The finance minister Mr P Chidambaram announced the Interim Budget 2014-15 or a Vote on Account (VoA) before, the country goes for general elections this summer. The finance minister’s interim budget speech highlighted the achievements of the UPA over the last 10 years in power, in the backdrop of a political landscape,which has shaped as a power struggle between the UPA and BJP led NDA.

So here are the key highlights of the interim budget...
 

Achievements and key economic indicators

Fiscal Deficit for fiscal year 2013-14 seen at 4.6%
The finance minister impressed upon the point that Government in power will be able to contain the fiscal deficit for the current year to 4.6% of GDP; well below the budgeted target of 4.8% set in the previous budget estimates.

PersonalFN’s view: -It is noteworthy that, this was a major data point which was watched by the capital markets, as rating agencies too has signalled warnings of sovereign rating downgrade if it had to breach or balloon further. It is appears that compression in expenditure and high realisation from2G spectrum seem to have attributed for the fiscal deficit to be placed below the red line drawn by the finance minister.

Current Account Deficit will be contained at USD 45 billion
After the Current Account Deficit (CAD) having threatened to exceed last year CAD of USD 88 billion, the finance minister also said that the same will be contained at USD 45 billion, and expects to add about USD 15 billion to the foreign exchange reserves by the end of the financial year.

PersonalFN’s view: - The measures taken by the Government (by hiking import duty on gold) has yielded the desired results in bringing down official gold imports. Moreover, the uptick in exports also have attributed to CAD lowering, which in turn has prompted the Government to release the aforesaid data point.

Manufacturing activity worrying
The finance minister endorsed that India’s manufacturing sector is the Achilles’ of the Indian economy. But he expressed concern over the decelerating in investment in manufacturing. The National Manufacturing Policy has set the goal of increasing the share of manufacturing in GDP to 25% and to create 100 million jobs over a decade. 8 National Investment and Manufacturing Zones (NIMZ) along Delhi Mumbai Industrial Corridor (DMIC) have been announced. 9 Projects had been approved by the DMIC trust. 3 more Industrial Corridors connecting Chennai and Bengaluru, Bengaluru and Mumbai & Amritsar and Kolkata are under different stages of preparatory works. Also, additional capacities are being installed in major manufacturing industries. Likewise, as a step to promote Micro Small and Medium Enterprises (MSME), notification of a public procurement policy, establishing technology & common facility centres, and launching the Khadi Mark, are some of the steps taken, the finance minister cited.

PersonalFN's view: - The lull in the manufacturing sector has been mainly on account of the slowdown in economic growth amid times when the interest rates in the economy are rather elevated. Unless the policy rates soften and core sector growth reports an uptick, manufacturing activity would continue to languish, even though the Government has taken steps to reinvigorate growth in manufacturing.

Exchange rate, now stable
The finance minister acknowledged that risks to capital flows were accentuated due to volatile global conditions – especially after indication in May 2013 that the U.S. Federal Reserve may reduce the pace of its asset purchase programme. But, the finance minister didn’t shy away to give a pat on the back of the Government, RBI, and SEBI; who took measures to facilitate capital inflows and stabilise the foreign exchange market.

PersonalFN's view: - Indeed the measures taken by the Government, RBI and SEBI have made the Indian Rupee relatively stable as compared to the green back. And going forward too, if measures to proliferate capital inflows are taken, we can expect the rupee to be stronger and more stable.

GDP growth rate expected at 4.9% in current fiscal
The growth in Q2 of the fiscal year 2013-14 has been placed at 4.8% and for the complete present fiscal year has been estimated at 4.9%. This according to the finance minister means that the growth in third and fourth quarter of the present fiscal year would at least be 5.2%. Moreover, confidence has been asserted that more stable today than what it was two years ago because:
 

• fiscal deficit and CAD has also been contained;
   
• inflation has moderated;
   
• quarterly growth rate is on rise;
   
• exchange rate is stable;
   
• export have increased; and
   
• hundreds of projects are unblocked
   

Proving UPA’s track record on growth, finance minister cited that UPA-I & UPA-II Governments have delivered above the trend growth of 6.2%, which prevailed over a period of 33 years. Take a dig at the BJP over growth; he said it was 5.9% during its tenure from 1999 to 2004 - far below the trend rate.

