ECOSENTIMENTS JOURNAL, VOLUME 1, ISSUE 2, 2013
INDIAN UNION BUDGET 2013-14: AN ATTEMPT TO GET GROWTH OUT OF THE DOLDRUMS
G RAJU Professor, Department of Commerce, University of Kerala, Thiruvanathapuram MADHULAL M & SUBA KURIAKOSE Research Scholars, Department of Commerce, University of Kerala, Thiruvanathapuram Abstract The Indian Union Budget 2013-13 is a step forward towards the bounce back of Indian economy to a high annual growth rate of seven per cent in the next two years as the budget promised adequate public spending through its flagship programmes. The real focus of the budget was on three unique and special characters – women, youth and poor. Thus the Finance Minister deserves to be complimented on presenting a forward looking budget in a difficult socio-political environment. The well thought-out proposals will go a long way in stimulating agricultural growth, boosting investments, strengthening infrastructure, promoting education and opening up additional opportunities for employment. Key words: budget, external deficit, interest subvention, green revolution.
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INTRODUCTION The task of budget making for a large and diverse economy like India is always challenging. A budget is not just a compendium of tax proposals and expenditure allocations. It is the governmentâ€&#x;s master plan for economic management. Hence as before, the prelude to the budget attracted fanfares and debates within the political as well as the economic community. With the rapidly proliferating media coverage, the publicity that the budgetary exercise gains throughout the country has made it one of the most widely followed and scrutinized events. After all, the Union Budget 2013-14 was presented at a time when growth was slowing, inflation high and the current account deficit widening ominously. Reversing the slowdown required an expansion in expenditures. And this is needed to be financed in ways that took account of inflation and the widening external deficit. Hence the present budget has both major and minor impacts on different sectors and people in different walks of life. Here the authors make an overview of influence of budget in sectors such as agriculture, banking and finance, capital market, infrastructure, media and entertainment, FMCG, education sector etc. The influence of budget to the people in their different fields of life by way of classifying them as high earners, home buyers, car buyers, consumers, women, jewellery buyers, traders, corporates, retail investors, foreign investors etc. is also attempted in this paper. 1. Agriculture: The average annual growth rate of agriculture and allied sectors during the 11 th plan was 3.6 per cent as against 2.5 per cent and 2.4 per cent respectively, in the 9th and 10th plans. In 2012-13, total food grain production was about 250 million tones. Minimum support price of agricultural produce under the procurement programme has been increased. Farmers have responded to price signals and produced more. Agricultural exports from April to December 2012 have crossed Rs.138403 crore. In the current budget Rs.27049 crore is allotted to the ministry of Agriculture, an increase of 22 per cent over the RE of the current year. Of these, amounts will be provided for: agricultural research Rs.3415 Crore, the farm sector has
proposed to start pilot nutria farms with an
allocation of Rs.200 Crore, crop diversification Rs.100 crore to start a programme of crop diversification and sub-mission for increasing the availability of feeds and fodder, water shed management Rs.5387 crore to integrate water shed programmes, live stock development Rs.307
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crore to attract investment and to enhance productivity taking into account the local agro climatic condition, market linkages will get a matching equity grant up to Rs.10 Lakh per Farmer Producer Organization (FPO) and green revolution in eastern India Rs.1000 crore in 2013-14 to continue to support the eastern Indian States and 2 per cent Interest Subvention on short-term Corp loan is extended to private sector banks as given to public sector banks. Allocation to crop diversification would promote technological innovation and encourage farmers to choose crop alternatives and thereby helpful to small and medium farmers in droughtprone and ecologically stressed regions. By allowing matching equity grant up to Rs.10 Lakh per Registered Farmer Producer Organization (FPO) will enable them to leverage working capital from financial institutions. Market linkages and green revolution in eastern India will get a further impetus from the higher outlay. Decision on extending interest subvention on crop loan to private banks would make crop loan rates from these banks competitive. This will also ensure them a level playing field along with their public sector counter parts. It will also give an impetus to private banks to participate in crop loan as, at present, there is lot of thrust for opening of rural branches. Interest subvention will definitely reduce the cost of operation in farming and allied sectors. Further, the pilot scheme to replant and rejuvenate coconut gardens will be expanded to entire state of Kerala. The National Institute of Biotic Stress Management for addressing plant protection issues will be established at Raipur, Chhattisgarh. In addition, the Indian Institute of Agricultural Biotechnology will be established in Ranchi. But the increased allocation to MGNREGA will certainly increase the burden on the farmer because it will impact the availability of labour for farming activity. 2. Banking and Finance: Indiaâ€&#x;s Revenue target of Rs.43,996 crore in dividends from the Reserve Bank of India and PSU Banks in fiscal 2014 may be ambitious as banks reel under stressed loans and the RBI may have to raise its payout by seventy three per cent compared to the financial year 2013. The central bank, which has traditionally paid out thirty per cent to fifty per cent of its earnings, may be hard pressed to raise the payout substantially due to turbulent money and currency markets, which could squeeze its earnings.
