A Budget Focussed on Fiscal Deficit

The Union Budget 2013-14 has come at a time when the fiscal deficit is spiralling almost out of control. So it was imperative for the government to take steps to reduce the fiscal deficit, tame inflation, increase the growth rate and at the same time bring out populist economic measures in view of the impending general elections in 2014. The onus was on the Finance Minister P. Chidambaram to come out with a balanced budget that would take care of these various needs.

Experience of the countries in the Euro zone, like Greece, has shown that failing to control the worsening fiscal deficit would spell dooms to a country. Therefore the Finance Minister had no other option left with him but to take measures in the financial year 2013-14 to reduce government expenditure, while simultaneously taking steps to increase revenue collection. With a view to increase the revenue the FM has proposed a one year surcharge of 10% as tax on the super-rich of the country. The super-rich are defined as those who would earn more than 1 crore per annum, all 42,800 of them. He has also proposed increased import duty for luxury items like SUVs, luxury bikes and cars, imported yachts and motorboats, mobile phones priced more than Rs.2000, cigarettes, sale of immovable property, home and flats with a carpet area of 2,000 sq ft or more or of a value of Rs 1 crore. Though there is no revision of the tax exemption slabs, he has proposed to provide a tax break of Rs.2000 to individual tax payers with a taxable income of up to Rs.5 lakh. This would come as a benefit to about 1.8 crore tax payers who are reeling under increased pressure of inflation. Similarly, first time buyers of affordable homes will get an additional deduction in interest of Rs. 1 lakh for home loans up to Rs. 25 lakh. 

It must be noted that the step taken for fiscal consolidation, reduction in government spending, will negatively affect many social sector activities. There have been cuts in many important sectors that directly affect the livelihood and welfare of the people in the country. Irrigation, flood control, science and technology, industries and minerals, rural development and even agriculture have seen massive cutbacks in government spending. The worst of them all is the reduction in fuel subsidy. With the global fuel prices going up continuously, such a cut in fuel subsidy would mean continuous increase in petrol and diesel prices, which would in turn worsen inflationary pressure on the economy. It is also surprising to see that there has been no increase in budgetary allocation to Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS), the flag ship programme of the UPA-2. Reduction of government spending in various infrastructure development schemes also shows that this is a budget that is focussed on short term gains and not on long term gain development of the nation.

However the budget also has many incentives for private investments in the field of infrastructure development, like institutional measures to do away with the bottlenecks in project approvals, plans for new industrial corridors, ports, expansion of domestic production of coal, which would ease thermal power generation issues etc. 

In a bid to assuage the general discontent in the minds of the youth in the country after many assaults on women, there have been many measures proposed for providing better security and better living conditions to the women. The ‘Nirbhaya’ fund of Rs. 1 crore for improving the safety of women is a welcome step. A scheme for addressing the issue of maternal and child malnutrition for the 100 poorest districts in the country is another important step. Proposal for setting up of a Women’s bank exclusively for women in the country is another important proposal in the right direction. The bank is proposed to lend mainly to women and women-run businesses. The bank, which would be under the public sector, would employ mainly women and would do a great service for the empowerment and the financial inclusion of the women folk.

The Finance Minister has failed in many fronts vis-a-vis the budget. Import of gold, one of the main reasons for the unhealthy increase in current account deficit, should have been checked by increasing the import duty on the yellow metal. All mobile phones that are priced above Rs. 2000 cannot be considered as luxury items. Most smart phones cost more than that and the increase in import duty of such mobile phone could only help those traders in the grey market. There have been no major proposals to improve the investment climate in the country.

Union Budget 2013-14 at a glance for the layman's interest.

Items that would be costlier

• Mobile handsets above Rs.2000
• SUVs, luxury bikes, luxury cars, imported yachts and motor boats
• Dining at AC restaurants
• Staying at luxury hotels
• Cigarettes
• Sale of immovable property above 50 lakhs (sale of plots, house, flats etc.)
• Home/flats with a carpet area of 2,000 sq ft or more or of a value of Rs 1 crore
• Marbles for flooring
• Silver ornaments
• Silk clothes produced using imported raw materials
• Set top boxes
• Parking fees

Items that would be cheaper

• Branded apparels 
• Precious stones 
• Carpets and other textile floor coverings 
• Branded Non-Allopathic medicines 
• Environment-friendly vehicles, like electric and hybrid vehicles
• Leather goods including footwear 
• Books on vocational courses 
• Lower Securities Transaction Tax on mutual funds

Other important facts

• No change in income tax slabs
• Raised duty-free limit on imported jewellery to Rs 50,000 in the case of a male passenger and Rs 100,000 in the case of a female passenger
• Person taking home loan for the first time to get tax cut of Rs. 1 lakh
• At least one LIC office and one public sector insurance company in all towns with more than 10000 people
• India's first all-women public sector bank to be set up
• “Nirbhaya Fund” for women’s safety in memory of the Delhi brave heart with Rs.1000 crore corpus will support initiatives by the government and NGOs working towards protecting the dignity and ensuring safety of women.
• Reduction in fuel subsidies, which may further increase fuel prices

Source: The Hindu, India Today, The Economic Times