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.
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
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?
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.
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 –
REVENUE ESTIMATES AT A GLANCE (IN RS. CRORE)
Budget estimate 2013-14
Revised estimate 2013-14
Budget estimate 2014-15
Personal income tax
Gross tax revenues
(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.
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
duty lowered by 6 percent on SUVs, 4 percent for cars and commercial vehicles
and 4 percent on scooters / motor cycles
in duties on chases and tailors also
duty reduced by 2 percent for capital goods and consumer durables (electronic
goods, kitchen appliances, Laptop, AC etc.)
duty mobile phones slashed and rationalized with / without Cenvat credit- it
will be 6 percent with Cenvat credit or 1 percent without Cenvat credit.
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.
banks to be exempt from Service Tax like clinical establishments.
encourage domestic production of soaps/ oleo chemicals, customs duty on
non-edible industrial oils, fatty acids and fatty alcohols rationalized at 7.5
from CVD on imported road construction machinery withdrawn – will help domestic
change in income tax and other tax rates
percent surcharge on super rich assessees having annual income of over
Rs. 1 crore will continue
percent surcharge on corporate with turnover of Rs. 10 crore or above
case of foreign companies, surcharge increased from 2 percent to 5 percent
provided on interest on education loans taken before 31st March, 2009
additional surcharges will also continue till new Finance Act is enacted.
Tax Code to be taken forward by the new government.
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.