In continuation of the Editors column by CS. Bhavani Raj in the last months newsletter, the Finance Minister (‘FM’) was faced with the daunting task of presenting the Budget 2012-13 keeping in view the global economic meltdown, slowdown of industrial growth and the increasing fiscal deficit. He expressed his anguish in his Budget Speech by stating “The life of a Finance Minister is not easy. When everything goes well with the economy, we all share in the joy. However, when things go wrong, it is the Finance Minister whois called upon to administer the medicine.”
True to his words, he has through the budget, prescribed some bitter medicines, to try and immune the Indian economy from the global economic virus. He is of the belief that economic policy often demands painful short term policy changes which are advantageous to the economy in the long run.
The mantra for the fiscal year 2012-13 is “faster, sustainable and more inclusive growth”. The Finance Minister has laid down the following 5 point objective to achieve a GDP growth of nearly 7.6% as against the estimated growth rate of 6.9% in 2011-12.:
- Focus on domestic demand driven growth recovery;
- Create conditions for rapid revival of high growth in private investment;
- Address supply bottlenecks in agriculture, energy and transport sectors,particularly in coal, power, national highways, railways and civil aviation;
- Intervene decisively to address the problem of malnutrition especially in the 200 high-burden districts; and
- Expedite coordinated implementation of decisions being taken to improve delivery systems, governance, and transparency; and address the problem of black money and corruption in public life.
In light of the above 5-point objectives, the following policy directions have emerged:
- Disinvestment by Government owned companies to raise upto INR 30,000 crore while retaining atleast 51%ownership and management control.
- SIDBI to set up a INR 5,000 crore India Opportunities Venture Fund.
- Sarva Shiksha Abhiyan- Allocation of INR 25,555 crore for Right to Education.
- Financing of Infrastructure projects through issuance of Tax-free bonds up to INR 60,000 crore.
- Liberalisation of foreign direct investment & ensuring rapid rise in private investment.
- External Commercial Borrowings (ECB) allowed.
- to part finance Rupee debt of existing power projects,
- for meeting working capital requirements of theairline industry for a period of one year (subject to a total ceiling of US Dollar1 billion)
- for low cost affordable housing projects.
- Proposal to lay a white paper on blackmoney in the current session of the Parliament, to curb the menace of black money and
- Proposal to be laid to combat sham tax planning and tax avoidance.
While the Direct tax proposals put forward in this Budget have more or less a tax neutral impact on the net revenue, some of the amendments to Sections 2, 9 and 195 of the Income Tax Act, 1961, have retrospectively overruled the landmark Supreme Court decision in the Vodafone case. Similarly there have been over 25 retrospective amendments in this Budget which override the rulings of various judicial authorities. Suchconflicts between the legislature and judiciary are a cause of concern in respect to the certainty of tax laws. On the positive side, the introduction of General Anti Avoidance Rule (GAAR) would enable tocounter aggressive tax avoidance scheme and Advance PricingAgreements (APAs)would bring certainty on Transfer Pricing disputes.
The Indirect tax proposals are aimed at widening the service tax base and strengthening its enforcement by taxing all services except those 17 services that are in the negative list.The service tax & excise duty rate has been increased from 10% to12%. The Direct & Indirect tax proposals are to result in a net revenue gain of INR41,440 crores.
To curtail the fiscal deficit in the long term, the finance minister has suggested certain reforms in the expenditure and its effective management. He has also stressed emphasis on proper distribution of subsidies to the hands of the farmers.
The finance minister has tried to put forth realistic and directional budget proposals which we hope will enable the Indian economy to sustain the global crisis and attain the desired growth,
Wishing one and all a prosperous fiscal year 2012-13 and hope and pray that all your goals, aspirations and targets are achieved.
With warm wishes
Rashida Adenwala
Partner
R & A Associates