit raised by
100000 crore rupees to 575000 crore rupees. Budgetary allocation for rural drinking water and
sanitation received a hike of over 27 per cent. Flagship programmes like Right to Education-Sarva
Shiksha Abhiyan received an increase of 21.7 per cent in the budgetary allocation.
Some of the major allocations made for different sectors of economy are as follows:
Agriculture and Allied Activities
Budgetary allocation for agriculture and allied activities 2012-13 increased by 18%
9217 crore rupees allocated for Rashtriya Krishi Vikas Yojana.
1000 crore rupees for Bringing Green Revolution to Eastern India (BGREI) project
300 crore rupees to Vidarbha Intensified Irrigation Development Programme under RKVY.
200 crore rupees allocated for incentivising research with rewards
14242 crore rupees allocated for Accelerated Irrigation Benefit Programme (AIBP)
500 crore rupees provided to broaden scope of production of fish to coastal aquaculture
Rural Development
14,000 crore rupees allocated for rural drinking water and sanitation
24000 crore rupees allocated for Pradhan Mantri Grameen Sadak Yojna
12040 crore rupees provided for Backward Regions Grant Fund scheme
20,000 crore rupees allocated for Rural Infrastructure Development Fund
5000 crore rupees earmarked for creating warehousing facilities
Education
Sarva Siksha Abhiyan-Right to Education- 25555 crore rupees
3124 crore rupees provided for Rashtriya Madhyamik Shiksha Abhiyan (RMSA)
Health
20822 crore rupees National Rural Health Mission

Employment and skill development
3915 crore rupees provided for National Rural Livelihood Mission
1276 crore rupees allocated for Prime Ministers Employment Generation Programme
1000 crore rupees allocated for National Skill Development Fund
Defence and Security
193407 crore rupees aallocated for Defence services including 79579crore rupees for capital
expenditure
1185 crore rupees to be allocated for construction of nearly 4000 residential quarters for Central
Armed Police Forces
3280 crore rupees proposed to be allocated for construction of office building of CentralArmed
Police Forces
Infrastructure and Industrial Development
25360 crore rupees allocated for Road Transport and Highways Ministry
3884 crore rupees loan waiver for handloom weavers and their cooperative societies
500 crore rupees pilot scheme announced for promotion and application of Geo-textile in the
North Eastern Region
70 crore rupees allocated to set up a powerloom mega cluster in Ichalkaranji in Maharashtra
5000 crore rupees India Opportunities Venture Fund to be set up with SIDBI
15888 crore rupees to be provided for capitalisation of public sector banks and financial
institutions
Other major allocations
37113 crore rupees allocated for Scheduled Castes Sub Plan
21710 crore rupees earmarked for Tribal Sub Plan
INCOME TAX SLABS:
Disappointing a large section of income tax payers in the country, finance minister Pranab
Mukherjee made a small raise in the exemption limit in his Budget speech.
Pranab Mukherjee raised the exemption limit for income tax by just Rs 20,000 from Rs 1,80000 to Rs
2 lakh.
The new tax slabs are as follows:
Up to Rs 2 lakh: No tax
From Rs 2 lakh to 5 lakh: 10%
From Rs 5 lakh to 10 lakh: 20%
Above Rs 10 lakh: 30%
Promise to curb black money, major push on infrastructure, capital market reforms and huge subsidy
cut were among the other proposals listed by Pranab Mukherjee in the Union Budget for 2012-13.
The revision in tax slabs will give some direct tax relief to individuals, even as eating out, buying
luxury cars, air travel, availing some professional services and investing in gold jewellery will become
costlier.Presenting his 7th budget in the Lok Sabha on Friday, the finance minister said the
exemption limit for personal income tax was being enhanced from Rs 1,80,000 to Rs 2,00,000, even
as the limit for peak rate was being raised to Rs 10,00,000 from Rs 8,00,000.
"This will provide tax relief of Rs 2,000 to every tax payer," the finance minister said, adding: "My
proposal on direct taxes will result in a revenue loss of Rs 4,500 crore."
He also announced new tax slabs under which income up to Rs 2,00,000 would be totally exempt,
levy 10 percent for Rs 2,00,000 to Rs 5,00,000, then 20 percent for Rs 5,00,000 to Rs 10,00,000 and
30 percent for income above Rs 10,00,000.
For the corporate sector, he said, while the tax rates were remaining unchanged, he assured cheaper
access to funds for expansion, even as he tinkered with the excise rates and customs duties for
specific items.
He proposed to raise the service tax rate to 12 percent from the present 10 percent.
Assuring further liberalisation of capital markets, he announced a new equity savings scheme to
extend income tax deduction of 50 percent to those who invest up to Rs 50,000 in equities and
whose annual income is less than Rs 10 lakh.
"The global crisis has affected us. India's gross domestic product (GDP) is expected to grow at 6.9
percent in 2011-12, after having grown at 8.4 percent in each of the two preceding years," the
finance minister said

VI. Conclusion
The Union Budget 2012-13 tries to give a more realistic picture of India governments fiscal position.
However, just like previous budget some questions still remain on subsidies. Major subsidies for
2012-13 imply a decline of 14% from 2011-12. All the major subsidies are pegged to be lower
compared to 2011-12 except food subsidy. Even in food subsidy the rise is a marginal 3% considering
Food Security Act is to be implemented this year. Hence, there could again be some issues on
subsidy front. The higher than expected market borrowings will again put supply pressures on bond
markets. The revision in excise duty will put pressure on inflation trends which only recently started
to trend lower. Overall, the year 2012-13 is again expected to be a difficult and volatile year for fixed
incomes markets.