The government will present its budget for financial year 2013 on March 16, 2012 amid concerns of a drop in the growth rates and severe strain on the expenditure side due to high oil prices and subsidies. This year the focus will tilt on the core issues, namely (a) containing the ballooning fiscal deficit; (b) reviving the economic growth, and (c) encouraging the capital inflows. Though the assembly election in the states would be over but the social sector spending will continue to beat anti-incumbency in the 2014 elections. Meanwhile we do not expect any fireworks in the budget this year as the implementation of the Direct Tax Code (DTC) and the Goods and Services Tax (GST) are likely to be pushed ahead due to implementation issues.
Fiscal consolidation to be the focal point: The market would be keenly following the fiscal deficit guidance, which has expanded substantially compared with the guidance of 4.6% mainly contributed by the high crude oil prices. Given the limited room for manoeuvre due to the resurgence in crude oil prices and the spiraling expenditure (food security etc) amid falling tax receipts, the deficit could rarely be bridged. Further, the Reserve Bank of India (RBI)'s stand on easing the policy rates hinges on the credible steps taken by the government on reducing its fiscal deficit.
Expanding the revenues-a tall order in current scenario The revenue collections fell short of the estimates as tax collections dropped on slowing of the economy and higher refunds. Further, the disinvestment target planned by the government has not materialised, resulting in increased borrowings to meet the shortfall. The tax-to-GDP ratio had dropped to around 9.1% till Q3FY2012 from 12% in FY2008. The government would explore new avenues to garner tax revenues probably by increasing the import duties and widening the services tax net among other measures. The government would again set lofty targets for non-tax revenues (disinvestment, spectrum auction etc) in a bid to reduce the fiscal deficit. However, the major structural reforms-DTC and a uniform GST-are unlikely to see the light of the day in the upcoming budget.
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