budget analysis 2012

7/29/2019 Budget Analysis 2012

1/26

1

IMPACT OF UNION BUDGET 2013-14 ON SERVICES

In Budget 2013, No change has been proposed to amend basic Service Tax rates, it

remains at 12% plus 3 % surcharge. However there are amendment in Negative list (addition/deletions) and abatement rates, penalties and a new Amnesty Scheme for service Tax

defaulters has been proposed.

For ease in understanding, the changes are categorized in two categories namely:-

A) Changes applicable from the date of enactment of Finance Bill, 2013,

B) Changes applicable w.e.f. 1st March.

A) Changes Applicable from the date of Enactment of Finance Bill, 2013:-

I) Changes in provisions related Penalty:-

a. Penalty for non-registration is being restricted to Rs. 10,000. Currently quantum of penalty

may extend to higher of:-

i. Rs. 10,000, ii. Rs. 200 per day of failure

b. A new Section 78A is also being introduced to impose penalty on directors, managers,

secretary and other officers of the company for specified offences e.g. evasion of service tax, in

cases of willful actions.

II) Introduction of One time Amnesty Scheme:

Out of nearly 17 lakh registered assesses under Service Tax only 7 lakh file returns

regularly. There is a need to motivate them to file returns and pay tax dues. A onetime scheme

called Voluntary Compliance Encouragement Scheme is proposed to be introduced. Defaulter

may avail of the scheme on condition that they file truthful declaration of Service Tax dues

since 1st October2007.

To encourage voluntary compliance and broaden the tax base, one time Amnesty Scheme

has been introduced by Finance Bill, 2013 called as Service Tax Voluntary Compliance

Encouragement Scheme, 2013 by way of:

a. waiver of interest and penalty; and b. immunity from prosecution,


2/26

2

The essence of scheme will be that to get complete waiver from interest and penalty,

assesse shall make a declaration about his tax dues and shall pay not less than fifty per cent of

the tax dues so declared along with submission of proof of such payment to the designated

authority on or before the 31st day of December, 2013. Balance of the tax due declared but not

paid shall be required to be paid by the declaring on or before the 30th day of June, 2014.

However, in case a declarant fails to comply with the time limit as mentioned above but

pays the same on or before 31.12.2014, interest shall be payable only for the period of delay as

starting from 1.7.2014.

This scheme will be benefited to the stop filers, non-filers or non-registrants or service

providers (who have not disclosed true liability in the returns filed by them during the period

from October 2007 to December 2012) who pay the "tax dues".

B) Changes in Mega Exemptions (Applicable w.e.f. 1.4.2013)

I. Exemption by way of auxiliary educational services and renting of immovable property by

specified educational institutes under will no longer be available.

This will have the effect of restricting the scope of exemption to Auxiliary educational

services and Renting of immovable property services only when

a. Provided by any person to Educational Institutes; b. Provided by one Educational Institute to another Educational Institute.

II. The benefit of exemption in relation to copyrights for cinematograph films will now be

available only to films exhibited in a cinema hall or theatre.

Impact on Entertainment Channels:

TV Channels like Sony will now be liable to pay service tax on their exhibiting of films on

Sony Channel.

III. Service tax on all AC restaurants: Earlier, to claim the exemption for services provided in

relation to serving of food or beverages, Restaurant, eating joint or a mess were required to

satisfy dual requirement:

a. Not to have the facility of air-conditioning or central air-heating in any part of theestablishment, at any time during the year, and

b. Not to have a license to serve alcoholic beverages


3/26

3

However, the exemption is being rationalized so that exemption will be now available to all

non air-conditioned (non-centrally air-heated) restaurants, eating joint or a mess irrespective of

they have a license to serve alcohol or not.

Other impact of this amendment will be to impose service tax on restaurants having air-condition facility irrespective of they have a license to serve alcohol or not, example of the

same would be KFC, Mc Donalds.

IV. Exemption for vehicle parking to general public is now being withdrawn so that all type of

parking facility granting whether by way of reserved (i.e. leasing of space to an entity for

providing such parking facility) or unreserved (i.e. General Parking) parking will be liable to

service tax

V. Exemption for services provided to Government, a local authority or a governmentalauthority, by way of repair or maintenance of aircraft is being withdrawn.


4/26

4

BUDGET ANALYSIS 2013-14 ON RETAIL SECTOR

While, Budget 2013 does not seem to propose any big bang reforms like 'granting of

industry status to Retail sector', GST introduction, etc, retail sector is likely to get impacted bythe proposed changes as follows:

Product costs:

The industry was abuzz with talks about an impending increase in basic excise duty and

service tax rates from 12% to 14%, which in turn, would fuel inflation. With the peak rates of

service tax, customs and excise duties remaining unchanged, consumers can feel relieved that

the Budget 2013 would not lead to an immediate across-the-board increase in prices of goods

and services.

