NEW DELHI: Pranab Mukherjee admits the life of India’s Finance Minister isn’t easy. Few know it better than him. This Budget, after all, is the Congressman’s seventh, only one less than Morarji Desai and on a par with his cabinet colleague, P Chidambaram. But more than merely being an economic balancing act, this was also about walking the political tightrope, he tells T N Ninan. Edited excerpts: You are aiming for a sharp reduction in the petroleum subsidy bill at a time when oil prices have gone up. Does this mean you are going to raise petroleum product prices at some stage? When I state that we have to peg the subsidies to two per cent of GDP and in the next three years it would have to be brought down to 1.75 per cent of GDP, the message is quite clear. We could do it through executive or legislative action. You have to do this, otherwise a situation will come when the macroeconomic fundamentals will be seriously distorted and it will be beyond repair. (For details log on to : http://www.business-standard.com/india/news/im-ready-to-even-biteballot-if-necessary-pranab-mukherjee/468056/)
PRANAB FOCUSES ON CURBING NON-PLAN EXPENDITURE
Finance Minister Pranab Mukherjee has estimated a 13 per cent increase in spending during 2012-13 at Rs 14,90,925 crore over the revised estimate of Rs 13,18,720 crore expenditure in the current year. The current year’s spending has seen about 5 per cent increase over what was estimated at the beginning of the year. Though the government’s plan expenditure at Rs 4,26,604 crore this year has been lower than Rs 4,41,546 crore anticipated in the last Budget, the non-Plan expenditure has risen by little over 9 per cent to Rs 8,92,115.56 crore. Non-Plan expenditure, which is expected to be double Plan expenditure this fiscal, will again rise about 9 per cent over the revised estimate to Rs 9,69,900 crore in 2012-13. “This increase is mainly on account of a higher provision for major subsidies. I am determined to contain the increasing subsidy burden through measures including improved targeting,” Mukherjee said in his Budget speech. (For details log on to : http://www.business-standard.com/india/news/pranab-focusescurbing-non-plan-expenditure/468050/)
GOVT TO INFUSE RS 15,888 CRORE INTO BANKS
The government has earmarked Rs 15,888 crore for capital infusion into banks in the next financial year, considerably higher than what was allotted in the previous Budget. This apart, it’s planning to set up a financial holding company that will raise funds for public sector banks. “For 2012-13, I propose to provide Rs 15,888 crore for capitalisation of public sector banks, regional rural banks and other financial institutions, including Nabard (National Bank for Agriculture and Rural Development),” Finance Minister Pranab Mukherjee said while presenting the Budget for 2012-13. “We are committed to protecting the financial health of public sector banks and financial institutions.” Last year, the government had provided Rs 6,000 crore for public sector banks. However, according to the revised estimates, the total outgo would be more than three times of the initial estimate at Rs 19,540 crore. (For details log on to : http://www.business-standard.com/india/news/govt-to-infuse-rs-15888-cr-into-banks/468005/)
GOVT BULLISH ON NON-TAX REVENUE GROWTH
The government has projected a 32 per cent jump in non-tax revenue receipts at Rs 1,64,614 crore in 2012-13, against the 2011-12 revised estimate of Rs 1,24,737 crore, thanks largely to the auction of the spectrum to be freed up after the Supreme Court verdict cancelling 122 2G telecom licences. With a fiscal deficit target of 5.1 per cent of GDP, the government is banking heavily on spectrum auction, along with disinvestment, to improve cash flow at the end of 2012-13. According to economic affairs secretary R Gopalan, the spectrum auction slated for 2012-13 is expected to contribute Rs 40,000 crore to the revenue expectation of Rs 58,217 crore, over three and half times more than the 2011-12 revised estimate of Rs 16,551 crore. (For details log on to : http://www.business-standard.com/india/news/govt-bullishnon-tax-revenue-growth/468066/)
DOORS WIDE OPEN FOR EXTERNAL COMMERCIAL BORROWINGS
