Finance Minister P. Chidambaram presented Union Budget 2013-14, which is the 8th budget presented by him as a finance minister. This budget is more like a balancing act focused towards bringing back financial discipline and fiscal prudence, which seemed to be off for most of the part in the current year. By not boosting its expenditure by a big way, while making some attempt to raise revenue through tax collection, the government seems to have done a decent job given the challenges faced the economy. Let us take you through the key budget announcements that may impact you as an individual and the investment scenario.

INTRODUCTION AND OVERVIEW OF THE ECONOMY:

In the fiscal year 2012-13, the Indian economy has been accredited of facing a slowdown in its economic growth due to its twin deficit problems, falling currency value and high interest rates. The pre-Budget Economic Survey showed that India has imposed an economic discomfort to itself, while the growth revival in the next fiscal seems to be optimistic. A control on fiscal deficit and inefficient subsidies is very much needed at this juncture. While the government is already cautious on unnecessary spending, it needs a rise in tax collection in order to reduce the fiscal deficit. India's Current Account Deficit (CAD) has been hampered due to boost in its import bills due to rise in commodity prices as well as falling Indian Rupee. The high inflation and resistance of Reserve Bank of India (RBI) to cut policy rates has on the other hand put pressure on the economic growth for a longer period in the fiscal year. Such depressing conditions have already put India on the downgrade radar of the global rating agencies with several words of warning.

The economic survey 2013 did paint some rosy picture, where it expects a pickup in economic growth from this year's 5% and range between 6.1% - 6.7% in 2013-14. It expects the Wholesale Price Inflation (WPI) to fall to in the range of 6.2%-6.6% by March despite hike in diesel prices and higher rail fares and freight rates. The prediction by the World Bank about the fall in global commodity prices (including oil but excluding metals) in 2013 and 2014 can provide some room for RBI to cut interest rates further. The economic survey expects the fiscal deficit to be brought under control, which can combat both inflation and current account deficit.

Slowdown in global as well as Indian economy

The Finance Minister began his budget speech by announcing that, in CY 2012, we have seen a slowdown in global economic growth to 3.2% as against 3.9% witnessed in CY 2011. Being part of the global economy, India's exports and imports amounted to 43% of GDP. He further announced that though India is unaffected from the happenings in the global economy, the Indian economy too has slowed after 2010-11. The growth as estimated by the Central Statistical Organisation is at 5% of GDP, while the RBI has estimated growth at 5.5% of GDP, which is far below India's potential growth rate of 8%. India is facing the challenge of getting back to its potential growth rate of 8%, which has also reduced confidence of global investors in once known to be a booming economy.

Among the major global nations, India has been only behind China and Indonesia in terms of pace of growth in 2012-13, and is forecasted to take on Indonesia to retake its position and become the second fastest growing nation after China in 2013-14. India showed a growth of over 8% between 2004 and 2008, and again in FY 2009-10 and FY 2010-11, and crossed 9% in four out of those six years. Entirely under the UPA Government, the 11th Plan period had an average growth rate of 8%, which is the highest during any Plan period. The UPA government is optimistic to again achieve this high growth through cooperation. The UPA government's goal is 'higher growth leading to inclusive and sustainable development', which is to be the mool mantra.

In our opinion, the finance minister has smartly highlighted the achievements of the UPA government in terms of high growth in the booming years. He has attributed global slowdown to be the culprit behind the slowdown in the Indian economy, despite the government's own failure in taking timely steps to control twin deficit, and policy crisis being one of the reasons for low growth in the most part of the year.

Fiscal Deficit, Current Account Deficit and Inflation
The Indian economy has been constrained due to high Fiscal Deficit, Current Account Deficit and Inflation. The government has recognized the fact that high fiscal deficit in the current fiscal year, has been due to subsidy burden, high expenditure and slippage in direct tax revenue. While, CAD continues to be high mainly because of high import of oil, coal and gold as against slowdown in exports. In September, 2012, government accepted the recommendations from Dr. Vijay Kelkar Committee and announced a new path to fiscal consolidation, which drew lines for fiscal deficit moving towards 4.8% of GDP in 2013-14. Over 75 billion USD is needed to finance the CAD in this year as well as next year, which can be attracted only from FDI, FII or External Commercial Borrowings (ECB). That is why foreign investment is an imperative and government needs to encourage stable foreign investments.

