Budget has enough Venom to Kill! whay Did Pranab Had to Invoke Shakespear?
India Inc are the Winners of the Budget and as well the Losers. The masses are Neithe Winners nor Losers as they are, Most of them the Ninity Nine percent Excluded, have been selected to be Killed with a Novel idea of Hamlet`s dilemma! In fact, To Be Or Not To be is the theme song for the Finnance Minister who, Iam afraid to see, has no idea about fiscal concept and is driven solely by Political Compulsion. The Budget ironically lacks Political as well as Economic will!
Petrol price rise will happen via executive actions
Indian Holocaust My Father`s Life and Time - Eight HUNDRED SIXTEEN
Palash Biswas
http://indianholocaustmyfatherslifeandtime.blogspot.com/
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Finance Minister Pranab Mukherjee is easily the most sought after man in India today. After delivering his Union Budget 2012 in Parliament, he tells CNBC-TV18 that as far as petrol prices are concerned, these are decisions taken by the executive.
Mukherjee says he has chosen to take the conservative route by pegging fiscal deficit at 5.1% of GDP growth. So, for now, global events such as those stemming from the Middle East are not impacting India in a way which could see us slip into any macro economic crisis.
While he does acknowledge the precarious position that India is in, he says there is no need to panic. High inflationary pressures and the current account deficit do not have to be linked to growth, he adds.
Also Read: Budget 2012: Pranab Mukherjee's 1st exclusive interview after speech
The challenges to accelerate India's economic growth are high, yet Mukherjee believes it can be done. His proposal is to trim the government's subsidy burden. He has called for speeding the pace of economic reforms, which have been stalled by political gridlock,
Below is an edited transcript of his exclusive interview with TV18's Raghav Bahl. Watch the accompanying videos for complete details.
Q: In the two hours of your speech, I did not get an answer to this one very short question. Why have petrol prices still not been increased?
A: As far as petrol prices are concerned, it has already been deregulated; I am talking of petrol price deregulation which was done last June.
Q: Deregulated in form?
A: Therefore, there are two routes available to adjust petrol prices - one route is budgetary route and the other route is through the administrative mechanism route. If you look at petrol, diesel, kerosene and LPG prices it was deregulated long before.
Q: They have not been behaving in a deregulated manner?
A: That is for the executive to decide. It is not a policy decision but an executive decision which has to be taken.
Q: If the companies which are suffering so much had the freedom to increase they would have increased by now. Clearly, the principal shareholder, which is the Government of India, is not allowing them to increase and the single biggest burden on your Budget is fuel subsidy?
A: I am not disagreeing with that. That's why I am saying that for many of the issues, I have clearly laid the roadmap for what has to be done. When I am talking of pegging subsidy at 2.2% of GDP for the current year and in the next three-years to bring it down to 1.75% of the GDP that is the objective and I will do it. It has to be done through executive actions. I have never said that it will not be done through executive actions.
Q: Are we then likely to see diesel prices and fertilizer prices being raised? You have laid down a very ambitious target - 0.5 percentage points of the GDP this year itself. What is the roadmap ahead?
A: It is not very ambitious. Even your present level of subsidy is around 1.89% or 1.91% of the GDP.
Q: It's about 2.5% of the GDP this year.
A: This year it is a little more, but it is around that. Therefore, my target is not very ambitious. It is modest and achievable and it will have to be achieved through executive actions.
Q: It is an ambitious target because when prices have moved from USD 100 per barrel to USD 125 per barrel, oil companies still haven't moved. Therefore, it's not an easy thing to do. So when you say you will cut 0.5 percentage points in a year in which you have slipped on your fiscal deficit commitment by 1.6% points, isn't there understandable skepticism on how you will achieve that?
A: There should not be skepticism in the sense because if you compare it with the current year, current year economic situation was difficult. It was not assumed at the time of the presentation of the Budget for the year 2011-2012 because what was the atmosphere then? However, weak and fragile it may be, developed economies started recovering and there was a glimmer of hope.
The eurozone crisis did not assume this proportion, so in the context of that situation we presented the Budget. Therefore, the assumptions which I made during the year have changed and what assumptions I am making now is in the context of the situation which is prevailing, which is very difficult. That is why I have become conservative and I have put it at 5.1% for the current year.
I have talked about reducing subsidies thrice in my budget speech. I have expressed my intention and I have fixed the targets. Now these are to be implemented through executive actions. Your contention is - as long as you have not taken this executive action you are not going to do it.
Q: How do you convince the economy that you will do it?
A: There were certain other compulsive factors that are there that may not prevail now. Therefore, action will have to be taken.
Q: If there is a Middle Eastern crisis, then oil prices could spike to USD 150 per barrel. Has the Government of India done any stress test analysis on what you would have to do if you reach that situation because from USD 100 per barrel to USD 125 per barrel we haven't raised prices?
A: My point is very simple. Unless we take corrective measures, oil will not be available so there is no question of pricing. At whatever price you may like to have it may not be available. Therefore, corrective measures are compulsive.
Q: Therefore, you have to take them?
A: Of course.
Q: The numbers that are emerging are quite reminiscent of 1991 where your fiscal deficit, combined of state and centre is now pushing double digits, there could be an oil shock, your investment rate has become negative, you current account deficit is now at 3.6%. When the UPA government took office, there was a current account surplus in the economy. Are we in danger of slipping into a macro economic crisis here triggered by for example, a Middle Eastern crisis?
A: I do not think so because there are certain other basic macro economic fundamentals and factors which are different from what prevailed in 1991. What was the growth syndrome in the 90's? When did India have 7% GDP growth?
Q: From 1985 to 1990 we grew at nearly 6%.
A: It was 5.6% because that is the sixth plan target I took in 1991.
http://www.moneycontrol.com/news/economy/petrol-price-rise-will-happen-via-executive-actions-pranab_681640.html
Budget has enough Venom to Kill! whay Did Pranab Had to Invoke Shakespear?India Inc are the Winners of the Budget and as well the Losers. The masses are Neithe Winners nor Losers as they are, Most of them the Ninity Nine percent Excluded, have been selected to be Killed with a Novel idea of Hamlet`s dilemma! In fact, To Be Or Not To be is the theme song for the Finnance Minister who, Iam afraid to see, has no idea about fiscal concept and is driven solely by Political Compulsion. The Budget ironically lacks Political as well as Economic will!Though, With an assurance that there were clear signs of an economic recovery in India, Finance Minister Pranab Mukherjee Friday started presenting what was his seventh federal budget, with a promise to cut subsidies, push investment and recast the entire tax regime.
But, first, the kindness, turning the finance minister's Hamlet quote ("I must be cruel only to be kind") around to match the sequence in which he delivered joy and jolt!As the dust begins to settle on Budget 2012, it seems the only clear winner is the finance minister himself. And this, despite the widespread disappointment with the contents of the budget. He succeeded the Political crisis unprecedented as the Roforms oriented Railway Budget has to be dumped as well as the Railway Minister for Bengal Lady Mamata Banerjee. Meanwhile Srilancan human Right Crims issue cut off the south Indian lifeline. the Mulayam Factor could not save either the Budget or the Government. Pranab Delibrately opted for an Eghth Decade Budget trying to please and appease everyone at the sacrifice of both fiscal discipline and Public Welfare.
Survival is the Slogan. hence Reform Drive halted a bit. GST, DTC, FDI in Aviation, Disinvestment and Multi Brand Retail FDI immediate Priorities set in the backward, the Crisis manager tried his best to balance Revenue management with giving Some, taking More!India Incs Disappointed and Sensex expressed well the Wild sentiments. Hikes in Excise, Custom and Service taxes snatced off whatsoever relief. Meanwhile Pranab did the most Significant Killing cutting the EPFO interest Rates axing abour Sixty Millions!
In his speech in Lok Sabha that started promptly at 11 a.m., the finance minister said the growth of the Indian economy, estimated at 6.9 percent during the current fiscal year was disappointing but that the road ahead appeared reassuring.
"The global crisis has affected us. India's gross domestic product (GDP) is expected to grow at 6.9 percent in 2011-12, after having grown at 8.4 percent in each of the two preceding years," the finance minister said.
"Though we have been able to limit the adverse impact of the slowdown in our economy, this year's performance has been disappointing. But it is also a fact that in any cross-country comparison, India still remains among the front-runners in economic growth."
At the same time, Mukherjee also said the Indian economy was at the cusp of a revival, as agriculture and services have continued to grow at a decent pace. It was industrial performance that was acting as a drag.
"While we do not have the aggregate figures for the last quarter of 2011-12, numerous indicators pertaining to this period suggest that the economy is now turning around. There are signs of recovery in coal, fertiliser, cement and electricity sectors."
Among the proposals, the finance minister assured that he would cut subsidies to no more that 2 percent of GDP, and that the policy now would to directly transfer such doles to farmers, based on the recommendations of the Nandan Nilekani report.
He also assured that a network necessary for a uniform pan-India goods and services tax (GST), covering federal and state levies, would be ready by August this year and that the process will be expedited to introduce it as soon as possible.
He said the government was also examining the recommendations of a parliament panel on the Direct Tax Code and that this regime will be introduced soon.
The finance minister said it was the government's objective to reform and simplify norms governing capital markets, in a bid to enthuse and improve the investment climate in the country.
Mukherjee said as India enters the 12th Five Year Plan, beginning April 1, the focus of his government would be on five key areas:
-Framing policies that trigger domestic demand recovery
-Ensuring rapid rise in private investment
-Removing bottlenecks in agriculture, energy, transport, coal, power and national highways
-Addressing malnutrition
-Finding ways to expedite implementation of decision, prompt delivery and good governance with transparency, while curbing black money and corruption
The beleaguered UPA government avoided bold reforms in its annual budget on Friday, opting for cautious steps to shore up growth and modest targets to rein in a bloated deficit after a series of political setbacks exposed its fragility.
Government bond yields leapt to their highest in more than 10 weeks and stocks fell, reflecting disappointment with Finance Minister Pranab Mukherjee's half-hearted attack on the worst fiscal deficit among the emerging-market "BRICS".
"I don't see any populist schemes, but this is not a reformist budget either, it is a status quo budget," said A. Prasanna, an economist at ICICI Securities Primary Dealership as Mukherjee wound up his annual speech to a rowdy parliament.
"I think the political compulsions made them decide that the best way is to play it safe," Prasanna added.
With no concrete measures to reduce subsidy spending, Nomura said in a note that the government may overshoot its new 2 percent target.
Prime Minister Manmohan Singh said after the budget speech that the government would eventually need to "bite the bullet" and raise prices, even if it irked its coalition allies.
POLITICAL REALITIES
But India's political realities cast doubt over the prospects for action anytime soon.
The coalition government has been weakened by a string of corruption scandals, while the ruling Congress party was trounced earlier this month in crucial state elections.
This week, it faced a rebellion within its own ranks over a proposed rise in railway fares, which fanned speculation that the fragile coalition might fall apart and trigger a snap general election.
Cast against this political landscape, Mukharjee's half-measures did little to quiet sceptics about the government's commitment to reform.
"He seems worried about the stability of the government more than trying to revive the economy," said Jagdish Shettighar, an economist with opposition Bharatiya Janata Party.
The finance minister set a fiscal deficit target of 5.1 percent of GDP for the year that begins in April, down from an expected 5.9 percent in 2011/12. But the current year's deficit ended up far above the 4.6 percent targeted in the budget a year ago, as economic growth slowed and spending ballooned.
Even if India manages to cap its deficit at 5.1 percent, which several analysts doubt, its fiscal gap remains wider than those of BRICS peers Brazil, Russia, China and South Africa.
(Breakingviews: India could have its cake and eat it too reut.rs/wm1xVt)
While the government debt burden is far lighter than the United States or Japan, those countries enjoy ultra-low borrowing costs. U.S. two-year Treasury bonds yield just 0.4 percent.
Ratings agency Standard & Poor's said the new budget was "mildly negative" for India's credit rating, noting that the timing remained uncertain for long-awaited reforms, including a goods and services tax, as well as a direct tax code that would streamline tax collection.
With federal elections set for 2014, the budget a year from now is expected to be laden with populist spending, and Fitch Ratings warned that politics may also undermine the discipline needed to achieve the subsidy cuts planned this time around.
"Implementation risk is high ahead of federal parliamentary elections in 2014," the ratings agency said.
INVESTORS UNIMPRESSED
Mukherjee said he expected the economy to grow by 7.6 percent in fiscal 2012/13, up from 6.9 percent in the current year, its lowest in a nearly decade excluding the global financial crisis in 2008. The budget assumes wholesale price index inflation averages 6.4 percent during the year. February inflation was 6.9 percent.
Many foreign investors have lost patience with India's slowing economic growth, inconsistent policies and political instability. Because India runs both budget and current account deficits, it needs to attract overseas investment.
The budget set a gross market borrowing target of 5.7 trillion rupees, far more than the 5.3 trillion expected, jolting bond investors already fed up with heavy government borrowing.
The 10-year benchmark bond yield ended up 6 basis points on the day at 8.42 percent, its highest in two-and-a-half months, after the borrowing number was released. The main share index lost more than 1 percent.
"It's more of a populist budget and there's nothing exciting in it that can revive market sentiment," said Taina Erajuuri, portfolio manager at FIM India in Helsinki.
"Foreign investors were anyway a little sceptical about any structural reforms in the budget after the (state) election results, and that fear has come true to a large extent."
The Reserve Bank of India (RBI) has set credible deficit reduction as a key condition to cutting interest rates. The likelihood of a rate cut at the RBI next review on April 17 was diminished by Friday's budget.
"Given the fiscal situation, I would not expect a rate cut in April monetary policy," said Ashish Vaidya, executive director and head of interest rates at UBS in Mumbai.
Mukherjee set a target of selling 300 billion rupees worth of stakes in state companies in the next fiscal year, roughly in line with forecasts. However, India has raised just 139 billion rupees in the current fiscal year from stake sales, far below a budget target of 400 billion as a weak market undermined its plans.
Mukherjee unveiled a smattering of anti-deficit measures including an increase in services and excise taxes, saying that, like Shakespeare's Hamlet, he had to "be cruel only to be kind".
Indeed, the pain was felt almost immediately. Tata Motors, India's dominant maker of commercial vehicles, raised prices on cars and trucks in response to the excise duty hike.
Mukherjee also called for reducing India's subsidy burden below 2 percent of GDP, from about 2.5 percent, but did not take the politically fraught step of cutting subsidies for petroleum products, which have weighed heavily on government finances especially as oil prices remain stubbornly high.
The personal tax slabs have been aligned towards the rates proposed in the Direct Tax Code (DTC). The minimum threshold of income not chargeable to tax has been marginally increased to Rs. 2 lakhs. Maximum rate of tax to set in at Rs. 10 lakhs .
Currently, interest received on savings in bank are fully taxable. The budget proposes that interest from a savings account in a bank or post office will be exempt up to Rs. 10,000.
A deduction of up to Rs. 5,000 has been proposed for preventive health check up for self, spouse, dependents. This deduction would be within the overall limit currently existing for medi-claim insurance premiums and would include cash payments.
Securities Transaction Tax (STT) has been reduced on delivery based transactions to 0.1%.
(Also read: New income tax slabs, other benefits for individuals, click <here>)
SPECIFIC BENEFITS TO SENIOR CITIZENS
The age for senior citizens has been brought down from 65 years to 60 years for claiming deduction of medi-claim insurance premium and medical treatment expense.
Resident senior citizens not having any profits from business/profession would be exempt from payment of advance tax.
COMPLIANCE REQUIREMENTS
Currently, an individual is required to file an Income-tax return only if his income exceeds the maximum amount not chargeable to tax. It is now proposed to make it mandatory for every resident having an asset including a bank account located outside India to file a tax return in India.
Remuneration (other than salary) paid to directors will be subject to tax deduction at source (TDS) at the rate of 10%.
Every transfer of immovable property (other than an agricultural land), will be subject to TDS at the rate of 1% from the sale consideration.
(Also read, Highlights: 2012/13 Budget presented to parliament, click <here>)
INCREASE IN TAX BURDEN
There will be no tax benefit with respect to new insurance policies issued on or after April 1, 2012 , where the premium exceeds 10% of the actual capital sum assured.
Cash donation in excess of Rs. 10,000 will not be eligible for deduction under section 80G.
In the Union Budget 2012-13, Finance Minister Pranab Mukherjee has given a marginal benefit on the much awaited income tax slabs. The biggest beneficiaries would be people having income between Rs. 800,001 to 999,999 per annum. They move from the 30% slab to the 20% slab.
PERSONAL INCOME TAX SLABS
The basic slab for income tax has been proposed to be raised to Rs. 2 lakhs from the current Rs. 1.8 lakhs. This leads to a savings of Rs. 2,000 for all taxpayers earning between 180,001 to 199,999. The finance Minister has not mentioned the tax slabs for women and senior citizens in his Budget Speech so far but it is awaited.
In addition, the finance minister has created new tax slabs. If your income is between Rs. 200,001 and Rs. 500,000, your tax rate will be 10%. For people earning Rs. 500001 to Rs. 10,00,000 -- the tax rate will be 20% and for people whose income is Rs. 10,00,001 and above the tax rate is 30%.
The finance minister has also said that taxation of unexplained money, credits, investments, expenditures etc, will be at the highest rate of 30%, here the slab of income will not be considered.
(For more stories, you can also visit www.bankbazaar.com)
(Also read: Budget 2012: Income tax slabs revised, but common man expected more, click here)
5000 RUPEES EXEMPTION
The FM has proposed to give a deduction of Rs 5000 for expenses incurred on preventive health check-up. Now you can go fearlessly to that neighborhood hospital and get the executive master health check-up done and get a tax benefit too.
INVEST IN EQUITY AND GET TAX BENEFITS
A new equity scheme called Rajiv Gandhi Equity Saving Scheme is being introduced to promote equity investments. The scheme will get income tax deduction, which will be purely applicable to the new retail investors who will invest directly into equity up to Rs. 50000, with a lock-in period of three years. The investor's annual income should not exceed Rs. 1,000,000.
In order to ensure more participation from small towns in IPOs, the FM has announced that changes have been made in the IPO guidelines. The exact guidelines have not been mentioned yet. However, this will help the capital markets in the long-run and even your neighbour share broker who can now look at rural India in a big way.
TAX FREE BONDS
The Finance Minister has proposed to allow selected government undertakings to issue tax-free bonds of Rs. 60,000 crore, which is double the amount assigned in the previous year.
SAVE, EARN INTEREST AND AGAIN SAVE
The FM has proposed to give a tax deduction of up to Rs 10,000 on interest earned from savings bank accounts. This means you can keep up to Rs. 2.5 lakhs continuously in your savings bank, get interest (currently 4% in most banks) and not worry about the interest getting taxed.
EASE ON EDUCATION LOAN RATES
The finance minister has said that Credit Guarantee Fund is to be set up which is likely to reduce the risk of banks. For that reason, the banks might reduce the rate of interest on educational loans.
LUXURY PRODUCT LOVERS DISAPPOINTED
The finance Minister has announced 12% excise duty on branded retail garments but it has been proposed that multi-brand shops are to be supported and the country can expect more number of malls and Super Malls in the future.
The price of luxury cars is expected to go up. This will disappoint people who were planning for the prices to fall post budget. The customs duties on the silver and gold prices have gone up to 4% from 2%. This will make both gold and silver costlier than what they are today. However, the branded silver jewellery is fully exempted from excise duty.
The custom duty of LCD and LED panels has been exempted. In addition, the mobile phone parts are exempted from basic customs duty, which is expected to bring down the price of mobile phones.
HOUSING LOANS
The Interest subvention of 1 percent has been extended for one more year on housing loans up to Rs. 15 lakhs. The Finance Minister has also announced that a Credit Guarantee Trust Fund is to be set up to ensure better flow of Institutional Credit for Housing Loans.
DISCLAIMER
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Pranab Mukherjee was mildly kind in the budget as he raised the income tax exemption limit but cruel — some would say too cruel — while putting up excise duty and service tax that could stoke inflation.reports the Telegraph from Kolkata.
The personal tax exemption limit has been raised from Rs 1.8 lakh to Rs 2 lakh to place an additional disposable income of Rs 4,500 crore in the pockets of taxpayers.
On the contrary, the 2 per cent excise duty and service tax escalation will burn a Rs 45,940-crore hole in the public's pocket as prices rise while filling the government's.
Even the Rs 20,000 higher exemption is somewhat misleading in that Mukherjee has withdrawn the deduction of a similar amount offered on infrastructure bonds. But he introduced another deduction, this time on interest from bank deposits, up to Rs 10,000.
Taxpayers earning between Rs 8 lakh and Rs 10 lakh a year will see their burden lowered with the income slab changing to Rs 5-10 lakh from Rs 5-8 lakh in the 20 per cent tax bracket.
Volatile through the day, the stock market dropped 210 points with the Bombay sensitive index closing at 17466.20 as several industry leaders expressed disappointment with the budget. Their concern was rooted in the excise duty increase from 10 to 12 per cent and the widening of service tax to cover all but 17 items along with a higher rate of 12 per cent.
The excise duty rise, however, is another step to a return to rates before the economic slowdown forced the government to announce a stimulus package. Excise was then cut from 14 to 8 per cent while last year saw a reversal being set in train when the rate was stepped up to 10 per cent. The economy is estimated to expand 6.9 per cent this financial year and the finance minister sees a 7.6 per cent growth rate in the coming year, in the context of which he might not have felt it necessary to continue with the lower excise rates.
Ficci president R.V. Kanoria said of the budget: "It is not going to stimulate the economy."
B. Muthuraman, his counterpart in the Confederation of Indian Industry, said he was expecting much more, expressing fear that higher excise would push up prices.
Inflation is now running at 6.9 per cent and the forecast for the coming year is 6.5, though crude oil prices could make a mockery of the prediction as tensions grow around Iran. In a courageous gamble, Mukherjee has provided Rs 43,580 crore for petroleum subsidy, about Rs 25,000 crore down on the actual for the current year, when it overshot the estimate three times.
Either something similar is in store in the coming year or the government is plotting a Dinesh Trivedi rerun in diesel pricing.
Prime Minister Manmohan Singh dropped a hint while commenting on Mukherjee's commitment to cutting subsidies to less than 1.7 per cent of the gross domestic product over the next three years.
"That is obviously the task which, I think, has required the government to put forward an effective programme for adjusting the prices of petroleum products and adjusting other relevant prices. So we have to bite the bullet. There is no other way in which you can reduce subsidies," he said.
But, as Trivedi's move to raise rail fares has shown, allies like Mamata Banerjee will hold a gun to the finance minister's head while he attempts to bite the bullet. Today, however, her party was generous — it called the budget "tolerable".
The Opposition BJP described the budget as failing "to lift the sentiment of the economy". The CPM expressed fear that it would further widen the divide between the rich and the poor.
It should have had some reasons to be happy but chose to ignore them. For instance, Mukherjee committed the government to making full provision for food security for all once the legislation is passed.
He said farm credit would expand by Rs 100,000 crore while he increased the plan outlay for agriculture by 18 per cent.
No Congress budget is complete without a scheme or two being named after the party's first family. A giant leap seems to have been made from welfare schemes that have traditionally been blessed with the Nehru-Gandhi cachet to step into the very un-Gandhi-like stock market.
We now have a Rajiv Gandhi Equity Savings Scheme that will allow a 50 per cent tax deduction on investment up to Rs 50,000 by those with an annual income of below Rs 10 lakh.
Gold-hungry Indians will be disappointed to see customs duty being raised.
"I propose to increase basic customs duty on standard gold bars, gold coins of purity exceeding 99.5 per cent and platinum from 2 per cent to 4 per cent and on non-standard gold from 5 per cent to 10 per cent," Mukherjee said.
Industry experts see a 3-4 per cent spike in gold prices. Note that tax will be collected at source on purchase in cash of bullion or jewellery in excess of Rs 2 lakh and on transfer of immovable property.
Many economists have warned about a developing fiscal nightmare with the burgeoning gap between government revenue and expenditure. Expenditure, mainly on subsidies, pushed the fiscal deficit to 5.9 per cent of the GDP for the current fiscal, way over target.
The finance minister swore himself to fiscal consolidation beginning with the 2012-13 budget by proposing to hold the deficit to 5.1 per cent. At this level, the government will need to borrow Rs 479,000 crore from the market, a prospect that prompted ICICI Bank CEO Chanda Kochhar to doubt if interest rates can be lowered. "I am not hopeful that the RBI will be able to cut (interest) rates in April," she said.
Industry wants interest rates to be lowered to stimulate investment and growth.
Mukherjee said: "The life of a finance minister is difficult." While there will be widespread sympathy for him on this count, perhaps his choice of the quote, "I must be cruel only to be kind", might not have been too wise.
Hamlet had said this after stabbing Polonius, mistaking him for Claudius. There is bound to be speculation about who the unfortunate victim of this budget is.
But then Mukherjee may well follow up with what Hamlet said next: "Thus bad begins and worse remains behind."
Times guide to income tax
TNN | Mar 17, 2012, 09.10AM ISTProposal: The basic threshold limit for income-tax has been revised upwards marginally for individual taxpayers (except senior citizens) from Rs 1,80,000 to Rs 2,00,000.
Impact: This will result in a tax savings for Rs 2,060 (Rs 1,030 for women) across the board. Those having taxable income up to Rs 2,00,000 are out of income-tax ambit.
Proposal: While the tax slab rates (10% /20%/ 30%) remain the same, the trigger for the top tax slab (30%) has been raised from Rs 8,00,000 to Rs 10,00,000.
Impact: This will result in a tax saving of upto Rs 20,600 (in addition to Rs 1,030/ Rs 2,030) for persons having income above Rs 8,00,000.
Proposal: Senior citizens are no longer required to pay advance tax, if they are not running any business/ profession.
Impact: This will help reduce the compliance burden for senior citizens. However, they will need to pay their taxes before filing the annual return of income.
Proposal: A deduction of upto Rs 10,000 for interest from savings bank accounts is proposed while computing taxable income.
Impact: This will save tax of upto Rs 3,090 on savings bank interest income. If taxable salary income is up to Rs 5,00,000 and interest from savings bank accounts is up to Rs 10,000, no tax return is to be filed.
Proposal: An additional avenue of Rs 5,000 is also available to cover expenses for preventive health check-ups for self and family members within the overall limit of Rs 15,000 for Mediclaim insurance premium.
Impact: This will allow taxpayers to recover some part of such expenses and encourage them to keep a tab on their health.
Proposal: Capital gains from sale of house property will not be taxable, if invested in equity shares of eligible companies (typically SMEs).
Impact: An additional avenue is now available to save tax on capital gains. This will also channelize funds to the small and medium enterprise (SME) sector.
Proposal: Additional deduction for infrastructure bonds of Rs 20,000 has not been extended beyond assessment year 2012-13 .
Impact: Such bonds will lose their attractiveness.
Proposal: Securities Transaction Tax (' STT' ) reduced on delivery based equity transactions by 20% from 0.125% to 0.1%.
Impact: This will reduce the transaction cost of purchasing/ selling shares in the secondary market/ stock exchanges and give a fillip to the capital market.
Proposal: Tax benefits (deduction for premium or exemption for maturity proceeds) are no longer available to new life insurance policies having annual premiums of more than 10% of sum assured (this does not take into account the loyalty bonus component).
Impact: New life insurance policies will not carry tax benefits any longer if premiums are more than 10% (presently 20%) of actual assured amount. The present life insurance policies thankfully will not be impacted by this change.
Proposal: Seller of immovable property with value exceeding Rs 5,000,000 for urban areas (Rs 2,000,000 for rural areas) will need to deduct tax at source @ 1% of the sale value, and pay it to the government treasury.
Impact: While this will help in tracking/ bringing to tax the transactions in real estate sector generally, there would be an additional compliance burden to be undertaken by the seller.
Proposal: Additional tax of 1% will be collected at source from the buyer on cash purchases of jewellery, bullion, etc, if value exceeds Rs 2,00,000.
Proposal: While this is intended to track the cash transactions in the jewellery/ bullion market, additional tax levy would increase the cost of the purchase and create an administrative burden for the seller.
http://timesofindia.indiatimes.com/business/budget-2012/union-budget/Times-guide-to-personal-tax/articleshow/12302204.cms
Moneycontrol » News » Budget NewsThe day after: Pranab's Budget seen as a flop show, a missed chancePublished on Sat, Mar 17, 2012 at 06:58 | Source : Firstpost.comUpdated at Sat, Mar 17, 2012 at 10:32 |
The verdict is in on Pranab Mukherjee's budget on Friday, and it's not good. A round-up of the reactions:
Economist Surjit S Bhalla says that Budget 2012 is perhaps the second worst budget of all time. "Only Indira Gandhi's 1970-71 budget which raised marginal taxes to 97per cent comes close to yesterday's effort."
The reasons for this damning assessment? Bhalla points out that for all the near-unanimous expectations that Mukherjee would outline a broader vision for the economy, the Budget is a disappointment. "All his policy recommendations had more to do with tinkering than with any sense of vision."
And Bhalla reckons that Mukherjee may have made himself the first casualty of this budget. "It is likely that the finance minister will now find his political ability, his master tactician image and economic sagacity to be brought into open question."
Tracing accountability for the years of broken promises on second-generation reforms at Prime Minister Manmohan Singh's doorstep, Bhalla suggests it's time for the PM to go and for mid-term elections to be held.
Read more here .
Writing in Mint , Anil Padmanabhan has a similar searing indictment:
"Pranab Mukherjee's seventh Union budget is neither tepid nor insipid; reflecting the mindset of the 1970s, it is dangerously inflationary and conceals its sting in fine print, some of which may go against the letter and spirit of economic reforms that popularized the India story with foreign investors."
He then makes a broader point about the UPA's mismanagement of the economy.
"It is clear that the UPA has all but blown its last chance. Not only has it missed out on a second chance to launch a recovery, it may have actually worsened the country's macroeconomic prospects.
In the Hindustan Times, Gautam Chikermane sees Budget 2012 as a reversal of reforms .
"It looks as if Mukherjee has one leg in 1982, when he presented his first budget; his second leg in 2012, when the UPA coalition is running from crisis to crisis; and his mind in 2014, the year of the next general elections.Between the three, he has chosen the familiar walk to the past."
An editorial in Business Standard sees Budget 2012 as having achieved about half of what it set out to do.
"The finance minister needed to do three things in the Budget: control the deficit, bring down inflation, and create the conditions for faster economic growth. He can be said to have succeeded substantially, but not wholly. The unfinished task is that the deficit has been left too high, as also market borrowings which go up next year."
And The Hindu editorialises that the Budget 2012 is flying in "on a wing and a prayer."
