Budget Analysis 2012-13

Expectations From Union Budget 2012-13:

India is expected to grow at 6.9% of GDP in this union budget 2012-13. Inclusive Growth in Rural and Urban areas. Service tax to generate additional revenue of ` 18,650 crore in the budget year 2012-13. Challenge for this budget year 2012-13 is to get growth rate back to 8%. Expected current account deficit to be lowered next year. GST expected to be operational by August 2012. Expect inflation to moderate and then stabilize. Expect smaller current account deficit to be 3.6%. ` 30,000 crore de-investment target for next year. This year budget may see FDI in aviation and retail

Highlights of the Budget

Revised fiscal deficit for 2011-12 stands at 5.9% of GDP Fiscal deficit for 2012-13 pegged at 5.1% of GDP Capital revenue to be raised by 30.6% Revenue expenditure to be increased by 10.7% Food Security Act to be fully funded Direct transfer of subsidy to retailers and farmers Allocation of the Road Transport and the Highway Ministry enhanced by 14% to ` 2.53 billions

Contd

Limit on tax-free Infrastructure bonds increased to ` 600 billion from ` 300 billion Service tax rates to be increase from 10% to 12% Standard excise duty to increase from 10% to 12% Full exemption of coal imports from custom duty to revive the power sector Qualified Foreign Investors to be allowed access to the corporate bond market

Impact of Budget on Individuals

Price down of Commodities in Budget 2012-13

Cinema and films LCDs and LEDs Mobile phones Imported bicycles School education Iodized salt Processed food Match-boxes Housing society charges LPG and HPG Iron ore equipment Solar power lamps LED bulbs Medicines for treating cancer and HIV Uranium for generation of electricity. Natural gas

Price hikes of Commodities in Budget 2012-13

Gold items and Jewellery Diamond and Platinum Jewellery Luxury Cars SUVs Refrigerator Air travel Telephone bills Cigarettes and Handrolled Beedis Branded retail garments Emerald and Ruby

Effect of Budget on an Individual

Service tax rate hiked from 10% to 12%. Excise Duty raised to 12%.

The basic Custom Duty has been reduced on certain Agricultural Equipments. RAJIV GANDHI EQUITY SAVING SCHEME: Encourage the flow of saving in financial instrument and improve the depth of Domestic Capital Market.

Effect of Budget on Housewives

NEGATIVE IMPACT
Excise Duty on gold has been increased by 1.5% to 3%. Excise Duty and Service Tax increase 200 basis points.

POSITIVE IMPACT
55% abatement from the Retail Sale Price enhance to 70%. Excise Duty on mobile phone parts cut steeply from 10% to 2%.

Effect of Budget on Students

The Budget seems positive for the education sector, with good amounts allocated to higher education and school education exempted from service tax. Increase budget allocation for Sarva Shiksha Abhiyan. To grant infrastructure status to education sector.

Impact of Budget on the Industrial Sectors

Sector Wise Negative Impact of the Budget

Automobiles Sector
Negative for Cars Neutral for other segments

The increase in the excise duty on cars, commercial sectors and two wheelers will be passed on to the consumers Demands for Sedans and Luxury Cars will be hit as the excise duties were hiked to 27% from 22%, while basic custom duty for completely built units of such cars was increased to 75% from 60%

Contd

Hotel Industry
Service tax increases to impact hotels negatively

The reinstatement of service tax to 12% from the earlier rate of 10% will adversely effect hotel players The abatement provided for hotels accommodation has been reduced from 50% to 40% The effective service tax for hotel accommodation will increase to 7.2% from 5% Given the intense competition in the industry, the players will have limited ability to pass on the increase in service tax through higher room rates

Contd

Oil and Gas

Cess increase and low budgeting of subsidies to impact profits

The proposed increase in tax on production of crude oil, to ` 4,500 per tonne from ` 2,500 per tonne This will increase the cost of domestic oil production by $5 to $6 per barrel The governments estimates of oil subsidies for 201112 and 2012-13 seems to be conservative

Contd

Paper Industry
Higher excise duties to pull down margins

Excise duties on paper and paperboard (P&B) and pulp have been increased by 1% The government has also imposed excise duty of 6% on waste paper On the positive side, custom duties on imported waste paper have been removed The impact is negative for P&B players as the impact of the excise duty hikes on raw material and finished goods will outweigh that of custom duties removal on wastepaper

