Sunday, February 10, 2013

Union Budget 2013-14 (3)

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.