"The Union budget for 2012-13 seeks to address two primary concerns - the economic slowdown and the unsatisfactory state of government finances - but the means it employs are so cautious, and even contradictory, that the chances of success appear slim."
http://www.moneycontrol.com/news/budget-news/pranab39s-budget-seen-asflop-showmissed-chance_681884.html
Finance minister Pranab Mukherjee presented India's budget on Friday for the coming financial year.
APPROACH TO THE BUDGET
* For Indian economy, recovery was interrupted this year due to intensification of debt crises in Euro zone, political turmoil in Middle East, rise in crude oil price and earthquake in Japan.
* GDP is estimated to grow by 6.9 per cent in 2011-12, after having grown at 8.4 per cent in preceding two years.
* India however remains front runner in economic growth in any cross-country comparison.
* Monetary and fiscal policy response for better part of past 2 years aimed at taming domestic inflationary pressure.
* Growth moderated and fiscal balance deteriorated due to tight monetary policy and expanded outlays.
* Indicators suggest that economy is turning around as core sectors and manufacturing show signs of recovery.
* At this juncture, it is necessary to take hard decision to improve macroeconomic environment and strengthen domestic growth drivers.
* Twelfth Five Year Plan to be launched with the aim of "faster, sustainable and more inclusive growth". Five objectives identified to be addressed effectively in ensuing fiscal year.
* If India can build on its economic strength, it can be a source of stability for world economy and a safe destination for restless global capital.
OVERVIEW OF THE ECONOMY
* GDP growth estimated at 6.9 per cent in real terms in 2011-12. Slowdown in comparison to preceding two years is primarily due to deceleration in industrial growth.
* Headline inflation expected to moderate further in next few months and remain stable thereafter.
* Steps taken to bridge gaps in distribution, storage and marketing systems have helped in more effective management of inflation.
* Developments in India's external trade in the first half of current year have been encouraging. Diversification in export and import market achieved.
* Current account deficit at 3.6 per cent of GDP for 2011-12 and reduced net capital inflow in the 2nd and 3rd quarters put pressure on exchange rate.
* India's GDP growth in 2012-13 expected to be 7.6 per cent +/- 0.25 per cent.
* Deterioration in fiscal balance in 2011-12 due to slippages in direct tax revenue and increased subsidies.
FRBM ACT
* Introduction of amendments to the FRBM Act as part of Finance Bill, 2012.
* Concept of "Effective Revenue Deficit" and "Medium Term Expenditure
* Framework" statement are two important features of amendment to FRBM Act in the direction of expenditure reforms.
* Effective Revenue Deficit is the difference between revenue deficit and grants for creation of capital assets. This will help in reducing consumptive component of revenue deficit and create space for increased capital spending.
* "Medium-term Expenditure Framework" statement will set forth a three-year rolling target for expenditure indicators.
* Recommendations of the Expert Committees to streamline and reduce the number of centrally sponsored schemes and to address plan and non-plan classification to be kept in view while implementing Twelfth Plan.
* Central Plan Scheme Monitoring System to be expanded for better tracking and utilisation of funds.
SUBSIDIES
* Some subsidies, while being inevitable, may become undesirable if they compromise the macroeconomic fundamentals of economy.
* Subsidies related to administering the Food Security Act will be fully provided for.
* Endeavour to keep central subsidies under 2 per cent of GDP in 2012-13. Over next 3 year, to be further brought down to 1.75 per cent of GDP.
* Based on recommendation of task force headed by Shri Nandan Nilekani, a mobile-based Fertilizer Management System has been designed to provide endto-end information on movement of fertilisers and subsidies. Nation-wide roll out during 2012.
* All three public sector Oil Marketing Companies have launched LPG transparency portals to improve customer service and reduce leakage.
* Endeavour to scale up and roll out Aadhaar enabled payments for various government schemes in atleast 50 districts within next 6 months.
TAX REFORMS
* DTC Bill to be enacted at the earliest after expeditious examination of the report of the Parliamentary Standing Committee.
* Drafting of model legislation for the Centre and State GST in concert with States is under progress.
* GST network to be set up as a National Information Utility and to become operational by August 2012.
DISINVESTMENT POLICY
*Government has further evolved its approach to divestment of Central Public Sector Enterprises by allowing them a level playing field vis-a-vis the private sector in respect of practices like buy backs and listing at stock exchanges.
*For 2012-13, '30,000 crore to be raised through disinvestment. At least 51 per cent ownership and management control to remain with Government.
STRENGTHENING INVESTMENT ENVIRONMENT
Foreign Direct Investment
* Efforts to arrive at a broadbased consensus in consultation with the State Governments in respect of decision to allow FDI in multi-brand retail upto 51 per cent.
Advance Pricing Agreement
* Provision regarding implementation of Advance Pricing Agreement to be introduced in Finance Bill, 2012.
Financial Sector
* Rajiv Gandhi Equity Saving Scheme to allow for income tax deduction of 50 per cent to new retail investors, who invest upto '50,000 directly in equities and whose annual income is below `10 lakh to be introduced. The scheme will have a lock-in period of 3 years.
Capital Market
* Various steps proposed to be taken for deepening the reforms in the Capital markets, including simplifying process of IPOs, allowing QFIs to access Indian Bond Market etc.
Legislative Reforms
* Official amendment to "The Pension Fund Regulatory and Development Authority Bill, 2011", "The Banking Laws (Amendment) Bill, 2011" and "The Insurance Law (Amendment) Bill, 2008" to be moved in this session.
* Various Bills proposed to be moved in the Budget session of the Parliament to take forward the process of financial sector legislative reforms. Capitalisation of Banks and Financial Holding Company
* To protect the financial health of Public Sector Banks and Financial Institutions, `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.
* A central "Know Your Customer" depository to be developed in 2012-13 to avoid multiplicity of registration and data upkeep.
Priority Sector Lending
* Revised guidelines on priority sector lending to be issued after stakeholder consultation.
Financial Inclusion
* Out of 73,000 identified habitations that were to be covered under "Swabhimaan" campaign by March, 2012, about 70,000 habitations have been covered. Rest likely to be covered by March 31, 2012.
* As a next step, Ultra Small Branches are being set up at these habitations. n In 2012-13, "Swabhimaan" campaign to be extended to more habitations. Regional Rural Banks
* Out of 82 RRBs in India, 81 have successfully migrated to Core Banking Solutions and have also joined the National Electronic Fund Transfer system.
* Proposal to extend the scheme of capitalisation of weak RRBs by another 2 years to enable States to contribute their share.
INFRASTRUCTURE AND INDUSTRIAL DEVELOPMENT
* During Twelfth Plan period, investment in infrastructure to go up to `50 lakh crore with half of this, expected from private sector.
* More sectors added as eligible sectors for Viability Gap Funding under the scheme "Support to PPP in infrastructure".
* Government has approved guidelines for establishing joint venture companies by defence PSUs in PPP mode.
* First Infrastructure Debt Fund with an initial size of `8,000 crore launched earlier this month.
* Tax free bonds of `60,000 crore to be allowed for financing infrastructure projects in 2012-13.
* A harmonised master list of infrastructure sector approved by the Government.
* IIFCL has put in place a structure for credit enhancement and take-out finance for easing access of credit to infrastructure projects.
National Manufacturing Policy
* National Manufacturing Policy announced with the objective of raising, within a decade, the share of manufacturing in GDP to 25 per cent and creating of 10 crore jobs.
Power and Coal
* Coal India Limited advised to sign fuel supply agreements with power plants, having long-term PPAs with DISCOMs and getting commissioned on or before March 31, 2015.
* External Commercial Borrowings (ECB) to be allowed to part finance Rupee debt of existing power projects.
Transport: Roads and Civil Aviation
* Target of covering a length of 8,800 kilometre under NHDP next year.
* Allocation of the Road Transport and Highways Ministry enhanced by 14 per cent to `25,360 crore.
* ECB proposed to be allowed for capital expenditure on the maintenance and operations of toll systems for roads and highways, if they are part of original project.
* Direct import of Aviation Turbine Fuel permitted for Indian Carriers as actual users.
* ECB to be permitted for working capital requirement of airline industry for a period of one year, subject to a total ceiling of US $ 1 billion.
* Proposal to allow foreign airlines to participate upto 49 per cent in the equity of an air transport undertaking under active consideration of the government. Delhi Mumbai Industrial Corridor
* In September 2011 central assistance of `18,500 crore spread over 5 years approved. US $ 4.5 billion as Japanese participation in the project.
Housing Sector
* 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.
Fertilisers
* Government has taken steps to finalise pricing and investment policies for urea to reduce India's import dependence in urea.
Textiles
* Government has announced a financial package of `3,884 crore for waiver of loans of handloom weavers and their cooperative societies.
* Two more mega handloom clusters, one to cover Prakasam and Guntur districts in Andhra Pradesh and another for Godda and neighbouring districts in Jharkhand to be set up.
* Three Weaver's Service Centres one each in Mizoram, Nagaland and Jharkhand to be set up for providing technical support to poor handloom weavers.
* '500 crore pilot scheme announced for promotion and application of Geo-textiles in the North Eastern Region.
* A powerloom mega cluster to be set up in Ichalkaranji in Maharashtra with a budget allocation of `70 crore.
Micro, Small and Medium Enterprises
* '5,000 crore India Opportunities Venture Fund to be set up with SIDBI.
* To enable greater access to finance by Small and Medium Enterprises (SME), two SME exchanges launched in Mumbai recently.
* Policy requiring Ministries and CPSEs to make a minimum of 20 per cent of their annual purchases from MSEs approved. Of this, 4 per cent earmarked for procurement from MSEs owned by SC/ST entrepreneurs.
AGRICULTURE
* Plan Outlay for Department of Agriculture and Co-operation increased by 18 per cent.
* Outlay for Rashtriya Krishi Vikas Yojana (RKVY) increased to '9,217 crore in 2012-13.
* Initiative of Bringing Green Revolution to Eastern India (BGREI) has resulted in increased production and productivity of paddy. Allocation for the scheme increased to '1,000 crore in 2012-13 from '400 crore in 2011-12.
* '300 crore to Vidarbha Intensified Irrigation Development Programme under RKVY.
* Remaining activities to be merged into following missions in Twelfth Plan:
* National Food Security Mission
* National Mission on Sustainable Agriculture including Micro Irrigation
* National Mission on Oilseeds and Oil Palm
* National Mission on Agricultural Extension and Technology
* National Horticultural Mission
* National Mission for Protein Supplement
* '2,242 crore project launched with World Bank assistance to improve productivity in the dairy sector. '500 crore provided to broaden scope of production of fish to coastal aquaculture.
Agriculture Credit
* Target for agricultural credit raised by '1,00,000 crore to '5,75,000 crore in 2012-13.
* Interest subvention scheme for providing short term crop loans to farmers at 7 per cent interest per annum to be continued in 2012-13. Additional subvention of 3 per cent available for prompt paying farmers.
* Short term RRB credit refinance fund being set up to enhance the capacity of RRBs to disburse short term crop loans to small and marginal farmers.
* Kisan Credit Card (KCC) Scheme to be modified to make KCC a smart card which could be used at ATMs.
Agricultural Research
* A sum of '200 crore set aside for incentivising research with rewards.
Irrigation
* Structural changes in Accelerated Irrigation Benefit Programme (AIBP) being made to maximise flow of benefit from investments in irrigation projects.
* Allocation for AIBP in 2012-13 stepped up by 13 per cent to '14,242 crore.
* Irrigation and Water Resource Finance Company being operationalised to mobilise large resources to fund irrigation projects.
* A flood management project approved by Ganga Flood Control Commission at a cost of '439 crore for Kandi sub-division of Murshidabad District.
National Mission on Food Processing
* A new centrally sponsored scheme titled "National Mission on Food Processing" to be started in 2012-13 in co-operation with State Governments.
* Steps taken to create additional food grain storage capacity in the country.
INCLUSION
* Scheduled Castes and Tribal Sub Plans
* Allocation for Scheduled Castes Sub Plan at '37,113 crore in BE 2012-13 represents an increase of 18 per cent over BE 2011-12.
* Allocation for Tribal Sub Plan at '21,710 crore in BE 2012-13 represents an increase of 17.6 per cent.
Food Security
* National Food Security Bill, 2011 is before Parliamentary Standing Committee.
* A national information utility for computerisation of PDS is being created. To become operational by December, 2012.
Multi-sectoral Nutrition Augmentation Programme
* A multi-sectoral programme to address maternal and child malnutrition in selected 200 high burden districts is being rolled out during 2012-13.
* Allocation of '15,850 crore made for Integrated Child Development Service (ICDS) scheme, representing an increase of 58 per cent over BE 2011-12.
* '11,937 crore allocated for National Programme of Mid Day Meals in schools.
* An allocation of '750 crore proposed for Rajiv Gandhi Scheme for Empowerment of Adolescent Girls, SABLA.
Rural Development and Panchayati Raj
* Budgetary allocation for rural drinking water and sanitation increased from '11,000 crore to '14,000 crore representing an increase of over 27 per cent.
* Allocation for PMGSY increased by 20 per cent to Rs.24,000 crore to improve connectivity.
* Major initiative proposed to strengthen Panchayats through Rajiv Gandhi Panchayat Sashaktikaran Abhiyan.
* Backward Regions Grant Fund scheme to continue in twelfth plan with enhanced allocation of '12,040 crore in 2012-13, representing an increase of 22 per cent over the BE 2011-12.
* Rural Infrastructure Development Fund (RIDF)
* Allocation under RIDF enhanced to '20,000 crore. '5,000 crore earmarked exclusively for creating warehousing facilities.
EDUCATION
* For 2012-13, '25,555 crore provided for RTE-SSA representing an increase of 21.7 per cent over 2011-12.
* 6,000 schools proposed to be set up at block level as model schools in Twelfth Plan.
* '3,124 crore provided for Rashtriya Madhyamik Shiksha Abhiyan (RMSA) representing an increase of 29 per cent over BE 2011-12.
* To ensure better flow of credit to students, a Credit Guarantee Fund proposed to be set up.
HEALTH
* No new case of polio reported in last one year.
* Existing vaccine units to be modernised and new integrated vaccine unit to be set up in Chennai.
* Scope of 'Accredited Social Health Activist' - 'ASHA' is being enlarged. This will also enhance their remuneration.
* Allocation for NRHM proposed to be increased from '18,115 crore in 2011-12 to '20,822 crore in 2012-13.
* National Urban Health Mission is being launched.
EMPLOYMENT AND SKILL DEVELOPMENT
* MGNREGS has had a positive impact on livelihood security.
* Need to bring about greater synergy between MGNREGA and agriculture and allied rural livelihoods.
* Allocation of '3915 crore made for National Rural Livelihood Mission representing an increase of 34 per cent.
* To ease access to bank credit, corpus for 'Women's SHG's Development Fund' enlarged.
* Proposal to establish Bharat Livelihoods Foundation of India through Aajeevika scheme.
* Allocation for Prime Minister's Employment Generation Programme increased by 23 per cent to '1,276 crore in 2012-13.
* Pradhan Mantri Swasthya Suraksha Yojana being expanded to cover upgradation of 7 more Government medical colleges.
Full Coverage on Budget 2012: Budget 2012, Budget News 2012
* For Indian economy, recovery was interrupted this year due to intensification of debt crises in Euro zone, political turmoil in Middle East, rise in crude oil price and earthquake in Japan.
* GDP is estimated to grow by 6.9 per cent in 2011-12, after having grown at 8.4 per cent in preceding two years.
* India however remains front runner in economic growth in any cross-country comparison.
* Monetary and fiscal policy response for better part of past 2 years aimed at taming domestic inflationary pressure.
* Growth moderated and fiscal balance deteriorated due to tight monetary policy and expanded outlays.
* Indicators suggest that economy is turning around as core sectors and manufacturing show signs of recovery.
* At this juncture, it is necessary to take hard decision to improve macroeconomic environment and strengthen domestic growth drivers.
* Twelfth Five Year Plan to be launched with the aim of "faster, sustainable and more inclusive growth". Five objectives identified to be addressed effectively in ensuing fiscal year.
* If India can build on its economic strength, it can be a source of stability for world economy and a safe destination for restless global capital.
OVERVIEW OF THE ECONOMY
* GDP growth estimated at 6.9 per cent in real terms in 2011-12. Slowdown in comparison to preceding two years is primarily due to deceleration in industrial growth.
* Headline inflation expected to moderate further in next few months and remain stable thereafter.
* Steps taken to bridge gaps in distribution, storage and marketing systems have helped in more effective management of inflation.
* Developments in India's external trade in the first half of current year have been encouraging. Diversification in export and import market achieved.
* Current account deficit at 3.6 per cent of GDP for 2011-12 and reduced net capital inflow in the 2nd and 3rd quarters put pressure on exchange rate.
* India's GDP growth in 2012-13 expected to be 7.6 per cent +/- 0.25 per cent.
* Deterioration in fiscal balance in 2011-12 due to slippages in direct tax revenue and increased subsidies.
FRBM ACT
* Introduction of amendments to the FRBM Act as part of Finance Bill, 2012.
* Concept of "Effective Revenue Deficit" and "Medium Term Expenditure
* Framework" statement are two important features of amendment to FRBM Act in the direction of expenditure reforms.
* Effective Revenue Deficit is the difference between revenue deficit and grants for creation of capital assets. This will help in reducing consumptive component of revenue deficit and create space for increased capital spending.
* "Medium-term Expenditure Framework" statement will set forth a three-year rolling target for expenditure indicators.
* Recommendations of the Expert Committees to streamline and reduce the number of centrally sponsored schemes and to address plan and non-plan classification to be kept in view while implementing Twelfth Plan.
* Central Plan Scheme Monitoring System to be expanded for better tracking and utilisation of funds.
SUBSIDIES
* Some subsidies, while being inevitable, may become undesirable if they compromise the macroeconomic fundamentals of economy.
* Subsidies related to administering the Food Security Act will be fully provided for.
* Endeavour to keep central subsidies under 2 per cent of GDP in 2012-13. Over next 3 year, to be further brought down to 1.75 per cent of GDP.
* Based on recommendation of task force headed by Shri Nandan Nilekani, a mobile-based Fertilizer Management System has been designed to provide endto-end information on movement of fertilisers and subsidies. Nation-wide roll out during 2012.
* All three public sector Oil Marketing Companies have launched LPG transparency portals to improve customer service and reduce leakage.
* Endeavour to scale up and roll out Aadhaar enabled payments for various government schemes in atleast 50 districts within next 6 months.
TAX REFORMS
* DTC Bill to be enacted at the earliest after expeditious examination of the report of the Parliamentary Standing Committee.
* Drafting of model legislation for the Centre and State GST in concert with States is under progress.
* GST network to be set up as a National Information Utility and to become operational by August 2012.
DISINVESTMENT POLICY
*Government has further evolved its approach to divestment of Central Public Sector Enterprises by allowing them a level playing field vis-a-vis the private sector in respect of practices like buy backs and listing at stock exchanges.
*For 2012-13, '30,000 crore to be raised through disinvestment. At least 51 per cent ownership and management control to remain with Government.
STRENGTHENING INVESTMENT ENVIRONMENT
Foreign Direct Investment
* Efforts to arrive at a broadbased consensus in consultation with the State Governments in respect of decision to allow FDI in multi-brand retail upto 51 per cent.
Advance Pricing Agreement
* Provision regarding implementation of Advance Pricing Agreement to be introduced in Finance Bill, 2012.
Financial Sector
* Rajiv Gandhi Equity Saving Scheme to allow for income tax deduction of 50 per cent to new retail investors, who invest upto '50,000 directly in equities and whose annual income is below `10 lakh to be introduced. The scheme will have a lock-in period of 3 years.
Capital Market
* Various steps proposed to be taken for deepening the reforms in the Capital markets, including simplifying process of IPOs, allowing QFIs to access Indian Bond Market etc.
Legislative Reforms
* Official amendment to "The Pension Fund Regulatory and Development Authority Bill, 2011", "The Banking Laws (Amendment) Bill, 2011" and "The Insurance Law (Amendment) Bill, 2008" to be moved in this session.
* Various Bills proposed to be moved in the Budget session of the Parliament to take forward the process of financial sector legislative reforms. Capitalisation of Banks and Financial Holding Company
* To protect the financial health of Public Sector Banks and Financial Institutions, `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.
* A central "Know Your Customer" depository to be developed in 2012-13 to avoid multiplicity of registration and data upkeep.
Priority Sector Lending
* Revised guidelines on priority sector lending to be issued after stakeholder consultation.
Financial Inclusion
* Out of 73,000 identified habitations that were to be covered under "Swabhimaan" campaign by March, 2012, about 70,000 habitations have been covered. Rest likely to be covered by March 31, 2012.
* As a next step, Ultra Small Branches are being set up at these habitations. n In 2012-13, "Swabhimaan" campaign to be extended to more habitations. Regional Rural Banks
* Out of 82 RRBs in India, 81 have successfully migrated to Core Banking Solutions and have also joined the National Electronic Fund Transfer system.
* Proposal to extend the scheme of capitalisation of weak RRBs by another 2 years to enable States to contribute their share.
INFRASTRUCTURE AND INDUSTRIAL DEVELOPMENT
* During Twelfth Plan period, investment in infrastructure to go up to `50 lakh crore with half of this, expected from private sector.
* More sectors added as eligible sectors for Viability Gap Funding under the scheme "Support to PPP in infrastructure".
* Government has approved guidelines for establishing joint venture companies by defence PSUs in PPP mode.
* First Infrastructure Debt Fund with an initial size of `8,000 crore launched earlier this month.
* Tax free bonds of `60,000 crore to be allowed for financing infrastructure projects in 2012-13.
* A harmonised master list of infrastructure sector approved by the Government.
* IIFCL has put in place a structure for credit enhancement and take-out finance for easing access of credit to infrastructure projects.
National Manufacturing Policy
* National Manufacturing Policy announced with the objective of raising, within a decade, the share of manufacturing in GDP to 25 per cent and creating of 10 crore jobs.
Power and Coal
* Coal India Limited advised to sign fuel supply agreements with power plants, having long-term PPAs with DISCOMs and getting commissioned on or before March 31, 2015.
* External Commercial Borrowings (ECB) to be allowed to part finance Rupee debt of existing power projects.
Transport: Roads and Civil Aviation
* Target of covering a length of 8,800 kilometre under NHDP next year.
* Allocation of the Road Transport and Highways Ministry enhanced by 14 per cent to `25,360 crore.
* ECB proposed to be allowed for capital expenditure on the maintenance and operations of toll systems for roads and highways, if they are part of original project.
* Direct import of Aviation Turbine Fuel permitted for Indian Carriers as actual users.
* ECB to be permitted for working capital requirement of airline industry for a period of one year, subject to a total ceiling of US $ 1 billion.
* Proposal to allow foreign airlines to participate upto 49 per cent in the equity of an air transport undertaking under active consideration of the government. Delhi Mumbai Industrial Corridor
* In September 2011 central assistance of `18,500 crore spread over 5 years approved. US $ 4.5 billion as Japanese participation in the project.
Housing Sector
* 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.
Fertilisers
* Government has taken steps to finalise pricing and investment policies for urea to reduce India's import dependence in urea.
Textiles
* Government has announced a financial package of `3,884 crore for waiver of loans of handloom weavers and their cooperative societies.
* Two more mega handloom clusters, one to cover Prakasam and Guntur districts in Andhra Pradesh and another for Godda and neighbouring districts in Jharkhand to be set up.
* Three Weaver's Service Centres one each in Mizoram, Nagaland and Jharkhand to be set up for providing technical support to poor handloom weavers.
* '500 crore pilot scheme announced for promotion and application of Geo-textiles in the North Eastern Region.
* A powerloom mega cluster to be set up in Ichalkaranji in Maharashtra with a budget allocation of `70 crore.
Micro, Small and Medium Enterprises
* '5,000 crore India Opportunities Venture Fund to be set up with SIDBI.
* To enable greater access to finance by Small and Medium Enterprises (SME), two SME exchanges launched in Mumbai recently.
* Policy requiring Ministries and CPSEs to make a minimum of 20 per cent of their annual purchases from MSEs approved. Of this, 4 per cent earmarked for procurement from MSEs owned by SC/ST entrepreneurs.
AGRICULTURE
* Plan Outlay for Department of Agriculture and Co-operation increased by 18 per cent.
* Outlay for Rashtriya Krishi Vikas Yojana (RKVY) increased to '9,217 crore in 2012-13.
* Initiative of Bringing Green Revolution to Eastern India (BGREI) has resulted in increased production and productivity of paddy. Allocation for the scheme increased to '1,000 crore in 2012-13 from '400 crore in 2011-12.
* '300 crore to Vidarbha Intensified Irrigation Development Programme under RKVY.
* Remaining activities to be merged into following missions in Twelfth Plan:
* National Food Security Mission
* National Mission on Sustainable Agriculture including Micro Irrigation
* National Mission on Oilseeds and Oil Palm
* National Mission on Agricultural Extension and Technology
* National Horticultural Mission
* National Mission for Protein Supplement
* '2,242 crore project launched with World Bank assistance to improve productivity in the dairy sector. '500 crore provided to broaden scope of production of fish to coastal aquaculture.
Agriculture Credit
* Target for agricultural credit raised by '1,00,000 crore to '5,75,000 crore in 2012-13.
* Interest subvention scheme for providing short term crop loans to farmers at 7 per cent interest per annum to be continued in 2012-13. Additional subvention of 3 per cent available for prompt paying farmers.
* Short term RRB credit refinance fund being set up to enhance the capacity of RRBs to disburse short term crop loans to small and marginal farmers.
* Kisan Credit Card (KCC) Scheme to be modified to make KCC a smart card which could be used at ATMs.
Agricultural Research
* A sum of '200 crore set aside for incentivising research with rewards.
Irrigation
* Structural changes in Accelerated Irrigation Benefit Programme (AIBP) being made to maximise flow of benefit from investments in irrigation projects.
* Allocation for AIBP in 2012-13 stepped up by 13 per cent to '14,242 crore.
* Irrigation and Water Resource Finance Company being operationalised to mobilise large resources to fund irrigation projects.
* A flood management project approved by Ganga Flood Control Commission at a cost of '439 crore for Kandi sub-division of Murshidabad District.
National Mission on Food Processing
* A new centrally sponsored scheme titled "National Mission on Food Processing" to be started in 2012-13 in co-operation with State Governments.
* Steps taken to create additional food grain storage capacity in the country.
INCLUSION
* Scheduled Castes and Tribal Sub Plans
* Allocation for Scheduled Castes Sub Plan at '37,113 crore in BE 2012-13 represents an increase of 18 per cent over BE 2011-12.
* Allocation for Tribal Sub Plan at '21,710 crore in BE 2012-13 represents an increase of 17.6 per cent.
Food Security
* National Food Security Bill, 2011 is before Parliamentary Standing Committee.
* A national information utility for computerisation of PDS is being created. To become operational by December, 2012.
Multi-sectoral Nutrition Augmentation Programme
* A multi-sectoral programme to address maternal and child malnutrition in selected 200 high burden districts is being rolled out during 2012-13.
* Allocation of '15,850 crore made for Integrated Child Development Service (ICDS) scheme, representing an increase of 58 per cent over BE 2011-12.
* '11,937 crore allocated for National Programme of Mid Day Meals in schools.
* An allocation of '750 crore proposed for Rajiv Gandhi Scheme for Empowerment of Adolescent Girls, SABLA.
Rural Development and Panchayati Raj
* Budgetary allocation for rural drinking water and sanitation increased from '11,000 crore to '14,000 crore representing an increase of over 27 per cent.
* Allocation for PMGSY increased by 20 per cent to Rs.24,000 crore to improve connectivity.
* Major initiative proposed to strengthen Panchayats through Rajiv Gandhi Panchayat Sashaktikaran Abhiyan.
* Backward Regions Grant Fund scheme to continue in twelfth plan with enhanced allocation of '12,040 crore in 2012-13, representing an increase of 22 per cent over the BE 2011-12.
* Rural Infrastructure Development Fund (RIDF)
* Allocation under RIDF enhanced to '20,000 crore. '5,000 crore earmarked exclusively for creating warehousing facilities.
EDUCATION
* For 2012-13, '25,555 crore provided for RTE-SSA representing an increase of 21.7 per cent over 2011-12.
* 6,000 schools proposed to be set up at block level as model schools in Twelfth Plan.
* '3,124 crore provided for Rashtriya Madhyamik Shiksha Abhiyan (RMSA) representing an increase of 29 per cent over BE 2011-12.
* To ensure better flow of credit to students, a Credit Guarantee Fund proposed to be set up.
HEALTH
* No new case of polio reported in last one year.
* Existing vaccine units to be modernised and new integrated vaccine unit to be set up in Chennai.
* Scope of 'Accredited Social Health Activist' - 'ASHA' is being enlarged. This will also enhance their remuneration.
* Allocation for NRHM proposed to be increased from '18,115 crore in 2011-12 to '20,822 crore in 2012-13.
* National Urban Health Mission is being launched.
EMPLOYMENT AND SKILL DEVELOPMENT
* MGNREGS has had a positive impact on livelihood security.
* Need to bring about greater synergy between MGNREGA and agriculture and allied rural livelihoods.
* Allocation of '3915 crore made for National Rural Livelihood Mission representing an increase of 34 per cent.
* To ease access to bank credit, corpus for 'Women's SHG's Development Fund' enlarged.
* Proposal to establish Bharat Livelihoods Foundation of India through Aajeevika scheme.
* Allocation for Prime Minister's Employment Generation Programme increased by 23 per cent to '1,276 crore in 2012-13.
* Pradhan Mantri Swasthya Suraksha Yojana being expanded to cover upgradation of 7 more Government medical colleges.
Full Coverage on Budget 2012: Budget 2012, Budget News 2012
KEY TO BUDGET DOCUMENTS
BUDGET 2012-2013
1. The Budget documents presented to Parliament comprise, besides the Finance Minister's Budget
Speech, the following:
A Annual Financial Statement (AFS)
B. Demands for Grants (DG)
C. Appropriation Bill
D. Finance Bill
E. Memorandum Explaining the Provisions in the Finance Bill, 2012
F. Macro-economic framework for the relevant financial year
G. Fiscal Policy Strategy Statement for the financial year
H. Medium Term Fiscal Policy Statement
I. Expenditure Budget Volume-1
J. Expenditure Budget Volume-2
K. Receipts Budget
L. Budget at a glance
M. Highlights of Budget
N. Status of Implementation of Announcements made in Finance Minister's Budget Speech of the previous
financial year.
The documents shown at Serial A, B, C and D are mandated by Art. 112,113, 114(3) and 110(a) of the
Constitution of India respectively, while the documents at Serial F, G and H are presented as per the provisions
of the Fiscal Responsibility and Budget Management Act, 2003. Other documents are in the nature of explanatory
statements supporting the mandated documents with narrative or other content in a user friendly format suited
for quick or contextual references. Hindi version of all these documents is also presented to Parliament. A web
version is hosted at http://indiabudget.nic.in, with hyperlinks, intended to make surfing more efficient.
