Buffeted by strong headwinds blowing from several directions, Finance Minister P. Chidambaram has had very little room for major new initiatives or ideas while fashioning the Union budget for 2013-14. The exaggerated expectations of many investors — especially those from abroad — could probably never have been met, certainly not at a time when the economy is threatened with macroeconomic instability. And though this budget will be the last full budget of the UPA government, the fact that the general elections are still more than a year away means the Finance Minister has had to squarely balance the competing claims of economics and politics. In the context of the fiscal deficit, the former suggested austerity while the dictates of the latter indicated a loosening of purse strings. The ensuing balancing act explains why there are no headline grabbing revenue or expenditure measures in the budget.
In the event, the budget’s estimate of Plan expenditure for 2013-14 at Rs.5,55,322 crore out of a total expenditure of Rs.16,65,297 crore is 29.4 per cent more than the revised estimate for the current year. Apart from providing sufficient funds for all flagship programmes, his budget lays emphasis on welfare programmes targeted at the youth, Scheduled Castes and Tribes, minorities as well as women and children. The allocation to the Agriculture ministry has been stepped up by nearly 22 per cent of the revised estimate of the current year. The target for agricultural credit has been set at Rs.700,000 crore, sharply higher than the target of Rs.575,000 crore for the current year. The Rs.10,000 crore set aside for implementing the provisions of the proposed National Food Security Bill seems inadequate but this is said to be over and above the normal provision of food subsidy and may also indicate a rollout towards the end of the fiscal year.
With supply-side bottlenecks contributing to the economic slowdown, the budget wisely gives centre stage billing to infrastructure development. A number of institutions will be permitted to raise tax free bonds, up to a total sum of Rs.50,000 crore. Welcome as these and other initiatives are, infrastructure development requires concerted government action and a review of the implementation models, especially public-private partnerships, on which so much faith is reposed. A company investing Rs.100 crore or more in plant and machinery during the next two years will be entitled to deduct an investment allowance of 15 per cent of investment in addition to the current rates of depreciation. This is the only important tax measure in the budget aimed at reviving manufacturing which has been in the doldrums. Specific steps in the budget to incentivise household savings include a re-launch of the failed Rajiv Gandhi Equity Savings Scheme for first-time investors and inflation-indexed instruments. In the past, variable interest savings instruments have not taken off partly due to lack of clarity on the benchmarks. The move to provide home loan borrowers with an additional one lakh rupees deduction from interest subject to certain conditions is promising but greater clarity about its applicability are needed. The financial sector has received a fair share of attention. Public sector banks will be provided sufficient funds to meet the evolving regulatory capital requirements. Comprehensive changes in the rules relating to registration of foreign portfolio investors and other classes of overseas investors are proposed. The ambiguity that exists in defining foreign institutional investment and foreign direct investment is being removed. Foreign institutional investors are being allowed entry in the exchange traded currency derivative segments. These moves underline the importance of foreign capital in the current economic scenario.
Personal taxation has been left largely untouched, though taxpayers in the first bracket of Rs.2 lakhs to Rs.5 lakhs will get a tax credit of Rs.2000. There is disappointment that the limit for eligible deductions under section 80 C of the Income Tax Act has not been raised. The proposed surcharge on “super-rich” taxpayers — defined as those having a taxable income of one crore rupees or more — is a symbolic rather than a revenue gathering measure. With only 42,800 individuals falling in this category, the fiscal impact will be minimal. In the end, this budget will be evaluated on how far it meets the criteria set by the Finance Minister himself. These include (a) containing the fiscal deficit to within 5.3 per cent of the GDP, (b) dealing with the burgeoning current account deficit, and (c) reviving the growth process. The fiscal deficit has been brought down to 5.2 and is slated to go down to 4.8 per cent next year. But the government’s primary deficit — the amount by which total expenditure, excluding interest repayments, exceeds total revenue — will still be high at 1.5 per cent. On tackling the CAD the budget offers little direct help. Even the expected measures to rein in gold imports are absent. Of course export promotion and a revival in manufacturing will aid the balance of payments. But will the budget spur growth? The danger is that growth prospects may get squeezed at both the supply and demand ends. Mr. Chidambaram has compressed demand, preferring to propitiate animal spirits rather than human ones, but not enough to enthuse the corporate sector. The investors whose appetites were whetted by Mr. Chidambaram’s early actions as Finance Minister last year are visibly upset at the absence of a big ‘reform’ bang. If indeed the economy has “bottomed out,” the budget still has enough small bangs to bring some buoyancy. If not, the much anticipated revival may well prove elusive.
