The budget 2012 started with addressing for the problem of inflation and efforts made for a stable economy. The budget failed in establishing itself as a historical one. It aimed at 5 objectives relating to growth, investment, supply bottlenecks, governance and removing malnutrition. The FM framed lots of policies to promote inclusive growth, but it is short of the confidence to achieve it. The main concern of fiscal deficit has been accepted by the FM at many points during the budget announcement, but a little has been done to overcome it. The FM also disappointed investors by avoiding announcement on increasing the investment limit. FM announced a credit guarantee fund for students, but still it fell short of their expectation as no declaration has been made for girl education and lending rate is also kept unchanged for students. An emphasis was required for higher education and research, but it has been left totally untouched. However, revision in tax slabs will give some direct relief to individuals, even as eating in hotels, buying luxury and big cars, air travel, availing some professional services and gold jewellery will become costlier. The products that got cheaper are mobiles, branded silver jewellery, CFL, LED lights and solar plates.
The Budget has following impacts on various industries:
| Specific Detail | Pre-Budget Expectation | Budget Announcement | Sector Impact | |
| Excise Duty (ED) | Increase from 10% to 12% ED | Excise Duty increased to 12% from 10% | Neutral: Steel Prices may move up further but it would be passed directly to the customers. | |
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| Coal and Energy | Cut in Import duty on thermal coal (High Calorific value). Lower then current 5% | Import duty on thermal coal reduced to NIL | Positive: For Power Companies and captive steel industries | |
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| Steel Industry | To increase import duty on Steel | Import duty of coated and uncoated non-alloy flat steel products hiked to 7.5% from 5% | Positive: For Domestic Steel Companies as Steel imports may be discouraged. | |
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| Iron Ore and Mining | Cut in Export Duty of low grade Iron Ore | Export duty on Iron ore kept unchanged at 30% | Negative: Iron ore exports may fall further especially from Goa which exports low grade Iron ore | |
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| Infrastructure | Significant increase in allocation for infrastructure | Infrastructure investment to go up to Rs 50 lakh crore & tax-free bonds of Rs 60,000 crore are also announced | Positive: For the infrastructure sector. Steel demand from Infrastructure sector may also improve | |
| Textile Industry | Relaxation in interest rate for financing to taxtile industry | Looms at Jharkhand and Maharashtra. Rs 3884 Cr. Financial package for waiver of loan of handloom weavers and cooperative societies. Setting Two New Mega handloom cluster and a powerloom mega cluster announced | Positive: For Indian Textile Industry | |
| Education Sector | Interest relief for student loans and Financial Package for Education sector | 6,000 schools proposed to be set up at block level. For better flow of credit to students, a Credit Guarantee Fund proposed to
be set up. | Positive: For Paper Industry, Education Sector | |
| Agriculture Sector | Continuation of subsidy, Tax Break in Equipments and Fertilizer | Full exemption from basic customs duty for import of equipment for expansion
or setting up of fertiliser projects | Positive: For Fertilizer Industry and agro based industries | |
| Jems and Jewellery | Support to small goldsmith. | Branded Silver jewellery exempted from excise duty. Levy of excise duty of 1 per cent on branded precious metal jewellery to be
extended to include unbranded jewellery. | Negative: For Gems and Jewellery Industry | |
| Share Trading | STT cut and promotion of share market by allowing tax relief on equity investment. | Reduction in securities transaction tax by 20 per cent on cash delivery transactions. | Positive: For Stock Trading companies | |
| Real Estate and Housing Sector | Interest Rate Cut or support for housing loans | Various proposals to address the shortage of housing for low income groups in
major cities and towns including allowing ECB for low cost housing projects
and setting up of a credit guarantee trust fund etc. | Positive: For Property Developers | |
| Banking Sector | Capital Infusion | 15,888 crore proposed to be provided for capitalisation. Possibility of creating
a financial holding company to raise resources to meet the capital requirments of
PSU Banks under examination. | Positive: For PSU Banks. | |
Budget 2012: bold, populist or neutral?
The budget presented no big schemes or policies to mark an extraordinary economic reform. It was just a formality completed by the FM. The pressure on government has been reflected by a presentation of ‘simple budget’. If the government could win support from its allies, then we can expect some reform centric announcements later in the year. Since this budget failed in presenting much-needed reform so this was not a bold budget. It also failed to provide tax relief and incentives to the individuals so it is neither a populist budget. There are some announcements for industry and agriculture, but it would have no significant effect on the market, So finally we can say that it was a neutral budget.
About the author:
Amit Sethi is an MBA (Fin) graduate and a Financial Consultant. He has spent 8 years in Equity research and Stock broking sector. He can be reached at amvilube@gmail.com
