Indian Budget Seeks to Drive Growth Recovery, Stimulate Investment
Total Page:16
File Type:pdf, Size:1020Kb
A Publication of the Embassy of India, Washington, D.C. April 1, 2012 I India RevieI w Vol. 8 Issue 4 www.indianembassy.org Finance Minister Pranab Mukherjee arriving in Parliament to present the federal Budget, 2012-13, in New Delhi on March 16. Indian Budget seeks to drive growth recovery, stimulate investment n Fourth BRICS n U.S. Secretary of n Ambassador Summit held in Commerce John Bryson Nirupama Rao meets New Delhi visits India Mayor Vincent Gray Cover STORY Finance Minister Pranab Mukherjee at a photo-op before presenting the General Budget 2012-13 in Parliament in New Delhi on March 16. To his right is Minister of State for Finance Namo Narain Meena. India to advance investment, cut subsidies, recast tax regime Federal Budget 2012-13 aims to improve macroeconomic environment and strengthen domestic growth drivers ith an assurance that economic growth. The slowdown was and transparency and address the there were clear signs of primarily due to deceleration in indus - problem of black money and an economic recovery in trial growth, he said. While headline corruption in public life. W India, Finance Minister inflation had remained high for most Pranab Mukherjee on March 16 pre - part of the year, the Finance Minister REVENUE EXPENDITURE sented the Federal Budget for 2012- expressed hope that it would moderate Referring to the growth of revenue 13, with a promise to advance invest - in the next few months and remain sta - expenditure, particularly subsidies, the ment, cut subsidies and recast the ble thereafter. Minister said that from 2012-13, while entire tax regime. The `4,909,250 million ($300 bil - subsidies related to food and for “The global crisis has affected us. lion) federal budget identified five key administering the Food Security Act India’s gross domestic product (GDP) objectives: Focusing on domestic would be fully provided for, all other 2 is expected to grow at 6.9 percent in demand-driven growth recovery; cre - subsidies would be funded without 2011-12, after having grown at 8.4 per - ating conditions for rapid revival of adversely affecting the economy. The cent in each of the two preceding high growth in private investment; government would try to restrict years,” the Finance Minister said in his addressing supply bottlenecks in agri - expenditure on central subsidies to opening remarks in Parliament while culture, energy and transport sectors under 2 percent of the GDP in 2012- presenting the Budget. GDP growth (such as coal, power, highways, rail - 13 and over the next three years, bring was expected to be around 7.6 per cent ways and aviation); intervening deci - it down to 1.75 percent. A mobile- in 2012-13, he said. sively to address the problem of malnu - based Fertilizer Management System, The Finance Minister said though trition; expedite coordinated imple - to be introduced this year, has been the global crisis had affected India, the mentation of decisions being taken to designed to provide end-to-end infor - country remained a front runner in improve delivery systems, governance, mation on movement of fertilizers and April 2012 India Review Cover STORY subsidies, he said. Subsidies would be bring it closer to central excise. A com - transferred to the retailer and eventual - mon simplified registration form and a ly to the farmers in subsequent phases, common return form are being intro - benefiting nearly 120 million families duced for central excise and service of farmers. taxes. All services will now attract serv - ice tax, except those in the negative list. TAXES The negative list has 17 heads and Tax Receipts: In the budget estimates includes specified services provided by for 2012-13, the gross tax receipts are government or local authorities, and estimated at `10,776.12 billion, an services in the fields of education, rent - increase of 15.6 percent over the esti - ing of residential dwellings, entertain - 3 mates and 19.5 percent over the ment and amusement, public trans - revised estimates for 2011-12. After portation, agriculture and animal hus - devolution to states, the net tax to the bandry. A number of other services, federal government in 2012-13 is esti - including healthcare and services pro - mated at `7,710.71 billion. The non- vided by charities, independent jour - tax revenue receipts are estimated at nalists, sportpersons, and performing `1,646.14 billion and non-debt capital Budget allows airlines to folk and classical artistes, are exempt receipts at `416.50 billion. The total from service tax. The film industry also expenditure for 2012-13 is budgeted at access foreign funds gets tax exemption on copyrights relat - `14,909.25 billion. o help address concerns of the Indian ing to recording of cinematographic The tax proposals are guided by the civil aviation sector, Finance Minister films. Service tax rate is being need to move towards the Direct Tax T Pranab Mukherjee has said