Relief has been given to readymade garment manufacturers and cereal producers with

the option of excise duty exemption being restored for branded readymade garments and basic

customs duty on de-hulled oat grains being reduced from 30% to 15%.

On the other hand, Excise duty on mobiles having RSP >=Rs 2,000 has increased from 1%

to 6% and excise duty on cigarettes and other similar tobacco products has increased by

approximately 18%.

Impact on luxury market:

This year's budget seems to be focused on achieving better socio-economic parity with a

higher tax burden being cast on the society segments with high disposable income.

Finance Mister has proposed a 'rich tax' by way of a surcharge of 10% on tax on INR 10

Million plus income earners. Further, duties on various luxury consumer products have been

increased. For instance, - the basic customs duty on high-end cars has been increased from 75%

to 100%. Similarly, central excise duty on SUVs has been increased from 27% to 30%, except

those used as taxis.

Boost to Rural Consumption:

There is a substantially increased allocation for Rural Development Ministry [46% over

last year - around Rs 25000 crore more]. Further there is allocation of around Rs 10,000 crores
http://economictimes.indiatimes.com/topic/Retailhttp://economictimes.indiatimes.com/topic/GSThttp://economictimes.indiatimes.com/topic/service-taxhttp://economictimes.indiatimes.com/topic/customs-and-excisehttp://economictimes.indiatimes.com/topic/Financehttp://economictimes.indiatimes.com/topic/central-excise-dutyhttp://economictimes.indiatimes.com/topic/central-excise-dutyhttp://economictimes.indiatimes.com/topic/Financehttp://economictimes.indiatimes.com/topic/customs-and-excisehttp://economictimes.indiatimes.com/topic/service-taxhttp://economictimes.indiatimes.com/topic/GSThttp://economictimes.indiatimes.com/topic/Retail


5/26

5

earmarked towards National Food Security. Also, farm credit increase of around 125000 crores

has been proposed. These measures should overall help rural consumption story. Retailers may

increase their rural focus.

Foreign investment:

Capital starved Retail companies may find interesting to wait for further clarification on

how the new definition of 'FII' and 'FDI' will work, since otherwise stringent conditions

associated with FDI may not apply to FII. Finance Minister has proposed to follow the

international practice and lay down a broad principle that, where an investor has a stake of 10

percent or less in a company, it will be treated as FII and, where an investor has a stake of more

than 10 percent, it will be treated as FDI.

Franchise arrangements:

Withholding tax on royalties / franchise fees is proposed to be increased substantially

from 10% to 25% subject to treaty benefits. Hence, foreign franchisors may end up having a

higher tax burden in India.

GST still remains a dream

A key announcement that the retail sector was looking forward to was a detailed

roadmap for GST implementation, since GST is expected to significantly reduce the indirect tax

burden on the sector by removing cascading of taxes. However, the Budget 2013 does not

include any significant announcements in this regard. The FM reiterated the challenges being

faced by the Government and appealed to State Governments to extend their cooperation in

formulation of overall consensus to allow tabling of the draft Bills on Constitutional amendment

and GST legislation before the Parliament.

Now lets look at the overall impact on Retail Sector

Wal-Mart & TESCOs of the world are in no hurry to enter in to the by lanes of Indian

marketplace.

The economy is sluggish with projections of GDP growth slowing down to ~5% levels. In

such scenario, sentiment in the retail sector is bound to be low and a lot of expectations were

built around the budget.
http://economictimes.indiatimes.com/topic/FDIhttp://economictimes.indiatimes.com/topic/FDI


6/26

6

In this backdrop let us analyze the union budget 2013-14 and what does it mean for the Indian

retail sector:

The Positives first:

1. Basic excise & service tax rates were not increased. It is a status quo & a kind of relieffor the retail sector as there were rumors that the rates could be increased from 12% to 14%.

2. Excise duty exemptions were provided to branded readymade garments, countervailingduties were reduced on hulled Oats (from 30% to 15%).

3. Rural economy is bound to get a fillip, as the outlay for rural economy has increasedsignificantly in terms of NAREGA, Food Security bill(~10000 Cr) & agri credits. This infusion of

money in rural economy will give rise to rural consumerism. This is a positive not only for rural

retail but also for the adjoining tier 2/3 cities.

Now, lets see the negatives:

1. No Roadmap was given for GST implementation. The current CST regime is a majorroadblock for the sector; it increases the business complexities, inventories & in-efficiencies in

the supply chain. GST alone can unleash a fresh lease of life for the whole sector. It will also

make India a much attractive market for FDI investment.

2. No announcement on giving Industry status to the retail sector. Getting the same willensure a much higher focus on sectors issues, better financing & insurance options etc.3. Royalty & franchise fee will be taxed at 25% (vs the earlier rate of 10%), this will not onlyhave an impact on current setup but will also create hindrance for the entry of more global

brands to India.

