A QUICK REVIEW OF UNION BUDGET 2013-14

INDIAs budget for the fiscal year beginning April 1, 2013 - the second year of the 12th Five-Year Plan (2012-17)- has had to be framed in an extraordinarily difficult context- a sharp slowdown in economic growth, persisting high inflation, unabated surge in international oil prices, continuous depletion of rupee , trade and finance spill overs from an uncertain global environment.

Slowdown in Indian economy has to be seen in the context of slowing global economic growth from 3.9 per cent in 2011 to 3.2 per cent in 2012. However, no reason for gloom or pessimism. Of the large countries of the world only China and Indonesia were growing faster than India in 2012-13. In 2013-14, only China projected to grow faster than India. Under the UPA Government, 11th Plan period had shown unprecedented highest average growth rate of 8 per cent.

Adding to the aforesaid complexities, forthcoming general election 2014 forced UPA Government to follow a balanced approach to the budget so as to attain a higher growth leading to inclusive and sustainable development. Ahead of general election 2014, Finance Minister Mr P. Chidambaram has carried out one of the most dexterous exercises in budgetmaking, designed to bring about a strong economic revival in the new fiscal year with a credible road map to reduce subsidies and fiscal imbalance instead of showing a populist approach in the budget.

Its successful implementation would further enhance Indias stand in the world economy both as a source of stability for global growth and a safer investment destination. The 16.65trillon rupee budget , which aims at kick-starting growth revival without losing sight of fiscal consolidation, has been broadly welcomed as realistic in the present political and economic situation but not without doubts about Governments ability to deliver on the new fiscal targets.

TAX REFORMS:

The Direct Taxes Code (DTC) is work in progress. The Standing Committee on finance has submitted its report on bill and Ministry of Finance is examining the recommendations so as to finalise the official amendments by bringing the bill back to Lok Sabha before the end of the Budget Session.

As regards Direct Taxes, a relief of Rs. 2000 for the Tax Payers in the first bracket of Rs. 2 lakhs to Rs. 5 lakhs have been proposed. 1.8 crore tax payers are expected to benefit to the value of Rs 3,600 crore. By invoking the spirit of Azim Premji, FM also proposed 10 per centage surcharge (super-rich tax) on persons whose taxable income exceeds Rs 1 crore per year. This would apply to individuals, HUFs, firms and entities with similar tax status.

With regards to Indirect Taxes, the Finance Minister proposed no change in the normal rates of 12 per cent for excise duty and service tax. Similarly, no change has been made in the peak rate of custom duty of 10 per cent for non-agricultural products. Custom duty on free gold limit increased to Rs. 50,000 in case of male passenger and Rs. 1, 00,000 in case of a female passenger subject to conditions.

In a major step to rationalize taxation on goods and services (GST), the Budget has earmarked Rs. 9,000 crore towards the first instalment of the balance of CST compensation. The modified provisions of GAAR will come into effect from 1.4.2016. KEY TARGETS: The Indian economy is estimated to have registered a growth rate of 5.0 per cent in 2012-13 in terms of gross domestic product at factor cost at constant 2004-05 prices, following a growth of 6.2 per cent in 2011-12.The present budget targets economic growth at 6.1-6.7 per cent in spite of ground realities in the economy.

Thanks to Dr Vijay Kelkar Committees recommendations to Government in September 2012, a new fiscal consolidation path with fiscal deficit at 5.3 per cent of GDP this year and 4.8 per cent of GDP in 2013-14 announced by the Government. Revenue deficit for the year 2012-13 is estimated at 3.9 per cent and a target at 3.3 per cent is fixed for the year 2013-14. By 2016-17 fiscal deficit to be brought down to 3 per cent, revenue deficit to 1.5 per cent. The effective revenue deficit is estimated at 1.8 per cent of GDP in budget estimate 2013-14. It is further projected to decline to 0.9 per cent in 2014-15 and 0.0 per cent in 2015-16.

Without focused subsidy reforms, the process of fiscal consolidation will be next to impossible. So the expenditure of Government on major subsidies is expected to come down

from 2 per cent of GDP in 2013-14 budget estimate to 1.8 per cent of GDP in 2014-15 and 1.6 per cent of GDP in 2015-16.

THREE PROMISES: TO WOMEN, YOUTH AND THE POOR

Shri. Chidambaram made promises to the women, the youth and the poor - the three faces that represent the majority of the people of India. Stating that the government pledges to do everything possible to empower the women and to keep them safe and secure, he said that a number of initiatives were underway and many more would be taken by the Government as well as non-government organizations. He announced the setting up of a fund - Nirbhaya Fund - with the Government contributing Rs. 1000 crore. To addresses gender related aspects of empowerment and financial inclusion, Indias first Womens Bank is proposed to establish at public sector with an initial capital of Rs1,000 crore.

