UNION BUDGET 2013-14: HIGHLIGHTS

UNION BUDGET 2013-14: HIGHLIGHTS

Union Budget for the Fiscal Year 2013-14 was presented by the Finance Minister Mr.P.Chidambaram on 28th February 2013. Prepared against the backdrop of an overall deceleration in the economy the FM was expected to do a balancing act of encourage savings and investment, bridging CAD deficit, revive the economic growth, boost investor sentiments, attain fiscal targets and yet deliver a politically acceptable Budget. Budget was prepared after considering  pre-budget memoranda from various business groups. In the Budget there are echoes of some of the suggestions made by the Economic Survey released on 27th February 2013 which  inter alia suggested growth revival through investment route, broad-basing of taxes instead of hike in tax rates, raising private investment in agriculture, achieving fiscal consolidation etc. Considering the socio- politico-economic compulsions the FM has delivered a non-exciting yet sensible Budget.  Highlights of the Budget are as follows. Select Budget Statistics Particulars 2012-13 (Revised Estimates) 2013-14 (Budget Estimates) % Change   (Rs.Crores)     Total Revenue  Tax Revenue   871,828 742,115   1,056,331 884,078   21.2 19.1   Capital Expenditure   Revenue Expenditure  Interest Payments     167,753   1,263,072 316,674   229,129   1,436,169 370,684   36.6   13.7 17.1 Revenue Deficit  As % of GDP 391,245 (3.9) 379,838 (3.3) -2.9 … Fiscal Deficit  As % of GDP 520,925 (5.2) 542,499 (4.8) 4.1 …   ·         Before going into the provisions of the Budget, the FM provides the economic context in which the Budget was prepared i.e. slowdown in global and domestic economies. Yet FM is not pessimistic. In fact, he perceives 13.4% nominal GDP (at market prices) growth in FY 2013-14. Assuming a 7% inflation, the real growth works to around 6.4% which is in the range of 6.1-6.7% estimated by the Economic Survey 2012-13.   ·         The Budget seems to have taken cue from some of the suggestions made by the Economic Survey with respect to the measures for reviving economic growth, stimulating savings and investments and formulating the tax policy. The Survey, among other things investment-led growth, no increase in tax-rates, widening of tax-base, improving tax-GDP ratio etc . ·           Tax Proposals:   (I)                 Direct Taxes: Personal Tax By and large there are no changes in basic income slabs or the rates. Accordingly the tax rates will be:   Income Slab (Rs.) Tax Rate %   Upto 200,000   Nil   200,001 to 500,000   10   500,001 to 10,00,000   20   Above 10,00,000   30   New Proposals: Tax Credit: A tax credit of Rs.2,000 is provided for the assessees falling in the category of Rs.200,000-500,000.   Surcharge:   10% surcharge on the assessees (individuals, HUFs, firms, entities with similar tax status) whose taxable income is more than Rs.1 crore per annum.   Corporate Tax:   Though the corporate tax rates remain unchanged the Budget proposes anincrease in the surcharge from 5% to 10% on domestic companieswhose taxable income is more than Rs.10 crores per year.   In the case of foreign companies, the surcharge is increased from 2% to 5%.   In all other cases, like dividend distribution tax and tax on distributed income the surcharge is raised from 5% to 10%   The additional surcharges will be in force only for one year 2013-14.       (II)               Indirect Taxes:   NO change in the peak rate of customs duty from its current levels of 10% on non-agricultural products. Similarly, normal rate of excise duty and service tax are retained at their current level of 12%.   Budget Proposals and Economy: Savings, Investment & Growth:  Recognizing the adverse impact of sharp decline witnessed in the savings and investment rates in recent years on the overall economic growth, the FM has proposed several measures to prop-up savings and investments. They include: Savings: ·         Liberalization of Rajiv Gandhi Equity Savings scheme. Raising the income limit from Rs.10 laca to Rs.12 lacs. ·         Additional deduction of interest upto Rs.1 lac on housing loan upto Rs.25 lacs taken during 2013-14. ·         Introduction of Inflation Indexed Bonds or Inflation Indexed National Security Certificates. Investment: ·         Emphasis on infrastructure investment. Encouraging Infrastructure Debt Funds (IDFs). India Infrastructure Finance Corporation along with ADB to offer credit enhancement to infrastructure companies that wish to tap o=long term bond market. ·         