4. Mobile phones that sells at more than 2000 Rs (by number of pieces sold, this is just~30% of the market, while in value this will be more than 80%) will attract an excise of 6% now,

similarly excise duty has been increased on Cigarettes and SUVs. From the retail sector point of

view, mobile retailing has emerged as a big business. Several Indian brands like Micromax, LAVA

etc have made impressive progress by marketing imported mobiles. Instead of any support, thisbudget poses a great threat to them. This duty might give a push to the illegal trade of

imported Chinese mobile phones, which will impact the organized mobile retailing market

badly.


7/26

7


8/26

8

BUDGET ANALYSIS 2013-14 ON INFRASTRUCTURE

While every sector can absorb new investment, it is the infrastructure sector that

needs large volumes of investment, Honble Finance Minister said emphasising on the need to

create new and innovative instruments to mobilise funds for meeting investments targets in

infrastructure sector.

Infrastructure sector got a moderate push in the Union Budget 2013-14.

The road sector which under achieved with a project award of just 879 km compared to a

budget target of 8,800 km for 2012-13 got a regulator to address contract management issues

and thus speed up road development along with promise of award of 3,000 km of road project

in H1FY14.

Budget proposals

The rate of tax on interest paid to non-resident investor reduced from 20 per cent to 5

per cent for the investment made through a designated bank account in rupee denominated

long-term infrastructure bonds.

More institutions strictly based on need and capacity to raise money in the market, will

be allowed to issue tax-free bonds in 2013-14 up to a total sum of Rs 50,000 crore.

India Infrastructure Finance Corporation Ltd (IIFCL), in partnership with the Asian

Development Bank, will offer credit enhancement to infrastructure companies that wish to

access the bond market to tap long-term funds.

Infrastructure Debt Funds (IDF) will be encouraged. These funds will raise resources and,

through take-out finance, credit enhancement and other innovative means, provide long-term

low-cost debt for infrastructure projects.

Corpus of Rural Infrastructure Development Fund (RIDF) operated by NABARD is

increased to Rs 20,000 crore for 2013-14.

Will award, 3,000 kms of road projects in Gujarat, Madhya Pradesh, Maharashtra,

Rajasthan and Uttar Pradesh, in the first six months of 2013-14.

Extension of the sunset date under section 80IA for the power sector was extended by

one more year up to March 31, 2014. Currently only undertaking that begins to generate

power, starts transmission & distribution etc by 31/03/2013 are eligible for tax holiday u/s


9/26

9

80IA.These amendments will take effect from 1st April, 2014 and will, accordingly, apply in

relation to the assessment year 2014-15 and subsequent assessment years.

To seek the assistance of the World Bank and the Asian Development Bank to build

roads in the North Eastern States and connect them to Myanmar.

Re introduces generation-based incentive for wind energy projects and provides Rs 800

crore to the Ministry of Non Renewable Energy for this purpose.

In order to provide low cost finance, Government of India will provide low interest

bearing funds from the National Clean Energy Fund (NCEF) to IREDA so as it can lend to viable

renewable energy projects. The scheme will have a life span of five years.

NABARD got Rs 5,000 crore to finance construction of warehouses, godowns, silos and

cold storage units designed to store agricultural produce, both in the public and the private

sectors. This window will also finance, through the State Governments, construction of

godowns by panchayats to enable farmers to store their produce.

Budget outlay for Rural Roads (Roads and Bridges) for 2013-2014 is fixed at Rs 21,700

crore and of which Rs 1,743.90 has been earmarked for North Eastern Region and Sikkim.

Two new major ports will be established in Sagar, West Bengal and in Andhra Pradesh to

add 100 million tonnes of capacity. In addition, a new outer harbour will be developed in the

VOC port at Thoothukkudi, Tamil Nadu through PPP at an estimated cost of Rs 7,500 crore.

When completed, this will add 42 million tonnes of capacity.

Outlook

Setting up of a regulator for road sector will address the contractual issues and pave

way for developers to exit project after developing it. Similarly the announcement to award

3000 km in the first 6 months of 2013-14 is a boost for the industry deprived of viable order.

If the award of road project in EPC mode it will be a boom for construction service

providers and if its on PPP model the benefits of it largely on the viability of the projects.

The budget reflected the commitment of the government to press ahead with some of

the previously announced measures such as credit enhancement from India Infrastructure

Finance Company and the encouragement, for setting up of infrastructure debt funds.


10/26

10

Both IDFs and Infra bonds though have the potential to meet the huge long-term fund

to the tune of $ 1 trillion required by infrastructure sector in 12th plan period, required by the

sector, the flow of funds largely depends on confidence of the investor on the sector.

For this the Government has to address the road blocks and remove the execution risks,but with no concrete measures apart from regulator for road and PPP policy for coal mining

nothing concrete is announced and this a disappointment for the industry.

