The finance minister sought to highlight the achievements of the UPA government in his Interim Budget speech which was put to vote-on-account on Monday, as the country is headed towards a general election in three months.
P Chidambaram defended his government arguing that the industry is not suffering from a ‘policy paralysis’ and shared that India is about to end FY14 with a GDP growth of 4.9 per cent with the third and fourth quarters of the financial year cobbling together at least 5.2 per cent growth, after a poor first half.
“I reject the argument of policy paralysis. Just as there are business cycles, there is a cycle around the trend growth rate of an economy,” he said.
Over a period of 33 years, the trend growth rate in India has been 6.2 per cent. Average annual GDP growth during the period 1999-2004 was 5.9 per cent, which is below the trend rate. In the next five year period 2004-2009, it was 8.4 per cent and, in the period 2009-2014, going by the CSO’s estimate, it will be 6.6 per cent. UPA-I and UPA-II have delivered above the trend growth rate, he noted.
“I can confidently assert that the economy is more stable today than what it was two years ago. The fiscal deficit is declining, the current account deficit has been contained, inflation has moderated, the quarterly growth rate is on the rise, the exchange rate is stable, exports have increased, and hundreds of projects have been unblocked,” Chidambaram said.
He said even after the slowdown, the savings rate was 31.3 per cent in 2011-12 and 30.1 per cent in 2012-13. The corresponding investment rate was 35.5 per cent and 34.8 per cent, respectively, indicating there was no steep decline in investment, except in mining and manufacturing, the FM added.
He did not announce any major tax changes in the Interim Budget but did cut taxes in a few sectors which may be reviewed when the next government comes in.
Here are some highlights of the speech and a few proposed tax measures, which were on expected lines.
State of economy
* Fiscal deficit for 2013-14 seen at 4.6 per cent of GDP against the previous target of 4.8 per cent.
* Current account deficit for the year projected at $45 billion or just about half of previous year’s $88 billion.
* Forex reserves are estimated to increase by $15 billion by March end.
* The country is expected to end the year with merchandise exports of $326 billion, an increase of 6.3 per cent over the previous year.
* Agricultural exports are estimated to rise around 10 per cent to $45 billion.
* The FM said the planned expenditure for 2014-15 is seen at same level as previous year.
The government will set up a research funding organisation that will fund research projects selected through a competitive process. Contributions to that organisation will be eligible for tax benefits. This will require legislative changes which can be introduced at the time of the regular Budget.
He has cut excise duty on certain capital goods and consumer durables, from 12 per cent to 10 per cent. This will be for the period up to June 30, 2014 and will cover items such as nuclear reactors, boilers, machinery and mechanical appliances; electrical machinery and equipment and parts, sound recorders and re-producers, television image and sound recorders and reproducers.
To boost automobile sector, he has cut excise duty on small cars, motor cycles, scooters and commercial vehicles from 12 per cent to 8 per cent while snipping duty on SUVs from 30 per cent to 24 per cent while for large and mid-segment cars the excise duty has been cut from 27/24 per cent to 24/20 per cent.
Excise duty on all categories of mobile handsets has been cut to 6 per cent with CENVAT credit or 1 percent without CENVAT credit.
To encourage domestic production of soaps and oleo chemicals, the customs duty structure on non-edible grade industrial oils and its fractions, fatty acids and fatty alcohols have been rationalised at 7.5 per cent.
The exemption from CVD on imports of specified road construction machinery has been withdrawn.
In the service tax field, he has added rice in the agri-commodities category which would not attract tax on loading, unloading, packing, storage and warehousing. Moreover, cord blood banks have been exempted from service tax.
(Edited by Joby Puthuparampil Johnson)