The government on Friday allowed players in power, aviation, roads and low-cost housing projects to go for external commercial borrowings (ECBs), as domestic borrowings turn costly under the high interest rate regime and certain sectors find it difficult to raise funds. In Budget 2012-13, finance minister Pranab Mukherjee also slashed withholding tax on interest payments on ECBs by select infrastructure companies as the core sectors crawl to grow in line with India’s needs. However, analysts say the thing to watch will be how many companies are able to raise cash via ECBs as lenders will demand that the companies’ ratings be on a par with at least the BBB sovereign grading for India. The Budget has also allowed airline companies to use ECBs for one year, subject to a ceiling of $1 billion. While companies such as Kingfisher may get relief from this move, as it finds it difficult to get fresh loans from Indian banks, the going may not be easy for many, as foreign lenders will be concerned about the safety of their loans. Recently, the country’s largest lender, SBI, had ruled out giving fresh loans to cash-strapped Kingfisher, due to concerns over non-performing assets. (For details log on to : http://www.business-standard.com/india/news/doors-wide-open-for-external-commercial-borrowings/468074/)
WE UNDERSTAND THE HARMFUL EFFECT OF SUBSIDIES: R GOPALAN
In a post-budget media conference the budget-making team of finance minister Pranab Mukherjee tried to decode the budget. The officials included financé secretary R S Gujral, chief economic advisor Kaushik Basu, economic affairs secretary R Gopalan, expenditure secretary Sumit Bose, financial services secretary D K Mittal, disinvestment secretary M H Khan, Central Board of Excise and Customs (CBEC) chairman S K Goel and Central Board of Direct Taxes (CBDT) chairman Laxman Das and additional secretary-budget, Shaktikanta Das. Edited excerpts: Can you explain how the clarification with regard to the transactions associated with Indian assets in view of the Vodafone judgment would impact similar such cases? ujral: The SC judgment talks of the need to ensure tax certainty. It also talks of the fact that elements like GAAR etc., are not there in our statute and they need to be brought in. The position of the government is that the intention of the legislature from the very first stage was very clear, that transactions like Vodafone are subject to taxation in India. This change is only a clarification re-iterating the original intent of the legislation. These are not cases of double taxation but cases of no taxation. Our stand is very clear: There should not be any case of no taxation. Wherever there are cases of double taxation, we will look into these and resolve these. We have brought in Advance Pricing Agreements so that genuine investors don’t face problems. There are a large number of similar cases. Our rough assessment is that the total impact would have been to the tune of Rs 35,000 crore to Rs 40,000 crore. (For details log on to : http://www.business-standard.com/india/news/we-understandharmful-effectsubsidies-r-gopalan/468080/)
SOME RELIEF AS TAX SLABS GET REJIGGED
Individuals earning Rs 10 lakh or more a year will be the biggest beneficiaries of this year’s Budget. The finance minister has lifted the threshold for incidence of the peak income tax rate of 30 per cent to Rs 10 lakh from Rs 8 lakh. The move will leave around Rs 22,600 more in the hands of this class of taxpayers. For individuals with lower taxable income, enhancement of the exemption limit will provide a breather. The exemption limit for the general category of individual taxpayers has been enhanced to Rs 2 lakh from Rs 1.8 lakh. This measure will provide tax relief up to Rs 2,000 to every taxpayer in this category. The Budget speech brought to ground expectations that were allowed to soar by the recommendations of the Parliamentary Standing Committee that reviewed the Direct Taxes Code proposals. The committee had pegged the exemption limit at Rs 3 lakh. Kuldip Kumar, executive director (tax & regulatory services), PwC India, says: “The raising of exemption limit from Rs 1.8 lakh to Rs 2 lakh and introduction of deduction of savings bank interest up to Rs 10,000 will benefit everyone.” (For details log on to : http://www.business-standard.com/india/news/some-relief-as-tax-slabs-get-rejigged/468038/)