PersonalFN's view: - The growth data projected by the finance minister for the on-going fiscal year seems to be realistic amid the backdrop of the macroeconomic variables and global economic situation. But for the economic growth to get an impetus, softening in policy rates is a catalyst.
 

Overview of the Interim Budget
Giving an overview of the interim budget, the finance minister said, "In some years, we over-provide in the Budget. In those years savings are inevitable. Besides, if there is lower-than-expected growth there will be lower-than-estimated-revenues as well. 2013-14 has been one such year. I am afraid, we will not be able to spend the budgeted plan expenditure, but non-plan expenditure will exceed the budget by a small amount."

Plan expenditure kept unchanged
Thus the plan expenditure in 2014 -15 was decided to be kept at the same level at which it was budgeted in 2013-14, atRs 5,55,322 core.

Non-plan expenditure in 2014-15 is estimated at Rs 12,07,892 crore
The non-plan expenditure in 2014-15 is estimated at Rs 12,07,892crore. Of this, the expenditure on subsidies for food, fertilizer and fuel will be Rs 2,46,397crore. This is slightly more than the revised estimate of Rs 2,45,452crore in 2013-14. For the fuel subsidy, the finance minister has provided Rs 65,000 crore, and in the present fiscal year the Government has observed a rollover of Rs 45,000 crore from the fourth quarter of fiscal year 2012-13. In the present fiscal year, the Government plans to rollover Rs 35,000 from the fourth quarter of fiscal year 2013-14 to the next fiscal year. It is noteworthy that Rs 1,15,000crore has been allocated for food subsidy keeping in mind our Government’s firm and irrevocable commitment to implement the National Food Security Act throughout the country.

PersonalFN’s view: - While the Government endeavours to tread on the path of fiscal consolidation; the Government has tightened its purse strings on the planned expenditure, but relaxed the non-plan expenditure. This in our opinionmay have a cascading effect and could be a challenge for the Government while achieving its fiscal deficit target.

Education loans
The interim budget has proposed moratorium period for all education loans borrowed before 31-03-2009, and are outstanding as on 31-12-2013, whereby the Government will take over the liability for outstanding interest as on 31.12.2013 but the borrower would have to pay interest for the period after 1-1-2014. In this context, an amount of Rs 26,000 crore has been provided this year and it will benefit nearly 9 lakh student borrowers.

PersonalFN's view: - While such an announcement would bring great cheer to student-borrowers and their families, the populist move would have damaging implications while treading on the fiscal consolidation path.

Taxation
Keeping with the conventions, the finance did not propose to make any announcement regarding changes to the direct tax laws. However, being of the view that the current economic situation demands someinterventions that cannot wait for the regular budget, following changes were proposed to indirect taxes, in an attempt to provide an immediate boost to manufacturing.
 

• Reduction in excise duty in capital goods and consumer non-durables from 12% to 10% (for all goods falling under chapter 84 and chapter 85 of the Schedule to the Central Excise Tariff Act for the period up to 30-6-2014)
• Reduction in excise duty for small cars, motor cycles, scooters and commercial vehicles from 12% to 8%
• Reduction in excise duty for SUVs from 30% to 24%
• Reduction in large and mid-segment cars from 27/24% to 24/20%
• Restructuring in the excise duties for all categories of mobile handsets, wherein the rates will be 6.00%percent with CENVAT credit or 1.00% without CENVAT credit
• Rationalisation of the custom duty structure on non-edible grade industrial oils and its fractions, fatty acids and fatty alcohols at 7.50% (to encourage domestic production of soaps and oleo chemicals)
• Withdrew the exemption from CVD on similar imported machinery (to encourage domestic production of specified road construction machinery)
• Concessional customs duty of 5.00% on capital goods imported by the Bank Note Paper Mill India Private Limited (to encourage indigenous production of security paper for printing currency notes)
• Exempted loading, unloading, packing, storage and warehousing of rice from service tax
• Exempted services provided by cord banks from service tax
   