Overall give budget announcement of regulator for road sector, enhancement of fund

outlays for JNNURM, rural roads, and other key infra programs turns the impact of the budget

on the sector positive.

The above measures would ensure easier access to funds by various project companies

executing large and medium scale projects leading to faster execution.

However, raising the tax rate of Minimum Alternate Tax (MAT) from 10 to 15 percent

would negatively impact infrastructure companies, which otherwise enjoy tax holiday benefits.

Essentially, this would result into larger cash outflow, the benefits of which would be available

after a period of 10 years (currently, 7 years). By extending the period to claim/ set off MAT

credit to 10 years, the companies enjoying 10 year tax holiday will be able to claim the MAT

credit; earlier, such companies lost the benefit of MAT credit for 3 years.


11/26

11

ANALYSIS OF BUDGET 2013-14: OIL AND GAS

Budget provisions

The following announcements have been proposed in the Union budget 2013-14.

1. No change in the peak rate of basic customs duty of 10% for non-agricultural products.2. No change in the normal rate of excise duty of 12% and the normal rate of service tax of

12%

3. Surcharge increased from 5% to 10% on domestic companies whose taxable incomeexceeds Rs 10 crore. In the case of foreign companies, who pay the higher rate of

corporate tax, the surcharge will increase from 2% to 5%. In all other cases such as

dividend distribution tax or tax on distributed income, current surcharge increased from

5% to 10%. Additional surcharges will be in force for only one year i.e. FY14

4. Education cess for all tax payers shall continue at 3%.5. Companies investing Rs 100 crore or more in plant and machinery during the period

1.4.2013 to 31.3.2015 will be entitled to deduct an investment allowance of 15% of the

investment.

6. Concessional rate of tax of 15% on dividend received by an Indian company from itsforeign subsidiary proposed to continue for one more year. Further, the Indian company

shall not be liable to pay dividend distribution tax on the distribution to its shareholders

of that portion of the income received from its foreign subsidiary.

7. Increase the rate of tax on payments by way of royalty and fees for technical services tonon-residents from 10% to 25%. However, the applicable rate will be the rate of tax

stipulated in the DTAA (Double Tax Avoidance Agreements)

8. Work on draft GST Constitutional amendment bill and GST law expected to be takenforward. sum of Rs 9,000 crore is set apart in the budget towards the first instalment of

the balance of CST compensation

9. A final withholding tax at the rate of 20% on profits distributed by unlisted companies toshareholders through buyback of shares

Impact of Budget 2013 on oil & gas sector

The changes in the international crude oil prices make a significant impact on the

economy, which in turn, leads to a rise in prices for many essential commodities - increasing

inflation. India's oil and gas sector typically contributes over 15% to the GDP. Given the lengthy


12/26

12

gestation period and investment risk involved in this sector, industry was looking forward to

policy reforms and various fiscal incentives. The Finance Minister has strived to allay the

concerns of the oil and gas sector which has been pending for a while viz. natural gas pricing

and exploration policy.

Given the increased domestic demand for natural gas, it is imperative to develop

unconventional sources of energy like shale gas. The Finance Minister has appreciated this

aspect and announced for a policy to encourage exploration and production of shale gas.

The Finance Minister has proposed a review of oil and gas exploration policy for

movement from profit-sharing to revenue-sharing contracts. Current Production Sharing

Contracts (PSCs) provide for explorers to first recover all of their capital and operating

expenditure from oil and gas revenues before sharing profits with the government under a

specific formula. However, there were disputes between the Government and the explorationlicense holders regarding the cost recovery.

This move is expected to resolve these issues as the Government would now be sharing

the revenue earned under the PSCs. On the flip side, the exploration license holders may not be

able to recover their investment and expense outlays before sharing the revenue with the

Government. However, the impact of the same would depend on the methodology for sharing

revenue to be introduced under this scheme.

The natural gas pricing policy also is proposed to be reviewed and uncertainties

regarding pricing are expected to be removed. The bottlenecks preventing the development of

oil and gas blocks awarded under NELP also proposed to be eliminated.

On the tax front, exemption from excise duty has been provided to sulphur recovered as

a by-product in refining of crude oil and which is used in manufacture of bentonite sulphur.

Further, excise duty and additional customs duty (commonly known as CVD) has been

exempted on manufacture and import of dredgers. One-time amnesty by way of waiver of

interest and penalty and immunity from prosecution to tax payers who have been non

compliant towards filing of returns and payment of service tax dues has been introduced and

will be effective on enactment of Finance Bill. As an important amendment, the advance ruling

provisions have been extended to cover resident public limited companies.

On the Income-tax front, in addition to normal depreciation, the manufactures will be

able to avail additional investment allowance of 15% on purchase of new assets exceeding INR


13/26

13

100cr. This proposed step would attract further investments. Another benefit that would be

available is from abolition of the cascading effect on distribution of dividends received by the

Indian companies from its foreign subsidiary.

