union budget review 2012-13 · union budget review 2012-13 fiscal consolidation top priority! ......

Union Budget Review 2012-13Fiscal consolidation top priority!

1 17h March‘12KM Global Investment Research

2010-11 2011-12 2012-13 %Rs Cr Actual Revised Estimates Budget Estimates ChangeRevenue Receipts 7,88,471 7,66,989 9,35,685 22.0Tax Revenue 5,69,869 6,42,252 7,71,071 20.1Non Tax Revenue 2,18,602 1,24,737 1,64,614 32.0

Capital Receipts 4,08,857 5,51,731 5,55,240 0.6Borrowings 3,73,591 5,21,980 5,13,590 -1.6Others 22,846 15,493 30,000 93.6Recoveries 12,420 14,258 11,650 -18.3

Total Receipts 11,97,328 13,18,720 14,90,925 13.1

Non Plan Expenditure 8,18,299 8,92,116 9,69,900 8.7Revenue 7,26,491 8,15,740 8,65,596 6.1Capital 91,808 76,376 1,04,304 36.6

Plan Expenditure 3,79,029 4,26,605 5,21,025 22.1Revenue 3,14,232 3,46,201 4,20,513 21.5Capital 64,797 80,404 1,00,512 25.0

Total Expenditure 11,97,328 13,18,721 14,90,925 13.1

Revenue Deficit 2,52,252 3,94,952 3,50,424 -11.3

Fiscal Deficit 3,73,591 5,21,981 5,13,590 -1.6

Nominal GDP 76,24,306 88,47,136 1,01,59,884 14.8

Fiscal Deficit/GDP (%) 4.9% 5.9% 5.1% -14.3

BUDGET AT A GLANCE

• GDP growth estimated at 6.9% in real termsin FY12. Slowdown due to deceleration inindustrial growth.

• GDP growth in FY13 expected to be 7.6% +/-0.25 bps

• Deterioration in fiscal balance in 2011-12 dueto slippages in direct tax revenue andincreased subsidies

• To keep central subsidies under 2% of GDP inFY13. Over next 3 years to be further broughtdown to 1.75% of GDP.

• Current account deficit at 3.6% of GDP forFY12 and reduced net capital inflow in the2nd and 3rd quarters has put pressure onexchange rate

• A net revenue loss of Rs 4,500 Cr estimated asa result of Direct Tax proposals for FY13

• Proposals from service tax expected to yieldadditional revenue of Rs 18,660 Cr

• Indirect taxes estimated to result in netrevenue gain of Rs 45,940 Cr

• Net gain of Rs 41,440 Cr in the Budget due tovarious taxation proposals


2KM Global Investment Research

Key Takeaways

Disinvestment target of Rs 30,000 Cr for 2012-13

Rajiv Gandhi Equity Saving Scheme introduced to allow for income tax deduction of 50% to new retail investors, who invest upto Rs 50,000 directly in equities and whose annual income is below Rs 10 lakh. The scheme will have a lock-in period of 3 years.

Reduction in securities transaction tax by 20% on cash delivery transactions

Hike in service tax from 10% to 12%

Standard rate of excise hiked from 10% to 12%, merit rate from 5% to 6% and the lower merit rate from 1% to 2% with few exemptions

Capital infusion of Rs 15,888 Cr in PSU banks. Possibility of creating a financial holding company t to meet the capital requirements of PSU Banks under examination

Tax free bonds of Rs 60,000 Cr to be allowed for financing infrastructure projects in 2012-13

GST network to be set up as a National Information Utility and to become operational by August 2012.

Proposal to lay a White Paper on Black Money in current session of Parliament

Exemption limit for the general category of individual taxpayers enhanced from Rs 1,80,000 to Rs 2,00,000.

Upper limit of 20% tax slab proposed to be raised from Rs 8 lakh to Rs 10 lakh.

To allow individual tax payers, a deduction of upto Rs 10,000 for interest from savings bank accounts.

Restriction on Venture Capital Funds to invest only in 9 specified sectors proposed to be removed

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

More sectors like irrigation, telecom towers, oil & gas storage etc added as eligible sectors for Viability Gap Funding under the scheme “Support to PPP in infrastructure”.

Excise duty on refined Gold doubled from 1.5% to 3%

Hike in customs duty on standard gold bars , gold coin of purity exceeding 99.5% and platinum from 2% to 4%

Hike in customs duty on non-standard gold from 5% to 10%

17h March‘12



Budget ImpactSector Policy Changes ImpactAgriculture Allocation under Rahtriya Krishi Vigyan Yojna increased - Rs 9,217 Cr Neutral for Agriculture sector

Rs 1,000 Cr - Green Revolution in Eastern Region Positive for Agriculture sectorRs 300 Cr - Vidarbha Intensified Irrigation Development Programme Positive for Agriculture sectorRs 2,242 Cr - To improve productivity in the dairy sector Positivee for KwalityTarget for agricultural credit raised by Rs 1,00,000 Cr to Rs 5,75,000 Cr Positive for FMCG and tractor makers like EscortsRs 14,142 Cr - Accelerated Irrigation Benefit ProgrammeRs 14,000 Cr - Rural drinking water and sanitationRs 24,000 Cr - PMGSY to improve connectivityCustoms duty slashed on agricultural equipments and parts Positive for Jain IrrigationBasic customs duty and excise duty reduced on Soya productsBasic customs duty and excise duty reduced on IodineInterest Subvention 3% for farmers who repay their crop loan on time Positive for Banking sector

Automobiles Excise duty on large cars Increased from 22% to 24% Negative for M&M, MarutiChassis for building of commercial vehicle bodies to be charged excise duty atan ad valorem rate instead of mixed rate Negative for CEBBCO

