Now is the time for all gods to come to the aid of the party
Mar 01 2013 , New Delhi
Chidambaram presents maintenance budget in run up to polls
He has not only gone about deftly managing his task of compressing government spending and mobilising revenue of Rs 18,000 crore, but rolled out measures to keep the economy on even keel till a new government assumes office in the next financial year.
For instance, the surcharge on super-rich individuals, firms, families and entities earning beyond Rs 1 crore annually is being levied for only one year. Similar is the case with doubling surcharge on domestic companies to 10 per cent as is the 5 per cent surcharge on foreign entities. He justified the one-year temporary impost as his endeavour to “retrieve” the lost economic space.
Chidambaram announced a modest hike in government spending for next financial year, with Rs 5,55,322 crore planned spending in next financial year. This marks a modest increase on Rs 5,21,025 crore proposed for 2012-13. Chidambaram began the compression of government spending beginning August 2012, when he took over the reins of finance ministry. It reflects in the Rs 91,000 crore cut in planned expenses by the government.
Yet, the spending cuts were not enough, as revenue expenses such as salaries, pension, interest payments, apart from defence and subsidies, consumed most of the Rs 16,65,297 crore total expenditure.
While attempts have been made to slash expenses and achieve fiscal consolidation, global rating agency, Standard & Poor cautioned, “…there was a potential for government to exceed its budgeted expenses” ahead of the elections in a weak economic environment.
Chidambaram justified both cuts in government spending and raising of resources as an attempt to bring the economy back on track. “Fiscal consolidation cannot be effective only by cutting expenditure” and one has to resort to revenue mobilisation as well, he said.
Chidambaram has done just that with élan and by not stoking the fears of inflation again that could impact greenshoots in the economy he expect to nurse.
Apart from taxing the super-rich, he has made eating out in air-conditioned restaurants, mobile phones costing over Rs 2,000 each and large cigarettes expensive.
The proposals not only tax the incomes of super-rich more, but also renders high-end items like luxury cars, yachts, high-end motorcycles that much dearer through higher customs duty impost.
Even as he has gone about mobilising revenues and cutting expenses, the finance minister has made a valiant attempt to ring in measures that would make his budget saleable for his own party, alliance partners, fence-sitters and targeted groups in opposition.
He announced measures intended for vulnerable section i.e., youth, women, weaker sections and children. While pushing through UPA’s inclusive agenda, he announced the first public sector bank for women and launch of a Rs 1,000 crore fund to address the concerns of women. He aptly named it Nirbhaya fund, possibly as a tribute the Delhi's gang-rape victim.
The government also raised agriculture credit to Rs 7 lakh crore in 2013-14 from Rs 5.75 lakh crore this financial year, while announcing steps to spread green revolution in the eastern region and measures to nurture the ailing textiles sector, including handlooms.
The budget also announced initiatives to spur investment, particularly in the infrastructure sector, in a slowing economy.
At the same time he provided minor tax relief of Rs 2,000 to the lower middle class comprising 1.8 crore taxpayers earning less than Rs 5 lakh a year, while leaving income-tax slabs unchanged. He also made no changes in the 30 per cent corporate tax rate, though surcharges pushed up the effective rates to 33.9 per cent.
In indirect taxes, peak customs duty remained at 10 per cent, while excise and service tax rates were retained at 12 per cent.
The government also announced fresh relief for people buying houses with an additional tax deduction on Rs 1,00,000 against interest payments, on their first home loan of up to Rs 25 lakh. This is in addition to the standard deduction on interest payment up to Rs 1.5 lakh.
Chidambaram projected a fiscal deficit of 4.8 per cent for next financial year, while managing to retain it at 5.2 per cent of GDP for 2012-13. He pegged at net market borrowing of Rs 4.84 lakh crore for the new fiscal year to meet market expectations that this would not cross Rs 5 lakh crore.
High gross borrowing and the higher spending is going to be inflationary and RBI would rather think of slowing the pace of monetary easing than increasing it, analysts said, adding it was not a “game-changing” budget, and to that extent, it was disappointing.
Apart from lowering securities transaction tax on sale and purchase of equity, including mutual funds, he announced similar commodities tax on trading in non-agriculture commodities in commodity exchanges to provide level playing field, a long-pending demand.
Buoyed by the recent success in disinvestment of public sector companies through auction route, Chidambaram pegged disinvestment target for 2013-14 at Rs 40,000 crore and proposed to raise additional Rs 14,000 crore revenue through sale of residual shares held by the government in companies such as Hindustan Zinc and Balco and by SU-UTI in private companies such as L&T, ITC and Axis Bank.
Apart from hastening Delhi-Mumbai industrial corridor project, Chidambaram said the Chennai-Bengaluru industrial corridor would be developed and preparatory work had begun on the Bengaluru-Mumbai industrial corridor. The allocation for infrastructure, including rural roads was stepped up and new major port projects announced in West Bengal, Andhra Pradesh and Tamil Nadu.