Budget 2012-13 a mixed bag: Krishnamurthy Subramanian

The Budget is a mixed bag. There are a couple of things that are good and others which are not so good. On the positive side, the finance minister has increased allocation for tax-free bonds from Rs 30,000 crore to raise Rs 60,000 crore in 2012-13. He has also allowed ECBs for power companies which should improve the overall investment climate. He has also provided for credit enhancement for infrastructure sector, which is good. Also, he has tried to widen the tax ambit by bringing in a negative tax list, which is good for expanding the tax base.

But negatives in the budget are a lot. First, he has introduced a retrospective amendment to the Income Tax Act, 1961, in order to tax transactions like the $11.08-billion Vodafone-Hutchison deal, which the Supreme Court, in January, said couldn’t be taxed in India. This is sort of hitting below the belt. This change will have broader industry implications with climate for investments in the country affected.

The FM has also not laid any big ticket reforms for growth. He has budgeted fiscal deficit at 5.1 per cent for the next year. But, if the Iran situation worsens, and growth picks up in any of the advanced economies, then oil prices will shoot up and there are several risk factors which will impact the growth projection. This, in turn, will impact the fiscal deficit. This year, for example, the growth projection was around nine per cent and actual growth was around six per cent.

He has tinkered with personal income tax. But he has essentially given from one hand and taken away from the other by imposing excise duty on some items and increasing Customs duty on some.

 

Krishnamurthy Subramanian Assistant Professor Analytical Finance, Finance, Indian School of Business