Amid
constant interruptions by some members, Finance Minister P. Chidambaram
presented the interim budget for 2014-15 in the Lok Sabha on Monday, expressing
concerns confronting the economy today and how his government has navigated so
far to address the challenges.
This
is India's 83rd budget and the 9th such personal exercise for
Chidambaram. The main budget for the financial year 2014-15 will be presented
by the new government that will come into power after the general elections,
the schedule for which are likely to be announced by the Election Commission
soon.
Leaving
direct taxes untouched, Chidambaram slashed excise duty on cars, SUVs and
two-wheelers, and capital goods and consumer durables to boost manufacturing
and growth. He also provided service tax
exemption for storage and warehousing of rice like it was done in case of paddy
last year. Also, blood banks have been exempted from its purview. The 10 per
cent surcharge on 'super-rich' having income above Rs 1 crore in a year,
and the up to 5 per cent surcharge on corporates imposed last year, will
continue.
"In
keeping with the conventions I do not propose to make any announcements
regarding changes to the tax laws," he said. The Budget document does not give figures of
the indirect tax concessions, which are valid up to June 30, 2014 and could be
reviewed later. They will be notified later in the day. He justified the excise duty reliefs saying,
"However, the current economic situation demands some interventions that
cannot wait for the regular Budget. In particular, the manufacturing sector
needs an immediate boost." To
encourage domestic production of mobile handsets, he restructured the excise
duty for all categories fixing it at 6 per cent with CENVAT credit or 1 per
cent without CENVAT credit.
Customs
duty structure on non-edible grade industrial oils and its fractions, fatty
acids and fatty alcohols has been pegged at 7.5 per cent to encourage to
domestic production of soaps and oleo chemicals. Similarly, a concessional customs duty of 5
per cent on capital goods imported by Bank Note Paper Mill India Pvt Ltd has
been provided to encourage to indigenous production of security paper for
printing currency notes. Giving Budget estimates, the Minister said the current
financial year will end on a satisfactory note with the fiscal deficit at 4.6
per cent, below the redline of 4.8 per cent, and the revenue deficit at 3.3 per
cent.
The
fiscal deficit for 2014-15 has been pegged at 4.1 per cent, which will be below
the target of 4.2 per cent set by the new fiscal consolidation path. Revenue
deficit is estimated at 3 per cent. Plan
expenditure for the coming fiscal has been fixed at Rs 555,322 crore, unchanged
from current year, and non-Plan expenditure at Rs 12,07,892 crore, marginally
higher than 2013-14. Chidambaram said excise duty has been reduced from 12 to
10 per cent on capital goods and consumer non-durables falling under Chapter 84
and 85 of the Schedule to the Central Excise Tariff Act.
Small
cars, motorcycles, scooters and commercial vehicles will attract a lower excise
duty of 8 per cent from the current 12 per cent, while SUVs will see a 6 per
cent reduction in duty from 30 to 24 per cent. Large and middle segment cars
will enjoy an excise duty of 24/20 per cent, down from 27/24 per cent. Outlining
a 10-point vision for the future, the Finance Minister said India must achieve
the target of fiscal deficit of 3 per cent of GDP by 2016-17 and remain below
that level always.
On
Current Account Deficit, he said there is no room for any aversion for it since
the country will run a CAD every year for some more years and it can be
financed only by foreign investments - FDI, FII or ECBs or any other foreign
inflow. As part of the vision, he said a developing economy must accept that
when the aim is high growth, there will be moderate level of inflation.
"RBI
must strike a balance between price stability and growth while formulating
monetary policy," he said in his vision formula that included financial
sector reforms, infrastructure, manufacturing, subsidies, urbanisation, skill
development and sharing responsibilities between states and Centre. Expressing
disappointment over not being able to introduce Goods and Services Tax (GST),
he said, "I leave it to you to answer the question who blocked the GST
when an agreement on the game-changing tax reform was around the corner?"
He
said the DTC, which will serve for the next 20 years, is ready and intents to
place in on the website for public discussion. "I appeal to all political
parties to resolve to pass the GST laws and DTC in 2014-15," he said. Referring to the GDP growth rate, Chidambaram
said the slowdown began in 2011-12 and in nine quarters it had declined from
7.5 per cent in Q1 of 2011-12 to 4.4 per cent in Q1 of 2013-14.
He
said thanks to numerous measures taken, he was confident the decline will be
arrested and the growth cycle will turn in the second quarter. "I think I
have been vindicated. Growth in Q2 of 2013-14 has been placed at 4.8 per cent
and growth for the whole year has been estimated at 4.9 per cent. This means
that growth in Q3 and Q4 of 2013-14 will be at least 5.2 per cent," he
said.
The
Finance Minister said the economy is more stable today than what it was two
years ago. "The fiscal deficit is declining, the current account deficit
has been contained, inflation has been moderated, the quarterly growth rate is
on the rise, the exchange rate is stable, exports have increased and hundreds
of projects have been unlocked," he said. He said the current year will
end with a merchandise exports of USD 326 billion, indicating a growth of 6.3
per cent.
