Union Budget 2013-14: A Recipe for Economic Recovery?

State of the Economy Not a rosy scenario

Key Indicators GDP Growth Rate (%) Savings Rate (as % GDP)* Industrial Growth (IIP %) Inflation (Overall) (%) Inflation (Food articles) (%) Inflation (Food products) (%) Fiscal Deficit (as % GDP) Current Account Balance/GDP(%)** 2010-11 9.3 34 8.2 9.6 15.6 3.73 4.8 -2.8 2011-12 6.2 30.8 2.9 8.9 7.3 7.12 5.7 -4.2 2012-13 5 (6.1 to 6.7) 0.7 (Apr-Dec) 7.6 (Apr-Dec) 9.36 (Apr-Nov) 8.07 (Apr-Nov) 5.1 (4.8) -4.6 (Apr-Jan)

* The share of financial savings has been coming down as against physical savings. Reasons are low GDP growth, high inflation leading to falling real income, low returns from stock mkt., higher volatility in stock mkt. ** High CAD is due to rising cost of oil import (due to rupee depreciation); rising gold and coal imports; and falling domestic savings leading to increased financing of domestic investment via external borrowing. Source: Economic Survey (2012-13) & Instructor's own calculations

Approach Prescribed in Economic Survey (2012-13)

Problem Low economic growth Solutions Shift national spending from consumption (read high fiscal deficit) to investment. [Note: Consumption-led growth was pursued during global meltdown in 2008-09] Remove the bottlenecks to investment, especially infrastructure (like inter-ministerial tangles of clearances and procedural norms) Make efforts to reduce the cost of funds Removal of restrictions on FDI in legal and accountancy services and transport sector Labour mkt. reforms Introduce inflation-indexed bonds and other attractive financial saving opportunities Attract savings towards productive assets such as infrastructure and equity mkts.

Falling savings rate

Problem High Inflation

High fiscal deficit

Current account deficit

Solutions Remove supply side bottlenecks [Significant part of inflation getting generated becoz. of poor supply responses] Control demand via tight monetary policy Disfavor higher tax rates for the rich/increase in marginal tax rates. Higher tax rates encourage tax evasion & discourage taxable activities Widen the tax base Cut subsidies on petroleum products and fertilizers Better targeting and reduced leakages in subsidy delivery
Address delays in obtaining environmental clearances, land acquisitions and rehabilitation for increasing domestic coal output thereby reducing coal imports. Control gold imports Increase domestic savings leading to falling external borrowing.

Budget at a Glance (in Rs. Crore)

S. No. 1 2. 3. 4 Components Revenue Receipts Tax Revenue (net to centre) Non-Tax Revenue Capital Receipts 4A. Recoveries of Loans 4B. Other Receipts 4C. Borrowings and Other liabilities Total Receipts (1+4) Non-Plan Expenditure 6A. On Revenue Account 6B. On Capital Account Plan Expenditure 7A. On Revenue Account 7B. On Capital Account Total Expenditure (6+7) Revenue Expenditure (6A + 7A) Capital Expenditure (6B + 7B) Revenue Deficit (9-1) Fiscal Deficit {8-(1+4A+4B)} 2011-2012 (A) 751437 629765 121672 552928 18850 18088 515990 1304365 891990 812049 79941 412375 333737 78639 1304365 1145785 158580 394348 515990 2012-2013 (RE) 871828 742115 129713 558998 14073 24000 520925 1430825 1001638 919699 81939 429187 343373 85814 1430825 1263072 167753 391245 520925 204251 266970 2013-2014 (BE) 1056331 884078 172252 608967 10654 55814 542499 1665297 1109975 992908 117067 555322 443260 112062 1665297 1436169 229129 379838 542499 171814 205182

5 6

8 9 10 11 12 13

Primary Deficit (12-Interest Payments) 242840 Effective Revenue Deficit (11-Grants for 14 creation of capital assets) 261766 Note: A- Actuals; RE - Revised Estimates; BE - Budget Estimates

Budget at a Glance (% Change over previous year) S. No. Components 2012-2013 (RE) 1 Revenue Receipts 16.02 2. Tax Revenue (net to centre) 17.84 3. Non-Tax Revenue 6.61 4 Capital Receipts 1.10 4A. Recoveries of Loans -25.34 4B. Other Receipts 32.68 4C. Borrowings and Other liabilities 0.96 5 Total Receipts (1+4) 9.70 6 Non-Plan Expenditure 12.29 6A. On Revenue Account 13.26 6B. On Capital Account 2.50 7 Plan Expenditure 4.08 7A. On Revenue Account 2.89 7B. On Capital Account 9.12 8 Total Expenditure (6+7) 9.70 9 Revenue Expenditure (6A + 7A) 10.24 10 Capital Expenditure (6B + 7B) 5.78 11 Revenue Deficit (9-1) -0.79 12 Fiscal Deficit {8-(1+4A+4B)} 0.96 13 Primary Deficit (12-Interest Payments) -15.89 Effective Revenue Deficit (11-Grants for creation of 14 capital assets) 1.99

2013-2014 (BE) 21.16 19.13 32.79 8.94 -24.29 132.56 4.14 16.39 10.82 7.96 42.87 29.39 29.09 30.59 16.39 13.70 36.59 -2.92 4.14 -15.88 -23.14

Budget Proposals - Agriculture

Rs 7 lakh crore target fixed for agri. credit for 2013-14 compared to Rs 5.75 lakh crore in the current year. Eastern states (consisting of Bihar, Jharkand, Odisha and West Bengal) get Rs 1,000 crore allocation for improving agricultural production. Rs 500 crore allocated for programme on crop diversification Rs. 5,000 crore for NABARD for agri storage facilities Godowns to be constructed with help of panchayats Proposal for setting up of a National Livestock Mission with a funding of Rs. 307 crore. The Mission will pay attention to animal nutrition by increasing the availability of feed and fodder.