2.1 In addition to the above, individual Departments/Ministries also prepare and present to Parliament
their Detailed Demands for Grants, Outcome Budget, and their Annual Reports. The Economic Survey which
highlights the economic trends in the country and facilitates a better appreciation of the mobilization of resources
and their allocation in the Budget is brought out by the Economic Division of Department of Economic Affairs,
Ministry of Finance. The Economic Survey is presented to Parliament in advance of the Union Budget. The
web versions of these documents are normally posted by the respective Ministries/Departments on their web
sites.
2.2 To monitor the performance management of various Ministries/Departments, Result Framework
Document (RFD) system has been adopted by the Government. The RFD system is being implemented in the
various Ministries/Departments in phased manner. In Phase I of the implementation, RFD was implemented to
59 Ministries/Departments for the year 2009-10. In Phase II, 62 Ministries/Departments prepared RFD for the
year 2010-11 and in 2011-12, 74 Ministries/Departments prepared the RFD. Performance Management in the
Government is a new concept which determines the performance index based upon the agreed objectives,
policies, programs and projects/schemes. To ensure the success in achieving the agreed objectives and
implementing agreed policies, programs and projects, the RFD also includes a commitment for required
resources and necessary operational autonomy.
9
3.1 A brief description of the Budget documents listed in para 1 is given below.
3. (A) Annual Financial Statement (AFS), the document as provided under Article 112, shows estimated
receipts and expenditure of the Government of India for 2012-13 in relation to estimates for 2011-12 as also
expenditure for the year 2010-11. The receipts and disbursements are shown under the three parts, in which
Government Accounts are kept viz.,(i) Consolidated Fund, (ii) Contingency Fund and (iii) Public Account.
Under the Constitution, Annual Financial Statement distinguishes expenditure on revenue account from other
expenditure. Government Budget, therefore, comprises Revenue Budget and Capital Budget. The estimates
of receipts and expenditure included in the Annual Financial Statement are for the expenditure net of refunds
and recoveries, as will be reflected in the accounts.
The significance of the Consolidated Fund, the Contingency Fund and the Public Account as well as the
distinguishing features of Revenue and Capital Budget are given briefly below.
(i) The existence of the Consolidated Fund of India (CFI) flows from Article 266 of the Constitution. All
revenues received by Government, loans raised by it, and also its receipts from recoveries of loans
granted by it form the Consolidated Fund. All expenditure of Government is incurred from the
Consolidated Fund of India and no amount can be drawn from the Consolidated Fund without
authorisation from Parliament.
(ii) Article 267 of the Constitution authorises the Contingency Fund of India which is an imprest placed at
the disposal of the President of India to facilitate Government to meet urgent unforeseen expenditure
pending authorization from Parliament. Parliamentary approval for such unforeseen expenditure is
obtained, post-facto, and an equivalent amount is drawn from the Consolidated Fund to recoup the
Contingency Fund. The corpus of the Contingency Fund as authorized by Parliament presently stands
at ` 500 crore.
(iii) Moneys held by Government in Trust as in the case of Provident Funds, Small Savings collections,
income of Government set apart for expenditure on specific objects like road development, primary
education, Reserve/Special Funds etc. are kept in the Public Account. Public Account funds do not
belong to Government and have to be finally paid back to the persons and authorities who deposited
them. Parliamentary authorisation for such payments is, therefore, not required, except where amounts
are withdrawn from the Consolidated Fund with the approval of Parliament and kept in the Public
Account for expenditure on specific objects, in which case, the actual expenditure on the specific
object is again submitted for vote of Parliament for drawal from the Public Account for incurring
expenditure on the specific object.
(iv) Revenue Budget consists of the revenue receipts of Government (tax revenues and other revenues)
and the expenditure met from these revenues. Tax revenues comprise proceeds of taxes and other
duties levied by the Union. The estimates of revenue receipts shown in the Annual Financial Statement
take into account the effect of various taxation proposals made in the Finance Bill. Other receipts of
Government mainly consist of interest and dividend on investments made by Government, fees, and
other receipts for services rendered by Government. Revenue expenditure is for the normal running
of Government departments and various services, interest payments on debt, subsidies, etc. Broadly,
the expenditure which does not result in creation of assets for Government of India is treated as
revenue expenditure. All grants given to State Governments/Union Territories and other parties are
also treated as revenue expenditure even though some of the grants may be used for creation of
assets.
(v) Capital Budget consists capital receipts and capital payments. The capital receipts are loans raised
by Government from public, called market loans, borrowings by Government from Reserve Bank and
other parties through sale of Treasury Bills, loans received from foreign Governments and bodies,
disinvestment receipts and recoveries of loans from State and Union Territory Governments and
other parties. Capital payments consist of capital expenditure on acquisition of assets like land, buildings,
machinery, equipment, as also investments in shares, etc., and loans and advances granted by Central
Government to State and Union Territory Governments, Government companies, Corporations and
other parties.11
(vi) Accounting Classification
• The estimates of receipts and disbursements in the Annual Financial Statement and of expenditure
in the Demands for Grants are shown according to the accounting classification prescribed under
Article 150 of the Constitution, which enables Parliament and the public to make a meaningful
analysis of allocation of resources and purposes of Government expenditure.
• The Annual Financial Statement shows separately, certain disbursements as charged on the
Consolidated Fund of India, where the Constitution mandates such items of expenditure, like
emoluments of the President, salaries and allowances of the Chairman and the Deputy Chairman
of the Rajya Sabha and the Speaker and the Deputy Speaker of the Lok Sabha, salaries, allowances
and pensions of Judges of the Supreme Court, Comptroller and Auditor-General of India and the
Central Vigilance Commission, interest on and repayment of loans raised by Government and
payments made to satisfy decrees of courts etc. These items of expenditure are charged on the
Consolidated Fund of India and are not required to be voted by the Lok Sabha.
3. (B) Demands for Grants
(i) Article 113 of the Constitution mandates that the estimates of expenditure from the Consolidated
Fund of India included in the Annual Financial Statement and required to be voted by the Lok Sabha
are submitted in the form of Demands for Grants. The Demands for Grants are presented to the Lok
Sabha along with the Annual Financial Statement. Generally, one Demand for Grant is presented in
respect of each Ministry or Department. However, more than one Demand may be presented for a
Ministry or Department depending on the nature of expenditure. In regard to Union Territories without
Legislature, a separate Demand is presented for each of the Union Territories. In budget 2012-13
there are 106 Demands for Grants. Each Demand first gives the totals of 'voted' and 'charged'
expenditure as also the 'revenue' and 'capital' expenditure included in the Demand separately, and
also the grand total of the amount of expenditure for which the Demand is presented. This is followed
by the estimates of expenditure under different major heads of account. The breakup of the expenditure
under each major head between 'Plan' and 'Non-Plan' is also given. The amounts of recoveries taken
in reduction of expenditure in the accounts are also shown. A summary of Demands for Grants is
given at the beginning of this document, while details of 'New Service' or 'New Instrument of Service'
such as, formation of a new company, undertaking or a new scheme, etc., if any, are indicated at the
end of the document.
(ii) Each Demand normally includes the total provisions required for a service, that is, provisions on
account of revenue expenditure, capital expenditure, grants to State and Union Territory Governments
and also loans and advances relating to the service. Where the provision for a service is entirely for
expenditure charged on the Consolidated Fund of India, for example, interest payments (Demand for
Grant No. 34), a separate Appropriation, as distinct from a Demand, is presented for that expenditure
and it is not required to be voted by Lok Sabha. Where, however, expenditure on a service includes
both 'voted' and 'charged' items of expenditure, the latter are also included in the Demand presented
for that service but the 'voted' and 'charged' provisions are shown separately in that Demand.
3. (C) Appropriation Bill
Under Article 114(3) of the Constitution, no amount can be withdrawn from the Consolidated Fund without
the enactment of such a law by Parliament. After the Demands for Grants are voted by the Lok Sabha,
Parliament's approval to the withdrawal from the Consolidated Fund of the amounts so voted and of the
amount required to meet the expenditure charged on the Consolidated Fund is sought through the Appropriation
Bill.
The whole process beginning with the presentation of the Budget and ending with discussions and voting
on the Demands for Grants requires sufficiently long time. The Lok Sabha is, therefore, empowered by the
Constitution to make any grant in advance in respect of the estimated expenditure for a part of the financial
year pending completion of procedure for the voting of the Demands. The purpose of the 'Vote on Account' is
to keep Government functioning, pending voting of 'final supply'. The Vote on Account is obtained from
Parliament through an Appropriation (Vote on Account) Bill.12
3. (D) Finance Bill
At the time of presentation of the Annual Financial Statement before Parliament, a Finance Bill is also
presented in fulfillment of the requirement of Article 110 (1)(a) of the Constitution, detailing the imposition,
abolition, remission, alteration or regulation of taxes proposed in the Budget. A Finance Bill is a Money Bill as
defined in Article 110 of the Constitution. It is accompanied by a Memorandum explaining the provisions
included in it.
3. (E) Memorandum Explaining the Provisions in the Finance Bill
To facilitate understanding of the taxation proposals contained in the Finance Bill, the provisions and their
implications are explained in the document titled Memorandum Explaining the Provisions of the Finance Bill.
3. (F) Macro-economic Framework Statement
The Macro-economic Framework Statement, presented to Parliament under Section 3(5) of the Fiscal
Responsibility and Budget Management Act, 2003 and the rules made thereunder contains an assessment of
the growth prospects of the economy with specific underlying assumptions. It contains assessment regarding
the GDP growth rate, fiscal balance of the Central Government and the external sector balance of the economy.
3. (G) Fiscal Policy Strategy Statement
The Fiscal Policy Strategy Statement, presented to Parliament under Section 3(4) of the Fiscal Responsibility
and Budget Management Act, 2003, outlines the strategic priorities of Government in the fiscal area for the
ensuing financial year relating to taxation, expenditure, lending and investments, administered pricing,
borrowings and guarantees. The Statement explains how the current policies are in conformity with sound
fiscal management principles and gives the rationale for any major deviation in key fiscal measures.
3. (H) Medium-term Fiscal Policy Statement
The Medium-term Fiscal Policy Statement, presented to Parliament under Section 3(2) of the Fiscal
Responsibility and Budget Management Act, 2003, sets out three-year rolling targets for four specific fiscal
indicators in relation to GDP at market prices namely (i) Revenue Deficit, (ii) Fiscal Deficit, (iii) Tax to GDP
ratio and (iv) Total outstanding Debt at the end of the year. The Statement includes the underlying assumptions,
an assessment of sustainability relating to balance between revenue receipts and revenue expenditure and
the use of capital receipts including market borrowings for generation of productive assets.
3.2 To facilitate a more comprehensive understanding of the major features of the Budget, certain other
explanatory documents are presented. These are briefly summarized below.
3. (I) Expenditure Budget Volume-1
(i) This document deals with revenue and capital disbursements of various Ministries/Departments and
gives the estimates in respect of each under 'Plan' and 'Non-Plan'. It also gives analysis of various
types of expenditure and broad reasons for the variations in estimates.
(ii) Under the present accounting and budgetary procedures, certain classes of receipts, like payments
made by one department to another and receipts of capital projects or schemes, are taken in reduction
of the expenditure of the receiving department. While the estimates of expenditure included in the
Demands for Grants are for the gross amounts, the estimates of expenditure included in the Annual
Financial Statement are for the net expenditure, after taking into account the recoveries. The document,
Expenditure Budget, makes certain other refinements like netting expenditure of related receipts so
that inflation of receipts and expenditure figures is avoided and there can be better appreciation of
the magnitudes of various expenditure. Contributions to International bodies and estimated strength
of establishment of various Government Departments and provision therefor are shown in separate
annexes. A statement each, showing (i) Plan grants and loans released by Ministries/Departments
directly to State and district level autonomous bodies, under various Central and Centrally Sponsored
Plan schemes, (ii) Gender Budgeting and (iii) Schemes for Development of Scheduled Castes and
Scheduled Tribes including Scheduled Caste Sub Plan (SCSP) and Tribal Sub Plan (TSP) allocations
and (iv) Schemes for welfare of children are also included in this document.13
(iii) Plan Outlay
Plan expenditure forms a sizeable proportion of the total expenditure of the Central Government. The
Demands for Grants of the various Ministries show the Plan expenditure under each head separately
from the Non-Plan expenditure. The Expenditure Budget Vol. 1 also gives the total Plan provisions for
each of the Ministries arranged under the various heads of development and highlights the budget
provisions for the more important Plan programmes and schemes. Statements showing Externally
Aided projects under State and Central Plan are also included in the document. A description of
important schemes included in the Plan along with the objectives, targets and achievements is given
in the Outcome Budget of the respective Ministry. Variations in the estimates of Plan expenditure are
also explained.
(iv) Public Sector Enterprises
A large part of the Plan expenditure incurred by the Central Government is through public sector
enterprises. Budgetary support for financing outlays of these enterprises is provided by Government
either through investment in share capital or through loans. Expenditure Budget Vol. 1 shows the
estimates of capital and loan disbursements to public sector enterprises in 2011-2012 and 2012-2013
for Plan and Non-Plan purposes and also the extra budgetary resources available for financing their
Plans. A detailed report on the working of public sector enterprises is given in the document titled
'Public Enterprises Survey' brought out separately by the Department of Public Enterprises. A report
on the working of the enterprises under the control of various administrative Ministries is also given in
the Annual Reports of the various Ministries circulated to Members of Parliament separately. The
annual reports along with the audited accounts of each of the Government companies are also
separately laid before Parliament. Besides, the reports of the Comptroller and Auditor General of
India on the working of various public sector enterprises are also laid before Parliament.
(v) Commercial Departments
Railways is the principal departmentally-run commercial undertaking of Government. The Budget of
the Ministry of Railways and the Demands for Grants relating to Railway expenditure are presented to
Parliament separately. The total receipts and expenditure of the Railways are, however, incorporated
in the Annual Financial Statement of the Government of India. To portray the actual working and not
inflate either receipts or expenditure, the expenditure as reflected in the Receipts Budget & Expenditure
Budget Vol. 1 and Vol. 2 has been taken net of receipts of the departmental commercial undertakings.
(vi) The receipts and expenditure of the Defence Demands shown in the Annual Financial Statement, are
explained in greater detail in the document Defence Services Estimates presented along with the
Detailed Demands for Grants of the Ministry of Defence.
(vii) The details of grants given to bodies other than State and Union Territory Governments are given in
the statements of Grants-in-aid paid to non-Government bodies appended to Detailed Demands for
Grants of the various Ministries. Annexure 5 to Expenditure Budget Vol.1 shows details of grants-inaid exceeding ` 5 lakhs (recurring) or ` 10 lakhs (non-recurring) to private institutions, organizations
and individuals sanctioned during the year 2010-11.
3. (J) Expenditure Budget Volume-2
The provisions made for a scheme or a programme may spread over a number of Major Heads in the
Revenue and Capital sections in a Demand for Grants. In the Expenditure Budget Vol. 2, the estimates made
for a scheme/programme are brought together and shown on a net basis at one place, by Major Heads. To
understand the objectives underlying the expenditure proposed for various schemes and programmes in the
Demands for Grants, suitable explanatory notes are included in this volume in which, wherever necessary,
brief reasons for variations between the Budget estimates and Revised estimates for the current year and
requirements for the ensuing Budget year are also given.
3. (K) Receipts Budget
Estimates of receipts included in the Annual Financial Statement are further analysed in the document
"Receipts Budget". The document provides details of tax and non-tax revenue receipts and capital receipts
and explains the estimates. The document also provides the arrears of tax revenues and non-tax revenues, as14
mandated under the Fiscal Responsibility and Budget Management Rules, 2004. Trend of receipts and
expenditure along with deficit indicators, statement pertaining to National Small Savings Fund (NSSF), statement
of revenues foregone, statement of liabilities, statement of guarantees given by the government, statements of
assets and details of external assistance are also included in Receipts Budget.
3. (L) Budget at a Glance
(i) This document shows in brief, receipts and disbursements along with broad details of tax revenues
and other receipts. This document also exhibits broad break-up of expenditure - Plan and Non-Plan,
allocation of Plan outlays by sectors as well as by Ministries/Departments and details of resources
transferred by the Central Government to State and Union Territory Governments. This document
also shows the revenue deficit, the gross primary deficit and the gross fiscal deficit of the Central
Government. The excess of Government's revenue expenditure over revenue receipts constitutes
revenue deficit of Government. The difference between the total expenditure of Government by way
of revenue, capital and loans net of repayments on the one hand and revenue receipts of Government
and capital receipts which are not in the nature of borrowing but which finally accrue to Government
on the other, constitutes gross fiscal deficit. Gross primary deficit is measured by gross fiscal deficit
reduced by gross interest payments. In the Budget documents 'gross fiscal deficit' and 'gross primary
deficit' have been referred to in abbreviated form 'fiscal deficit' and 'primary deficit', respectively. This
document also shows liabilities of the Government on account of securities (bonds) issued in lieu of
oil and fertilizer subsidies.
(ii) The document also includes a statement indicating the quantum and nature (share in Central Taxes,
grants/loan) of the total Resources transferred to States and Union Territory Governments. Details of
these transfers by way of share of taxes, grants-in-aid and loans are given in Expenditure Budget
Volume 1. Bulk of grants and loans are disbursed by the Ministry of Finance and are included in the
Demand 'Transfers to State and Union Territory Governments'. The grants and loans released to
States and Union Territories by other Ministries/Departments are provided for in their respective
Demands.
3. (M) Highlights of Budget
This document explains the key features of the Budget 2012-2013, inter alia, indicating the prominent
achievements in various sectors of the economy. It also explains, in brief, the budget proposals for allocation
of funds to be made in important areas. The summary of tax proposals is also reflected in the document.
3. (N) Detailed Demands for Grants
The Detailed Demands for Grants are laid on the table of the Lok Sabha sometime after the presentation
of the Budget, but before the discussion on Demands for Grants commences. Detailed Demands for Grants
further elaborate the provisions included in the Demands for Grants as also actual expenditure during the
previous year. A break-up of the estimates relating to each programme/organisation, wherever the amount
involved is not less than `10 lakhs, is given under a number of object heads which indicate the categories and
nature of expenditure incurred on that programme, like salaries, wages, travel expenses, machinery and
equipment, grants-in-aid, etc. At the end of these Detailed Demands are shown the details of recoveries taken
in reduction of expenditure in the accounts.
3. (O) Outcome Budget
(i) With effect from Financial Year 2007-08, the Performance Budget and the Outcome Budget hitherto
presented to Parliament separately by Ministries/Departments, are merged and presented as a single
document titled "Outcome Budget" by each Ministry/Department in respect of all Demands/
Appropriations controlled by them, except those exempted from this requirement. Outcome Budget
broadly indicates physical dimensions of the financial budget of a Ministry/Department, indicating
actual physical performance in the preceding year (2010-2011), performance in the first nine months
(up to December) of the current year (2011-2012) and the targeted performance during the ensuing
year (2012-2013).
(ii) Outcome Budget contains a brief introductory note on the organization and function of the Ministry/
Department, list of major programmes/schemes implemented by the Ministry/Department, its mandate,
goal and policy framework, budget estimates, scheme-wise analysis of physical performance and15
linkage between financial outlays and outcome, review covering overall trends in expenditure vis-avis budget estimates in recent years, review of performance of statutory and autonomous bodies
under the administrative control of the Ministry/Department, reform measures, targets and achievements
and plan for future refinements.
(iii) As far as feasible, coverage of women and SC/ST beneficiaries under various developmental schemes
and schemes for the benefit of North Eastern Region are also separately indicated.
3. (P) Annual Reports
A descriptive account of the activities of each Ministry/Department during the year 2011-2012 is given in
the document Annual Report which is brought out separately by each Ministry/Department and circulated to
Members of Parliament at the time of discussion on the Demands for Grants.
3. (Q) Economic Survey
The Economic Survey brings out the economic trends in the country which facilitates a better appreciation
of the mobilisation of resources and their allocation in the Budget. The Survey analyses the trends in agricultural
and industrial production, infrastructure, employment, money supply, prices, imports, exports, foreign exchange
reserves and other relevant economic factors which have a bearing on the Budget, and is presented to the
Parliament ahead of the Budget for the ensuing year.
The Budget of the Central Government is not merely a statement of receipts and expenditure. Since
Independence, with the launching of Five Year Plans, it has also become a significant statement of government
policy. The Budget reflects and shapes, and is, in turn, shaped by the country's economy. For a better
appreciation of the impact of government receipts and expenditure on the other sectors of the economy, it is
necessary to group them in terms of economic magnitudes, for example, how much is set aside for capital
formation, how much is spent directly by the Government and how much is transferred by Government to
other sectors of the economy by way of grants, loans, etc. This analysis is contained in the Economic and
Functional Classification of the Central Government Budget which is brought out by the Ministry of Finance
separately.
Budget 2012-2013
Speech of
Pranab Mukherjee
Minister of Finance
March 16, 2012
Madam Speaker,
I rise to present the Union Budget for 2012-13.
For the Indian economy, this was a year of recovery interrupted. When one year ago, I rose to present the Budget, the challenges were many, but there was a sense that the world economy was on the mend. The Budget was presented in the first glimmer of hope. But reality turned out to be different. The sovereign debt crisis in the Euro zone intensified, political turmoil in Middle East injected widespread uncertainty, crude oil prices rose, an earthquake struck Japan and the overall gloom refused to lift.
2. While I believe that there should be no room for complacency, nor any excuse for what happens in one's own country, we will be misled if we ignore the ground realities of the world. The global crisis has affected us. India's Gross Domestic Product (GDP) is estimated to grow by 6.9 per cent in 2011-12, after having grown at the rate of 8.4 per cent in each of the two preceding years. Though we have been able to limit the adverse impact of this slowdown on our economy, this year's performance has been disappointing. But it is also a fact that in any cross-country comparison, India still remains among the front runners in economic growth.
3. For the better part of the past two years, we had to battle near double-digit headline inflation. Our monetary and fiscal policy response during this period was geared towards taming domestic inflationary pressures. A tight monetary policy impacted investment and consumption growth. The fiscal policy had to absorb expanded outlays on subsidies and duty reductions to limit the pass-through of higher fuel prices to consumers. As a result growth moderated and the fiscal balance deteriorated.
4. But there is good news in the detail. With agriculture and services continuing to perform well, India's slowdown can be attributed almost entirely to weak industrial growth. While we do not have aggregate figures for the last quarter of 2011-12, numerous indicators pertaining to this period suggest that the economy is now turning around. There are signs of recovery in coal, fertilisers, cement and electricity sectors. These are core sectors that have an impact on the entire economy. Indian manufacturing appears to be on the cusp of a revival.
5. We are now at a juncture when it is necessary to take hard decisions. We have to improve our macroeconomic environment and strengthen domestic growth drivers to sustain high growth in the medium term. We have to accelerate the pace of reforms and improve supply side management of the economy.
6. We are about to enter the first year of the Twelfth Five Year Plan which aims at "faster, sustainable and more inclusive growth." The Plan will be launched with the Budget proposals for 2012-13. In keeping with the stated priorities, I have identified five objectives that we must address effectively in the ensuing fiscal year. These are:
• 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, particularly in coal, power, national highways, railways and civil aviation;
• Intervene decisively to address the problem of malnutrition especially in the 200 high-burden districts; and
• Expedite coordinated implementation of decisions being taken to improve delivery systems, governance, and transparency; and address the problem of black money and corruption in public life.
7. Today, India has global responsibilities of a kind that it did not have earlier. Our presence at the high table of global economic policy makers is a matter of some satisfaction. It, however, places new responsibilities on our shoulders. If India can continue to build on its economic strength, it can be a source of stability for the world economy and provide a safe destination for restless global capital.
8. I know that mere words are not enough. What we need is a credible roadmap backed by a set of implementable proposals to meet those objectives. In my attempt to do so, I have benefited from the able guidance of Hon'ble Prime Minister, Dr. Manmohan Singh, and strong support of the UPA Chairperson Smt. Sonia Gandhi.
I would now begin with a brief overview of the economy.
Overview of the Economy
9. Yesterday, I laid on the table of the House the Economic Survey
2011-12, which gives a detailed analysis of the economy over the past 12 months. India's GDP is estimated to grow at 6.9 per cent in real terms in 2011-12. The growth is estimated to be 2.5 per cent in agriculture, 3.9 per cent in industry and 9.4 per cent in services. There is a significant slowdown in comparison to the preceding two years, primarily due to deceleration in industrial growth, more specifically in private investment. Rising cost of credit and weak domestic business sentiment, added to this decline.
2011-12, which gives a detailed analysis of the economy over the past 12 months. India's GDP is estimated to grow at 6.9 per cent in real terms in 2011-12. The growth is estimated to be 2.5 per cent in agriculture, 3.9 per cent in industry and 9.4 per cent in services. There is a significant slowdown in comparison to the preceding two years, primarily due to deceleration in industrial growth, more specifically in private investment. Rising cost of credit and weak domestic business sentiment, added to this decline.
10. The headline inflation remained high for most part of the year. It was only in December 2011 that it moderated to 8.3 per cent followed by 6.6 per cent in January 2012. Monthly food inflation declined from 20.2 per cent in February 2010, to 9.4 per cent in March 2011 and turned negative in January 2012. Though the February 2012 inflation figure has gone up marginally, I expect the headline inflation to moderate further in the next few months and remain stable thereafter.
11. India's inflation is largely structural, driven predominantly by agricultural supply constraints and global cost push. Evidence suggests that prolonged periods of high food inflation tend to get generalised. Fortunately, steps taken to bridge gaps in distribution, storage and marketing systems to strengthen food supply chains have helped us in a more effective management of inflation and led to a decline in food inflation.
12. The developments in India's external trade in the first half of the current year were encouraging. During April-January 2011-12, exports grew by 23 per cent to reach US Dollar 243 billion, while imports at US Dollar 391 billion recorded a growth of over 29 per cent. What is heartening is that India has successfully achieved diversification of export and import markets. The share of Asia, including ASEAN, in total trade increased from 33.3 per cent in
2000-2001 to 57.3 per cent in the first half of 2011-12. This has helped us weather the impact of global crisis emanating from Europe and to a lesser extent from USA.
2000-2001 to 57.3 per cent in the first half of 2011-12. This has helped us weather the impact of global crisis emanating from Europe and to a lesser extent from USA.
13. The current account deficit as a proportion of GDP for 2011-12 is likely to be around 3.6 per cent. This, along with reduced net capital inflows in the second and third quarters, put pressure on the exchange rate.
14. Taking a bird's eye view of the entire economy and keeping in mind the difficult global environment, I expect India's GDP growth in 2012-13 to be 7.6 per cent, +/- 0.25 per cent.
15. I expect average inflation to be lower next year. I also expect the current account deficit to be smaller, aided by improvement in domestic financial savings.
II. Growth
I now turn to growth and fiscal consolidation.
16. Our fiscal balance has deteriorated in 2011-12 due to slippage in direct tax revenue and increased subsidies. On both counts our underlying assumptions at the time of Budget presentation last year were belied by subsequent developments. The profit margins came under pressure due to higher interest rates and material costs. This impacted growth in corporate taxes. Further, as against an assumption of US Dollar 90 a barrel, the average price of crude oil in 2011-12 is likely to exceed US Dollar 115. This has necessitated higher outlay on subsidies than projected. The continuing uncertainty in the global environment makes it necessary for us to strike a balance between fiscal consolidation and strengthening macroeconomic fundamentals to create adequate headroom to deal with future shocks.
Fiscal Consolidation
FRBM Act
17. The implementation of the Fiscal Responsibility and Budget Management Act, 2003 (FRBM Act) at Centre and the corresponding Acts at State level was the pivot in the successful consolidation of our fiscal balance prior to the global financial crisis of 2008. The outbreak of the crisis coincided with the year when the mandated targets of 3 per cent fiscal deficit and elimination of revenue deficit were to be achieved. The Government had to deviate from these targets due to injection of fiscal stimulus at that time. Following my announcement in the last Budget Speech, I am now introducing amendments to the FRBM Act as part of Finance Bill, 2012.
Expenditure Reforms
18. The fiscal targets for Centre under the amendments to the FRBM Act are indicated in the Budget documents. Meanwhile, I would like to highlight two of its features that are steps in the direction of expenditure reforms. First, the concept of Effective Revenue Deficit, introduced in the last Budget, to address the structural imbalances in the revenue account, is being brought in as a fiscal parameter. Effective Revenue Deficit is the difference between revenue deficit and grants for creation of capital assets. Focusing on this will help in reducing the consumptive component of revenue deficit and create space for increased capital spending.
19. Second, a provision for "Medium-term Expenditure Framework Statement" is being introduced in the Act. This statement shall set forth a three-year rolling target for expenditure indicators. It would help in undertaking a de-novo exercise for allocating resources for prioritised schemes and weeding out others that have outlived their utility. This would provide greater certainty in multi-year budgeting framework. It would also encourage efficiencies in expenditure management.
20. In implementing the Twelfth Plan, the recommendations made by the Expert Committees to streamline and reduce the number of Centrally Sponsored Schemes and to address Plan and non-Plan classification, would be kept in view. The Central Plan Scheme Monitoring System would be expanded to facilitate better tracking and utilisation of funds released by the Central Government.
Subsidies
21. Fiscal consolidation calls for efforts both to raise the tax-GDP ratio and to lower the expenditure. In this context, we need to take a close look at the growth of our revenue expenditure, particularly on subsidies. The major subsidies at the Centre are for food, fertilisers and petroleum products. Some subsidies at this juncture in our development are inevitable. But they become undesirable if they compromise the macroeconomic fundamentals of the economy, more so, when they don't reach the intended beneficiaries.
22. The Government has decided that from 2012-13 subsidies related to food and for administering the Food Security Act will be fully provided for. All other subsidies would be funded to the extent that they can be borne by the economy without any adverse implications. It would be my endeavour to restrict the expenditure on Central subsidies to under 2 per cent of GDP in 2012-13. Over the next three years, it would be further brought down to 1.75 per cent of GDP. Such a step is needed to improve the quality of public spending. Our effort now will be directed towards better targeting and leakage proof delivery of the subsidies.
23. The recommendations of the task force headed by Shri Nandan Nilekani on IT strategy for direct transfer of subsidy have been accepted. Based on these recommendations, a mobile- based Fertiliser Management System (mFMS) has been designed to provide end-to-end information on the movement of fertilisers and subsidies, from the manufacturer to the retail level. This will be rolled out nation-wide during 2012. Direct transfer of subsidy to the retailer, and eventually to the farmer will be implemented in subsequent phases. This step will benefit 12 crore farmer families, while reducing expenditure on subsidies by curtailing misuse of fertilisers.