The
current account deficit that threatened to exceed last year's CAD of USD 88
billion, will be contained at USD 45 billion, which will be USD 15 billion more
than the foreign exchange reserves by the end of financial year. Last year, WPI
headline inflation stood at 7.3 per cent and core inflation at 4.2 per cent. At
the end of January 2014, WPI was 5.05 per cent and core inflation at 3 per
cent. "While our efforts have not been in vain, there is still some
distance to go. Food inflation is still the main worry, although it has
declined sharply from a high of 13.6 per cent to 6.2 per cent," he said.
Rejecting
the argument of policy paralysis, he enumerated the pathbreaking decisions of
the government in 2013-14 which included decontrol of sugar, gradual correction
of diesel prices, rationalisation of railway fare, starting the process of
issue of new bank licenses and restructuring of power distribution companies. The
Cabinet Committee on Investment (CCI) and the Project Monitoring Group were set
up. Thanks to the swift decisions taken by them, by the end of January 2014,
the way was cleared for completing 296 projects with an estimated project cost
of Rs 6,60,000 crore.
On
performance, Chidambaram gave examples of fast growth in various sectors in
various sectors. India produced 263 million tons of foodgrains now as compared
to 213 million tons 10 years ago. Similar
fast growths, the Minister said, have taken place in coal production, power
capacity and roads. Central Government's expenditure on education has risen to
Rs 79,451 crore as compared to Rs 10,145 crore 10 years ago. Expenditure on
health has risen to Rs 36,322 crore from Rs 7248 crore in a decade.
Agriculture
sector has shown stellar performance in 2013-14. Foodgrain production is
estimated at 263 million tons. Production of sugarcane, cotton, pulses,
oilseeds and quality seeds has reached new records. Agriculture exports are
likely to cross USD 45 billion. Agriculture credit is likely to touch Rs
7,35,000 crore, exceeding the target of Rs 7,00,000 crore. In the current year,
agriculture growth is estimated at 4.6 per cent. For 2014-15, the target for agriculture
credit has been fixed at Rs 8 lakh crore.
Chidambaram
also announced that the interest subvention scheme shall continue in 2014-15. Under
this scheme, a subvention of 2 per cent and an incentive of 3 per cent for
prompt payment is provided, reducing the effective rate of interest for farm
loan to 4 per cent. Eight National Investment and Manufacturing Zones have been
announced and another NIMZ approved in principle. Infrastructure has grown by
valuable addition to national highways, rural roads, railway tracks and port
capacity. Besides, 19 oil and gas blocks were given out for exploration in
2013-14 and 7 new airports are under consideration.
The
government has accepted the principle of 'one-rank- one-pension' for defence
forces for which Rs 500 crore has been allocated. Defence allocation has been
enhanced by 10 per cent to Rs 2,24,000 crore. A moratorium period for education
loans taken up to March 31, 2009 has been proposed. It will benefit nearly 9
lakh student borrowers by way of reduced interest burden. Rs 2,600 crore has
been allocated for it. The government will contribute Rs 1000 crore to the
Nirbhaya Fund on top of a similar grant provided last year. The Fund has also
been made non-lapsable. Rs 1,200 crore has been set apart for additional
central assistance to North-Eastern states, Himachal Pradesh and Uttarakhand. A
venture capital fund for scheduled caste is proposed to be set up with an
initial capital of Rs 200 crore.
The
restructured Integrated Child Development Scheme, which is implemented in 400
districts, will be rolled out in the remaining districts. Rs 1000 crore is
being proposed for the National Skill Development Corporation in view of its
success in providing skills to the youth.
HIGHLIGHTS :
GROWTH
*
GDP expansion in 2013/14 third and fourth quarters will be at least 5.2 percent
FISCAL
DEFICIT
*
Fiscal deficit seen at 4.6 percent of GDP in 2013/14
*
Says need to bring down fiscal deficit to 3 percent of GDP by 2016/17
CURRENT
ACCOUNT DEFICIT
*
Current account deficit for 2013/14 projected at $45 billion
*
Forex reserves to rise by $15 billion by end of 2013/14
EXPORTS
*
Merchandise exports seen at $326 billion in 2013/14, up 6.3 percent year on
year.
Agriculture
exports xxpected to touch $45 billion in 2013/14, up from $41 billion in
2012/13
SPENDING
*
Plan expenditure for 2014/15 seen at same level as previous year
*
Non plan spending estimated at about 12.08 trillion rupees in 2014/15
SUBSIDIES
*
Total spending on food, fertilisers and fuel at 2.5 trillion rupees in 2014/15
DEFENCE
Spending
raised to 2.24 trillion rupees in 2014/15, up 10 percent year on year
BANKS
RESTRUCTURING
Govt
to provide 112 billion rupees capital infusion in state run banks in 2014/15