मंगलवार, 20 मार्च 2012

Union Budget


The Union Budget 2012-13 speech made by the Finance Minister  Pranab Mukherjee saw a number of changes being announced across the sectors of the economy.
Here is a look at the salient features of his Budget 2012 speech.


APPROACH TO THE BUDGET:- 

> For Indian economy, recovery was interrupted this year due to intensification of debt crises in Euro zone, political turmoil in Middle East, rise in crude oil price and earthquake in Japan.

> GDP is estimated to grow by 6.9 per cent in 2011-12, after having grown at 8.4 per cent in preceding two years.

> India however remains front runner in economic growth in any cross-country comparison.

> Monetary and fiscal policy response for better part of past 2 years aimed at taming domestic inflationary pressure.

> Growth moderated and fiscal balance deteriorated due to tight monetary policy and expanded outlays.

> Indicators suggest that economy is turning around as core sectors and manufacturing show signs of recovery.
 

> At this juncture, it is necessary to take hard decision to improve macroeconomic environment and strengthen domestic growth drivers.

> Twelfth Five Year Plan to be launched with the aim of "faster, sustainable and more inclusive growth". Five objectives identified to be addressed effectively in ensuing fiscal year.

> If India can build on its economic strength, it can be a source of stability for world economy and a safe destination for restless global capital.
 

OVERVIEW OF THE ECONOMY: -  

> GDP growth estimated at 6.9 per cent in real terms in 2011-12. Slowdown in comparison to preceding two years is primarily due to deceleration in industrial growth.

> Headline inflation expected to moderate further in next few months and remain stable thereafter.

> Steps taken to bridge gaps in distribution, storage and marketing systems have helped in more effective management of inflation.

> Developments in India's external trade in the first half of current year have been encouraging. Diversification in export and import market achieved.

> Current account deficit at 3.6 per cent of GDP for 2011-12 and reduced net capital inflow in the 2nd and 3rd quarters put pressure on exchange rate.

> India's GDP growth in 2012-13 expected to be 7.6 per cent +/- 0.25 per cent.

> Deterioration in fiscal balance in 2011-12 due to slippages in direct tax revenue and increased subsidies.
BUDGET @ A SNAPSHOT----
Union Finance Minister Pranab Mukharjee presented the annual budget for the fiscal year 2012-13 in the parliament on 16 March 2012.
The Union Minister of Finance came up with an increased budgetary allocation for various sectors including agriculture, rural development, defence etc. While, the Plan Outlay for Department of Agriculture and Co-operation increased by 18 percent, the target for agricultural credit raised by 100000 crore rupees to 575000 crore rupees. Budgetary allocation for rural drinking water and sanitation received a hike of over 27 per cent. Flagship programmes like Right to Education-Sarva Shiksha Abhiyan received an increase of 21.7 per cent in the budgetary allocation. 

Some of the major allocations made for different sectors of economy are as follows:
Agriculture and Allied Activities-
• Budgetary allocation for agriculture and allied activities 2012-13 increased by 18%
• 9217 crore rupees allocated for Rashtriya Krishi Vikas Yojana.
• 1000 crore rupees for Bringing Green Revolution to Eastern India (BGREI) project
• 300 crore rupees to Vidarbha Intensified Irrigation Development Programme under        RKVY.
• 200 crore rupees allocated for incentivising research with rewards
• 14242 crore rupees allocated for Accelerated Irrigation Benefit Programme (AIBP)
• 500 crore rupees provided to broaden scope of production of fish to coastal aquaculture
Rural Development-
• 14,000 crore rupees allocated for rural drinking water and sanitation
• 24000 crore rupees allocated for Pradhan Mantri Grameen Sadak Yojna
• 12040 crore rupees provided for Backward Regions Grant Fund scheme
• 20,000 crore rupees allocated for Rural Infrastructure Development Fund
• 5000 crore  rupees earmarked for creating warehousing facilities


Education-
Sarva Siksha Abhiyan-Right to Education- 25555 crore rupees
•          3124 crore rupees provided for Rashtriya Madhyamik Shiksha Abhiyan (RMSA)
Health-
•       20822 crore rupees National Rural Health Mission.
Employment and skill development-
• 3915 crore rupees provided for National Rural Livelihood Mission
• 1276 crore rupees allocated for Prime Minister’s Employment Generation Programme
• 1000 crore rupees allocated for National Skill Development Fund
Defence and Security
• 193407 crore rupees aallocated for Defence services including 79579crore rupees for capital expenditure
• 1185 crore rupees to be allocated for construction of nearly 4000 residential quarters for Central Armed Police Forces
• 3280 crore rupees proposed to be allocated for construction of office building of CentralArmed Police Forces
Infrastructure and Industrial Development-
• 25360 crore rupees allocated for Road Transport and Highways Ministry
• 3884 crore rupees loan waiver for handloom weavers and their cooperative societies
• 500 crore rupees pilot scheme announced for promotion and application of Geo-textile in the North Eastern Region
• 70 crore rupees allocated to set up a powerloom mega cluster in Ichalkaranji in Maharashtra
• 5000 crore rupees India Opportunities Venture Fund to be set up with SIDBI
• 15888 crore rupees to be provided for capitalisation of public sector banks and financial institutions.
Other major allocations
• 37113 crore rupees allocated for Scheduled Castes Sub Plan
• 21710 crore rupees earmarked for Tribal Sub Plan.

Economic Survey 2011-12: Analysis
The Economic Survey was tabled by the Union Finance Minister Pranab Mukherjee on 15 March 2012. Indian economy was estimated to grow by 6.9% in 2011-12 mainly due to weakening industrial growth. The Survey stated that despite dip in the economic growth India remains among the fastest growing economies of the world. Country’s sovereign credit rating was stated to have risen by a substantial 2.98 percent in 2007-12.
      The Survey highlighted the slowing down of the global economy as a prime reason for the dip in Indian economic growth. The global economy became adverse in September 2011, owing to the turmoil in the euro-zone countries. The slowdown was reflected in sharp ratings downgrades of sovereign debt in most major advanced countries. While a large part of the reason for the slowing of the Indian economy was attributed to global factors, domestic factors also played role.
Analysis-

J The slowdown in Indian economy was attributed largely to weakening industrial growth. The industrial sector has performed poorly, retreating to a 27% share of the GDP.

 J The services sector however continued to be a star performer as its share in GDP climbed from 58% in 2010-11 to 59% in 2011-12 with a growth rate of 9.4%. Agriculture and allied sectors were estimated to achieve a growth rate of 2.5% in 2011-12. Agriculture & allied sectors were are estimated to achieve a growth rate of 2.5% in 2011-12 with foodgrains production likely to cross 250.42 million tones as a result of increase in the production of rice in a number of states.Overall growth during April-December 2011 reached 3.6% compared to 8.3% in the corresponding period of the previous year.

J The fiscal 2011-12 was marked by a sharp depreciation of the Indian rupee. In the current fiscal 2011-12, on month-to-month basis the rupee depreciated by 12.4 per cent from 44.97 per US dollar in March 2011 to 51.34 per US dollar in January 2012. Rupee reached a peak of 43.94 on 27 July 27 2011 and lowest at 54.23 per US dollar on 15 December 2011 indicating a depreciation of 19 per cent. The RBI was required to sell dollars twice in the fiscal to help raise the value of the rupee.

JAlso in 2011-12 India’s external debt stock increased by US $ 20.2 billion (6.6 per cent) to US $ 326.6 billion at end-September 2011 vis-à-vis US $ 306.4 billion at end-March 2011, primarily due to higher commercial borrowings and short-term debt.

JInflation as measured by the wholesale price index (WPI) remained high during greater part of 2011-12 fiscal, though by year end a noticeable slowdown in price rise was registered. Food inflation, in particular came down significantly. RBI adopted stringent monetary policies to control inflation as well as curb inflationary pressures. The high rate of interest established by the central bank lowered growth rate of investment in the economy as the sharp increase in interest rates resulted in higher costs of borrowings and other rising costs affecting profitability.

J Economic Survey 2011-12 stated that India’s foreign trade performance will remain a key driver of growth in the coming fiscal 2012-13. During the first half of 2011-12, India’s export growth was 40.5%, but it failed to remain high for the entire fiscal. Imports grew rapidly, by 30.4% during 2011-12 (April-December). India’s Balance of Payments widened to $ 32.8 billion in the first half of 2011-12, compared to $29.6 billion during the corresponding period of the earlier fiscal 2010-11.
The foreign exchange reserves increased from US $ 279 billion at end March 2010 to US $ 305 billion at end March 2011. Reserves were found to vary from an all-time peak of US$ 322.2 billion at end August 2011 and a low of US $ 292.8 billion at end-January 2012.

J Wholesale Price Index (WPI) which remained persistently high throughout 2011 due to increasing global commodity prices and high crude prices began to moderate and it is expected to touch 6.5 to 7 percent by March 2012. Economic Survey 2011-12 observed that in 2011-12 the gap between WPI and CPI inflation narrowed due to sharp fall in food inflation. CPI-IW inflation, after remaining in single digit from August 2010 to August 2011, briefly touched double digits at 10.1 percent in September 2011. It however came down to 6.5 percent in December 2011.

J The banking sector- public and private showed impressive increase in priority sector lending. The Economic Survey 2011-12 underlined the fact that flow of agricultural credit was highly impressive. The Indian banking system disbursed credit of Rs 446779 crore to the agricultural sector as against a target of Rs 375000 crore in-2010-11.

JThe Labour Bureau conducted twelve quarterly quick employment surveys to assess the impact of the economic slowdown on the employment sector. The surveys indicated an upward trend in employment since July 2009 was maintained. Overall employment in September 2011 over September 2010 increased by 9.11 lakh, with the highest increase recorded in IT/BPO (7.96 lakh) sector.

