25/02/2014

AN OVERVIEW OF INTERIM BUDGET 2013-14

Summary Interim Budget 2013-14, Budget Review 2013-14
Hard pressed by the compulsions of political ethics, the UPA -2 Government could not present the full fledged budget for the next fiscal 2014-15. However, an interim budget (Vote on Account) has been presented on 17th February, 2014 to seek approval for expenditure for next four months i.e., upto 30th June, 2014 and it is expected that the new Government will be in place and also present a regular budget by then. The usual economic survey has also been skipped. The interim budget (or Finance Bill, 2014) has since been passed by the Parliament by a voice vote in the same week.

INTERIM BUDGET (VOTE ON ACCOUNT) 
The interim budget is nothing but a Vote on Account or a Money Bill seeking approval of expenditure and appropriations for future period pending the regular budget or till the Finance Bill is moved in the Parliament for passage. Such a Vote on Account  has been referred to in Article 116 of our Constitution and it is not an annual financial statement of receipts and expenditure, is done for a part of the fiscal year in relation to expenditure and specifically to a grant and it makes a grant in advance pending the passage of law. It relates only to expenditure. This years Vote on Account has been necessitated due to forthcoming general elections in the country.

The interim budget is a dossier for the next Finance Minister, whosoever he or she is from any party or collation, containing therein the status of economy, certain and hidden revelations and the risks and challenges he may be exposed to. 

It is only an attempt to put on record the bare facts including the crude fact of lowest ever GDP, at 50 percent of 9 percent GDP which India had achieved few years back. Consolidating fiscal balance, public finance, improving public distribution system, ensuring inclusive growth, subsidies, education etc. are few other areas of concern. Income generation, employment and boost to industry also need to be sincerely addressed. 

 ECONOMIC SCENARIO 
The current economic condition appears to have been accepted which is in a mess so far as growth rate is concerned. The worlds economic growth rate is just 3 percent in 2013 where as India economys growth is also expected to be below 5 percent only, lowest in last 9 years. Inflation is slightly lower but still affecting one and all. Government intends to keep the budget for expenditure at same level as of last in next four months. However, there are some signals of a mild upturn and GDP growth rate of ground 6 percent looks achievable in 2014-15 if fiscal fundamentals remain strong. 

A revival of manufacturing sector may answer some of these concerns and thats why we see some duty cuts in auto mobile, mobile handsets and consumer durables. Such a duty cut, though is not a general practice in any interim budget. The government is justifying the same stating that just and fair economic intervention cannot wait for a regular budget. We may see some spur in consumption, though, it may have its own side effects on the system or society as a whole when we are already burdened with number of vehicles on road. Such interventions were called for in certain other sectors where slackness is alarming and ought to be addressed on priority. Why only mobiles, consumer durables and auto mobile sector? 

GOODS AND SERVICES TAX 
It is hoped that Goods and Services Tax (GST) and reforms in Income Tax (Direct Tax Code) shall be the focus of next government as there is an appeal to all parties to get these through in future. The Government admitted that it was not able to introduce GST but blamed it on opposition parties, mainly BJP to have blocked the agreement on this major tax reform. However, he appealed to all parties to get GST passed in 2014-15. In ultimate outcome, GST reform remains an unfulfilled promise and a broken dream. 

TAX REVENUES 
Because of the economic slowdown, tax revenue targets have also been reduced close to Rs. 77,000 crore for the current fiscal. The following table would explain this act -
  

TAX REVENUE ESTIMATES AT A GLANCE (IN RS. CRORE)


Budget estimate 2013-14
Revised estimate 2013-14
Budget estimate 2014-15
Corporation tax
4,19,520
3,93,677
4,51,005
Personal income tax
247639
2,41,691
3,06,466
Customs
1,87,308
1,75,056
2,01,314
Excise duty
1,97,554
1,79,538
2,00,585
Service tax
1,80,141
1,64,927
2,15,478
Gross tax revenues
12,35,870
11,58,906
13,79,199

 (Source: Business Line dated 18.02.2014) 

It can be seen that there is declining trend in all taxes -direct and indirect. Budget estimates for 2014-15 will have to be revisited in regular budget. 

TAX PROPOSALS IN INTERIM BUDGET 
While there are no changes in direct tax rates and provisions (though expected that at least surcharge would go), the interim budget has proposed some relief in tax rates in excise duties to offer temporary boost to some sectors reeling in slow  growth, may be on industry demand. This relief is by way of reduction in excise duty rates for a period upto 30th June, 2014 ,i.e., these will be reviewed at the time of regular budget. 2 percent rate cut is given to all consumer durable items, 4 percent cut in duties for small cars, motor cycles, scooters etc, 6 percent duty cut for SUVs and 4 percent cut for large and mid-segment cars. Also, mobile handsets would be cheaper now by 5 percent. The duty would be 1 percent (earlier 6 percent) without Cenvat credit.
In Service Tax, exemption has been granted to rice treating it as agricultural produce. Thus, storage, warehousing, packing, loading, unloading etc for rice would be exempt from Service Tax. Earlier only paddy was exempt. Similarly, blood banks would also be exempt treating them as part of health care services which were already exempt. 

INDIRECT TAXES 
·      Excise duty lowered by 6 percent on SUVs, 4 percent for cars and commercial vehicles and 4 percent on scooters / motor cycles 
·         Reduction in duties on chases and tailors also 
·   Excise duty reduced by 2 percent for capital goods and consumer durables (electronic goods, kitchen appliances, Laptop, AC etc.) 
·        Excise duty mobile phones slashed and rationalized with / without Cenvat credit- it will be 6 percent with Cenvat credit or 1 percent without Cenvat credit. 
·     Rice brought at par with paddy on levy of Service Tax and loading, unloading, packing, storage and warehousing of rice shall be exempt from service tax. 
·         Blood banks to be exempt from Service Tax like clinical establishments. 
·     To encourage domestic production of soaps/ oleo chemicals, customs duty on non-edible industrial oils, fatty acids and fatty alcohols rationalized at 7.5 percent. 
·      Exemption from CVD on imported road construction machinery withdrawn - will help domestic production. 
DIRECT TAX 
·         No change in income tax and other tax rates 
·       10 percent surcharge on super rich  assessees having annual income of over Rs. 1 crore will continue 
·         5 percent surcharge on corporate with turnover of Rs. 10 crore or above 
·         In case of foreign companies, surcharge increased from 2 percent to 5 percent 
·    Moratorium provided on interest on education loans taken before 31st March, 2009 
·       Other additional surcharges will also continue till new Finance Act is enacted. 
·       Direct Tax Code to be taken forward by the new government. 

TO CONCLUDE 
With slow all round growth this year, whether the government would be able to achieve revenue targets in 2013-14 is also doubtful. On a futuristic note, interim budget looks at Indian economy to be the third largest economy after US and China. A sketchy road map has been outlined but its implementation holds the key – easier said than done.

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