iconimg Thursday, September 03, 2015

Agencies
New Delhi, February 28, 2013
The government unveiled new taxes on the rich and large companies on Thursday to fund higher-than-expected spending for the next fiscal year, in a budget that aimed to revive growth amid the country's worst slowdown in a decade ahead of a 2014 election.

Stocks, bond prices and the rupee all fell despite finance minister P Chidambaram's vow to cut next year's fiscal deficit to 4.8% of GDP, which some watchers said counted on ambitious revenue assumptions given hefty spending targets.


There had been widespread expectation, fuelled in part by comments by finance ministry officials, that Chidambaram would present an austere budget in line with the spending cuts he forced on government ministries in recent months.

But the spending plan appeared to have been drawn up with a looming general election in mind, some economists said.

"With a general election not much than a year away, political pressure from within the Congress Party may well have had an influence on the make-up of the Finance Minister's budget," Credit Suisse said.

Chidambaram, a three-time finance minister seen as a candidate for prime minister in 2014, has staked his reputation on cutting swollen fiscal and current account deficits that have alarmed credit rating agencies and triggered warnings that India's sovereign bonds could be downgraded to 'junk' status. There was no immediate comment from the agencies.

"Fiscal consolidation cannot be effective only by cutting expenditure," Chidambaram said in his speech, seen as a balancing act to stave off a credit rating downgrade while meeting demands for populist spending heading into an election year.


Opposition leader Sushma Swaraj, speaker Meira Kumar and UPA chief Sonia Gandhi during the presentation of the annual budget. PTI


Hefty revenue growth assumptions

Total budget expenditure will rise by an unexpectedly high 16% in the 2013/14 fiscal year that begins on April 1 to 16.65 trillion rupees.

Next year's fiscal deficit target is in line with expectations but assumes hefty revenue growth, including 558 billion rupees from the sale of government stakes in companies, or more than double the 240 billion rupee target for the current year, which falls short of the initial target.

"From a macro perspective, the budget is disappointing in our opinion as it lacks any expenditure control," Nomura analysts wrote.

The budget also assumes revenue of 408.5 billion rupees from telecoms sector fees, more than double what it will generate this year, with its next auction of mobile airwaves poised to flop after attracting just one bidder.

"The government may fall short of its tax and disinvestment targets and end up cutting spending closer to the end of the year to attain its fiscal deficit target," said A. Prasanna, economist at ICICI Securities Primary Dealership Ltd.

Net market borrowing of 4.84 trillion rupees for the new fiscal year met investor hopes that the figure would not top 5 trillion rupees, but the gross figure exceeded expectations.

The budget included several measures to spur investment both in markets and by corporations, including an incentive on investments in plant and machinery exceeding 1 billion rupees and extending tax breaks for small companies that grow larger, and an expansion of tax-free bonds for infrastructure.

Chidambaram has focused on winning back foreign investors unnerved by proposals of his predecessor, Pranab Mukherjee, to tax merger deals retrospectively and clamp down on tax evasion. Since September, he has implemented a spate of investor-friendly reforms, including allowing entry of foreign supermarkets.

"India, at the present juncture, does not have the choice between welcoming and spurning foreign investment. If I may be frank, foreign investment is an imperative. What we can do is to encourage foreign investment that is consistent with our economic objectives," he said.


Fending off 'junk'

India's fiscal and current account deficits have alarmed investors and ratings agencies, triggering warnings that the country's sovereign bonds could be downgraded to 'junk' status if urgent steps are not taken to rein in spending.

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 squelched opposition from cabinet colleagues worried that spending cuts could ignite a backlash among voters.

Chidambaram has focused on winning back foreign investors unnerved by proposals of his predecessor, Pranab Mukherjee, to tax merger deals retrospectively and clamp down on tax evasion. Since September, he has implemented a spate of investor-friendly reforms, including allowing entry of foreign supermarkets.

Dozens of corporate executives, watching a telecast at an industry event, exchanged nervous smiles as Chidambaram introduced the surcharge on the rich.

