Case5-March-2013

Highlights of the Budget 2013-14

The economy and the challenges

• Getting back to potential growth rate of 8 percent is the challenge facing the country. Slowdown in Indian economy has to be seen in the context of slowing global economic growth from 3.9 per cent in 2011 to 3.2 per cent in 2012.
• However, no reason for gloom or pessimism. Of the large countries of the world only China and Indonesia growing faster than India in 2012-13. In 2013-14, only China projected to grow faster than India.
• Between 2004 and 2008, and again in 2009-10 and 2010-11 the growth rate was over 8 per cent and crossed 9 per cent in four of those six years. 11th Plan period had average growth rate of 8 percent, highest during any Plan period, entirely under the UPA Government.
• Higher growth leading to inclusive and sustainable development’ to be the mool mantra. Government believes in inclusive development with emphasis on improving human development indicators specially of women, the scheduled castes, the scheduled tribes, the minorities and some backward classes. This Budget to be a testimony to that commitment.

Fiscal Deficit, Current Account Deficit and Inflation

• A new fiscal consolidation path with fiscal deficit at 5.3 per cent of GDP this year and 4.8 per cent of GDP in 2013-14 announced by the Government.
• Foreign investment in an imperative in view of the high current account deficit (CAD). FII, FDI and ECB three main source of CAD Financing. Foreign investment that is consistant with our economic objectives to be encouraged.
• Battle against inflation must be fought on all fronts. Efforts in the past few months have brought down headline WPI inflation to about 7 per cent and core inflation to about 4.2 percent. Food inflation is also causing worries
• Faced with huge fiscal deficit, Government expenditure rationalised in 2012-13. Some economic space retrieved. Space to be used to further Government’s socio- economic objectives.

The plan and budgetary allocations

Revised Estimates (RE) of the expenditure in 2012-13 at 96 per cent of the Budget Estimates (BE) due to slowdown and austerity measures. During 2013-14, BE of total expenditure of र 16,65,297 crore and of Plan Expenditure at र 5,55,322 crore. Plan Expenditure in 2013-14 to grow at 29.4 per cent over Revised Estimates for the current year. All flagship programmes fully and adequately funded and sufficient funds provided to each Ministry or Department consistent with their capacity to spend funds.

• SC, ST, Women and Children: Allocations for Scheduled Caste Sub Plan and Tribal Sub Plan increased substantially over the allocations of the current year. Funds allocated to these Sub Plans cannot be diverted. Ministry of Women and Child Development to design schemes that will address the concerns of women belonging to the most vulnerable groups, including single women and widows. An additional sum of र 200 crore proposed to be provided to the Ministry to begin work. 97,134 crore allocated for programmes relating to women and र 77,236 crore allocated for programmes relating to children.
• Minorities: An increase of 12 per cent over the BE and 60 per cent over the RE of 2012-13 to Ministry of Minority Affairs. Allocation of र 160 crore to the corpus of Maulana Azad Education Foundation to raise its corpus to र 1,500 crore during 12th Plan period.
• Disabled Persons: A sum of र 110 crore to the Department of Disablity Affairs for ADIP scheme in2013-14 against RE 2012-13 of र 75 crore.
• Health and Education: Health for all and education to all remains priority. 37,330 crore allocated to the Ministry of Health & Family Welfare. New National Health Mission will get an allocation of र 21,239 crore. 4,727 crore for medical education, training and research. 150 crore provided for National Programme for the Health Care of Elderly. Ayurveda, Unani, Siddha and Homoeopathy are being mainstreamed. Allocation of र 1,069 crore to Department of AYUSH. 1,650 crore allocated for six AIIMS-like institutions.
• Allocation of र 65,867 crore to the Ministry of Human Resource Development, an increase of 17 perent over the RE of the current year. 27,258 crore provided for Sarva Shiksha Abhiyaan (SSA). An increase of 25.6 per cent over RE of the current year for investments in Rashtriya Madhyamik Shiksha Abhiyan (RMSA). 5,284 crore allocated to Ministries/Departments in 2013-14 for scholarships to students belonging to SC, ST, OBC, Minorities and girl children. Mid Day Meal Scheme (MDM) to be provided र 13,215 crore.
• ICDS: 17,700 crore allocated for ICDS in 2013-14 representing an increase of 11.7 per cent over 2012-13. Allocation of र 300 crore in 2013-14 for a multi-sectoral programme aimed at overcoming maternal and child malnutrition. Programme to be implemented in 100 districts during 2013-14 to be scaled to cover 200 districts the year after.
• Drinking Water: 15,260 crore allocated to Ministry of Drinking Water and Sanitation. 1,400 crore provided for setting-up of water purification plants in 2000 arsenic and 12000 fluoride-affected rural habitations.
• Rural Development: Allocation of र 80,194 crore in 2013-14 for Ministry of Rural Development marking an increase of 46% over RE 2012-13. Proposal to carve out PMGSY-II and allocate a portion of the funds to the new programme that will benefit States such as Andhra Pradesh, Haryana, Karnataka, Maharashtra, Punjab and Rajasthan.
• JNNURM: 14,873 crore for JNNURM in BE 13-14 as against RE of र 7,383 crore. Out of this, a significant portion will be used to support the purchase of upto 10,000 buses, especially by the hill States.
• Agriculture: Average annual growth rate of agriculture and allied sector was 3.6% during XI Plan against 2.5% and 2.4% in IX and X plans respectively. In 2012-13, total food-grain production will be over 250 million tonnes. 27,049 crore allocated to Ministry of Agriculture, an increase of 22 per cent over the RE of current year. Agricultural research provided with 3,415 crore.
• Agricultural Credit: For 2013-14, target of agricultural credit kept at र 7 lakh crore. Interest subvention scheme for short-term crop loans to be continued scheme extended for crop loans borrowed from private sector scheduled commercial banks. Bringing green revolution to eastern India a remarkable success. 1,000 crore allocated in 2013- 14. 500 crore allocated to start a programme of crop diversification that would promote technological innovation and encourage farmers to choose crop alternatives. Rashtriya Krishi Vikas Yojana and National Food Security Mission provided with 9,954 crore and र 2,250 crore respectively.
• Allocation for integrated watershed programme increased from र 3,050 crore in 2012-13 (BE) to र 5,387 crore.
• Allocation made for pilots programme on Nutri- Farms for introducing new crop varieties that are rich in micro-nutrients.
• Farmer Producer Organizations: Matching equity grants to registered Farmer Producer Organization (FPO) upto a maximum of र 10 lakhs per FPO to enable them to leverage working capital from financial institutons. Credit Guarantee Fund to be created in the Small Farmers’Agri Business Corporation with an initial corpus of र 100 crore.
• National Livestock Mission: National Livestock Mission to be set up. A provision of र 307 crore made for the Mission.
• Food Security: Additional provision of र 10,000 crore for National Food Security Act.

