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Netscribes Budget Analysis 2013 : Missing the woods for the trees

Netscribes Budget Analysis 2013 : Missing the woods for the trees

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04/29/2013

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Budget
Analysis
2013
With probably the worstpossible economic backdropin recent years and anelection round the corner, one couldpossibly argue that Chidambaram’shands were a bit tied. But that iswhy he is Chidambaram, and theexpectations were growth-oriented, if not Big Bang.Did he deliver? Maybe, when it cameto micro changes here and there, butthere was really no big picture, nobig impetus or intent towards growthor big relief to citizens reeling under
inationary pressures. Yes, one can
argue that a lot is left to the ReserveBank of India, but a lot more couldhave been done to lift the sentiment– one of the biggest drivers toinvestments and growth. The oil pricehike that followed could not have beenworse timed.With GDP dipping below 5% in severalquarters, people were looking out forthe growth signal. They were probablylooking out for some relief too. Butthen came a series of delicate jokes:
A meagre 10% surcharge on thesuper rich earning more than Rs1 crore a year was really moresymbolic rather than impactfulconsidering if the governmentwas really serious, they couldhave easily introduced another40% slab.
A paltry Rs 2,000 tax rebate tothose earning up to Rs 5 lacs and
more in the current inationary
environment was probably more of an insult than a gift.
And what was the message tothose sectors doing well duringthe downturn? The higher dutieson SUVs or mobile phones weremysterious considering thesewere two robust growth sectors– and they affected domesticmanufacturers and the middleclass too.
Given the high interest environmentand the fact that banks haveactually been extending tenors of home loans to individuals to keepEMIs low, what was the harm of extending the Rs 25 lacs limit to allhome loans?
How could the FM ignore thingslike the medical allowance limit of Rs 15,000 per month or the travelallowance of Rs 800 per month in
such inationary healthcare and
transport environments? (Not tomention the oil price hike againafter the Budget).
In short, what did he really takeaway from the rich and what didhe really give to the middle class,or, for that matter, the marketsor industry?Chidambaram says, “the key to startthe growth engine is to attract moreinvestment both from domestic
investors and foreign investors”. Yes,
understood, but how? This cannothappen by throwing numbers orplanning Budgets, it can only happenwith real policy measures and animpetus for growth. Has he missed thewoods for the trees?
Missing the woods forthe trees
Budget
Analysis
 
EXCLUSIVE
BudgetHighlights
2013
HAPPY LOTInvestors
The hike in income threshold to investin Rajiv Gandhi Equity Saving Scheme(RGESS) is good news for new investorsto the stock market
Salaried Class
Middle Income Group earning upto 5 lakhswill enjoy Income Tax credit of INR 2000
Agriculture
40% larger allocation at Rs 7,00,000crore has been provided for farm loanswith interest discounts
Real Estate
Affordable house for buyers willingto buy upto 25 lakhs will enjoy
tax benets
Garments
Apparel prices may be reduced or at leastwill not be increased anytime soon, sayretailers, as the Budget has announced azero excise duty on cotton and yarn at thegarment stage
Gems and Precious Stones
Buying gems will become slightly cheaper,as the duty on precious and semi-preciousstones has been cut from 10 to 2%
Healthcare
The Ministry of Health and Family Welfarehas been allocated Rs 37,330 crore in theproposed Budget
UNHAPPY LOTAutomobiles
High end automobiles will cost morebecause of revised excise duty/customduty in SUVs, high end vehicles andmotorcycles
Cigarettes
Cigarettes, the staple item for duty hikesevery Budget, has not been spared thistime too, with the duty raised by 2% to18%
Media
New cable connection may alsocost more as duty on imported set-top boxes, or STBs, has been raisedby 5%
High Income Group
Individuals with annual salary of morethan INR 1 crore will have to pay 10percent additional surcharge
 
