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HindustanTimes Wed,26 Nov 2014
Reformist finance minister faces budget moment of truth
Reuters
New Delhi, February 28, 2013
First Published: 08:46 IST(28/2/2013)
Last Updated: 10:26 IST(28/2/2013)

Finance minister P Chidambaram will present one of the most highly anticipated budgets of recent years on Thursday, a blueprint for austerity that forms the centrepiece of India's efforts to stave off a damaging credit ratings downgrade.



The 2013/14 budget caps an intensive seven-month campaign by the energetic Chidambaram, who was appointed last August, to turn around the fortunes of Asia's third-largest economy after years of policy drift and global economic turmoil.


Chidambaram will likely spell out plans to narrow fiscal and current account deficits, which have alarmed ratings agencies and triggered warnings that the country's sovereign bonds could lose their investment grade status and be downgraded to 'junk' if urgent steps are not taken to rein in spending.

He is expected to announce plans to keep a lid on government spending in fiscal 2013/14, capping it at roughly the same level as the year ending next month, officials told Reuters, despite fears that lower public expenditure risks deepening India's sharpest economic downturn in a decade.

Economists say he may also unveil measures to widen the tax net to boost government revenues, lay the groundwork for a goods and services tax, reduce the government's huge subsidies bill, sell more stakes in state-owned enterprises and raise import duties to dampen demand for gold.

Investors will watch closely to see whether the three-times finance minister - seen as a possible candidate for prime minister in 2014 - will fulfil his promise of fiscal prudence or sow the budget with vote-winning, but expensive, welfare handouts.

"Fiscal consolidation is the need of the hour, and ratings agencies will sift through the finer budget details to judge India's sovereign credit rating, which already has a negative outlook at two ratings agencies," investment bank Nomura said.

When Chidambaram stands up in parliament at 11 a.m. IST to lay out the government's spending and fund-raising priorities for the coming year, he will effectively start the countdown to an election due by May 2014.

Despite the emphasis on fiscal prudence, there will likely be some populist measures that will be key elements in the Congress's campaign.

He is expected to highlight plans to expand the supply for cheap grain for the poor at a total cost of more than $22 billion to the Treasury, and an ambitious direct cash transfer programme for delivering social welfare payments and subsidies.


Credibility at stake

Chidambaram has staked his reputation on hitting a fiscal deficit target of 5.3% of GDP this year and 4.8% in 2013/14. A no-nonsense, Harvard-educated, lawyer who commands both respect and fear in government, he has squelched opposition from cabinet colleagues worried that spending cuts could ignite a backlash among voters.

Some ministries are bracing for funding cuts of up to 20-24 percent from their original 2012/13 targets.

Defence ministry officials fear the cuts could force a delay in weapons purchases by a country that has become the world's largest arms importer in recent years.

"My sense is that (at) this point the critical action we have to take is to try and re-accelerate growth, which is difficult in a situation ... where we are also trying to constrain spending," said Raghuram Rajan, Chidambaram's chief economic adviser, speaking at a news conference on Wednesday.

"But if we constrain spending cleverly, we can actually do both."

Chidambaram has focused on winning back foreign investors who were unnerved by proposals of his predecessor, Pranab Mukherjee, to tax merger and acquisition deals retrospectively and clamp down on tax evasion. He has implemented a spate of investor-friendly reforms, including opening up the retail sector to foreign supermarkets, since last September.

But Thursday's budget, his eighth, will be the biggest test of his reformist credentials.

His last budget, in 2008/09, was widely credited with ensuring the re-election of the Congress-led ruling alliance. Flushed with funds, thanks to near-double-digit economic growth, Chidambaram increased government spending in rural areas, the Congress party's traditional "vote bank".

This year, however, the economic slowdown has left him with little room for big-bang populist measures. The government estimates economic growth for fiscal 2012/13 will be 5 percent, nearly half of what it was in 2007/08.

In its annual economic survey released on the eve of the budget, the finance ministry said the economic slowdown was a "wake-up call for increasing the pace of actions and reforms". It projected growth in the coming year of 6.1-6.7 percent.

Nomura said the credibility of Chidambaram's budget would depend on the government's underlying assumptions on growth, asset sales and subsidies.

Some government economic estimates in the past have proven wildly over-optimistic. In the 2012/13 budget for example, the government predicted the economy would grow at 7.6 percent, sharply higher than the 5 percent that is now forecast.


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Highlights: Budget 2013  »

