India's fiscal deficit - shorthand for amount of money government borrows to fund its expenses - will be controlled at 4.6% of GDP, Union finance minister P Chidambaram said on Monday.
Television screen on the facade of the Bombay Stock Exchange, featuring Finance Minister P Chidambaram presenting the interim budget 2014. (AFP Photo)
Presenting the interim budget, he said the Congress-led UPA government's growth record was unparalleled despite the recent slowdown.
He said GDP growth rate in Q3 and Q4 of 2013-14 would be at least 5.2%.
Chidambaram said exports had recovered sharply and the government had controlled current account deficit (CAD) - the gap between dollar inflow and outflow - at $45 billion (Rs 2.79 lakh crore) from a record $88 billion last year.
On the politically crucial food inflation, he said, "Food inflation is still the main worry, although it declined from 13% to 6.2%."
High prices have hit Indian households, who have been squeezed by flat income growth and fewer job opportunities in the face of a crippling slowdown.Read: Budget, interim budget: what you should know about FM's speech
"Manufacturing slowdown continues to remain a worry," Chidambaram said, even while dismissing surging criticism of policy paralysis.
Striking a positive note, he said agriculture credit (bank loans to farmers) had jumped to Rs. 7.35 lakh crore this year from the budgeted target of Rs. 7 lakh crore - mirroring the record grain output that India is set to clock this year.
Two of India’s biggest tax reform initiatives—the Direct Taxes Code (DTC) and the Goods and Services Tax (GST)—will have to wait the until a new Lok Sabha and a new government is in place, slowing down efforts made over the years on consensus-building to modernise the country’s tax laws.
If adopted, GST can dramatically alter tax administration by giving a one-shot solution to a welter of levies such as excise, value added tax and octroi and stitch together a common national market.
Read: Highlights of P Chidambaram's interim budget 2014
Under the system, the Centre and states will tax goods and services in identical rates. For instance, if 20% is the agreed rate on a certain good, the Centre and states will collect 10% each on the good.
The 10% 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.
The finance minister also announced a sharp 4 percentage point cut in cars and telecom handsets—a move that will make most cars and mobiles handhelds cheaper.
He announced tax cuts for consumer durable industry that could make TVs and refrigerators cheaper.
Together, the indirect tax cuts drew parallel to the stimulus that was last seen in the during 2008-09 when India was also hit by the global financial crisis.
The objective: cut prices, spur demand, boost investment to goad companies to add capacity lines and add jobs.
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He also announced a package of indirect tax cuts on Monday to breathe life into spending and investment, and trumpeted its record of growth and reform over the past decade in its last budget before an election it looks set to lose.
An Interim Budget, unlike a full version, is not a platform to announce new programmes. The interim budget did, however, walked the tightrope of breaking good news for average consumers — who usually look forward to sops — and healing the economy. The mere avoidance of too many sops is the main such step.
Chidambaram said the government would transfer Rs. 500 crore to the defence pension account for implementing one rank, one pension scheme.
Read: Interim budget: Chidambaram slashes excise duty for cars, cellphones; taxes unchanged
Gandhi had met several ex-servicemen delegations on February 14 and told them he was sensitive to their demand and would take it up with the government forcefully.
One rank, one pension will ensure that soldiers of the same rank and the same length of service receive the same pension, irrespective of their retirement date.
Read: Govt accepts one rank, one pension for defence forces — after Rahul intervention
The government had introduced a Constitution Amendment Bill in 2011 in the Lok Sabha to enable GST’s roll-out. A new government and Lok Sabha will have to re-start work on the tax reform.
Likewise, Direct Taxes Code (DTC), aimed at bringing sweeping changes in India’s income tax regime by rejigging the existing slabs and rates and removing a plethora of exemptions, will now have to wait for the next government to be place.
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Currently, individuals are clubbed in three tax slabs depending on their annual income. Those with an income less than Rs. 2 lakh annually are exempt from paying taxes; those earning between Rs. 2-5 lakh are taxed at 10%; those who earn between Rs. 5-10 lakh are taxed at 20% while anybody earning more than Rs. 10 lakh have to pay an income tax of 30%.
The Government had introduced the DTC Bill in 2010 in Lok Sabha, but an amended Bill incorporating recommendations of the Parliamentary Standing Committee could not be introduced in Parliament.
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Chidambaram's full speech | Key features of interim budget 2014-15
Highlights of the interim budget 2014:
Full Coverage: Interim budget 2014