On an adverse side, the exemption from service tax on domestic transportation ofpetroleum and specified petroleum products by rail or vessel has been withdrawn. The same

would increase the input service tax costs.

A major set back which will lead to increase in the tax cost of the oil and gas industry is

the increase in Income-tax rates on royalty and FTS from 10.506% to 27.038% for the foreign

companies from non-treaty jurisdiction. With the price of oil being regulated, it would be

difficult for companies to absorb such a drastic increase in the tax cost. The increase in the

Income-tax and surcharge rate of 1.24% will also add to the total tax cost. Another barrier for

foreign companies is that the repatriation of profits by way of buy back of shares by Indiancompanies would be taxable at 20%.

The Union Budget has focused towards introducing policy reforms to provide the much

needed impetus to the oil and gas sector. It needs to be seen as to how the policies are

implemented. However, the glaring omission in the Union Budget particularly with the

extension of the tax holiday period and in providing any substantial tax relaxation and fiscal

benefits has left the industry to battle with the economic and financial challenges.

Industry Expectations Not fulfilled

Government should clarify that for the availability of tax holiday, the definition of

'mineral oil' includes natural gas retrospectively irrespective of the NELP round and that the

benefit would also be available to Coal Bed Methane (presently 7 year tax holiday given to

crude oil E&P projects).

Extend the benefit under section 80-IB(9) of the Income Tax Act from 7 years to 10 years

to companies engaged in production of mineral oil and natural gas. It may further be provided

that benefit under section 80-IB(9) of the act shall not be restricted only to blocks licensed

under a contract awarded till March 31, 2011 and the period March 31, 2011 be extended tillMarch 31, 2017.

Definition of infrastructure sector in the explanation to Section 80-IA of the Income Tax

Act should be amended to include exploration and refining activities. Accordingly, exploration

and refining undertaking may be allowed deduction for 10 consecutive assessment years as

against 7 years at present out of 15 years period.


14/26

14

Expect enlarging the list of goods that could be imported duty free by the upstream

sector Scheme for refund of service tax incurred on services consumed by upstream sector.

An exemption has been provided to the parts and raw materials for manufacture of

goods to be supplied in connection with the purposes of offshore oil exploration or

exploitation. Under the above exemption similar benefits are not provided in relation to thepetroleum operation carried out onshore. It is requested that the benefits extended to the

offshore oil exploration activities should also be extended to the onshore oil exploration

activities to provide the operators a level playing field.

Petroleum products including crude oil and natural gas to be covered under Goods and

Services Tax


15/26

15

BUDGET ANALYSIS 2013-14 0N AGRICULTURE SECTOR

Provisions relating to agriculture and food sector in the budget:

1. Agriculture Ministry gets 27,049 crore, an increase of 22 percent over the RevisedEarning (RE) of the current year.

2. Plan outlay for agriculture has been raised considerably: total Plan outlay for AgricultureMinistry: 17095 crore (2012-13 RE: 13787 cr); out of this, for agricultural research: 3,415

crore (2012-13 RE: 2520 cr).

3. Agricultural credit target has been fixed at 700,000 crore.. The target was 575,000 crorefor 2012-13, which is likely to be exceeded.

4. The interest subvention scheme for short-term crop loans will be continued next yearalso. A farmer who repays the loan on time will be able to get credit at 4 percent per

annum.

5. The interest subvention scheme has so far been applied to loans given by public sectorbanks, RRBs and cooperative banks. This is being extended to crop loans borrowed from

private sector scheduled commercial banks for loans given within the service area of the

branch concerned.

6. Bringing Green Revolution to Eastern India (BGREI) has been a remarkable success.Assam, Bihar, Chhattisgarh and West Bengal have increased their contribution to rice

production. The scheme is being continued, with an allocation of 1000 crore in 2013-14.

7. The original Green Revolution States face the problem of stagnating yields and over-exploitation of water resources. The answer lies in crop diversification. 500 crore hasbeen allocated in the Budget for a programme of crop diversification that would promote

technological innovation and encourage farmers to choose crop alternatives.

8. The Rashtriya Krishi Vikas Yojana is intended to mobilize higher investment in agriculture.9,954 crore is being allocated to this scheme.

9. The National Food Security Mission, a scheme intended to bridge yield gaps of majorcrops, has been provided 2,250 crore.

10.The allocation for the integrated watershed programme has been raised from 3,050crore in 2012-13 (BE) to 5,387 crore. This will help small and marginal farmers who are

vulnerable everywhere especially in drought prone and ecologically-stressed regions.Watershed management techniques help in improving productivity of land and water

use.

11.On suggestion from eminent agricultural scientists, a pilot programme is to be started onNutri-Farms for introducing new crop varieties that are rich in micro-nutrients such as

iron-rich bajra, protein-rich maize and zinc-rich wheat. 200 crore has been allocated to

start the pilots. Ministry of Agriculture will formulate a scheme on this. It is hoped that


16/26

16

agricultural businesses and farmers will come together to start pilots in the districts most

affected by malnutrition.