Regulatory authority for road sector to address issues relating to financial stress, construction risk, contract management issues etc. ·         Investment Allowance of 15% available as deduction for the investment of Rs.100 crores or more in plant and machinery during 2013-15. Infrastructure: ·         Funding support for industrial corridors; Deli-Mumbai, Chennai-Bengaluru and Bengaluru-Mumbai ·         Awarding of 3,000 kms of road projects in Gujarat, MP, UP, Maharashtra, Rajasthan in the first six months of 2013-14 ·         Rs.14,873 crores allocated for JNNURM to mainly to purchase 10,000 buses especially by the hilly states. ·         Two new ports in West Bengal and Andhra Pradesh. ·         Review of oil and gas exploration policy. Encouraging shale gas exploration and production. Clearing of stalled blocks.   Capital Market: There are several proposals in the Budget which can impact capital market. Such major proposals are: ·         Removing ambiguity in the definition of FDI and FII. Foreign investment with a stake of 10% or less will be treated as FII and more than 10% will be FDI. ·         Permitting FIIs: (i) to trade in exchange traded currency derivatives and (ii) using their corporate bonds and government securities as collateral securities. ·         Allowing SMEs to list on SME segment of stock exchanges without making IPOs subject to the condition that the issue will be restricted to informed investors. ·         Allowing stock exchanges to introduce dedicated debt segment ·         Allowing mutual fund distributors to become members of mutual fund segment of stock exchanges. ·         Enlarging the list of eligible securities for Pension Funds and Provident Funds by including exchange traded funds, debt mutual funds and asset backed securities. ·         Securities Transaction Tax (STT) reduced on equity futures (0.017 to 0.01%) and Mutual Fund Redemption at fund counters (from 0.25% to 0.001%) and Mutual Fund sale/purchase on exchanges (from 0.1% to 0.001%). ·         A final withholding tax of 20% on profits distributed by unlisted companies through buyback of shares. Banking & Insurance: ·         Additional funding to the tune of Rs.14,000 crores for capital infusion in public sector banks to enable them meeting Basel III norms. ·         Higher funding for National Housing Bank for rural and urban housing. ·         A multi-pronged approach to increase the penetration of insurance –life and general. ·         A comprehensive and integrated social security package for unorganized sector. Budget & Fiscal Reforms: ·         A Draft Bill on Goods and Service Tax and Constitutional Amendment Bill to be introduced in the next few months. ·         Contentious issue pertaining to GAAR postponed to 2016. ·         Proposal to achieve 3% Fiscal Deficit Ratio and 1.5% Revenue Deficit Ratio by 2016-17. Conclusion:  The Budget is not a Dream-budget. In fact it is an attempt to tide over  the current economic situation while keeping in view socio-political expectations. It is a humane budget with higher allocations for various welfare programmes. Though it clarifies certain confusions and plugs loopholes, it is not aggressive. It is a passable budget. *** *** *** GDP growth revised to 6.2% in 2011-12: On 31st January 2013, the Central Statistical Organization (CSO) released revised numbers of national income, consumption, savings and investment for FY 2011-12 (the first revision earlier known as Quick Estimates), 2010-11 (second revision) and 2009-10 (third revision). Accordingly, the growth rates also stand revised. Comparative growth numbers of real GDP are as shown below. Year Old growth rate (%) Revised growth rate (%) 2009-10 8.4 8.6 2010-11 8.4 9.3 2011-12 6.5 6.2 FY 2011-12 also witnessed a sharp fall in Investment rate (Gross Capital Formation as proportion of GDP) to 37.9% from 40.0% in 2010-11. During the same period savings rate (Gross savings as proportion of GDP) also declined from 34.0% to 30.8%. Interestingly, physical savings rate (mainly gold) of household sector increased from 13.1% in 2010-11 to 14.3% in 2011-12. On the other hand, financial savings rate declined from 10.4% to 8.0% during the same period. There was a decline in the share of public sector in India’s GDP (from 20.8% in 2010-11 to 20.5% in 2011-12) and gross domestic savings (from 7.5% to 4.2%). Share in final consumption expenditure increased marginally from 16.9% to 17.0%. The share in gross domestic capital formation remained unchanged at 24%.