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.
* GDP expansion in 2013/14 third and fourth quarters will be at least 5.2 percent
* 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
* 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
* 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
* Total spending on food, fertilisers and fuel at 2.5 trillion rupees in 2014/15
Spending raised to 2.24 trillion rupees in 2014/15, up 10 percent year on year
Govt to provide 112 billion rupees capital infusion in state run banks in 2014/15