By Soumik Dey and Vandana
Chidambaram's budget lacks excitement, but spares distress
P. Chidambaram might have failed to do a P.C. Sorcar act, but the finance minister has deftly walked the tightrope. Blending populist steps—like allocation for food security—that the United Progressive Alliance needs for the Lok Sabha election in 2014 with canny measures to promote economic growth, Chidambaram did a fine balancing act in the Union Budget for 2013-14.
There is nothing in the Budget that would excite you, unless you were to stretch the Rs.2,000 tax credit for those earning less than Rs.5 lakh a year. But it spares you the pain as well. Said Dinesh Kanabar, deputy CEO of KPMG in India: “The finance minister has done a great balancing act in a rather difficult year. He has promoted the manufacturing industry by proposing an investment allowance, which is a long-standing demand of the industry. He has promoted foreign investment by breaking the FDI/FII barrier.
He has selectively reduced securities transaction tax to promote stock markets and announced a number of populist measures. He has sought to promote investment in infrastructure by issue of tax-free bonds, freed up New Exploration Licensing Policy blocks and increased tax holiday for the power sector. To balance the budget, he has announced taxation of super rich, taxed buy back of shares for unlisted companies, increased surcharge and proposed higher taxation of royalties.”
With the Delhi gang-rape episode still fresh in mind, Chidambaram went a little out of his way to throw in some gender components in the budget. He allotted Rs.1,000 crore for women's safety, calling it the Nirbhaya Fund. Then he reiterated his commitment to the well-being of women by announcing an all-woman bank, to be set up by October. The proposed bank will lend to women and businesses run by women, and support women self-help groups and women's livelihood. It will predominately employ women and address gender-related issues, empowerment and financial inclusion.
“It is true that the financial empowerment of women has a multiplier effect on the well-being of families and, therefore, of the economy. It may also be true that an all-woman bank will have significantly greater capacity to fast-forward this financial access and empowerment,” said Shinjini Kumar, director, PriceWaterhouseCoopers. A few months ago, the government had decided to put a numerical value to the work done by women as homemakers. The idea was to add this to the country's gross domestic product.
Chidambaram also wants to lure women away from the convention of buying gold jewellery as an investment. He has promised them channels that would use their money productively and give greater returns than gold. It will help the country, which imports tonnes of gold every year, save foreign exchange.
And there are promises that there will be more than the announced inflation indexed bonds. “The idea of cutting down investments in gold has been on for some time. The finance minister has done well to launch a financial product that can give inflation-positive returns,” said Nitin Vyakaranam, CEO of Artha Yantra, a financial planning adviser.
In a move to give the house building sector a new lease of life, and some relief to the middle class, home loans up to Rs.25 lakh have been given an additional tax deduction on Rs.1 lakh paid as interest. “This could result in a significant amount of savings for the middle-income population. This also puts forward the fact that we are in a high-rate regime,” said Vyakaranam.
Those who expected a slew of populist measures and those who expected some radical steps, however, are disappointed. “Rather than lifting the economy's spirit with encouraging reforms, this budget manages to make the ditch we are in even deeper,” said economist Surjit Bhalla. He pointed out that the finance minister increased budgetary spends, yet sought to achieve consolidation of fiscal deficit for 2013-14 at 4.8 per cent of the GDP, down from 5.2 per cent last year.
The stock markets also gave a thumb down to the budget. While the NSE benchmark Nifty crashed by 104 points, the BSE Sensex was down 290 points at the end of the session on the budget day. Said Naina Lal Kidwai, country head, HSBC India: “To tap growth the finance minister has given a lot of focus on infrastructure. An infrastructure debt fund to raise tax-free bonds up to Rs.50,000 crore was also announced. But banks are yet to be allowed to purchase infrastructure bonds. We had been expecting this from the FM.”
Chidambaram, however, had his own reasons to play it safe. “The economy is challenged, we have not come with great surprises. Neither have we tried to spook the investors,” he said. He seems to have got it right.
* Fiscal deficit in 2011-12: 5.2 per cent of GDP.
* Expected fiscal deficit in 2013-14: 4.8 per cent of GDP.
* Expected additional revenue: Rs.13,300 crore through direct tax and Rs.4,700 crore through indirect tax.
* Estimated expenditure: Rs.16,65,297 crore.
* Nirbhaya Fund gets Rs.1,000 crore to provide safety to women.
* India's first women's bank by October 2013. This gets Rs.1,000 crore as initial capital.
* No change in slabs and rate for personal income tax.
* Relief of Rs.2,000 for people earning up to Rs.5 lakh a year.
* Surcharge of 10 per cent on people whose annual taxable income is above Rs.1 crore.
* People with annual income of less than Rs.12 lakh will get tax incentives for investing up to Rs.50,000 in
* An inheritance tax of 1 per cent on transfer of immovable property worth over Rs.50 lakh.
* Defence ministry gets Rs.2,03,672 crore.
* Human resource development ministry gets Rs.65,867 crore.
* Ministry of health and family welfare gets Rs.37,330 crore.
* Sarva Shiksha Abhiyan gets Rs.27,258 crore.
* NABARD gets Rs.5,000 crore to finance godowns and warehouses.
* Medical education, training and research get Rs.4,727 crore.
* Minority affairs ministry gets Rs.3,511 crore.
* National Rural Employment Guarantee Act programme gets Rs.33,000 crore.
* Jawaharlal Nehru National Urban Renewal Mission gets Rs.14,873 crore, almost double of what it got in the current fiscal.
* Mid-day meal scheme gets Rs.13,215 crore.
* In addition to food subsidy, Rs.10,000 crore has been set aside for National Food Security Bill
* The Rajiv Gandhi Equity Savings Scheme (RGESS) will now allow first-time investors to invest in mutual funds and equity in three successive years.
* To encourage home buyers, the first housing loan up to Rs.25 lakh would get additional deduction of interest up to Rs.1 lakh.
* Medical allowance given to an employee up to Rs.15,000 per annum will be tax-free.
* Capital allowance of 15 per cent to companies investing more than Rs.100 crore.
* Not addressing the issue of limiting the huge borrowings by corporates from abroad.
* No deadline given for adoption of Direct Tax Code (DTC) which includes positive amendments to tax laws.
* Not widening the scope of direct cash transfer scheme beyond 21 districts.
* Transaction tax introduced for goods other than agricultural commodities. A negative to taming the already high food prices.
* Eating out. Service tax on all air-conditioned restaurants.
* Mobile phones. Those above Rs.2,000 have an increased duty of 6 per cent, from 1 per cent.
* Cigarettes and cigars. Excise duty has been raised by 18 per cent.
* Luxury vehicles. Import duty raised to 100 per cent from 75.
* Sport utility vehicles (SUVs). Excise duty raised to 30 per cent from 27 per cent.
* Leather goods. Duty down to 5 per cent from 7.5 per cent.
* Gold. Duty-free limit raised to Rs.50,000 for men and Rs.1 lakh for women.
* Precious and semi-precious stones. Duty reduced to 2 per cent from 10 per cent.
* Cotton. Zero duty at the fibre stage.
Research: Anushree Chakraborty