Keywords: P. Chidambaram, Union budget for 2013-14, UPA government, India economy, National Food Security Bill, infrastructure development, Agricultural sector, Rajiv Gandhi Equity Savings Scheme, Public sector banks, taxing the super rich, India GDP
The Editorial"The sum of small bangs"(March 1,2013)provided a brief overview of the Budget 2013-14.I would like to point out a small mistake made in the editorial about the definition of primary deficit.Primary deficit is simply fiscal deficit minus interest payments and the way you defined seems to be wrong.Apart from the informative editorial, "The Hindu" had innumerable columns from various experts and policymakers about the budget for which we are very thankful.
The economy should be in a position to arrive at a just equilibrium in
exchange rate which should enable to pay of our FX bills under imports
at a fair rate simultaneously when FX in respect of exports fetch a
reasonable rupee equivalent to the economy. The currency volatility is
to be arrested at any cost.
When the reforms underway especially with more reliance on FDI in
thrust areas, start showing its true colours, the economy should not
plummet into currency crisis as happened in S.E Asia during mid
nineties.
Yes. Despite withstanding the impact of global economic meltdown,
India is poised to take off and show up as one of the fastest
developing nations in the world. There are many socio-economic-
political constraints for India to fully open up the economy.
Let me appositely quote Nido Qubein – “your present circumstances
don’t determine where you can go; they merely determine where you
start”.
The demanding need for import of oil and gold will entail adequate
foreign exchange and unfortunately India’s balance of trade with 110
countries is negative which degenerate our potential to augment
exports by bringing more products to the export outlet. It is a
disgrace that we are doing international business to almost all
countries, but still a ‘trade deficitor’. We know that the Current
Account, the sum total of the balance of trade, factor income (earning
from F.Is minus payments) and cash transfers whereas India needs USD
75 million to finance the Current Account deficit which is a very big
challenge to the economy.There is no evidence to prove that the
economy is leaped forward to achieve the growth rate as envisaged by
the government at this time while the country is entwined into
abnormal escalation of prices of essential commodities. Sluggish trend
in Industrial production affects the employment market
Similarly the Investment Allowance at the rate of 15 per cent to
manufacturing companies that invests more than Rs.100 crore in Plant
and Machinery, continuation of concessional rate of tax of 15 per cent
on dividend received by an Indian company from its foreign subsidiary
for one more year so as to encourage repatriation of funds from
foreign corporate, exemption to Indian companies from dividend
distribution tax in respect of its portion of the income received
from subsidiary will please corporate and manufacturing sectors.
I am personally very much happy to note that the Finance Minister had
allocated Rs.1,000 crore to develop job-oriented skills among youth
stating that it would trigger for skill development of the country. He
had envisaged the scheme to motivate and empower around one million
youth in one year. Many of our educated but unemployable youth will be
beneficiaries to this scheme as they can upgrade skills and become
eligible for gainful employments. Similarly there is allocation of
Rs.65,867 crores, registering 17 percent enhancement towards HR
ministry which will undeniably add value to our future human resources
enabling to get pace with the technological development and changing
management perceptiveness at the global level.
The allocation of Rs. 10,000 crore as initial expenditure for
implementation towards the yet to be passed food security bill really
shows the shrewd perception of the Finance Minister P.Chidambaram.
Much is being made out of the FM's proposed surcharge on the income of
above one crore for individuals and more than ten crores for
companies.The total revenue from these two measures is estimated to be
about 18,000 crore.the FM repeated his assurance that this measure is
for only one year,as if he is apologising to those who are taxed in
this way.But, is it such a 'big'step?Please see the figures below.
In 2012_13,government lost potential tax revenue worth Rs.5.7 lakh
crore due to exemption and rebates to tax payers. This is up from Rs.
5.4 lakh crore last year and has zoomed over 130 % from Rs. 2.4 lakh
crore in 2006_7.
Personal Income tax exemptions cost Rs. 45,464 crore and Export
promotion related concessions add up to an additional Rs. 44,127 crore
this year.Corporate bodies received direct tax concessions worth Rs.
68,000 crores this year, but paid just 22.85 % in taxes whereas the
stsutary rate is 32.445 %.
