Budget 2012 vs 2011

A comparative look at last year's Budget expectations and delivery versus what can the investor expect in 2012. It is that time of the year again.

Budget 2011

Come February every year, all of us market watchers and investment analysts spend considerable time evaluating the Government's promises and performances regards to the previous year's Budget speech, auditing its implementation and success and formulating recommendations and expectations from what is sorely needed this year around. This year, in a rare change, the Budget will be released in March after the results of the State Assembly Elections have been declared

The Budget last year was presented at a time when the Indian economy recorded high growth despite the global economic slowdown worldwide. Investor confidence was at an all-time high. The 2011 Budget held no great surprises and was felt to be fairly neutral in its recommendations and initiatives. The Budget did not implement any of the reforms widely expected including the Direct Tax Code (DTC), Goods and Services Tax (GST) or any other policy reform. The Budget did not also focus on immediate steps to curb inflation, which at that point was not high as compared to its current levels.

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One of the major concerns last year too, was the levels of current account deficit as a percentage of GDP. The Budget did adopt measures to increase FII inflows aimed at boosting infrastructural growth and controlling fiscal deficit. The Budget speech outlined the process of fiscal consolidation and prudence. It also announced several policies to be implemented in the last financial year like bills on insurance, banking licenses, cash subsidies and FDI in sectors like power and retail aimed at rural development.

The Budget also expanded initiatives like the National Rural Employment Guarantee Act (NREGA) scheme to stabilize wages and livelihood security of people in rural areas by guaranteeing hundred days of wage-employment in a financial year to a rural household whose adult members volunteer to do unskilled manual work.

Budget 2012 VS 2011

The situation in 2012, however, is not that different while being set in a completely different context. Unlike 2011, the economic landscape is bleaker than buoyant, global recessionary woes have made their presence felt in the Indian economy as compared to the perceived immunity last year around. While last year's Budget was focused on merely sustaining growth, the Budget this time around will have to first kick start India's growth trajectory to previous levels and then focus on sustaining the same. The government must deliver on all these fronts while it fights to win back investor confidence after a spate of negative news involving charges of corruption, bribery and scams that have ruled all of last year.

Expected in March this year are further stringent measures of fiscal consolidation through increase in revenue. The Union Budget 2012-13 is expected to target a fiscal deficit ratio of slightly below 5 per cent of the gross domestic product (GDP) from a likely 5.25 per cent in 2011-12.

The Budget comes at a time when economic growth has slowed and inflation, while declining, is facing headwind from a renewed rise in crude oil prices. Hence, it is expected to focus on reforms and growth initiatives across sectors. This is expected to be achieved through the much awaited introduction of the Direct Tax Code and the Goods and Services Tax (GST), disinvestment and policy reform in FDI inflows. The latter half of last year has shown signs of shaking off lethargy thus far seen in matters of policy with the announcement on retail FDI and further such initiatives are expected to see the light of day especially in manufacturing, power and energy sectors as well.

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The shortfalls in NGREGA is expected to pave the way for innovative schemes that encourage empowerment and micro enterprise, giving the much needed fillip to rural employment and development. Subsidy bills are also expected to be revaluated to contain deficit and promote increase in government revenues.

For the Indian investor, expectations are high for relief in the form of a higher tax exemption limit, a simpler tax structure and initiatives with an objective of to increasing long term investments and gains.

The Indian economy is estimated to grow 6.9 per cent this fiscal, lower than the 8.4 per cent growth recorded in 2010-11. The Union Budget 2012 thus is expected to stimulate growth and complete the initiatives outlined by its predecessor. While the Budget of 2011 was fairly neutral and lacked surprises, 2012 is set to be more focused on reforms and fiscal consolidation with its share of innovative initiatives that strive to make the Indian investor and the Indian economy happy.

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