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It may be difficult for the government to raise the dividend amount since a majority of the over sixty per cent of the outgo comprises transfers of surplus by the RBI. Under this head, transfers from RBI and nationalised banks together account for almost 95 per cent of the receipts. The Government shall provide Rs.12,517 crore to infuse additional capital into 13 public sector banks before the end of March. The Minister earmarked Rs.14,000 crore for capital infusion in Public sector Banks to meet the Basel III requirements. The FM has also increased the corpus of SIDBI's India Microfinance Equity (IME) Fund by Rs.100 crore to provide equity and quasiequity support to Micro Finance Institutions. The re-capitalisation of public sector banks is a big positive initiative since the RBI insisted the implementation of Basel III norms by April 1, 2013. This will not only help them meet the minimum Tier 1 capital of 8 per cent but also help to support loan growth. Housing finance companies will also be positively impacted by providing incentives for the home buyer and setting up funds to encourage rural and urban housing as this will increase the demand for home loans. 3. Capital Market: Even though the Finance Minister has strongly endorsed the argument that India needs to encourage foreign investment which is consistent with the countryâ€&#x;s economic objectives, he failed to give any strong positive signals to the foreign investors in the Budget. Interestingly, while the benchmark stock market index slid 1.5 per cent post budget, Foreign Institutional Investors (FIIs) were net buyers on the previous day of the budget and recorded net inflow of over $500 million, the highest in the past three weeks. However, the ministryâ€&#x;s decision to implement an international standard for classifying Foreign Institutional Investors (FII) and Foreign Direct Investment (FDI) will make a positive impact on the Public Financial Management. The proposed standard will consider those investors holding over 10 per cent stake in a company as FDI and those up to 10 per cent would be as FIIs. This classification is positive for the capital markets as the government wants to increase institutional investments to meet current account deficit. 4. Infrastructure: The crucial role infrastructure plays in easing supply side constraints to economic growth has been well recognized in the budget and thus it accords priority to
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infrastructure finance. According to the 12th Plan, as much as Rs.55,00,000 crore is required for investment in infrastructure, with nearly 47 per cent coming from private sector. On account of the asset-liability mismatch in balance sheet, commercial banks generally keep away from lending to infrastructure projects, which are of a long duration. To fill this gap, the Finance Minister outlined a few steps like a few more infrastructure debt funds, in addition to the four existing ones will be set up. The India Infrastructure Finance Corporation, in league with the ADB will facilitate access to the bond market for long term funds. The limit for tax free infrastructure bonds has been increased to Rs. 50,000 crore during fiscal 2013-14. Trading in debt instruments through secondary market has been made earlier. A regulatory authority for road sector which also take care of construction risk has been announced. The other major initiatives to address the funding issues are: a. Promotion of Infrastructure Development Funds and Tax Free Bonds, debt segment on stock exchange in addition to granting support from Financial Institutions like World Bank and ADB and allowing Pension Funds to invest in asset backed securities. b. Generation based incentives for Wind power generation and low interest bearing funds for renewable energy would be welcomed by the industry players. c. Constitution of Regulatory Authority for Road sector to monitor the challenges faced by the road construction companies will provide transparency and thereby boost foreign investor confidence. d. Shipping and aviation sectors related reforms include introduction of new waterway, movement of bulk cargo through coastal shipping and concessions to set up MROs respectively. The Budget proposal to develop 3,000 kms of highways in the first six months of 2013-14, is a sharp scale-down from the previous year's target of 8,880 km target, around one-sixth of which has been met so far. South Indian states had suffered a lot in this regard. Most of the projects are going to be funded with the taxpayer's money and awarded as Engineering, Procurement and Construction (EPC) contracts, not as Public Private Partnership (PPP) where developers play a role in investment and management issues.
