In my last article I
have dealt with the direction in which the Budget 13-14 should move. Since the
CSO has come up with the revised estimate for growth at only 5% by this fiscal
end, and some reasonable estimates of revenue and expenditure during the
current year have also come off from the Secretary Revenue on the 8th
February, more can be added to the discussion. India is no longer in the league
of fast moving economies. The IMF downsized it to 4.5% for the next fiscal. The
Royal Bank of Scotland estimated however puts the next year’s growth on a
higher pedestal at 6.3% on a lower base than before. Montek Singh's expectation is more a hope and hype than closer to reality and he feels that the CSO erred in its expectation downturn. But unlike the last few years when inflation was shown going down from January down to February, and rising growth expectations to tame the fiscal deficit, this time around, the CSO seemed to have pitched rightly.
The CSO lowered the
growth in agriculture and allied activities to 1.8 per cent compared to 3.6 per
cent last fiscal, while manufacturing is also expected to drop to 1.9 per cent,
from 2.7 per cent. The most worrying phenomenon is the rate of savings in the
economy that has been on the decline since last year when it moved to a 8-year
low of 30.8% of GDP. This fiscal it is expected to move down to 30%. Inflation
tripped the savings. The FMs moves to restore the savings to the previous high
of 37% will be watched with interest.
Finance Minister hopes
to contain the fiscal deficit at 5.3% as against the estimated 5.1% and has
also announced that there would be no further divestment of stocks this year. The
primary deficit is likely to be around 3% of the GDP.
The CGA data revealed
that during April-December 2012, the revenue receipts stood at Rs 5,70,536
crore or 61 per cent of the estimate. This is less by 2% than in the
corresponding period of 2011.
The government is
eyeing Rs 935,685 crore revenue this fiscal. Tax collection (Rs 4,84,156 crore)
slipped to 62.8 per cent of the Budget estimate compared to 63.3 per cent
achieved in the same period last year.
Government receipts
during the period totaled Rs 5,86,424 crore while the expenditure worked out at
Rs 9,91,123 crore.
Fiscal Budgetary
Management Responsibility and Outcome Budgets are the brain children of the
present FM. While he has not succeeded in making the Output and Outcome Budgets
with the various departments, he has been thriving to achieve the FRBM. What
really came in the way of dilution of Direct Taxes Code and delay in
introduction of GST. Even during the ensuing budget announcement the hope of
introduction appears remote.
The Parliamentary
Standing Committee on Direct Taxes has suggested the base income exemption
limit to be Rs.3lakhs. Middle class and salary earning classes are sore with
the Government due to rise in oil prices and severe impact of food inflation.
This is a vote bank that cannot be ignored and therefore the FM may increase
the threshold limit to Rs.2.5lakhs and keep Rs.3lakhs for the Senior Citizens.
Since women constitute an important vote bank, he may like to give the same threshold
as for senior citizens.
The Minimum Alternate
Tax introduced after a gap between 1991 and 1996 by Chidambaram in 96-97 at 12%
for profit earning companies may see only a marginal increase as he would like
to see midsized companies to perform and contribute to the growth of the
economy. This now stands at 18.5% and could move up to 20%.
Dividend Deduction Tax
at higher rates could be a disincentive for investments. Growth orientation may
prevent the FM to raise the DDT from the existing 15%. Even if he would like to
exercise an option for raising this, it would be in the margin of 1-2% and
would be more symbolic.
Inflation Indexed bonds
as investment oriented instruments could get attention this time, with some
exemptions in the investment ranges of Rs.2-5lakhs.
What he does for the
farm sector is keenly looked at. Growth of farm sector is critical to the rest
of the economy. Fertilisers moved away from the protected regime with the
energy sector moving to market related pricing. This has put onerous burden on
the farm. Additionally labour non-availability has put pressure on the farmer
to move to farm mechanization. Rising input costs if not contained, the FM open
the window on market stabilization. If he indulges in the luxury of loan
write-off once again, the farmer would be distanced much more by the
institutional lenders and their dependence on private money lenders at usurious
rates would drive them to suicides that the country can ill-afford. Therefore,
the FM has to calibrate his incentives in a transparent and on instant delivery
mode. Most subsidies to the farmer move at a snail pace in delivery wherever
they are available. The track should change. This Budget, the last in the
current UPA regime as a full-fledged budget, should target and nurture this
vote bank more carefully. It is desirable that the FM announces a fixed pension
of Rs.10-15 thousand for the marginal farmers of sixty years age. The Pension
Fund Regulatory Development Authority could be asked to look at avenues for
mobilization and disbursement.
Direct Cash Transfer,
the ‘game changer’ has become a non-starter in a few states as Aadhar the base
instrument has not been delivered with the requisite integrity and speed. This
may find some mention in the Budget.
This pre-election
Budget is the most challenging for this experienced Finance Minister.
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