Investment, infrastructure and industry

• Need of new and innovative instruments to mobilise funds for investment in infrastructure sector. Measures such as: Infrastructure Debt Funds (IDF), IIFCL to offer credit enhancement, Infrastructure tax-free bond of र 50,000 crore in 2013-14,
• Build roads in North eastern states and connect them to Myanmar with assistance from WB & ADB, Raising corpus of Rural Infrastructure Development Fund (RIDF) to र 20,000 crore and 5,000 crore to NABARD to finance construction for warehousing. Window to Panchayats to finance construction of godowns.
• Companies investing र 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 per cent of the investment. Incentives to semiconductor wafer fab manufacturing facilities, including zero customs duty for plant and machinery.
• Following measures like liberalization of Rajiv Gandhi Equity Savings Scheme, Additional deduction of interest upto र 1 lakh for a person taking first home loan upto र 25 lakh during period 1.4.2013 to 31.3.2014 and introduction of instruments protecting savings from inflation to be introduced to incentivize greater savings by household sector in financial instruments
• Government to construct a transmission system from Srinagar to Leh at a cost of 1,840 crore.
• Two new major ports will be established in Sagar, West Bengal and in Andhra Pradesh to add 100 million tonnes of capacity. A new outer harbour to be developed in the VOC port at Thoothukkudi, Tamil Nadu through PPP at an estimated cost of र 7,500 crore.
• National Waterways: A bill to declare the Lakhipur-Bhanga stretch of river Barak in Assam as the sixth national waterway to be moved in Parliament. Preparatory work underway to build a grid connecting waterways, roads and ports.
• Oil and Gas : A policy to encourage exploration and production of shale gas will be announced. The 5 MMTPA LNG terminal in Dabhol, Maharashtra will be fully operational in 2013-14.
• Coal: In the medium to long term need to reduce our dependence on imported coal. One way forward is to devise a PPP policy framework with Coal India Limited as one of the partners.
• Power: Guidelines regarding financial restructuring of DISCOMS have been announced. State Government urged to prepare the financial restructuring plan, quickly sign MoU and take advantage of the scheme.

Micro, Small and Medium Enterprises

• Benefits or preferences enjoyed by MSME to continue upto three years after they grow out of this category.
• Refinancing capacity of SIDBI raised to र 10,000 crore. Another sum of र 100 crore provided to India Microfinance Equity Fund.
• A corpus of र 500 crore to SIDBI to set up a Credit Guarantee Fund for factoring. A sum of र 2,200 crore during the 12th Plan period to set up 15 additional Tool Rooms and Technology Development Centres with World Bank assistance.