24. All the three public sector Oil Marketing Companies have launched LPG transparency portals to improve customer service and reduce leakage. A pilot project for selling LPG at market price and reimbursement of subsidy directly into the beneficiary's bank account is being conducted in Mysore. A similar pilot project on direct transfer of subsidy for kerosene into the bank accounts of beneficiaries has been initiated in Alwar district of Rajasthan. The Aadhaar platform has also been successfully used to validate PDS ration cards in Jharkhand.
25. These pilot projects show that substantial economies in subsidy outgo can be achieved by the use of Aadhaar platform. It will be our endeavour to scale up and roll out these Aadhaar enabled payments for various government schemes in at least 50 selected districts within the next six months.
Tax Reforms
26. As Hon'ble Members are aware, the Direct Taxes Code (DTC) Bill was introduced in Parliament in August 2010. It was our earnest desire to give effect to DTC from April 1, 2012. However, we received the Report of the Parliamentary Standing Committee on March 9, 2012. We will examine the report expeditiously and take steps for the enactment of DTC at the earliest.
27. Similarly, the Constitution Amendment Bill, a preparatory step in the implementation of Goods and Services Tax (GST) was introduced in Parliament in March 2011 and is before the Parliamentary Standing Committee. As we await recommendations of the Committee, drafting of model legislation for Centre and State GST in concert with States is under progress.
28. The structure of GST Network (GSTN) has been approved by the Empowered Committee of State Finance Ministers. GSTN will be set up as a National Information Utility and will become operational by August 2012. The GSTN will implement common PAN-based registration, returns filing and payments processing for all States on a shared platform. The use of PAN as a common identifier in both direct and indirect taxes, will enhance transparency and check tax evasion. I solicit the support of all my colleagues cutting across party lines for an early passage of these landmark legislations.
Disinvestment Policy
29. The Government has further evolved its approach to divestment of Central Public Sector Enterprises (CPSEs). The CPSEs are being given a level playing field vis-a-vis the private sector with regard to practices like buy-backs and listing at stock exchange. The treasury management options for CPSEs have also been enhanced. This will help improve the returns on public assets, support transparent environment for the divestment process, besides unlocking the value and resources for all stakeholders.
30. In 2011-12, as against a target of ` 40,000 crore, the Government will raise about ` 14,000 crore from disinvestment. For 2012-13, I propose to raise
` 30,000 crore through disinvestment. Let me reiterate here that while we are committed to enhancing people's ownership of CPSEs, at least 51 per cent ownership and management control will remain with the Government.
` 30,000 crore through disinvestment. Let me reiterate here that while we are committed to enhancing people's ownership of CPSEs, at least 51 per cent ownership and management control will remain with the Government.
Strengthening Investment Environment
31. The domestic investment environment has suffered on multiple counts in the past year. It is time to fast track policy decisions and ensure on-time implementation of major projects.
Foreign Direct Investment
32. Organised retail helps in reducing cost of intermediation due to economies of scale, benefiting both consumers and producers. At present, FDI in single brand and in cash and carry wholesale trade is permitted to the extent of 100 per cent. The decision in respect of allowing FDI in multi-brand retail trade up to 51 per cent, subject to compliance with specified conditions, has been held in abeyance. Efforts are on to arrive at a broad based consensus in consultation with the State Governments.
Advance Pricing Agreement
33. In a globalised economy with expanding cross-border production chains and growing trade within entities of the same group, Advance Pricing Agreement (APA) can significantly bring down tax litigation and provide tax certainty to foreign investors. Though, the provision for APA has been included in the DTC Bill, 2010, I propose to bring forward its implementation by introducing it in the Finance Bill, 2012.
Financial Sector
34. Reforms in the financial sector have been pursued with the objective of more efficient market intermediation between savers and investors.
35. To encourage flow of savings in financial instruments and improve the depth of domestic capital market, it is proposed to introduce a new scheme called Rajiv Gandhi Equity Savings 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. The scheme will have a lock-in period of 3 years. The details will be announced in due course.
Capital Markets
36. During the year 2011-12, we took a series of steps to deepen the capital market and encourage investment in infrastructure sector. These steps included raising of FII investment limit in long-term infrastructure bonds, corporate bonds and government securities. The limit on External Commercial Borrowings (ECB) was also raised and qualified foreign investors were allowed to invest in specified Indian mutual funds and directly in equities.
37. I now propose to take the next steps in deepening the reforms in Capital market by:
• Allowing Qualified Foreign Investors (QFIs) to access Indian Corporate Bond market;
• Simplifying the process of issuing Initial Public Offers (IPOs), lowering their costs and helping companies reach more retail investors in small towns. To achieve this, in addition to the existing IPO process, I propose to make it mandatory for companies to issue IPOs of ` 10 crore and above in electronic form through nationwide broker network of stock exchanges;
• Providing opportunities for wider shareholder participation in important decisions of the companies through electronic voting facilities, besides existing process for shareholder voting, which would be made mandatory initially for top listed companies; and
• Permitting two-way fungibility in Indian Depository Receipts subject to a ceiling with the objective of encouraging greater foreign participation in Indian capital market.
Legislative Reforms
38. We have received the recommendations of the Standing Committee on Finance on "The Pension Fund Regulatory and Development Authority Bill, 2011", "The Banking Laws (Amendment) Bill, 2011" and "The Insurance Laws (Amendment) Bill, 2008". The official amendments to these Bills will be moved in this session of the Parliament.
39. To take forward the process of financial sector legislative reforms, the Government proposes to move the following Bills in the Budget Session of the Parliament:
• The Micro Finance Institutions (Development and Regulation) Bill, 2012;
• The National Housing Bank (Amendment) Bill, 2012;
• The Small Industries Development Bank of India (Amendment) Bill, 2012;
• National Bank for Agriculture and Rural Development (Amendment) Bill, 2012;
• Regional Rural Banks (Amendment) Bill, 2012;
• Indian Stamp (Amendment) Bill, 2012; and
• Public Debt Management Agency of India Bill, 2012.
40. The Enforcement of Security Interest and Recovery of Debts Laws (Amendment) Bill, 2011 has already been introduced in Parliament.
Capitalisation of Banks and Financial Holding Company
41. The Government is committed to protect the financial health of Public Sector Banks and financial institutions. For the year 2012-13, I propose to provide ` 15,888 crore for capitalisation of Public Sector Banks, Regional Rural Banks and other financial institutions including NABARD. The Government is also examining the possibility of creating a financial holding company which will raise resources to meet the capital requirements of Public Sector Banks.
42. To bring banking payment structure at par with global standards, a comprehensive action plan has been prepared for implementation in 2012-13. A central Know Your Customer (KYC) depository will be developed in 2012-13 to avoid multiplicity of registration and data upkeep.
Priority Sector Lending
43. A committee set up by RBI to re-examine the existing classification and suggest revised guidelines on priority sector lending has submitted its report. After stakeholder consultation, revised guidelines will be issued.
Financial Inclusion
44. In 2010-11, "Swabhimaan" campaign was launched to extend banking facilities through Business Correspondents to habitations having population in excess of 2000. I am happy to announce that out of 73,000 identified habitations that were to be covered by March, 2012, about 70,000 habitations have been provided with banking facilities. With this, over 2.55 crore beneficiary accounts would have been operationalised. The remaining habitations are likely to be covered by March 31, 2012. As a next step, Ultra Small Branches are being set up at these habitations, where the Business Correspondents would deal with cash transactions.
45. In 2012-13, I propose to extend the "Swabhimaan" campaign to habitations with population of more than 1000 in North Eastern and hilly States and to other habitations which have crossed population of 2,000 as per Census 2011.
Regional Rural Banks
46. Regional Rural Banks (RRBs) have played a crucial role in meeting the credit needs of rural areas. I am happy to inform that of the 82 RRBs in India, 81 have successfully migrated to Core Banking Solutions (CBS) and have also joined the National Electronic Fund Transfer system.
47. The Government had initiated the process of capitalisation of 40 financially weak RRBs, which has been completed in respect of 12 RRBs by the end of February, 2012. I propose to extend the scheme of capitalisation of weak RRBs by another 2 years to enable all the States to contribute their share.
III. Infrastructure and Industrial Development
Let me now turn to infrastructure and industrial development.
48. Lack of adequate infrastructure is a major constraint on our growth. The strategy we have followed so far is to increase investment in infrastructure through a combination of public investment and public private partnerships (PPP). During the Twelfth Plan period, infrastructure investment will go up to ` 50 lakh crore. About half of this is expected to come from private sector.
49. Viability Gap Funding (VGF) under the Scheme for Support to PPP in infrastructure is an important instrument in attracting private investment into the sector. This year it has been decided to make irrigation (including dams, channels and embankments), terminal markets, common infrastructure in agriculture markets, soil testing laboratories and capital investment in fertiliser sector eligible for VGF under this scheme. Oil and Gas/LNG storage facilities and oil and gas pipelines, fixed network for telecommunication and telecommunication towers will also be made eligible sectors for VGF.
50. The Government has approved guidelines for establishing joint venture companies by defence Public Sector Undertakings in PPP mode. This will serve the dual purpose of achieving substantive self-reliance in the defence sector and production of state-of-the-art defence goods.
51. I had announced the setting up of Infrastructure Debt Funds to tap the overseas markets for long tenor pension and insurance funds. I am happy to inform the House that the first Infrastructure Debt Fund with an initial size of `8000 crore, has been launched earlier this month.
52. For the year 2011-12, tax-free bonds for ` 30,000 crore were announced for financing infrastructure projects. I propose to double it to raise `60,000 crore in 2012-13. This includes `10,000 crore for NHAI, `10,000 crore for IRFC, `10,000 crore for IIFCL, `5,000 crore for HUDCO, `5,000 crore for National Housing Bank, `5,000 crore for SIDBI, `5,000 crore for ports and `10,000 crore for power sector.
53. A harmonised master list of infrastructure sector has been approved by the Government. This will help in removing ambiguity in the policy and regulatory domain and encourage investment in the infrastructure sector.
54. To ease access of credit to infrastructure projects, India Infrastructure Finance Company Limited (IIFCL) has put in place a structure for credit enhancement and take-out finance. A consortium for direct lending and grant of in-principle approval to developers before the submission of bids for PPP projects has also been created.
National Manufacturing Policy
55. The Government has announced a National Manufacturing Policy on October 25, 2011 with the objective of raising, within a decade, the share of manufacturing in GDP to 25 per cent and creation of 10 crore jobs. The Policy encourages the setting-up of National Investment and Manufacturing Zones (NIMZs) across the country.
56. I will now address some issues that have impacted infrastructure and industrial activity in the past months.
Power and Coal
57. In power generation, fuel supply constraints are affecting production prospects. To address this concern, Coal India Limited (CIL) has been advised to sign fuel supply agreements, with power plants that have entered into long-term Power Purchase Agreements with DISCOMs and would get commissioned on or before March 31, 2015. An inter-ministerial group is being constituted to undertake periodic review of the allocated coal mines and make recommendations on de-allocations, if so required.
58. I propose to allow External Commercial Borrowings (ECB) to part finance Rupee debt of existing power projects.
Transport: Roads and Civil Aviation
59. The Ministry of Road Transport and Highways is set to achieve its target of awarding projects covering a length of 7,300 km under NHDP during 2011-12. This would be 44 per cent higher than the best ever length of 5,082 km awarded in 2010-11. Of the 44 projects awarded during 2011-12, 24 projects have fetched a premium. I propose to set a target of covering a length of 8,800 kms under NHDP next year. The allocation of the Ministry has been enhanced by 14 per cent to ` 25,360 crore in 2012-13.
60. To encourage public private partnerships in road construction projects, I propose to allow ECB for capital expenditure on the maintenance and operations of toll systems for roads and highways so long as they are a part of the original project.
61. The airline industry is facing financial crisis. The high operating cost of the sector is largely attributable to the cost of Aviation Turbine Fuel (ATF). To reduce the cost of ATF, Government has permitted direct import of ATF by Indian Carriers, as actual users.
62. To address the immediate financing concerns of the Civil Aviation sector, I propose to permit ECB for working capital requirements of the airline industry for a period of one year, subject to a total ceiling of US Dollar 1 billion.
63. A proposal to allow foreign airlines to participate up to 49 per cent in the equity of an air transport undertaking engaged in operation of scheduled and non-scheduled air transport services is under active consideration of the Government.
Delhi Mumbai Industrial Corridor
64. The Delhi Mumbai Industrial Corridor (DMIC) is being developed on either side along the alignment of the Western Dedicated Rail Freight Corridor. The project has made significant progress. In September 2011, Central assistance of `18,500 crore spread over a period of 5 years has been approved. The Japanese Prime Minister has announced US$ 4.5 billion as Japanese participation in DMIC project.
Housing sector
65. In view of the shortage of housing for low income groups in major cities and towns, I propose to:
• Allow ECB for low cost affordable housing projects;
• Set up Credit Guarantee Trust Fund to ensure better flow of institutional credit for housing loans;
• Enhance provisions under Rural Housing Fund from ` 3000 crore to ` 4000 crore;
• Extend the scheme of interest subvention of 1 per cent on housing loan up to `15 lakh where the cost of the house does not exceed `25 lakh for another year; and
• Enhance the limit of indirect finance under priority sector from
` 5 lakh to ` 10 lakh.
` 5 lakh to ` 10 lakh.
Fertilisers
66. To reduce India's import dependence in urea, Government has taken steps to finalise pricing and investment policies for urea. It is expected that with the implementation of the investment policy, country will become self sufficient in manufacturing urea in the next five years. In case of the potassic-phosphatic (P&K) fertiliser, use of single super phosphate (SSP) will be encouraged through greater extension work. This fertiliser is manufactured entirely in the domestic sector. Enhanced production would bring down our dependence on imports in the P&K sector.
Textiles
67. The Government has recently announced a financial package of ` 3,884 crore for waiver of loans of handloom weavers and their cooperative societies.
68. In addition to 4 mega handloom clusters already operationalised, I am now happy to announce two more mega clusters, one to cover Prakasam and Guntur districts in Andhra Pradesh and the other for Godda and neighbouring districts in Jharkhand. I also propose to provide assistance in setting up of dormitories for women workers in the 5 mega clusters relating to handloom, power loom and leather sectors.
69. The Ministry of Textiles runs Weavers' Service Centres in different parts of the country for providing technical support to poor handloom weavers. I propose to set up three such Centres, one each in Mizoram, Nagaland and Jharkhand. I am also happy to announce ` 500 crore pilot scheme in the Twelfth Plan for promotion and application of Geo-textiles in the North East Region.
70. To address the need of the local artisans and weavers, I propose to set up a powerloom mega cluster in Ichalkaranji in Maharashtra with a Budget allocation of ` 70 crore.
Micro, Small and Medium Enterprises
71. In order to enhance availability of equity to MSME sector, I propose to set up a ` 5,000 crore India Opportunities Venture Fund with SIDBI.
72. The Small and Medium Enterprises (SMEs) are the building blocks of our economy. They rely primarily on loans from banks and informal sources to raise capital. To enable these enterprises greater access to finance, two SME exchanges have been launched in Mumbai recently.
Public Procurement Policy for Micro and Small Enterprises
73. With the objective of promoting market access of Micro and Small Enterprises, Government has approved a policy which requires Ministries and CPSEs to make a minimum of 20 per cent of their annual purchases from MSEs. Of this, 4 per cent will be earmarked for procurement from MSEs owned by SC/ST entrepreneurs.
IV. Agriculture
I now take up agriculture.
74. Agriculture will continue to be a priority for the Government. The total plan outlay for the Department of Agriculture and Cooperation is being increased by 18 per cent from ` 17,123 crore in 2011-12 to ` 20,208 crore in 2012-13.
75. The outlay for Rashtriya Krishi Vikas Yojana (RKVY) is being increased from `7,860 crore in 2011-12 to ` 9,217 crore in 2012-13. I am happy to inform the House that the initiative of Bringing Green Revolution to Eastern India (BGREI) has resulted in a significant increase in production and productivity of paddy. States in eastern India have reported additional paddy production of seven million tonnes in Kharif 2011. I propose to increase the allocation for this scheme from `400 crore in 2011-12 to `1000 crore in 2012-13.
76. This year, under RKVY, I also propose to allocate `300 crore to Vidarbha Intensified Irrigation Development Programme. This Scheme seeks to bring in more farming areas under protective irrigation.
77. The Government intends to merge the remaining activities into a set of missions to address the needs of agricultural development in the Twelfth Five Year Plan. These Missions are:
(i) National Food Security Mission which aims to bridge the yield gap in respect of paddy, wheat, pulses, millet and fodder. The ongoing Integrated Development of Pulses Villages, Promotion of Nutri-cereals and Accelerated Fodder Development Programme would now become a part of this Mission;
(ii) National Mission on Sustainable Agriculture including Micro Irrigation is being taken up as a part of the National Action Plan on Climate Change. The Rainfed Area Development Programme will be merged with this;
(iii) National Mission on Oilseeds and Oil Palm aims to increase production and productivity of oil seeds and oil palm;
(iv) National Mission on Agricultural Extension and Technology focuses on adoption of appropriate technologies by farmers for improving productivity and efficiency in farm operations; and
(v) National Horticulture Mission aims at horticulture diversification. This will also include the initiative on saffron.
National Mission for Protein Supplement
78. Mission for Protein Supplement is being strengthened. To improve productivity in the dairy sector, a `2,242 crore project is being launched with World Bank assistance. To broaden the scope of production of fish to coastal aquaculture, apart from fresh water aquaculture, the outlay in 2012-13 is being stepped up to `500 crore. Suitable allocations are also being made for poultry, piggery and goat rearing.
Agriculture Credit
79. Farmers need timely access to affordable credit. I propose to raise the target for agricultural credit in 2012-13 to `5,75,000 crore. This represents an increase of ` 1,00,000 crore over the target for the current year.
80. The interest subvention scheme for providing short term crop loans to farmers at 7 per cent interest per annum will be continued in 2012-13. An additional subvention of 3 per cent will be available to prompt paying farmers. In addition, the same interest subvention on post harvest loans up to six months against negotiable warehouse receipt will also be available. This will encourage the farmers to keep their produce in warehouses.
81. A Short term RRB Credit Refinance Fund is being set-up to enhance the capacity of Regional Rural Banks to disburse short term crop loans to the small and marginal farmers. I propose to allocate ` 10,000 crore to NABARD for refinancing the RRBs through this fund.
82. Kisan Credit Card (KCC) is an effective instrument for making agricultural credit available to the farmers. KCC scheme will be modified to make KCC a smart card which could be used at ATMs.
Agricultural Research
83. Food security and agricultural development in the coming decades would depend upon scientific and technological breakthroughs in raising productivity. We have to develop plant and seed varieties that yield more and can resist climate change. I propose to set aside a sum of ` 200 crore for incentivising research with rewards, both for institutions and the research team responsible for such scientific breakthroughs.
Irrigation
84. Unless we recognise water as a resource, the day is not far when water stress will start threatening our agricultural production. Focus on micro irrigation schemes to dovetail these with water harvesting schemes is necessary. To maximise the flow of benefits from investments in irrigation projects, structural changes in Accelerated Irrigation Benefit Programme (AIBP) are being made. The allocation for AIBP in 2012-13 is being stepped up by 13 per cent to `14,242 crore.
85. To mobilise large resources to fund irrigation projects, a Government owned Irrigation and Water Resource Finance Company is being operationalised. The Company would start its operations in 2012-13 by focusing on financing sub-sectors like micro-irrigation, contract farming, waste water management and sanitation.
86. A flood management project for Kandi sub-division of Murshidabad District has been approved by the Ganga Flood Control Commission at a cost of ` 439 crore, to be taken up for funding under the Flood Management Programme.
National Mission on Food Processing
87. The food processing sector has been growing at an average rate of over 8 per cent over the past 5 years. In order to have a better outreach and to provide more flexibility to suit local needs, it has been decided that a new centrally sponsored scheme titled "National Mission on Food Processing" would be started, in cooperation with the State Governments in 2012-13.
88. The Government has taken steps to create additional foodgrain storage capacity in the country. Creation of 2 million tonnes of storage capacity in the form of modern silos has already been approved. Nearly 15 million tonnes capacity is being created under the Private Entrepreneur's Guarantee Scheme, of which 3 million tonnes of storage capacity will be added by the end of 2011-12 and 5 million would be added next year.
V. Inclusion
Let me now take up proposals for inclusive development.
Scheduled Castes and Tribal Sub Plans
89. From the year 2011-12, allocations are being made for Scheduled Castes Sub Plan (SCSP) and Tribal Sub Plan (TSP) under separate minor heads as part of the Plan allocations. In 2012-13, the allocation for SCSP is `37,113 crore which represents an increase of 18 per cent over 2011-12. The allocation for TSP in 2012-13 is `21,710 crore representing an increase of 17.6 per cent over 2011-12.
Food Security
90. Our Government has taken definite steps to create food security at the household level by making food a legal entitlement for all targeted people, especially for the poor and vulnerable segments of our population. The National Food Security Bill, 2011 is before the Parliamentary Standing Committee.
91. To ensure that the objectives of the National Food Security Bill are effectively realised, a Public Distribution System Network is being created using the Aadhaar platform. A National Information Utility for the computerisation of PDS is being created. It will become operational by December 2012.
Multi-sectoral Nutrition Augmentation Programme
92. Following the decision taken in the Prime Minister's National Council on India's Nutritional Challenges, a multi-sectoral programme to address maternal and child malnutrition in selected 200 high burden districts is being rolled out during 2012-13. It will harness synergies across nutrition, sanitation, drinking water, primary health care, women education, food security and consumer protection schemes.
93. In this context, Integrated Child Development Services (ICDS) scheme is being strengthened and re-structured. For 2012-13, an allocation of `15,850 crore has been made as against `10,000 crore in 2011-12. This amounts to an increase of over 58 per cent.
94. National Programme of Mid Day Meals in Schools has enhanced enrolment, retention, attendance, and also helped in improving nutrition levels among children. In 2012-13, I propose to allocate `11,937 crore for this scheme as against `10,380 crore in 2011-12.
95. Rajiv Gandhi Scheme for Empowerment of Adolescent Girls, SABLA, has been introduced last year with a view to address the nutritional needs and other educational and skill development initiatives for self development of adolescent girls in the age group of 11 to 18 years. For 2012-13, an allocation of `750 crore has been proposed for the scheme.
Rural Development and Panchayati Raj
96. Along with water quality, poor sanitation is one of the factors contributing to malnourishment. Hon'ble Members will be happy to know that I propose to increase the budgetary allocation for rural drinking water and sanitation from `11,000 crore in 2011-12 to `14,000 crore in 2012-13. This is an increase of over 27 per cent.
97. Pradhan Mantri Gram Sadak Yojana (PMGSY) has been a successful programme. In 2012-13, I propose to raise the allocation by 20 per cent to this scheme by providing `24,000 crore. It will accelerate connectivity in the States.
98. A major initiative has been proposed to strengthen Panchayats across the country through the Rajiv Gandhi Panchayat Sashaktikaran Abhiyan (RGPSA). This programme will expand on the existing schemes for Panchayat capacity building.
99. In my Budget Speech last year, I had referred to our focus on the development of backward regions. We have decided to carry the Backward Regions Grant Fund scheme into the Twelfth Plan with an enhanced allocation of `12,040 crore in 2012-13, an increase of about 22 per cent over BE of
2011-12. This includes the State component which covers projects in backward areas in Bihar, West Bengal and the Kalahandi-Bolangir-Koraput region of Odisha, development projects for drought mitigation in the Bundelkhand region and projects under the Integrated Action Plan to accelerate the pace of development in selected tribal and backward districts.
2011-12. This includes the State component which covers projects in backward areas in Bihar, West Bengal and the Kalahandi-Bolangir-Koraput region of Odisha, development projects for drought mitigation in the Bundelkhand region and projects under the Integrated Action Plan to accelerate the pace of development in selected tribal and backward districts.
Rural Infrastructure Development Fund
100. This year, I propose to enhance the allocation under Rural Infrastructure Development Fund (RIDF) to ` 20,000 crore. Further in view of the warehousing shortage in the country, I propose to earmark an amount of ` 5,000 crore from the above allocation exclusively for creating warehousing facilities under RIDF.
Education
101. The Right to Education (RTE) Act is being implemented with effect from April 1, 2010 through the Sarva Shiksha Abhiyan (SSA). For 2012-13, I have provided `25,555 crore for RTE-SSA. This is an increase of 21.7 per cent over 2011-12.
102. In the Twelfth Plan, 6,000 schools have been proposed to be set up at block level as model schools to benchmark excellence. Of these, 2500 will be set up under Public Private Partnership.
103. The Rashtriya Madhyamik Shiksha Abhiyan (RMSA) was launched in March, 2009 to enhance access to quality secondary education. In 2012-13,
I have allocated `3,124 crore for RMSA which is nearly 29 per cent higher than the allocation in 2011-12.
I have allocated `3,124 crore for RMSA which is nearly 29 per cent higher than the allocation in 2011-12.
104. A scheme for education loans is being implemented by banks. To ensure better flow of credit to deserving students, I propose to set up a Credit Guarantee Fund for this purpose.
Health
105. They say persistence pays. I am happy to inform Hon'ble Members that no new case of polio was reported in the last one year. By modernising existing units and setting up a new integrated vaccine unit near Chennai, the Government will achieve vaccine security and keep the pressure on disease eradication and prevention.
106. National Rural Health Mission (NRHM) is being implemented through 'Accredited Social Health Activist'- 'ASHA'. The scope of ASHA's activities is being enlarged to include prevention of Iodine Deficiency Disorders, ensure 100 per cent immunisation and better spacing of children. At the community level, a more active role is envisaged for ASHA as the convenor of the Village Health and Sanitation Committee, as also to support the initiative on malnutrition. Since ASHAs receive activity-wise, performance-based payments, this will also enhance their remuneration. I propose to increase the allocation to NRHM from `18,115 crore in 2011-12 to `20,822 crore in 2012-13.
107. National Urban Health Mission is being launched to encompass the primary healthcare needs of people in the urban areas. The Pradhan Mantri Swasthya Suraksha Yojana (PMSSY) aimed at setting up of AIIMS-like institutions and upgradation of existing Government medical colleges is being expanded to cover upgradation of 7 more Government medical colleges. It will enhance the availability of affordable tertiary health care.
Employment and Skill Development
108. The Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS) has had a positive impact on livelihood security. For the first time, there is an effective floor wage rate for rural workers. Distress migration has come down. Community assets have been created. Productivity of barren and fallow lands has gone up. The need for improving quality of assets and bringing about greater synergy between MG-NREGA and agriculture and allied rural livelihoods is being addressed.
109. The Swarnjayanti Gram Swarozgar Yojana (SGSY) has been restructured into National Rural Livelihood Mission (NRLM) to provide self-employment opportunities. A sub-component, Mahila Kisan Sashaktikaran Pariyojana, under NRLM seeks to provide better targeting of women farmers. For NRLM, I propose to increase the allocation by over 34 per cent from `2,914 crore in 2011-12 to `3,915 crore in 2012-13.
110. In last year's Budget I had announced creation of a 'Women's SHG's Development Fund'. This has been set up in NABARD. In 2012-13, I propose to provide ` 200 crore to enlarge the corpus to ` 300 crore. This Fund will also support the objectives of Aajeevika i.e. the National Rural Livelihood Mission. It will empower women SHGs to access bank credit. I propose to provide interest subvention to Women SHGs to avail loans up to `3 lakh at 7 per cent per annum. Women SHGs that repay loans in time will get additional 3 per cent subvention, reducing the effective rate to 4 per cent. The initiative, in the first phase, would focus on selected 600 Blocks of 150 districts, including the Left Wing Extremism affected districts.
111. It is proposed to establish a Bharat Livelihoods Foundation of India through Aajeevika. The Foundation would support and scale up civil society initiatives and interventions particularly in the tribal regions covering around 170 districts. Private trusts and philanthropic organisations would be encouraged to partner with the autonomous body that will be managed professionally.
112. To encourage micro enterprises, a credit linked subsidy programme namely Prime Minister's Employment Generation Programme (PMEGP) is being implemented through KVIC. The allocation for this programme has been increased by 23 per cent from `1,037 crore in 2011-12 to `1,276 crore in 2012-13.
Skill Development
113. In 2011-12 National Skill Development Corporation (NSDC) approved 26 new projects, thereby doubling the number of projects sanctioned since 2009 to 52, with a total funding commitment of ` 1,205 crore. At the end of 10 years, these projects are expected to train 6.2 crore persons and augment vocational training capacity by 1.25 crore per year in the private sector.
114. The NSDC partners have opened 496 permanent and 2429 mobile centres in 220 districts across 24 states. More than 89,500 persons have been trained and almost 80 per cent employed. Under NSDC, 10 Sector Skill Councils have been sanctioned. Of these, 3 Skill Councils for Automobile, Security and Retail sectors have become operational. For 2012-13, I propose to allocate ` 1000 crore to National Skill Development Fund (NSDF).
115. In order to improve the flow of institutional credit for skill development, I propose to set up separate Credit Guarantee Fund. This will benefit youth in acquiring market oriented skills.
116. A new scheme titled "Himayat" was introduced in Jammu and Kashmir from 2011-12. It aims to provide skill training to one lakh youth in the next five years. The entire cost of this programme is being borne by the Centre.
Social security and the needs of weaker sections
117. I am raising the allocation under the National Social Assistance Programme (NSAP) by 37 per cent from ` 6,158 crore in 2011-12 to ` 8,447 crore in 2012-13. Under the ongoing Indira Gandhi National Widow Pension Scheme and Indira Gandhi National Disability Pension Scheme for BPL beneficiaries, the monthly pension amount per person is being raised from ` 200 to ` 300.
118. On the death of the primary breadwinner of a BPL family, in the age group 18 to 64 years, a lumpsum grant of `10,000 is presently provided under the National Family Benefit scheme. I propose to double this amount to ` 20,000 and expect a matching contribution by the State Governments.
119. In order to promote voluntary savings towards pensions, a co-contributory scheme SWAVALAMBAN was started in September, 2010. Over 5 lakh subscribers have been enrolled by February 2012. In order to enhance access to this scheme, LIC has been appointed as an Aggregator and all Public Sector Banks have also been appointed as Points of Presence (PoP) and Aggregators.
