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Budget Analysis 2012 - Be Cruel to be Kind

India
21 Mar 2012

Budget 2012 was expected to put a bruised and hurting economy back on the path of growth. This requires that the Government contain a runaway fiscal deficit (estimated at 5.9 percent for FY 2012), address supply side constraints to help check inflation which has persisted at uncomfortably high levels for much of the year and kick start an investment cycle which has been particularly subdued; given an environment characterised by high interest rates, elevated commodity prices, and weak investor sentiment. Taxand India examines the five objectives that underpin Budget 2012 and how they appear to respond, among others, to these imperatives.

The Budget projects a nominal GDP growth of approximately 14 percent. With real GDP growth targeted at around 7 percent, inflation for the year has been projected at 7 percent, a number that will be watched closely. The fiscal deficit for the year has been projected at an uncomfortable 5.1 percent, potentially constraining a correction in interest rates. This is predicated on a tax revenue growth of 15.6 percent, lower than the 18.4 percent growth predicted in Budget 2011. Expenditure is expected to grow at 18 percent; subsidies are to be contained at 2 percent of GDP, to be achieved in part through better targeted subsidies delivered through cash transfers.

Taxand India presents a full look at the budget, amendments and sectors most affected


Taxand's Take


While introducing the taxation proposals, the Finance Minister drew from Shakespeare's Hamlet and noted that he "must be cruel only to be kind". Given that the Budget proposals have been presented a day after 15 March we must hope that Shakespeare's admonition to "Beware the Ides of March" remains within the confines of classical literature. Taxpayers in India should pay close attention to the budget to discover how the announcements will affect their tax position.

Your Taxand contact for further queries is:
Mukesh Butani
T. +91 124 339 5010
E. mukesh.butani@bmrlegal.in

Taxand's Take Author