Budget
Analysis
2013
Despite the lack of a bigpicture, Chidambaram hassent small signals withrespect to different avenuesto invite greater investments in theseareas and depict a healthier India. Alot, however, will depend on the goalsversus the achievements.
Fiscal defcit
The biggest concern for foreigninvestors looking at India apart fromthe pace of policy reforms was the
country’s scal decit. With credit
rating agencies closely watchingcountries following the Europeancrisis, India had the task of reigning in
its scal decit to remain an attractive
investment destination. The Budget
proposal to contain the FY’14 scaldecit to below 5% of the GDP (target
is 4.8% of GDP) against 5.2% of GDPin 2012-13 is a very brave and positivegoal. This will involve a reduction innon-plan expenditure from 12.3%to 10.8% while increasing the taxrevenues from 16.7% to 19.1%.Chidambaram expects a large portionof the revenues to come from thespectrum auctions (Rs 40,000 crore)and disinvestments (Rs 58,000 crore)with a similar amount of Rs 100,000crore coming from an increase intax revenues.However, with no major taxationproposed in the Budget, to increasethe tax revenue by Rs 100000 crore,the growth should be in the range of 
6.5% to 7%. Considering this scal’s
growth would not exceed 5.5%, it maybe a major challenge to achieve 6.5-
7% growth in the next scal to earn
the additional tax revenue and thereby
reduce the scal decit.
Infrastructure
Under the current scal condition,
considering the subdued demand for
manufacturing goods as reected by
sluggish growth in IIP data recently,the next major growth area should bethe Infrastructure Sector. This Budgetoffers the Look East policy to provideconnectivity for the North Easternstates to Myanmar. This will providean impetus in economic growth of theNorth Eastern states in view of theeasy accessibility to the mainland. Thepresent proposal is to connect NorthEastern states to Myanmar, which isa part of the grand India – Myanmar– Thailand highway connectivity planfor East Asia integration. This willrequire assistance of the World Bankand the Asian Development Bank
which may encourage fund ow in the
Infrastructure Sector.The Budget also proposes thedevelopment of two new ports – one inAndhra Pradesh and the other in WestBengal, with capacity of 100 million toncargo handling per annum. Further, anew outer harbour will be developedin Tamil Nadu. This development willinvolve Public-Private-Partnership(PPP) with an estimated investmentof Rs 7,500 crore with an estimatedcapacity of 42 million tons.Five inland waterways have beendeclared as national waterways. TheHaldia to Farakka stretch in West
Bengal has been awarded the rst
transport contract. This will help intransportation of imported coal fromHaldia Port to the Farakka Powerplant.
Taxation
There have been no major changes inDirect or Indirect taxes in the Budgetproposal, however, much awaited taxreform measures like the Direct TaxCode (DTC) and Goods and ServiceTax (GST) has received an impetus.The Finance Minister has proposed to
introduce DTC and GST in this scal
itself which will be a major boost toindustrial growth. In view of thecontinuous opposition by some of the states for introduction of GST,the Finance Minister has agreedto compensate the affected statesadequately for revised rate of CentralSales Tax (CST).With regard to Income Tax, therehas been no change in Tax slabsand rates. For taxing the super rich,10% surcharge has been proposedfor income above Rs 1 crore. For themiddle class, a token tax relief hasbeen extended in the form of tax creditof Rs 2,000 for income up to Rs 5 lacs.
The FY’14 estimates peg income tax
growth at 16.9% as against 11.2% in
FY’13. The Service Tax revenue growth
has been assumed at 36% of the grosstax revenue as against 13% in the
last scal.
Islands of happiness
 
