Indian budget 2013-14

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BUDGET

2013-2014Key features

Major purposes

Sector wise discussion

Speech of P. Chidambaran

Macro Economic frameworkAnalysis

discussion

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BUDGET

A FLASH BACK The budget process of our country predates the

independence

Budget was first introduced on 7th

April 1860 The first Finance Member,James Wilson presented the

budget

Liaquat Ali Khan, member of the interim Govt.

presented the budget of 1947-48After independence, Indias first Finance Minister R.K.

Shanmukhan Chetty, presented the 1stbudget on 26thNovember, 1947

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MEANING OF BUDGET

The word budget has been derived from the Frenchword bougettswhich means a small bag. Itemphasizes a bag containing the financial proposals

The use of the term budget for the annual financialplans of the govt.dates back to 1733

In general, a budget shows financial accounts of the

previous year, the budget and revised estimates of thecurrent year and the budget estimates for theforthcoming year

Article 112 annual financial statement

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THE ECONOMY & THE CHALLENGES

Global economic growthslowed from3.9% in 2011 to 3.2% in 2012

India is part of the global economy exports and imports amount to 43% of

GDP- International Transmission eg.Recent financial crisis

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CURRENT GROWTH RATE OF THE

INDIAN ECONOMY

ESTIMATING

AUTHORITY

GROWTH RATE

(%)CSO 5%

RBI 5.5%

POTENTIAL GR 8%

GNP GAP 3% / 2.5%

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CHALLENGE Getting back to that growth rate is the challenge that

faces the country

There is no reason for gloom or pessimism Even now, of the large countries of the world, only

China& Indonesiaare growing faster than India in2012-13

If we grow at the rate projected by many forecasters in2013-14only Chinawill grow faster than India

The average for the 11thplan period, entirely under theUPA Govt., was 8%, the highest ever in any plan period

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STRATEGY / MANTRA OF THE BUDGET

Our goal is higher growth leading to inclusive andsustainable development

Growth is a necessary condition for economic dvpt

It is growth that will lead to inclusive dvpt

Without growth there will be neither dvpt norinclusiveness consider SC, ST, Minorities, Women

AsJoseph Stiglitz, Nobel Prize winning economist, said,There is a compelling moral case for equity; but it is alsonecessary if there is to be sustained growth. A countrysmost important resource is its people.

The UPA Govt believes in inclusive dvpt, with emphasis onimproving human dvpt indicators

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FISCAL DEFICIT, CURRENT ACCOUNT

DEFICIT & INFLATION The purpose of a budget to create the economic

space and find the resources to achieve the socio-economic objectives

At present, the economic space is constrained due to:

1) High fiscal deficit

2) Reliance on foreign inflows to finance CAD

3)

Lower savings4) Lower investment

5) Tight monetary policy to contain inflation

6) Strong external headwinds

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CURRENT ACCOUNT DEFICIT (CAD) It is defined as deficit b/w receipts on account of trade

& invisibles and payments on account of trade &invisiblesin the BoPs account of the country

TWIN DEFICIT

An economy is deemed to have a Twin Deficit if it hasCAD and Fiscal Deficit

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FISCAL DEFICIT, CURRENT ACCOUNT

DEFICIT & INFLATION In September, 2012 Govt. accepted the

main recommendations of the Dr. Vijay

KelkarA new fiscal consolidation pathwas

announced

Red lines were drawn for the FD at 5.3% ofGDP in 2012-13and 4.8% in 2013-14

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CAD; IS ANY AMICABLE SOLUTION The greater worry of the budget CAD

The CAD continues to be high mainly because of:

1) Our excessive dependence on oil imports2) High volume of coal imports

3) Our passion for gold

4) Slow down in exports This year, and perhaps next year too, we have to find

over USD 75 billion to finance the CAD

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HOW CAN WE FINANCE CAD There are only 3 ways before us

Foreign Direct Investment (FDI)

Foreign Institutional Investment (FII), andExternal Commercial Borrowing (ECB)

Hence, we have no choice between welcoming andspurning foreign investment

Foreign investment is an imperative

What we can do to encourage foreign investment that isconsistent with our economic objectives

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INFLATION: FOOD & NON-FOOD

Economic evils; namely: inflationand deflation Looming large over our efforts to stimulate growth is inflation.

