The Finance Minister has presented his first interim budget. It is not a regular budget since the country is going for fresh elections and the regular budget will be presented after the elections. The interim budget is only a vote on account which permits the government to make expenditure from its budget for a period of 4 months. In an interim budget the FM is not expected to make changes in direct tax provisions. Thus the FM had leeway only in modifying indirect taxes and making provisions for expenditure which can again be modified in the regular budget by the next government.
The most crucial item of interest in this budget was to see whether the government will be able to meet its fiscal deficit target. The target set by the FM was a deficit of 4.8 % of GDP. This target is important because a large number of foreign investors and the financial community in general were keen to see that this target was not breached. If this target is breached by a large extent it would send signal to the world that Indian Government’s finances is getting out of control which could lead to a number of adverse consequences like India becoming unable to attract foreign investment, aggravation of inflationary pressures in the domestic economy and so on.
As it turned out the country could meet its fiscal deficit target for 2013-14 which turned out to be 4.6% against the targeted 4.8%. In fact a deficit of 4.6% by itself is on the higher side and it is desirable to bring it down further in the coming budgets. The FM has now set a challenging target of 4.1% for 2014-15, 3.6% for 2015-16 and 3.0% for 2016-17. Needless-to- say it would be a difficult proposition for future Finance Ministers to meet these targets. But they are indeed desirable goals worth striving for. In case the UPA doesn’t come to power after the elections a Third Front FM like N K Singh or a BJP FM like Yashwant Sinha will feel uncomfortable with these laudable targets.
The present government has also achieved considerable success in bringing down the level of the current account deficit (CAD). While only a few months back economists were discussing probable targets of $70 billion or thereabout for the CAD, this deficit has been brought down to a level of about $45 billion. This level of CAD will ensure that the Indian economy will be in strong position to face economic/financial shocks originating abroad. In fact with proper control over CAD the country is now in a better position to face the shocks arising from the measures being taken by the US central bank which is commonly referred to as tapering.
The automobile industry in India has been going through a period of great difficulty. The budget has tried to provide relief to the auto industry by providing a number of excise duty concessions. The excise duty on small cars and motor cycles has been brought down from 12 to 8 percent, that on medium size car segment has been brought down from 24 to 20 percent and that on SUVs has been reduced from 30 to 24 percent. This will provide considerable relief to the automobile industry. Excise duty has also been reduced on mobile handsets and several capital goods and consumer durables.
The targets for food, fertilizer and fuel subsidies has been projected to be Rs 1.15 lakh crore, Rs 76000 crore and Rs 65000 crore respectively. This is again a figure which the next FM will try to get revised according to the priorities of the government in power. In the interim budget by showing a lower level of subsidy for a particular item for the next year, the present FM will be able to come out with a lower level of fiscal deficit. Then it becomes the headache for the next FM to limit the subsidy to the laid down target or he will decide to enhance the subsidy level when he himself presents the budget.
The budget for the next year shows an increase in defense expenditure by 10 per cent. This leaves little room for the next FM to enhance the level of defense spending much further since the level of expenditure has already been pegged high. A party like BJP, if it comes to power, will aspire to show that it has enhanced the defense budget quite substantially. The interim budget also makes provision for implementing the one rank, one pension scheme for defense personnel. This would have again been a pet project for BJP government if it comes to power for which the UPA government will now take credit.
In his budget speech, P Chidambaram has rightfully taken credit for his government for bringing down the level of poverty in the country during the last 10 years or so by a substantial margin. During the last 10 years the country has also achieved a commendable level of economic growth even though growth rates came down a little during the last few years primarily due to external factors.
Even though the rate of inflation was high during the period of UPA II, the latest data which has become available show that price levels have shown substantial decline. The rate of savings and investments has also been high during the recent period. The latest available data show the savings rate as 30.1% and the investment rate as 34.8 % in the economy. By and large the achievements of UPA I & II has been commendable on the economic front. In his budget speech the FM has tried to highlight the achievements of his government during the last 10 years.
When the government recently withdrew the direct cash transfer scheme for gas cylinder distribution there was apprehension that AADHAR scheme will receive a set-back in the country. However, in his budget speech the FM has allayed these fears and has announced that the withdrawal of DCT from gas distribution is only a temporary measure and the AADHAR scheme is still well on its process of implementation.
The Finance Minister regretted that the Insurance Bill and the Bill on SEBI could not be passed by his government even though all homework on these bills had been completed. He also regretted that the bills relating to DTC and GST could not be approved by the Parliament during the term of the present Government. However, the FM has promised that the draft DTC Bill will be uploaded on his Ministry’s website for information of the public which is a welcome move.
