Budget 2012-13: Focus on Aam Aadmi for inclusive growth, notes SPA Research

The Union Budget 2012-13, which is tabled at a time when growth has slowed down, embarked on a clear cut strategy of boosting investments in social sector, infrastructure and power, yet showing fiscal consolidation. With state elections getting over, this was excellent opportunity for honorable Finance Minister to take some strict reforms, as the government may take some populist measures in the next budget before 2014 general elections. Instead it laid more emphasis on pleasing the “Aam aadmi” by changing tax slabs and by opening up new avenues for investments in Equity through Rajiv Gandhi Equity Saving Scheme. He also chose to boost sentiments for investors by reducing the security transaction tax, thereby giving a phillip to capital markets.

The minister acknowledged the need to review fiscal stimulus and achieve fiscal prudence. The Government is targeting to reduce the fiscal deficit next year to 5.1% in 2012-13 from 5.9% in 2011-12 by increasing tax revenues, better expenditure management, reducing subsidy burden, a politically sensitive issue and maintaining divestment of PSUs. However this year too, surging crude oil prices and ballooning food subsidy will again pose serious challenges in managing deficit. Addressing malnutrition, black money and corruption in public life have been specified amongst 5 priorities in year ahead. Enhanced spends on social welfare schemes & UID project; proposal to improve reach of banking facilities to masses ensures Inclusive growth. The infrastructure sector got a leg up as the government increased plan allocation, doubled limit tax free infrastructure bonds and enhanced funding options. Overall, Budget touches upon important issues of consolidation, inclusive growth and investments. Implementation remains a key – which, if achieved, can take India to next pinnacle of Growth.

Economy Overview:

• Gross Tax Receipts are estimated at INR 10,77,612 crore and Net Tax to Centre is estimated at INR 7,71,071 crore.
• The Non-tax Revenue Receipts are estimated at INR 1,64,614 crore and Non-debt Capital Receipts are estimated at INR 41,650 crore.
• The total expenditure for 2012-13 is budgeted at INR 14,90,925 crore. Of this INR 5,21,025 crore is the Plan Expenditure (18% higher than BE 2011-12) while INR 9,69,900 crore is budgeted as Non Plan
  Expenditure.
• INR 3,65,216 crore estimated to be transferred to States including direct transfers to States and district level implementing agencies.
• The effective revenue deficit in BE 2012-13 works out to INR 1,85,752 crore which is 1.8% of GDP
• The Fiscal Deficit for 2012-13 has been pegged at INR 5,13,590 crore which is 5.1% of the GDP. Fiscal deficit at 5.9% of GDP in RE 2011-12 against 4.6% in BE 2011-12.
• After taking into account other items of financing, the market borrowing required to finance the deficit to be INR 4.79 lakh crore in 2012-13.
•  With this the total debt stock at the end of 2012-13 would work out at 45.5% of GDP as compared to the 13th Finance Commission target of 50.5% of GDP.