Budget
Analysis
2013
Agriculture
The agricultural community constitutesa major part of our population. Tocater to the requirements of thissector, a 40% larger allocation at Rs7,00,000 crore has been provided forfarm loans with interest discounts.The growth in the agricultural sectoris of prime importance considering thefact that to achieve 9% growth; thefarming sector needs to grow by 4%.Therefore, it may be considered as amove in the right direction.Encouraged by the robust productionin cereal crops in the eastern states,the Budget proposes a SecondGreen Revolution in these states toencourage cash crops as alternativesto traditional crops like rice, wheat etc .Moreover, two National level instituteswill be established at Chattishgarhand Jharkhand which will serve ascenters for excellence in agriculturalbio-technology.
Manufacturing andConstruction
For an economy to be truly developed,one of the prerequisites is a robustmanufacturing sector. However, asluggish manufacturing sector hasbeen weighing on the country’s
growth, as reected by recent IIP data.
To provide a boost to the sector, theUnion Budget 2013-14 has proposed anumber of development measures forthe manufacturing industry.Semiconductor wafer fab plays animportant role in the eco-system of electronics manufacturing. In orderto promote the manufacturing of electronic goods, incentives will beprovided to semiconductor waferfab manufacturing facilities whichinclude zero customs duty for plantand machinery. A reduction in duty on
specied machinery for manufacture
of leather and leather goods, includingfootwear, from 7.5% to 5% has beenannounced in the Budget.
Under the Budget for FY’14,
the concession period has beenextended for the manufacturersof environment friendly vehicles.Also, proposed measures to boosttextile manufacturing include theestablishment of textile parks underScheme for ‘Integrated Textile Parks’ (SITP) which will house apparelmanufacturing units. An amount of Rs 50 crore has been allocated to theMinistry of textiles in order to providesupplementary funding of Rs 10 crorefor each textile park.
Healthcare
India is steadily gaining importance asa medical tourism hub and is attractingpatients from all over the world forinexpensive and effective treatments.Also, with higher disposable incomesand the higher occurrence of lifestylediseases the healthcare market in Indiais witnessing tremendous potential.This year, the Budget allocated Rs66,165 crore to the Indian healthcarespace. The Ministry of Health andFamily Welfare has been allocatedRs 37,330 crore in the proposedBudget; out of which the new NationalHealth Mission that combines therural mission and proposed urbanmission will be allocated Rs 21,239crore. Medical education, training andresearch have been considered for aproposed provision of Rs 4,727 crore.The National Programme for HealthCare of Elderly is set to be executed in100 selected districts of 21 states. Thegovernment has also shown interestto mainstream Ayurveda, Unani,Siddha and Homoeopathy throughNational Health Mission for which Rs1,069 crore is being allotted to the
Department of AYUSH. The Budget
also declared allocation of Rs 1,650crore for the 6 AIIMS-like institutionsthat have already commenced theiracademic session and are expectedto initiate operations of the attachedhospitals by 2013-14.
Education
A greater expenditure on education willhave a positive impact on companiesproviding education and IT relatedservices such as Educomp, NIIT,Aptech etc.The Budget proposes a 7% increase inthe allocation of Rs 27,258 crore foreducation under the Right to EducationAct and the Sarva Shikshya Abhiyaan(RTE-SSA). It also provides Rs 3,924crore for Rashtriya MadhyamikShikshya Abhiyaan (RMSA). A sum of Rs 1,000 crore has been allocated forNation Skill Development Corporation(NSDC) for attracting youth to jobbased vocational trainings.
 
Key budget fgures
 
FY13 (RE) FY14 (BE)
Budget size 14,308 16,653Gross tax-GDP ratio (%) 10.4 10.9Receipt/expendituregrowth (%) 14.3 14.6Net govt. borrowing(Rs bn) 4,674 4,840
Fiscal decit-GDP
ratio (%) 5.2 4.8RE-Revised estimates, BE-Budgetestimates Source: Government of India
Non-Plan Expenditure Estimates
 
Non-Plan ExpenditureRs Crores 2012-13 RE 2013-14 BE* Growth %
Interest Payments and Debt Servicing 319759 360000 13%Defense and service 193407 206000 7%Fertilizer Subsidy 100974 85000 -16%Food Subsidy 100000 125000 25%Petroleum Subsidy 72260 40000 -45%Total Non Plan Expenditure
1063580 1111000 4%
*Estimated 
Sources: MOF
 

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