In order to reduce the fiscal deficit, the government did take some corrective measure in the later part of the year. The measures included the tough decision of raising diesel price by Rs 5 per litre and capping the subsidised cylinders to 9 per family per year. It also made effort to push the much stalled reforms, FDI in retail, passing banking and companies' bill and postponed GAAR two years ahead. The government's effort to boost foreign inflows and limit expenditure did help the government limiting fiscal deficit to the revised target. The government has estimated the fiscal deficit for the current year FY 2012-13 to be contained at 5.2% and estimates the fiscal deficit for the FY 2013-14 at 4.8%.

In the current year, managing the WPI inflation bug was a major challenge for the government as well as RBI. The monetary policy inaction did cause a slowdown in economic growth, which was clearly indicated by the core sector growth and Index of Industrial Production (IIP). But now since RBIs conservative stance in its monetary policy actions have produced result in taming the inflation bug, it is expected that inflation would moderate further in the coming months and remain stable thereafter. The effort put by RBI and government has helped bring down the headline WPI inflation to below 7% and core inflation to about 4.2%. It is the food inflation that is worrying, as evidence suggests that prolonged periods of high food inflation tend to get generalised. The government will make effort to reduce the demand supply mismatch which pushes up inflation, while the aggregate demand is another cause of inflation.

In our opinion, both the government and RBI will have the pressure of controlling inflation and boosting growth. The finance ministry and the RBI will have to work together. Any loosening on the fiscal prudence and inflation can hamper the government's desire of fiscal consolidation and high growth. Improving CAD through foreign inflows will help keep the currency value in check and reduce import bills. The benefit of fall in commodity prices can be experienced only through appreciation in value of Indian rupee.

Budgetary Expenditures and Allocations
The finance minister accepted that the estimate for Plan Expenditure in the budget for 2012-13, was too ambitious and the estimate of non-Plan Expenditure was too conservative. Considering the huge fiscal deficit, the finance minister had to rationalise expenditure in 2012-13. In the current fiscal, the government also passed some policies that had been deferred for too long, corrected some prices, and reviewed certain tax policies. By doing this, the government has been able to retrieve some economic space, which is to be used to further Government's socioeconomic objectives.

Anticipating a global and domestic recovery, the erstwhile finance minister Mr Pranab Mukherjee had fixed the total expenditure at Rs14,90,925 crore for FY 2012-13. Due to the slowdown and the austerity measures, the current finance minister provided revised estimate at Rs 14,30,825 crore or 96% of the budgeted estimate. The finance minister seems to be more ambitious in 2013-14. For FY 2013-14, the government has been able to set the BE of total expenditure at Rs 16,65,297 crore and BE of plan expenditure at Rs 5,55,322 crore. Even by adequately funding all flagship programmes, the plan expenditure in 2013-14 will be 29.4% more than the revised estimate of the current year. While the finance minister has provided sufficient funds to each Ministry or Department for expenditure, he expects them to deliver the outcomes through good governance, prudent cash management, close monitoring and timely implementation.

We believe the governments bitter medicine of limiting its fiscal expenses has worked in controlling the expenditure and reducing fiscal deficit by around 10bps from the earlier budgeted estimate. This gives confidence that the finance minister is committed to do the needful to walk the road of fiscal consolidation in order to meet the new deadline of 4.8% as well.

Budget 2013-14: creating opportunities for our youth

Few segments remain the major focus area of the government, which are highlighted here under.

As per the finance minister, the budget for 2013-14 has before one overarching goal to create opportunities for our youth to acquire education and skills that will get them decent jobs or self-employment that will bring them adequate incomes and enable them to live with their families in a safe and secure environment.

As a social welfare, the finance minister has provided adequate funds for programmes that benefit women, children and the minorities, and has made sufficient allocations to programmes relating to scheduled castes, women, children and disabled persons. Terming women's to be belonging to the most vulnerable groups, including single women and widow's, the budget has provided benefits in order to help them live with self-esteem and dignity.

Health and Education

Health and education for all remain among the priorities of the UPA government.

