Part I: India's Annual Budget 2012-13

Finance minister Pranab Mukherjee presented India's budget on 16th March for the coming financial year.

Followings are major points of Indian Annual Budget 2012-2013:

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-à-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 requirements 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.
• 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.