Budget 2012: What to expect from the Finance Minister
The Union Budget 2012, which will be presented in
Parliament on 16 March, is expected to not only make the
policy stance relating to fiscal issues clearer but also
introduce monetary and economic reforms.
As the economy looks for a boost in investments and growth from the government
through decisive policy announcements, Budget 2012 should focus on striking a
balance between fiscal consolidation and public spending while maintaining
sustainable inclusive growth, said Care Ratings in a report. It added that the
government’s key focus should be on centralised sponsored schemes to faciliate
growth in rural areas.
India’s fiscal deficit has already reached 92.3 percent of the targeted budget
in the first nine months of the current financial year ending March 2012 due to
higher spending on oil subsidies and social spending programmes. “As of December
2011, the amount of fiscal deficit reached Rs.3,81,012 crore, an increase of 122
percent from the same period last year,” the Care report noted.
On Wednesday, the Prime Minister’s Economic Advisory Council Chairman, C
Rangarajan, said in order to reduce the government’s fiscal deficit, revenues
need to increase by about Rs 35,000 crore. That, he said, was possibly by
increasing excise and service tax rates to pre-crisis levels and pursuing a
disinvestment programme in the new financial year. On the expenditure side,
subsidies had to be contained, Rangarajan added.
The PMEAC report suggested an increase in indirect tax rates and decontrol of
urea and fuel prices among others to improve government finances.
But clearly, fiscal consolidation cannot be achieved in one single year; it
needs to happen over time and in a phased manner. The finance ministry is likely
to increase revenue collections by increasing excise and service taxes to 12
percent from the current 10 percent. Other sources of tax collection include
increasing taxes on cigarettes and increasing the import duty on crude oil.
As far as investors are concerned, Deduction under section 80C may be revised to
Rs 1,50,000 from the existing limit of Rs.1,00,000. There could also be some
concessions given to interest on bank deposits to encourage savings.
The finance ministry is also considering allowing individual foreign investors
to directly buy corporate bonds issued by Indian companies. Currently, foreign
individuals are allowed to invest in Indian corporate bonds only as a
sub-account of a foreign institutional investor. Direct investment will not only
make the process simpler, but also less expensive.
For residential housing, the scope of the 1 percent subsidy announced last year
should be widened and the price band of the subsidy extended to benefit home
buyers, especially from lower-income groups, said the Care report.
The Confederation of Real Estate Developers Association of India has also
stressed the importance of devising new schemes like a tax holiday to generate
stock under the affordable housing category.
Based on government projections, industrial sector growth is expected to be
subdued this year, with manufacturing output growing at 3.9 percent against 7.6
percent in the previous financial year, while construction is expected to
increase by 4.8 percent from 8 percent. However, the services sector is expected
to grow by a robust 9 percent in the year ending March 2012.
Clearly, the government needs to focus on nurturing the growth momentum in the
forthcoming Budget. The growth target for the next financial year is likely to
to be around 7.5 percent, while inflation could hover at 6-6.5 percent, the
ratings agency said. The figures imply a nominal GDP growth of 13.5-14 percent
for the year ending March 2013, lower than that the current year’s figure of
16.1 percent, it added.