Institutions that are being given grants
120. The driving force of a modern nation is research and the creation of new knowledge. With this in mind I propose to provide:
• ` 25 crore to the Institute of Rural Management, Anand;
• ` 50 crore to establish a world-class centre for water quality with focus on arsenic contamination in Kolkata;
• ` 100 crore to Kerala Agricultural University;
• ` 50 crore for University of Agricultural Sciences Dharwad, Karnataka;
• ` 50 crore to Chaudhary Charan Singh Haryana Agricultural University, Hissar;
• ` 50 crore to Orissa University of Agriculture and Technology;
• ` 100 crore to Acharya N. G. Ranga Agricultural University in Hyderabad;
• ` 15 crore to National Council for Applied Economic Research;
• ` 10 crore to Rajiv Gandhi University, Department of Economics, Itanagar; and
• ` 10 crore to Siddharth Vihar Trust Gulbarga, to establish a Pali language Research Centre.
Security
121. In the Budget for 2012-13, a provision of ` 1,93,407 crore has been made for Defence Services which include `79,579 crore for capital expenditure. As always, this allocation is based on present needs and any further requirement would be met.
122. Government is making efforts to increase the availability of residential quarters to forces. In 2012-13, it is envisaged to construct nearly 4,000 residential quarters for Central Armed Police Forces for which ` 1,185 crore is proposed to be allocated. A provision of ` 3,280 crore for 2012-13 has also been made for construction of office buildings including land acquisition and barracks to accommodate 27,000 personnel.
123. The scheme to create the National Population Register (NPR) is progressing well. It is likely to be completed within the next two years. The Government is also considering a proposal of issuing Resident Identity Cards bearing the Aadhaar numbers to all residents who are of age 18 years and above to help in the e-governance initiatives.
VI. Governance
I now address some concerns in governance.
UID-Aadhaar
124. The enrolments into the Aadhaar system have crossed 20 crore and the Aadhaar numbers generated upto date have crossed 14 crore. I propose to allocate adequate funds to complete another 40 crore enrolments starting from April 1, 2012. The Aadhaar platform is now ready to support the payments of MG-NREGA; old age, widow and disability pensions; and scholarships directly to the beneficiary accounts in selected areas.
Black Money
125. Last year I had outlined a five pronged strategy to tackle the malaise of generation and circulation of black money and its illegitimate transfer outside India. Government has taken a number of proactive steps to implement this strategy. As a result:
• 82 Double Taxation Avoidance Agreements (DTAA) and 17 Tax Information Exchange Agreements (TIEA) have been finalised and information regarding bank accounts and assets held by Indians abroad has started flowing in. In some cases prosecution will be initiated;
• Dedicated exchange of information cell for speedy exchange of tax information with treaty countries is fully functional in CBDT;
• India became the 33rd signatory of the Multilateral Convention on Mutual Administrative Assistance in Tax Matters; and
• Directorate of Income Tax Criminal Investigation has been established in CBDT.
126. I propose to lay on the table of the House a white paper on Black Money in the current session of Parliament.
Public Procurement Legislation
127. Government is committed to the enactment of a Public Procurement legislation to enhance confidence in public procurement and to ensure transparency and efficiency in the process. The Bill in this regard is to be introduced in the Budget session of the Parliament.
128. The following legislative measures for strengthening anti-corruption framework are in various stages of enactment:
• Prevention of Money Laundering (Amendment) Bill, 2011 introduced in Parliament with a view to bring certain provisions of the Act in line with global standards;
• Benami Transactions (Prohibition) Bill, 2011 is currently being examined by the Standing Committee on Finance. It would replace the 'Benami Transactions (Prohibition) Act, 1988'; and
• National Drugs and Psychotropic Substances (Amendment) Bill, 2011 introduced in Parliament with a view to strengthen legal provisions for implementation of the national policy on Narcotic Drugs and Psychotropic Substances.
VII. Budget Estimates 2012-13
I now turn to the Budget Estimates for 2012-13.
129. The Gross Tax Receipts are estimated at ` 10,77,612 crore which is an increase of 15.6 per cent over the Budget Estimates and 19.5 per cent over the Revised Estimates for 2011-12. As a percentage of GDP, gross taxes are estimated at 10.6 per cent in BE 2012-13 as against 10.4 per cent in BE 2011-12. After devolution to States, the net tax to Centre in 2012-13 is estimated at ` 7,71,071 crore. The Non Tax Revenue Receipts for 2012-13 are estimated at ` 1,64,614 crore and Non-debt Capital Receipts at ` 41,650 crore. The temporary arrangement to use disinvestment proceeds for capital expenditure in social sector schemes is being extended for one more year to 2012-13.
130. The total expenditure for 2012-13 is budgeted at ` 14,90,925 crore. Of this, the Plan Expenditure for 2012-13 is ` 5,21,025 crore, which is 18 per cent higher than the Budget Estimates of 2011-12. This is higher than the 15 per cent increase projected in the Approach to the Twelfth Plan for 2012-13. I am happy to inform the Hon'ble Members that in the Eleventh Plan, we have been able to meet 99 per cent of the total plan outlay.
131. The Non Plan Expenditure for 2012-13 is budgeted at ` 9,69,900 crore which is 8.7 per cent higher than the Revised Estimates for 2011-12 and 18.8 per cent higher than the Budget Estimates for 2011-12. This increase is mainly on account of higher provision for major subsidies. While making adequate provisions for funding the desirable subsidies, as indicated earlier, I am determined to contain the increasing subsidy burden through measures including improved targeting.
132. The Plan and Non Plan resources transferred to States and Union Territories including direct transfers to State and district level implementing agencies are ` 3,65,216 crore in BE 2012-13. This includes ` 18,655 crore of grant to local bodies as per the recommendations of Thirteenth Finance Commission.
133. The year 2011-12 was one of challenges for fiscal management. Due to the slower economic growth, direct tax collection fell short by ` 32,000 crore of the Budget Estimates. At the same time, the Government absorbed duty reduction in petroleum sector with annual revenue loss of ` 49,000 crore. The Government had to incur higher expenditure on petroleum and fertiliser subsidy to insulate the people from the rising prices. While the outgo on account of subsidies increased, I have ensured that the entire amount is given in cash and not as bonds in lieu of subsidies. This is in line with the approach that I outlined in my Budget Speech for 2010-11.
134. The combined effect of lower tax and disinvestment receipts and higher expenditure, mainly on account of subsidies, has pushed the fiscal deficit to 5.9 per cent of GDP in the Revised Estimates for 2011-12. However, I have made a determined attempt to come back to the path of fiscal consolidation in the Budget for 2012-13 by pegging the fiscal deficit at ` 5,13,590 crore which is 5.1 per cent of GDP. After taking into account other items of financing, the net market borrowings through dated securities to finance this deficit is ` 4.79 lakh crore. With this, the total Debt stock at the end of 2012-13 would work out at 45.5 per cent of GDP as compared to the Thirteenth Finance Commission target of 50.5 per cent of GDP. The Effective Revenue Deficit in BE 2012-13 works out to ` 1,85,752 crore which is 1.8 per cent of GDP.
Part B
VIII. Tax Proposals
Madam Speaker,
I now come to Part B of my proposals.
135. The life of a Finance Minister is not easy. Various players, including policy makers, politicians, agriculturists and business houses, participate in the making of the economy. When everything goes well with the economy, we all share in the joy. However, when things go wrong, it is the Finance Minister who is called upon to administer the medicine. Economic policy, as in medical treatment, often requires us to do something, which, in the short run, may be painful, but is good for us in the long run. As Hamlet, the Prince of Denmark, had said in Shakespeare's immortal words, "I must be cruel only to be kind."
With this reminder, let me now turn to the tax proposals.
136. Last year, I had set the compass for movement towards the DTC in Direct Taxes and GST in Indirect Taxes. My tax proposals for fiscal year 2012-13 mark further progress in that direction.
Direct Taxes
I shall now deal with direct taxes.
137. Last year I provided relief to individual taxpayers by enhancing the exemption limit as a move towards DTC rates. Although DTC will not be effective from this year, I propose to introduce the DTC rates for personal income tax. I propose to enhance the exemption limit for the general category of individual taxpayers from `1,80,000 to `2,00,000. This measure will provide tax relief upto `2,000 to every taxpayer of this category. I also propose to raise the upper limit of the 20 per cent tax slab from `8 lakh to `10 lakh. The proposed personal income tax slabs are:
Income upto `2 lakh Nil
Income above `2 lakh and upto `5 lakh 10 per cent
Income above `5 lakh and upto `10 lakh 20 per cent
Income above `10 lakh 30 per cent
These changes will provide substantial relief to taxpayers.
138. I propose to allow individual taxpayers, a deduction of upto `10,000 for interest from savings bank accounts. This would help a large number of small taxpayers with salary incomes upto `5 lakh and interest from savings bank accounts up to ` 10,000, as they would not be required to file income tax returns.
139. Within the existing limit for deduction allowed for health insurance,
I propose to allow a deduction of upto `5,000 for preventive health check-up.
I propose to allow a deduction of upto `5,000 for preventive health check-up.
140. Senior citizens who do not have any income from business are proposed to be exempted from the payment of advance tax. This will reduce their compliance burden.
141. In the case of corporates, I am not proposing any change in the tax rates. However, I propose certain measures to allow corporates to access lower cost funds and to promote higher level of investments in several sectors.
142. In order to provide low cost funds to some stressed infrastructure sectors, the rate of withholding tax on interest payments on external commercial borrowings is proposed to be reduced from 20 per cent to 5 per cent for three years. These sectors are:
• power;
• airlines;
• roads and bridges;
• ports and shipyards;
• affordable housing;
• fertilizer; and
• dams
143. The restriction on Venture Capital Funds to invest only in nine specified sectors is proposed to be removed. It is further proposed to remove the cascading effect of Dividend Distribution Tax (DDT) in a multi-tier corporate structure. I also propose to continue to allow repatriation of dividends from foreign subsidiaries of Indian companies to India at a lower tax rate of 15 per cent as against the tax rate of 30 per cent for one more year i.e. upto March 31, 2013.
144. Investment linked deduction of capital expenditure incurred in the following businesses is proposed to be provided at the enhanced rate of 150 per cent, as against the current rate of 100 per cent.
• Cold chain facility
• Warehouses for storage of food grains
• Hospitals
• Fertilisers
• Affordable housing
145. The following new sectors are proposed to be added for the purposes of investment linked deduction:
• bee keeping and production of honey and beeswax
• container freight station and inland container depots
• warehousing for storage of sugar
146. To promote investment in research and development, it is proposed to extend the weighted deduction of 200 per cent for R&D expenditure in an
in-house facility beyond March 31, 2012 for a further period of five years.
in-house facility beyond March 31, 2012 for a further period of five years.
147. I also propose to provide weighted deduction of 150 per cent on expenditure incurred for agri-extension services in order to facilitate growth in the agriculture sector.
148. For the power sector, besides access to low cost funds as outlined above, I also propose extension of the sunset date by one year for power sector undertakings so that they can be set up on or before March 31, 2013 for claiming 100 per cent deduction of profits for 10 years. Additional depreciation of 20 per cent in the initial year is proposed to be extended to new assets acquired by power generation companies.
149. For SMEs, the turnover limit for compulsory tax audit of accounts as well as for presumptive taxation is proposed to be raised from `60 lakh to
` 1 crore.
` 1 crore.
150. In order to augment funds for SMEs, I propose to exempt capital gains tax on sale of a residential property, if the sale consideration is used for subscription in equity of a manufacturing SME company for purchase of new plant and machinery.
151. Considering the shortage of skilled manpower in the manufacturing sector and to generate employment, I propose to provide weighted deduction at the rate of 150 per cent of expenditure incurred on skill development in manufacturing sector in accordance with specified guidelines.
152. In order to reduce transaction costs in the capital markets, I propose reduction in Securities Transaction Tax (STT) by 20 per cent (from 0.125 per cent to 0.1 per cent) on cash delivery transactions.
153. In order to moderate the outgo on profit linked deductions, I propose to extend the levy of Alternate Minimum Tax (AMT) on all persons other than companies, claiming profit linked deductions.
154. I propose to introduce a General Anti Avoidance Rule (GAAR) in order to counter aggressive tax avoidance schemes, while ensuring that it is used only in appropriate cases, by enabling a review by a GAAR panel.
155. I propose a series of measures to deter the generation and use of unaccounted money. To this end, I propose
• Introduction of compulsory reporting requirement in case of assets held abroad.
• Allowing for reopening of assessment upto 16 years in relation to assets held abroad.
• Tax collection at source on purchase in cash of bullion or jewellery in excess of ` 2 lakh.
• Tax deduction at source on transfer of immovable property (other than agricultural land) above a specified threshold.
• Tax collection at source on trading in coal, lignite and iron ore.
• Increasing the onus of proof on closely held companies for funds received from shareholders as well as taxing share premium in excess of fair market value.
• Taxation of unexplained money, credits, investments, expenditures etc., at the highest rate of 30 per cent irrespective of the slab of income.
156. My proposals on Direct Taxes are estimated to result in a net revenue loss of ` 4500 crore for the year.
Indirect Taxes
157. I shall now turn to indirect taxes. In a slight departure from the previous years, I shall begin with Service Tax.
Service Tax
158. At the end of June this year, this tax will attain adulthood by completing 18 years. It is therefore time to shift gears and accelerate ahead. However, service tax needs to confront two important challenges to sustain the journey. These are:
• The share of services in taxes remains far below its potential. There is a need to widen the tax base and strengthen its enforcement;
• Service Tax law is complex and sometimes avoidably different from Central Excise. We need to bring the two as close as possible in the light of our eventual goal of transition to GST.
I have attempted to address both these issues this year.
159. Last year, I had initiated a public debate on the desirability of moving towards taxation of services based on a negative list. In the debate that continued for the better part of the year, we received overwhelming support for this new concept. It has been perceived both as sound economics and prudent fiscal management.
160. Thus, I propose to tax all services except those in the negative list. The list comprises 17 heads and has been carefully drawn up, keeping in view the federal nature of our polity, the best international practices and our socio-economic requirements.
161. The important inclusions in the negative list comprise all services provided by the government or local authorities, except a few specified services where they compete with private sector. The list also includes pre-school and school education, recognised education at higher levels and approved vocational education, renting of residential dwellings, entertainment and amusement services and a large part of public transportation including inland waterways, urban railways and metered cabs.
162. Agriculture and animal husbandry enjoy a very important place in our lives. Practically all services required for cultivation, breeding, production, processing or marketing up to the stage the produce is sold in the primary markets are covered by the list.
163. In addition to the negative list, there is a list of exemptions which include health care, services provided by charities, religious persons, sportspersons, performing artists in folk and classical arts, individual advocates providing services to non-business entities, independent journalists, and services by way of animal care or car parking.
164. To take financial services to the door steps in rural areas, I have also exempted the services of business facilitators and correspondents to banks and insurance companies.
165. Construction services relating to specified infrastructure, canals, irrigation works, post-harvest infrastructure, residential dwelling, and low-cost mass housing up to an area of 60 sq. mtr. under the Scheme of Affordable Housing in Partnership are also included in the exemptions. To make the life of those who already own an apartment a little easier, I propose to raise the exemption for the monthly charges payable by a member to a housing society from ` 3,000 to `5,000.
166. The Year 2012 marks the beginning of the centenary year of Indian cinema. Despite the change in titles from Dada Saheb Phalke's "Raja Harishchandra" to "Ra. One" in recent times, the industry has played a pivotal role in unifying our country in the wake of her considerable diversity. To add to their spirit of celebration, I propose to exempt the industry from service tax on copyrights relating to recording of cinematographic films.
167. Movement towards the negative list will result in reducing nearly 290 definitions and descriptions in the Act to 54, and the exemptions from the existing 88 to 10, of course merging some of the existing exemptions into a revised notification. In terms of number of pages, the law will be shorter by nearly 40 per cent.
168. As a measure of harmonisation between Central Excise and Service Tax, a number of alignments have been made. These include a common simplified registration form and a common return for Central Excise and Service Tax, to be named EST-1. This common return will comprise only one page, which will be a significant reduction from the 15 pages of the two returns at present.
169. Revision Application Authority and Settlement Commission are being introduced in Service Tax to help resolve disputes with far greater ease.
170. Cascading of taxes has been significantly reduced by permitting utilisation of input tax credits in a number of services such as catering, restaurants, hotel accommodation, pandal and shamiana and transport sectors.
171. Place of Supply Rules, that will determine the location where a service shall be deemed to be provided, are being placed in public domain for stakeholders' comments and shall be notified when the negative list is put into effect. These rules will also provide a possible backdrop to initiate an informed debate to assess all the issues that may arise in the taxation of inter-state services for the eventual launch of GST.
172. I propose to set up a Study Team to examine the possibility of a common tax code for service tax and central excise which could be adopted to harmonise the two legislations as much as possible at the right time.
173. While the problems faced by exporters of goods with respect to taxes on input services was addressed earlier this year, disbursement of taxes that go into the export of services has been an irritant for long. I now announce a new scheme that will simplify refunds without resorting to voluminous documentation or verification. As an added incentive, such refunds will also be admissible for taxes on taxable services that have been exempted.
174. Rules pertaining to the Point of Taxation are also being rationalised, providing greater clarity and removing the irritants. Cenvat credits in a number of areas are being restored. There are a number of other proposals both for the facilitation of business and to check malpractices. I do not wish to take the valuable time of this House for discussing all these proposals.
175. You will notice that most of these measures are guided by the need to move towards a system that is simple, equitable and progressive but are unlikely to make the exchequer richer in any significant way. Looking at our vast commitments and to maintain a healthy fiscal situation, I propose to raise the service tax rate from 10 per cent to 12 per cent, with consequential changes in rates for services that have individual tax rates.
176. My proposals from service tax are expected to yield an additional revenue of ` 18,660 crore. Keeping in mind that the share of services in GDP is 59 per cent, you would agree that the proposed increase is not too harsh.
I shall now deal with proposals relating to the other indirect taxes.
177. In the wake of the global financial crisis in 2008-09, the standard rate of excise duty for non-petroleum goods was reduced from 14 per cent to 8 per cent in a phased manner. This rate was raised from 8 per cent to 10 per cent in Budget 2010-11. Given the imperative for fiscal correction, I propose to now raise the standard rate from 10 per cent to 12 per cent, the merit rate from 5 per cent to 6 per cent, and the lower merit rate from 1 per cent to 2 per cent. However, the lower merit rate for coal, fertilisers, mobile phones and precious metal jewellery is being retained at 1 per cent.
178. Large cars currently attract excise duty depending on their engine capacity and length. In keeping with the increase proposed in the standard rate, I propose to enhance the duty from 22 per cent to 24 per cent. In the case of cars that attract a mixed rate of duty of 22 per cent + `15000 per vehicle, I propose to increase the duty and switch over to an ad valorem rate of 27 per cent.
179. No change is proposed in the peak rate of customs duty of 10 per cent on non-agricultural goods. Barring a few individual items, the rates below the peak are also being retained.
180. I shall now take up relief proposals for specific sectors – especially those under stress. These have been formulated to stimulate investment and manufacturing growth.
Agriculture & Related Sectors
181. Carrying forward the initiatives taken for agriculture and agro-processing in the previous Budgets, I propose:
• to reduce basic customs duty from 7.5 per cent to 2.5 per cent on:
o sugarcane planter, root or tuber crop harvesting machine and rotary tiller and weeder;
o parts for the manufacture of these;
• to reduce basic customs duty from 7.5 per cent to 5 per cent on specified coffee plantation and processing machinery;
• to extend project import benefit to green house and protected cultivation for horticulture and floriculture at concessional basic customs duty of 5 per cent;
• to reduce basic customs duty on some water soluble fertilisers and liquid fertilisers, other than urea, from 7.5 per cent to 5 per cent and from 5 per cent to 2.5 per cent;
• to extend concessional import duty available for installation of Mechanised Handling Systems and Pallet Racking Systems in mandis or warehouses for horticultural produce.
182. Imports of equipment for initial setting up or substantial expansion of fertiliser projects are being fully exempted from basic customs duty of 5 per cent for a period of three years up to March 31, 2015.
Infrastructure
183. In the realm of infrastructure my proposals address some weaknesses in the troika of power, coal and railways.
184. Domestic producers of thermal power have been under stress because of high prices of coal. I propose to ease the situation by providing full exemption from basic customs duty and a concessional CVD of 1 per cent to Steam coal for a period of two years till March 31, 2014. Full exemption from basic duty is also being provided to the following fuels for power generation:
• Natural Gas and Liquified Natural Gas; and
• Uranium concentrate, Sintered Uranium Dioxide in natural and pellet form.
Mining
185. Better surveying and prospecting for minerals are essential for improving the productivity and efficiency of our mining sector. I propose to reduce basic customs duty on machinery and instruments for surveying and prospecting from 10 per cent or 7.5 per cent to 2.5 per cent. In addition, full exemption from basic customs duty is being provided to coal mining projects.
Railways
186. Over the next five years, Indian Railways are undertaking two major projects for passenger safety and better service delivery. These are - the installation of Train Protection and Warning System and upgradation of track structure for high speed trains. I propose to reduce basic customs duty on equipment required for their implementation from 10 per cent to 7.5 per cent.
Roads
187. Full exemption from import duty on specified equipment imported for road construction by contractors of Ministry of Road Transport and Highways, NHAI and State Governments is being extended to contracts awarded by Metropolitan Development Authorities.
188. Tunnel boring machines and parts for their assembly are covered by this exemption. I propose to allow their import free of duty without end-use condition.
Civil Aviation
189. India has potential for establishing itself as a hub for third-party Maintenance, Repair and Overhaul (MRO) of civilian aircraft. To actualize this potential, I propose to fully exempt from basic customs duty parts of aircraft and testing equipment imported for this purpose. As a measure of support to the airline industry, it is also proposed to fully exempt both new and retreaded aircraft tyres from basic customs duty and excise duty.
Manufacturing
190. My proposals for the manufacturing sector that needs support at this juncture, seek to provide relief through cost reduction of raw materials, inputs, components and capital goods.
191. To encourage enrichment of low-grade iron ore, of which we have huge reserves, I propose to reduce basic customs duty on plant and machinery imported for setting up or substantial expansion of iron ore pellet plants or iron ore beneficiation plants from 7.5 per cent to 2.5 per cent. My other proposals relating to the steel sector are as under:
• to reduce basic customs duty on:
o coating material for manufacture of electrical steel from 7.5 per cent to 5 per cent
o nickel ore and concentrate and nickel oxide/ hydroxide from 2.5 per cent or 7.5 per cent to Nil
• to enhance export duty on chromium ore from `3000 per tonne to 30 per cent ad valorem
• to enhance basic customs duty on non-alloy, flat-rolled steel from 5 per cent to 7.5 per cent.
192. Our textile industry, especially the weaving sector, urgently needs to modernise. I propose to fully exempt automatic shuttle-less looms from basic customs duty of 5 per cent. Similarly, full exemption from basic duty is being accorded to automatic silk reeling and processing machinery as well as its parts. It is also proposed to restrict these exemptions and the existing concessional rate of basic customs duty of 5 per cent only to new textile machinery. Second-hand machinery would now attract basic duty of 7.5 per cent. Other proposals on textiles are:
• to reduce basic customs duty on wool waste and wool tops from 15 per cent to 5 per cent
• to reduce basic customs duty on Titanium dioxide from 10 per cent to 7.5 per cent
• to extend full exemption from basic customs duty to aramid yarn and fabric used for the manufacture of bullet proof helmets
193. Excise duty of 10 per cent is applicable to branded ready-made garments with abatement of 55 per cent from the Retail Sale Price. Along with increase in duty to 12 per cent, I propose to enhance the abatement to 70 per cent. As a result, the incidence of duty as a percentage of the Retail Sale Price would come down from 4.5 per cent to 3.6 per cent.
194. Our MSME sector is fertile ground for the production of low-cost medical devices. In order to provide impetus to this sector, I propose to reduce basic customs duty to 2.5 per cent with concessional CVD of 6 per cent on specified parts, components and raw materials for the manufacture of some disposables and instruments. Full exemption from basic customs duty and CVD is also being extended to specified raw materials for the manufacture of coronary stents and heart valves. These concessions would be subject to actual user condition.
195. My other proposals to support the manufacturing sector include:
• Full exemption from basic customs duty on
o waste paper,
o LCD and LED TV panels, and parts of memory card for mobile phones
• Reduction of basic customs duty on specified raw materials for the manufacture of adult diapers from 10 per cent or 7.5 per cent to 5 per cent with CVD of 6 per cent and nil special CVD.
196. My attention has been drawn to the plight of a few sectors that are highly labour-intensive and produce items of mass consumption. As a measure of support, I propose to enhance basic customs duty on bicycles from 10 per cent to 30 per cent and on bicycle parts from 10 per cent to 20 per cent.
197. Full exemption from excise duty is currently available to hand-made matches while others attract the standard rate. It is proposed to reduce excise duty on matches manufactured by semi-mechanised units from 10 per cent to 6 per cent.
Health and Nutrition
198. It is proposed to extend concessional basic customs duty of 5 per cent with full exemption from excise duty/CVD to six specified life-saving drugs/ vaccines. These are used for the treatment or prevention of ailments such as HIV-AIDS, renal cancer, etc.
199. Protein deficiency among women and children is one of the most common sources of malnutrition in India. I propose to reduce basic customs duty on Soya protein concentrate and isolated soya protein from 30 per cent or 15 per cent respectively to 10 per cent. Simultaneously, excise duty on all processed soya food products is being reduced to the merit rate of 6 per cent.
200. Consumption of iodised salt prevents iodine deficiency and related diseases. I propose to provide a concessional basic customs duty of 2.5 per cent along with reduced excise duty of 6 per cent on iodine.
201. Probiotics are a cost-effective means of combating bacterial infections. It is proposed to reduce the basic customs duty on this item from 10 per cent to 5 per cent.
Environment
202. In order to fully realise our potential in the realm of solar energy, solar thermal projects need encouragement. I propose to fully exempt plant and equipment etc. for the initial setting up of such projects from special CVD.
203. Concessions have already been provided for encouraging the consumption of energy-saving devices. I propose to fully exempt a coating chemical used for compact fluorescent lamps, from basic customs duty. Excise duty on LED lamps is also being reduced to 6 per cent.
204. Specified parts required for the manufacture of hybrid vehicles enjoy full exemption from basic customs duty and special CVD with concessional excise duty/ CVD of 6 per cent. This concession is being extended to specified additional items and lithium ion batteries imported for the manufacture of battery packs for supply to electric or hybrid vehicle manufacturers.
205. One of the primary drivers of the current account deficit has been the growth of almost 50 per cent in imports of gold and other precious metals in the first three quarters of this year. I have been advised to strengthen the steps already taken to check this trend for better results. I propose to increase basic customs duty on standard gold bars; gold coins of purity exceeding 99.5 per cent and platinum from 2 per cent to 4 per cent and on non-standard gold from 5 per cent to 10 per cent. In sync with these, basic duty on gold ore, concentrate and dore bars for refining is being enhanced from 1 per cent to 2 per cent. On the excise side, duty on refined gold is being increased in the same proportion from 1.5 per cent to 3 per cent.
206. In order to prevent round-tripping, it is proposed to impose basic customs duty of 2 per cent on cut and polished, coloured gem stones at par with diamonds.
Additional Resource Mobilisation
207. I shall now take up my proposals on "demerit" goods. I propose to increase basic excise duty on cigarettes of more than 65mm length by adding an ad valorem component of 10 per cent to the existing specific rates. The ad valorem duty would be chargeable on 50 per cent of the Retail Sale Price declared on the pack.
208. I also propose to carry out a nominal increase in basic excise duty on hand-rolled bidis from `8 to `10 per thousand and on machine-rolled bidis from `19 to `21 per thousand. The existing exemption available to hand-rolled bidis for clearances up to 20 lakh bidis per annum is being retained.
209. Pan masala, gutkha, chewing tobacco, unmanufactured tobacco and zarda scented tobacco in pouches are leviable to excise duty under the compounded levy scheme. The rates of duty specified per packing machine for these items are being stepped up taking into account improvements in the efficiency of machines used by this industry.
210. Crude petroleum oil produced in India attracts a cess of `2,500 per metric tonne under the Oil Industries Development Act. This rate was last revised in Budget 2006-07. As a measure of indexation, I propose to increase the rate of cess to `4,500 per metric tonne.
211. Completely Built Units of large cars/ MUVs/ SUVs having engine capacity above a prescribed threshold and whose value exceeds US dollar 40,000 per vehicle are permitted for import without type approval. Basic customs duty on such vehicles is being enhanced from 60 per cent to 75 per cent ad valorem.
Rationalisation Measures
212. Packaged cement, whether manufactured by mini-cement plants or others, attracts differential excise duty depending on the Retail Sale Price per bag. It is proposed to prescribe a unified rate of 12 per cent + `120 PMT for non-mini cement plants and 6 per cent + `120 PMT for mini-cement plants. It is proposed to charge this duty on the Retail Sale Price less abatement of 30 per cent.
213. The House would recall that I had re-introduced a levy of excise duty of 1 per cent on branded precious metal jewellery in the last Budget. As a measure of rationalisation, I propose to include jewellery, not bearing a brand name, under its ambit. However, to simplify its operation and minimise its impact on small artisans and goldsmiths, I propose:
• to charge this duty on tariff value equal to 30 per cent of the transaction value;
• to extend small-scale exemption up to annual turnover not exceeding `1.5 crore for units having a turnover below ` 4 crore in the previous year;
• to compute turnover on the basis of tariff value; and
• to place the onus of registration and payment on the person who gets jewellery manufactured on job-work.
214. I propose to fully exempt branded silver jewellery from excise duty.
215. Building of commercial vehicle bodies is currently exempt from excise duty. In lieu of this duty, a specific rate of `10,000 is being charged on chassis in addition to the applicable ad valorem duty. This duty structure is regressive. It is proposed to convert the specific component of duty to an ad valorem rate of 3 per cent.
216. In the last Budget, excise duty exemption on ships and vessels including dredgers was withdrawn. Accordingly, CVD of 5 per cent became leviable on their imports. As the intention was not to levy this duty on the import of foreign-going vessels, I propose to exempt such vessels from CVD retrospectively. However, to ensure that ships, vessels and dredgers manufactured in India do not face disability vis-à-vis foreign-going ships converting into coastal vessels, necessary safeguard is being provided.
Baggage Allowance
217. Baggage allowance for Indians travelling abroad was last revised in 2004. I propose to increase the duty-free allowance for eligible passengers of Indian origin from `25,000 to `35,000 and for children of up to 10 years from `12,000 to `15,000.
218. My proposals relating to Customs and Central excise are estimated to result in a net revenue gain of ` 27,280 crore for a full year.
219. My proposals on Direct Taxes are estimated to result in a net revenue loss of `4500 crore for the year. Proposals relating to Indirect Taxes are estimated to result in a net revenue gain of `45,940 crore, leaving a net gain of `41,440 crore in the Budget.