Much Ado about Nothing?
With the Budget proposals for 2013-14,defiantly the Hon’ble Finance Minister has given the encouragement to the Banking and Insurance Sector in addition to the Women, Youth and Poor of the poor and disappointed mostly to the small income tax payers.
The main focus of the Budget skirts around the measures to curb
fiscal deficit. In the process the FM makes known his intention to
target high end bracket. But why the schemes to uplift poor are not
prominent and why the hopes of reduction in IT for salaried section
are belied? It is unfortunate that the assisting arms of FM have
not extended to poor and middle class. The reduction in allocation
of funds for health, education,and MGNRGEA demonstrates that the
sarkaar is not for aam aadmi,despite its tall claim.
The budget seemed more like juggling numbers.Mere manipulating the
funds is not a prudent step.It's just taking advantage of the
financial literacy of the citizenry.
1.After so much brouhaha concerning the safety of our women,the
allocation of a token amount is worth complaining.
2.It's hard to digest the imposing of service charges on the
restaurants having a.c.'s with them.Today,a.c.'s are just a need ,
they are not a luxury item and such decisions affect the middle class
mostly
3.The slab of Rs.2000 for making mobile phones dearer should have been
more flexible.
4.The disabled section has again been neglected.What's their fault?
5.The reduction in the fuel subsidies concludes that the public is
again going to face the burden of higher prices of crude oil products.
6.The social sector has paid the price;the MNREGS funds have been reduced and allocation for national food security act have been not worth commendable.
Mr Chidambaram always reserves his pet punches for the complying, tax-
paying salaried and middle-class; He started with the introduction of
Service Tax several years back, which is now a major revenue earning
avenue for the Government and most of it hit the middle class which
does not pay by cash buying services; His latest addition is the
12.36% tax on anything we have in air-conditioned restaurant. A lower
middle class home which spends close to Rs1000/- , eating out in a
decent restaurant twice a month, now needs to shell out Rs1120/- for
the same service! This is nothing but a draconian levy! PC has helped
FIIs by removing sectoral caps but has killed ordinary middle class
person by putting such an unimaginative levy.
Sir,
I have been reading Hindu since 1989 when I was a X class student. I
know your approach is different to that of other print media. You had
a vision but don't you see billions of rupees expended in the name of
poor, women and children actually accrue to them. Whether any
purposeful monitoring is done or not.
At village level, the only rich are those implementing these schemes.
poor still live same unhygienic conditions and earning Rs.50/- day.
Any scheme without proper implementation is useless. Crores of money
being spent by government and for whom it is allotted are ignorant
about the schemes.
who the government is trying to fool these number won't benefit
us,common man's budget what the government calls it,but till today i
haven't understood the meaning of common man,a large part of india
comprises of middle class so think about that first,you are providing
subsidies to poor and elite class can manage on their own but what about
indian middle class which is the backbone of indian economy.
govt. failed to give clear indication on GAAR,GST and DTC. first time
investor in equity market have lot of problem to open an account and
invest directly cash market exposure if the limit of exemption will be
inhance then public may be interested on these. Tax free bond for
infrastructure is also a matter of concern without extension of 80c. FII
are now to allow exposure on currency derrivatives may curve the CAD but
its need hard regulation.
CHIDAMBARAM'S BUDGET .... 90,000 Crores alloted for women/child welfare for current year (to do what?) .... Surely, most of this money is going to be used for election expenses by the ruling party in 2014!!! Another good one - if you eat out or even drink coffee in a "DECENT" restaurant that is 'airconditioned' you are supposedly RICH ENOUGH TO PAY 12% SERVICE TAX..... on top of VAT, TIP, and EXORBITANT MENU PRICES .... therefore you should avoid fast food and instead eat 'fly-food' on the roadside!!!
I am disaapointed that the limit for eligible deductions under Sec 80 C has not been raised. However, the FM seems to too reluctant to tinker with the existing slabs and the benefit of Rs. 20,000/- has been restricted only to the first slab of Rs. 2 lacs to Rs. 5 lacs. Thus there is nothing in the budget to encourage small savings. Inflation-linked bonds will not serve the purpose. Overall, I doubt if the measures initiated in the budgeted would enable the economy to break through the vicious cycle of stagflation. The fate of the economy has been left to the external forces. If luck favours us, there would be growth. Otherwise the present scenario is likely to continue. In this sense, this is a static budget.
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