"In the larger scheme of things, I guess that is one way of reducing his deficit. Am I going to lose sleep over it? No," Ganesh Natarajan, CEO of IT outsourcer Zensar Technologies, told Reuters by phone.

A flagging economy left Chidambaram with little room for big-bang populist measures without raising revenue, with economic growth for the current fiscal year on track to hit just 5%, nearly half of what it was in 2007/08.

"This country must not lose any time - India must get its act together to accelerate the tempo of growth," Prime Minister Manmohan Singh said in a TV interview after the budget speech.

The budget also reflects the realities of a country of 1.2 billion people, many of them poor.

"On the one side is the economic policy, on the other side is economic welfare. We are a developing country. The link between policy and welfare can be expressed in a few words: Opportunities, education, skills, jobs and income," Chidambaram said.


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Hey, big spender

While the added spending included capital investment that many have said is sorely needed, including a 29% increase in funding for infrastructure and development, it also included a 46 percent jump in funding for development programmes in rural areas, the core voter base of the ruling Congress party.

An added surcharge on local firms with incomes of more than 100 million rupees and a 10% surcharge on individuals with taxable incomes topping 10 million rupees - a level of earnings currently declared by just 42,800 people - will be put in place for one year.

Dozens of corporate executives, watching a telecast at an industry event in New Delhi, exchanged nervous smiles as Chidambaram introduced the surcharge on the rich.

"In the larger scheme of things, I guess that is one way of reducing his deficit. Am I going to lose sleep over it? No," Ganesh Natarajan, CEO of IT outsourcer Zensar Technologies (ZENT.NS), said by phone from Pune, where the company is based.

Indian economic growth for the current fiscal year is on track to hit just 5 percent, nearly half its level in 2007/08.

"This country must not lose any time - India must get its act together to accelerate the tempo of growth," Prime Minister Manmohan Singh said in a TV interview after the budget speech.

The budget also reflects the realities of a country of 1.2 billion people, many of them poor. "On the one side is the economic policy, on the other side is economic welfare. We are a developing country. The link between policy and welfare can be expressed in a few words: Opportunities, education, skills, jobs and income," Chidambaram said.




Following are highlights of the budget:

* India faces challenge of getting back to its potential growth rate of 8 pct

* India must unhesitatingly embrace growth as highest goal

* India's greater worry is the current account deficit - will need more than $75 billion this year and next year to fund deficit

* Higher growth with inclusive growth-our mantra; without growth no inclusive development

* Growth rate under UPA was highest

* Between 2004 and 2008 and again in 2009-10 and 2010-11 the growth rate was over 8%

* There is no reason for gloom or pessimism

* Global economic growth declined

* I seek the support as we navigate the crisis that has enveloped the whole world

* We have examples of states growing at fast state but leaving behind women, SC, ST etc; UPA believes in inclusive development

* Economic space right now constrained by high fiscal deficit, tight monetary policy to contain inflation





* CAD high due to high imports in coal and oil

* Aggregate demand another cause for inflation; it must be fought at many fronts

* Foeign investment is imperative to meet our economic objectives

* Had no choice but to rationalize expenditure; have retrieved some economic space and to advance our socio-economic objectives

* Food ifnlation is worrying; we will take all steps to meet demand

* Plan expenditure will be 29.4% more than revised estimates in the current year

* Budget for 2013-14 has one overarching goal-to create opportunities for youth to get skills to get jobs,and adequate incomes

* Made sufficient allocation for programmes relating to women an children

* Single women and widows must be able to live with dignity; WCD has been asked to design schemes

* Funds for the sub-funds cannot be diverted

* FM: Rs. 110 crore to be allocated to department of disability

* The new national health mission will get 24.5% increase over the RE

* Rs. 150 cr to be provided for geriatric growth

* Allocation for HRD 17% over the RE of the current year

* Thousand of scholarships for students belongs to SC, STs, and disadavantaged classes

* Focus will continue to be on early childhood care

* Multisectoral programme to fight malnutrition will be implemented; Rs. 300 crore to be allocated; 100 districts to be covered

