India Union Budget 2012/13 What matters most!

Thanks to the total failure of the UPA 2 Govt to govern, the problems i had talked about  in India Budget 2011/12 What matters most! have only worsened.

Fiscal defect is 1.3% higher than estimate… Wow!!  something which will have to be funded by market borrowing. Reduction of Inflation due to base effect offers little relief to the aam admi who is finding the burden unbearable.

Indians are facing deeply entrenched inflation, tight liquidity, high interest rate, industrial slowdown, zero reforms and negative market sentiment that have lead to Stagflation for the last few months, something which will worsen in the coming months if govt doesn’t get its act together.

Pronob is known as the chief troubleshooter and problem fixer of the Congress upa govt …  and this seems to be  reflected in his budget.

TAX SLABS

Income upto 2 lakhs                          Tax payable   Nil
Income upto 2.5 lakhs                      Tax payable   Nil for Senior citizens 60 yrs and above
Income 2 lakhs to 5 lakhs                Tax payable  10%
Income 5 lakhs to 10 lakhs             Tax payable  20%
Income above 10 lakhs                    Tax payable  30%

Senior Citizens with no biz income freed from advance tax burden

10,000 bank interest tax-free. (Old Sec 80L revived)

Cost of preventive health checkup upto a limit of Rs 5000 permitted U/s 80D.

New Adult Duty free goods limit is Rs 35000/- , for Child upto 10yrs  Rs 15000/-

Sale of residential property exempted from capital gains if invested in equity or equipment of an SME.

Disappointment for lower and middle middle class with income upto 5/6 lakh who face a double whammy of the biggest tax i.e. high Inflation and overall higher prices due to increase in fuel prices, customs duties and service taxes . Increase in the tax free income far to low and should have been at-least Rs 2.5 Lakhs considering inflation. 

Financial Responsibility and Subsidy Reform Proposals

Fiscal deficit in 2011/12 revised to 5.9% of GDP from 4.6% of earlier target.

Fiscal defict 2012/13 to be at 5.1%

FY 13 net market borrowing at Rs 4.8 lakh crores

Gross tax at 10.6% of GDP

GDP expected to grow at 6.9%

Current account defict to be at 3.6%

Economy to grow at 7.6% in 2012/13

Central subsidies to be under 2% of GDP

To bring down subsidy to 1.7 % of GDP in the next 3 years

To roll out computerized scheme for fertilizer subsidy transfer

Direct transfer of subsidy for kerosene initiated

Pay market rate for LPG Cylinder, direct transfer of subsidy for  LPG

Remove bottlenecks in agriculture, energy, transport, coal, power and national highways

To become self sufficient in urea production in next 5 years

How credible are the numbers ? Taking into consideration the pathetic track record of the UPA  can one sincerely believe in the estimates especially on govt borrowings ?  Fuel subsidy allocation not realistic.

All talk and repetition of promises, but no real concrete action on fiscal consolidation or dealing with burgeoning subsidy. No action on dealing with supply side issues only repetition of promises. No vision to change the spending pattern from consumption to investment.

Reform Postponed

DTC implementation deferred for one more year

GST to be operational by August 2012

White paper on Black Money

Capital and Debt Markets Proposals

 STT on delivery cut to 0.1% from 0.25%. 

Rs 30,000 cr divestment target in FY 13

PAN for identification of Investors and tracking evasion.

Central KYC database.

Rajiv Gandhi Equity (Tax Exemption) Savings Scheme with a lock in of 3yrs for new investors investing Rs 50000 on income below 10 Lakhs.

Change in IPO guidelines to promote small town participation

Recapitalization of PSU banks

Rs 10000 crore of tax fee bonds for power sector

Will allow external commercial borrowing for power, housing road construction companies

Govt doubles allocation for tax-free bonds to Rs 60,000 crore for financing infrastructure projects in 2012/13

To allow qualified foreign investors in Indian corporate debt markets

Dull/drab and a major disappointment to market participants,  I doubt if two bit schemes like Rajiv ESS will revive the govt disinvestment program which is in doldrums. All said and done people have to make money out of govt IPOs and tax exemption with a 3 yr lock-in is meaningless .

Fact:  1 yr plus return on govt IPOs: Punjab n Sind bank -31%   SCI FPO -50% SJVN -20% PTC finance -43.5% MOIL -26.5%  Equity / Large cap MFs 1 year return are negative.  Gold ETF has returned +29%  that after the cool off in gold prices.

Indirect Tax Proposals

Service tax,  Excise duty now 12% up 2%

GOLD bar duty doubled, increased to 4% and 10%

Negative list for Service tax introduced .

All services will be taxed except those in a 17-item negative list including  Govt services, school education, renting of residences, public transport, animal husbandry, agri produce. Healthcare, charities, sportsmen, car-parking are exempt.

Cost of everything will go up by 4 to 5% as businesses pass on the hikes…Gold , Cigarettes, bidis, Diamonds, bicycles, luxury items, eating out, white goods like AC and fridges. Even telephone bills are set to get more expensive.

Hiking duties on gold is a desperate attempt by a govt to curb investment in gold. This will make little difference in gold demand or asset price inflation if the govt cant curb its rash spending and resulting inflation expectations especially when EU and US are in low interest rate and QE mode and markets give sustained negative returns and an investor tries to protect his capital. 

All in all this budget hits the lower middle class and is most inflationary especially for the middle to lower middle class single income multiple kids household with an income of 2 lakh who sees no benefit from income tax rebate but has to pay double for his gas cylinder and between 2% to 5% more on every good and service from telephone to food to branded items.

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