It’s back to February, the month of Union Budget – a blueprint for the allocation of finances for the ensuing year; and the ways and means of getting towards it.
Though, this important document is framed in utter privacy starting few months well in advance, the long-drawn process starts with pre-budget consultations with representatives of different group of stakeholders like industry, trade unions, economists, etc. to over-come various business hurdles and develop new policy frameworks.
Even as we decide to dig deep into the expectations of the industry and aam-aadmibuilding from the Union Budget 2011-12; there is still a question mark as to how swiftly the Budget session will move forward from the logjam over opposition’s demand for setting up a JPC probe into 2G-spectrum allocation scam.
Expectations from Union Budget 2011-12
1) Indian Railways – The Bleeding Tooth!
Just few years back, we saw how Lalu Prasad Yadav orchestrated a financial turnaround of the Railway department without hiking passenger fares. However, under Mamta Banerjee’s leadership (Mamta Magic), the profitability of Indian Railways just could not keep up the tempo.
Estimates suggest that Railways could miss their target for 2010-11 ahead of the coming Rail budget. For the 9-month period April to December 2010, Railway’s earnings have suffered a setback of Rs. 4000 crore mainly driven by negative impact on its freight earnings and losses in passenger earnings on account of escalation of Naxal activities in many states.
On the back of worsening scenario of its operating ratio, the cash-strapped Railways has asked the finance minister to double the gross budgetary allocation to nearly Rs. 39,600 crore to support project initiatives such as modernization of railway infrastructure and augmenting passenger services.
The big question is will Railways suffer a loss this time around?
2) Inflation – The Burning Reality!
Inflation is all over the place and now we might find its mention across the policy decisions to initiate corrective measures – be it monetary policy, use of sophisticate farming techniques or even budgetary policies framed to tame increased pricing pressures.
In commitment towards controlling high double digit food inflation, Pranab Mukherjee might well unleash some crucial measures in this Budget including opening up of more procurement and distribution centers for food grains, promoting greater investment in agri infrastructure and increased expenditure on irrigation in a bid to enhance overall farm sector productivity.
3) Income Tax Exemption – Yeh Dil Maange More!
Need to confess that FM Pranab’da has done well in gradually extending the tax brackets for the aam-aadmi over the last few years. But, we, the people, always have higher expectations. Moreover, the higher tax-exemption limit has irrefutably brought added tax revenues to the exchequer as it discourages suppressing of unaccounted money.
While the lowest tax bracket at 10% under the DTC regime aims to envelope Rs.2-5 lakh taxable income range from FY 2012-13, the current no-tax limit up to income of Rs.1.6 lakh still provides scope of improvement by another Rs.20, 000 at the lower end income group.
4) Fuel price Deregulation – Slow and Steady wins the Race!
Last year, the UPA government deregulated the petrol prices in a bid to shrink the country’s fiscal deficit and help oil marketing companies to cut losses on selling fuel at subsidized rates.
How about setting free of diesel price controls now? While petrol prices are now market-determined subject to periodic revision, it is diesel which constitutes a lion’s share of fuel subsidy bills driven by demand for fuel and industrial purposes. Currently, government resorts to ad-hoc hike in diesel prices but has slowed down even on that as inflation pressures have worsened recently.
5) Social sector Spending – Amount B/f from Disinvestment A/c!
Last year, government earned sizeable one-time revenues from sale of premium 3G airwaves to the extent of around Rs. 1.1 lakh crore and large disinvestment proceeds from stake sale of PSU companies. Both these revenue-drivers might have accumulated approximately Rs.1.5 crore in the exchequer’s kitty.
Formally, the entire disinvestment proceeds are to be channelled into the National Investment Fund (NIF) and then utilized for capital expenditure in social sector schemes and revive ailing state-owned entities. Thus, this year, most of these funds should be up for utilization for grass-root social development programs in areas such as primary health, primary education, law and order, family welfare, and so on.
6) Retail FDI – Time to tighten Supply Chain!
Most of the recent surge in food prices is either on account of supply crunch in the farm production or hoarding of stock by intermediaries. To deal with the latter case of price manipulation, FDI in multi-brand retail segment could go a long way in supporting the government’s initiatives to de-bottleneck the supply chain hindered by ineffective distribution channel.
7) Excise and Service Tax Cut – Status quo Requested!
Last year, FM had raised the excise duty to 10% on non-oil products as a part of the efforts to withdraw stimulus and create sources of funds to bring down the extent of fiscal deficit situation.
With spiraling inflation and high commodity costs, the corporate India has requested Pranab Mukherjee to cap the excise duty and service tax at previous year levels. Industry chamber Assocham has also urged FM to reduce corporate tax to 25% from the current 30% to maintain current levels of investment and growth prospects.
8) Infrastructure – Work in Progress!
Without any dichotomy – the future growth prospects of the Indian economy lingers primarily on the infrastructure investment and timely execution of the projects. Thus, one such initiative would be to develop a huge amount of long-term corpus towards infrastructure development through dedicated debt funds (the most recent example being tax-saving infra bonds).
According to RICS India, in order for India to achieve its envisaged 10% growth during the coming financial year, the requirement for sustainable infrastructure development is crucial to provide impetus to the economic activities and achieve optimum resource utilization.
9) Delay in GST Implementation – No Consensus Yet!
The Centre had promised the implementation of GST and DTC by April 2011. Amongst the two, DTC is likely to be rolled-out by 2012 (albeit with a delay of 1 year!) as a major indirect tax reform initiative by any previous Indian government.
However, the biggest direct tax reform – GST, which in turn would phase out other major taxes like excise duty, VAT, service tax, etc; is mired by lack of consensus between the Centre and the State. In its last-ditch attempt to introduce the reform paper in the Budget session of Parliament without any further delay, the FM has shown the much-needed keenness to align tax proposals for Budget 2011-12 with GST.
Will he succeed in reaching a consensus with the States? If yes, hopefully, he does not leave any loopholes open for future manipulation of the tax-structure!
10) Education – Learning is the way to Growth!
Growth and education cannot be decoupled from each other. Education leads to higher employment and paves way for inclusive growth across the country. Over the last couple of years, education as a sector has seen various reform measures both at primary and higher education levels.
The adoption of public-private partnership (PPP) model in the education sector could go a long way in establishing success and creating a sustainable momentum in long-term. While the government’s role could be that of funding the projects, it is the execution ability of the private sector which needs to be banked upon for the ultimate delivery of the model.
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