Budget 2013 : Prudence trumps Populism

With the country still at risk of a debt downgrade, prudence unsurprisingly dominated the UPA II’s last budget before the 2014 polls, but there was something in it for three crucial constituencies: youth, women and people entering the ranks of the middle class.
Youth got a large allocation for improving skills, a new public sector bank was created for women and the emerging middle-class got breaks on income tax and home loans. And industry, a group that likes Chidambaram, got reason to cheer: for the first time in nearly a quarter of a century, it was given a generous tax break on capital expenditure.
That said, at first flush, there appeared to be little that stood out in the budget, which was predictably panned by the Opposition and welcomed by business leaders. But a joining of the dots revealed a clear pattern to Chidambaram’s thinking: the first priority is growth and investment. Achieve this, and jobs and the ability to spend will follow.
Noting that growth of an economy was correlated to the investment rate, Chidambaram said: “The key to restart the growth engine is to attract more investment both from domestic investors and foreign investors.”
The extent of the task was underlined hours after the budget speech, when data showed that the economy grew at a weak 4.5% in the third quarter, setting the country on course for its worst annual growth in a decade, crimped by poor factory output and patchy monsoons. The Sensex stock benchmark ended 1.5% lower and the rupee fell.
To spur investment, Chidambaram introduced a 15% investment allowance for companies investing Rs.100 crore in plant and machinery, over and above depreciation. And he unveiled other growth-oriented measures like industrial corridors between Chennai and Bengaluru and between Bengaluru and Mumbai. With a view to leaving the emerging middle-class with a little more to spend, Chidambaram offered tax exemptions to those who earn between Rs.2 lakh and Rs.5 lakh a year, a move that will benefit 18 million taxpayers, or about half of the country's tax base.
The measure will, in the final analysis, yield tax-payers a benefit of Rs.3,600 crore.
First-time home buyers will get an additional deduction on interest of Rs.1 lakh for home loans up to Rs.25 lakh.
Chidambaram also increased the excise duty on most sports utility vehicles (SUVs) and customs luxury cars, superbikes and yachts, making these goods costlier but earning the exchequer precious revenue.
The budget was not without a dose of populism.
The minister set aside ample resources to fund a proposed food scheme, which once voted into law, will entitle two out of three Indians to government-subsidised rice and wheat. The scheme will cost an additional Rs.10,000 crore more to the exchequer.
It will be the latest addition to the UPA regime's welfare cupboard, joining the ranks of successful entitlement programmes such as the Mahatma Gandhi National Rural Employment Guarantee Scheme.
Chidambaram, a 67-year-old lawyer-turned-politician in his third term as finance minister, has had to grapple with the impact of stalled reforms, policy missteps, high inflation and the perennial threat of a downgrade by credit rating agencies.
From a foreign investors' darling to a slowing economy, the deterioration in India's image has been rapid and demoralising.
Foremost among the worries over the economy has been the widening fiscal deficit, or the amount of money the government has to borrow to fund its expenses. Chidambaram pledged a fiscal deficit of 4.8% of GDP in 2013-14, down from 5.2% this fiscal.

The government unveiled new taxes on the rich and large companies to fund higher-than-expected spending for the next fiscal, in a budget that aimed to revive growth amid the country's worst slowdown in a decade ahead of a 2014 election.
Stocks, bond prices and the rupee all fell despite Finance Minister P Chidambaram's vow to cut next year's fiscal deficit to 4.8 per cent of GDP, which some watchers said counted on ambitious revenue assumptions given hefty spending targets.

