Budget 2012

Budget 2012-13: The Devil is in Detail

Tax Income TaxDebt

Fiscal Deficit

RevenueExpenditure

Inflation

Reforms

AadharDisinvestments

GDP Growth

Rate

Industry Impact

AutoInfrastructure

Power

Subsidies

Agenda

Macro Economic Overview

Direct Taxes: Income Tax

Major Sectors Impacted

Agenda

Macro Economic Overview

Direct Taxes: Income Tax

Major Sectors Impacted

Macro Economic Overview

Direct Taxes32%

Indirect Taxes28%

Dividend & Profits3%

Interest1%

Non Debt2%

Others5%

Borrowing29%

Receipts

Central Plan20%

Others26%

Capital Expenditure7%

Interest Payments

21%

Subsidies13%

Defense13%

Expenditure

Major Policy Objectives:• Focus on domestic demand driven growth recovery.• Create conditions for rapid revival of high growth in private investment.• Address supply bottlenecks in agriculture, energy and transport sectors,.• Intervene decisively to address the problem of malnutrition especially in the 200 high-burden districts.• Improve delivery systems, governance, and transparency.

Macro Economic Overview

2010-11 2011-12* 2011-12# 2012-13*0

100000

200000

300000

400000

500000

600000

051015202530354045

373591412817

521980 513590

31 33

4034

Borrowing

Borrowing in Rs. Cr. (Lhs) % of Reciepts (Rhs)

Major Policy Decisions:• Tax Exemptions and Tax Slabs have been changed.• Excise Duty and Service Taxes have been increased by 2%• Funding eased for Infrastructure companies . But budget silent on major policy initiatives to address other

concerns.• Estimated Borrowing are on the optimist side. And looking at recent experiences budgetary estimates are

likely to be understated.

Macro Economic Overview

2010-11 2011-12* 2011-12# 2012-13*01234567

4.9 4.65.9

5.1

Fiscal Deficit

Fiscal Deficit as % of GDP* Budget Estimates # Revised Estimates

2009-10 2010-11 2011-12 2012-13*0

5

10

15

20

13.8

18.816.1

14

7.6 8.4 6.9 7.6

Growth of GDP

Nominal GDP Real GDP

Fiscal Deficit Consolidation:• FM has made an honest attempt to control Fiscal Deficit.• Marginal increase to Small cuts in major flagship social security programs like MGNREGA.• But major assumptions in the Budget are still on optimist side. Basic assumption made in this budget are

Nominal GDP growth rate of 14% and Crude in between US $ 110-115 per barrel.• Budget Estimate of Fiscal Deficit of 5.1% is lower because of expectation of funds from auction of Spectrum.

Macro Economic Overview

2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12* 2012-13*0

1

2

3

4

5

6

76.1 5.9

4.53.9 4

3.32.6

66.4

4.9

5.95.1

Fiscal Deficit

Fiscal Deficit as % of GDP* Budget Estimates # Revised Estimates

Fiscal Deficit Consolidation:• FM has used revenue buoyancy rather than controlling major expenses to rein in Fiscal Deficit• FM has indicated to control subsides at 2% . Price hike in fuels seems extremely likely. But no clear road map

to remove Fertilizer and Fuel subsidy.• Revenue from spectrum sale and disinvestments are achievable but are one time.• Transfer of direct benefits using AADHAR, to help check in leakages.

Agenda

Macro Economic Overview

Direct Taxes: Income Tax

Major Sectors Impacted

Direct Taxes: Income Tax

Up to 2Lakhs

Nil

Nil

Nil

Nil

2 – 5 Lakhs

10%

.03%

10.03%

Rs. 2060

5 – 10 Lakhs

20%

.03%

20.06%

Rs. 2060- 10300

10 Lakhs +

30%

.03%

30.09%

Rs. 20600-22600

Men and Women up to Age 60

Lack of clarity on implementation of DTC but Tax slabs have been moved to DTC levels: Minimum deduction has been increased to 2 lakhs. (No change in minimum deduction for senior citizens). Tax slabs changed from Rs. 5 to 8 lakhs to Rs. 5 to 10 lakhs. Deduction on investment up to Rs. 20000 in infrastructure bond has been removed. A new scheme, Rajiv Gandhi Equity Saving Scheme The scheme would allow for income tax deduction of 50 per

cent to new retail investors, who invest up to ` 50,000 directly in equities and whose annual income is below ` 10 lakh. More clarity is needed, waiting for notification.

Total Deductions

Section 24(B) Interest due

on home loan

Section 80 D premium on

Health Insurance

Section 80CCFInvestment in

Infra Bonds

Section 80C, 80CCC and

80CCD

Direct Taxes: Income Tax

Rs. 1.65 Lakh

Rs. 1.5 Lakh

Rs. 15000

Rs. 20000

Rs. 1 Lakh

Rajiv Gandhi Equity Saving Scheme is a positive step and seem to be designed more in line with US 401K equity savings program.

Will channel more money in to capital market, will provide depth and has potential to channelize up to Rs. 50000 Cr. ( from 1-1.5 Cr retail investors) this is as big as FII investment in most years.

Agenda

Macro Economic Overview

Direct Taxes: Income Tax

Major Sectors Impacted

Major Sector Impact: Infrastructure

Funding

Environmental Clearance

Land Acquisition

Policy measures taken.

Budget is Silent

Budget is Silent

Score Board

3 Major Issues

Positive: IRB Infra IVRCL Sadbhav Engineering Adani Ports and SEZ

Ltd. GMR

Steps taken to enhance funding:• Tax free bond limit doubled from Rs. 30,000 Cr to Rs. 60,000 Cr.• Withholding tax on interest payments on ECB reduced from 20% to 5%• NHDP target of 8,800 KM of roads over next year. Budgetary allocation sees a marginal increase of 14%• Viability Gap funding extended to other sectors esp. Irrigation and Telecom towers, implementation procedure

though not clear yet.

Major Sector Impact: Power

Major Initiatives:• Full Custom duty exemption for importing coal for a period of 2 Years. Positive for imported coal based and

blended coal based power plants.• Power companies can part finance Rupee debt on existing power projects using ECBs.• Sunset clause extended for new projects that come up by March 2013. 100% deduction on profits and 20%

depreciation benefit.• Coal India to sign Fuel Supply Agreement with power plants expected to commission by March 2015.• Proposal to raise Rs.10000 Cr. for the power sector using tax free bonds.

Funding

Environmental Clearance

Land Acquisition & Mining

Policy measures taken.

Budget is Silent

Budget is Silent

Score Board

4 Major Issues

Positive: Adani Power Tata Power Reliance Power NTPC

Health of SEB Budget is Silent

Major Sector Impact: Auto

Higher Disposable Income

Excise Duty increased

Moderate Interest Rate Decline

Increased Tax Deduction

Cost to be passed on.

Funding cost to be high

Score Board

4 Major Issues

Marginally Positive: Bajaj Auto Hero Honda TVS Motors MarutiMarginally Negative: Tata Motors Ashok Leyland Custom Duty hike Marginal benefits

Major Policy decisions: Hike in excise duty of 5% (from 22% to 27%) on large cars, but additional duty on diesel cars spared. Large cars to be impacted. Will impact all major Car companies as this is fastest growing segment. Custom duty hike on cars costing >$40000. But impact will be marginal as India is expected to sign Free Trade

Agreement (FTA) with EU. Increased disposable income to be slightly positive for two wheeler segments Interest Rate cuts to be moderate, which will result in higher than expected funding cost on CVs.