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Mar 17, 2012, 03.58 PM IST | Source: Moneycontrol.com

Budget Analysis: Union Budget 2012-13, a pragmatic Budget says Angel

Angel Broking has come out with its report on Indian Union Budget 2012-13. As per the research firm Tax revenue is expected to increase substantially by around Rs 1,29,000cr over the revised estimates for FY2012.

Angel Broking has come out with its report on Indian Union Budget 2012-13. As per the research firm Tax revenue is expected to increase substantially by around Rs 1,29,000cr over the revised estimates for FY2012.

The markets had broadly come to terms with the fact that the government is shackled by political and fiscal considerations and is not in a position to deliver major reformist budgets. In the backdrop of these modest expectations, Union Budget 2012-13 comes across as a job reasonably done. Somewhere, if after the UP elections there was some degree of concern that populism may hold sway, this budget at least dismisses those concerns by increasing tax revenue significantly and not indulging into any major populist expenditure increases. Overall, having taken the budget in its stride, from here on the market is likely to look at the progression of the monetary policy, inflation and interest rates – the decline in which is, in our view, an ongoing positive for the GDP outlook and corporate earnings for FY2013.

Looking at FY2012 revised estimates: Fiscal deficit slipped to 5.9%

The government expects to end FY2012 with a fiscal deficit of 5.9%, much higher than 4.6% estimated earlier, largely due to higher subsidies, lower divestments and lower corporate tax collections. Revised estimates for subsidy expenses highlight the significant overshooting by around Rs 73,000cr on account of the earlier over-optimistic estimate, higher crude prices and rupee depreciation. Lower corporate earnings growth due to high inflation and interest rates led to expected corporate tax revenue falling short by around Rs 32,000cr. Further, weaker sentiments in equity markets affected the government's divestment plan, and revenue shortfall on that front stands at around Rs 24,500cr. Overall, government revenue mobilization
(both revenue and non-debt capital receipts) fell short by around Rs 48,000cr than the budgeted estimates.

FY2013 targets fiscal deficit reduction to 5.1%; Tax revenue credibly supported

The government plans to correct the worsening fiscal situation in FY2013 by implementing several revenue augmentation measures, mainly in tax revenue, and expects to end the year with fiscal deficit at 5.1%. Tax revenue is expected to increase substantially by around Rs 1,29,000cr over the revised estimates for FY2012, mainly aided by a widely anticipated 200bp increase in excise rates and service tax rates and widening of service tax with the introduction of negative list approach. Nominal GDP growth of ~13% is expected to aid higher corporate tax revenue by a largely similar quantum on the direct tax front. The resulting estimated increase in overall tax revenue by 50bp of GDP is the key contributor to the targeted reduction in fiscal deficit. Further, the government expects to increase other non-tax revenue and non-debt capital receipts by around Rs 52,000cr mainly on account of Rs 40,000cr from telecom spectrum auction and Rs 30,000cr from divestment - again not over-ambitious targets.

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