PersonalFN's view: -The reduction in the excise duty on the aforementioned good will indeed provide an impetus to manufacturing of the aforementioned goods and possibly even make it cheaper for buyers of such products. The auto industry especially, was hobbling with low sales earlier, but not with the aforementioned move may get relief and witness jump in sales if the benefits are passed on to consumers. This in turn would also lead auto index to do well.
 

A Vision for the future

The UPA Government also set some goals for it to achieve identified by ten such task, such as those enunciated below:
 

1. Fiscal Consolidation: Achieving the target of fiscal deficit of 3.00% of GDP by 2016-17, and remain below that level always.


2. Current Account Deficit: Since India is expected to run Current Account Deficit every year for some more years,according to the finance minister, it can be financed only by foreign investment, whether it is Foreign Direct Investment (FDI) or Foreign Institutional Investors (FIIs) or External Commercial Borrowing (ECB) or any other kind of foreign inflow. Hence, there is no room for any aversion to foreign investment.


3. Price Stability and Growth : In a developing economy, a high growth target entails a moderate level of inflation. Thus the finance minister is of the view that RBI must strike a balance between price stability and growth while formulating the monetary policy.


4. Financial Sector Reforms : The recommendations of the Financial Sector Legislative Reforms Commission (FSLRC) that require no change in legislation must be implemented immediately and, for the other recommendations.


5. Infrastructure : Rebuild our infrastructure and add a huge quantity of new infrastructure by using proven model and the Public Private Partnership (PPP) should be widely used.


6. Manufacturing : The finance minister mentioned that we must focus on manufacturing and especially on manufacturing for export, because manufacturing is the base of India’s development. All taxes, Central and State that go into an exported product should be waived or rebated. There should be a minimum tariff protection to incentivize domestic manufacturing.


7. Subsidies : Given the limited resources, Subsidies, which are absolutely necessary should be chosen and targeted only to the absolutely deserving.


8. Urbanisation :Urbanisation to be managed to make cities governable and liveable.


9. Skill Development : Skill development must rank alongside secondary education, university education, total sanitation and universal health care in the priorities of the Government.


10. Sharing responsibility between States and Centre : States have the fiscal space to bear a reasonable proportion of the financial costs of implementing flagship programmes and must willingly do so, so that the Central Government can allocate more resources for subjects such as defence, railways, national highways and telecommunications that are its exclusive responsibility.


 

Important Budget estimates for 2014-15

Particulars	Rs in (Lakh Crore)
Plan expenditure	5.55
Non-plan expenditure	12.07
Fiscal deficit target (as a % of GDP)	4.1%
Effective Revenue Deficit (as a % of GDP)	3.1%

 

To conclude...
Overall, as mentioned earlier, the Interim Budget 2014-15 or VoApredominantly exhibited the achievements of the UPA government. While focus to tread on the path of fiscal consolidation was evident by the ambitious fiscal deficit target, rejig in the indirect taxes (mainly intended to provide a boost to the manufacturing sector) and increase in non-planned expenditure may prove to be hurdles in the path of fiscal consolidation. As expected, since it was an interim budget 2014-15, there was nothing on the platter for the aamaadmi.
 

 

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f4hil07qg@hotmail.com Mar 16, 2014 he probably would have had to have a LARGE income DECREASE (loss of job), etc since he got the original mortgage to have any chance of getting a modification if it's just gotten too expensive or he had an adjustable rate that just went up he won't get any modification References :

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