The government has adequately allocated for National Health Mission, provide for medical education, training and Research and implemented the National Programme for the Health Care of Elderly in 100 selected districts of 21 States. Education being the other high priority, the ministry has allocated Rs 65,867 crore to the Ministry of Human Resource Development. While the Sarva Shiksha Abhiyan (SSA) and the Right to Education Act are firmly in place, the Investment in the Rashtriya Madhyamik Shiksha Abhiyan (RMSA) cannot be postponed any longer.

Such social schemes are eyed towards building a prosperous India, having healthy and educated citizens. It is a basic social scheme which cannot be ignored and deserves due attention form the government each year.

Rural Development
Rural Development schemes like Mahatma Gandhi National Rural Employment Gurantee Scheme (MGNREGS), Pradhan Mantri Gram Sadak Yojna (PMGSY) and Indira Awaas Yojna (IAY) are together provided to get a sum of Rs 80,194 crore in 2013-14; while the Jawaharlal Nehru National Urban Renewal Mission (JNNURM) is also being continued in the 12th Plan. A significant portion of allocation made towards JNNURM will be used to support the purchase of upto 10,000 buses, especially by the hill States.

Agriculture
As per the budget speech, agriculture continues to perform very well. The average annual growth rate of agriculture and allied sector during the 11th Plan was 3.6%, which stood at 2.5% and 2.4%, respectively, in the 9th and 10th Plans. The budget expects the total foodgrain production to be over 250 million tonnes in 2012-13. The Ministry of Agriculture has received an increased allocation of 22% over the revised estimate of the current year, and has to maek some spending on agricultural research as well.

Agricultural credit being the driver of agricultural production, the budget has exceeded the target of Rs 575,000 crore fixed for 2012-13 and has proposed a target of Rs 700,000 crore for FY 2013-14. The interest subvention scheme for short-term crop loans will be continued and a farmer who repays the loan on time will be able to get credit at 4% per annum. So far, the scheme had been applied to loans extended by public sector banks, RRBs and cooperative banks, it is now proposed to extend this scheme to crop loans borrowed from private sector scheduled commercial banks for such loans given within the service area of its respective branch.

Programmes like Rashtriya Krishi Vikas Yojana is intended to mobilise higher investment in agriculture and the National Food Security Mission is intended to bridge yield gaps.

Food Security
Food security being a basic human right, the UPA government has also promised to get passed The National Food Security Bill from the parliament as early as possible. It has set apart Rs 10,000 crore, over and above the normal provision for food subsidy, towards the incremental cost that is likely under the Act.

Infrastructure and Industrial Development
Infrastructure being a large sector needs high volume of investment. The 12th Plan projects an investment of USD 1 trillion or Rs 55,00,000 crore in infrastructure. The Plan predicts that 47% of the investment will be shared by the private sector. The finance ministry has felt the need to bring in new and innovative instruments to mobilise funds for investment in infrastructure.
 

• The government will encourage Infrastructure Debt Funds (IDF) which will raise resources and provide long-term low-cost debt for infrastructure projects through credit enhancement and other innovative means. The finance minister has reported that four IDFs have been registered with SEBI of which two of them were already launched in the month of February, 2013.
   
• For infrastructure companies that wish to access the bond market to tap long term funds, credit enhancement will be offered by India Infrastructure Finance Corporation Ltd (IIFCL), in partnership with the Asian Development Bank.
   
• Number of institutions that were allowed to issue tax free bonds, have been able to raise Rs 30,000 crore in 2011-12 and are expected to raise about Rs 25,000 crore in 2012-13. For 2013-14, the government has proposed a total limit to Rs 50,000 crore, to be raised through tax free bonds by institutions, strictly based on their need and capacity to raise money in the market.
   
• The government proposes to seek the assistance of the World Bank and the Asian Development Bank to build roads in the North Eastern States and connect them to Myanmar
   
• In 2013-14, it has also proposed to raise the corpus to Rs 20,000 crore for Rural Infrastructure Development Fund operated by NABARD.
   
• Funds will be made available to NABARD for financing construction of warehouses, godowns, silos and cold storage units designed to store agricultural produce, both in the public and the private sectors. It will also finance (through the State Governments) the construction of godowns by panchayats to enable farmers to store their produce.
   
• Government has decided to constitute a regulatory authority for the road sector, to address challenges like financial stress, enhanced construction risk and contract management issues.
   