FM ASKS FOR FOREIGN ASSET DETAILS AND TDS ON PROPERTY SALE
The finance minister has taken a step forward to tackle the black money menace by allowing reopening of assessment up to 16 years for overseas assets. And, individuals are mandated to report such assets. Currently, the time limit for reopening assessment is six years (Section 149) for unassessed foreign income. But it is insufficient. “It is proposed to amend Section 149 to increase the time limit to 16 years, for income from assets outside Indiathat is chargeable to tax. Amendments are also proposed in Section 147 for income to have escaped assessment for assets overseas,” says the Budget memorandum. However, these provisions do not demarcate unaccounted and accounted foreign assets, points out Anish Mehta, partner at BDO. “Those who used to hold assets overseas but don’t hold it anymore can also come under the ambit of this provision,” he adds. Corresponding amendments are also to be made to Section 17 of the Wealth Tax Act. The provisions will take effect from July 1, 2012. (For details log on to : http://www.business-standard.com/india/news/fm-asks-for-foreign-asset-detailstdsproperty-sale/468046/)
RATE CUT HOPE DASHED ON FISCAL CONCERN
The fiscal situation is unlikely to improve even this year. A higher fiscal deficit number, coupled with the government’s more-than-expected net market borrowing figures for 2012-13 of Rs 4.79 lakh crore in 2012-13, disappointed the bond market, which reacted negatively to the news. Bond yields rose sharply following the announcement. Yields on the 10-year benchmark government bond, which fell when trading started, rose nine basis point (bps) immediately after the figures were out. Market participants expect yields to touch 8.5 – 8.6 per cent in March. Yields on the 10-year benchmark bond closed at 8.42 per cent on Friday, compared to 8.36 per cent of previous close. Slippages on the fiscal situation have dampened hope for a rate cut the market was expecting in April. (For details log on to : http://www.business-standard.com/india/news/rate-cut-hope-dashedfiscal-concern/467999/)
FISCAL SITUATION ALONE WON’T DETERMINE RBI’S STANCE
The Reserve Bank of India (RBI) said fiscal consolidation alone would not decide the stance of the monetary policy, but other factors like rising oil prices would influence the policy. RBI deputy governor Subir Gokarn said the directional change regarding the country’s worsening fiscal situation as presented in the Budget was a positive. “The directional change is significant in terms of two factors. One that the aggregate reduction in fiscal deficit and second the way in which that reduction is going to be achieved. These give us some reassurance that the process of fiscal consolidation is underway and that is an input to our policy,” Gokarn said. The finance minister has projected the fiscal deficit at 5.1 per cent of gross domestic product (GDP) for 2012-13, compared to 5.9 per cent in 2011-12 (budgeted 4.6 per cent). The medium-term fiscal policy statement projects the fiscal deficit to decline further to 4.5 per cent in 2013-14 and 3.9 per cent in 2014-15. (For details log on to : http://www.business-standard.com/india/news/fiscal-situation-alone-wont-determine-rbis-stance/468001/)
IDBI BANK PRICES 100 MILLION SWISS FRANC BONDS AT MS+274 BASIS POINTS
MUMBAI: India’s IDBI Bank priced its three and half year Swiss franc bond issue at mid-swaps plus 274 basis points, becoming the first lender to raise funds in this currency in 2012. The state-run bank launched its at least 100 million Swiss franc bond issue earlier in the day and Deutsche Bank is the sole arranger of the deal. “Against our launch size of 100 million Swiss Francs we have got an oversubscription on the very first day of the launch,” said Melwyn Rego, executive director at the bank. Settlement in Swiss franc issuances take 3 to 4 weeks from the bond issue. (For details log on to : http://economictimes.indiatimes.com/news/news-by-industry/banking/finance/banking/idbi-bank-prices-100-million-swiss-franc-bonds-at-ms274-bps/articleshow/12296717.cms)
