Budget 2012: Here's all that one will expect from FM today

By: DK Aggarwal, CMD, SMC Investments and Advisors 

The way Indian growth has moderated in the last one year; it has become imperative for the government to show its will and unveil pro-growth policies to stem the moderation and lay the foundation for the next phase of the growth. Finance Ministers dual task this time would be not only to enhance the revenues for the government but also to cut the subsidies and expenditures in such a fashion that it would not hamper growth. Government, however may signal that it is working to reduce the bottlenecks in the policy making by speeding up the clearance processes, by bringing in more clarity in the policy making, more reforms for encouraging public private partnerships, etc. To enhance the revenues, there are fair chances that government would bring more services into tax net and also increase the excise duty to 12% from the current rate of 10%. At the same time there is likelihood that government may raise the depreciation rate for the corporate to boost the investment demand. Budget frame work would be done by keeping in mind the recent results in state elections, fast evolving political changes, credit policy and subsidy burden on fiscal deficit. Fiscal deficit The FY12 fiscal deficit can be expected to be in the range of 5.6% to 6%. However, the finance minister can keep the fiscal deficit target for FY13 at 5% to 5.2%. Tax Reforms On the Tax reforms front, we may have to wait for a year for the implementation of Direct Tax Code (DTC) and Goods and Services Tax (GST) in order to simplify tax system with minimum exemptions and low rates. Disinvestment Government is expected to budget around Rs 30,000 crores from the disinvestment proceeds going next year. Deregulation of Oil Products There are risks of inflation going back to higher levels given the crude prices are rising and it has become difficult for the government to deregulate the diesel prices. However some price rise cannot be ruled out in case of diesel and LPG. Priority Sector Agriculture, Infrastructure and Education are likely to see higher spending in the budget. Finance minister is likely to raise the agriculture lending target by about 25% from the last year target of 4.75 lakh crore. Infrastructure Bonds Continuation of Infrastructure bonds exemption of Rs 20,000 is likely to continue for one more year and it may be enhanced to Rs.50000. Further in order to promote savings, limit of saving of Rs. 1,00,000 U/S 80C may be enhanced by another Rs. 30,000 or so. STT If the finance minister decides to moderate STT to some extent, it can be a big boost for capital markets. Even if there is indication about removal / reduction of STT, that can prove to be big benefit for the markets. Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions