Budget 2012-13: A lukewarm briefcase

IndiaRetailer.com,

Budget is that time of the year when every Indian is in a state of curiosity to know what’s in store for him in terms of money; whether his expenditures are going to rise; or will there be sigh of relief. The Union Budget 2012-13 has come across as a safe play by Finance Minister Pranab Mukherjee. The industry has given out a very lukewarm reaction to the Budget, as the expectations of various sectors were very high. While some were looking out for an industry status, the others, after single brand FDI in retail, were waiting for a concrete announcement on multi-brand FDI in retail.

All these expectations, though, have fallen flat on the face. Some of the key highlights of this Budget are:

• Implementation of Direct Tax Code (DTC) deferred. GST to be operational by August 2012
• Introduction of Rajiv Gandhi equity scheme for retail investor; exemption of Rs 50,000
• Eat-outs and other activities will cost more as FM proposes increased service tax rate to 12 per cent from 10 per cent and introduced a negative list aimed at bringing more services under the tax net.
• Gold import duty has been doubled to 4 per cent
• Excise duty on branded and non branded jewellery has increased by one per cent
• 2 per cent tax on cash sales of over Rs 2 lakh
• Excise duty of 1 per cent on silver branded jewellery has been removed
• Rs 3,000 crore will be provided to NABARD to help handloom weaver cooperative societies to become financially viable
• A nominal 1 per cent central excise duty is being imposed on 130 items. The basic customs duty has been reduced from 30 to 5 per cent on raw silk, from 5 to 2.5 per cent on certain textile intermediates and from 7.5 per cent to 5 per cent on certain inputs for manufacture of technical fibre and yarn
• For readymade garments and made-ups of textiles, the optional levy has been converted into a mandatory levy at a unified rate of 10 per cent. The levy would, however, apply only to branded garments or made-ups and not to those tailored or made to order for a retail customer. Credit of tax paid on inputs, capital goods and input services would be available to manufacturers of these products. Export o these items would continued to be zero-rated
• Excise tax on diapers and sanitary napkins reduced from 10 per cent to 1 per cent.
• Commodities and services that get dearer include cigarettes, gold, diamonds, bicycles and parts, eating out, air travel, large cars, AC, fridge, phone bills
• Commodities and services that get cheaper include processed food, iodised salt, match boxes, soya products, solar power lamps, LED bulbs, cancer, HIV medicines, natural gas, LNG, uranium for generation of electricity

Experts Speak:

Kaushal Sampat, President and CEO – India, Dun & Bradstreet
The Budget proved to be a ‘high-on-intent but low-on-action’ affair and this was magnified on account of the huge expectations that India Inc had built from it. It is a workman like Budget, which has maintained its focus on inclusive growth but has remained silent on a number of critical issues, including a specific roadmap for implementing Goods & Services Tax (GST) and Direct Tax Code (DTC). Enhanced spending on infrastructure and addressing certain supply bottlenecks in agriculture, coal and power are some of the positive developments in the Budget. While it was acknowledged that the government has limited fiscal space to manoeuvre, there is a notable absence of progressive policy action in the area of public delivery mechanisms, labour laws, natural resource management (notably, mining and hydrocarbons) and land acquisition, all critical areas that could spur investment inflows. However, we expect that the government’s efforts will continue outside the Budget, which could aid business sentiment going forward.

Associations Speak:

ASSOCHAM
The Associated Chambers of Commerce and Industry of India (ASSOCHAM) said the Union Budget for 2012-13 is well-balanced and pro-active with well-defined measure to bring back the economy on higher growth track.

Despite current economic situation coupled with domestic political compulsions and challenges like elevated inflation, the government has tried to tread the path of fiscal consolidation with prudent macro-management, said ASSOCHAM President Rajkumar Dhoot. “The Budget attempts to improve subsidy deliveries with direct transfers to bank accounts for targeted distribution. It also emphasises the need for fresh investments for capacity creation and infrastructure building on the public private partnership model,” he said.

It enlarges the scope for external commercial borrowings in several areas including civil aviation and low-cost housing structures. This should encourage the flow of funds from overseas in key infrastructure sectors, Dhoot added.
He said that the de-bottlenecking of supply side constraints in agriculture and larger allocation for development of storing space will boost the rural economy as well as supplement their incomes.
Meanwhile, ASSOCHAM Senior Vice-President, Rana Kapoor, said the Budget contains significant allocation and well-defined measures for long-term viability of small and medium enterprises, which contribute 40 per cent to the GDP and account for 45 per cent of employment generation. Retailers Association of India
“The Union Budget has brought across some unexpected implementations, one of which is the rise in sales tax, which will not only hit the retailers’ pocket but will also have an impact on the consumers. Even though the price of consumer durables like AC and fridge has gone up, the sales dip will only depend on the consumer sentiment. For businesses like textiles, the reduction in customs has come across as a positive decision by the government,” says Kumar Rajagopalan, CEO, RAI.

Industry Speaks:

Yash Birla, Chairman, The Yash Birla Group

The objective of bringing back growth has not been met. The only silver lining is the increase in outlays to the infrastructure sector, but, given the massive requirements of this sector, this is likely to be seen as too little. From an IT sector perspective, there is nothing specific that is either a strong negative or positive. Some of the key areas of concern for the industry, like skills development, have not received any major focus. The pharma sector will be affected by the increase in excise duty rates. Not much emphasis has been given to the education sector in this Budget. Service tax exemption in school education is a positive movement. Increase in service tax from 10 to 12 per cent will have a negative effect on cosmetic medical services as well as modern spas, which are all wellness services. Real Estate Speak:

Anuj Puri, Chairman and Country Head, Jones Lang LaSalle India

Our reaction to Union Budget 2012-13 is mixed at best. It seems fair to state that the Indian real estate sector does not have much to cheer about.
To begin with, it is difficult to see the raising of the personal income tax exemption limit from Rs 1.8 lakh to Rs 2 lakh as anything more than tokenism. It is certainly not relevant for the aspiring Indian middle-class home buyer. The expected exemption limit of Rs 3 lakh would have had some significance. That said, the 1 per cent tax rebate for home loans of up to Rs 15 lakh on homes costing up to Rs 25 lakh will prove beneficial for developers in this segment
Exempting proceeds from the sale of a residential property from Capital Gains tax if they are invested in equity or equipment of an SME definitely provides home owners with more reinvestment options. Previously, the only route for exemption was purchase of another property or tax saving bonds. At the same time, this move could also result in a lowering of sales volumes on the secondary sale market.
The increase in the service tax rate from 10 per cent to 12 per cent will increase the cost of production for developers, who are already reeling under high input costs. It follows that this increased burden will be passed on to end users.
Allowing External Commercial Borrowing (ECB) for affordable housing is, without doubt, an excellent move. It will ensure better capital availability for developers of low-cost housing. This sector is typified by low margins, and it becomes attractive only if developers are enabled to produce greater volumes. Better capital availability will help in timely project execution, which will result in higher volumes.
The postponement of a firm decision on FDI in multi-brand retail came as a disappointment. We seem to have missed yet another opportunity to boost the Indian economy by ways of significant foreign capital inflows. On the other hand, the increased spend on warehousing will certainly help the retail real estate sector, since more storage capabilities will help retailers to expand into more cities and towns. Likewise, the measures to increase funding for highways and other infrastructure will help put more territories on the real estate map.

Textiles:

Jayesh Shah, Director and CFO, Arvind Limited

The Union Budget 2012-13 presented under severe eco-political constraints, is realistic. The Finance Minister has made efforts to contain fiscal deficit by not resorting to too many populist measures and increasing indirect taxes in form of excise and service tax.
The implications of the Budget on the textile Industry are mixed. The following proposals will have a positive impact on the industry. However, the industry will have higher input tax burden on account of increase in excise duty and service tax by 2 per cent.

• Reduction in basic customs duty from 5 per cent to 0 per cent on new automatic shuttle-less looms and select processing machines would substantially reduce the capital cost for modernisation and enhancing capacity
• Rationalising and increasing the abatement rate for branded garments from 55 per cent to 70 per cent will result in reduction in the effective rate of excise duty from 4.5 per cent to 3.6 per cent
• There is an increase in excise duty and service tax from 10 per cent to 12 per cent. The textile sector, which is currently under optional excise duty regime, will suffer from the increase of excise duty and service tax on goods for domestic sale. However, the same would be neutral for export of textile
• The weighted reduction of 200 per cent to 150 per cent respectively for spends on R&D and skill development initiatives would trigger and incentivise investment and efforts in this direction. The industry is facing an acute shortage of manpower and this impetus would encourage active and enhanced participation of industry in skill development initiatives

Food & Grocery:

Vinita Bali, Managing Director, Britannia Industries Ltd
The Finance Minister has presented a mixed Budget with fundamentally positive steps in some areas, not enough in others and large concern areas like the projected fiscal deficit of 5.1 per cent. A few of the positives of the Budget include raising the plan outlay for agriculture by 18 per cent, initiatives for R&D in agriculture, allocations for improving warehousing and storage facilities for agricultural produce. All of these, if executed well and on time, will address the supply side on food and agriculture that will drive domestic demand and consumption, which is one of the key priority areas. Similarly, some of the specific measures to create maternal and child nutrition programs is an essential step in ensuring that the unacceptably high levels of malnutrition are addressed.

Rajheev Agrawal, Director and CEO – Nilon’s
There were little expectations from the Budget due to the tough fiscal situation in front of the government. The Budget is not negative in general, it is realistic. The boost to the food processing sector will come from the provision of National Mission on food processing.
The government should have clarified that when GST is implemented, the total tax burden on priority sector like food processing will not go up indirectly. There is a fear that the GST will double the tax burden on industry.

Gems & Jewellery:

Prithviraj Kothari, Director- Riddisiddhi Bullions Ltd

Budget 2012 has been a disappointing one. We strongly oppose this Budget. It will create a negative impact not only for the bullion and jewellery dealers, but also for the common man.

We can say that government has levied an extra 2 per cent duty on the common man. Increase in gold prices along with this increase in duty – how will the common man survive? This move will create a slump in the market and result in smuggling and opening up of other illegal channels to get gold in India.

The only positive point is the removal of excise duty on silver branded jewellery. But I personally don’t think that will really help. GST has been postponed to October. We insist the government to implement GST at the earliest to provide a significant boost to investment and growth of the economy.

Finally, we can concur that the Budget has not met the expectations of the bullion industry and this will eventually affect the common man who wishes to invest in these precious commodities and seek growth.

E-Commerce

Dinesh Agarwal, Founder & CEO, IndiaMART.com
We welcome the Union Budget 2012-13 presented by the Finance Minister. While the FM called for speedy reforms today, the Budget did not indicate much in that direction. The key highlight, however, was ‘GST’, and we hope that this timeline is met as it would certainly help address the multiple taxation issues faced by the MSMEs currently. We had also expected some effective mentions to simplify taxation and also consolidate multiple departments to allow better compliance by MSMEs. This still remains to be looked at by the government.
Another positive for MSMEs in this Budget was allocation of Rs 5,000 crore to SIDBI for venture fund, which would enhance equity availability to MSMEs. Exemption of capital gains tax from sale of property when proceeds are used for investment in SME would also help augment funds for SMEs to a certain extent. Also, the move to raise the turnover limit for compulsory tax audit for SMEs to Rs 1 crore from Rs 60 lakh would also bring relief to many SMEs.
We believe that there was a scope for bolder announcements for MSMEs, which could have brought about a sea change in their productivity and growth by eliminating the challenges faced by them.

Bicycles:
Ajit Gandhi, Marketing Head, Firefox Bikes Pvt Ltd
We are very unhappy with the recent Budget with respect to our industry. The Finance Minister has announced an increase in import duty on bicycles from 10 per cent to 30 per cent, which is totally against what the world is moving towards. The whole world is looking at a promoting non-motorised vehicles and bicycles because of the immense benefits attached to it – it is environment friendly, health friendly, requires no consumption of fuel and reduces road congestion, to name a few. The Finance Minister has set a very wrong example and it should be strongly opposed. The availability of international standard bikes was bringing about a change in the culture, with the affluent class beginning to get on to leisure riding and riding to work, but the increased price will be a hurdle to the same. Almost all the bikes and components used for competitive sports are imported and the cycling teams or cyclists getting trained to compete require good equipment to perform better. With this decision, their purchase would also go higher. This again is discouraging.