Budget Highlights: First impression good but fails to convince, says Emkay

Emkay Global Financial Services has come out with its report on Budget review 2012- 13.

• The combination of 13.1% growth in expenditure (vs our expectation of 10%) at Rs 14.9tn and a robust tax revenue growth 19.5%, afforded by the 200bp increase in excise duty/service tax to 12% and measures to increase service tax collections, gives an impression of fiscal consolidation in Union Budget for FY13. The fiscal deficit target for FY13 at Rs 5.1tn or 5.1% of GDP is a decline from 5.9% in FY12.
• In addition the higher allocation under capital account at 30% yoy also gives a first impression of a investment and growth oriented budget.

• Fiscal deficit of Rs 5.1tn or 5.1% of GDP, vs our estimate of Rs 5.4tn or 5.4% of GDP
• Gross and net tax revenues for FY13BE to grow at 19.5% and 20.5% respectively
• Expenditure Budget estimated to grow by 13.1% (vs our estimate of 10%) at Rs 14.9tn
• Net government borrowings pegged at Rs4.79tn vs our estimate of Rs5.0tn

• Higher than expected expenditure budget, intent for fiscal consolidation should have reflected in meaningful cuts in non-plan expenditure
• Understatement of fuel subsidy; In Rs436bn provided as petroleum subsidy for FY13BE, we believe about Rs400bn is spill over of FY12. In addition, the budget is silent on fuel price hikes
• Optimistic assumption for gross tax collections, non-tax revenue and disinvestment targets
• Growth of 19.5% in gross tax collections is a steep target (looking at the weakening industrial production) even after taking into account 200bp increase in the excise duty and service tax
• Non-tax revenue receipts are estimated at Rs1.6tn, including ~Rs420bn from the 2G license re-auctions. We are uncertain about the receipt of same in FY13 given multiple legal hurdles that could delay the auction.
• Divestment targets set at Rs300bn could also be at risk given that in FY12RE the mobilization was far less than initial Rs400bn target