The budget mostly promised to reduce the nation’s fiscal deficit and rein in costly subsidies and bring in critical reforms, but for the moment given the political situation garnering the necessary revenue has been done through increases in indirect taxation. Though allocation to critical sectors has been increased there is no immediate focus on putting the economy on a high growth trajectory.
Some Measures and Effects: Tax burden for individuals to come down slightly; income tax exemption limit has been raised. Small savers to benefit from exemptions for investments in equity and bank fixed deposits up to a limit. Inflationary in the short-run; no change in corporate tax rate, but standard rate of excise duty, as also service tax rates, raised from 10 per cent to 12 %. Capital markets get a boost; securities transaction tax (STT) on cash delivery reduced by 25 % to 0.1 %. A new equity saving scheme to allow income tax deduction to small retail investors in stocks. Corporate debt market has been opened up for qualified foreign investors (QFIIs). Provision for re-capitalising public sector banks and FIs. To tackle slowdown and supply-side bottlenecks; additional capital has been provisioned to boost agriculture, agricultural research, fertilizer industry, irrigation, infrastructure and energy. External commercial borrowing has been allowed in sectors like airlines, power projects and low-cost housing. Tax relief for stressed sectors; agriculture, infrastructure, mining, railways, roads, civil aviation, manufacturing, health and nutrition, and environment have been provided with duty relief. Social sector is a focal point; higher allocation for education, health and financial inclusion. Several legislative reforms have also been proposed in the budget. The cut down in oil subsidy bill shows intentions of increased oil-price pass-throughs.
Some Budget Numbers: Total expenditure in 2012-13 seen to be up by 29 %. Gross Tax Receipts estimated at 15.6 per cent higher than original budget estimates and 19.5 per cent over the revised estimates for 2011-12. Fiscal deficit targeted at 5.1 per cent of GDP in 2012-13, to be reduced from 5.9 per cent in 2011-12. Aim to keep subsidies under 2 % of GDP in 2012-13. Central Government debt is at 45.5 per cent of GDP.
Some Hidden Numbers: Revenue foregone on custom duties constitute over 40% of total revenue foregone on account of exemptions and special rates; the items which account for the major amount of customs duty foregone are Gold & Diamonds (mainly for export promotion) followed by Crude & Mineral Oils, which together with Fertilisers make up of almost 25% of customs duty foregone. Revenues foregone for customs and excise duties are nearly 150% of revenue collections on those accounts. With corporate tax rate held at 30%, effective tax rates for corporates have risen from around 20% in 2006-07 to 24.1% in 2010-11, due to phasing out of exemptions.