Union Finance Minister P. Chidambaram’s interim budget 2014-15 presented on Monday targeted key middle-class constituencies ahead of the elections with offerings to armed forces pensioners, nine lakh young education loan borrowers, and aspiring car and two-wheeler buyers.
The proposals in UPA II’s last financial statement signalled a clear shift from the rural aam aadmi to focus on young and urban voters, considered to be the Bharatiya Janata Party’s support base. This being an interim budget, the Finance Minister kept untouched personal and corporate income tax rates and surcharges on them.
Mr. Chidambaram announced some new allocations: Rs. 1,000 crore non-lapsable funds to the Nirbhaya Fund, Rs. 1,000 crore to the National Skills Development Trust and Rs. 200 crore to a Venture Capital Fund for Scheduled Castes. He also announced a new research funding organisation that would select projects through competitive bidding.
To spur manufacturing, he cut excise duty rates for the capitals goods sector. He later summed up his speech as “a signal of hope that things will be better” and “confidently asserted” that the economy was more stable today than it was two years ago. Against the backdrop of a decade of low growth, he claimed that fiscal deficit was declining, current account deficit has been contained, inflation has moderated, the quarterly growth is on the rise, exports have increased and hundreds of projects have been unblocked.
Observers were sceptical. “Notwithstanding the assertions by the government regarding growth and inflation, the incoming government will continue to confront a challenging macroeconomic landscape which only deep institutional and structural reforms will address,” National Institute of Public Finance and Policy Director Rathin Roy told The Hindu .
The revised estimate of the fiscal deficit of 4.6 percent of the GDP is lower than the “red line” of 4.8 per cent. The statement on the Fiscal Responsibility and Budget Management Act, 2003, placed in Parliament, however, said: “Without a robust and ambitious tax growth, it is not possible to achieve the fiscal roadmap which the government has embarked upon.”
The FRBM statement also indicates that the next Finance Minister must devote 45.5 per cent of the Centre’s net tax revenue to interest payments on the borrowings for funding past budgets. Total borrowings for 2014-15 are Rs. 5,96,083 crore, or 4.6 per cent of the GDP. Gross tax revenue in April-December 2013 grew 9.2 per cent year on year to Rs 7,43,709 crore. As a proportion of the budget estimates, this is lower than the previous five-year average.
The budget and revised estimates for the 2013-14 revenue deficit are 3.3 per cent of GDP. “The revenue deficit stays sticky which means that the government continues to borrow to consume,” Mr Roy said.