Rs.200 crore for conversion of innovation into practical use.

An institute for agricultural biotechnology will be set up in Ranchi, Jharkhand

Funds for a National Institute of Biotic Stress Management at Raipur

Budget Proposals - Industry

Tax
No change in peak custom, excise rates 5-10% surcharge on domestic companies whose taxable income exceeds Rs 10 crore Commodities transaction tax levied on non-agriculture commodities futures contracts at 0.1% GAAR norms to be introduced from April 1, 2016

Expenditure
Significant increase in the allocation for JNNURM (Rs 14,873 crore in 2013 14 against Rs 7,880 crore in the current fiscal) New ports in West Bengal and Andhra Pradesh Package of measures for textile industry

Rs. 14,000 crore will be provided to public sector banks for capital infusion in 2013-14
SIDBIs refinancing facility to MSMEs to be doubled to Rs 10,000 crore IIFC, in partnership with ADB will help infrastructure companies to access bond market to tap long term funds.

Nearly Rs. 56,000 Cr. is targeted to be mobilized through disinvestment

Budget Proposals Industry (Expenditure contd.)

Benefits or preferences enjoyed by MSME to continue up to three years after they grow out of this category Two new industrial corridor projects [Bangalore-Chennai and Bangalore-Mumbai]. Seven new smart cities will be set up Regulator to give boost to road projects

Standing Council of Experts in Ministry of Finance to examine transaction cost of doing business in India
Incubators set up by companies in academic institutions will qualify for Corporate Social Responsibility (CSR) activities

Budget Proposals - Common People (incl. tax payers)

Tax
No review of income tax slabs. Only tax credit of Rs. 2,000 for income upto Rs. 5 lakh. A surcharge of 10% for taxable incomes above Rs. 1 crore. Service tax restaurants on all A/C

Expenditure
Direct Benefit Transfer Scheme to be rolled out throughout the country during the term of UPA govt. Rs 10,000 crore to the expected cost of the National Food Security Bill/Act Rs. 1000 crore corpus fund to ensure safety of women in public places Grant of Rs. 100 crore each for some universities (AMU, BHU, TISS) and more budgetary allocation for Space, Energy and Technology.

More taxes and duties on SUVs, imported cars, mobile phones, cigarettes

Duty-free limits for passengers to bring jewellery raised to Rs 50000 for men and Rs 1 lakh for women

Budget Proposals Common People (Expenditure contd.)

17% increase in allocation for HRD Ministry. The Ministry will get Rs. 65,867 crore 24.3 % hike in expenditure for health care both rural and urban health mission All flagship programmes adequately funded. PSBs have promised more ATMs in their branch areas by 2014 Insurance companies can now open branches in Tier 2 cities and below without prior approval All towns of India with a population of 10000 or more will have an LIC branch and one other public sector insurance company.

Budget Proposals Common People (Expenditure contd.) First-time buyers of affordable homes will get an additional deduction of interest of Rs. 1 lakh for home loans up to Rs. 25 lakh

Proposal to establish exclusive women bank

Rs 532 crore to make post offices part of core banking

Medical colleges in six more AIIMSlike institutions to start functioning this year; Rs 1650 crore allocated for the purpose.

Budget Proposals Others

Proposal to launch Inflation Indexed Bonds or Inflation Indexed National Security Certificates to protect savings from inflation

TDS of 1% on the transaction/sale of all immovable properties except agricultural land, which exceeds Rs. 50 lakh in value

Question to guide Budget Discussion

Can Union Budget 2013-14 resolve the present challenges low growth & savings, high fiscal deficit, high inflation, high current account deficit, low investor confidence facing Indian economy?

Discussion Groups Section C

Government Roll Nos. FPM 10-Q & 12-S, 165, 125, 174, 130, 148, 152 Opposition Roll Nos. FPM 11-S, 164, 171, 128, 121, 155, 141 Industry Roll Nos. 139,170,169,161,179,173,145,142, 157

Farmers Roll Nos. FPM 9-Q, 172, 129, 147, 154

Common people Roll Nos. 127, 133, 131, 168, 167, 160, 159, 124, 149, 151, 150, 162

Discussion Groups Section E Government Roll Nos. 274, 278, 296, 295, 290 Opposition Roll Nos. 248, 255, 246, 273, 257

Industry Roll Nos. 285, 297, 241, 263, 264

Farmers Roll Nos. 266, 281, 265, 280, 260

Common people Roll Nos. 250, 340, 242, 267, 271, 269, 289

Discussion Groups Section F

Government Roll Nos. 334, 310, 308, 306, 349, 344, 335, 350, 299, 323, 324, 314

Opposition Roll Nos. 317, 316, 315, 307, 346, 347, 352, 325, 326, 329, 331
Industry Roll Nos. 343, 301, 300, 302, 305, 332 Farmers Roll Nos. 309, 349, 348, 337, 338, 342, 322

Common people Roll Nos. 318, 339, 354, 298, 303, 320, 327, 328