Not a Populist Maneuver

The Union Budget of FY2012-13, presented by the Finance Minister Mr. Pranab Mukherjee, resulted in the market closing 1.19% in red. Most of the sectoral indices, except FMCG and Consumer Durables closed in red. India Inc has called this budget “a missed opportunity”.

The expectations from the Budget were low to begin with. But, while the expectations were low, wishlist was long. The table below is an example of the wish list of a few industries.



Cycles *Abolition of all duties
Infrastructure *Revive power sector. Extend benefit under Sec. 80IA*Exemption from MAT.*Lift the $30 bn annual cap on External Commercial Borrowing temporarily.

*Take a call on the no-go criterion for the coal blocks.

*Bring more private players into mining

Health Care *Import duty cuts on import of equipments, drugs and chemicals.*Declare it a ‘National Priority Sector’.*Make it a part of the infrastructure sector so that it can avail loans for infrastructure financing institutions.

*Increase the medical reimbursements exemption limit from Rs15,000 to Rs1,00,000/-

Viscose Rayon *Reduce excise duty from 10.3% to 0.* Retain S.A.D in lieu of Sales Tax.
Branded garment *Remove 10.5% Central Excise Duty.*Refund of Excise Duty on lines similar to refund of duties of input and finished goods.
SSI *Increase in exemption limit from Rs1.5cr to Rs5cr.
MSME *Provide more reliable and accessible internet broadband.
Real Estate *Single-window clearance mechanism for real estate projects.*Better clarity on the indirect taxes being levied on developers. *Development of a viable Real Estate Investment Trust (REIT).*Make rental business attractive for investors.

Source: Compiled from various industry associations and news reports

Everyone wanted this budget to be “not a populist maneuver”, but in the same breath, they would roll out a series of exemptions and sops that they wished for from the budget.

One thing is for sure. This budget is not a populist maneuver and as the market reactions point out, Mr. Finance Minister has not been able to satisfy everyone. And this is exactly what works in his favor.

As we can see, almost every industry wanted tax sops to continue, duties and taxes to reduce or be removed. But the finance minister has stuck to tackling the burgeoning fiscal deficit and concentrating on key areas of infrastructure, education, health and food. There is effort to contain the outflows on subsidies, containing them to 2% of the GDP. There is emphasis on removing bottlenecks for the coal, mining, roads and energy sectors, and various customs reliefs and duty cuts have also been proposed for these sectors. Create capacities for storage, increasing supplies, reducing duties and customs in the agricultural sector are truly welcome. The allocations for education and health related schemes have also gone up by more than 20% overall.

The ‘aam aadmi’ does not get too much, but should not be disappointed as well. Within limits, the budget has put something in their pockets too without taking away much. The income tax exemption limit has gone up to Rs2,00,000/- The limit for tax exemption on interests earned has gone up from Rs5,000 to Rs10,000/- The retail investor gets an incentive to invest in the stock markets, through the Rajiv Gandhi Equity Savings Scheme. Service Tax had been increased by 2% but then it was inevitable as the service tax was reduced in 2008 as sops given to tide over the financial crisis.

Black money and tax avoidance have been frowned upon. Amendments to Fiscal Responsibility and Budget Management Act, 2003, have been announced.

The government is embroiled in corruption charges, the mandate of the people in the recently held state elections was not encouraging, and the so called allies are not being too helpful either. Not much is expected from the financial year 2013-14 budget as the country goes to elections in 2014, assuming that the UPA government manages to hold on till then. This was the only chance for Mr. Pranab Mukherjee, to push for reforms, save some face by doing it, and bring India back on the growth trajectory. While there are many sectors that are disappointed for not getting any sops, the finance minister has done a pretty good job within his constraints.

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