Economic Survey and Union Budget Analysis

By Gaurav Tuli

Content

• Introduction• Union Budget Analysis• Expenditure Comparison• Deficits and Policies Compared• Budget Impacts• Where is The Economy Headed ?• Conclusion

Introduction

• Budget :- The most extensive account of the Government`s finances, in which revenues from all sources and expenses of all activities undertaken are aggregated. It comprises the revenue budget and the capital budget. It also contains estimates for the next fiscal year called budgeted estimates.

Union Budget Analysis

• 2010-11 Growth Rate of GDP was slated at 8.6% Agriculture at 5.4% Manufacturing and Services at 8.6% Exports and Imports rose at 29.5% and 19%

respectively Food Inflation, Higher Prices and Volatile Global

Markets were of concern Investments and Savings saw a rise in 2009-10 In Comparison to Last Year -Trade Gap Narrowed to

US $ 82.01 bn and BOP Improved in the year therefore – FD and PD

Survey advised on development of schemes to address poverty issues and unemployment

• 2011-12 Growth Rate of GDP was slated at 6.7% due to

slowdown of industrial growth Agriculture at 2.5% estimated Manufacturing and Services at 9.4%(58% to GDP) Exports rose at 40% initially but then decelerated Food Inflation, Higher Prices saw slowdown due to

tight monetary policy by RBI Investments slowed down, Savings were stable BOP Widened in the year to $32.8 Billion Sustainable development and climate change are

becoming central areas of global concern

• 2012-13 Growth Rate of GDP was slated at 6.9% but would

pick up to 7.6% Agriculture at 2.5% estimated yet agai Manufacturing and Services at 9.4%(59% to GDP) Industrial Growth Pegged at 4-5% Exports rose at 40.5% and Imports at 30.5% Inflation definitely slowing down which will improve

economic growth Central spending on social services goes up to 18.5%

this fiscal Sustainable development and climate change

concerns on high priority

Expenditure Comparison

PlannedYear Planned Expenditure (in Rs. 00 Crore) Increase %

2010-11 3,73,092 15%

2011-12 4,41,368 18.30%

2012-13 5,21,025 18%

2010-2011:- The government sought to increase payloads on R&D, India was having a progressive outlook as it was striving to enhance itself on terms on new technology

2011-2012:- Defense was the main front to improve upon for this year as a major chunk of the budget increase where allocation of funds were Rs. 69,199 crore for Defense in terms of capital expenditure

2012-2013:- As the budget allocated, was met at almost 99 percent in the 11th Plan, the government has estimated an 18% again. 15 % higher than approach to 12th Plan

Non-PlannedYear Non-Planned Expenditure (in Rs. 00 Crore) Increase %

2010-11 7,35,657 6%

2011-12 8,15,844 10.90%

2012-13 9,69,900 15.89%

2010-2011:- Due to the 34% rise of non-plan expenditure, this year attributed to a marginal increase as the majority of funds were allocated last year

2011-2012:- XI Plan expenditure more than 100 per cent in nominal terms than envisaged for the Plan period. Also parts of the funds were transferred to State UT’s

2012-2013:- Estimates are based on agri-extension services and skill development

Deficits & Policies Compared

Year 2010-11 2011-12 2012-2013

Gross Tax Receipts 7,46,651 9,32,440 10,77,612

Non Tax Revenue Receipts 1,48,118 1,25,435 1,64,614

Fiscal Deficit3,66,152 (5.1% of GDP)

3,95,444(5.9% of GDP)

3,66,152(5.1% of GDP)

Net Market Borrowing 3,45,010 3,43,000 4,79,000

Fiscal Policy2010-11• With recovery taking root, there was a need to review public spending, to

mobilize resources and geared them towards building the productivity of the economy.

2011-2012• Fiscal consolidation targets at Centre and States have shown positive

effect on macroeconomic management of the economy• Structural concerns on inflation management were addressed by

improving supply response of agriculture to the expanding domestic demand and through stronger fiscal consolidation

2012-2013• Fiscal policy response is better part of past 2 years aimed at taming

domestic inflationary pressure.• To maintain a healthy fiscal situation proposal to raise service tax rate

from 10 per cent to 12 per cent.

Expenditure Policy2010-11• The net tax revenue to the Centre as well as the expenditure

provisions were estimated with reference to the recommendations of the Thirteenth Finance Commission.

2011-12• A Committee already set up by Planning Commission to look into

the extent classification of public expenditure between plan, non-plan, revenue and capital.

2012-13• Expenditure Policy is optimistic about R&D, Skill Development, and

an improved FRBM act.

Budget Impacts

2010-11• Automobiles: The proposal to extend weighted deduction for a period of 5 more

years will help auto companies reduce their taxes, while simultaneously helping them scale up technologies to global standards. The proposed reduction in customs duty on most chemicals and plastics from 12.5% to 7.5% will help marginally reduce raw materials costs.

• IT: Companies that benefit from tax exemption under the provisions of the Income-Tax Act will have to pay an effective minimum alternate tax. Employee stock options will be included for calculating the Fringe Benefit tax (FBT).

• Infrastructure: Construction- Benefits of Section 80IA may not be available to

construction companies. Development of roadways, dedicated freight corridors and ports to enhance efficiencies and lower costs

• Pharma: Extension of the 150% weighted average deduction on R&D expenditure until FY07 to Be extended by another 5 years. Service tax exemption on clinical trials of new drugs

• Capital Goods : More Incentives to Rapid Power Expansion

2011-12• Automobile: Positive for the Automobile sector ,central excise duty kept unchanged.

Special incentives were announced for companies manufacturing hybrid vehicles in India.

• IT: It was low key affair for the Software Sector. The Budget did not mention extension of fiscal benefits under the STPI Scheme for Export of Software Services, which is due to expire in FY2011. Plan allocation for School Education increased by 24% this would boost business opportunities for the IT-Education companies

• Infrastructure: It was continued to lay stress on infrastructure development, as the allocation for the sector has been increased by 23%

• Metals & Mining: Export duty on export of iron ore has been raised to ad valorem 20% on lumps as well as fines. Negative news for iron ore exporters .No imposition of mining tax is a positive for mining companies as well as steel companies with captive mines.

• Pharma: The Budget is neutral for the pharmaceutical sector. Allocation to Ministry of Health & Family Welfare have been increased by 20% only, Disappointment prevailed for the Pharma companies actively involved in R&D activities. There were no indications on the extension of the EOU benefit which was available only till FY2011.

• Capital Goods: The Budget 2011-12, though it did not have many significant direct measures for the Capital Goods sector, it sent a positive signal with regards to the continued impetus being provided to the Infrastructure and Power Sector of the country.

Where is the economy headed?

• This year’s budget is more focused on reducing fiscal deficits. (2012-13)

• Government intends to recovers the demand driven growth, private investments, and fighting against corruption.

• Government has to make a growth balance among Services and Agriculture Industrial Sector.

• Service sector taxes have as it’s the major revenue contributor. This might cause a slight slowdown in service sector.

• However, all of these assumptions are dependent to world economy and oil price. In my opinion this year budget is a fiscal remedy budget rather than a real growth stimulating budget.

Sector Budget ImpactAgriculture PositiveAutomobile NegativeAviation NeutralBanking PositiveCapital Goods PositiveCement PositiveFMCG NegativeInfrastructure PositiveIT NeutralMetal NeutralOil and Gas NegativePharmaceutical PositivePower PositiveReal Estate NeutralTelecom Neutral

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