Major factors responsible for inflation:

Imported inflation Supply demand mismatch, eg. Oilseeds & pulses Excessive aggregate demand

Our efforts in the past few months have brought downheadline WPI inflationto about 7.0%and core inflation to

about 4.2% It is food inflation that is worrying, and we shall take all

possible steps to augment the supply side to meet thegrowing demand for food items

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WHOLE PRICE INDEX (WPI)

SL.N

O.

COMPONENTS WEIGHTAGE

(%)1 MANUFATURE ITEMS 64.97

2 PRIMARY ARTICLES 20.12

3 FUEL & POWER 14.91

NO. OF COMMODITIES 676

BASE YEAR 2004-05

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8 CORE INDUSTRIES1) COAL

2) FERTILIZERS

3) CEMENT4) ELECTRICITY

5) CRUDE OIL

6) NATURAL GAS7) REFINARY PRODUCTS

8) STEEL

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GOVERNMENT EXPENDITURE

Govt. expenditure boosts AD and it has both good andbad consequences

Wisdom lies in finding the correct level of govt.

expenditure; some propsals:Rationalization of PE

Disciplined budget (tax & expenditure)

Market mechanism (forces of DD & SS)Review of certain tax policies

The dvpt must be sustainaleeconomically,ecologically, democratic legitimacy & approval

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THE PLAN AND BUDGETARY ALLOCATIONS

Budget estimate of 2012-13BE Rs. 14,90,925 crore

Due to the slowdown & the austerity measures, therevised estimate is Rs. 14,30,825 crore96% of the BE

BE of 2013-14Rs. 16,65,297 crore & plan expenditureat Rs. 5,55,322 crore

Plan expenditure in 2013-14 will be 29.4%more than

the revised estimate of the current year All flagship programs have been fully & adequately

funded

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MAIN GOAL OF THE BUDGET One side Economic policy and other side is

Economic welfare

The linkb/w policy and welfare can be expressed in afew words: opportunities, education, skills, jobs &incomes

One overarching goal: to create opportunities for our

youth to acquire education & skills that will get themdecent jobs or self employment that will bring themadequate incomes that will enable them to live withtheir families in a safe and secure environment

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SC, ST, WOMEN & CHILDREN

The total (SC & ST sub plans) represents an increase of12.5% over the BE and 31% of the revised budget (RB)of the current year

Fund Allocation

CATEGORY FUND (in crore)

SC sub plan 41,561 - III

ST sub plan 24,598 - IVGender budget 97,134 _ I

Child budget 77,236 - II

Ministry of Minority

Affairs

3,511 - V

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WOMENMinistry of Women & Child Dvpt has

been asked to design schemes that will

address gender discriminationeverywhere, especially at the work place additional sum of Rs. 200 crore

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MAULANA AZAD EDUCATION FOUNDATION

Main vehicle to implement educational schemes andchannelize funds to non-govt. organizations for theminorities

Its corpus stands at Rs. 750 crore

Budget allocated Rs. 160 crore to the corpus fund ofthe institution to increase corpus fund to RS. 1,500

crore during the 12 FYP Rs. 100 crore to this foundation to launch medical aid

to its objectives

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DISABLED PERSONSAllocate a sum of Rs. 110 crore to the

Department of Disability Affairs for the

ADIP Schemein 2013-14, as against theRE of Rs. 75 crore in 2012-13

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HEALTH AND EDUCATION

Health for all and education for all remain ourpriorities

Allocate 37,330 crore to the Ministry of Health &

Family Welfare. Of this, the new National HealthMission(combines NRHM & proposed NUHM) willget 21,239 crore, an increase of 24.3% over the RE

Rs. 4,727 crore for medical education, training &

research Rs. 1,069 crore to the Department of AYUSH

The National Program for the Health Care of Elderly isbeing implemented in 100 selected districts of 21 states

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EDUCATION Allocate Rs. 65,867 crore to the Ministry of Human

Resource Development

Sarva Shiksha Abhiyan(SSA) Rs. 27,258 crore

Right to Eductaion Act (1stApril, 2010, Article 21A)

Rashtriya Madhyamik Shiksha Abhiyan (March 2009)alloted Rs. 3,983 crore

Scholarships 5,284 crore

Mid-Day Meal Scheme (15thAugust,1995) Rs. 13,215 crore

The Govt. is committed to the creation of NalandaUniversityas a centre of educational excellence