STANCHART IDR VAULTS ON FUNGIBILITY NOD
The Finance Minister’s proposal to allow two-way fungibility in Indian Depository Receipts (IDR) came as a major boost to Standard Chartered Plc, the only company with depositary receipts in India. Standard Chartered’s IDRs, which gained the most since its stock market debut in June 2010, ended nearly 20 per cent higher at Rs 93.8. The FM, in his Budget speech, said he proposed “permitting two-way fungibility in Indian Depository Receipts subject to a ceiling with the objective of encouraging greater foreign participation in Indian capital market.” Fungibility allows IDRs to be swapped for the underlying stock listed overseas. Current regulations don’t permit fungibility or redemption of IDRs into underlying equity shares unless they were illiquid. (For details log on to : http://www.business-standard.com/india/news/stanchart-idr-vaultsfungibility-nod/468036/)
PART OF YOUR HEALTH CHECK JUST GOT TAX-FREE
Spending on your health check-ups can also help you save tax in the new financial year. Finance Minister Pranab Mukherjee on Friday introduced a deduction of Rs 5,000 for expenses incurred on preventive health care under section 80D. Under this, citizens can save tax for the monies spent by them on their health check-ups. This will include various medical tests that individuals are asked to undergo at hospitals. The amendments made will be effective from April 1, 2012. In addition, Section 80DDB, that allows deduction for the medical treatment of specified diseases and ailments, has enhanced its limit from Rs 40,000 to Rs 60,000. “The positive aspect of the Budget is that it has shown much more awareness and understanding on issues related to health care. It’s a step in the right direction, because giving a tax exemption to health check-up, means there is a movement towards incentivising preventive healthcare,” says Bhargav Dasgupta, managing director and chief executive, ICICI Lombard general insurance. (For details log on to : http://www.business-standard.com/india/news/partyour-health-check-just-got-tax-free/468039/)
INSURANCE, PENSION AMENDMENT BILLS TO BE INTRODUCED
NEW DELHI: The government will move The Insurance Laws (Amendment) Bill, 2008 and The Pension Fund Regulatory and Development Authority (PFRDA) Bill, 2011 during the budget session, Finance Minister Pranab Mukherjee said Friday. Presenting the budget for 2012-13, Mukherjee said the government has received the reports of the parliamentary standing committees on finance that looked into these bills. He said: “The official amendments to these bills will be moved in this session of the parliament.” The PFRDA Bill would covert the interim PFRDA into a full fledged authority defining its powers and duties. The interim PFRDA was set up in 2003. (For details log on to : http://economictimes.indiatimes.com/personal-finance/insurance/insurance-news/insurance-pension-amendment-bills-to-be-introduced/articleshow/12291851.cms)
IT IS STATUS QUO FOR US, SAYS INSURANCE SECTOR
CHENNAI: The Indian insurance industry is unanimous that the 2012-13 budget presented by Finance Minister Pranab Mukherjee is status quoist and the hike in service tax to 12 percent would not impact the sector. Insurance officials are also of the view that Mukherjee’s announcement that the insurance amendment laws would be moved is a routine one. “The increase in service tax will not impact us and also many other insurers. We net out the service tax – collected on the premium and paid on the services availed. For us the service tax paid is higher than what we collect from our policy holders,” Vibha Padalkar, CFO at HDFC Standard Life Insurance Company Ltd, told IANS over phone from Mumbai. “For a long time insurers had absorbed the service tax to be paid by their agents. However, many are now passing on the service tax burden on their agents either fully or partially,” R. Krishnamurthy, managing director (Insurance and Financial Services) Watson Wyatt a consulting company, told IANS over phone from Mumbai. (For details log on to : http://economictimes.indiatimes.com/personal-finance/insurance/insurance-news/budget-2012-it-is-status-quo-for-us-says-insurance-sector/articleshow/12295278.cms)