220. For the Indian economy, this was a challenging year. A number of global and domestic factors militated against the growth that had revived in the last two years. But India has thrived under challenges and India will do so now. In the middle of every crisis, there is also an opportunity. It is an opportunity to re-think, re-assess and make way for new ideas and policies. It is in this spirit that I approached the Budget of this year. The aim is to create an enabling atmosphere for corporates, farmers, entrepreneurs and workers to take initiatives for robust growth. The aim is also to ensure that the benefits of growth reach all sections of population. India stands on the brink of a major resurgence. Whether or not today's announcements make tomorrow morning's headlines matters little, as long as they help in shaping the headlines that describe India a decade from now.
Madam Speaker, with these words, I commend the Budget to the House.
FISCAL POLICY STRATEGY STATEMENT
A. FISCAL POLICY OVERVIEW
1. Global economic situation during 2008-09 and
2009-10 impacted the performance of emerging
market economies and India was no exception. The
swift revival during 2010-11, wherein Indian economy
grew at 8.4 per cent on the base of similar growth in
2009-10, showed that resilience of Indian economy
in steering through difficult international scenarios
have further improved. However, continuance of the
financial crisis in Euro Zone coupled with exogenous
shocks like increase in the international crude prices
brought out the vulnerability of Indian economy
towards global events back to the forefront. Growth
in Indian economy is estimated to moderate to 6.9
per cent in 2011-12 as against the earlier estimate of
9 per cent at the time of presentation of Budget 2011-
1 2 . De ta i l s o f t h e g r owt h s c e n a r i o h a v e b e e n
enumerated in the Macro-economic Framework
Statement.
2. The moderation in growth coupled with sticky
inf lat ion at much higher than the comfor t level
necessitated a change of stance in fiscal policy of the
government. The process of fiscal consolidation which
resumed in 2010-11 had to be paused once again
during 2011-12. However, this change in policy would
be temporary in nature and government is committed
to get back to the path of fiscal consolidation. While
the economy is estimated to register growth of about
7.6 per cent during 2012-13 which is lower than the
potential growth rate, yet government has come up
with a revised fiscal roadmap with gradually reducing
fiscal deficit in coming yea`
3. The change in fiscal policy stance during 2011-
12 should be seen against the backdrop of some
s i g n i f i c a n t c h a n g e s i n t h e m a c r o - e c o n o m i c
parameters in the Indian and world economy during
2011. First is the issue of international crude prices;
while it was hovering around US $ 85 to 90 per barrel
at the time of presentation of Budget 2011-12, it went
up sharply and remained sticky at about US $ 110 to
115 per barrel during most part of the calendar year
2011. Presently, it is well above US $ 120 per barrel.
In tandem with high crude price, prices of most of the
petroleum products in the international market went
u p s h a r p l y. A s I n d i a imp o r ts b u l k o f i ts c r u d e
requirements and the pricing of petroleum products
by oil marketing companies (OMCs) for the purpose
of calculating under-recoveries are benchmarked to
the international prices, there was significant increase
in the estimated under-recovery of OMCs. With high
level of prevailing inflation, it was felt that pass through
of high international prices to retail level would
compound the problem of inflation. The government
therefore decided to lower the tax incidences on these
products. Along with partial increase in retail prices of
petroleum products during June 2011, the underrecoveries of the OMCs were reduced to some extent.
T h o u g h t h i s i n t e r v e n t i o n r e d u c e d t h e u n d e r -
recoveries of OMCs, government had to give tax
concession to the extent of `36,750 crore for the
remaining part of fiscal 2011-12. After factoring in
States' Share in Central Taxes, the net revenue loss
for the Central Government was of the order of
`26,000 crore. Even with this relief, government had
to provide additional `45,000 crore in RE 2011-12 for
the compensation to OMCs for under-recoveries. Thus
the total slippage on account of petroleum sector alone
was of the order of `71,000 crore amounting to 0.8
per cent of GDP.
4. Secondly, high inflation scenario persisting in
the domestic economy had influenced the decision to
keep the input prices for farmers under check and
accordingly provision for fertiliser subsides have been
increased by `17,201 crore in RE 2011-12 over BE
2011-12. Provision for food subsidy has also been
increased by `12,250 crore during the year. The above
three subsidy items taken together had a combined
impact of `1,00,451 crore accounting for slippage of
1.1 per cent of GDP in fiscal deficit during 2011-12.
5. Thirdly, growth in economy which was robust
at 8.4 per cent during 2009-10 as well as 2010-11,
started showing signs of moderation as it grew at 7.7
per cent, 6.9 per cent and 6.1 per cent in the first
three quarters of 2011-12 respectively. It is estimated
that Indian economy would grow at 6.9 per cent during
2011-12. This drop in growth rate has impacted the
direct tax collection and there is estimated shortfall of
`32,000 crore from the BE 2011-12 level in RE 2011-
12. This would result in shortfall of about `22,800 crore
in the net tax revenue for Centre amounting to 0.3
per cent of GDP. Lastly, while Indian economy was
already showing signs of moderation, the grim outlook
for world economy and the prevailing uncertainty in
Euro Zone added volatility to the Indian capital market.
Government had to recalibrate its disinvestment
programme and accordingly `13,895 crore has been
estimated in RE 2011-12 as against BE of `40,000
crore.
1920
6. The above items taken together would have
resulted in overall slippage of about `1,49,356 crore
amounting to 1.7 per cent of GDP. However, with
savings in other expenditure and better than estimated
receipts from Service Tax, fiscal deficit is estimated
to increase by 1.3 per cent of GDP to 5.9 per cent of
GDP in RE 2011-12. Revenue deficit is estimated to
increase by 1 per cent of GDP from the earlier
estimated level of 3.4 per cent of GDP in BE 2011-12
to 4.4 per cent of GDP in RE 2011-12.
7. Though fiscal deficit increased by 1.3 per cent
of GDP, debt and liabilities of the Central Government
is estimated to reduce marginally to 45.7 per cent in
RE 2011-12 from 46.0 per cent in 2010-11. This
r e d u c t i o n i s l a r g e l y o n a c c o u n t o f h i g h e r t h a n
estimated growth in nominal GDP during 2011-12.
Also, the comparison with last year's performance
when fiscal deficit was 4.9 per cent of GDP may be
seen in the context of government having the benefit
of higher than estimated non-tax revenue of about
0.9 per cent of GDP from auction of 3G & BWA
spectrum during 2010-11. The fiscal deficit, net of this
additional receipt, would have been at 5.8 per cent of
GDP in 2010-11.
8. The windfall gain in the form of auction proceeds
from 3G and BWA spectrum during 2010-11 had not
only helped in bringing down the fiscal deficit for 2010-
11, it also helped in taking certain decisions which
resulted in avoidance or reduction of debt by `48,218
crore. This mainly includes (a) reduction in market
borrowings through dated securities by ` 20,000 crore,
(b) buy back of fertilizers bonds amounting to ` 11,795
crore issued in lieu of subsidy, (c) redemption of liability
to National Small Savings Fund (NSSF) by ` 9,000
crore, and (d) reduction in estimated loans from IBRD
for recapitalization of Public Sector Banks by `5,400
crore. This avoidance or reduction in debt works out
to 68 per cent of the receipts in excess of estimates
from the auction of 3G and BWA spectrum.
9. The decline in tax to GDP ratio coupled with
higher expenditure brought out the problems of
structural imbalance in fiscal account. Though part of
this imbalance is cyclical in nature, however a large
proportion of the increase in fiscal deficit could be
attributed to structural problems. The Medium Term
Fiscal Policy Statement brings out in detail the strategy
of the government to reduce the fiscal deficit gradually
closer to the existing mandated level under the FRBM
Act and Rules. However, the revenue deficit as
percentage of GDP is estimated to remain well above
the present mandated level. This must however be
seen in the context of bringing in all subsidy related
expenditure into the government's fiscal accounting.
It may be recalled that the Government had made a
c o n s c i o u s e f f o r t t o a v o i d i s s u i n g Go v e r nme n t
securities in lieu of cash subsidies to oil and fertiliser
companies. This trend of extending Government
subsidy in cash rather than by way of bonds has been
continued despite adverse fiscal situation.
10. Government is determined to bring the deficit
down to a more sustainable level and at the same
time re-orient government expenditure towards priority
sectors like health, education, irrigation with added
focus on inf rast ructure and investment related
activities. The fiscal policy of the government for the
ensuing year would be guided by the above principle.
To r e i n f o r c e i t s c o m m i t m e n t t o w a r d s f i s c a l
consolidation with reorientation in resource allocation
as mentioned above, Government is bringing out
amendment in the FRBM Act, 2003 as part of Finance
Bill, 2012.
FRBM Act Amendment
11. It may be recalled that government had outlined
its intention to bring out amendment in the FRBM Act
during 2011-12. The rule based legislation for fiscal
consolidation had helped India in achieving lower
deficit and in turn lower debt as percentage of GDP
d u r i n g 2 0 0 4 - 0 5 t o 2 0 0 7 - 0 8 . Ga i n i n g f r om t h i s
experience, the present set of amendments further
aim to br ing out consistency in the conduct of
government's fiscal policy with shifting of priority
towards quality of expenditure and not only reduction
of deficit. The most important part of the proposed
amendment is to give statutory recognition of the
concept of ef fect ive revenue def ici t which was
introduced in the Budget for 2010-11. This is defined
as the difference between revenue deficit and grants
for creation of capital assets.
12. Effective Revenue Deficit reflects the structural
component of imbalance in the revenue account. In a
federal set up like India, large amount of transfer of
resources from the Central Government takes place
to States, local bodies and other scheme implementing
agencies who are mandated to provide cer tain
services. All of such transfers are shown as revenue/
c u r r e n t e x p e n d i t u r e i n t h e b o o k s o f C e n t r a l
Government. However, significant proportion of such
transfers is specifically meant for creation of capital
assets which are public goods in nature. In the present
scheme of things, most of the public goods are being
provided by States and sector specific bodies. Central
Go v e r nme n t 's r o l e i s l imi t e d t o a u gme n t i n g o r
providing resources to these institutions as it can't
create these infrastructures directly (e.g. State or rural21
roads; irrigation infrastructure; power generation,
t r a n s m i s s i o n a n d d i s t r i b u t i o n f a c i l i t i e s ;
telecommunication networks, major ports or airports
etc.). Since the Central Government does not own
these assets, the resources transferred even for
creation of physical infrastructure are shown as
revenue expenditure.
13. In the present Act, when it is mandatory to
eliminate revenue deficit, the pressure is to reduce
revenue expenditure which also includes the above
me n t i o n e d t r a n s f e` Wi t h t h e s t r u c t u r a l r i g i d i t y
associated with certain components of revenue
expenditure namely, salary and pension payments,
interest payment, statutory grants to States; reduction
or squeeze on revenue expenditure in the medium
term will most likely be on discretionary items like
transfer for creation of capital assets. This approach
may lead to overall reduction in investment related
expenditure in the economy and certainly this is not
the desired objective of the existing Act.
14. With the introduction of the concept of effective
revenue deficit and by mandating its elimination by
March 2015, government would address the structural
component of imbalance in the revenue account,
namely, consumptive expenditure, in the right earnest
without sacrificing development related expenditure.
Coupled with fiscal deficit target, this fiscal indicator
would ensure allocation of borrowed resources in
productive sector through creation of capital assets
and at the same time would bring the debt and
liabilities as percentage of GDP to a more sustainable
level. The emphasis to eliminate effective revenue
deficit by 2014-15, and generate adequate surplus
thereafter would help in augmenting resources for
f i n a n c i n g i n v e s t m e n t a n d c a p i ta l e x p e n d i t u r e
(including grants for creation of capital assets). In the
r o l l i n g ta r g e ts f o r s e l e c t f i s c a l i n d i c a t o r s , t h i s
component has been included in the Medium Term
Fiscal Policy Statement.
15. The second important feature of the proposed
amendment is the int roduct ion of Medium- term
Expenditure Framework Statement along with the
existing three FRBM statements. This new statement
would provide certainty of allocation to Ministries and
Departments over three year time frame. This would
help Ministries/Departments in undertaking de-novo
exercise for al locat ing resources on pr ior i t ized
schemes and weeding out such schemes which have
outlived their utility. This statement would set forth a
three year rolling target for expenditure indicators with
specification of underlying assumptions and risk
involved.
16. The Budget 2012-2013 is being presented when
the growth scenario for the world economy is still
uncertain and problems of high crude prices have
further aggravated due to geo-political situation in
some of the oil producing countries. Notwithstanding
the above uncertainties, government has made efforts
in BE 2012-13 to once again kick start the growth
revival without losing sight of fiscal consolidation. On
one hand the government has to ensure that the
revival of economy is aided through policy actions and
at the same time the fiscal policy has to be balanced
with concerns on inflation and high policy rates
impacting investment. With 2012-13 being the first
year of the Twelfth Five Year Plan, efforts have been
made to provide adequate resources for health,
education, irrigation and other infrastructure secto`
A t t h e s a m e t i m e , g r o w t h i n s u b s i d y r e l a t e d
expenditure is proposed to be contained within
sustainable levels.
B. FISCAL POLICY FOR 2012-13
17. The fiscal policy of 2012-13 has been calibrated
with two fold objectives – first, to aid economy in
growth revival; and second, to bring down the deficit
from 2011-12 level so as to leave space for private
sector credit as the investment cycle picks up. Being
the first year of the 12
th
Five Year Plan, an ambitious
outlay which is 22.1 per cent higher than RE 2011-12
has been provided. Even with higher increase in plan
allocation, fiscal deficit has been reduced from 5.9
per cent of GDP in RE 2011-12 to 5.1 per cent in BE
2012-13. With policy measures, it is estimated that
non-plan expenditure could be controlled with a growth
of 8.7 per cent in BE 2012-13 over RE 2011-12. This
would result in overall expenditure increase of 13.1
p e r c e n t i n B E 2 0 1 2 - 1 3 o v e r RE 2 0 11 - 1 2 . A s
percentage of GDP, total expenditure is estimated to
marginally reduce to 14.7 per cent in BE 2012-13 from
14.8 per cent in RE 2011-12.
18. Thus most of the correction in fiscal deficit has
been targeted through revenue augmentation. It may
be recalled that gross tax revenue as percentage of
GDP declined sharply from high of 11.9 per cent in
2007-08 to 9.7 per cent in 2009-10. It is now estimated
to increase from 10.1 per cent of GDP in RE 2011-12
to 10.6 per cent in BE 2012-13 (reflecting growth of
19.6 per cent over RE 2011-12). This level of growth
may look ambitious if seen in isolation. However, after
n e t t i n g o f f t h e i m p a c t o f a d d i t i o n a l r e s o u r c e
mobilization proposed in indirect taxes, BE 2012-13
is estimated at a growth of 15.0 per cent over RE
2011-12.22
19. In order to keep the overall expenditure under
the estimated level, government has taken certain
decisions to control the growth of expenditure in
subsidies and other related items. Decision of the
Government on move towards nutrient based subsidy
(NBS) regime in fertiliser is expected to reduce
expenditure on this component of fertilser subsidy
during 2011-12. At the same time, NBS regime is
also expected to promote balanced use of fertilizer
leading to increase in agricultural productivity.
20. With respect to rationalization of petroleum
subsidy, government has already decontrolled the
pricing of petrol. With the help of AADHAAR (unique
identity programme), it would be possible to attempt
a direct cash transfer mechanism in phased manner
for LPG and kerosene which in turn may reduce the
subsidy requirement. States have been given this
option to opt for direct cash transfer mechanism.
Though in principle decision regarding decontrol of
diesel price has been taken, the implementation of
this decision has not yet not taken place in view of
prevailing high international prices.
Tax Policy
21. During the fiscal consolidation period, the taxGDP ratio improved significantly from 9.2 per cent in
2003-04 to 11.9 per cent in 2007-08. This was
achieved through rationalisation of the tax structure
(moderate levels and a few rates), widening of the
tax base and reduction in compliance costs through
improvement in tax administration. The extensive
adoption of information technology solutions and reengineering of business processes have also fostered
a less intrusive tax system and encouraged voluntary
c omp l i a n c e . T h e s e me a s u r e s h a v e r e s u l t e d i n
increased buoyancy in tax revenues till 2007-08 and
helped in fiscal consolidation. However, due to the
stimulus measures undertaken during the crisis period
of 2008-09 and 2009-10 to insulate Indian economy
from the adverse impact of global economic crisis and
lower growth in economy, the gross tax revenue as
percentage of GDP declined sharply to 9.7 per cent
in 2009-10.
22. On the positive side, however, the results of
these stimulus measures have helped in swift and
broad based recovery, particularly in manufacturing
a n d s e r v i c e s s e c t o r d u r i n g 2 0 1 0 - 11 . W i t h t h e
moderation in growth in 2011-12 and prevailing high
inflation situation, government had to further reduce
taxes/duty on petroleum products. During 2011-12,
gross tax receipts as percentage of GDP is estimated
to decline to 10.1 per cent from 10.3 per cent in 2010-
11 . Howe v e r, wi t h pa r t i a l r o l l b a c k o f s t imu l u s
measures in indirect taxes, it is estimated that tax
receipt as percentage of GDP would improve to 10.6
per cent.
Indirect taxes
23. In keeping with the overall thrust of fiscal policy,
in the realm of indirect taxes too, the stance during
2 0 1 2 - 1 3 w o u l d b e i n f a v o u r o f f u r t h e r f i s c a l
consolidation. This agrees with the medium term
objective of enhancing the tax-GDP ratio both through
b a s e e x pa n s i o n a s w e l l a s a d m i n i s t r a t i v e
improvement. Among the latter, the emphasis is on
more intense deployment of Information Technology
in business processes so that physical interface
between the taxpayer and the Department is reduced
and return data critical for developing compliance
strategies and interventions is captured and updated
seamlessly.
24. In the medium term, the most significant step
from the point of view of broadening the tax base and
i m p r o v i n g r e v e n u e e f f i c i e n c y t h r o u g h b e t t e r
compliance is the introduction of Goods and Services
Tax (GST). As far as Central taxes viz. Central Excise
duties and Service Tax are concerned, a fair amount
of integration has already been achieved, especially
through the cross-flow of credits across the two taxes.
Further measures such as adoption of a common
return format are proposed in the Budget. It would be
possible to realise full integration of the taxation of
goods and services only when the State VAT is also
subsumed and a full-fledged GST is launched. The
Constitution Amendment Bill to put in place the
enabling legal framework has already been introduced
in the Lok Sabha and is currently being examined by
t h e Sta n d i n g C o m m i t t e e o n F i n a n c e . I n t h e
meanwhile, the dialogue with the State Governments
for finalizing the structure, design and roadmap for
the implementation of GST would continue.
25. There are several specific proposals in the
Budget 2012-13 to recalibrate the tax effort on indirect
taxes so that fiscal consolidation may be achieved in
the short term. The important and revenue significant
proposals include:
Shift from a "positive" list approach to a
"negative" list approach in the taxation of
services;
Review and withdrawal of several exemptions
from service tax;
Enhancement in the standard rate of Service
Tax from 10% to 12%;23
Increase in the standard rate of excise duty
from 10% to 12% by way of partial roll back
of the fiscal stimulus (provided in 2008-09);
Increase in the merit rate of excise duty from
5% to 6% and lower merit rate from 1% to
2% (except coal, fertilisers and precious metal
jewellery);
Increase in excise duty on cars –both small
and large, MUVs, SUVs etc.;
Increase in excise duty on "demerit" goods
such as cigarettes, bidis, and other tobacco
products;
Rationalisation of the scheme of levy/ rate
s t r u c t u r e a p p l i c a b l e t o p r e c i o u s m e ta l
jewellery and chassis for automobiles;
Increase in the rate of cess on indigenously
produced crude petroleum from `2500 per
tonne to `4500 per tonne.
26. Measures proposed to contain the Current
Account Deficit such as enhancement in customs duty
on standard gold bars and platinum bars from 2% to
4% may also have a favourable impact on revenue
collections in the immediate future.
Direct Taxes
27. The policy in the case of direct taxes has been
to achieve growth while maintaining moderate rates
of tax. To this end, the initiative has been to reduce
the tax revenue foregone on account of exemptions
and deductions. This has been attempted primarily
t h r o u g h t h e g r a d u a l p h a s e o u t o f p r o f i t l i n k e d
deductions and the levy of Minimum Alternate Tax
(MAT) on all companies to ensure a minimum level of
tax contribution by all sectors. The other aspect of
this policy has been to use information technology to
widen the reported tax base, e.g., electronic filing of
annual information returns regarding third party
transactions, in order to ensure the reporting of major
financial transactions for tax purposes. Electronic
filing of income tax returns and tax deduction at source
statements as well as e-payment of taxes is also a
part of this strategy in order to more effectively monitor
ta x p a y e r c o m p l i a n c e , b e s i d e s r e d u c i n g t h e
compliance burden of tax payers The current direct
tax legislation is proposed to be simplified and
consolidated through the Direct Taxes Code Bill 2010
which was introduced in Parliament in August 2010.
The Standing Committee on Finance has recently (on
9th March 2012) submitted its report on the Bill which
will now be examined for appropriate action.
28. The major policy proposals in the Union Budget
2012-13 intended to broaden the tax base are:
Introduction of Alternate Minimum Tax (AMT)
at the rate of 18.5 per cent on all persons
(other than companies) claiming profit linked
deductions;
Introduction of a General Anti-Avoidance Rule
to deter aggressive tax avoidance schemes;
I n t r o d u c t i o n o f c o m p u l s o r y r e p o r t i n g
requirement in case of assets held abroad;
Allowing for reopening of assessment upto
16 years in relation to assets held abroad;
Tax collection at source on purchase in cash
of bullion or jewellery in excess of ` 2 lakh;
Ta x d e d u c t i o n a t s o u r c e o n t r a n s f e r o f
immovable property (other than agricultural
land) above a specified threshold;
Tax collection at source on trading in coal,
lignite and iron ore;
Increasing the burden of proof on closely held
c o m p a n i e s f o r f u n d s r e c e i v e d f r o m
shareholders as well as taxing share premium
in excess of fair market value;
Taxat ion of unexplained money, credi ts ,
investments, expenditures etc., at the highest
rate of 30 per cent irrespective of slab of
income;
St r e n g t h e n i n g p e n a l t y p r o v i s i o n s f o r
undisclosed income found during search;
Streamlining and strengthening of prosecution
provisions under the Income Tax Act.
29. The administrative and information technology
initiatives are:
C e n t r a l i s e d P r o c e s s i n g C e n t r e f o r t h e
computerised processing of tax deduction at
source (TDS) statements. This initiative
fol lows f rom the Cent ral ised Processing
Centre at Bengaluru which currently processes
all electronically filed income tax returns.
Besides the 50 taxpayer help centres called
Aayakar Seva Kendras (ASKs) functional in
t h i s y e a r, a n o t h e r 1 0 0 A S K s w i l l b e
commissioned in the coming financial year.24
Payment of taxes through Automatic Teller
Machines (ATMs) and all India coverage of the
Refund Bankers Scheme for refund of direct
taxes has already been introduced in the
current year.
30. The direct tax buoyancy in the last four years
has been less than one mainly on account of higher
inflation. The major challenge, therefore, for direct tax
collections in the medium term is to maintain buoyancy
in the face of lower profitability of companies owing
to higher rate of inflation while maintaining moderate
rates of tax.
Contingent and other Liabilities
31. T h e F R B M A c t m a n d a t e s t h e C e n t r a l
Government to specify the annual target for assuming
cont ingent l iabi l i t ies in the form of guarantees.
Accordingly the FRBM Rules prescribe a cap of 0.5
per cent of GDP in any financial year on the quantum
of guarantees that the Central Government can
assume in the particular financial year. The Central
Government extends guarantees primarily on loans
from multilateral/bilateral agencies, bond issues and
o t h e r l o a n s r a i s e d b y v a r i o u s P u b l i c S e c t o r
Undertakings/Public Sector Financial Institutions.
32. For better management of contingent liabilities,
government guarantee policy had been released
during 2010-11. It enumerates various principles which
need to be followed before new contingent liabilities
in the form of sovereign guarantees are undertaken.
These principles inter alia include assessment of risk
and probability of devolvement, institutional limits on
guarantees for limiting exposure towards select
sectors and requirement of guarantee vis a vis other
forms of budgetary support or comfort. Additional
me a s u r e s t o f u r t h e r s t r e aml i n e t h e p r o c e s s o f
assuming risk could include charging of risk based
premia, disincentive for wilful default, only part sharing
of risk by the government and insisting on guaranteed
debt cost to be near the bench marked government
securities rate.
33. The stock of contingent liabilities in the form of
guarantees given by the government has increased
i n a b s o l u t e t e rms f r om `1 , 0 7 , 9 5 7 c r o r e a t t h e
beginning of the FRBM Act regime in 2004-05 to
`1,51,292 crore at the end of 2010-11. However, as a
percentage of GDP, it has reduced from 3.3 per cent
in 2004-05 to 2.0 per cent in 2010-11. The disclosure
statement on outstanding Guarantees as prescribed
in the FRBM Rules, 2004 is appended in the Receipts
Budget as Annex 5 (iii).
34. During the year 2010-11, gross addition in
guarantees was `22,745 crore amounting to 0.30 per
cent of GDP which was well below the mandated
target of 0.5 per cent of GDP set under the FRBM
Rules. Further, net addition in guarantees during 2010-
11 was `13,428 crore amounting to 0.2 per cent of
GDP.
Government Borrowings, Lending and
Investments
35. With the objective of improving transparency in
dissemination of information related to public debt,
the second edition of Status Paper on Government
Debt was brought out in March 2012. Government is
committed to implement prudent debt management
strategies so as to ensure that the public debt remains
within sustainable limits and does not crowd out private
b o r r o w i n g f o r i n v e s t m e n t . T h e p o l i c y o f t h e
Government is driven by the principle of gradual
reduction of public debt to GDP ratio so as to further
reduce debt servicing risk and create fiscal space for
developmental expenditure. On the financing side, the
Government policy continues to remain anchored on
the following principles, namely (i) greater reliance
on domestic borrowings over external debt, (ii)
preference for market borrowings over instruments
carrying administered interest rates, (iii) consolidation
of the debt portfolio and (iv) development of a deep
and wide market for Government securities to improve
liquidity in secondary market.
36. One of the key public debt management reforms
under implementation is the establishment of a Debt
Management Office (DMO) in the Ministry of Finance.
It is proposed to introduce necessary legislation in
this regard in the Budget session for 2012-13. Middle
office, which was established as a prelude to functional
DMO, is bringing out various reports and information
wi th respect to publ ic debt . The debt issuance
calendar along with selection of instruments for
issuance is now being done in consultation with Middle
Office and RBI.
37. C o m m i t t e e o n S m a l l S a v i n g s w h i c h w a s
c o n s t i t u t e d i n J u l y 2 0 1 0 h a s g i v e n i t s
recommendations regarding review of the existing
parameters for the small saving schemes in operation
and recommended mechanisms to make them more
flexible and market linked. The Committee also
reviewed the existing terms of the loans extended from
the NSSF to the Centre and States and recommended
changes in the ar rangement of lending the net
collection of small savings to Centre and States along
with other possible investment opportunities for the
net collections from small savings and the repayment25
proceeds of NSSF loans extended to States and
Centre. The recommendations of the Committee were
considered in detail and certain decisions were taken
which would change the administration of NSSF in
coming yea` Based on the recommendation of the
a b o v e C o m m i t t e e , t h e r a t e s o n s m a l l s a v i n g
instruments have been aligned with the prevailing
market rates with effect from 1
st
December, 2011.
38. During 2011-12, there was a significant shortfall
in small savings collection when compared to Budget
Estimates 2011-12. Lower collection during the latter
part of 2010-11 created a cash shortfall in NSSF and
impacted Government's closing cash balance in
March 2011. Due to the above shortfall, government
deficit financing was impacted during 2011-12. The
estimated shortfall would be `34,484 crore in financing
from National Small Savings Fund (NSSF) in RE 2011-
12 when compared to BE 2011-12. Further, `20,000
crore which was estimated as cash draw-down in the
financing of deficit for 2011-12 is not available as
NSSF ended in cash deficit.
39. Due to the combined impact of above shortfalls
and increase in fiscal deficit by `1,09,163 crore in
absolute terms in RE 2011-12 over BE 2011-12,
G o v e r n m e n t h a d t o i n c r e a s e t h e n e t m a r k e t
borrowings through dated securities and auction
treasury bills by `93,000 crore and `1.01 lakh crore
respectively. This level of additional borrowing would
also take care of emerging cash requirements during
the first quarter of ensuing year (2012-13) when the
redemptions of existing debt stock is of higher level.
40. D u r i n g 2 0 11 - 1 2 , g r o s s a n d n e t m a r k e t
borrowings of the Central Government through dated
securities are at `5.10 lakh crore and `4.36 lakh crore
respectively as compared to `4.37 lakh crore and
`3.25 lakh crore respectively during 2010-11. The
weighted average maturity of dated securities issued
during 2011-12 at 12.66 years is higher than 11.62
years dur ing 2010-11. Ref lect ing the impact of
i n c r e a s e i n p o l i c y r a t e s a n d h i g h e r amo u n t o f
borrowing, the weighted average yield of issuance
during 2011-12 has increased to 8.52 per cent from
7.92 per cent during 2010-11.
41. The debt financing strategy for 2012-13 has
been formulated with continued reliance on domestic
dated securities market. Along with other components
of f inancing, f iscal def ici t of `5,13,590 crore is
proposed to be financed to the extent of `4,79,000
crore (amounting to 93.3 per cent of deficit) through
issuance of dated securities, `12,000 crore (2.3 per
cent of deficit) through net proceeds from State
Provident Funds, `9,000 crore through Treasury Bills
(1.8 per cent of deficit) and `10,148 crore through
external debt (2.0 per cent of deficit).
42. Propor t ion of external debt in the Cent ral
Government debt has declined consistently in the
recent years from 10 per cent in 2005-06 to 7.9 per
cent in 2010-11. With gradual decline in net inflow
from Multilateral Institutions in the coming years (in
view of their exposure norms and income norms),
government would have the option of exploring other
sources of external debt in the form of sovereign bond
issuance to maintain a reasonable mix of domestic
and external debt in its portfolio.
43. There is no balance estimated at the end of
financial year 2011-12 under Market Stabilisation
Scheme (MSS). Net accretion in MSS to the tune of
`20,000 crore is estimated for BE 2012-13.
