New Finance in India: on March 16, Indian Finance Minister Pranab Mukherjee unveiled the Budget (programmatic instrument of the Indian government equivalent to our budget) for the coming financial year 2012/13.
In addition to presenting the measures that will be implemented in the new fiscal year, the Minister reviewed the performance of the Indian economy. The figures provided for 2011-2012 showed differences compared to what was announced the previous year: growth stood at +6.9%, a lower figure when compared to the GDP of 2010-2011 (which experienced an increase of 8.4%) and to the forecasts of the previous financial year, which indicated +9%. Despite the global crisis, which had repercussions on the Indian economy, albeit minor, the Subcontinent continues to rank among the top five economies in the world in terms of growth, and forecasts indicate +7.6%for the next fiscal year 2012-2013, and +8.6%for the following year.
In order to continue on the path of growth undertaken, the 2012-2013 Budget has substantially identified five points that will aim to consolidate economic growth:
Regarding sectors, Mukherjee intends to push for infrastructural development, a crucial sector for India's growth: in this regard, approximately €770 billion will be allocated overall, from both the public sector and private investors. In order to ensure more efficient transportation, capable of allowing for faster movement of goods, the Government has decided to expand the road network by 8,800 km, which is 14% more than the previous year's budget, with an investment of approximately €4 billion.
The agricultural sector, which continues to be considered a priority by the Government, will also be subject to significant subsidies: in fact, an increase in credit for farmers up to €88 billion has been proposed, to allow them easier access to modern agricultural equipment. Furthermore, the new budget law will launch the implementation of the National Mission on Food Processing, a program that should encourage stronger growth in the food processing sector.
Mukherjee also stated that the government intends to give serious consideration to two important proposals: the first concerns the possibility of allowing foreign airlines to hold up to a 49% stake in the capital of an air transport company; the second concerns the desire to reach an agreement allowing up to a 51% foreign direct investment (FDI) stake in multi-brand retail, which would be a truly fundamental measure for the country, given the recent obstacles that have prevented the sector’s full liberalization. The Minister also proposed establishing a €770 million fund to provide access to credit for micro, small, and medium-sized enterprises.
Further measures concern some social reform interventions (launch of the National Urban Health Mission program and intervention on housing for the most vulnerable segments of the population), the textile sector, and the financial sector: for the latter, specifically, the Rajiv Gandhi Equity Savings Scheme, program that provides tax deduction for investors in the retail sector.
From a fiscal point of view, the Minister has promised initiatives aimed at combating corruption and has increased the excise duty and service tax. The absence of a proposal to reduce the corporate tax rate does not satisfy companies, but the Government has tried to compensate by proposing a series of measures to promote investments through tax breaks in various sectors, including agriculture, infrastructure, mining, railways and roads, civil aviation, welfare, and the environment.
In addition, in order to reduce tax disputes and ensure tax certainty for foreign investors, the Government has decided to introduce the Advance Pricing Agreement (APA) starting this year. The APA, within the framework of transfer pricing regulations, is an agreement between the taxpayer and the tax administration. It addresses transfer pricing issues related to a group of intercompany transactions for a certain period, defining appropriate methodologies, terms, and conditions.
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