* Rs. 33,000 crore to be allocated to MNREGA

* Will allocate Rs. 17,700 crore to Integrated Child Development Services (ICDS) scheme

* JNNURM is being continued in the 12th Plan; Rs. 14,873 crore to be provided to the Mission

* A large part of the JNNURM to be spent on purchase of buses especially in the hilly areas

* Farmers have responded to the price signals and produced more; Rs. 27,049 cr to be allocated to the agriculture ministry

* Assam, Bihar, Chattisgarh and WB have increased rice production

* Small and marginal farmers vulnerable everyone; watershed management crucial; Rs. 5387 cr allocated for Integrated Watershed Programme

* Indian Institute of BioTechnology to be set up at Ranchi

* Proposal to provide Rs. 500 crore to start programme on crop diversification

* 45% hike in rural budget allocation

* The National Livestock Mission will be launched in 2013. Rs. 307 crore to be provided for the Mission

* The National Food Security Bill is the promise of the UPA Govt, sincerely hope that Parliament will pass the Bill soon

* The key to restart growth is to restart the investment engine; will remove any apprehension in the minds of investors

* Need new and innovative funds to mobilise investment

* Need to improve communication of policies to remove distrust and fear among investors

* Propose to seek help of ADB and WB to invest in roads in NE states and connect them to Myanmar

* The road construction sector faces challenges not envisaged earlier including financial stress; Regulatory Authority to be set up

* Cabinet Committee on Investment has been set up to monitor and guide the projects to remove bottlenecks

* Marginal increase in allocation for food subsidy

* Rs. 15,260 crore to be allocated to ministry of drinking water and sanitation

* The household sector must be incentivised to save in financial instruments

* Rs. 25000 crore to be raised from four infrastructure bonds

* The Delhi Mumbai Industrial Project has made rapid projects; work on 2 new smart industrial cities will start during 2013-14

* Proposal to bring instruments that will protect (the country) from inflation

* The next corridor will be the Bengaluru-Mumbai Industrial corridor

* Marginal increase in allocation for food subsidy

* 5 inland waterways have been declared as national waterways

* Income level for Rajiv Gandhi Equity Scheme raised by Rs. 2 lakh

* Additional interest deduction upto 1 lakh for home loan upto Rs. 25 lakhs during FY 14. Deduction available on first home loan

* Delhi Mumbai Industrial Project has made rapid progress

* Semiconductor sector given boost with zero customs duty on import of plant and machinery

* Activities on NELP blocks to kick start

* The natural gas pricing policy will be reviewed; any LP blocks that have been stalled will be cleared

* Inflation indexed bonds and NSCs to be introduced

* Srinagar to Leh to be connected via a new highway

* The govt has approved a scheme for financial restructuring of discoms; urge state govts to prepare the plans immediately

* We need to reduce dependence on imported coal, despite abundunt coal reserves we continue to import coal

* MSMEs: too many of them do not grow due to fear of losing benefits,  propose to give them them non-tax benefits for 3 years

* Propose to continue with the technology upgradation funds scheme for the textile sector, environmental concerns of the textile industry to be taken care of

* 150,000 individual weavers will benefit in this year, propose to allocate an addl sum of Rs. 96 crore for ministry of textiles

* Propose to constitute a standing counsel of experts to analyse the competitiveness of the Indian sector

* In 2013-14, propose to provide Rs. 14000 crore for capital infusion in public sector banks

* PSBs have assured me that all their branches will have an ATM by 2013-14

* Capital infusion to public sector banks to be increased in FY 14

* 13 public sector banks to get Rs. 14000 crore

* Propose to set up India's first women's bank as a Public Sector Bank; propose to provide Rs. 1000 crore as initial capital

* Propose to provide Rs. 600 cr to rural housing fund in 2013-14

* Insurance companies will be able to start branches in Tier 2 cities and below, without approval of IRDA

* The insurance amendement bill and the PFRDA bills are before the house; hope that they will be passed soon

