The government announced a package of indirect tax cuts on Monday to breathe life into spending and investment, and trumpeted its record of growth and reform over the past decade in its last budget before an election it looks set to lose.
Amid uproar in parliament as lawmakers shouted him down, Finance Minister P. Chidambaram also announced that he would contain the fiscal deficit for 2013/13 (April-March) at 4.6 percent of gross domestic product (GDP), below his target of 4.8 percent.
Businessmen watching the speech were further cheered by his estimate that the fiscal deficit would shrink further to 4.1 percent in 2014/15.
Monday's budget was an interim exercise ahead of the election due by May. Opinion polls predict voters will oust the government led by the Congress party amid widespread discontent with its mismanagement of the economy, high inflation and corruption scandals.
Chidambaram, struggling to deliver his speech above the din of MPs angry over a plan to divide Andhra Pradesh, announced no major changes in tax rates.
However, he said factory-gate taxes on some capital goods and consumer durables would be reduced to 10 percent from 12 percent, and excise duties on small cars, two-wheel and commercial vehicles would be cut to 8 percent from 12 percent.
He also announced small-bore measures to soften student loans and help retired members of the armed forces.
India is facing its worst slowdown in nearly a decade, with shrinking manufacturing, slower jobs growth and high inflation.
Chidambaram said, however, that growth would recover to at least 5.2 percent in the second of 2013/14 from 4.6 percent in the first half.
Looking back at the two terms of rule under a Congress-led coalition, Chidambaram said there had been an unprecedented growth trend of 6.2 percent over the past decade and - rejecting charges that the government was mired in a policy paralysis -- laid out a raft of reform steps it has taken.
Here are the highlights:
GROWTH:
* GDP expansion in 2013/14 third and fourth quarters will be at least 5.2 percent
FISCAL DEFICIT:
* Fiscal deficit projected at 4.1 percent of GDP in 2014/15
* Fiscal deficit seen at 4.6 percent of GDP in 2013/14
* Says need to bring down fiscal deficit to 3 percent of GDP by 2016/17
CURRENT ACCOUNT DEFICIT:
* Current account deficit for 2013/14 projected at $45 billion
* Forex reserves to rise by $15 billion by end of 2013/14
BORROWING:
* Gross market borrowing seen at 5.97 trillion rupees in 2014/15
* Net market borrowing at 4.07 trillion rupees
* Debt repayment in 2014/15 seen at 1.897 trillion rupees
* Ways and Means advances for 2014/15 estimated at 100 billion rupees
PRIVATISATION:
* Target from stake sale in state run firms for 2013/14 revised to 258.41 billion rupees
* Target for 2014/15 at 569.25 billion rupees
SPENDING:
* Plan expenditure for 2014/15 seen at 5.55 trillion rupees, the same level as the previous fiscal year
* Non plan spending estimated at about 12.08 trillion rupees in 2014/15
SUBSIDIES:
* Total spending on food, fertilisers and fuel at 2.5 trillion rupees in 2014/15
* Food subsidy estimated at 1.15 trillion rupees, fertiliser subsidy at 679.71 billion rupees. Petroleum subsidy seen at 634.27 billion rupees versus revised figure of 854.8 billion rupees for 2013/14.
DEFENCE:
* Spending raised to 2.24 trillion rupees in 2014/15, up 10 percent year on year
EXPORTS:
* Merchandise exports seen at $326 billion in 2013/14, up 6.3 percent year on year.
* Agriculture exports expected to touch $45 billion in 2013/14, up from $41 billion in 2012/13
TAX PROPOSALS:
* No major change in tax rates
* Factory gate tax to be reduced to 10 percent from 12 percent on some capital goods, consumer durables
* Cut excise duty on small cars, two wheelers, commercial vehicles to 8 percent from 12 percent
* Recommends excise duty reductions on larger vehicles
* Restructure of factory gate tax rates for manufacturing of mobile handsets
BANKS RESTRUCTURING:
* Govt to provide 112 billion rupees capital infusion in state run banks in 2014/15
* Propose to set up public debt management office to start5 work from 2014/15
FINANCE MINISTER COMMENTS:
Resurgence in exports, global economic revival and moderation in inflation point to better outlook for Indian economy in 2014/15.
Our objectives were fiscal consolidation, reviving growth cycle, and enhancing manufacturing, said Chidambaram. Manufacturing needed an immediate boost, he said.
I can confidently assert that the fiscal deficit is declining, the current account deficit is constrained, inflation is moderated; exchange rate is stable, he said.
India's economy now the 11th largest in the world, he said.
EXPERT VIEWS
RADHIKA RAO, ECONOMIST, DBS, SINGAPORE
"Three positives out of the just concluded speech -- the fiscal target in FY13/14 has not only been met but undershot, excise duty rates were cut for a handful of the troubled sectors and (he) assured that fiscal rationalisation will remain on track into 14/15. But, under the hood concerns -- primarily on how these deficit targets were met/will be met next year -- remain largely unanswered. The cut in the excise duties will also have a bearing on the indirect tax takeaways, putting revenue targets at risk.
"Clarity on the continuity of few of the tax surcharges levied last year is also awaited, with the quality of fiscal consolidation still in question. Nonetheless, while the rating agencies will sift through the details, they are unlikely to act as yet. Their focus has shifted to the post-election growth and reform agenda."
