Thursday, April 5, 2012

The Union Budget - Summary


So the Union Budget is out! And so are people’s analyses on them and various interpretations. Though Sachin Tendulkar’s Ton Ton did make the news next day, as did our own Finance Minister’s Pranabda’s statements on Shakespeare; here’s the actual numbers that speak for themselves.

Read on to find out the bare essentials of the budget this year:

The budget can broadly be divided into three parts:-

Deficit: Deficit basically means lack of or falling short of. When the total expenditure of a nation exceeds its income, it is a deficit. Deficit in a budget is further classified as:

i.           
Fiscal Deficit: When a government's total expenditures exceed the revenue that it generates, it leads to a fiscal deficit in the budget. Fiscal deficit targeted at 5.1 per cent of GDP, as against 5.9 per cent in revised estimates for 2011-12.

ii.            Current Account Deficit: Occurs when a country's total imports of goods, services and transfers are greater than the country's total export of goods, services and transfers. This situation makes a country a net debtor to the rest of the world. The finance minister said in his speech that the current account deficit as a proportion of GDP for 2011-12 is likely to be around 3.6 per cent.

iii.            Trade Deficit: An economic measure of a negative balance of trade in which a country's imports exceeds its exports. A trade deficit represents an outflow of domestic currency to foreign markets. India's trade deficit widens to $15.1 billion in February 2012 from $9.4 billion a year ago.

Revenue: Revenue is the money received from taxation, fees, fines, inter-governmental grants or transfers, securities sales, mineral rights and resource rights, as well as any sales that are made. In lay man’s terms it is the income of the government. The sources of revenue for the government are:

        i.            Taxes: Tax refers to the amount of money that citizens pay to the government from their income, profits from business etc. Taxes are of three types:
a)      Direct Taxes: A tax that is levied on the person on income/profits and not on the goods/services is a direct tax. The budget changed slabs for income tax payment this year. The first slab went up to 2-5 lakh from 1.80-2 lakh, second slab to 5-10 lakh from 2-5 lakh and third slab to 10 lakh and above from the previous 8 lakh and above. The Finance Minister also announced individual taxpayers, a deduction of upto Rs. 10,000 for interest from savings bank accounts.
b)      Indirect Taxes: The taxes that are levied from corporate on goods and services are indirect taxes. Standard rate of excise duty raised from 10 per cent to 12 per cent; service tax rates raised from 10 per cent to 12 per cent; no change in peak customs duty of 10 per cent on non-agricultural goods.
c)      Corporate Taxes:  Corporate tax refers to the tax levid on corporate as an organisation on profits in a particular jurisdiction. The Finance Minister announced that there would be no change in the tax structures for the corporates, however announced some relief to increase investments. These include the rate of withholding tax on interest payments on external commercial borrowings is to be reduced from 20 per cent to 5 per cent for three years.  These sectors include: power,airlines,roads and bridges, ports and shipyards amongst others.


        ii.            Interest Income: This is the income that the government gets in the form of interest that the Public Sector Units pay the government. This amount is a variable depending on how well the PSUs perform in the fiscal year. The Finance Minister made no reference to the same in his budget this year.

      iii.            Disinvestments: The action of an organization or government selling or liquidating an asset or subsidiary in disinvesting. Rs 30,000 crore to be raised through disinvestment according to this budget.

Expenditure: Expenditure refers to the amount of money that is paid for goods/services or simply the expenses of running a country. Expenses are divided into three categories:

i.                    Defence Expenditure: India’s biggest expenditure is its defence allocation. This is year the defence budget was increased from 11.59% to 16% of the GDP. The Finance Minister announced a provision of Rs 1,93,407crore for Defence Services including Rs 79,579 crore for capital expenditure. He said the allocation is based on present needs and any further requirement would be met.

ii.                  Subsidies: India being a developing nation, subsidies form the biggest part of its expenditure since her citizens cannot afford even the basic necessities. The Finance Minister announced that the central subsidies to be kept under 2 per cent of GDP; to be further brought down to 1.75 per cent of GDP over the next 3 years. He also announced that  over the next three years, it would be further brought down to 1.75 per cent of GDP. This year the subsidy is important since the Food Security Bill comes into picture. The Government has decided that from 2012-13 subsidies related to food and for administering the Food Security Act will be fully provided for.

iii.                Salaries: The salaries of its government employees and their benefits is a permanent expenditure for any country. While the Government of India often increases the pay according to the recommendations of various pay commissions that are set every year. This year there was no major change in the same.

It's a Kool job!


Most people start business with hopes, dreams and some money in hand, either loaned or saved capital. Ashok Gupta, started his business with a debt.

Gupta worked under his brother-in-law who would assemble air conditioners and coolers in 1980’s, incurred a debt of Rs. 4 lakh. He decided to start his own business and hence separated ways and divided the debt. Thus on 5th October 1986, “Kool Services” a company dealing in AC assembling and servicing started.

The initial capital that Gupta had in hand was Rs. 80 and a loan of Rs. 15 thousand. With this he rented a small gala in Flora Fountain and bought himself a telephone connection to stay in touch with clients.

While most dealers of ACs in Mumbai are assemblers or middlemen between the company and consumers, Gupta started AMC (Annual Maintenance Contract) for all his customers as an added service. This has ensured that his customers are loyal to him and have returned to him for new orders or for referrals.

“The main secret of having a successful business is to have excellent customer relations. When I started shop, I had only two other people who worked with me. Together we assembled and completed an order of 13 ACs in a single day for a client and he still calls me when he has new orders,” says Gupta.

Ashok Gupta (sitting second from right in red shirt) in Kuala
Lampur with other dealers from India who had highest Mitsubishi
sales in 2007.


When he had no capital or advance to work on orders, he took loans from other dealers or money lenders and serviced clients, but repaid them on time as well.

“Business has mostly been good but it is the fluctuation in the kinds of compressors that come in the market 
that affects us the most. Before 1995, there were only Indian brands such as Sriram and Kirloskar that we would use to assemble the piece, later a lot of imported brands entered the market which the customers also excepted us to service them with,” explains Gupta.

Also with changing times, regulations were brought in to minimalise the damage that would be caused to the environment, meaning that assembled ACs did not have government certification that was mandatory.

Hence he shifted the focus of his to corporate orders. To do so, he tied up with several builders, who would then get Gupta to supply ACs to all their constructions. “The major change over the years has been changing according to the demand of the market. The move from window ACs to split ACs to moving into corporate orders for cassette ACs wasn’t easy but necessary,” signs off Gupta.