Financial sector

• A standing Council of Experts to be constituted in the Ministry of Finance to analyse the international competitiveness of the Indian financial sector.
• Banking: Compliance of public sector banks with Basel III regulations to be ensured. 14,000 crore provided in BE 2013-14 for infusing capital.All branches of public sector banks to have ATM by 31.3.2014.
• Proposal to set up India’s first Women’s Bank as a public sector bank. Provision of र 1,000 crore as initial capital.
• 6,000 crore to Rural Housing Fund in 2013-14. National Housing Bank to set up Urban Housing Fund. र 2,000 crore to be provided to the fund in 2013-14.
• Insurance: Number of proposals finalised, in consultation with IRDA such as empowering insurance companies to open branches in Tier-II cities and below without prior approval of IRDA, KYC of banks to be sufficient to acquire insurance policies, banks to be permitted to act as insurance brokers, banking correspondent allowed to sell micro-insurance products and achieving the goal of having an office of LIC and an office of at least one public sector general insurance company in towns with population of 10,000 or more.
• Rashtriya Swasthya Bima Yojana to be extended to other categories such as rickshaw, auto-rickshaw and taxi drivers, sanitation workers, rag pickers and mine workers.
yyA comprehensive social security package to be evolved for unorganised sector by facilitating convergence among different schemes.
• Capital Market: Proposal to amend the SEBI Act, to strengthen the regulator, under consideration. SEBI will simplify the procedures and prescribe uniform registration and other norms for entry for foreign portfolio investors.
• Small and medium enterprises, to be permitted to list on the SME exchange without being required to make an initial public offer (IPO). Stock exchanges to be allowed to introduce a dedicated debt segment on the exchange.
• Environment: Support to municipalities that will implement waste-to-energy projects. Government to provide low interest bearing fund from the National Clean Energy Fund (NCEF) to IREDA to on-lend to viable renewable energy projects. Generation-based incentive’ reintroduced for wind energy projects and र 800 crore allocated for this purpose.
• Skill Development: Target of skilling 50 million people in the 12th Plan period, including 9 million in 2013-14.
• Defence: Allocation for Defence increased to र 2,03,672 crore including र 86,741 crore for capital expenditure.
• Science and Technology: Despite constraints substantial enhancements given to Science and Technology, Space and Atomic Energy. 200 crore to be set apart to fund organisations that will scale up S&T innovations and make these products available to the people.
• Institutions of Excellence: A grant of 100 crore each made to 4 institution of excellence.
• Sports: National Institute of Sports Coaching to be set up at Patiala at a cost of र 250 crore over a period of three years.
• Broadcasting: All cities having a population of more than 1,00,000 will be covered by private FM radio services.
• Panchayati Raj: Augmentation in the Budget allocation of Rajiv Gandhi Panchayat Sashaktikaran Abhiyan (RGPSA) to र 455 crore in 2013-14. An additional र 200 crore proposed to be provided.
• Post Offices: An ambitious IT driven project to modernise the postal network at a cost of र 4,909 crore. Post offices to become part of the core banking solution and offer real time banking services.

Three promises

Promises made to woman, youth and poor

• We stand in solidarity with our girl children and women. And we pledge to do everything possible to empower them and to keep them safe and secure. A fund - “Nirbhaya Fund” - to be setup with Government contribution of र 1,000 crore.
• Youth to be motivated to voluntarily join skill development programmes. National Skill Development Corporation to set the curriculum and standards for training in different skills. 1000 crore set apart for this scheme.
• To the poor of India direct benefit transfer scheme will be rolled out throughout the country during the term of the UPA Government with the motive “Äapka paisa aapke haath”.

Budget Estimates

• Plan expenditure is placed at र 5,55,322 crore. Non Plan Expenditure is estimated at र 11,09,975 crore. Fiscal deficit for the current year contained at 5.2 per cent and for the year 2013-14 at 4.8 per cent.
• Revenue deficit for the current year at 3.9 per cent and for the year 2013-14 at 3.3 per cent. By 2016-17 fiscal deficit to be brought down to 3 per cent, revenue deficit to 1.5 per cent and effective revenue deficit to zero per cent.

