PC’s middle class moment

FM woos you and me with cheaper mobile phones and cars. Promises more jobs with manufacturing sector push

PC’s middle class moment
Blending populism with a promise of growth ahead of the general election this summer, finance minister P Chidambaram on Monday offered tax sops on cars, mobile phones, television sets and refrigerators, as well as capital goods, in a rather late attempt to resuscitate an otherwise moribund economy.

Presenting his interim budget in Lok Sabha amidst the pandemonium surrounding the Telengana issue, Chidambaram retained expenses on all flagship social schemes, including the rural job guarantee programme, at last year’s level, in the hope of keeping voters in India’s outback within the Congress party’s reach.

To regain the alienated urban votebank, Chidambaram lowered excise duty on automobiles of every category by up to 6 per cent and by 2 per cent on television and refrigerators as well as capital goods,and also in the hope of propping up falling industrial

To win over the huge population of ex-servicemen who constitute a huge votebank that has been veering towards the BJP under influence of ex-generals, the finance minister announced implementation of one-rank, one-pay for all ex-servicemen. Chidambaram also tinkered with customs duty and service tax on select items to boost manufacturing output. However, the finance minister refrained from rolling back the 10 per cent import duty on gems and jewellery and other import contraction measures amidst claims that current account deficit (CAD) was well under control. He had promised to revisit duties on gold after getting the CAD numbers by March.

Chidambaram left personal income tax and corporate tax rates untouched. A final call on fresh direct and indirect taxes will have to be taken by the new government in the regular budget after elections. The finance minister withdrew the 10 per cent surcharge on income-tax for super-rich individuals earning over Rs 1 crore. He also removed up to five per cent surcharge on corporate tax, as promised. This should help his party garner election funding from India Inc at a time when the corporate sector seems to be flocking en masse to the BJP’s prime ministerial candidate Narendra Modi.

By retaining expenses on social sector schemes, Chidambaram has kept the rural constituency happy as they have already been catered to during the past decade of UPA rule through active financial interventions by way of ever rising minimum support prices on crops and an abundant rural income guarantee programme. Rising food prices because of supply-side bottlenecks may have disenchanted urban voters, but Indian farmers have certainly prospered from rising food prices.

He said the UPA government had ensured that the economy was stable and there was modest growth recovery. Fiscal deficit had declined, the rupee had stabilised and exports had picked up, reining in the current account deficit.

“All this is the result of hard work. I may add, among other mentors, my mother and Harvard taught me the value of hard work,” Chidambaram said. He also rejected the charge of policy paralysis from political and corporate quarters, and instead reeled out statistics to highlight the UPA’s economic achievements in the past decade. The challenge that “we face are common to all emerging economies. In 2012 and 2013, there were very few countries that were able to keep their head above water and among them was India,” he said.

While GDP growth bottomed out at 4.9 per cent this fiscal, FM projected 6 per cent growth in the next financial year on the back of a mild pickup in the second half of this financial year.

Even as lawmakers shouted him down, Chidambaram projected a comfortable fiscal deficit at 4.6 per cent of GDP in April-March 2013-14. He has achieved this by pruning capital investments by almost Rs 80,000 crore, besides deferring oil and fertiliser subsidies.

He pegged the fiscal deficit tentatively at 4.1 per cent for the next financial year. However, that target is set to change when a new finance minister presents his full budget proposals for 2014-15 in July.

Chidambaram also claimed credit for bringing down the current account deficit to $45 billion this year from $88 billion in 2012-13, on severe compression of gold imports and phasing out payments for crude oil imports from Iran.

In a relief to the auto industry that has reported negative growth, Chidambram reduced excise duty on small cars, motorcycles, scooters and commercial vehicles to 8 per cent from the present 12 per cent; SUVs, 24 per cent from 30 per cent, as well as large and mid-segment cars 24 per cent from 27 per cent. These changes may result in revenue loss of Rs 300 – 400 crore in the next three months that could be recovered from improved sales.

Excise duty on capital goods and consumer nondurables were cut 10 per cent from the present 12 per cent across the board. These measures could be revisited in the regular budget. He restructured excise duty on mobile handsets, rationalised customs duty on nonedible industrial oils to 7.5 per cent to encourage domestic soap production.

He withdrew countervailing duty on imports of road construction machinery to encourage domestic production and provided concessional duty of 5 per cent on import of machinery for printing currency notes. The move comes at a time when RBI has decided to withdraw currency notes prior to 2005 to check counterfeits with fewer security features. Chidambaram pegged the government’s net borrowing for 2014-15 at Rs 4.57 lakh crore, Rs 11,580 crore less than the revised estimates of Rs 4.68 lakh crore in the current fiscal.

BJP president Rajnath Singh said Chidambaram's accounting was not credible. He accused the finance minister of pushing subsidy spending onto the next government.

“This budget is practically a non-budget. This is a farewell budget of a government that has lost on all counts. Not to highlight their (government) failures, he (Chidambaram) is hiding behind the figures of percentage of world economies," BJP spokesperson Prakash Javadekar said.

Chidambaram retained plan expenditure for 2014-15 at the same level as the current year at Rs 5.55 lakh crore and ensured all the flagship schemes were provided adequate funds at the same level as last year or more by saving on other expenses.

The finance minister, struggling to deliver his speech above the din of lawmakers angry over a plan to divide Andhra Pradesh, conceded the age-old demand for one-rank, one-pension for ex-servicemen ahead of the elections. Besides, Chidambaram also unveiled a modernisation programme for the central armed police forces costing Rs 11,009 crore.

The finance minister also lowered disinvestment target to Rs 16,027 crore from Rs 40,000 crore for 2013-14, while eyeing Rs 36,925 crore for the next fiscal. For recapitalisation of public sector banks, he provided Rs 11,300 crore for next year against Rs 14,000 crore this fiscal.

ICRA MD and CEO Naresh Takur said the absence of major expenditure announcements ahead of elections and focus on fiscal prudence is reassuring. Targeted reduction in excise to support the languishing sectors is welcome, although the extent of revival may be inhibited within the short timeframe and the sluggish economic activity, as well as weak sentiments.

CII president Kris Gopalakrishnan said the vision presented in the budget was very much in line with what it believes in. The FM has highlighted the importance of the manufacturing sector, which is key to reviving the economy and policy to promote electronics sector was forward looking, CII said. CII said implementation of GST should also be a priority for the coming government.

Jaideep Ghosh, partner at KPMG India, said annual sales of 220 million mobile handsets in India is significantly import-oriented and restructuring excise duty could encourage local value addition.

Assocham president Rana Kapoor said, “Despite being low on expectations in an election year, the finance minister's interim budget has given a pleasant surprise, at least partly to the manufacturing sector, which has been bleeding.”

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