Budget aims to ease subsidy burden

High oil prices have swelled India’s subsidy burden to roughly 2.5% of GDP and Mukherjee called for reducing that to less than 2% in the fiscal year that starts on 1 April.

“We have to accelerate the pace of reforms," he told Parliament.

Mukherjee set a target of selling Rs30,000 crore ($5.96 billion) worth of stakes in state companies in the next fiscal year, roughly in line with forecasts. India has raised just Rs13,900 crore in the current fiscal year from stake sales, far below its budget target of Rs40,000 crore.

The government’s move on Wednesday to raise railway fares for the first time in eight years sparked an intense backlash from its key coalition ally Trinamool Congress, further eroding its ability to make politically tough decisions such as raising diesel prices in order to ease its fiscal deficit.

Mukherjee said he expects the economy to grow by 7.6% in the next fiscal year, up from an expected 6.9% in the current year but below the 8.4% growth of the previous fiscal year.

Prime Minister Manmohan Singh’s government was already reeling from a dismal showing in recent state elections and more than a year of corruption scandals that have resulted in policy gridlock.

With general elections set for 2014, the budget a year from now is expected to be laden with populist spending measures. Friday’s budget is thus viewed as a last opportunity for Singh’s government to roll back a yawning fiscal gap.

India’s fiscal deficit for the year that ends this month is expected to exceed the target of 4.6% of GDP by more than a percentage point after economic growth slowed, the subsidy bill ballooned on higher oil and commodity prices and weak markets undermined efforts to sell state assets.

High inflation forced the Reserve Bank of Indi a (RBI) to continue raising interest rates even as its counterparts elsewhere turned their focus towards reviving growth. While inflation is no longer near double digits, it rose to 6.95% annually in February.

On Thursday, the central bank disappointed market hopes that it would begin cutting interest rates after 13 increases between March 2010 and October 2011, and warned of renewed inflationary risks from high oil prices, a depreciation of the rupee and “fiscal slippage", a reference to the government’s deficit.

Budget 2012-13 | Highlights

Finance minister on governance

• “We have to accelerate the pace of reforms and improve supply side management of the economy."

Fiscal Deficit

• Fiscal deficit seen at 5.9% of GDP in 2011-12

• Fiscal deficit seen at 5.1% of GDP in 2012-13

Borrowing

• Net market borrowing seen at Rs4.8 trillion in 2012-13

Spending

• Total expenditure in 2012-13 seen at Rs14.9 trillion, up 295

• Plan expenditure budgeted at Rs52,125 crore in 2012-13, up 185

Revenue

• Proposes to raise service tax rate to 12% from 10%

• Gross tax receipts seen at Rs10.8 trillion in 2012-13

• Non-tax revenue seen at Rs1.64 trillion in 2012-13

• Proposes to levy tax on all services except 17 items in the negative list from 2012-13

• No change in corporate tax rates

• To enhance tax exemption limit to Rs200,000 for individuals income in 2012-13

• Proposes to provide full exemption on import duty of thermal coal for power plants

Growth and inflation expectations

• Expect headline inflation to moderate in next few months and remain stable thereafter

• Economy expected to grow at 7.6% in 2012-13, plus or minus 0.25%

• Economy expected to grow at 6.95 in 2011-12

• Signs of economy turning around in March quarter

Policy Reforms

• Hope to achieve “broad-based consensus" to open multi-brand retail sector to foreign investors

• Allow external commercial borrowing of up to $1 billion to raise working capital for airlines industry for 1 year

• To allow qualified foreign investors in Indian corporate debt markets

• To allow external commercial borrowing to part finance rupee debt in power projects

• Proposes to remove sector-specific restriction on venture capital fund investments

Sector Spending

• Allocates Rs1.94 trillion for defence in 2012-13, up from Rs1.64 trillion in previous year

Infrastructure Development

• To award contracts to build 8,800 km of roads in 2012-13

• Govt doubles allocation for tax-free bonds to Rs60,000 crore for financing infrastructure projects in 2012-13

Disinvestment

• Disinvestment target in 2012-13 of Rs30,000 crore

Agriculture

• Expects country to become self-sufficient in urea production in five years

• Proposes to raise agricultural credit target in 2012-13 to Rs5.75 trillion

Subsidies

• To keep 2012-13 subsidies under 2% of GDP

Milestone Alert!
Livemint tops charts as the fastest growing news website in the world 🌏 Click here to know more.

Unlock a world of Benefits! From insightful newsletters to real-time stock tracking, breaking news and a personalized newsfeed – it's all here, just a click away! Login Now!