When he stood firm and chose to open his government’s last budget despite the rising din of Telengana state issue in Lok Sabha, it was a cue that finance minister P Chidambaram would go big on the element of surprise. And, it was.
It was a sign that he was willing to step out of his comfort zone in more ways than one. He based the first part of the UPA’s final budget on a cautious ‘stay-the-course’ approach, keeping in mind a still-fragile economy, rather than the upcoming general election.
There was little room to splurge anyway.
Yet, the finance minister, with some nifty tweaking, offered India’s vast consuming class and suffering industrial sector from some substantial relief.
He announced a sharp 4 percentage point cut in cars and telecom handsets—a move that will make most cars and mobiles handhelds cheaper.
Read: Small cars, SUVs, cellphones, consumer durables to get cheaper
Watch: HT's business bureau chief Gaurav Choudhary deconstructs the interim budget 2014
He, in his government's last budget ahead of the upcoming general elections, 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.
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.
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The annual budget can raise or shave off people’s incomes. So, millions of Indians tune in to the widely anticipated budget speech, huddling around television sets in homes, offices and even tea stalls.
The finance minister did, however, use the occasion to present a 10-year report card of the economy, focusing the constraints the government has had to face, as he walked the talk on fiscal discipline through a set of carefully crafted arguments.
The finance minister also had something for those who were curiously peering into what could be bubbling inside the Congress poll manifesto-writing laboratory.
The next government will have to begin afresh on India’s two biggest tax reforms initiatives the Direct Taxes Code (DTC), aimed to overhaul archaic income tax laws, and the Goods and Services Tax (GST), which would stitch together a common national market by replacing a slew of different types of statelevel levies with a single national sales tax.
Read: Highlights of P Chidambaram's interim budget 2014
Chidambaram said that government would be able to contain the CAD – the gap between dollar inflows and outflows that are current in nature—within $45 billion from the record $88 billion or 4.8% of GDP last year.
Last year, the finance minister had vowed not to cross the “red-line” on fiscal deficit of 4.8% of GDP. On Monday, he said the government has more than achieved that, with the deficit set to fall to 4.6% of GDP from the previous year’s 5.1%. With an untamed deficit, India could face damaging “downgrade” by international credit rating agencies.
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Despite the austerity, the minister set aside ample resources to fund requirements under the signature Food Security Law, which will provide two-thirds of Indians, or about 800 million people, cheap food. The scheme will cost Rs 1.15 lakh crore to the exchequer.
The food security law, the largest such programme in the world, is one of the several rights-based welfare programmes of the UPA. The rural jobs scheme NREGA, enacted by the UPA in its previous term, is widely believed to have help it come back to power a second time in 2009. The road, this time, is paved with a lot of challenges, from a feisty main Opposition, BJP, to an economic slowdown and stubborn inflation.
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