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ICDSAllocate Rs. 17,700 crore in 2013-14

(15,850- 2012-13) representing an

increase of 11.7%The focuswill continue to be on early

childhood care & education

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DRINKING WATERAllocate Rs. 15,260 crore to the Ministry of

Drinking Water and Sanitation

Provide rs. 1,400 crore towards setting upwater purification plants

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RURAL DEVELOPMENTAllocated Rs. 80,194 crore

MGNREGS(Feb,2006) - Rs. 33,000 crore

PMGSY(25 Dec, 2000) - Rs. 21,700 IAY (1985-86) - Rs. 15,184

The budget proposed to carve out PMGSY-IIandallocate a portion of the funds to the new programs

that will benefit states such asAP, Haryana,Karnataka, Maharashtra, Punjab & Rajasthan

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JNNURMJawaharlal Nehru National Urban Renewal Mission is

being continued in the 12thplan (2005-2012) -

Allote Rs. 14,873 crore

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AGRICULTURE The average annual growth rate of agriculture

9thFYP - 2.5%

10thFYP - 2.4%

11thFYP - 3.6%

Total food grain production 2012-13- over 250 MTs

Agricultural exports from April to December, 2012have crossed Rs. 138,403 crore

Allocate Rs. 27,049 crore to the Ministry of Agriculture

Of this, agricultural research will be provided Rs. 3,415crore

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AGRICULTUREAgricultural credit is the driver of agricultural

production

It is a state subject

Agricultural credit target for 2013-14 Rs. 700,000crore

Interest subvention scheme for short-term crops loan

continued 4% per annum The budget proposed to extend the scheme to crop

loans borrowed from private sector scheduledCommercial Banks

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GREEN REVOLUTION Continue to support the eastern Indian stateswith an

allocation of Rs. 1000 crore in 2013-14

Crop diversification Punjab & Haryana

Rashtriya Krishi Vikas Yojana (RKVY-Aug 16, 2007) 9,954 crore to mobilize higher investment inagriculture 11thplan allocation was 25,000 crore

National Food Security Mission (NFSM-Rabi, 2007-08)2,250 crore intended to bridge yield gaps

Integrated Watershed Program Rs. 5,387 crore

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PROPOSED INSTITUTIONS National Institute of Biotic Stress Management for

addressing plan protection issues will be established atRaipur, Chhattisgarh

Indian Institute of Agricultural bio-technologywill beestablished at Ranchi, Jharkhand

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NATIONAL LIVESTOCK MISSION NLM will be launched in 2013-14 to attract investment

and to enhance productivity taking into account localagro-climatic conditions

The budget proposed to provide Rs. 307 crore for themission

There will be a submission for increasing the

availability of feed and fodder

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FOOD SECURITY National Food Security Billis a promise of the UPA

Government

The budget set apart Rs. 10,000 crore, over and abovethe normal provision for food subsidy, towards theincremental cost that is likely under the Act

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INVESTMENT, INFRASTRUCTURE & INDUSTRY

The growth rate of an economy is correlated with theinvestment rate

Investment is an act of faith. Doing business in Indiamust be seen as easy, friendly and mutually beneficial.

It is the infrastructure that needs large volumes ofinvestment

The 12th

plan projectsan investment of USD 1 trillionor Rs. 55, 00,000 crore in infrastructure

The plan envisages that private sector will share 47%of the investment

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INVESTMENT IN INFRASTRUCTURE

Govt. has taken or will take the following measures toincrease investment in infrastructure:1) Infrastructure Dept Funds (IDF) will be encouraged

2) India Infrastructure Finance Corporation Ltd (IIFCL), inpartnership with theADB

3) In the last two years, a number of institutions were allowedto issue tax free bonds

4) Multilateral Development Banks ADB, World Bank

5) NABARD operates the Rural Infrastructure DevelopmentFund (RIDF). RIDF has successfully utilized 18 tranches sofar. The budget proposed to raise the corpus of RIDF-XIX in2013-14 to Rs. 20,000 crore

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ROAD CONSTRUCTION Govt. has decided to constitute a regulatory authority

for the road sector

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CABINET COMMITTEE ON INVESTMENT (CCI)