• 3,000 kms of road projects in Gujarat, Madhya Pradesh, Maharashtra, Rajasthan and Uttar Pradesh will be awarded in the first six months of 2013-14
   

Infrastructure being one of the key drivers of the Indian economy is very much crucial to boost confidence of foreign investors. Infrastructure projects have long gestation period, and more FDI attraction in infrastructure will help economy prosper. All the issues related to the stalled infrastructure projects needs to be addressed and resolved on priority.

Many projects related to investment in the industrial sector are stalled because they are unable to clear regulatory hurdles; and in such conditions revival is a key challenge. The government has set up a Cabinet Committee on Investment (CCI) to monitor investment proposals as well as projects under implementation, including stalled projects, and guide decision-making in order to remove bottlenecks and quicken the pace of implementation. In the two meetings of the CCI held so far, some decisions have been taken in respect of a number of oil and gas, power, and coal projects. CCI is expected to shortly take up some more projects.

To attract new investment and to quicken the implementation of projects, the government has proposed to introduce an investment allowance for new high value investments. According to which a manufacturing company investing Rs 100 crore or more in plant and machinery during the period 1.4.2013 to 31.3.2015 will be entitled to deduct an investment allowance of 15% of the investment, in addition to the current rates of depreciation. This will provide enormous spill-over benefits to small and medium enterprises and boost industrial activity. It has also provided customs duty waiver on import of plant and machinery that will help build semiconductor fabrication units.

While the activity of CCI can help speed up stalled projects, the incentives provided to set up plant and machinery can help boost businesses of SMEs, while developing advanced tools like semiconductors which can help in manufacturing of electronics and attract semiconductor manufacturing MNCs to set up shop in India.

Investment and Savings
In order to restart the growth engine, the government desires to attract more investment, both from domestic investors and foreign investors. The government will try to improve communication of its policies to remove any apprehension or distrust in the minds of investors, including fears about undue regulatory burden or application of tax laws like GAAR.

The Gross Domestic Saving, which is mainly contributed by households and corporates touched a high of 36.8% in 2007-08, has shown a fall of 6% in 2011-12. The government aims at providing incentive to household sector in order to attract them more towards saving in financial instruments rather than buying gold.
 

• For this the government has liberalised the Rajiv Gandhi Equity Savings Scheme which enables the first time investor to invest in mutual funds as well as listed shares, can now take this benefit in three successive years. In order to increase the base, it has decided to raise the eligibility income limit from the current Rs10,00,000 to Rs 12,00,000.
  
  Though this move can help first time investors to continue to claim additional benefit for few more years, it makes sense only if they have exhausted their other tax saving benefit. However RGESS is a good way for one who is thinking to make his first investment in equity markets, in the coming fiscal.
   
• In order to boost affordable housing and incentivise the person taking a loan for his first home from a bank or a housing finance corporation upto Rs 25,00,000 during the period 1.4.2013 to 31.3.2014, will be entitled to an additional deduction of interest of upto Rs 100,000 (over and above Rs 1,50,000) in FY 2013-14. Not only this, the unexhausted portion of the limit can be claimed in the FY 2014-15. Through this, the government expects to promote home ownership and give a fillip to a number of industries like steel, cement, brick, wood, glass etc. besides creating jobs to thousands of construction workers.
  
  This move can help one make some saving on the interest portion he pays for his first home. However, for this the borrower has to look for house in the affordable housing segment, given the high real estate prices currently.
   
• Given the high inflation which has hampered returns on savings of many, the government has also proposed to introduce instruments that will protect savings from inflation, especially the savings of the poor and middle classes. These could be Inflation Indexed Bonds or Inflation Indexed National Security Certificates. The government will soon announce the structure and tenor of such instruments.
  
  Though such instruments are required, for one to continue making real gains, this instrument cannot reduce the demand for physical gold, which is bought more due to sentimental reasons for consumption and less for investment.
   

Financial Sector - At the heart of the economy

Financial sector being at the heart of the economy, the finance minister has tried to boost the players in the financial sectors, such as banking, insurance and capital markets.

Banking
The budget has tried to adequately capitalise the public sector banks which are well regulated. The government will provide Rs 12,517 crore before the end of March, 2013, in order to infuse additional capital into 13 public sector banks; while it proposes to provide a further amount of Rs 14,000 crore for capital infusion in FY 2013-14. The government shall also ensure that public sector banks always meet the Basel III regulations as they come into force in a phased manner.

