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Posted by on Mar 4, 2012 in Business | 0 comments

Negative tax list, FDI, GST primary focus points of Budget 2012-13

Next 2 weeks will be very carefully watched by analysts and markets as Railway budget is to be presented on Mar 14, a key monetary review meeting is scheduled by RBI on Mar 15 and the Union Budget is to be presented on  Mar 16.

2011 was a very rigid year for economies around the world. Lack of turnaround announcements or big ticket business decisions is understandable given the tight credit regime that existed. Whole of Europe sparing Germany was in “not-so-healthy” mode and we witnessed a lot of political turmoils, uprising and resignations. India however, thanks to its internal consumption did not experience alarming growth problems. But the inflationary pressures and dampened export added to a devalued rupee that further hiked procurement rates which kept the industry in check and led to a large fiscal deficit for the government.

The Union Budget 2012-13 is, therefore, a very important opportunity for the government to provide the necessary fillip to growth, which has been lackluster for the last one year. Though markets have dramatically rebounded in the first quarter of 2012 so far, the fundamentals have taken a backseat and are still lagging far behind, while it is the liquidity, which is driving up the market higher leading to an improvement in investor sentiment.

Introduction of Goods and Services Tax (GST), considered as the biggest reform of direct taxes in independent India is the most important expectation in this budget. Centre has also set up an empowered group of state finance ministers to consider widening of service tax net. The committee has proposed having a”negative list” of services sparing which all others will be taxed by the centre. This would mean that “Negative list” taxation regime followed in many countries globally could soon be a reality in India.

FDI in retail which will heavily attract huge funds into the system is also expected to be announced in the budget. FDI in retail will strengthen the supply chain in India and also reduce the price for end customers who are reeling under inflation for a long time, while simultaneously benefiting farmers with better procurement prices. This will be a difficult announcement to get through as there was a stiff political resistance during the announcement in the winter session of Parliament.

Increase of FDI in aviation, fiscal consolidation, removal of securities transaction tax (STT) on stock trades and increase of minimum tax exemption to 5 lahks are some of the other expectations that wait for the  upcoming Union Budget.

Because the government cannot present a full budget in 2014, next year will be the latest the government can announce slew of election throw-aways. Therefore news@indiadragon expects government will play tough to enforce fiscal discipline, create open market conditions and show the much needed political will during Budget 2012-13.