JThe coverage under the MGNREGA consistently increased from 4.51 crore households during 2008-09 to 5.49 crore households during 2010-11 with averaged employment of 47 persondays per household. Average wage increased from Rs 65 in 2006-07 to Rs. 100 in 2010-11. The Survey stated that to strengthen transparency and accountability in the implementation of the MGNREGA, the Government initiated a service delivery project for Information and Communication Technology (ICT) and biometrics related works of the MGNREGA on PPP basis.

JThe performance of broad sectors and sub sectors in key infrastructure areas in 2011-12 was both good and bad. Whereas there was improvement in growth in power, petroleum refinery, cement, railway freight traffic, passenger handled at domestic terminals and upgradation of NHAI, coal, natural gas, fertilizers, handling of export cargo at airports and number of cell phone connections show negative growth. Steel sector witnessed moderation in growth.

Forecasts-
The real GDP growth is expected to pick up to 7.6% in 2012-13 and 8.6% in 2013-14 as per the survey. Pranab Mukherjee predicted 7.6% GDP growth in 2012-13. As per the survey, given that fiscal consolidation is back on track, savings and capital formation should is likely to start rising. Also the RBI policy rates are expected to be reduced in the back of easing of inflationary pressures. The lowered interest rates will encourage investment activity and have a positive impact on growth. These projections were all made on the basis of assumptions regarding factors like normal monsoons, reasonably stable international prices, particularly oil prices, and global growth. The progressive deregulation of interest rates on savings accounts is expected to raise financial savings and thus improve transmission of monetary policy.

Survey Suggestions-
Sustainable development and climate change were recognized by the survey as central areas of global concern. The Survey suggested need to examine the linkages and trade-offs between policy rate changes and inflation in the Indian context, for better calibration of monetary policy.
                                                                                The Economic Survey 2011-12 stated that it was essential to make lower carbon sustainable growth a central element of our Twelfth Five Year Plan commencing in April 2012.

In Conclusion-
The Economic Survey in conclusion mentioned that India is more closely integrated with the world economy as its share of trade to GDP of goods and services tripled between 1990-2010. The extent of financial integration, measured by flows of capital as a share of GDP also increased leading to an expansion of India’s role in the world economy.

The Economic Survey of India 2011-12: Highlights
The economic survey 2011-12 was presented in the parliament by the Finance Minister Pranab Mukharjee on 14 March 2012. According to the economic survey 2011-12 the Indian GDP pegged at 6.9% in the fiscal year 2010-11. Figure for the agriculture, services and industry sector stood at 2.5%, 9.4% and 4-5% respectively. The survey, which is presented annually by the Ministry of Finance, of government of India, maintained that the Indian economy despite global slowdown remained exuberant and was among the fastest growing economies of the world.

* The country's economic growth estimated at 6.9 per cent in the current fiscal; growth momentum to pick up in next two fiscals to 7.6 per cent 2012-13 and 8.6 per cent in 2013-14. 

* RBI expected to lower policy interest rates, as inflationary pressures expected to ease in coming months; A low interest rate regime to encourage investment activity and push forward economic growth. 

* Steps required for deepening of domestic financial markets, especially corporate bond market and attracting longer-term inflows from abroad; Efforts at attracting dedicated infrastructure funds have begun. 

* The growth rate of investment in the economy is estimated to have declined significantly; borrowing costs up due to a sharp increase in interest rates. 

* High borrowing costs and increase in other costs affecting profitability and internal accruals. 

* Slowdown in Indian economy largely due to global factors, as also because of domestic factors like tightening of monetary policy, high inflation and slower investment and industrial activities. 

* Inflation high, but showing clear signs of slowdown by the year-end; Whole-sale food inflation down to 1.6 per cent in January 2012 from 20.2 per cent in February 2010. 

* India remains one of the fastest growing economies of the world; Country's sovereign credit rating rose by a substantial 2.98 per cent 2007-12 

* Farm sector growth pegged at 2.5 percent for 2011-12.

* Services sector to grow at 9.4 percent. 

* Services sector share in GDP to go up to 59 percent in the fiscal ending March 31. 

* Industrial growth pegged at 4-5 percent, expected to improve as economic recovery resumes. 

* Inflation on WPI was high but showed clear slow down by the year-end. This is likely to spur investment activities leading to positive impact on growth. 

* WPI food inflation dropped from 20.2 percent in February 2010 to 1.6 percent in January 2012. 

* Calibrated steps initiated to rein-in inflation on top priority. 

* India remains among the fastest growing economies of the world. 

* Fiscal consolidation on track - savings and capital formation expected to rise. 

* Exports grew by 40.5 percent in the first half of this fiscal and imports grew by 30.4 percent. 

* Foreign trade performance to remain a key driver of growth. 

* Forex reserves enhanced - covering nearly the entire external debt stock. 

* Central spending on social services goes up to 18.5 percent this fiscal from 13.4 percent in 2006-07.
 

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