LIFE INSURANCE DEARER FOR ALL, INCLUDING SENIOR CITIZENS
HYDERABAD/MUMBAI: Apart from the service tax hike, increase in premium to sum-assured ratio to 10 times from the existing five times will make life insurance costlier to all including senior citizens, Mr V. Srinivasan, Chief Financial Officer, Bharti AXA Life Insurance, told Business Line. According to Mr By Rajesh Sud, CEO and Managing Director, Max New York Life Insurance, service tax in products with explicit mortality charges will increase from 10 per cent to 12 per cent of the mortality charges. In others, service tax on first year premium would increase from 1.5 per cent to three per cent of the gross premium. “This will result in having different amounts for the first year premium and renewal premium in participating and annuity products, thus resulting in administrative challenges,” he said. (For details log on to : http://www.thehindubusinessline.com/todays-paper/tp-budget/article3003999.ece)
INSURANCE FUND HONCHOS FEEL PROPOSALS ARE NEUTRAL
MUMBAI: Fund managers heading the investment functions of insurance companies believe that the Budget is neutral on an overall basis. “A fiscal deficit number of 5.1 per cent of GDP by FY13 seems OK,” said Mr Hemant Kanawala, Head — Equity Kotak Life Insurance. “It is realistic with not too many positives and negatives and stocks were impacted on the pronouncements such as no taxation on diesel cars,” said Mr Prasun Gajri CIO, HDFC life Insurance. There were concerns on how the Government would address subsidy issues. “It remains to be seen whether the Government is able to come up with a credible plan to bring down subsidies, given the political climate, said Mr Gajri.” (For details log on to : http://www.thehindubusinessline.com/todays-paper/tp-budget/article3004059.ece)
INFRA TAX-FREE BOND ISSUANCE DOUBLED
Reiterating the government’s focus on providing an impetus to the infrastructure sector, finance minister Pranab Mukherjee on Friday doubled the amount to be raised through tax-free bonds to Rs 60,000 crore for 2012-13. He also widened the ambit of the viability gap funding (VGF) to a host of other sectors. VGF is provided to make public-private partnership projects viable. “I propose to double the amount to be raised through tax-free infrastructure bonds to Rs 60,000 cr in 2012-13. This includes Rs 10,000 cr for NHAI (National Highways Authority of India), Rs 10,000 cr for IRFC (Indian Railway Finance Corporation), Rs 10,000 cr for IIFCL (India Infrastructure Finance Co Ltd), Rs 5,000 cr for Hudco, Rs 5,000 cr for National Housing Bank, Rs 5,000 crore for SIDBI, Rs 5,000 cr for ports and Rs 10,000 cr for the power sector,” he said. Irrigation, terminal markets, common infrastructure in agriculture markets, soil testing laboratories and capital investment in the fertiliser sector will be eligible for VGF under this scheme, he said. “Oil and gas/LNG storage facilities and oil and gas pipelines, fixed network for telecommunication and telecommunication towers will also be made eligible sectors for VGF.” (For details log on to : http://www.business-standard.com/india/news/infra-tax-free-bond-issuance-doubled/468073/)
MFIs WANT GOVERNMENT TO WALK THE TALK ON BILL
It was hardly a surprise, but the introduction of the Micro Finance Institutions (Development and Regulation) Bill, 2012, in the ongoing Budget session of Parliament, has left microlenders optimistic about investors’ confidence returning to the sector. The plea is the government must walk the talk now and avoid further delay in framing a national microfinance law as the crisis of confidence has reached a nadir. The Bill, besides recognising RBI as the sole regulator, will define the role and functioning of microfinance companies, remove ambiguity over their legal forms, focus on protection of poor borrowers and tighten monitoring of the sector. Industry players said the Bill was critical for the revival of the sector as a national microfinance law would supersede the legislation introduced by the Andhra Pradesh government in October, 2010, curbing micro-lending activities in the state. (For details log on to : http://www.business-standard.com/india/news/mfis-want-government-to-walktalkbill/468000/)
