No Big Reforms This Fiscal Budget?

The Union Budget is to be announced on 16th March 2012. There is no significant expectation from the government’s fiscal policy, as there are no big reforms which will be addressed. The only thing we are expecting is slight increase in excise duty and service tax rate. We expect the excise duty to be increased from 10% to 12%. The sectors which primarily will take the hit are from this will be automobiles, cements and cigarettes.

We also expect the government to expand the service tax by having an ‘Exclusion List’ for service tax applicable as against the list of sectors where the service tax was applicable previously. All these measures are expected to boost the government’s revenues. There might also be few populist measures like the “Right to Food” bill which could be tabled this time.

A big positive step for the infrastructure sector could be abolishment of 5% import duty on Coal. This move will be positive for most of the power generating companies

Overall, fiscal deficit for FY13 is expected to be at 4.7%, although looking at the current welfare program and social spending we expect the number to exceed 4.7% levels and the realistic estimate for FY13 fiscal deficit should be around 5%, which is on back of assumption that Brent Crude will remain around 110$/barrel for full year