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Comments on Union Budget 2013-14

Shri R.M. Malla, Chairman & Managing Director

R M Malla - 1The Union Budget for 2013-14 has been framed in a situation of considerable economic difficulty. Overall economic growth has been subdued on the back of weak performance across the three sectors, i.e. agriculture, industry and services. As compared to average growth rate of 8.0% plus posted in the last decade, the Indian economy is projected to grow at only 5.0% during 2012-13. At the same time, the persistently high inflation rates prompted the Reserve Bank of India (RBI) to adopt a hawkish monetary policy stance, which resulted in the longest monetary policy tightening by the RBI. The high interest rate environment has impinged upon the investment appetite in the economy leading to a further slowdown in the industrial sector. Further, the twin deficits – Current Account Deficit (CAD) and Fiscal Deficit (FD) – continue to pose a threat to the rapid recovery of the economy to a high growth trajectory unless contained at the earliest.

Union Budget 2013-14 Initiatives:

            The key focus of the Union Budget has been to bring back the Indian economy to the high growth path. At the same time, the focus has been on inclusive and sustainable development. The Union Budget 2013-14 was a combination of welfare oriented and fiscal prudence measures. It is heartening to note that the FM has introduced various pro-growth measures aimed at stimulating the investor sentiments and business confidence. To boost the ailing industrial sector, the FM has proposed Investment Allowance of 15% to companies on investment in plant & machinery over Rs.1 billion. In cognizance of the importance of the infrastructure sector, the FM has rightly focussed on enhancing the flow of funds into the sector, as also ensuring revival in the subdued capital investment climate.

The Government has been able to contain the fiscal deficit at 5.2% of GDP as against the revised target of 5.3% for the current fiscal. In line with the concern over the twin deficits, the Government has aimed to contain the Fiscal Deficit at 4.8% in FY 2013-14 by rationalizing its expenditure plans and bridge the Current Account Deficit by encouraging foreign capital inflows. The measures announced in the Budget towards narrowing the CAD include calibration of the foreign investment definition into FII and FDI investment, simplification of procedures for FIIs investment, permission for foreign investment in currency derivatives, dedicated debt exchange, etc. The expected easing in CAD situation in response to the reform measures will reduce the burden on foreign exchange reserves and will arrest the Rupee depreciation.

On the agricultural front, the Government has announced measures to enhance the productivity of the agricultural sector which will lead to a reduction in food inflation in addition to ensuring food security for the citizens of the country.

            The tax initiatives include a surcharge of 10% on rich taxpayers. The FM has further specified that the surcharge has been introduced for a period of one year keeping in mind the extraordinary circumstances. As a breather to the masses, the tax bracket has been enhanced along with a provision of tax credit for citizens in the lowest tax bracket. With the escalating cost of housing, the Government has announced additional deduction of interest up to Rs. 1 lakh for first home loan taken up to Rs. 25 lakh. While the Securities Transaction Tax (STT) has been reduced to 0.01%, the Government has introduced Commodities Transaction Tax (CTT) on non-agriculture futures contracts at 0.01% in a bid to widen its tax base. In response to the low real returns witnessed in the last couple of years, the Government plans to introduce Inflation Indexed Bonds (IIBs) in consultation with the RBI to protect erosion in the valuation of the savings as a result of high inflation. The enhanced tax slabs as well as the introduction of various financial instruments for the common man would not only benefit the masses but also translate into a faster economic progress of the country as a major proportion of the savings get channelized into productive investment avenues.

With the implementation date of BASEL III approaching fast, the announcement of capital infusion in the Public Sector Banks (PSBs) will take some pressure off the banks to raise capital to meet regulatory requirements. In line with the gender-sensitive economics, the FM has also announced the setting up of an All Women’s Bank as an innovative measure to cater to the financial needs of women and enhance the participation of women in the financial sector. Financial Inclusion continues to be the focal point of the Budget in a bid to ensure inclusive and sustainable growth.

Ultimately, the Union Budget is a statement of intent about the path that the Government proposes to traverse in order to rejuvenate and sustain economic growth impulses. The intentions underpinning the Budget proposals – such as the need to attain fiscal consolidation, widen the tax base, provide impetus to economic growth, ensure inclusive economic development and rein in wasteful expenditures & spending – are indeed commendable. The Hon’ble Union Finance Minister – credited with the Dream Budget of FY 1997-98 – has balanced seemingly irreconcilable objectives with considerable finesse while framing the Budget proposals, by supporting growth and, at the same time, making expenditure more effective and ensuring fiscal discipline. Now, it is up to the Government to ensure that the initiatives outlined in the Budget are effectively operationalised so that out great nation can regain the high growth path.

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