44. With the above projected financing, debt and
liabilities of the Central Government is estimated to
decline to 45.5 per cent of GDP in BE 2012-13 from
45.7 per cent of GDP in RE 2011-12. In the medium
term outlook, as projected in the MTFP Statement,
debt and liabilities of the Central Government is
projected to decline to 44.0 per cent in 2013-14 and
41.9 per cent in 2014-15, well below the 13
th
FC
recommended target of 44.8 per cent for the year
2014-15.
45. R e c e n t e x p e r i e n c e i n s o v e r e i g n d e b t
management has shown that analysis of sovereign
debt sustainability should not be merely based on the
classical definition of principles related to Primary
deficit along with differential in interest and growth
rate. I t should factor in some of the impor tant
parameters of the debt and macro-economic situation
such as maturity profile, composition, carrying cost,
external or domestic investor base along with savings
rate, potential and realised tax to GDP ratio. The
characteristics of existing debt stock and economic
parameters in the case of India such as high domestic
savings rate, longer residual maturity, fixed rate of
interest on bulk of the existing stock, higher proportion
of domestic currency denominated debt and wide gap
between potential and realised tax to GDP ratio, put
India in a better position when compared to equally
or even lower level of indebted economies.
46. With regard to future financing scenario, an
analysis presented in the Debt Status Paper released
in March 2012, shows that Central Government would
be able to raise debt of the order of 4.9 per cent of
GDP in 2012-13 and in the range of 4.2 per cent to 4
per cent of GDP during the coming years through
dated securities. This augurs well as more resources26
could be released from the banking system towards
private sector, as the above financing analysis has
assumed gradual reduction in Statutory Liquidity Ratio
(SLR) requirement.
47. The shift in policy on the uses of disinvestment
proceeds from Central PSUs received under the
National Investment Fund (NIF) will continue for the
year 2012-13. The disinvestment proceeds estimated
at `30,000 crore in BE 2012-13 have been reckoned
as resources for the purpose of financing the social
sector programmes which are creating capital assets.
The income from investments made from proceeds
received upto 2008-09 under NIF would continue to
be used to finance social infrastructure and to provide
capital to viable public sector enterprises without
depleting the corpus of NIF. During 2010-11 and 2011-
12, when the ear l ier NIF modal i ty was kept in
a b e y a n c e , g o v e r n m e n t i s e s t i m a t e d t o r a i s e
disinvestment proceeds of `36,039 crore. Incidentally,
during the same period, Government is estimated to
invest `36,316 crore in capitalization of public sector
banks, regional rural banks and other f inancial
institutions including NABARD.
I n i t i a t i v e s i n P u b l i c E x p e n d i t u r e
Management
48. C e n t r a l P l a n S c h e m e M o n i t o r i n g S y s t e m
(CPSMS) is an initiative towards establishing a
suitable on-line management information and decision
support system. It is proposed to expand the Scheme
of Central Plan Scheme Monitoring System (CPSMS).
This would improve the tracking of funds released by
the Central Government and also ensure better
utilisation of borrowed resources. This MIS tracks
deployment/transfer of funds as well as their utilization
through all tiers of implementing agencies and in some
cases upto the end beneficiaries. The real time
availability of information on status of fund utilization
and balances in respective bank accounts will enable
better cash management system with timely release
of adequate funds and avoidance of parking of funds
without actual requirement. While ensuring reduced
cost of carrying borrowed fund, it would also improve
accountability as people can access information about
a particular scheme in their respective areas.
49. In order to have more effective monitoring of
deployment of resources and a robust Public Financial
Management System, a need has been felt to review
the present classification of government transactions.
Accordingly, a committee under the Chairmanship of
the Controller General of Accounts which was formed
to conduct a comprehensive review of the existing
system and suggest a new system keeping in view
the needs of better presentation of data across
national and sub-national governments and improved
reporting of transfer payments from one level of
government to another. The committee has submitted
its report. It has recommended to replace the existing
six tier hierarchical structure into separate logical
dimensions for depicting administrative responsibility,
functional classification for macro level planning,
recipient categories, intended beneficiaries and
geographical location. Government is examining the
proposed change in structure in consultation with
various stakeholders including State Governments.
50. The quarterly exchequer control based cash and
expenditure management system which inter alia
involves preparing a Monthly Expenditure Plan (MEP)
is being expanded from existing 23 Demands for
Grants during 2011-12 to additional 23 Demands for
Grants with effect from 2012-13. Initiatives have also
been taken with the MIS system from e-lekha to evenly
pace the plan expenditure during the year and also to
avoid rush of expenditure at the year end. The practice
of restricting the expenditure in the month of March
to 15 per cent of budget allocation within the fourth
quarter ceiling of 33 per cent is being enforced. The
emphasis is on right pacing plan expenditure by
e n s u r i n g a d e q u a t e r e s o u r c e s f o r e x e c u t i o n o f
budgeted schemes.
51. While designing programmes and schemes for
the XII
th
Five Year Plan, government would get benefit
from the recommendations of the Expert Committee
to streamline various Centrally Sponsored Schemes
and reduce their number only to the critical areas.
Further, the recommendation of the Expert Committee
on the issue of plan and non-plan classification is
being examined. Also, its recommendation regarding
direct releases to State Treasury merits consideration
for various Centrally Sponsored Schemes.
C. POLICY EVALUATION
52. Budget 2011-12 was presented against the
b a c k d r o p o f r o b u s t r e v i v a l o f g r owt h i n I n d i a n
economy. Indian economy was estimated to grow at
9 per cent over the then estimated growth of 8.5 per
cent in 2010-11. However, after budget presentation,
happenings around the globe including hardening of27
global crude prices and sticky high inflation scenario
in the domestic economy, forced the government to
make necessary changes in policy during 2011-12 to
address the emerging challenges.
53. Fiscal deficit which was estimated at 4.6 per cent
of GDP in BE 2011-12 has increased to 5.9 per cent
of GDP in RE 2011-12. This increase in deficit could
be attributed to moderation in growth, which impacted
direct tax collection and high inflation necessitating
additional expenditure on food, fertilizer and petroleum
subsidies. In the budget 2012-13, Government is
addressing the two main reasons of slippage by
controlling rise in subsidy related expenditure and
improving tax receipts as percentage of GDP through
additional resource mobilisation measures (ARM) in
indirect taxes. With ARM from indirect taxes, coupled
wi t h e s t ima t e d r e c e i p ts o f `4 0 , 0 0 0 c r o r e f r om
t e l e c o m m u n i c a t i o n s p e c t r u m a u c t i o n a n d
disinvestment proceeds of `30,000 crore, the fiscal
deficit for 2012-13 is estimated at 5.1 per cent of GDP.
The reduction in deficit has been estimated without
compromising on al locat ions for developmental
expenditure.
54. The strategy adopted for fiscal consolidation
over the medium term has to balance the need for
aiding the revival in growth without stoking inflationary
expectation through domestic policy actions. The
suggested roadmap of fiscal consolidation will help in
reducing the debt to GDP ratio from 46.0 per cent in
2010-11 to 45.7 per cent in RE 2011-12 and 45.5 per
cent in BE 2012-13. Gradually it is projected to decline
t o 4 1 . 9 p e r c e n t b y 2 0 1 4 - 1 5 a s a g a i n s t t h e
recommended debt level of 44.8 per cent of GDP by
the 13th FC.
55. The proposed amendment in the FRBM Act
would address the structural issue of imbalance in
t h e r e v e n u e a c c o u n t o f t h e Go v e r nme n t . Wi t h
mandated elimination of effective revenue deficit by
March 2015, more resources could be made available
f o r i n v e s t m e n t a n d c a p i t a l e x p e n d i t u r e . T h e
introduction of Medium-term Expenditure Framework
Statement along wi th the exist ing three FRBM
statements would provide certainty of allocation to
Ministries and Departments over the three year time
frame. With the introduction of three year rolling target
for expendi ture indicators wi th speci f icat ion of
underlying assumptions and risk involved, there would
be close monitoring of allocation of expenditure to
priority sectors thereby improving the quality of
expenditure.
Annual Financial Statement
(The Excel Sheet contains only data. For complete SBE's with notes please see PDF Format.)
Statement I - Consolidated Fund of India
- Revenue Account - Receipts
[EXCEL]
- Revenue Account - Disbursements [EXCEL]
- Capital Account - Receipts [EXCEL]
- Capital Account - Disbursements [EXCEL]
Statement IA - Disbursements 'Charged' on the Consolidated Fund of India [EXCEL]
Statement II - Contingency Fund of India - Net [EXCEL]
Statement III - Public Account of India
Receipts & Expenditure of Union Territories without Legislature [EXCEL]
21
Revenue forgone under the Central Tax System:
Financial Years 2010-11 and 2011-12
The main objective of any tax system is to raise revenues to fund Government expenditures. The amount of revenue raised is
determined to a large extent by tax bases and tax rates. It is also a function of a range of measures – special tax rates, exemptions,
deductions, rebates, deferrals and credits – that affect the level and distribution of tax. These measures are sometimes called "tax
preferences". They have an impact on Government revenue (i.e. they have a cost) and reflect the policy choices of the Government.
Tax preferences may be viewed as subsidy payments to preferred taxpayers. Such implicit payments are referred to as "tax
expenditures" and it is often argued that they should appear as expenditure items in the Budget. In this context, the basic issue is
not one of tax policy but one of efficiency and transparency – programme planning requires that the policy objectives be addressed
explicitly; and programme budgeting calls for the inclusion of such outlays under their respective programme headings. Tax
expenditures are spending programmes embedded in the tax statute.
A tax expenditure or a revenue forgone statement was laid before Parliament for the first time during Budget 2006-07 by way
of annex-12 of the Receipts Budget 2006-07. It was well received by all quarters and gave rise to a constructive debate on the
entire gamut of issues concerning fiscal policy. It also lent credence to the Government's intention of bringing about transparency
in the matter of tax policy and tax expenditures.
The second edition of this statement was placed before Parliament during Budget 2007-08 by way of annexure-12 of the
Receipts Budget and also by way of a separate budget document titled "Statement of Revenue Forgone". Thereafter, it was again
placed before Parliament during Budget 2008-09, 2009-10, 2010-11and 2011-12.
Like in the earlier six years, this Statement seeks to list the revenue impact of tax incentives or tax subsidies that are a part of
the tax system of the Central Government. The revenue forgone on account of such tax incentives has been estimated in respect
of most items of tax preferences. The estimates are for financial year 2010-11, the most recent year for which data is available.
However, an attempt has also been made to project the revenue forgone for income of the financial year 2011-12 on the basis of
the revenue forgone figures of the financial year 2010-11 projected on the provisional tax growth figures for 2011-12.
The estimates of the tax expenditures have been made on the basis of the following assumptions:-
(a) The estimates and projections are intended to indicate the potential revenue gain that would be realised by removing
exemptions, deductions, weighted deductions and similar measures. The estimates are based on a short-term impact
analysis. They are developed assuming that the underlying tax base would not be affected by removal of such measures.
As the behaviour of economic agents, overall economic activity or other Government policies could change along with
the elimination of the specific tax preference, the revenue implications could be different to that extent.
(b) The cost of each tax concession is determined separately, assuming that all other tax provisions remain unchanged.
Many of the tax concessions do, however, interact with each other. Therefore, the interactive impact of tax incentives
could turn out to be different from the revenue forgone calculated by adding up the estimates and projections for each
provision.
The assumptions and methodology adopted to estimate the revenue forgone on account of different tax incentives are
indicated at the relevant places in this Statement.
Direct Taxes
The Income-tax Act, inter alia, provides for tax incentives to promote savings by individuals; exports; balanced regional
development; creation of infrastructure facilities; employment; donations for charity and rural development; scientific research
and development; and the cooperative sector. Accelerated depreciation is also provided as an incentive for capital investment.
Most of these tax benefits can be availed of by both corporate and non-corporate taxpayers. This Statement attempts to estimate
some of the major tax expenditures.
A. Corporate Sector
Large business is mainly organised as companies. The Income-tax Department has received 4,59,270 corporate returns
electronically up to 31
st
December, 2011 for the financial year 2010-11 [i.e., assessment year 2011-12 ]. These returns constitute
about 90% of the total corporate returns expected in financial year 2011-12. These companies reported corporate tax payable as
` 2,28,158 crore [inclusive of surcharge and education cess] for their income of financial year 2010-11. They also reported
` 15,928 crore as Dividend Distribution Tax payable during the financial year 2010-11.
For the purposes of estimating the tax expenditure, data pertaining to these 4,59,270 companies
1
was culled from the
database for analysis and is detailed in tables 1 to 5 and Appendix to this statement. Table 1 profiles these companies across
1 The sample size for financial year 2009-10 was 4,27,811.
2122
profit ranges. The following facts emerge from an analysis of the data:-
• 2,66,347 companies (57.99 %) reported ` 9,46,731 crore as profits before taxes as per their books and a total taxable
income ( "total income")
2
of ` 6,23,572 crore for the financial year 2010-11.
• 1,61,596 companies ( 35.19 %) reported ` 2,03,564 crore as losses.
• 31,327 companies ( 6.82 %) reported Nil profit.
The effective tax rate
3
of the entire sample was 24.10 per cent
4
[as against the rate of 23.53 per cent reported in 2009-10].
The effective tax rate for corporates has been gradually rising (20.55% for 2006-07; 22.44% for 2007-08; 22.78% for 2008-09;
23.53% for 2009-10 and 24.1% for 2010-11). This is a result of the gradual phasing out of profit linked deductions and the levy of
Minimum Alternate Tax on companies.
Table 1: Profile of sample companies across range of profits before taxes
(financial year 2010-11) [sample size – 4,59,270]
Sl. Profit Before Taxes Number of Share in Share in Share in Ratio of Effective
No. Companies Profits Total Total Total Tax Rate
Before Income Corporate Income (in %)
Taxes (in %) Income Tax to Profits
(in %) Payable Before
(in %) Taxes
(in %)
1 Less than Zero 161596 0.00 0.27 0.208 - -
2 Zero 31327 0.00 4.22 1.86 - -
3 `0-1 Crore 237580 2.95 3.47 3.29 80.81 26.77
4 `1-10 Crore 22627 7.22 7.52 7.82 71.73 26.08
5 `10-50 Crore 4403 9.92 9.45 10.24 65.71 24.87
6 `50-100 Crore 735 5.43 4.99 5.45 63.45 24.21
7 `100-500 Crore 763 16.55 15.73 16.86 65.52 24.55
8 Greater than `500 Crore 239 57.92 54.36 54.28 64.72 22.59
9 All Sample Companies 459270 100.00 100.00 100.00 68.96 24.10
Table 2 profiles the sample companies across effective tax rates. 2,46,213 companies with average effective tax rate of less
than zero, zero and zero to 20 per cent accounted for 41.85 per cent of total profits before taxes, 20.31 per cent of total taxable
income and 25.74 per cent of total taxes paid. 42, 087 companies accounting for 11.45 per cent of total profits and 18.80 per cent
of the total taxes had an effective tax rate greater than the statutory rate. This is apparently on account of certain expenses debited
in profit and loss account being disallowable under the Income-tax Act.
Table 2: Profile of sample companies across range of effective tax rate*
(financial year 2010-11 [sample size – 459270 ]
Sl. Effective tax rate (in %) Number of Share in Total Share in Share in
No. Companies profits (in %) Total Total Tax
Income Payable
(in %) (in %)
1 Less Than Zero and Zero 176808 2.25 0.34 0.21
2 0-20 69405 39.60 19.97 25.53
3 20-25 16868 12.75 11.73 11.62
4 25-30 25652 16.73 20.00 18.97
5 30-33.21 97123 17.22 24.48 23.02
6 >33.21 42087 11.45 19.27 18.80
7 Indeterminate 31327 0 4.22 1.86
8 All Sample Companies 459270 100.00 100.00 100.00
* Effective tax rate is inclusive of surcharge and education cess.
2 The term "total income", in income-tax returns, represents taxable income i.e. the income as per books of accounts as adjusted by the
allowances and disallowances mandated under the Income-tax Act.
3 Effective tax rate in case of companies is the ratio of total taxes payable [including surcharge and education cess but excluding Dividend
Distribution Tax] to the total profits before taxes [PBT] and expressed as a percentage.
4 Effective tax rate including dividend distribution tax was 25.06 percent.23
Table 3 compares the effective tax rate of public sector companies [PSUs] with that of private sector companies. In a reversal
from previous years, the effective tax rate for private sector companies is slightly higher than that for public sector companies.
Table 3 : Effective tax rate* of sample companies in the public and private sectors
(financial year 2010-11) [sample size –459270 ]
Sl. Sector Number of Share in total Share in Effective
No. Companies profits (in %) total tax tax rate
payable (in %)
(in %)
1 Public 2113 21.95 20.30 22.28
2 Private 457157 78.05 79.70 24.61
Total 459270 100.00 100.00 24.10
* effective tax rate is inclusive of surcharge and education cess.
Table 4 shows a comparison between the effective tax rate of the manufacturing sector and the service sector in respect of the
sample companies. Both the sectors have an effective tax rate that is below the statutory rate of 33.21 per cent.
Table 4 : Effective tax rate* of sample companies in the manufacturing and service sectors
(financial year 2010-11) [sample size – 458696]
Sl. Sector Number of Share in total Share in Effective
No. Companies profits (in %) total tax tax rate
payable (in %)
(in %)
1 Manufacturing 121276 48.43 49.92 24.83
2 Service 337420 51.57 50.08 23.40
Total 458696 100.00 100.00 24.10
* Effective tax rate is inclusive of surcharge and education cess. Sample size is slightly less than the other tables as some of the returns did not
have the classification marked.
Table 5 gives details of the major tax expenditures on corporate tax payers in terms of the revenue forgone during the financial
year 2010-11 and 2011-12. The tax forgone on each tax concession claimed by these companies has been calculated by applying
the corporate tax rate of 33.21 per cent on the amount of each deduction. For revenue forgone on account of deduction/weighted
deduction for expenditure on scientific research and deduction for expenditure on eligible projects/schemes for social and economic
uplift of the public, it has been calculated by first determining the difference between the deduction debited to the profit and loss
account by companies and the deduction allowable under the Income-tax Act. Thereafter, the corporate tax rate of 33.21 per cent
has been applied to this difference to arrive at the revenue forgone figure.
Another aspect of revenue forgone is tax deferral. Tax deferral occurs when the taxpayer, on account of being allowed
higher deductions under the tax statute is able to defer his tax liability by claiming an allowance (e.g. depreciation allowance) as
a deduction over shorter time period whereas he may be spreading the same depreciation claim over a number of years in his own
accounts. As depreciation does not entail cash outgo, this is a tax deferral. On the other hand, the Minimum Alternate Tax (MAT)
on companies under the tax statute fastens a liability (for 2010-11, at the rate of 20% on book profits), on the profit reported by the
company to its shareholders (subject to some adjustments), if this liability is in excess of the tax liability computed at normal rates
(for 2010-11, at the rate of 33.21% on taxable income). The excess liability on account of MAT is allowed as a credit (for upto 10
years) in a subsequent year in which the normal tax liability is in excess of MAT. The additional tax paid on account of MAT is
therefore an advance payment of future tax liability. It restricts the period of deferral of taxes on account of claims of depreciation
and moderates the tax forgone on other deductions such as profit linked deductions by spreading the same claim over a longer
period of time.
Based on the revenue forgone figures for financial year 2010-11, the revenue forgone for the financial year 2011-12 has
been projected. The projection for 2011-12 has been made by multiplying the revenue forgone on each tax incentive in 2010-11
by the projected growth of corporate tax collections in 2011-12. Table 5, therefore, depicts the major tax expenditures on
corporate taxpayers in terms of tax forgone during the financial year 2010-11 and projection for financial year 2011-12.24
Table 5 : Major tax expenditure on corporate tax payers during
financial years 2010-11 and 2011-12 [sample size - 459270 ]
Sl. Nature of incentive Revenue Projected
No. Foregone Revenue
(in ` Crore) Foregone
[2010-11] (in ` Crore)
[2011-12]
1 Deduction of export profits of STPI units (section 10A) 7839 NIL*
2 Deduction of export profits of EHTP units (section 10A) 100 NIL*
3 Deduction of export profits of units located in SEZs (section 10A and 10AA) 7432 8153
4 Deduction of export profits of units located in EPZs (section 10A) 50 NIL*
5 Deduction of export profits of units located in FTZs (section 10A) 51 NIL*
6 Deduction of export profits of Export Oriented Units [EOUs] (section 10B) 3114 NIL*
7 Accelerated Depreciation (section 32) 33243 36468
8 Deduction/weighted deduction for expenditure on scientific
research (section 35 (1), (2AA) &(2AB)) 4685 5139
9 Deduction for expenditure on eligible projects or schemes for the
social and economic uplift of the public (section 35AC) 103 113
10 Deduction on account of donations to charitable trusts and
institutions (section 80G) 669 734
11 Deduction on account of donations for scientific research or
rural development (section 80GGA) 1 1
12 Deduction on account of contributions to political parties (section 80GGB) 6 7
13 Deduction of profits of certain industrial undertakings or a ship or a
hotel business (section 80-I) NIL Nil
14 Deduction of profits of undertakings engaged in development of
infrastructure facilities (section 80-IA) 3303 3623
15 Deduction of profits of undertakings engaged in development of SEZs
and Industrial Parks (section 80-IA) 345 378
16 Deduction of profits of undertakings engaged in providing telecommunication
services (section 80-IA) 2325 2550
17 Deduction of profits of undertakings engaged in generation, transmission
and distribution of power (section 80-IA) 7581 8316
18 Deduction of profits of undertaking engaged in revival of power plant (section 80-IA) 270 296
19 Deduction of profits of undertakings engaged in development of SEZs in
pursuance to SEZ Act, 2005 (section 80-IAB) 981 1076
20 Deduction of profits of industrial undertakings operating in the
small-scale sector (section 80-IB) 98 108
21 Deduction of profits of industrial undertakings located in
Jammu & Kashmir (section 80-IB) 209 229
22 Deduction of profits of industrial undertakings located in industrially
backward States other than Jammu & Kashmir (section 80-IB) 386 423
23 Deduction of profits of industrial undertakings located in
backward districts (section 80-IB) 65 71
24 Deduction of profits of industrial undertakings derived from multiplex
theatre and convention centre (section 80-IB) Nil Nil
25 Deduction of profits of industrial undertakings derived from development
of scientific research (section 80-IB) 73 8025
26 Deduction of profits of industrial undertakings derived from production
of mineral oil (section 80-IB) 3626 3978
27 Deduction of profits of industrial undertakings derived from housing
projects (section 80-IB) 928 1018
28 Deduction of profits of industrial undertakings derived from operating
a cold chain facility (section 80-IB) 3 3
29 Deduction of profits of industrial undertakings derived from integrated
business of handling, storage and transportation of food grains (section 80-IB) 28 31
30 Deduction of profits of industrial undertakings derived from processing,
preservation and packaging of fruits and vegetables (section 80-IB) 64 70
31 Deduction of profits of industrial undertakings derived from hospital
in rural area (section 80-IB) 8 9
32 Deduction of profits of undertakings set-up in North Eastern States (section 80-IC) 1055 1157
33 Deduction of profits of undertakings set-up in Sikkim (section 80-IC) 204 224
34 Deduction of profits of undertakings set-up in Uttaranchal (section 80-IC) 2726 2990
35 Deduction of profits of undertakings set-up in Himachal Pradesh (section 80-IC) 1650 1810
36 Deduction of profits from business of collecting and processing of
bio-degradable waste (section 80JJA) 41 45
37 Deduction in respect of employment of new workmen (section 80JJAA) 48 53
38 Deduction in respect of certain incomes of Offshore Banking Units [OBUs]
and International Financial Services Centre [IFSC] (section 80LA) 18 20
39 TOTAL 83328 79173
40 Less: Net additional tax liability on account of MAT
Additional tax liability on account of MAT: 29388
Less - Credit claimed for MAT payment made
in earlier years: 3972 25416 27881
41 NET REVENUE FORGONE 57912 51292
* The deduction has been phased out after 31.3.2011.
Across various sectors and activities, deductions for Software Technology Parks (STPs), Special Economic Zones (SEZs) and
the power sector and weighted deduction for expenditure on scientific research account for the major component of the total tax
forgone.
Revenue Forgone on export profits of units located in SEZs for financial year 2010-11 was projected at ` 5126 cores in the
previous year's statement. However, based on the data now available, the actual revenue forgone during 2010-11 on these units
is now estimated at ` 7432 crore. For financial year 2011-12, revenue forgone on account of these units has been estimated at
` 8153 crores. Keeping in mind the increase in revenue forgone in financial year 2010-11, the actual revenue forgone in financial
year 2011-12 in respect of units located in SEZs may be higher than the estimate.
The industry-wise distribution of effective tax rate of companies is given in the table in the Appendix to this statement. At the
lower range, the effective tax rate for Diamond cutting businesses and Software Development Agencies is at 19.32 per cent and
19.05 per cent respectively.
B. Non-Corporate [Firms/AOPs/BOIs] Sector
Apart from the corporate sector, large business is also organised as partnership firms and Association of Persons [AOPs] or
Body of Individuals [BOIs]. The tax expenditure on these is not as large as that in case of companies. The Income-tax Department
Sl. Nature of incentive Revenue Projected
No. Forgone Revenue
(in ` Crore) Forgone
[2010-11] (in ` Crore)
[2011-12]26
has received 5,02,141 returns filed electronically upto 31
st
December, 2011 for income of the financial year 2010-11. For the
purposes of estimating the tax expenditure, data pertaining to these 5,02,141 firms/AOPs/BOIs was culled out from the database
of the Income-tax Department. They account for a substantial part of the tax paid by the universe of firms/AOPs/BOIs in financial
year 2010-11.
The data was analysed and the following facts emerged:-
• The sample firms/AOPs/BOIs reported ` 70,880 crore as profits before taxes (losses were reported by about 8.63 per
cent of the sample) and declared a total income (taxable income) of ` 57,726 crore for the financial year 2010-11.
• These sample firms/AOPs/BOIs reported ` 17,134 crore as income tax payable [inclusive of education cess] for the
financial year 2010-11 . The effective tax rate
5
in their case works out to 24.17 per cent.
The tax forgone on each tax concession claimed by the sample firms/AOPs/BOIs has been calculated by applying the income
tax rate of 30.90 per cent on the amount of each deduction. The revenue forgone on account of accelerated depreciation,
deduction/weighted deduction for expenditure on scientific research and deduction for expenditure on eligible projects/schemes
for social and economic uplift of the public has been calculated by first determining the difference between the depreciation/
deduction debited to the profit and loss accounts by firms/AOPs/BOIs and the depreciation/deduction allowable under the Incometax Act. Thereafter, the income tax rate of 30.90 per cent has been applied to this difference to arrive at the revenue forgone figure.
Though the sample firms/AOPs/BOIs account for 90 per cent of all such entities in terms of taxes paid, the revenue forgone on
account of these sample firms/AOPs/BOIs has been taken to be the total revenue forgone in the non-corporate sector. To this
extent the revenue forgone may be a slight underestimate.
Based on the revenue forgone figures for financial year 2010-11, the revenue forgone for the financial year 2011-12 has
been estimated. The estimation for 2011-12 has been done by multiplying the revenue forgone on each tax incentive in 2010-11
by the projected growth in tax collections from firms/AOPs/BOIs in 2011-12. Table 6 depicts the major tax expenditures on noncorporate taxpayers in terms of revenue forgone during the financial years 2010-11 and 2011-12 . The highest tax expenditure,
by far, is from claims of deduction of profits of undertakings derived from Housing Projects which accounts for 31.59 % of the total
revenue forgone.
Table 6 : Major tax expenditure on sample firms/AOPs/BOIs during
financial years 2010-11 and 2011-12 [sample size – 502141]
Sl. Nature of incentive Revenue Projected
No. Forgone Revenue
(in ` Crore) Forgone
[2010-11] (in ` Crore)
[2011-12]
1 Deduction of export profits of STPI units (section 10A) 119 Nil*
2 Deduction of export profits of EHTP units (section 10A) Nil Nil*
3 Deduction of export profits of units located in SEZs (section 10A and 10AA) 354 412
4 Deduction of export profits of units located in EPZs (section 10A) 7 Nil*
5 Deduction of export profits of units located in FTZs (section 10A) 1 Nil*
6 Deduction of export profits of Export Oriented Units [EOUs] (section 10B) 358 Nil*
8 Accelerated Depreciation (section 32) 569 663
9 Deduction/weighted deduction for expenditure on scientific
research (section 35 (1), (2AA) &(2AB)) 6 7
10 Deduction for expenditure on eligible projects or schemes for the
social and economic uplift of the public (section 35AC) 26 30
11 Deduction on account of donations to charitable trusts and institutions (section 80G) 40 47
12 Deduction on account of donations for scientific research or rural
development (section 80GGA) Nil Nil
13 Deduction on account of contributions to political parties (section 80GGC) 1 1
14 Deduction of profits of certain industrial undertakings or a ship or a
hotel business (section 80-I) Nil Nil
5
Effective tax rate in case of firms/AOPs/BOIs is the ratio of total taxes payable [including education cess] to the total profits before taxes [PBT]
and expressed as a percentage.27
15 Deduction of profits of undertakings engaged in development of
infrastructure facilities (section 80-IA) 17 20
16 Deduction of profits of undertakings engaged in development of
SEZs and Industrial Parks (section 80-IA) 68 79
17 Deduction of profits of undertakings engaged in providing
telecommunication services (section 80-IA) 2 2
18 Deduction of profits of undertakings engaged in generation,
transmission and distribution of power (section 80-IA) 69 80
19 Deduction of profits of undertaking engaged in revival of power plant (section 80-IA) 3 3
20 Deduction of profits of undertakings engaged in development of SEZs
in pursuance to SEZ Act, 2005 (section 80-IAB) 8 9
21 Deduction of profits of industrial undertakings operating in
the small-scale sector (section 80-IB) 18 21
22 Deduction of profits of industrial undertakings located in
Jammu & Kashmir (section 80-IB) 63 73
23 Deduction of profits of industrial undertakings located in industrially
backward States other than Jammu & Kashmir (section 80-IB) 30 35
24 Deduction of profits of industrial undertakings located in
backward districts (section 80-IB) 10 12
25 Deduction of profits of industrial undertakings derived from multiplex
theatre and convention centre (section 80-IB) Nil Nil
26 Deduction of profits of industrial undertakings derived from development
of scientific research (section 80-IB) Nil Nil
27 Deduction of profits of industrial undertakings derived from
production of mineral oil (section 80-IB) Nil Nil
28 Deduction of profits of industrial undertakings derived from
housing projects (section 80-IB) 1950 2271
29 Deduction of profits of industrial undertakings derived from
operating a cold chain facility (section 80-IB) 1 1
30 Deduction of profits of industrial undertakings derived from
integrated business of handling, storage and transportation of food grains (section 80-IB) 3 3
31 Deduction of profits of industrial undertakings derived from processing,
preservation and packaging of fruits and vegetables (section 80-IB) 13 15
32 Deduction of profits of industrial undertakings derived from
hospital in rural area (section 80-IB) 3 3
33 Deduction of profits of undertakings set-up in North Eastern States (section 80-IC) 345 402
34 Deduction of profits of undertakings set-up in Sikkim (section 80-IC) 554 645
35 Deduction of profits of undertakings set-up in Uttaranchal (section 80-IC) 368 429
36 Deduction of profits of undertakings set-up in Himachal Pradesh (section 80-IC) 473 551
37 Deduction of profits from business of collecting and processing of
bio-degradable waste (section 80JJA) 8 9
38 Deduction in respect of certain incomes of Offshore Banking Units [OBUs]
and International Financial Services Centre [IFSC] (section 80LA) 1 1
39 Deduction of profits of cooperative societies (section 80P) 685 798
TOTAL 6173 6622
* The deduction has been phased out after 31.3.2011.