Revival of investment in the industrial sector,especially manufacturing, is a key challenge

CCI has been set up to monitor investment proposalsas well as projects under implementation, includingstalled projects, and guide decision-making in order toremove bottlenecks and quicken the pace ofimplementation

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NEW INVESTMENTA company investing Rs. 100 crore or more in plant

and machinery during the period 1/4/2013 to 31/3/2015will be entitled to deduct an investment allowance of

15% of the investmentaim to attract newinvestment and to quicken the implementation ofprojects

The National Electronics Policy, 2012 is intended topromote manufacture of electronic goods in India

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SAVINGS Increasing savings and their optimal allocation for

productive uses lead for higher economic growth

High saving rate 36.8% - 2007-08

Gross domestic saving fell by 6% points in 2011-12

The private, comprising households and corporate,remains the main contributor to saving

The household sector must be incentivized to save infinancial instruments rather than buy gold

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MEASURES TO INCREASE THE AMOUNT OF

SAVING Rajiv Gandhi Equity Savings Scheme (proposed in the

budget, 2012-13 income tax deduction of 50% onretail investments of up to Rs. 50,000 made directly in

equities by those earning an annual income of lessthan Rs. 10 lakh)will be liberalized to enable the firsttime investor to invest in mutual funds as well as listedshares

Home loan interest deduction

Inflation Indexed Bonds or Inflation Indexed NationalSecurity Certificates

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INDUSTRIAL CORRIDORS Delhi Mumbai Industrial Corridor (DMIC)project has

made rapid progress

Work on two new smart industrial cities at Dholera,

Gujaratand Shendra Bidkin, Maharashtrawill startduring 2013-14 support of Japan

The department of Industrial Policy and Promotion(DIPP) & the Japan International Cooperation Agency

(JICA) are currently preparing a comprehensive planfor the Chennai Bengaluru Industrial Corridor

The next corridor will be the Bengaluru MumbaiIndustrial Corridor

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LEH-KARGIL TRANSMISSION LINE To improve power supply in the Leh-Kargil region and

connect the Ladakh region to the northern grid, thegovt. will construct a transmission system from

Srinagar to Leh at a cost of Rs. 1,840 crore. The budgetproposed to provide Rs. 226 crore in 2013-14for theproject

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CURRENT AFFAIRS

HEAD IIBrazilian Roberto Azevedo new head ofWTO

Replaced Frenchman Pascal LamyAzevedo Brazilian career diplomat

159 member WTOs Geneva based

He has been Brazils WTO Ambassadorsince 2008

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CURRENT AFFAIRS - SPORTSSir Alex Ferguson Manchester United

Managerretirement

Took over from Ron Atkinson in 1986and has won 13 league titles - 5 FA

cups 2 Champions League

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NATIONAL WATERWAYS Five inland waterways have been declared as national

waterways

Move a Bill Lakhipur Bhanga stretch of river Barakin Assamas the 6thnational waterway

The first transport contract has been awarded in WBfrom Haldia to Farakka

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COALWe must reduce our dependence on

imported coal

Coal imports during the periodApril-December, 2012 have crossed 100 MTs

It is estimated that imports will rise to 185

MTs in 2016-17

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MICRO, SMALL & MEDIUM ENTERPRISES

Enhance the refinancing capability ofSIDBI(April,2,1990)from the current level of

Rs. 5,000 crore to Rs. 10,000 crore per yearSIDBI set up the India Microfinance Equity

Fund in 2011-12Rs. 100 crore

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TEXTILES

Continue the Technology Upgradation FundScheme (TUFS) for the textile sector in the 12thplan with an investment target of Rs. 151,000 crore

The major focus would be on modernization of thepowerloom sector. The budget provide Rs. 2,400crore in 2013-14 for the purpose

Textile parks have been set up under Scheme forIntegrated Textile Parks (SITP)

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TEXTILESA new scheme with an outlay of Rs. 500

crore called the Integrated Processing

Development Schemewill be implementedin the 12thplan to address the environmentalconcerns of the textile industry, includingimproving the effluent treatmentinfrastructure. The budget provide Rs. 50crore in 2013-14 for the scheme

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FINANCIAL SECTOR Financial sector is at the heart of the economy

Govt. constituted the Financial Sector LegislativeReforms Commission (FSLRC) in 2011

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BANKING Rs. 12,517 crore to infuse additional capital into 13public sector banks

In 2013-14 budget allocated further amount of Rs.