* Income limit for the tax-saving Rajiv Gandhi Equity Savings Scheme raised to Rs. 12 lakh from Rs. 10 lakh

* Domestic workers, Anganwadi workers, etc to get group insurance

* SEBI will simplify procedures for entry of foreign portfolio investors to invest in India

* The list of eligible securities will be enlarged

* KYC of banks will be enough to get insurance

* All towns of India with a population of over 10000 to have an LIC office

* Low interest bearing funds for clean / green energy sector. Generation-based incentives for wind energy

* Will encourage cities to take up waste-energy projects through PPPs

* Present criteria for determining backwardness will be changed; propose to frame new criteria

* Defence spending at Rs. 2,20,000 crore, Rs. 86721 crore for capital expenditure

* Rs. 5400 crore to department of space and Rs. 5600 crore to department of atomic energy

* With help of Ministry of S&T,I have identified amazing innovations; Will allocate Rs. 200 crore to scale them & make them avaiable to people

* National Institute of Sports Coaching to be set up at Patiala

* Cities with population of more than 1 lakh will be covered with private FM channel providers, 294 more cities to be connected by FM radio 

* Rashtriya Swasthya Bima Yojana to include rickshaw pullers, taxi drivers and ragpickers

* Post offices to beome part of core banking solutions

* Nirbhaya Fund with a corpus of 1000 crore to be set up for girl child welfare

* Ambitious targets of skilling 15 million people in the 12th plan

* Skill trained will be given boost in employment and producitvity; 10 lakh youth can be motivated in one year

* Planned expenditure to be 33% of total expenditure

* Assure that the Direct Benefit Transfer scheme will be rolled out during the term of the UPA govt

* Redeem our promise by 2016-17 and bring down fiscal deficit to 3% and revenue deficit to 1.5%

* The fiscal deficit for the current year has been contained at 5.2%

* No revision in the slabs, relief for tax payers

* Surcharge of 10% for taxable incomes above Rs. 1 crore

* Tax credits of Rs. 2000 to every person who has total income upto Rs. 5 lakh

* Education cess to continue at 3%

P Chidambaram leaving his office to present the 2013-14 Union Budget in New Delhi. Reuters


* Surcharge of 5% to 10% on companies whose income exceeds 10 crore per year

* There are 42,800 persons in the country who admitted to a taxable income exceeding Rs. 1 crore per year

* Donations made to National Children's Fund will now be 100% deductible

* Contributions to the CGHS are eligible for deduction

* Rate of tax on payments by way of royalty increased from 10% to 25%

* Modified provisions of GAAR will come into effect from 1.04.2016

* Commodity Transaction Tax to be introduced in limited way

* Direct taxes code is work in progress

* Imported luxury goods to get costly

* Increase import duty to increase from 5% to 10% to encourage production of set top boxes in the country

* ST does not apply to AC restaurants that do not serve liquor at present; now all AC restaurants will have to pay service tax

* SUVs occupy more road and parking space and ought to bear higher tax: excise duty rate to be increased from 27% to 30%

* Increase in import duty on high-end motor vehicles from 75% to 100%; and on motorcylces from 60% to 75%

* Wish to encourage large number of assesees to return to the tax fold

* Serious intent of the govt to pass a GST law, need for state and central govt to pass a GST law

* 4% excise duty on silver manufactured from smelting, zinc or lead

* Specific excise duty on cigarettes increased by 18%

* Ships and vessels exempted from excise duty

* Donations made to National Children's Fund will now be 100% deductible

* Contributions to the CGHS are eligible for deduction

* Rate of tax on payments by way of royalty increased from 10% to 25%

* ST does not apply to AC restaurants that do not serve liquor at present; now all AC restaurants will have to pay service tax

* Wish to encourage large number of assesees to return to the tax fold

* Serious intent of the govt to pass a GST law, need for state and central govt to pass a GST law

* By 2025, we could become a $5-trillion economy

With inputs from Reuters, PTI)


Read full Budget speech
here

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