The government is working with RBI and NABARD to bring all banks, including some cooperative banks, on core banking solution (CBS) and on the electronic payment systems (NEFT and RTGS) by 31.12.2013. It has also taken assurance from public sector banks that all their branches will have an ATM in place by 31.3.2014.

In order have a bank that lends mostly to women and women-run businesses, that supports women SHGs and women's livelihood, that employs predominantly women, and that addresses gender related aspects of empowerment and financial inclusion, the finance minister has proposed to set up India's first Women's Bank as a public sector bank. For which the government shall provide Rs 1,000 crore as initial capital and hopes to obtain the necessary approvals and the banking licence by October, 2013.

Insurance
In order to increase the penetration of insurance, both life and general, in the country; the budget set in number of proposals that have been finalised in consultation with the regulator, IRDA. It includes:
 

• Empowerment for insurance companies to open branches in Tier II cities and below without prior approval of IRDA
   
• All towns of India with a population of 10,000 or more to have an office of LIC and an office of at least one public sector general insurance company, which is proposed to be achieved by 31.3.2014
   
• KYC of banks will be sufficient to acquire insurance policies
   
• To utilise the entire network of bank branches to increase penetration, banks will now be permitted to act as insurance brokers and the banking correspondents will be allowed to sell micro-insurance products.
   
• Group insurance products will now also be offered to homogenous groups such as SHGs, domestic workers associations, anganwadi workers, teachers in schools, nurses in hospitals etc.
   
• Public sector general insurance companies will organise adalats to settle the third party motor claims and give relief to the affected persons/families
   

The Insurance Laws (Amendment) Bill and the PFRDA Bill, which has been presented before the House, is desired to be passed in the budget session of the parliament.

Rashtriya Swasthiya Bima Yojana will now be extended to categories such as rickshaw, auto-rickshaw and taxi drivers, sanitation workers, rag pickers and mine workers.

Capital Markets

On the occasion of silver jubilee year for the Indian market regulator SEBI, the finance ministry has proposed to consider the proposal of amending the SEBI Act to strengthen the regulator.

Designated depository participants, authorised by SEBI, will now be free to register different classes of portfolio investors including foreign portfolio investors such as FIIs, sub-accounts, QFIs etc, subject to compliance with KYC guidelines.

SEBI will simplify the procedures and prescribe uniform registration and other norms for entry of foreign portfolio investors. It will adopt a risk-based approach to KYC to make it easier for foreign investors such as central banks, sovereign wealth funds, university funds, pension funds etc. to invest in India.

The budget proposes to follow international practice in segmenting foreign investors. An investor holding 10% or less in a company will be treated as FII, while an investor having a stake of more than 10% will be treated as FDI. FIIs will be also be allowed to participate in the exchange traded currency derivative segment to the extent of their Indian rupee exposure in India; and will be permitted to use their investment in corporate bonds and Government securities as collateral to meet their margin requirements.

With the object of developing the debt market, stock exchanges will be allowed to introduce a dedicated debt segment on the exchange; and banks and primary dealers will be the proprietary trading members. In order to create a complete market, insurance companies, provident funds and pension funds will be permitted to trade directly in the debt segment with the approval of the sectoral regulator.

Mutual fund distributors will be allowed to become members in the Mutual Fund segment of stock exchanges. This will help them leverage the stock exchange network to improve their reach and distribution.

Pension Funds and Provident Funds may now be allowed to invest in exchange traded funds, debt mutual funds and asset backed securities.

The effort of the government towards financial inclusion and boosting the key sectors in the Indian financial system is encouraging. The government has tried to increase the reach of insurance companies to Tier II cities, homogeneous groups and removes hurdle for bank account holders to get insurance for themselves. Ease in KYC norms to attract foreign players in the Indian capital market will help get more foreign players and inflows, while a dedicated debt market segment will help increase participation and to an extent reduce trading cost of insurance companies, provident funds and pension funds. If the mutual fund distributors will be able to efficiently leverage stock exchange network to increase their reach, is to be seen.

