Union Budget 2012

Salient feature of the Budget 2012-13:

• FY12 fiscal deficit revised to 5.9% of GDP vs 4.6% target.

• FY13 GDP seen 7.6% plus or minus 0.25% after 6.9% in FY12.

• FY13 fiscal deficit is forecasted to be 5.1% of the FY13 GDP.

• Government intends to increase the Gross Tax to GDP ratio in FY13 to 10.7% from 10.1% in
FY12.

• Government has raised both standard excise and service tax rates from existing 10% to 12%.

• On the service tax side, they have increased the scope of services covered under the tax net by
introducing “negative list”.

• The income tax slabs has been raised brining more disposable income in the hands of the
consumers.

• Introduction of the “Rajiv Gandhi Equity Saving Scheme” is heartening, wherein small investors’
get annual tax exemptions on equity investments upto 50000 Rs with three years lock in.

• Government intends to reduce the Expenditure to GDP ratio in FY13 to 14.7% from 14.8% in
FY12.
Government allocation towards plan expenditure has risen by 22% against overall expenditure
growth of 13%.

• Government capital expenditure is budgeted to grow by 31% from -2% in FY12.

• Government estimates to bring the subsidies down to 1.79 lakh crores from 2.08 lakh crores INR in FY12.

• Introduction of GST in August 2012 is proposed. Direct tax code (DTC) to be introduced in FY14.

• In terms of the overall tone, this budget is pro investments and pro infrastructure, while it seems
to be neutral on consumption.

On the whole, the intent of this budget, which matters the most looks right.

Sector Impact:

Infrastructure: Marginally positive

• Funding related proposals a positive for entire sector (Both local & global)

• Viability Gap Funding allowed for irrigation projects, Tax free bonds for certain infrastructure
agencies increased to 60k cr

• Attracting external flows - ECB allowed to part finance rupee debt of existing power projects. The withholding tax for ECB in power, airlines, roads & bridges, ports & shipyards, affordable housing, fertilizer and dams has been reduced to 5% from 20% for three years. Restriction on Venture Capital Funds to invest in only 9 sectors has been removed.

• Overall larger expectations such as Annuity Fund or Land Bank Corporations have remained
unaddressed.

Telecom: Overall Mild negative

• Increase in service tax to 12% is a mild negative as it would not be easy for the telecom
companies to increase headline tariffs immediately

• Fixed network for telecommunication and telecom towers made eligible for Viability Gap funding

• Budgeted receipts from telecom is very high at 58k Cr and could put additional strain

Pharma: Overall neutral

• Non LLP partnerships brought under MAT.

• NHRM allocation increased to 20000 crs from 18000 crs ( minor increase) positive for branded generic players

• Rs 5000 deduction for individuals who go for preventive health check up

Financials: Marginally positive

• Measures to increase deposit flow to the banking system – by giving tax exemption on interest
upto Rs 10,000 (Rs 25 lac of deposits) on Savings Bank Deposits

• Opening new avenues for Corporate India to raise resources by liberalizing access to ECB
market reduction in withholding tax and allowing QFIs to Participate in Corporate Debt market

• Capital infusion - Capitalization of Rs 17000 Cr of banks, RRBs and Nabard

Autos: Overall Positive

•Only 2% excise duty hike and large vehicles up by 4-5% Hike will be passed on to final consumers.

•Custom duty on “completely built vehicles” have been increased to 75% from 60%. No significant
impact from the same on listed players.

•No much talked about diesel tax imposed which is a positive

Metals & Mining: Marginally positive

•Import duty on flat rolled steel has been increased to 7.5% (from 5% earlier).

•Cut customs duty on mining machinery to 7.5% from 10.0%

Oil & Gas: Marginally negative

• Cess on crude production increased from Rs2500/ton to Rs4500/t

• Exemption of custom duty on LNG for power

• Oil subsidies are kept at 40000 cr INR only.

IT services: Marginally positive

• 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 has been allowed for one more year i.e. upto March 31, 2013.

• Increases in budget for UID to fund enrolment of another 400 mn people.

Cement: Neutral

• Excise duty is now same irrespective of selling price. Change in rates and move to selling price (less 30% abatement) will lead to Rs1-2/bag increase or decrease in duty

• Removal of custom duty on steam coal positive for space

Retail: Neutral

• Customs duty on Gold now 4% (in Jan it was increased to 2%, earlier it was fixed a fixed amount)

• Tax collected at source (TCS) of 1% for Jewellery above Rs. 200,000 purchased in cash (seller
to collect tax).

• Abatement for computing Excise on apparels increased from 55% to 70%.

Real Estate: Marginally positive

• A TDS of 1% will be on all property (other than agricultural) transactions above 50 Lakhs in
specified areas and above 20 lakhs in other areas.

• Extension of 1% interest subsidy by another year for home loans upto 15 lakhs for transaction
values upto 25 lakhs

• Adjusting for abatement of effective service tax rate: - If land cost included ->tax increased from 2.58% to 3.09% and if land cost not considered -> from 3.43% to 4.12%

Source: http://indiabudget.nic.in & RMF views and estimates.

Thanks,

Gaurav Agarwal

Head Dealer

DENIP Consultants Pvt Ltd