domestic increased from 10 percent to 12 per - Code (DTC) in the case of direct taxes airlines could borrow up to $1 billion in exter - cent, with consequential change in and Goods & Services Tax (GST) in nal loans for a period of one year. He also cur - rates for services that have individual the case of indirect taxes. tailed customs duty on aircraft parts. “To tax rates. Income Tax: The Budget exempts address the immediate financing concerns of Net Tax Gain: While direct tax pro - individual income of up to `200,000 the civil aviation sector. I propose to permit posals in the budget will result in a net from income tax. In 2011-12, income external commercial borrowings (ECB) for revenue loss of `45 billion, indirect up to `180,000 was exempt from tax. working capital requirement for the airline taxes will result in a net revenue gain of Income above `500,000 and up to industry for a period of one year subject to a `459.40 billion. Thus, the tax propos - `1 million will now attract tax at the ceiling of $1 billion,” Minister Mukherjee said als will lead to a net gain of ` 414.40 rate of 20 percent. Senior citizens while presenting the Budget for 2012-13 in billion. without any income from business now Parliament. need not pay advance tax. ECB is a mode used by the government to AVIATION Corporate Tax: While no changes have help Indian corporations and public sector The Finance Minister proposed to been made in corporate taxes, the undertakings access foreign funds. permit external commercial borrowing Budget proposes several measures to Minister Mukherjee further proposed to for working capital requirements of the promote investment in specific sectors. exempt the maintenance, repair and overhaul airline industry for a period of one In order to provide low-cost funds to (MRO) sector from basic customs duty on air - year, subject to a total ceiling of $1 bil - some stressed infrastructure sectors, craft parts, tyres and testing equipment. lion. He said that a proposal to allow withholding tax on interest payments According to the Finance Minister, the gov - foreign airlines to participate up to 49 on external commercial borrowings ernment was considering the proposal for per cent in the equity of an air trans - (ECBs) is being reduced from 20 per - allowing foreign carriers to invest up to 49 port undertaking was under considera - cent to 5 percent for 3 years. These percent in the domestic carriers. tion. sectors include power, airlines, roads and bridges, ports and shipyards, will also be eligible for investment- AGRICULTURE affordable housing, fertilizers and linked deduction. The Budget proposed a `202.08 bil - dams. Investment-linked deduction of The budget also proposes weighted lion (an 18 percent increase) plan out - capital expenditure in some businesses deduction for research and develop - lay for the Department of Agriculture has been raised to 150 percent from ment expenditure, agri-extension serv - and Cooperation while the outlay for 100 percent. These sectors cover cold ices and expenditure on skill develop - the agricultural development plan has chain facilities, warehouses for storing ment in the manufacturing sector. been increased to `92.17 billion. The foodgrains, hospitals, fertilizers and Service Tax: The Finance Minister target for agricultural credit was raised affordable housing. Container freight also sought to widen the service tax to `5,750 billion, representing an and warehousing for storage of sugar base, strengthen its enforcement, and increase of `1,000 billion over the tar - April 2012 India Review Cover STORY Key highlights of Budget 2012-13 expected to go up to `50 trillion (approximately $1,112 billion) with half n Budget identifies five objectives related to growth, investment supply bottlenecks, of this expected to come from the private governance and removing malnutrition sector. In March, the country also n Fiscal deficit targeted at 5.1 percent of GDP, as against 5.9 percent in revised estimates for launched its First Infrastructure Debt 2011-12 Fund with an initial size of `80 billion. In n Federal government debt at 45.5 percent of GDP as compared to 13th Finance Commission addition, tax-free bonds of `600 billion target of 50.5 percent will be allowed for financing infrastruc - n Central subsidies to be kept under 2 percent of GDP, to be further brought down to 1.75 ture projects in 2012-13. The govern - percent of GDP over the next three years ment has also approved a harmonized n `300 billion to be raised through disinvestments master list for the infrastructure sector. n Efforts to reach a broad-based consensus on FDI in multi-brand retail n Investment in 12th plan in infrastructure to go up to `50 trillion, half of which is expected CUSTOMS DUTY from private sector The budget offers relief to different n Target for agricultural credit raised to `57.50 trillion sectors of economy, especially those n Income tax exemption limit raised from `180,000 to `200,000; upper limit of 20 per cent tax under stress.