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Budget 2012: Expectation and Preview

 

 

budgetThe Indian economy is eagerly waiting for the budget 2012 to be announced on 16th March. This budget is important for various aspects, but main issue is how government manages the issue of fiscal deficit and brings reforms to provide the pace for economic growth.

 

Let’s check the problem faced by various sectors in brief:

 

 

 

 

Industry

Problems

Telecom

2G spectrum Issue

Banking Sector

Inadequate Capital and lack of finacial inclusion in rural India.

Infrastructure

High input cost and Lack of Proper regulatory body

FMCG

Retail FDI not allowed

IT

Weak global economy

Metal and Mining

Coal shortages and lack of proper mining policy

Oil and Gas

Very high rate  of petroleum import and subsidy burden

Power

Coal shortages and high equipment cost

 

Fiscal Deficit, Taxes and Investors

The fiscal deficit has well crossed past the expectation of previous budget. It deters government to take constructive measures for quick growth of economy. The Government is expected to accept the recommendation by economic advisory council to increase the indirect taxes, fertilizer prices to be decontrolled and free petroleum pricing as a measure to contain the fiscal deficit. Disinvestment in various sectors is expected to be announced in this budget. The excise duty and Service Tax are expected to be increased about 12 percent from the current 10 percent level. Cigarette prices may increase more as again, it may see an increase in tax this time.

The government has received a recommendation to increase the deduction under Section 80C from Rs 1 Lac to 1.5 Lac.

With starting UID system, it is expected that FM would take measures to cut subsidy to mark reform and to check the leakages in subsidy, cash subsidy through UID would be in card.

Legislation on mining and land acquisition is expected to be announced during the budget session. It would help in proper utilization of resources and stopping illegal mining. Increase in Budget allocation to the defense is almost surely because recently China has announced 11% increase to its defense allocation, and India has the only choice to follow the neighbor country for balancing act.

Lets see what various sector is expecting from the budget 2012 and its effect:

 

Industry/Sector

Group

Category

At Present

Expected

Effect

Auto Sector

Excise

2 Wheeler, Car, commercial vehicles, three wheelers

10%

Increase of 2%

Negative

Large Cars and Utility vehicles

22% + Rs15000/Vehicle

Increase of 2%

Negative

Diesel Specific Charges on Vehicles

NIL

Fix Rupee/vehicle based tax

Negative

Banking Sector

FD (Tax Saving)

Lockin Period

5 Year lockin

3 Year Lockin

Positive

Maximum Investment Limit

1 Lac

1.5 Lac

Positive

FD (maturity of 3 year)

Tax benefit

No Tax Benefit

Interest income to be treated as capital gain

Positive

Capital Goods Sector

Import Duty on Power Generation Equipment

Import Duty

No Import Duty on Mega Power Projects

Levy of Import Duty

Positive for domestic capital goods company

Cement Sector

Excise Duty

Tax and duty

Excise at 10% advalorem + 160 /ton if cement price above Rs 190/bag  else Rs80/ton if price below Rs190/bag

Increase of 2%

Neutral

Import duty on Pet coke

Input Cost

2.5% on pet coke and 5% on thermal coke

Removal of Import duty

Positive

FMCG

Excise

Excise duty

10%

increase by 12%

Negative

Media

Excise

Excise duty

5%

Removal of Excise duty

Positive

Entertainment Tax

Taxes

Variable statewise

Bring Closer to GST

Positive

Metal and Mining

Import duty On Mangenese Ore

Import Duty

2%

Increase by 3 %

Positive for domestice Mangenese ore company

Export Duty On Iron Ore

Export Duty

20%

Decrease Expected

Positive for Mining Companies

Import Duty On Coal

Import Duty

5%

Duty to be Removed

Positive for metal companies

Oil and Gas

Import duty on LNG

Import Duty

5%

Duty to be Removed

Positive

Refineries

Tax Holiday

Available

To be continued for new projects

Positive

Subsidy

Subsidy

Available

To be Reduced

Positive for oil and gas sector

Power Sector

Tax Benefit

Tax

Deduction Under Sec80-IA

To Continue with Sec80IA

Positive for Power Sector

Import duty on Equipment

Import Duty

NIL

19% for Mega Power Projects

Negative for power generation companies and positive for Equipment manufacturing companies

Import duty on coal

 

5%

Expected to removed

Positive for Power generation but negative for mining companies

Infrastructure

80 C Benefit

Tax Benefit

IT exemption on home loan principal repayment upto Rs 1 Lac

Increase upto Rs 2 Lac

Positive

Section 24 benefit

Interest on home loan

Exemption upto Rs 1.5 Lac

2 Lac

Positve

FDI

FDI in multi brand Retail

Not available

FDI to be allowed upto 51% in multi brand retailing

Positive

 

 

Can Government present a Reform Centric Budget?

The government has no choice but to control the deficit before it’s too late. The fiscal deficit is expected to cross 5.5% marks for current financial year. The international Crude oil price is trading around $ 120 per barrel, and it further increase the deficit if the prices are not passed on directly to the consumers. The recent results of state elections have reduced the decision-making power of UPA government. At present, if government opts for reforms, then there is very much chance of political instability. In this situation, FM is expected to avoid any sort of risk that can put a question mark to the government’s stability. Hence, we can say that this budget is going to be a populist budget with a hint of little reform to control the deficit.

Let’s wait for the real show until 16th March 2012 and wish for a trend changing, growth oriented and a reform centric 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

Published Mar 12 2012

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