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The Budget proposal to develop the outer harbour project at V O Chidambaranar Port at Tuticorin in Tamil Nadu at a cost of Rs.7,500 crore will be a major boost for the exporters in southern India, who are currently spending a lot of money to trans-ship their cargoes via the Colombo port. An amount of Rs.14,883 crore was allocated to Jawaharlal Nehru National Urban Renewal Mission (JNNURM) for the purchase of 10,000 buses under the city modernisation scheme. It will be a big positive initiative for the heavy commercial vehicle industry, which is currently under severe stress on account of declining sales. The introduction of an investment allowance of 15 per cent for a period of two years for new, high value investment of minimum of Rs.100 crore is another fiscal measure of note for reviving investment in the budget. From a macroeconomic prospective it is important to step up the investment rate, which had declined to 35 per cent in 2011-12 from 36.8 per cent in previous year. But the budgetâ€&#x;s specific proposals, including reviving the Rajiv Gandhi Equity Saving Scheme and the promise of inflation-linked bonds are hardly inspiring. 5. Media and Entertainment: In the last year, at the request of the film industry, full exemption of service tax was granted on copyright on cinematography. This year the Budget has accepted the industry's request to exempt service tax on films exhibited in cinema halls. This will have a longterm benefit for production houses such as Eros International Media, Balaji Telefilms and Disney India. The impact of this measure can be understood in terms of a deal of a production house with an actor. Earlier, a production house would pay service tax to actors for their fee. Now the production house will recover the service tax by charging the same when it sells its films to the distributor. So, the measure offsets any loss for production houses. Increase in customs duty on set top boxes will have a marginal impact on Direct-to-Home (DTH) and cable companies, which import set top boxes. This is because most DTH companies had already increased its subscribers' cost in recent months. Dish TV recently had increased its subscriberâ€&#x;s acquisition costs by Rs.200 recently. Hence, due to high level of digitisation, the industry as a whole will be able to absorb this increase in the customs duty. 6. FMCG Sector: The Indian FMCG sector is the fourth largest in the Indian economy and has a market size of $13.1 billion. The budget was negative for the FMCG sector. There was no major 6
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announcement for the sector. There was no rise in income tax slab which would definitely lead to a fall in volume of FMCG companies. However, rise in allocation for Ministry of Rural Development will help the FMCG companies. The budget is a negative development for the cigarette industry particularly for ITC considering that after last year‟s 21 per cent excise duty, this year also there was 18 per cent rise. ITC is left with no choice except to pass on the hike to consumer. Volume are expected to see dip initially, before recovering. 7. Education sector: Education is the other high priority. Thrust on education by increasing allocation goes well for education sector. Education companies like Educomp, Everonn, NIIT, Everonn Education etc will also be benefited from allotment of fund to National Skill Development Fund which is formed to motivate youth to voluntarily join skill development programmes. Everonn has entered into a joint venture with the Union government's NSDC to train 1.5 crore people in various technical streams over the next 10 years. Budget allocates Rs.65,867 crore to the Ministry of Human Resource Development, an increase of 17 per cent over the RE of the previous year and Rs.27,258 crore for SSA in 2013-14 which will certainly make positive impact on education sector. 8. High earners: Some Indian analysts think that soaking the rich will win votes in an election year, though there‟s no evidence for this. Its consequent impact will be felt by the 42,800 Indians who earn over Rs.1 crore. FM has imposed a 10 per cent surcharge on their income, which means they will have to shell out at least an additional Rs.3 lakh in taxes. However, those earning up to Rs.5 lakh per annum will get Rs.2,000 by way of tax credit. The proposed surcharge on the “super-rich” taxpayers is an eyewash to counter the charge that the government focusing the middle class and salaried people, and is not interested in taxing the rich. Those falling in this category must be surely more in number. The Income Tax authorities should be more vigilant in detecting the evasion by the rich. 9. Home buyers: The FM has proposed an additional deduction of Rs.1 lakh paid towards interest on a home loan (besides the Rs.1.5 lakh deduction now available) for first-time home buyers. The value of the house should not exceed Rs.40 lakh and the loan should be restricted to Rs.25 lakh. The loan should be taken in fiscal 2013-14. This will help to save Rs.30,000. At
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the same time, he has proposed a 1 per cent tax deducted at source (TDS) on high-value transactions of over Rs.50 lakh on immovable properties. At a glance, the budget may appear harmless to the middle-class. In fact, it might even appear friendly with all those improvements in housing loan deductions and stock market investments. The tweaked Rajiv Gandhi Equity Savings Scheme appears friendlier and will help those looking to invest in the stock market and also get a tax-break in the process. The reduction in securities transaction tax and the soon-to-come inflation-indexed bonds should also cheer up investors. However, setting up of funds and providing incentives for the home buyer to encourage rural and urban housing will increase the demand for home loans. 