ANEESH SRIVASTAVA, CHIEF INVESTMENT OFFICER, IDBI FEDERAL LIFE INSURANCE, MUMBAI
"Some tinkering on excise is positive for auto companies. More importantly clarity on fiscal deficit and government's borrowing program is a greater positive.
"Now we have a roadmap on government borrowing, we were earlier thinking it to be about 6.30 lakh crore (6.3 trillion rupees), and what has come is much better than expectations.
"This is positive for equities. Elections are next to watch. We should now see if markets rally from here on Modi optimism. Any substantial decline would be a buying opportunity."
VIJAI MANTRI, CHIEF EXECUTIVE, PRAMERICA ASSET MANAGERS, MUMBAI
"The market was fixated on the fiscal deficit number and the borrowing program and I think all of them are in line with expectations.
"Since the last one year India was under so much scrutiny because of a probability of a rating downgrade, we have been in an environment where the policy makers have been constantly communicating with the various stakeholders. So I think what came out in the final document was not surprising, which is a net positive from the market's point of view given that the finance minister has been able to deliver on his promise.
"I think the interim budget is also positive for the auto industry given the long awaited excise duty cuts, but it also depends on whether the next government will continue this or not."
SHUBHADA RAO, CHIEF ECONOMIST, YES BANK, MUMBAI
"Refraining from populist announcements, the budget has proposed a few measures to support investments and consumption by cutting excise duty. The subsidy payment roll over was along expected lines, so no incremental negative surprise. Overall, one could say that its largely a non-event budget.
"The only positive in the interim is that the net borrowing program for the year at 4.6 trillion rupees is lower than last year's 4.8 trillion rupees."
NAVNEET MUNOT, CHIEF INVESTMENT OFFICER, SBI FUNDS
MANAGEMENT, MUMBAI
"It sends a good signal it terms of fiscal condition. But for next year borrowing we have to still wait and watch the borrowing program in the budget of the next government. The market still expects borrowing of 6 lakh crore (6 trillion rupees).
"It's marginally positive for some sectors, but kind of a non event really. Elections and global environment especially the ouflows from emerging markets are next key factors to watch."
DARIUSZ KOWALCZYK, SENIOR ECONOMIST AND STRATEGIST, CREDIT
AGRICOLE, HONG KONG:
"The deficit numbers are better than expected but the FY 14/15 call is unlikely to materialise given the one-off nature of factors leading to FY13/14 improvement and given slow growth. Still, overall, the budget figures and borrowing plan should have a modestly positive impact on the INR, G-Secs and Sensex this week."
Food inflation still a worry
Finance Minister P Chidambaram today said both the government and the RBI have acted in tandem to bring down price rise, even as food inflation at 8.8 per cent still remains a worry.
“Both the government and RBI have acted in tandem (to bring down inflation). While our efforts have not been in vain, there is still some distance to go,” he said in the Interim Budget for 2014-15.
Chidambaram, however, said: “Food inflation still remains a worry although it has declined sharply….”
The wholesale price based inflation has fallen to a 8 month low of 5.05 per cent in January, while the retail inflation was at a two-year low of 8.79 per cent.
Inflation in food articles category in January stood at 8.8 per cent. It was 13.68 per cent in the preceding month.
The central bank factors both retail and wholesale price based inflation data in its monetary policy.
The Reserve Bank had increased a key interest rate by 0.25 per cent to 8 per cent in its Third Quarter Review of Monetary Policy on January 28.
Fiscal deficit will be contained at 4.6 pc of GDP
The government today said the fiscal deficit for the current financial year will be contained at 4.6 per cent of GDP.
“Let me begin with the good news. Fiscal deficit for 2013-14 will be contained at 4.6 per cent of GDP, well below the red line that I had drawn last year,” Finance Minister P Chidambaram said in the interim budget presented in Parliament.
The fiscal deficit, which is the gap between expenditure and revenue, was 4.9 per cent of GDP in the previous financial year.
After talking over as Finance Minister in August 2012, Chidambaram had drawn up a financial consolidation road map to lower the fiscal deficit to 4.8 per cent of GDP in 2013-14, 4.2 per cent in 2014-15 and 3.6 per cent in 2015-16.
He said the government’s objectives included fiscal consolidation, reviving the growth cycle and enhancing manufacturing.
The minister had on several occasions said he had drawn a red line for the fiscal deficit and it would not be breached.
As per current indications, the fiscal deficit has come down mainly on account of expenditure compression and higher realisation from the 2G spectrum auction.
The Finance Minister also said GDP growth has improved and will be 4.9 per cent for the current financial year.
Economic growth had slowed to a decade’s low of 4.5 per cent in 2012-13.
Cars, two-wheelers to be cheaper
Auto shares gained after the finance minister proposed excise duty reductions on small cars, two-wheelers, commercial and larger vehicles in the interim budget for 2014/15.
Among two-wheeler manufacturers, Hero MotoCorp gained 1.8 per cent while Bajaj Auto rose 0.8 per cent.
Maruti Suzuki India gained 1.2 percent while Mahindra and Mahindra rose 1.1 percent.
Excise duty on small cars, motorcycles and commercial vehicles was cut from 12 to 8 per cent. The excise duty on SUVs was cut from 30 to 24 per cent, in large and mid-segment cars from 27-24 per cent to 24-20 per cent.