MARKET GIVES COLD SHOULDER TO BUDGET, SENSEX DIPS 209 POINTS
Investors gave a thumbs down to the Union Budget for 2012-13, as they lowered the bets on the central bank cutting rates in April after Finance Minister Pranab Mukherjee failed to address concerns over the ballooning fiscal deficit. The Bombay Stock Exchange (BSE) benchmark index, the Sensex, which was up about 50 points before Mukherjee started his Budget speech, gyrated between gains and losses for about two hours, till he finished. The 30-stock index finally closed down 1.19 per cent, or 209.65 per cent, at 17,466.20. 21. At the National Stock Exchange (NSE), the 50-stock Nifty index dropped 1.16 per cent, or 62.60 points, to 5,317.90. (For details log on to : http://www.business-standard.com/india/news/market-gives-cold-shoulder-to-budget-sensex-dips-209-pts/468034/)
STT CUT SMALL CONSOLATION: STREET
Initiatives announced in the Budget by Finance Minister Pranab Mukherjee for the capital markets will make little difference for equity market players. In fact, the much-anticipated cut in Securities Transaction Tax (STT) will get negated by the rise in service tax, say experts. Brokers say, Mukherjee’s 20 per cent STT cut on delivery-based equity transactions will do little in curbing excessive speculation and boosting equity investments. The STT cut is negated by the two per cent increase in service tax applicable on stock exchange transactions and brokerage fees. An STT of Rs 12,500, which was charged on every Rs 1 crore worth of delivery based transactions, has been reduced to Rs 10,000. On non-delivery trades STT of Rs 1,700 is charged on every Rs 1 crore worth of trades, which has resulted in increase in derivative volumes, while cash trades have been decimated. Annual STT paid by both the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE) is Rs 5,000-Rs 6,000 crore, of which tax collected on delivery-based transactions is around Rs 600 crore. A 20 per cent reduction on this figure means annual STT savings of Rs 120-Rs150 crore, depending on volumes. Delivery transaction on BSE and NSE combined are 10-12 per cent of overall average volumes of more than Rs 1,50,000 crore daily. (For details log on to : http://www.business-standard.com/india/news/stt-cut-small-consolation-street/468035/)
BOND MARKETS TANK ON HIGH FISCAL DEFICIT
Bond markets tanked on Friday on higher-than-expected fiscal deficit and bloated borrowings announced by the government. Bond prices fell sharply and yields rose as market had expected a higher supply of government securities in the coming fiscal. This, coupled with the RBI’s decision on Thursday to keep policy rates unchanged, dashed hopes of any rally in the bond market. Banks, the largest buyers of government bonds, will have to book losses on a portion of their total portfolio which is marked to market. Financial markets also seemed sceptical of the government’s commitment towards fiscal consolidation. Finance minister Pranab Mukherjee announced that the fiscal deficit — excess of expenditure over revenues — will be 5.9% by March-end, much higher than the 4.6% projected earlier. (For details log on to : http://www.financialexpress.com/news/bond-mkts-tank-on-high-fiscal-deficit/924845/)
MUTUAL FUND INDUSTRY WELCOME STT CUT
MUMBAI: The Rs 6.75-trillion mutual fund industry today lauded the STT cut in the Budget as they believe the move will provide a fillip to the struggling sector. Accepting a long-pending demand for lowering the transaction costs in the capital markets, the Budget has proposed a reduction in Securities Transaction Tax (STT) from 0.125 per cent to 0.1 per cent on cash delivery transactions. STT, introduced in 2004, is levied on the sale and purchase of equities and according to estimates it accounts for 51 per cent of the transaction cost in stock markets. Tata Mutual Fund Chief Executive Officer Sanjay Sachdev said reduction in STT on delivery transactions will provide much needed impetus to attract small investors. (For details log on to : http://economictimes.indiatimes.com/personal-finance/mutual-funds/mf-news/union-budget-2012-13-mutual-fund-industry-welcome-stt-cut/articleshow/12296341.cms)
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