  • Expect higher revenue next year: Chidambaram
  • Unclear what the expense on food subsidies be at this stage: Chidambaram
  • Fuel subsidy likely to be lower this year: Chidambaram
  • Immediate goal is to achieve growth rate of 6%: Chidambaram
  • We have to be patient and wait for the economy to pick up: Chidambaram
  • We have not put impossible burdens on people: Chidambaram
  • The only way to contain current account deficit is to increase exports: Chidambaram
  • Confident that RBI will do it's part: Chidambaram
  • Economy is challenged in a number of ways: Chidambaram
  • This is a lollypop election budget: CPI leader Gurudas Dasgupta
  • Budget has ignored SC/ST: Mayawati
  • Budget will only benefit industrialists, not common man: Mayawati
  • Budget will give impetus to Bihar's demand for special status: Nitish Kumar
  • FM has taken important steps to reverse pessimistic mood with regard to our economy: PM
  • There is need to convert challenges into opportunities: PM
  • The Finance Minister has done a commendable job: PM
  • Direct Benefit Transfer scheme to be rolled out
  • Ships and vessels exempted from excise duty
  • Direct tax code to be introduced in budget session of the Parliament
  • Set-top box import duty hiked
  • Gold duty limit raised to Rs. 50,000 for men; Rs. 1 lakh for women
  • 100% customs duty on luxury cars
  • Increase in import duty on high end bikes from 75% to 100%
  • 6% duty on mobile phones worth more than Rs. 2000
  • Excise duty on cigarette, cigar and cheeroot increased by 18%
  • Import duty on raw silk hiked to 15%
  • Luxury imported items to cost more
  • Donations to National Children's fund will be eligible for 100% tax deduction
  • No plans to revise direct taxes
  • No change in customs and excise duty
  • Tax credit of Rs. 2000 for those with income upto Rs. 5 lakh
  • Education cess at 3%
  • donations to be tax free
  • Surcharge of 10% on individuals, companies whose income is above Rs. 1 crore per year
  • No revision in tax slabs
  • Planned expenditure to be 33% of total expenditure
  • Rs. 1,000 crore allocated to women safety fund
  • Defence budget allocation increased to Rs. 2 lakh crore
  • Insurance and pension funds can now directly invest in debt funds
  • Domestic workers, Anganwadi workers, others to get group insurance
  • 13 public sector banks to get Rs. 14,000 crore
  • Propose to provide Rs. 14,000 cr for capital infusion in public sector banks
  • Inflation indexed bonds and NSCs to be introduced
  • JNNURM is being continued in the 12th Plan; Rs. 14,873 cr to be provided to the Mission
  • Rs. 33,000 crore to be allocated to MNREGA
  • Rs. 6000 crore for rural housing fund, Rs. 2000 cr for urban housing fund
  • Two new ports to be built in West Bengal and Andhra Pradesh
  • All towns having population of 10,000 to get LIC office
  • Rashtriya Swasthya Bima Yojna to be extended to rickshaw pullers and rag pickers
  • List of eligible securities will be enlarged: Chidambaram
  • SEBI to simplify procedures for entry of foreign portfolio investors in India: Chidambaram
  • India's first all-women public sector bank to be set up
  • All public sector bank branches to have ATMs
  • Focus on modernisation of powerloom sector
  • Propose to continue with the technology upgradation, funds scheme for textile sector: Chidambaram
  • Rs. 1650 cr allocated for AIIMS like institutes
  • Natural gas pricing policy will be reviewed: Chidambaram
  • Person taking home loan for the first time to get tax cut of Rs. 1 lakh
  • Regulatory authority to be set up for road sector
  • Rs. 17,700 crore to be allocated for Integrated Child Development Scheme
  • Rs. 5000 cr allocated to NABARD
  • Income level of Rajiv Gandhi equity schemes increased by Rs. 2 lakh
  • Rs. 80, 194 crore allocated for rural development: Chidambaram
  • Rs. 25,000 cr to be raised through tax free bonds: Chidambaram
  • Rs. 10,000 crore for food security bill promised by UPA: Chidambaram
  • Infrastructure debt fund to be encouraged: Chidambaram
  • Rs. 37,330 cr allocated to ministry of health and family welfare: Chidambaram
  • Rs. 41,000 allocated for scheduled caste welfare: Chidambaram
  • Rs. 27,49 cr to be allocated to the agriculture ministry: Chidambaram
  • Plan expenditure in 12th Five Year Plan revised to Rs. 14,30,825 cr or 96% of budgeted expenditure
  • Scholarships for students from SC/ST, minority communities: Chidambaram
  • Rs. 110 cr to be allocated to department of disability: Chidambaram
  • Increased allocation for safe drinking water and sanitation: Chidambaram
  • Increased allocation for mid-day meal schemes: Chidambaram
  • Rs. 65,000 cr allocation for education schemes: Chidambaram
  • Rs. 110 cr to be allocated to department of disability: Chidambaram
  • Need $ 75 billion to bridge current account deficit: Chidambaram
  • 2013-14 budget has sub-plans for SC, ST, youth and women: Chidambaram
  • Foreign investment imperative for growth: Chidambaram
  • Our economy has slowed down after 2010: Chidambaram
  • No choice but to cut spendings to control inflation: Chidambaram
  • China and Indonesia are growing faster than India: Chidambaram
  • Getting back to 8% growth is a challenge for country: Chidambaram
  • Our goal is higher growth: Chidambaram
  • Between 2004-2008 and again in 2009-10, 2010-11 the growth rate was over 8%: Chidambaram
  • P Chidambaram begins budget address in Lok Sabha
  • Cabinet endorses Union Budget 2013-14, to be presented in Parliament shortly.
  • Finance minister P Chidambaram reaches North Block.
  • Chidambaram set to present India's 82nd national budget.
  • Today's Union Budget will be Chidambaram's eighth personal exercise.
  • It's two short of the record of 10 set by former PM Morarji Desai.
  • Since Independence, the country has seen a total of 25 ministers hold the finance portfolio.
  • India has also seen budgets - 65 normal annual budgets, 12 interim budgets and four mini-budgets.
  • Morarji Desai presented eight normal and two interim budgets.
  • Thursday will see Chidambaram equal the eight-budget track record of Pranab Mukherjee.
  • Chidambaram will surpass Yashwant Sinha, YB Chavan and CD Deshmukh who all presented seven budgets each.
  • PM Manmohan Singh and TT Krishnamachari have presented six budgets each.
  • Jawaharlal Nehru, Indira Gandhi, Rajiv Gandhi have presented one budget each.
  • Sensex closed up more than half a percent a day before the union budget 2013-14
  • It will be the eighth such personal exercise for him
  • Chidambaram set to present India's 82nd national budget in Lok Sabha

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