Direct Taxes

As per the finance minister, there is little room to give away tax revenues or raise tax rates in a constrained economy. There is no case to revise either the slabs or the rates of Personal Income Tax. Even a moderate increase in the threshold exemption will put hundreds of thousands of Tax Payers outside the Tax Net. Thus this year's budget has been a disappointment in terms of large segment of individuals who were expecting a cut in their tax outgo.

The finance minister has given some relief to the tax payers only in the first bracket i.e. of Rs 2 lac to Rs 5 lac. For the mentioned tax bracket, the threshold exemption limit has been raised from Rs 2,00,000 to Rs 2,20,000. This comes as a tax credit of Rs 2,000 to every person who has a total income upto Rs 5 lakh. This move is expected to benefit 1.8 crore tax payers.

There being only 42,800 persons who have admitted to a taxable income exceeding Rs 1 crore per year, the government has propose to impose a surcharge of 10% on persons whose taxable income exceeds Rs 1 crore per year. This surcharge will apply to individuals, HUFs, firms and entities with similar tax status.
 

Some numbers will help us better recognise the impact of this move.

Your Total Income	Tax (As per exisiting Provisions)	New Tax (As per Proposed changes)	Saving
Rs 5,00,000	30,900	28,840	2060
Rs 10,00,000	1,33,900	1,33,900	0
Rs 1,00,00,000	29,14,900	29,14,900	0
Rs 1,10,00,000	32,23,900	35,46,290	-3,22,390

 

For domestic companies whose taxable income exceeds Rs 10 crore per year, it has increased the surcharge from 5% to 10%. While in the case of foreign companies, who pay the higher rate of corporate tax, the surcharge is increased from 2% to 5%.

For surcharge on dividend distribution tax or tax on distributed income, has been proposed to double to 10% from the current 5%.

However, it was glad to be mentioned by the finance minister that the additional surcharges will be in force only for a period of one year i.e. Financial Year 2013-14. And the education cess for all tax payers has been kept unchanged at 3%.

For persons suffering from disability or certain ailments, the government has proposed to relax the eligibility conditions of life insurance by increasing the permissible premium rate from 10% to 15% of the sum assured for the policies issued on or after 1.4.2013.

Contributions made to the central and state government schemes similar to Central Government Health Scheme are eligible for deduction under section 80D of the Income-tax Act.

Donations made to the National Children's Fund will now be eligible for 100% deduction.

Dividend Distribution Tax will be levied to Securitisation Trusts like mutual funds at the time of distribution of income. DDT @ rate of 30% will be levied on income paid to companies, while 25% in the case of an individual or HUF. Income received by the investors from the Securitisation Trust will be exempt in the hands of investors. As an impact of this the DDT on debt oriented mutual funds will be increased from 12.5% to 25% for individuals and HUFs. Furthermore, surcharge on dividend distribution tax has been also raised from 5% to 10%. This is a harsh measure which will impact dividend incomes received from your investment in the dividend option of debt mutual funds.

With a view to improve the reporting of high end transactions (of above Rs 50 lac) in immovable property and the taxation of capital gains, the government has proposed to apply TDS at the rate of 1% on the value of the transfer of immovable property. However, agricultural land has been kept exempt.

Securities Transaction Tax (STT) which adds to the transaction cost has been proposed for following reductions:
 

• STT on Equity futures: reduced from 0.017% to 0.01%
• STT on Mutual Fund/ETF redemptions at fund counters: reduced from 0.25% to 0.001%
• STT on Mutual Fund/ETF purchase/sale on exchanges: reduced from 0.1% to 0.001%, only on the seller
   

The budget has also propose to levy Commodities Transaction Tax (CTT) on non-agricultural commodities futures contracts at the same rate as on equity futures, that is at 0.01% of the price of the trade.

The direct tax has been a disappointment for individuals in the middle income as there is no big tax saving tax, which is one of the core expectations for every individual before any budget announcement. The strategy of charging the super-rich calls for their contribution towards their welfare cause for the economy. The increase in surcharge is however only for a period of 1 year and thus will be easily digested by the large segment.

Indirect Taxes

There is no change in the normal rates of 12% for excise duty and service tax. Even there is No change in the peak rate of basic customs duty of 10% for non-agricultural products.