Sector Wise Positive Impact of the Budget

Textiles sector
Excise cuts on branded apparels is beneficial

The Union budget has reduced the excise duty on branded apparels and textiles made-ups They have also removed the custom duty on shuttle-less looms Effective excise duty on branded apparels and made-ups has been cut to 3.6% from the earlier 4.5% This, along with lower cotton prices, will stimulate demand The concessional custom duty has now been restricted to the new machineries only

Contd

Roads and Highways

Measures aimed at further improving fund availability

The budget has announced several measures to improve availability of funds for the infrastructure sector A large portion of these funds are expected to flow into the roads sector At the corporate level, there has been a reduction in the withholding tax on interest payment of external commercial borrowings (ECBs) for the road sector to 5% from 20% This will aid the road developers as their exposure to the ECBs is limited

Contd

Power
Exemption of custom duty on fuel; enhanced fund availability

Exemption of 5% customs duty on thermal coal, natural gas and liquefied natural gas (LNG) will provide relief to the power generators reeling under high fuel costs The budget also enhanced the availability of funds for financing power projects through tax free bonds The proposal of reduction of withholding tax on interest payments on ECBs, from 20% to 5%, will reduce the cost of borrowings for the sector

Contd

Household Appliances
Customs Duty exemption on LCD/LED panels and higher disposable income to benefit industries

Complete exemption of customs duty on LCD/LED panels from 5% in the previous year will lower panel TV prices, thereby driving demand An increase in the income tax exemption limit will raise the disposable income of the salaried class by ` 2,000 annually An additional benefit of upto ` 20,000 would accrued for individuals with income higher than ` 0.8 million These factors will more than offset the 2% point increase in excise duty, thus positively impacting the household appliances industry

Contd

Fertilizers
Fertilizer industry to benefit from cheaper farm credit

Fertilizers demand is set to get a boost on account of cheaper credit availability to farmers The government will provide interest subvention to farmers who make timely payment of farm loans, effectively lowering the interest rates. The reduction in basic customs duty on some water soluble fertilizers may increase their usage, improving revenues and profitability of fertilizers players.

Contd

Construction
Tax-free bonds limit doubled; boost to irrigation sector

The limit for tax-free bonds in the infrastructure sector has been doubled to ` 600 billion for 2012-13 from that in 2011-12 A central body- Irrigation and Water Resource Finance Company- is expected to be set up in 2012-13 to focus on providing finance to the irrigation and water sector The budget has reduced the withholding tax on interest payments of external commercial borrowings for the roads sector to 5% from 20%

Contd

Sugar
No Direct impact from budget, but:

Custom duty on related machineries has been reduced to 2.5% from 7.5% Agriculture support services extended by sugar industry to its cane cultivators would not impose any new tax burden on the cane farmer. Extremely positive for the Sugar Industry and improve the Operating Margins The 100% investment linked deduction provided for setting up and operating a warehousing facility for storage of sugar

Sectors which has a Neutral kind of impact of the budget are:

Telecom Steel Ports Pharmaceutical Petro-chemical Non ferrous Metal Media and Entertainment Information Technology Housing Cement Banking Auto Components and Tyres Airport Infrastructure

Impact of The

Budget on Economy

Economic Analysis
Growth in the service sector Customs duty on Gold is doubled Reduction in STT would reduce transaction cost for mutual funds Tax free infrastructure bonds may continue seeing investors interest Access for QFIs may deepen the debt market in the long run Higher Fiscal deficit could impact interest rate movement

Limits Of Issuing Tax Free Bonds

Just Doubled to Rs. 60,000 Crore As per Union Budget 2012-13 10,000 Crore 10,000 Crore 10,000 Crore For National Highways Authority Of India For Indian Railway Finance Corporation

For Indian Infrastructure Finance Corporation limited

5000 Crore For Small Industries Development Bank Of India 5000 Crore For Ports

10,000 Crore For Power Sector

5000 Crore For Housing & Urban Development Corporation 5000 Crore For National Housing Bank

BEST THING.

WORST THING.

Farmer benefits & so does infrastructure. Part of your Health check just got tax free. HIV medication will be cheaper.

Building my house is going to get more expensive.

Custom duties on Standard & Non Standard Gold doubled.

Conclusion

 Budget 2012-13 did not enjoy the positive environment that the previous budget did Inflation has come down a little, but the overall macroeconomic situation remains quite challenging on both the global and domestic front The sharp slippage in fiscal and revenue deficit in 201112 means that fiscal policy can no longer pump-prime the economy The proposed steps to improve access to funding and tax concession will boost investments in the infrastructure sector and minimize constraints The commitment to fully fund the food subsidy but limit the fertilizer and fuel subsidy bill to create fiscal space for investment spending is a right step

Thank You