14,000 crore for capital infusion Ensure that public sector banks always meet the Basel

III regulations

Bring all banks under core banking solutions (CBS)

CBS and e-payment systems by 31/12/2013 Rs. 1000 crore to set up Indias 1stWomens Bank as a

PS bank

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HOUSING SECTOR BANKING

The Rural Housing Fund set upthrough the NHBis used to refinance

lending institutions, including RRBs,that extend loans for rural housing

Budget proposed to start a fund forurban housing to mitigate the hugeshortage of houses in urban areas

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INSURANCE IRDA

Rashtriya Swasthiya Bima Yojana

ULIPs (Unit Linked Insurance Plans), a highly popularhybrid financial product marketed by the insurancecompanies

The SEBIs case that ULIPs with a large investment

component were oriented more towards the capitalmarket than to life insurance and, therefore, should beregulated by SEBI and not IRDA

Ordinance ULIPs will be regulated by IRDA

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CAPITAL MARKET Best regulated market SEBIs (1988 as per the recommendations of the G.S. Patel

Committee in 1992- statutory body through an Act) silverjubilee year2013 - SEBI set up a new Committee headed by

former Chief Justice of Karnataka HC,Justice N.K. Sodhi toreview insider trading norms (6/3/13) Some proposals simplify the procedures In order to remove the ambiguity that prevails on FDI & FII

adopt international practice and lay down a broad principle where an investor has a stake of 10% or less in company treatedas FII

More than 10% - treated as FDI A committee will be constituted to examine the application of

the principle and to work out the details expeditiously

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ENVIRONMENT

Waste to energy project promotion

Clean & Green energy is a priority of the Govt.

The budget proposed to reintroduce generation-basedincentive for wind energy projects and provide Rs. 800crore to the Ministry of Non Renewable Energy for thepurpose.

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OTHER PROPOSALS

Backward Regions Grant Fund (BRGF) is a vital sourceof gab funding Rs. 11,500 crore in 2013-14

BRGF will include a state component for Bihar, theBundelkand region, WB, the KBK districts of Odishaand 82 districts under the Integrated Action Plan

Skill Development NSDC

We have set an ambitious target of skilling 50 millionpeople in the 12thplan period, including 9 million in2013-14

NRLM& NULMreleasing funds

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DEFENCEAllocation for defence to Rs. 203,672 crore

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SCIENCE & TECHNOLOGY Rs. 6,275 crore to the Ministry of S&T

Rs. 5,615 crore to the Department of Space

Rs. 5,880 crore to the Department of Atomic Energy

Problemwe do not pay enough attention to S & T forthe common man

Institutions of Excellence

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SPORTSThe budget proposed to set up the

National Institute of Sports Coaching

at Patiala

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PANCHAYATI RAJThe Rajiv Gandhi Panchayat Sashaktikaran

(RGPSA)was started in 2013with a modest

allocation of Rs. 50 croreAllocated Rs. 455 crore to the Ministry of

Panchayati Raj in 2013-14

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GHADAR MEMORIALTo mark the centenary of the Ghadar

movement, the Govt. will fund the

conversion of the Ghadar memorial in SanFrancisco into a museum and library

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CENTRAL SCHEMESReduced from 173 in number (11thplan)

to 70 schemes

As a part of fiscal consolidation

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MAKE THREE PROMISES 1stis the face of the woman Nirbhaya Fund

2ndis the face of the Youth - NSDC

3rdface of the poor Direct Benefit Transfer scheme

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BUDGET ESTIMATES Plan Expenditure Rs. 5,55,322 crore 33.3% of

total expenditure

Non plan Expenditure Rs.11,09,975 crore

FD 5.2% (2012-13) - 4.8% (2013-14)

RD 3.9 ,, - 3.3% ,,

By 2016-17bring down the FD 3% - RD 1.5% and

the Effective RD to zero FRBM Act

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PART- B : TAX PROPOSALS

An emerging economy must have a tax system thatreflects best global practices

The budget propose to set up a Tax Administration

Reform Commission to review the application of taxpolicies and tax laws and submit periodic reports thatcan be implemented to strengthen the capacity of ourtax system