12.The National Institute of Biotic Stress Management for addressing plant protection issueswill be established at Raipur, Chhattisgarh. The Indian Institute of Agricultural Bio-

technology will be established at Ranchi, Jharkhand and will serve as a centre of

excellence in agricultural bio-technology.

13.A pilot scheme to replant and rejuvenate coconut gardens that was implemented insome districts of Kerala and the Andaman & Nicobar Islands will be extended to the

entire State of Kerala. An additional sum of 75 crore has been allocated for this scheme

in 2013-14.

14.Farmer Producer Organizations (FPO), including Farmer Producer Companies (FPC), haveemerged as aggregators of farm produce and link farmers directly to markets. Matching

equity grants will be provided to registered FPOs upto a maximum of 10 lakh per FPO to

enable them to leverage working capital from financial institutions. 50 crore is being

provided for this purpose.15.Besides, a Credit Guarantee Fund will also be created in the Small Farmers Agricultural

Business Corporation with an initial corpus of 100 crore. Finance Minister has urged State

Governments to support such FPOs through necessary amendments to the APMC Act

and in other ways.

16.The National Livestock Mission will be launched in 2013-14 to attract investment and toenhance productivity of livestock, taking into account local agro-climatic conditions. 307

crore have been provided for the Mission. There will be a sub Mission in NLM for

increasing the availability of feed and fodder.

SUBSIDIES

1. A sum of `10,000 crore has been kept for the National Food Security Act. TheGovernment hopes that the Bill for this will be passed by Parliament as early as possible.

This allocation is over and above the normal provision for food subsidy, towards the

incremental cost that is likely under the Act.

2. 90,000 crore have been provided for food subsidy [including expenditure likely onimplementation of the Food Security Act] as against 2012-13 RE of 85,000 crore. The

subsidy is used in TPDS operations and food grain procurement. In addition, provisions

have been made for subsidy on import of pulses (250 crore) and edible oils (318.34crore).

3. Other subsidies that will benefit the agricultural sector directly or indirectly are:fertilizer subsidy: 65,971.5 crore; interest subvention on farm credit: 6,000 crore; price

support by Jute and Cotton Corporations: 255 crore.


17/26

17

BUDGET ANALYSIS 2013-14 0N BANKING AND FINANCE

1. Recapitalization of PSBs and boost to housing financeANALYSIS:

The Union Budget proposes to provide Rs 140 billion as capital support to all public sector

banks (PSBs) in 2013-14. The government also stated its intent to help PSBs comply with Basel

III regulations. For 2013-14, banks have been directed to lend Rs 7,000 billion to the agri sector

- an increase of 21.7 per cent over the target for 2012-13. Farmers who avail of farm loans from

PSBs and repay in a timely manner get loans at subsidized rates. They will now be able to access

this credit facility from private banks as well. We believe this move will help private banks

increase lending to this segment. The clear focus on giving a boost to the housing market is also

positive for financiers. An additional tax deduction of Rs 100,000 on interest paid towards homeloans up to Rs 25 lakh availed in 2013-14 for first home buyers (over and above the existing Rs

1,50,000 deduction) has been introduced for 2013-14, to give a boost to the affordable housing

segment. This additional deduction can be claimed over a period of 2 years. In addition, an

amount of Rs 20 billion has been allocated towards a proposed Urban Housing Fund to be set

up by the NHB.

IMPACT:

Government wants to strengthen banking system of India to finance growth. This step will

infuse liquidity in market and help PSBs to lend more to farmers and other MSMEs project.There is even additional incentive for first time buyers of house to avail loan, by this

government is trying to boost even the reality sector as well.

2. Banks will be permitted to act as insurance brokersANALYSIS:

This will allow banks to distribute products of more than one insurance company; this

will help increase penetration of insurance through the branch network of banks

IMPACT:

Government by this has tried to give impetus to already slow banking industry by this

reform. As it cannot majorly influence interest rates by which banking industry has been hit

hard as they have limited demand for new loans at this high interest rates. Thus by including

one more job in the gambit of banking industry FM has tried to push the sector.


18/26

18

3. ETFs, debt mutual funds and asset backed securities allowed as investment forprovident and pension funds.

ANALYSIS:

This can help mutual funds garner more stable AUM as well as broaden the investmentoptions/avenues of provident and pension funds.

IMPACT:

This will encourage saving habit among Indians and provide incentive to save more.