BFSI Approved Rajiv Gandhi Equity Saving Scheme Positive for BrokeragesRecapitalisation of Rs 15,888 Cr To benefit PSU banksCreation of financial holding co to meet capital requirements of PSU Banks To benefit PSU banksRevised Guidelines for priority sector lendingTax free bonds - Rs 60,000 to finance infra projects Positive for Infra financing companies – IDFC, REC, Srei InfraReduction in STT by 20% on cash delivery transactions Positive for BrokeragesIDR two way fungibility Positive for Stanchart IDRFII Investment in Long Term Infra Bonds Positive for PFC, IDFC, RECMicrofinance bill to be introduced Positive for MFIs - SKS Microfinance

Cement Excise duty rationalised for packaged cement To benefit Shree Cement, India Cement, Ultratech, JK CementFull exemption from custom duty on imported coal Positive for India cement, Madras cement, Shree CementExcise duty raised to 12% from 10% earlier Neutral - Hike will be passed on to customers

Consumers Custom Duty exemption on LCD and LED TV panels and parts of memory cardsfor mobile phones Positive for Videocon, Mirc Electronics

17h March‘12



Sector Policy Changes ImpactDefence Rs 193,407 Cr for Defence services including Rs 79,579 Cr for Capex Positive Defence Stocks

Rs 1,185 Cr proposed to be allocated for construction of nearly 4,000 residentialquarters for Central Armed Police Forces. Positive for RealtyRs 3,280 Cr proposed to be allocated for construction of office building of Central Positive for RealtyArmed Police Forces.

Gems & Jewellery Excise duty on branded and unbranded jewellery Neutral for Titan, Thangamayil JewelleryBranded Silver jewellery exempted from excise duty

Education Rs 25,555 Cr allocated for Sarva Shiksha Abhiyan Positive for Everonn, Educomp, NIIT, Career Point6,000 schools proposed to be set up at block level as model schools in 12th plan Postive for Zee Learn, Tree HouseRs 3,124 Cr provided for Rashtriya Madhyamik Shiksha Abhiyan

Fertilizers To finalise pricing and investment policies for urea Neutral for the sectorFull exemption on customs duty on import of equipments for fertilizercapex projects

Neutral for the sector

FMCG National Food Security Bill, 2011 is before Parliamentary Standing Committee Neutral for GCPL, Dabur IndiaReduction in basic customs duty on Titanium dioxide from 10% to 7.5% Positive for paint companiesExcise Duty hike on Cigarettes Neutral on ITC, Godphrey Phillips

Infrastructure Investment in Infra to go upto 50 lakh Cr Positive for Infra companiesApproved guidelines for establishing JVs by defence PSUsFirst Debt Infra Fund launched - Rs 8,000 Cr Positive for Infra companiesAllocation of the Road Transport and Highways Ministry - Rs 25,360 Cr Positive for IRB Infra, IL&FSECB allowed for capex on operation and maintenance of toll systems for roads and highways

Positive for IL&FS, Noida Toll bridge

Direct import of ATF allowed Positive for KFA, Jet Airways, SpicejetECB permitted to meet working capital requirement of airline industry Positive for KFA, Jet Airways, SpicejetAllocation under RIDF enhanced to Rs 20,000 CrCustom duty relaxed on equipments needed for road construction, tunnel boring machines

Positive for IRB Infra, IL&FS

FDI in Aviation under considerationRs 5,000 Cr India Opportunities Venture Fund to be set up with SIDBI

Logistics Rs 5,000 Cr earmarked exclusively for creating warehousing facilities Positive for Arshiya, Allcargo, TCI

17h March‘12



Sector Policy Changes ImpactMetals & Mining TDS on trading in Coal, Lignite and Iron Ore

Increase in excise duty on Steel Negative for steel manufacturing companiesReduction in customs duty on plant and machinery imported for setting-up of iron ore pellet plants or iron ore beneficiation plants (sintering) from 7.5% to 2.5%.

Positive for Godawari Power

Import duty for mining equipment is being cut by 5% .

Oil & Gas Hike in cess on crude petroleum oil produced in India from Rs 2,500 per metrictonne to Rs 4,500 per metric tonne Negative for ONGC,OIL India and Cairn

Health Care Weighted average deduction on contribution to R&D 200% stayed Positive for Sun, DRL, Cipla, GlenmarkRs 18,115 Cr - National Rural Health Mission Postive for the sectorNational Urban Health Mission to be launchedBasic customs duty reduced on ProbioticsExemption of excise duty to six specified life-saving drugs/ vaccines

Power Coal India advised to sign fuel supply agreements with power plants Positive for power generation companiesSunset clause for setting up power sector undertakings extendedFull exemption from basic customs duty and a concessional CVD of 1% on steam coal

Positive for the sector

Tax free bonds of Rs 10,000 Cr to be allowed by power companies Positive for the power sectorAdditional depreciation of 20% for power sector companies Positive for NTPC, Power Grid, Reliance PowerECB allowed to part finance rupee debt of existing power projects

Realty ECB permitted for low cost housing projects Positive for developers like Purvankara, Sobha Developers, HDIL

TDS on transfer of immovable property (other than agricultural land) above a specified threshold

Textile Financial package of Rs 3,884 Cr for waiver of loans of handloom weavers NeutralExcise duty on readymade Garments reduced Positive for Provogue, TrentRs 500 crore pilot scheme for promotion and application of Geo Textiles

17h March‘12

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Research Head Aditya Damani +91 22 22630125 [email protected]

Head Office 4th Floor, Surya Mahal5, Burjorji Bharucha MargFortMumbai-400001

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Research AnalystAfshan Sayyad +91 22 40023026 [email protected]


17th March ‘12KM Global Investment Research

union budget review 2012-13 · union budget review 2012-13 fiscal consolidation top priority! ......

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