Excise Duty

Raised on SUVs, high end imported cars and motor bikes: Excise duty on SUVs is raised from 27% to 30% while custom duty on high end luxury cars (costing more than 40,000 USD or with engine capacity of 3000 cc in case of petrol car and 2500 cc in case of Diesel cars) is hiked from 75% to 100%, while for motor bikes over 800 cc it has been hiked from 60% to 75%

Raised on Mobile Phones: Excise duty on mobile phones costing more than Rs 2,000 would be hiked to 6% from current 1%

Double Excise Duty on Marble Tiles: Excise duty on marble is doubled from current Rs 30 per square meter to Rs 60 per square meter

Raised on Cigarettes, cigars, cheroots and cigarillos: Specific Excise duty is increased by about 18%

Reduced on readymade garment (Cotton): No excise duty at fiber stage

Exempt for handmade carpets and textile floor coverings of coir and jute: Total exemption from excise duty

Service Tax

Service Tax on dinning in Air conditioned restaurants: All air-conditioned non-alcohol serving restaurants would come under the purview of service tax

Reduction in service tax on your high end flats: For homes and flats with a carpet area of 2,000 sq.ft. or more or of a value of Rs 1 crore or more, which are high-end constructions, where the component of services is greater, the rate of abatement has been reduced from 75% to 70%

Custom Duty
Raised on silk apparels: Customs duty on raw silk has been raised from 5% to 10%

Reduced on Spare-parts of electric and hybrid vehicles (prices may remain unchanged) - Concessions in custom duty have been extended upto 31 March 2015

Limit on duty free imported Gold bought on foreign travels increased: Limit of duty free gold has been raised to Rs 50,000 in case of a male passenger and Rs 1 lac in case of a female passenger

The government's tax proposals on the direct taxes side are estimated to yield Rs 13,300 crore and it is estimated to yield Rs 4,700 crore on the indirect taxes side.
 

IMPORTANT BUDGET 2013-14 ESTIMATES

Particulars	Rs in (Lakh Crore)
Gross tax receipts	12.36
Net Tax to the Centre	8.84
Non-tax Revenue Receipts	1.72
Capital Receipts	6.09
Total budget expenditure	16.65
Plan expenditure	5.55
Non-plan expenditure	11.10
Fiscal deficit target (as a % of GDP)	4.8%
Net market borrowing required to finance the deficit	5.42
Effective Revenue Deficit (as a % of GDP)	3.3%

 

Considering the Budget 2013 holistically, in our opinion the Finance Minister has attempted to boost growth through his balanced act of controlling expenditure and boosting revenue through tax collection. The fiscal deficit target of 4.8% for FY 2013-14, seems reasonable if the government is able to control its unnecessary expenditure. However, the steps towards fiscal consolidation have been undertaken along with due attention given to public health, education, reforms for women and children as well.

While the government has predicted a raised the budget expenditure for this financial year, it will need to borrow Rs 4,84,000 crore or around 89% of the fiscal deficit from the bond markets. Such high borrowing target may keep the markets under pressure for some time.

While there was nothing much in terms of gains on the direct tax front, we believe that the Budget 2013-14 was a step towards increasing its tax collection and taking additional contribution from the super-rich segment. The additional surcharge for corporates will be a burden this year.

Impact on Equity Markets

Equity markets may get some positive note from the reduction in STT on some instruments, however clarity is awaited on the language of the budget which reduces the importance of residency certificate provided by the foreign investors routing money through tax heavens. Owing to the confusion, the equity markets ended in the negative terrain by more than 1%. While the budget addresses to the fiscal consolidation measures and puts down a whole list of measures, the fiscal deficit projected for the fiscal year 2013-14 at 4.8% was as expected. The reduction in the Revised Estimates (RE) of the expenditure in 2012-13 at 96 per cent of the Budget Estimates (BE) throws a positive signal on the fiscal consolidation front as it has helped contain the fiscal deficit below the targeted level.

Impact on Debt Markets

The Government's borrowing figures for 2013-14 of Rs 4.84 lakh crore is slight higher as compared to Rs 4.79 lakh crore for FY 2012-13. The bond markets will have to stretch to absorb high borrowing. As a result of the budget announcement, the ten year benchmark bond yields shot up by around 7 basis points. Moreover the fiscal deficit for 2013-14 estimated at 4.8%, is as expected. The bond markets will now have their eye glued on the RBI policy actions, inflation, growth and liquidity conditions for further direction.

 

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