4. FII/FDI investmentANALYSIS:

The government came out with definitions of Foreign Institutional Investor (FII) and

Foreign Direct Investment (FDI) - investment of less than 10% by a single investor in a company

will be treated as FII and investment of more than 10% will be treated as FDI. FIIs are permitted

to participate in the exchange traded currency derivative segment to the extent of their rupee

exposure. Moreover, their investments in corporate bonds and G-sec will be allowed to be used

as margin. Modified GAAR (General Anti Avoidance Rule) is expected to come into effect from

April 1, 2016

IMPACT:

This step has been majorly taken to increase more investment by FIIs in India. This has been

done with a view to support Indias current account deficit and support our depreciating

currency. FM has also tried to boost the morale of foreign investors by this so that the

investment in India is not slowed down.

5. Greater clarity with respect to FDI and FII investment and meeting international bestpractices.

ANALYSIS:Where an investor has a stake of 10% or less in a company, the investment will be

treated as Foreign Institutional Investment (FII), and, where an investor has a stake of more

than 10%, the investment will be treated as Foreign Direct Investment (FDI).


19/26

19

IMPACT:

This will resolve many doubt and clear many conceptions as it wil provide clearer picture

what is FDI and what is FII. Investors will have more flexibility now.

6. Securities transaction tax reduced for equity futures and MF/ ETF redemptions.ANALYSIS:

Will help reduce overall transaction cost for investors and mutual funds and thereby

increase returns proportionately

IMPACT:

This will increase number of trades in equity and it has been introduced with the

objective of encouraging equity traders.


20/26

20

BUDGET ANALYSIS 2013-14 0N PERSONAL FINANCE

1. No major change in personal tax for low to middle income group, increase in taxes forhigh income group.

ANALYSIS:

The government has announced minor changes in the direct tax for individuals and HUF.

It has provided for one-time tax credit of uptoRs 2,000 to every person with a total annual

income up to Rs 5 lakh. However, people with annual income exceeding Rs 1 crore, will have to

pay an additional 10% surcharge. This will increase tax revenues marginally as the number of

people falling in this tax bracket is relatively low

Status ofindividual

Slabs (INR)

Nil 10% 20% 30%

Resident /

non-

resident

200,000

200,001

500,000

500,001

1,000,000

1,000,001

and

above

Resident

Senior

Citizen (60

to 79

years)

250,000250,001

500,000

500,001

1,000,000

1,000,001and

above

Resident

Very

Senior

Citizen (80years plus)

500,000 - 500,001

1,000,000

1,000,001

and

above

IMPACT:

Government wants to collect money. It cannot tax poor and increase its revenue so it is

taxing high income group higher and thus trying to finance its deficit whatever it has.


21/26

21

BUDGET ANALYSIS 2013-14 ON METAL INDUSTRY

Demand and prices for base metals are directly correlated with the industrialproduction. The base metal industry is bearing the brunt of the continued weak globalmacroeconomic environment. Muted industrial activity along with sluggish demand

outlook from the developed economies is putting pressure on the overall demand and

subsequently the prices of these metals.

Fundamentally, the prices of all base metals depend upon the rate of demand growthand the underlying inventory position of a particular base metal. Decrease in the prices

of the base metals in the last year can be attributed to the muted demand growth on

the global front and sufficient inventory holding of the underlying base metal. However,

the changing socio-economic conditions and expected recovery of demand from the

Chinese and EU markets is likely to stabilize the demand of these metals in the long run.

Research expects prices of all base-metals to remain volatile on the back of the ongoingmacroeconomic development in the Euro zone and the US, Chinese economic outlook

and the strengthening of the US dollar vis-a-vis the other major currencies in the world.

There have been no major alterations in duty structure (Customs duty and Excise duty).

Only the customs duty on steam coal is raised from 0% to 2%.

Following are the 3 alterations in budget 2013 related to metal industry and their impact;

Budget proposal Impact

1. Levy of export duty at the rate of 10%on bauxite.

1. The same is likely to have a marginallypositive impact on the aluminium

manufacturers not having captive

sources of bauxite. However, the

export volume is not significant and as

such the impact is also not much.

2. Imposition of 4% excise duty on silverproduced or manufactured during the

process of zinc and lead smelting.

2. Since silver is a by-product for zinc andlead manufacturing companies, the

companies will now have to shell out

excise duty of 4% on the silver

produce. Hence, the impact is likely to

be negative for the players.


22/26

22

3. Increase in customs duty from nil to 2%and CVD from 1% to 2% of steam coal.

3. The increase in custom duty and CVDon steam coal will result in increase in

cost of production and as such have a

negative impact on the non-ferrous

metal producers.


23/26

23

BUDGETANALYSIS 2013-14 ABOUT TEXTILE INDUSTRY

Introduction:

Textile Industry contributes 14% to Indian industrial production, 4% to the GDP andaround 17% to the total export earnings and is the largest foreign exchange earning sector in

the country. Textile Industry has evolved from being a domestic small-scale industry, to the

status of supremacy it currently holds. The industry, today, provides direct employment to over

35 million people and is the second largest provider of employment after agriculture.

The budget 2013 has been announced by the Union Finance Minister P. Chidambaram

on 28th February 2013. The budget has cheered some of the industries immensely. It has

diverged effects upon different industries.