10. Car buyers: Sports utility vehicles (SUVs) will be costlier as the Finance Minister has proposed a hike in the duty paid by the manufacturers of the vehicles to 30 per cent from 27 per cent. He has also proposed an increase in the import tax on luxury vehicles to 100 per cent from 75 per cent, and on motorcycles with an engine capacity above 800cc to 75 per cent from 60 per cent. The proposal to increase duty on high-end cars and motorcycles is also a welcome initiative. 11. Consumers: Cigarettes will be costlier as the excise duty has been hiked by 18 per cent. Mobile phones will also be costlier as handsets with a price tag of over Rs.2,000 will attract 6 per cent excise duty. Eating out will be costlier after FM announced a service tax on AC restaurants. The four metros are now compulsorily digitised for cable connections but the Finance Minister has doubled the import duty on set-top boxes to 10 per cent making them costlier in an environment where the citizen has little choice but to comply. The budget is a big disappointment to pensioners. 12. Women: In a significant move for women empowerment, there is an allocation for setting up Indiaâ€&#x;s first public sector bank exclusively for women. This might prove to be a respite for the women entrepreneurs and also create job opportunities for them in the long run. For this, the Finance Minister has set aside Rs.1,000 Crore as initial capital. The bank will predominantly employ women and will lend mostly to women and women-run businesses. The finance ministry will appoint a consultant to prepare the framework for commercial viability of the proposed bank. The bank will primarily focus on women entrepreneurs, self-help groups, and of course, 8
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retail women customers. Setting up of 'Nirbhaya Fund' for the safety and empowerment of women is a welcome initiative for women protection. 13. Jewellery buyers: Good news for gold buyers in the Budget as the finance minister held the gold import duty unchanged, defying industry expectations that the world's biggest bullion buyer would increase rates to curb demand in this record current account deficit time. The Budget also raised to Rs.1 lakh the maximum value of jewellery that may be brought home by Indian women who have lived abroad for more than a year, or who are changing residence, from Rs.20,000 earlier. There are apprehensions that it will lead to financial indiscipline and frauds. 14. Retail investors: The budget contains a proposal to issue inflation-indexed bonds to attract investors. The finance minister has also proposed liberalising the Rajiv Gandhi Equity Savings Scheme (RGESS) to enable first time investors to park funds in mutual funds and listed shares and extended tax benefits to three successive years. Also, the limit for investors wanting to invest in RGESS has been raised to Rs.12 lakh from Rs.10 lakh earlier. 15. Traders: The Budget has proposed to reduce securities transaction tax on equity futures to 0.01 per cent from 0.017 per cent currently. However, it has imposed a transaction tax on futures contracts of non-agricultural commodities like gold, silver and base metals. The proposal is to levy a commodities transaction tax (CTT) of 0.01 per cent of the price of every trade. Futures trade in non-agricultural commodities accounted for nearly 88 per cent of the total turnover on Indian commodity exchanges in 2011-12, with MCX cornering much of the share. 16. Corporates: FM has proposed to increase the surcharge to 10 per cent on domestic companies with annual income of more than Rs.10 crore. For foreign companies, who pay the higher rate of corporate tax, the surcharge will increase from 2 per cent to 5 per cent. 17. Foreign investors: The government had not announced a cut in the withholding tax imposed on income from government and corporate debt investments and deducted at source that can now reach up to 20 per cent. The government has also created confusion with a proposal stating a tax residency certificate "shall be necessary but not a sufficient condition" to take advantage of double taxation avoidance agreements. Tax authorities had previously considered this tax residency as enough proof to allow foreign investors registered in countries with these treaties to avoid paying taxes in India. 9
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CONCLUSION The Indian Union Budget 2013-13 is a step forward towards the bounce back of Indian economy to a high annual growth rate of seven per cent in the next two years as the budget promised adequate public spending through its flagship programmes. A sizeable allocation for the social and agricultural sector gives the hope that the urban and rural poor can look forward to a better tomorrow. Direct Benefit Transfer Scheme is a game changer as it entrusts people‟s money in people‟s hands by eliminating corruptions and removing leaks from the funds transfer system. Allocation to crop diversification would promote technological innovation and encourage farmers to choose crop alternatives and it will be a move that may help small and medium farmers in drought-prone and ecologically stressed region. It cut across religion, caste and community as it highlights the real faces of India while formulating programmes. The real focus of the budget was on three unique and special characters – women, youth and poor. Thus the Finance Minister deserves to be complimented on presenting a forward looking budget in a difficult socio-political environment. The well thought-out proposals will go a long way in stimulating agricultural growth, boosting investments, strengthening infrastructure, promoting education and opening up additional opportunities for employment. REFERENCES 1. Binu, V V (2013): „New Fertilizer to Agriculture‟, Malayala Manorama, March 1, p.12. 2. Dhar, Aarti (2013): „Thanks, but not enough‟, The Hindu, March 25, p.4. 3. Aiyar, S A (2013): „Our Tax System Should Go the ASEAN Way‟, The Times of India, February 24, p.16. 4. Gurumurthy, S (2013): „Only 42800? That‟s Rich!‟ The Hindu, March 6, p.9. 5. Oommen, M A (2013): Seminar on Central and State Budgets, Inaugural address, Thiruvanathapuram, March 8.
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