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TAX GDP RATIO

In 2011-12, the ratio was 5.5% for Direct Taxesand 4.4% fro Indirect TaxesAggregate

9.9% (lowest ratio we must reclaim thatpeak)

In 2007-08the ratio touched a peak of

11.9%Laffer Curve

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DIRECT TAXES Current slabs of personal income tax were introduced

only last year no change in the budget

The budget give some relief to the tax payers in the

first bracket of 2 lakh to 5 lakh tax credit of Rs. 2,000

1.8 crore tax payers are expected to benefit to the valueof Rs. 3,600 crore

Fiscal consolidation both PE cut & augment PR

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SUPERRICH TAX

The budget proposed to impose a surchargeof 10% onpersons whose taxable income exceeds Rs. 1 crore 42,800 persons

Increased the surcharge from 5% to 10% on domesticcompanies whose taxable income exceeds Rs. 10 crore

In the case of foreign companies, who pay the higherrate of corporate tax, the surcharge will increase from2% to 5%

Dividend distribution tax or tax on distributed incomeincrease the current surcharge of 5% to 10%

Educational cess for all tax payers shall continue at 3%

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INCOME TAX SLABBASE OF THE TAX RATE OF THE TAX

Up to 2 lakh Nil2.1 lah t0 5 lakh 10%

5.1 lakh to 10 lakh 20%

Above 10 lakh 30%60-79 age group 2.5 lakhs nil

80 & above age 5 lakh - nil

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SOME FACTS

Venture Capital Funds the relevant regulations of SEBIhave been replaced byAlternative Fund Regulationsregistered with SEBI

Introduced Commodities Transaction Tax (CTT) on non-

agricultural commodities futures contracts The Finance Act, 2012 introduced the General Anti

Avoidance Rules (GAAR) An expert committeewas constituted to consult

stakeholders and finalize the GAAR guidelines Impermissible tax avoidance arrangements will be

subjected to tax The budget proposed to bring the modified provisions into

effect from 1/4/2016

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SOME FACTS The Rangachary Committeewas appointed to look

into tax maters relating Development Centers & ITsector and Safe Harbor Rules for a number of sectors

The 5thLarge Tax payer Unitwill be opened at Kolkatashortly

Income tax department is rapidly moving towardstechnology based processing (e-filing) CentralProcessing Cellset up at Bengaluru & CentralProcessing Cell-TDSinaugurated a few days ago atVaishali, Ghazibad

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DIRECT TAX CODE (DTC) Income Tax Act 1961 2011 marked the 50thyear Proposed to a new code based on the best

international practices that will be compatible with

the needs of a fast developing economy

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INDIRECT TAXES Customs duty peak rate 10% - no change Excise duty - 12% ,,

Service tax - 12% ,,

As a measure of relief to the ship building industry exempt ships and vessels from excise duty

Increased the specific excise duty on cigarettes by

about 18% Items under service tax enlarged levy service tax all

air conditioned restaurants

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ESTIMATES T he budget proposals on the Direct Taxes side areestimated to yield Rs. 13,300 crore

Indirect Taxes side Rs. 4,700 crore

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GOODS AND SERVICES TAX (GST) GST first mentioned in the budget of 2007-08 and

planned to implement on 1/4/2010

Need constitutional amendment

GST council

Compensation

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CONCLUSION India 10thlargest economy in the worldWe can become 8th,or perhaps 7thlargest by 2017

By 2025, we could become a USD 5 trillion economyand among the top five in the world

Swami Vivekananda (Jan 12th1863), whose 150thbirthanniversary we celebrate in 2013, told the people: All

the strength and succour you want is withinyourself. Therefore, make your own future.

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RUPEES COMES FROM

1. Borrowing & other liabilities - 27

2. Corporate Tax - 21

3. Income Tax - 12

4. Union Excise Duties - 10

5. Customs Duties - 9

6. Service Tax & other Taxes - 9

7. Non-Tax Revenue - 98. Non-Debt Capital Receipts - 3

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RUPEES GOES TO1. Central Plan - 212. Interest Payments - 18

3. States share of taxes & duties - 17

4. Subsidies - 12

5. Other non-plan expenditure - 11

6. Defence - 10

7. Plan assistance to states & UTs - 78. Non-plan assistance to states & UTs - 4

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