Sl. Nature of incentive Revenue Projected
No. Forgone Revenue
(in ` Crore) Forgone
[2010-11] (in ` Crore)
[2011-12]28
C. Individual Taxpayers
Chapter VI-A of the Income-tax Act primarily provides for deduction on certain payments; and deduction on certain incomes.
Individual taxpayers are eligible to claim these deductions and have a wide range of tax preferences available to them. However,
since 50 per cent of the individual taxpayers derive their income primarily from salaries, the profit-linked deductions [i.e. deduction
on certain business incomes] are not claimed by them. On the other hand, the group of non-salaried individuals claims both types
of deductions.
The estimates of revenue forgone on account of the various tax benefits granted to individual taxpayers is presented in Table
7. The revenue forgone under various sections of chapter VI-A of the Income-tax Act has been estimated on the basis of various
claims for tax preferences in the 68,62,807 returns filed electronically by individuals with the Income-tax Department till 31
st
December, 2011. Apart from chapter VI-A, the other major tax expenditure on individual taxpayers in the financial year 2010-11
was on account of the higher basic exemption limits for senior citizens (individuals aged 65 years or more) and women (other than
senior citizens).
Based on the figures of the sample of 68,62,807 returns of income, the revenue forgone for the entire population of tax payers
have been estimated as under:-
(i) The revenue forgone on account of higher basic exemption limits, as aforesaid (Sl. No. 22 and 23 of table 7), has been
calculated by multiplying the revenue forgone per senior citizen and per woman with their respective numbers. Their
respective numbers have been estimated by calculating the percentage of sample returns filed by them. Thereafter, this
percentage has been applied to the estimate of total number of individual taxpayers for financial year 2010-11. The total
sample returns filed electronically with the Income-tax Department till 31
st
December, 2011 is 68,62,807. The total
number of individual taxpayers for financial year 2010-11 is estimated to be 3,08,14,135 by assuming a growth rate of
5% over the estimate of the previous year which was 2,93,46,795. According to the sample returns, 5.53 per cent were
filed by senior citizens and 25.95 per cent of the balance returns were filed by women (other than senior citizens).
Further, the revenue forgone on account of a senior citizen and woman [who is not a senior citizen] has been calculated
by taking into account the difference between the higher basic exemption limits [` 2,40,000 and ` 1,90,000 respectively]
as compared to the general exemption limit of ` 1,60,000 and applying the lowest tax rate of 10% (plus cess) on the
difference. Thereafter, the revenue forgone on account of each such taxpayer has been projected on the total estimate of
the number of such tax payers.
(ii) Specifically, in the case of deduction under section 80-IA, 80-IAB, 80-IB and 80-IC (Sr. No. 12 to15 of table 7) the revenue
forgone has been calculated on the assumption that these figures reflect the total claims made by individuals under these
sections as all tax audited returns for income of F.Y. 2010-11 were subject to compulsory e-filing.
(iii) In all other cases, the revenue forgone for the entire population of taxpayers is worked out bya) First calculating the average revenue forgone for a particular incentive per taxpayer for each income slab which has
a separate tax rate in the sample returns.
(b) Secondly, multiplying this by the estimated total number of individual taxpayers in that income slab for financial year
2010-11.
This gives the revenue forgone for that income slab for a particular incentive. The sum of the revenue forgone for all the slabs
gives the revenue forgone for the entire population on account the particular tax incentive.
(iv) Based on the revenue forgone figures for financial year 2010-11, the revenue forgone during the financial year 2011-
12 has been estimated. This estimation has been done by multiplying the revenue forgone on each tax incentive in 2010-
11 by the projected growth in tax collections from individual taxpayers in 2011-12.
As detailed above, table 7 depicts the major tax expenditures on individual taxpayers in terms of revenue forgone during
financial years 2010-11 and 2011-12.
Table 7: Major tax expenditure on individual taxpayers during the
financial years 2010-11 and 2011-12
Sl. Nature of incentive/deduction Revenue Projected
No. Forgone Revenue
(in ` Crore) Forgone
[2010-11] (in ` Crore)
[2011-12]
1 Deduction on account of certain investments and payments (section 80C) 24359 28371
2 Deduction on account of contribution to certain pension funds (section 80CCC) 124 144
3 Deduction on account of contribution to the New Pension Scheme (section 80CCD) 18 21
4 Deduction on account of health insurance premium (section 80D) 579 67429
5 Deduction on account of expenditure for medical treatment of
a dependent who is disabled (section 80DD) 73 85
6 Deduction on account of expenditure for medical
treatment of specified diseases (section 80DDB) 27 32
7 Deduction on account of interest on loan taken for higher education (section 80E) 138 161
8 Deduction on account of donations to charitable trusts and institutions (section 80G) 288 335
9 Deduction on account of rent paid for housing accommodation (section 80GG) 70 81
10 Deduction on account of donations for scientific research or
rural development (section 80GGA) 70 81
11 Deduction on account of contributions given to political parties (section 80GGC) 7 8
12 Deduction of profits of undertakings engaged in development of
infrastructure facilities, SEZs and Industrial Parks, generation of power, and
providing telecommunication services (section 80-IA) 29 34
13 Deduction of profits of undertakings engaged in development of
SEZs in pursuance to SEZ Act, 2005 (section 80-IAB) 0 0
14 Deduction of profits of industrial undertakings derived from housing projects,
production of mineral oil, development of scientific research, integrated
business of handling, storage and transportation of food grains and of industrial
undertakings located in Jammu & Kashmir and in other backward
areas (section 80-IB) 223 260
15 Deduction of profits of undertakings set-up in North Eastern States,
Sikkim, Uttaranchal and Himachal Pradesh (section 80-IC) 288 335
16 Deduction of profits from business of collecting and processing
of bio-degradable waste (section 80JJA) 11 13
17 Deduction of professional income of authors of text books in
Indian languages (section 80QQA) Nil Nil
18 Deduction of royalty income of authors of certain books other
than text books (section 80QQB) 8 9
19 Deduction of royalty income on patents (section 80RRB) 0 0
20 Deduction in case of a person with disability (section 80U) 85 98
21 Deduction on account of certain investments in Infrastructure
Bonds (section 80CCF) 517 602
22 Higher exemption limit for senior citizens 1405 1636
23 Higher exemption limit for women 2334 2718
TOTAL 30653 35698
The tax expenditure on account of investments in various savings instruments, repayment of principal of housing loan and
payment of tuition fees for children [all these come under section 80C of the Income-tax Act] is the single largest tax expenditure in
case of individual taxpayers followed by deduction on account of health insurance premium (section 80D). The revenue forgone
on account of higher basic exemption limits for senior citizens and women are also significant. As regards profit-linked deductions,
the highest tax expenditures are on account of section 80-IB and section 80-IC of the Income-tax Act, 1961.
Sl. Nature of incentive/deduction Revenue Projected
No. Forgone Revenue
(in ` Crore) Forgone
[2010-11] (in ` Crore)
[2011-12]30
Indirect Taxes
A. Excise duties
Excise duty is levied as per the rates specified in the First and Second Schedules to the Central Excise Tariff Act, 1985. In
many cases, the various Finance Acts specify the rates at which these duties should be levied. The rates specified in various
enactments are known as the "tariff rates" of excise duty. Central Government has been granted powers under Section 5A(1) of
the Central Excise Act, 1944 to issue exemption notifications in public interest so as to prescribe duty rates lower than the tariff
rates prescribed in the Schedules. The rates prescribed by exemption notifications are known as the "effective rates".
Revenue forgone is defined to be the difference between duty that would have been payable but for the issue of the
exemption notification and the actual duty paid in terms of the relevant notification –
• In cases where the tariff and effective rates of duty are specified as ad valorem rates,-Revenue forgone= Value of goods
X (Tariff rate of duty - Effective rate of duty)
• In cases where the tariff rate is on ad valorem basis but the effective duty is levied at specific rates under the terms of
exemption notification, then – Revenue forgone= (Value of goods X Tariff rate of duty) - (Quantity of goods X Effective
rate of specific duty)
• In cases where the tariff rates and effective rates are a combination of ad valorem and specific rates, revenue forgone is
calculated accordingly
• In all the above cases, if the tariff rate of duty equals the effective rate, revenue forgone will be zero.
Besides the powers to issue general exemption notifications under Section 5A(1) ibid, the Central Government also has
the powers to issue special orders for granting excise duty exemption on case to case basis under circumstances of an exceptional
nature, vide Section 5A(2) of the Central Excise Act. However, unlike general exemptions which form part and parcel of fiscal
policy of the Central Government, the main object behind issue of exemption orders is to deal with circumstances of exceptional
nature. As such, the duty forgone on account of issue of special exemption orders is not being calculated towards revenue forgone
figures.
Automation of Central Excise & Service Tax (ACES) system has been launched in all the Central Excise formations
across the country. The revised figure of duty forgone for 2010-11 is based on ACES data, which, among other thing, enables
capture of data contained in returns filed by assesses. As the actual figures for revenue realization are now available for the whole
year, revised revenue forgone figure has been worked out accordingly. The duty forgone due to the operation of area based
exemptions scheme has been obtained separately from the concerned Central Excise zones and added. In the last Budget, the
revenue forgone estimate for the financial year 2010-11 was calculated using the extrapolation method based on data for part of
the year i.e. April-November, 2010. Accordingly, the revenue forgone for the financial year 2010-11was estimated at ` 1, 98,291
crore [` 1, 87,041 crore + ` 11,250 crore (towards area based exemption)]. The revised revenue forgone for the financial year
2010-11based on actual data for the full year comes to ` 1, 92,227 crore as against the estimates of ` 1, 98,291 crore.
As in the past, the revenue forgone for the current financial year i.e. 2011-12 has also been estimated using the
extrapolation method based on ACES data for part of the year i.e. April-December, 2011. Accordingly, the revenue forgone for the
financial year 2011-12 is estimated at ` 2, 12,167 crore including ` 12,880 crore on account of area based exemptions.
The estimates of ` 2,12,167 crore show an increase of about 10.37% over last year's corresponding revised figure of
`1,92,227 crore. The revenue forgone has increased compared to that registered in 2010-11, because in 2010-11 the excise duty
on unbranded Diesel continued to be charged at the rate of ` 2.60 per litre respectively, whereas with effect from 25
th
June 2011,
unbranded Diesel was fully exempted from excise duty resulting in significant increase in duty forgone significantly. Further, the
excise duty collections have increased in the current financial year by about 6.8% till January, 2012 compared to similar period in
2010-11. The increase in revenue forgone has been partially offset on account of levy of central excise duty of 1% (if no CENVAT
is availed) and 5% (if CENVAT on inputs is availed) on 130 items, which were exempt from central excise duty as also levy of
compulsory excise duty @ 10% on ready- made garments with effect from 01.03.2011.
As for area-based exemptions, there are two types of schemes currently in operation - [i] based on refunds and [ii] outright
exemption as in the case of Himachal Pradesh and Uttarakhand. In the case of refund-based exemptions, the revenue forgone is
computed by aggregating the refunds actually sanctioned to the individual units or claimed by them during the year. With an
increase in clearances, it is evident that the quantum of refunds would increase. As for outright exemptions, the revenue forgone
is calculated using the difference between the general effective rate and the duty actually paid (Nil). By the same logic, therefore,
the revenue forgone in respect of the exemption schemes also reflects the upward trend.31
The revenue forgone figures are given in Table 8 below.
Table 8 : Tax expenditure under Excise duty regime
Sl. Details of Exemption Revenue forgone (in crore)
No. 2010-11 2011-12
Estimates Revised Estimates
1 Area based exemptions applicable in the North Eastern states,
Uttaranchal, Himachal Pradesh, Jammu & Kashmir and
Kutch district of Gujarat 11250 10246 12880
2 Others 187041 181981 199287
Total 198291 192227 212167
B. Customs duties
Customs duty is levied under Customs Act, 1962 as per the rates specified in the First Schedule to the Customs Tariff Act,
1975 known as "tariff rates". The Customs Tariff Act, 1975 also provides for levy of (i) additional duty of customs (commonly
referred to as countervailing duty or CV duty), which is levied at a rate equal to the duties of excise leviable on like goods if they
were manufactured in India and (ii) special additional duty of customs (commonly referred to as Special CVD or SAD) which is
levied at a rate of 4%. Duties of excise are levied under the Central Excise Act as per the rates specified in the Schedule to the
Central Excise Tariff Act, 1985 and various Finance Acts. The Central Government has been delegated powers of exemption
under Section 25(1) of the Customs Act, 1962 to issue notifications in public interest so as to prescribe duty rates lower than the
tariff rates prescribed in the Schedule to the Customs Tariff Act. These rates prescribed by notification are known as the "effective
rates".
The revenue forgone is thus defined to be the difference between duty that would have been payable but for the issue of the
exemption notification and the actual duty paid in terms of the relevant notification. In other words,
Revenue forgone= Value X (Tariff rate of duty – Effective rate of duty)
Thus, if the tariff rate equals the effective rate, revenue forgone is zero.
The estimate of revenue forgone under various exemption notifications is based on the data generated from the Bills of Entry
filed in the Indian Customs Electronic Data Interchange System (ICES) at various Electronic Data Interchange (EDI) locations.
However, since the EDI system does not capture data in respect of imports through such ports, ICDs & CFSs where either EDI
system has not become fully functional or where filing of Bills of Entry is still happening manually, the EDI data does not provide
a complete picture of the customs revenue forgone. Suitable adjustments (mainly additions) are made to EDI data in order to
include revenue forgone on account of bulk imports or transactions cleared in the manual mode. The revenue forgone data takes
into account the exemptions from basic customs duty, CV duty and also exemption notifications issued under Central Excise Act,
1944 which are relevant for levy of CV duty. It also takes into account exemptions from special CVD of 4%.
For the year 2010-11, gross customs revenue captured by EDI data was ` 107624 crore as against actual gross customs
revenue collection of ` 135780 crore. Thus, the EDI captured nearly 80% of the actual reported gross customs revenue collection
for the year 2010-11. This implies that the estimation of revenue forgone is based on a fairly large and representative data base.
In order to work out the revenue forgone for the year 2010-11, EDI data has been adjusted upward both for completing
coverage as well as fully capture revenue on account of edible oils, minerals and ores and petroleum products/ crude petroleum,
which are normally imported as bulk cargo through Customs locations, some of which are still not on EDI.
The total revenue realized as per the EDI data for the year 2010-11 is `107624 crore, however the gross customs revenue for
the year was ` 135780 crore indicating a coverage of 80%. The total Revenue forgone as generated from the EDI system comes
to `184105 crore. After suitable adjustments made for coverage and bulk cargo (not on EDI), duty forgone for the year 2010-11
on account of all the exemption notifications comes to ` 230131 crore as against the estimated duty forgone of ` 228500 crore
published last year. Further, after deducting the revenue forgone from the various export promotion schemes (other than drawback)
and the category of incentive schemes mentioned at Sr. no. 14 of the Table 11 below, the net duty forgone for the year 2010-11
works out to ` 172740 crore.
In order to work out the estimated revenue forgone for the year 2011-12 (estimated), the same methodology was adopted.
The EDI captured nearly 94% of the actual reported gross customs revenue collection this year indicating much improved EDI
coverage. The EDI revenue forgone figures for the period April 2011-January 2012 were extrapolated for 12 months to ` 27609332
crore, yielding an increase in revenue forgone by 20% over the previous year. Further, after deducting the revenue forgone from
the various export promotion schemes (other than drawback) and the category of incentive schemes mentioned at Sr. no. 14 of the
Table 11 below, the net duty forgone (Estimated )for the year 2011-12 works out to ` 223653 crore.
The revenue forgone has increased compared to that registered in 2010-11 (20% more than the previous year) because in
2010-11 the effective basic customs duty on crude petroleum oil, Petrol and Diesel continued to be charged at 5%, 7.5 % and 7.5%
respectively, whereas from 25
th
June 2011, the effective basic Customs duty for the same was reduced to Nil, 2.5% and 2.5 %
respectively. Thus for the remaining financial year since 25
th
June, 2011, the duty forgone amount has increased significantly.
Further, the base for collection of Customs duty (i.e. the aggregate value/volume of imports) has also increased in the current
financial year as evident from 12% increase in the customs duty collections till January, 2012 compared to similar period in last
financial year 2010-11.
The customs duty forgone for the period 2010-11 and 2011-12 on account of major commodity groups and their share in
overall duty forgone is given in Table 9 as under:
Table 9: Contribution of major commodity groups contributing to revenue foregone
(in ` crore)
Sector 2010-11 2011-12 (Estimated)
Revenue % Share in total Revenue % Share in total
forgone revenue forgone forgone revenue forgone
Crude oil and mineral oils (27) 41200 18 58190 21
Machinery (84& 85) 25137 10 29979 11
Diamond and gold (71) 49164 21.50 57063 20.75
Edible vegetable, fruits, cereals,
vegetable oils (7, 8, 10, 15) 27928 12.75 32682 12
Primary metals and articles
thereof (72 to 83) 12768 5 14747 5.50
Chemicals and plastics (28, 29, 39) 18168 7.50 18395 6.75
Textile (50 TO 63) 11393 5.25 12370 4.50
Fertilizer 6039 3 8927 3.25
Salt and ores (25 TO 26) 7249 3.25 8785 3.25
Drugs 3041 1.25 1611 .60
Total 201166 87.50 242759 88
The revenue foregone data for each of the chapters of Customs Tariff Act is given in Table 10 as under:
Table 10: Estimates of major tax expenditure under the Customs duty regime
(` in Crore)
Chapter Brief Description of Goods 2010-11 2011-12
(Estimated)
1 Live animals 2 4
2 Meat and edible meat offal 4 5
3 Fish and crustaceans, other aquatic invertebrates 27 40
4 Dairy Products 465 648
5 Other products of animal origin 57 73
6 Live trees and other plants 6 7
7 Edible vegetables, certain roots and tubers 3885 4676
8 Edible fruit and nuts 1968 2733
9 Coffee, tea, mate and spices 756 85233
10 Cereals 507 106
11 Products of the milling industry 38 28
12 Oilseeds, grains, seeds, fruits 271 289
13 Lac, gums and resins 179 140
14 Vegetable plaiting materials 1 5
15 Animal of vegetable fats 21568 25167
16 Preparations of meat or fish 12 20
17 Sugar 2330 667
18 Cocoa 182 251
19 Preparations of cereals 39 39
20 Preparation of vegetables 58 81
21 Miscellaneous edible preparations 406 502
22 Beverages and spirits 237 182
23 Residues and waste from food industry 268 281
24 Tobacco 71 65
25 Salt, sulphur earths and stone 539 914
26 Ores 6710 7871
27 Mineral fuels and mineral oils 41200 58190
28 Inorganic chemicals 2903 3902
29 Organic chemicals 11713 10579
30 Pharmaceutical products 3041 1611
31 Fertilizers 6039 8927
32 Tanning and dyeing extracts, pigments 492 570
33 Essential oils 395 417
34 Soap and washing preparations 168 218
35 Albuminoidal substances 182 200
36 Explosives, matches 11 5
37 Photography goods 93 107
38 Miscellaneous chemical products 1768 2204
39 Plastics 3552 3915
40 Rubber 2192 2580
41 Hide and skins and leather 378 357
42 Articles of leather 50 66
43 Fur skins 3 4
44 Wood 1118 1341
45 Cork 1 2
46 Manufactures of straw 0 1
47 Wood Pulp 621 773
48 Paper 1716 1795
(`in Crore)
Chapter Brief Description of Goods 2010-11 2011-12
(Estimated)34
49 Printed books, newspapers 476 562
50 Silk 512 535
51 Wool 434 467
52 Cotton 1994 889
53 Other vegetable fibres 89 102
54 Manmade filaments 4052 5337
55 Man made staple fibres 590 695
56 Wadding and non wovens 50 50
57 Carpets 30 31
58 Special woven fabrics 2396 3279
59 Coated textile fabrics 717 657
60 Knitted fabrics 309 265
61 Knitted readymade garments 66 63
62 Woven garments 95 110
63 Made ups 59 100
64 Footwear 205 236
65 Head gear 4 3
66 Umbrellas 13 17
67 Feathers/artificial flowers 14 4
68 Articles of stone, plaster 136 146
69 Ceramic Products 366 546
70 Glass and glass ware 201 198
71 Precious stones, jewellery 49164 57063
72 Iron and steel 7615 8560
73 Articles of iron and steel 2168 2626
74 Copper and articles thereof 690 1045
75 Nickel and articles thereof 238 273
76 Aluminum and articles thereof 969 1148
78 Lead and articles thereof 270 252
79 Zinc and articles thereof 96 90
80 Tin and articles thereof 77 84
81 Other base metals 93 123
82 Tools and implements 390 359
83 Miscellaneous articles of base metals 162 186
84 Machinery 14298 16792
85 Electrical machinery 10839 13187
86 Railways or tramways locomotives, rolling stocks etc. 116 103
87 Motor vehicles 3068 4209
88 Aircrafts 1869 2438
(`in Crore)
Chapter Brief Description of Goods 2010-11 2011-12
(Estimated)35
89 Ships, boats and floating structures 2289 4185
90 Optical/photographic instruments 2958 3138
91 Clocks and watches 69 78
92 Musical instruments 9 6
93 Arms and ammunitions 306 1031
94 Furniture 328 301
95 Toys and games 263 226
96 Miscellaneous manufactured articles 192 191
97 Work of art, antiques 29 93
98 Project imports, baggage 536 603
Total 230131 276093
These figures include revenue forgone from the working of various export promotion schemes other than from drawback. The
break-up of revenue forgone from individual export promotion schemes is given below, separately. Out of these schemes, Duty Free
Entitlement Credit Certificate, Target Plus, Vishesh Krishi and Gram Udyog Yojana (VKGUY), Served from India and Focus Market
are incentive schemes. The remaining are either exemption schemes or input tax neutralization schemes, which primarily accord
input tax credit so as to offer a level playing field to our exporters in the international markets. In this sense, the revenue forgone from
the various export promotion schemes (other than drawback) needs to be scaled down by the amount of revenue forgone from the
various export promotions schemes falling in the category of incentive schemes. Sr. no. 15 of the Table 11 hereunder tabulates the
amount of such revenue forgone.
Table 11: Revenue Forgone on account of Export Promotion Concessions
( in Crore)
S. No. Name of the Scheme 2010-11 2011-12
(Estimated)
1 Advance Licence Scheme 19355.28 21035
2 EOU/EHT/STP 8579.87 4213.57
3 EPCG 10621.24 9580.36
4 DEPB Scheme 8756.55 11103.30
5 SEZ 8630.16 5313.60
6 DFRC 43.53 29.22
7 Duty Free Import Authorisation Scheme 1404 1165.32
8 Duty Free Entitlement Credit Certificate 156.39 167.53
9 Target plus schemes 374 1047.20
10 Vishesh Krishi and Gram Udyog Yojana 1788.48 2021
11 Served from India Scheme 542 322.65
12 Focus Market/Product Sheme 1757.50 3146.41
13 TOTAL 62009 59145
14 Less revenue forgone on incentive schemes mainatined at S.Nos. 8 to 12 4618.37 6704.79
15 Revenue Forgone on account of input tax neutralisation or exemption schemes
to be reduced from gross revenue forgone on account of customs duty 57390.63 52440.21
(` in Crore)
Chapter Brief Description of Goods 2010-11 2011-12
(Estimated)36
These aforesaid estimates of revenue forgone do not include revenue forgone on account of ad hoc exemption
orders issued under Section 25(2) of the Customs Act, 1962, that relate to circumstances of an exceptional nature.
The revenue forgone for Direct and Indirect Taxes are given in Table 12 and 13 below:
Table 12: Revenue Forgone (Direct Taxes) in financial years 2010-11 and 2011-12
(in Crore)
Revenue Forgone Projected Revenue Forgone
in 2010-11 in 2011-12
Corporate Income-tax 57912 51292
Personal Income-tax 36826 42320
Total 94738 93612
Table 13: Revenue Forgone (Indirect Taxes) in financial years 2010-11 and 2011-12
(in Crore)
Revenue Forgone Actual tax Revenue Forgone Estimated tax
in 2010-11 collection in 2010-11 in 2011-12(Estimated) collection in 2011-12
Excise Duty 192227 139744 212167 146000
Customs duty* 172740 135780 223653 153000
* Custom duty less export credit related (Sl. No. 15 of table 11)
APPENDIX
Effective tax rate, inclusive of surcharge and education cess, of sample companies across industry
(financial year 2010-11) [sample size – 458696]
Sl. Sector Industry Number of Profit Total tax Effective
No Companies before tax payable tax rate
(in ` crore) (in ` crore) (in %)
1 Manufacturing Agro-based Industries 11356 8169 1958 23.98
2 Manufacturing Automobile and Auto parts 4075 34796 9209 26.46
3 Manufacturing Cement 689 5597 1230 21.98
4 Manufacturing Diamond Cutting 423 1653 319 19.32
5 Manufacturing Drugs and Pharmaceuticals 4965 38612 8213 21.27
6 Manufacturing Electronics, including
Computer Hardware 2517 7143 1736 24.30
7 Manufacturing Engineering goods 9400 35479 10704 30.17
8 Manufacturing Fertilizers, Chemicals and Paints 3660 15488 4226 27.29
9 Manufacturing Flour and Rice Mills 1285 797 233 29.21
10 Manufacturing Food Processing Units 2472 5447 1422 26.11
11 Manufacturing Marble and Granite 1879 970 281 28.93
12 Manufacturing Paper 1439 1719 386 22.48
13 Manufacturing Petroleum and Petrochemicals 657 41186 9560 23.21
14 Manufacturing Power and Energy 4107 79345 17512 22.07
15 Manufacturing Printing and Publishing 2493 4165 1229 29.5137
16 Manufacturing Rubber 891 736 188 25.61
17 Manufacturing Steel 4675 29839 8163 27.36
18 Manufacturing Sugar 292 1919 504 26.25
19 Manufacturing Tea and Coffee 910 1493 197 13.19
20 Manufacturing Textiles, Handlooms and Powerlooms 9067 13003 2701 20.77
21 Manufacturing Tobacco 291 877 259 29.49
22 Manufacturing Tyre 144 1721 490 28.50
23 Manufacturing Vanaspati and Edible Oils 623 1104 284 25.71
24 Manufacturing Others 52966 127190 32839 25.82
25 Trading Chain Stores 757 573 156 27.33
26 Trading Retailers 10523 5235 1536 29.34
27 Trading Wholesalers 18131 7075 2140 30.24
28 Trading Others 68129 54927 11615 21.15
29 Commission Agents General Commission Agents 4154 1285 377 29.34
30 Builders Builders 14754 6106 1436 23.52
31 Builders Estate Agents 2769 349 113 32.54
32 Builders Property Developers 23821 18065 3680 20.37
33 Builders Others 17390 6199 1419 22.89
34 Contractors Civil Contractors 8298 13999 3854 27.53
35 Contractors Excise Contractors 21 7 2 32.21
36 Contractors Forest Contractors 12 2 0 9.68
37 Contractors Mining Contractors 692 2509 810 32.29
38 Contractors Others 8451 11243 2749 24.45
39 Professionals Chartered Accountants, Auditors, etc. 66 5 2 33.21
40 Professionals Fashion Designers 93 44 10 22.11
41 Professionals Legal Professionals 248 29 8 28.81
42 Professionals Medical professionals 1218 210 61 29.26
43 Professionals Nursing Homes 924 151 43 28.24
44 Professionals Specialty Hospitals 917 1099 272 24.78
45 Professionals Others 5454 1072 330 30.79
46 Service Advertisement Agencies 2423 1383 421 30.47
47 Service Beauty Parlours 192 41 14 35.40
48 Service Consultancy Services 13366 11116 2430 21.86
49 Service Courier Agencies 416 474 176 37.06
50 Service Computer Training, Educational
and Coaching Institutes 2453 1075 265 24.69
51 Service Forex Dealers 638 235 67 28.34
52 Service Hospitality Services 3299 1453 346 23.80
Sl. Sector Industry Number of Profit Total tax Effective
No Companies before tax payable tax rate
(in ` crore) (in ` crore) (in %)38
Sl. Sector Industry Number of Profit Total tax Effective
No Companies before tax payable tax rate
(in ` crore) (in ` crore) (in %)
53 Service Hotels 6067 12410 3098 24.96
54 Service IT Enabled Services, BPO
Service Providers 8648 17978 3836 21.34
55 Service Security Agencies 1278 429 153 35.68
56 Service Software Development Agencies 9661 41491 7904 19.05
57 Service Transporters 3683 5629 1247 22.16
58 Service Travel Agents and Tour Operators 3353 1002 280 27.94
59 Service Others 49444 53749 13063 24.30
60 Financial Service Banking Companies 290 102820 25351 24.66
61 Financial Service Chit Funds 2167 318 101 31.71
62 Financial Service Financial Institutions 321 12746 3151 24.72
63 Financial Service Financial Service Providers 2906 5796 1594 27.50
64 Financial Service Leasing Companies 557 1221 268 21.94
65 Financial Service Money Lenders 445 115 32 27.54
66 Financial Service Non-Banking Financial Companies 8269 27758 7162 25.80
67 Financial Service Share Brokers, Sub-brokers, etc. 3951 4849 1488 30.68
68 Financial Service Others 20213 46843 8984 19.18
69 Entertainment Industry Cable T.V Productions 315 141 42 29.51
70 Entertainment Industry Film Distribution 319 1079 216 19.99
71 Entertainment Industry Film Laboratories 27 73 7 10.05
72 Entertainment Industry Motion Picture Producers 461 287 71 24.80
73 Entertainment Industry Television Channels 348 2290 738 32.21
74 Entertainment Industry Others 5088 3143 1100 34.99
Total 458696 946576 228061 24.09
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