Pre-budget 2012 blues expected by the industry and the individuals is abundant; amidst the stiff market and political situations will the FM be able to deliver….

As the Finance Minister Pranab Mukherjee open his briefcase to unleash the annual budget 2012. The markets in Asia traded flatly on Friday. The FM is supposed to swirl his magic wand and give the penultimate financial package to flag off the industrial vehicle on roads to prosperity. This is the ultimate question lingering in the learned and the rural alike. Will he be able to rise above expectations and do the necessitated facilitation for the growth of the economy or would he be stuck to brand building image of his sunken party as an ardent Congress man is the question that haunts all of us at the moment.

Market situation over the week: Markets were pretty flat the whole of this week expecting the final announcements from the FM. The stock market expects the finance minister to rein in the fiscal deficit by cutting subsidies and other expenditure and boost growth by allowing Reserve Bank of India to cut interest rates. Politics may not let the minister adopt a tough budget, experts say.

What the individual expects: May be the Indian tax payer might expect respite from the present tax slabs and the industry might expect some tax cutting measures. But the balancing act is much awaited by the FM. Income tax limits might be marginally raised. This could be to the benefit of the individual tax payer. Though, the Direct Taxes Code (DTC) Bill has also made a mention of it. The DTC suggested the exemption limit to Rs.3 lakhs and the tax payer would be expecting this, which might not be so. But in all certain may this wish list come true.

In order to lure more public savings in government bond Tax exemption on investments might be increased. This would ensure more funds to the government to carry on its financial agenda. This includes principal of home loans, life insurance premium, child tuition fees and retirement funds. A hike in this limit will help raise the savings of Indian households. As a solace to individuals interest deductions for self occupied houses might be increased to Rs.2-3 lakhs per annum. This would be another popular initiative that will get applause from individuals.

To compensate this rise the FM might increase the indirect taxes like excise and service sector and also would add more services to the list. Then comes the Minimum Alternate Tax (MAT) might be hiked. Minimum Alternate Tax ensures that such companies pay a minimum percentage of the book profit in case the tax on the total income computed under the law is less than this amount. These two moves if adhered to without much demurrage to the industry will be acceptable, but if it is stretched beyond elastic limits could deter the chances of prosperity of the industry.

Market expectations: Now going to the market consolidations that are to be taken up by the FM. Fiscal Consolidation has to be controlled. For this the FM needs to lower subsidy burden and lower the direct taxes which is unlikely, given the populous trends of the Congress. Step in the positive direction ideal for Infrastructure growth is expected. By increasing tax benefits and inviting public participation on long term initiatives the FM might get over this hurdle. Bundling the proposals with loads of reforms including, the Fast track policy reforms such as Mining Bill and Land Acquisition Bill and FDI in multi-brand retail, aviation, insurance. But is this practically possible with the allies firmly against reforms on these lines is a wait and watch question.

Industry Expectations: The top nine industrial segments that are going to be influenced by the FM for its survival may enjoy and deride on what is on the anvil for them.
1.    Automobile: this sector is going to be severely hit as the trends do show up. The car sales increased in February fearing the budget blues. With the proposal of an additional excise on diesel vehicles and on components, the sector might find things harder to go about in the next financial year.
2.    FMCG: the hike in excise duties could leave them with no alternative but to pass it on to the end user and this could adverse their sales.
3.    Banking: the banking sector which is much criticized towards its frequent increase on loan interest rates would only survive if a credible roadmap for curbing fiscal deficit is announced. This sector much depends on the FM to introduce higher allocation for recapitalization and reduction in lock-in period for tax-saving fixed deposits to three years from five years. Only these two imminent measures would aid the sector to strategically rebrand themselves.
4.    Infrastructure: this industry segment requires the FM to concentrate on recommending higher customs duty on cheap Chinese equipment to create a level playing grounds.
5.    Software: this segment looks on the FM for reduction or removal of MAT on special economic zone (SEZs). As the STPI tax benefits expired last year.
6.    Buildings and Real Estate: another vital sector that looks at the FM to dole it out of crisis. RBI’s proposal to exclude stamp duty and other registration charges while calculating value of property would affect affordability. Increase in limit for income tax deduction on interest rates on home loans may help realty companies. Land acquisition and environment clearances, the two bottleneck areas may be addressed.
7.    Cements: the sales of cement much depends on the import duty on thermal coal. A reduction in this duty will enhance their sales and utilize their capacities.
8.    Metals: a hike in the import duty will boss the local products sale. And steel and aluminum manufacturers are banking on this strategy of the FM.
9.    Petroleum: A clear cut road map on decontrol of diesel, kerosene and LPG may be announced. The increase in diesel,

kerosene and LPG prices would reduce under-recoveries and, hence, would be positive for Oil marketing companies. This could be against the populace programs of the Congress and hence unlikely to happen atleast now.

With just a few moments left the FM is the ultimate wizard who is going to oscillate his magic wand and say, `Abra ka Dabra’ and behold all our wish list could be attained. Long Live India!!!! (With inputs from internet- AarKay)