Impact on the Textile industry:

The government has ultimately agreed to remove the excise duty on readymade

garments which had been imposed two years back.

The Finance Minister has accepted the demand of the textile industry to provide zero

excise duty on cotton and manmade sector at the yarn, fabric and garment stage.

Further a sum of Rs 1,000 corer has been allocated to the skill development and there is also

hope for allocation for the readymade garments sector, which would result in absorption of

workers who have been displaced from agriculture for some reason or the other and will

ultimately help the government in solving employment problem.

This removal of excise duty will help in increasing exports of value added textile chain.

The textile industry was in a crisis stage and required urgent back up. The removal of excise

duty has been the first bold step to give a solid platform for the garment industry.

The removal of excise duty will also protect the domestic industry from cheap imports.

Moreover, it will facilitate foreign industries engaged in retail industry to set up their own

industries in our country rather than to import garments from outside.

It will help the decrease of prices of garments in India and will further help the brands to

develop.

The budget tends to increase employment opportunities in the country, especially for

unskilled and semiskilled workers, and particularly to the female workers.

The Budget has given immense hope for the industry. Finally the appeals of the

industries have been heard. This step is likely to benefit the consumer and help the industrial

growth in India. The government has allocated Rs 500 corers for environmental issues in the


24/26

24

textile industry. This will make the garment companies to become responsible towards the

environment and help the reduction of pollution level in the environment.

A sum of Rs. 1,000 corer will be allotted to promote youth skills. This is also a bold step.

In India there are a lot of talented skilled persons. This move will help in promoting them.

However the industries in UP have stated that the Union Budget is "conservative" as focus has

been made on populist measures and not on "growth drivers" which would boost industries.


25/26

25

BUDGET ANALYSIS 2013-14 0N EDUCATION INDUSTRY

In the last budget government had proposed to set-up 2,500 schools under the PPPmodel. The same has resulted in greater involvement of the private sector in this sector.

The growth in the Indian Education sector would be driven by growing personaldisposable incomes, increasing Government spend and also efforts of government to

improve the regulatory framework for the educational sector.

.

Duty Structure

Earlier there was a 12% service tax on vocational institutes but now this tax has been

removed and such institutes are exempt of service tax.

PROPOSALS

The budgetary allocation to Ministry of HRD for various schemes increased by 17% toRs.65,867 crore for the education sector.

Budgetary allocation to Sarva Shiksha Abhiyan at Rs.27,258 crore; Budgetary allocation to Madhyamik Sihksha Abhiyan at Rs.3,983 crore; Budgetary allocation to provide scholarship of Rs.5,284 crore to SC, OT, OBC, Minorities and girl children. Budgetary allocation of Rs.13,215 crore for mid-day meal scheme

IMPACT

The government reemphasized its thrust on the education with the y-o-y increase in

government expenditure on the education industry, up-gradation of existing schools and

universities, scholarships to lower income segment of the population, implementation of Right

to Education Act. The increase in allocation along with other measures augurs well for the

education industry and for private sector companies with increase in inflow of orders and more

sources of revenues generation.

IMPACT ON COMPANIES

The increased budgetary allocation to the education sector opens new sources of

revenues along-with increasing demand of up-gradation of existing infrastructure. The increase

in budgetary allocation to the education sector is expected to result in higher inflow of orders

to the private sector players especially for companies engaged in Information and

Communication Technology segment of education. Furthermore, with the increase in the

budgetary, allocation to the mid-day meal scheme will also result in increased orders to players

involved indirectly in the education sectors.


26/26

BUDGET ANALYSIS 2013-14 0N AUTOMOBILE SECTOR

Marginally negative for utility vehicles and neutral for other segments

ANALYSIS:

With excise duty being hiked to 30 per cent from 27 per cent, demand for non-taxi

sports utility vehicles with engine capacity above 1500 cc (and more than 4,000 mm long;

ground clearance of over 170 mm), will be marginally impacted. Demand for luxury cars (priced

over $40,000 and/or engine capacity exceeding 3000 cc for petrol cars and 2500 cc for diesel

cars) will be hit, with basic customs duty being hiked to 100 per cent from 75 per cent. An

increase in basic custom duty to 75 per cent from 60 per cent will impact sales of motorcycles

with engine capacity of 800 cc or more. However, these high-end vehicles constitute a

miniscule portion of the overall sales for the industry. The purchase of 10,000 buses under theJNNURM and a reduction in excise duty on truck chassis to 13 per cent will benefit commercial

vehicle sales.

IMPACT:

This will make high end cars costlier, which is a major setback to auto industry, as auto

industry is already struggling to sell its inventory due to other reasons like high fuel prices,

unsubsidising of diesel prices and increased excise duty on diesel cars. This will affect auto

industry and manufacturing output might come down.

budget analysis 2012

Documents