Budget 2013-14: No Pain No Gain: Civil Services Mentor Magazine May 2013

Union Finance Minister P Chidambaram on 28 February 2013 tabled the Union budget in the Parliament for the financial year 2013-14. P. Chidambaram was presenting his 8th Union Budget. The union Budget of 2013- 4 emphasized fast track economic growth with due importance on infrastructure development, skill development, employment generation and funding for social schemes. Three factors of Economic Concern discussed in the Union Budget 2013-14 were high fiscal deficit, slow growth and high inflation. Expressing his confidence on India returning back to the higher growth path Chidambaram advocated for support from all quarters to navigate through economic crisis. The Union Budget of year 2013-14 stressed on achieving a growth of 8 per cent on an immediate effect. The finance minister expressed his worry on Current Account deficit (CAD). CAD which required 75 billion Dollars to finance was high because of high import in Oil, coal and gold imports. The Budget, which came against the backdrop of a few key major reform announcements by the government, some tough decisions on fuel subsidy and some plain speak by the FM himself on how the growth momentum needed to be brought back, did not have that ‘awe’ factor which the markets and Corporate India had come to expect of Chidambaram. To be fair to the FM, however, he did attempt to address the key concerns in his speech, whether it was the need to create employment or bring in greater foreign investment or spur investment activity. But the measures announced in the Budget were clearly not Big Bang.

The best thing that can be said about the Budget, of course, is that it does nothing to unsettle the markets or corporate India – despite the 10 percent surcharge on the super rich (those with taxable incomes above Rs 1 crore) or even the higher surcharge on the dividend distribution tax. He plays with a pretty straight bat and delivers on his broad promise of  keeping the fiscal deficit under check – at 5.2 percent of GDP for FY13 – and targets 4.8 percent for FY14. He has cut expenditure to Rs 4.29 lakh crore in FY13 and talks of redeeming the promise of bringing down the fisc to 3 percent by 2016-17.

Surcharges find their way back for some “super rich” individuals and for profit making entities. While the Finance Minister has emphasised that this surcharge has been introduced for only one year to bridge revenue gaps, surcharges and cesses tend to have a persistency beyond their intended period of operation. Share buy backs by unlisted companies will be subject to a distribution tax. The proposed tax is not conditioned on the existence of accumulated profits nor capped to the amount of accumulated profits. Royalties and fees for technical service fees will be taxed at 25 percent, up from 10 percent presently, subject to tax treaty relief. Tax treaty relief itself will be conditioned on proof of tax residence (which was always the case) as well as beneficial ownership (a condition that has been implicitly ‘introduced’); there is some apprehension that there may be a hidden sting in what appears to be an innocuous clarification of a position that all tax treaties provide for anyway.

India Inc. was not asking for concessions. It had two basic demands. First, there was the expectation of better macroeconomic management. Equally important was the hope that the projects worth Rs. 700,000 crore that have been stalled owing to problems with government clearances will finally start to materialise. This doesn’t involve announcements in the Budget — though a mention of the problem may have helped; it calls for political will and better governance. Unlike the fiscal deficit or even the revenue deficit, the deficit of governance can’t be quantified. Yet, the ability of Mr Chidambaram to mount a successful salvage operation and inject meaning into the Prime Minister’s post-Budget hope that India will soon be on an eight per cent growth trajectory depends almost entirely on improving the quality of governance. Unless, of course, the UPA-2 believes that the next election is as good as lost and that the next best thing is to make life hell for whoever follows.

The Highlights of the Union Budget 2013-14 are as Follows:

• Total budget expenditure was Estimated at16.65 trillion rupees in 2013-14
• India’s 2013-14 plan expenditure seen at 5.55 trillion rupees
• To allocate 801.94 billion rupees to rural development in 2013-14
• Plan to allocate 270.49 billion rupees for agriculture in 2013-14
• RBI expected GDP growth of 5.5% for Financial Year 2013- 14

• 80194 crore rupees allocation have been made for rural development schemes including MGNAREGA, PMGSY, INDIRA AWAS YOYANA. The Jawaharlal Nehru National Urban Renewal Mission will to continue during the 12th plan period.

• 3511 crore allocation to minorities which is 12 per cent hike over budget estimates, 110 crore rupees allotted for welfare of disabled.
• 65867 crore rupees have been allocated to the Ministry of Human resources development which is 17 per cent hike over the revised estimates.
• 500 Crore rupees have been earmarked for high tech crop diversification program.
• Allocations also include 13215 crore rupees for mid day meal programme. 27,049 crore rupees for agricultural ministry and additional 200 crore to women and child Welfare Ministry.
• 14000 crore Rupees will be provided for PSB recapitalization. He will  constitute a panel on transaction costs, and financial policies.
• Education gets 65867 crore rupees, an increase of 17 percent over RE for 2012-13.
• ICDS gets 17700 crore rupees. This is 11.7 percent more than the current year.
• Drinking water and sanitation will receive 15260 crore rupees. 1,400 crore was provided for setting up water purification plants to cover arsenic and fluoride affected rural areas.
• Health and Family Welfare Ministry had been allotted 37330 crore rupees.
• Small Industries Development Bank of India (SIDBI) Refinance Fund doubled to an amount of 10000 crore rupees.
• Plans of Government are to encourage PPP projects along with Coal India.
• P Chidambaram announced setting up of a new allwomen’s bank.
• 1000 crore Rupees initial capital for a new women’s bank which will be another public sector bank. The Bank will be set up by October 2013.
• An amount of additional 10000 crore rupees allotted for Food Security Bill in FY14.
• 3000 km of road projects will be awarded in first six months of FY14.
• Finance ministry approved 50000 crore Rupees tax-free bonds in FY14. The government expects to raise 25000 crore rupees via taxfree bonds in FY13.
• Refinancing capacity of SIDBI raised to Rs. 10,000 crore.
• Technology Upgradation Fund Scheme (TUFS) for textile to continue in 12th Plan with an investment target of 151000 crore Rupees.
• 14000 crore Rupees will be provided to public sector banks for capital infusion in 2013-14.

• A grant of 100 crore each has been made to 4 institutions of excellence including Aligarh Muslim University, Banaras Hindu University, Tata Institute of Social Sciences, Guwahati and Indian National Trust for Art and Cultural Heritage (INTACH).

• New taxes to yield 18000 crore Rupees.
• A surcharge of 10 percent on persons (other than companies) whose taxable income exceeds Rs.1 crore have been levied.
• Tobacco products, SUVs and Mobile Phones to cost more.
• Relief of Rs. 2000 for the tax payers in the first bracket of 2 to 5 lakhs.
• Voluntary Compliance Encouragement Scheme launched for recovering service tax dues.
• 9000 crore Rupees earmarked as the first installment of balance of CST compensations to different States/UTs.