The Minister also announced a Rs. 1,000 crore scheme for training youth to boost their employability and productivity. This initiative is likely to motivate 10 lakh youth. For the benefit of the poor, the Minister assured that Direct Benefit Transfer (DBT) schemes will be rolled out throughout the country during the term of the UPA Government.

RURAL DEVELOPMENT, AGRICULTURE AND FOOD SECURITY:

The allocation for Rural Development Ministry has been raised by 46 per cent to Rs 80,194 crore in 2013-14.Rs 33000 crore was set aside for Mahatma Ghandi National Rural Employment Guarantee scheme. Ministry of Agriculture gets a rise of 22 per cent over the revised estimates (RE) for 2012-13, at Rs 27,049 crore. Rs 500 crore is being allocated to start a programme on crop diversification. It will encourage farmers in the original green revolution states to choose alternative crops. The Budget seeks to support Farmer Producer Organizations (FPO), including Farmer Producer Companies (FPC) which have emerged as aggregators of farm produce and link farmers directly to markets. The target of agricultural credit for 2012-13 (Rs. 5, 75,000 crore) is likely to be exceeded, and a target of Rs 7, 00,000 crore farm credit has been fixed for the next year. Rs.307 crore has been provided for setting up of the National Livestock Mission. This will attract investment and enhance livestock productivity. Expressing the hope that the National Food Security Bill will be passed by Parliament as early as possible, the Finance Minister has set apart Rs. 10,000 crore towards the incremental cost that is likely under the Act.

INVESTMENT, INFRASTRUCTURE AND INDUSTRIAL SECTOR:

A number of steps to mobilize investment have been announced in the Budget keeping in view that as per 12th Plan the private sector will share 47 per cent of Rs 55,00,000 crore investment in infrastructure. Infrastructure Debt Funds (IDF) will be encouraged. India Infrastructure Finance Corporation (IIFCL) will offer credit enhancement to infrastructure companies that wish to access the bond market to tap long term funds. Some institutions will be allowed to issue tax - free bonds up a total sum of Rs 50,000 crore (as against Rs 25,000 crore in 2012-13).

The Budget introduced an investment allowance for new high value investment. A company investing Rs. 100 crore or more in plant and machinery during the period 1.4.13 to 31.3.15 will be entitled to deduct an investment allowance of 15 per cent of the investment (in addition to depreciation).

To provide greater support to Micro, Small and Medium Enterprises (MSMEs), the refinancing capability of SIDBI is proposed to be enhanced from Rs. 5,000 crore to Rs. 10,000 crore per year. SIDBI will also be provided a corpus of Rs 500 crore to set up a Credit Guarantee Fund for factoring. Small and medium enterprises, including start-up companies, will be permitted to list on the SME exchange without being required to make an initial public offer (IPO), but the issue will be restricted to informed investors. Other Major Allocations: Defence gets an allocation of Rs. 2,03,672 crore- an increase of 14 per cent over the revised estimate for 2012-13- and the assurance that constraints will not come in the way of providing any additional requirement for the security of the nation. Education has been allocated Rs. 65,867 crore, an increase of 17 per cent over the RE for 2012-13. Ministry of Health and Family Welfare has been allocated Rs. 37,330 crore. Of this, the new National Health Mission that combines the rural mission and the proposed urban mission will get Rs. 21,239 crore - an increase of 24.3 per cent over the revised estimate CONCLUSION: This budget has tried to address concerns of fiscal consolidation in a difficult macroeconomic environment. However the path of consolidation relies heavily on compression of expenditure and augmentation of revenue. The budget was approached to create an opportunity to rethink, reassess and make way for new ideas and policies. The finance minister has tried to create an enabling atmosphere for corporate, farmers, entrepreneurs and workers to take initiative for robust growth with the intention of reaching benefit to all section and bridging gap between poor and rich.

The finance minister has used social sector spending to leverage demographic dividend of the country. A higher spending on education and health is absolutely essential for the inclusive and sustained growth. But this budget is definitely not populist or aiming at next years election in its nature. Because it responds to the critical needs at the moment to bring macro imbalances under the control. Its not the budget alone, which can bring the growth rate back to above 6 per cent, but governments action on many fronts plays a vital role. Budget has done its part, now its the time for action.