Tax proposals

• Direct taxes: Little room to give away tax revenues or raise tax rates in a constrained economy. 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 Tax Net. However, relief for Tax Payers in the first bracket of र 2 lakhs to र 5 lakhs. A tax credit of र 2000 to every person with total income upto र 5 lakhs.
• Surcharge of 10 percent on persons (other than companies) whose taxable income exceed र 1 crore to augment revenues. Increase surcharge from 5 to 10 percent on domestic companies whose taxable income exceed र 10 crore.
• In case of foreign companies who pay a higher rate of corporate tax, surcharge to increase from 2 to 5 percent, if the taxabale income exceeds र 10 crore. In all other cases such as dividend distribution tax or tax on distributed income, current surcharge increased from 5 to 10 percent. Additional surcharges to be in force for only one year.
• Education cess to continue at 3 percent.
• Permissible premium rate increased from 10 percent to 15 percent of the sum assured by relaxing eligibility conditions of life insurance policies for persons suffering from disability and certain ailments.
• Contributions made to schemes of Central and State Governments similar to Central Government Health Scheme, eligible for section 80D of the Income tax Act. Donations made to National Children Fund eligible for 100 percent deduction.
• Securitisation Trust to be exempted from Income Tax. Tax to be levied at specified rates only at the time of distribution of income for companies, individual or HUF etc. No further tax on income received by investors from the Trust.
• TDS at the rate of 1 percent on the value of the transfer of immovable properties where consideration exceeds 50 lakhs. Agricultural land to be exempted.
• Proposal to introduce Commodity Transaction Tax (CTT) in a limited way. Agricultural commodities will be exempted.
• A number of administrative measures such as extension of refund banker system to refund more than र 50,000, technology based processing, extension of e-payment through more banks and expansion in the scope of annual information returns by Income-tax Department.
• Indirect Taxes: No change in the normal rates of 12 percent for excise duty and service tax. No change in the peak rate of basic customs duty of 10 perent for non-agricultural products.
• Customs: Export duty on de-oiled rice bran oil cake withdrawn. Duty of 10 percent on export of unprocessed ilmenite and 5 percent on export on ungraded ilmenite. Concessions to air craft maintenaince, repair and overhaul (MRO) industry.
• Duty on Set Top Boxes increased from 5 to10 percent. Duty on raw silk increased from 5 to 15 percent. Duties on Steam Coal and Bituminous Coal equalised and 2 percent custom duty and 2 percent CVD levied on both kinds coal.
• Duty on imported luxury goods such as high end motor vehicles, motor cycles, yachts and similar vessels increased. Duty free gold limit increased to र 50,000 in case of male passenger and र 1,00,000 in case of a female passenger subject to conditions.
• Excise duty: Relief to readymade garment industry. In case of cotton, zero excise duty at fibre stage also. In case of spun yarn made of man made fibre, duty of 12 percent at the fibre stage. Handmade carpets and textile floor coverings of coir and jute totally exempted from excise duty.
• To provide relief to ship building industry, ships and vessels exempted from excise duty. No CVD on imported ships and vessels. Specific excise duty on cigarettes increased by about 18 percent. Similar increase on cigars, cheroots and cigarillos.
• Excise duty on SUVs increased from 27 to 30 percent. Not applicable for SUVs registered as taxies. Excise duty on marble increased from र 30 per square meter to र 60 per square meter. Proposals to levy 4 percent excise duty on silver manufactured from smelting zinc or lead.
• Duty on mobile phones priced at more than र 2000 raised to 6 percent.
• MRP based assessment in respect of branded medicaments of Ayurveda, Unani, Siddha, Homeopathy and bio-chemic systems of medicine to reduce valuation disputes.
• Service Tax: Vocational courses offered by institutes affiliated to the State Council of Vocational Training and testing activities in relation to agricultural produce also included in the negative list for service tax. Exemption of Service Tax on copyright on cinematography limited to films exhibited in cinema halls.
• Proposals to levy Service Tax on all air conditioned restaurant.
• For homes and flats with a carpet area of 2,000 sq.ft. or more or of a value of र 1 crore or more, which are high-end constructions, where the component of services is greater, rate of abatement reduced from from 75 to 70 percent.
• Out of nearly 17 lakh registered assesses under Service Tax only 7 lakhs file returns regularly. Need to motivate them to file returns and pay tax dues. A onetime scheme called ‘Voluntary Compliance Encouragement Scheme’ proposed to be introduced. Defaulter may avail of the scheme on condition that he files truthful declaration of Service Tax dues since 1st October 2007.
• Tax proposals on Direct Taxes side estimated to yield to र 13,300 crore and on the Indirect Tax side र 4,700 crore.
• Good and Services Tax: A sum of र 9,000 crore towards the first instalment of the balance of CST compensation provided in the budget. Wo r k o n draft GST Constitutional amendment bill and GST law expected to be taken forward.