Chidambaram has staked his reputation on cutting swollen fiscal and current account deficits that have alarmed credit rating agencies and triggered warnings that India's sovereign bonds could be downgraded to 'junk' status.  Chidambaram focused on winning back foreign investors unnerved by proposals of his predecessor, Pranab Mukherjee, to tax merger deals retrospectively and clamp down on tax evasion.
An added surcharge on local firms with incomes of more than Rs.10 crore and a 10 per cent surcharge on individuals with taxable incomes topping Rs.1 crore rupees - a level of earnings currently declared by just 42,800 people - will be put in place for one year.
However, there was little relief for the man on the street and Chidambaram said there was no case to revise either income tax brackets or rates since the current slabs were introduced last year.
He also said that people buying houses would get an additional deduction of Rs.1 lakh on interest payments on their first home loan of up to Rs.25 lakh.

Of GST & the Budget....

Goods & Services Tax (GST) — the country’s most ambitious tax reform — inched closer to being implemented with finance minister P Chidambaram allocating Rs.9,000 crore as the first tranche of compensation for states for the loss in central sales tax reduction.
GST has missed several deadlines due to opposition from some states and lack of consensus over the roadmap. But over the past few months, the empowered group of state finance ministers has worked to stitch together a consensus.
Chidambaram said in his Budget speech. “I appeal to the state finance ministers to realize the serious intent of the government to introduce GST and come forward to work with the government to bring about a transformational change in the tax structure of the country,” he added.

Economic Census

Chennai - Bangalore Industrial Corridor

The Union Budget has given a new lease of life to the Chennai-Bangalore Industrial Corridor project, which has remained on paper for three years. The corridor, which is to come up along Chennai, Sriperumbudur, Ranipet, Bargur, Hosur and Bangalore, is expected to boost commerce between south India and east Asia by enabling quicker movement of goods from these places to the Chennai and Ennore ports.
In his Budget speech, finance minister P Chidambaram said the project with assistance from the Japan International Cooperation Agency (Jica) will be developed in collaboration with the governments of three southern states.
Jica and the Indian government’s department of industrial policy and promotion are preparing a plan for the industrial corridor. While the existing road connecting the two cities is 350 km, there is a proposal to cut the distance by 100 km with new roads.
More than 30% of the Japanese business base in India is located in south India. The southern region accounts for more than 50% of India’s automobile exports and hence the Japanese are stressing on better infrastructure links for a regional production network spanning India and its east Asian neighbours. To harness the region’s potential, infrastructure projects in the Chennai-Bangalore region would include expansion of Ennore port and outer ring road in Chennai. About 60% of Japanese foreign direct investment in Tamil Nadu is in the automotive sector where the state has a core competence.
Several manufacturing units would find it easier to move goods. Along the route are consumer electronics manufacturers in Sriperumbudur, leather industry in Ranipet, granite in Bargur, IT companies and commercial vehicle makers in Hosur.
The backward Rayalaseema region is all set to see rapid industrialisation in the coming days, thanks to the announcement of an industrial corridor along the Bangalore-Chennai national highway. Since the highway will pass through the Rayalaseema region, the districts of Chittoor and Anantapur, besides Nellore, are expected to see an industrial boom. As per the plan, the Krishnapatnam Port in Nellore will be included in phase-I of the Chennai-Bangalore Industrial Corridor and it would be developed as an alternative port for Chennai and Ennore ports which are burdened by traffic congestion.
In phase-II, the districts of Chittoor and Anantapur have been included along with Nellore for development of industrial clusters. The thrust will be on sectors like manufacturing including automobile and machine tools, but others like non-pollutant industries and the IT sector would also be developed. Industry department officials said a detailed report would be prepared in a year’s time. Once the project takes shape, various border towns and cities in the districts will have an opportunity to benefit from the industrial corridor. These include towns like Tirupati, Pileru (CM’s constituency), Nayudupeta, Gudur and Hindupur.

GDP falls to 4.5% in third quarter

Hit by poor performance of farm, mining and manufacturing sector, economic growth in the October-December period slipped to 4.5% — decade’s lowest quarterly growth.
Concerned over the low growth, finance minister P Chidambaram said efforts are being made to achieve higher growth and hoped that GDP will grow by over 6% in the next financial year. The GDP had grown by 6% in the October-December period of last fiscal.
The economic growth in the first nine months of this fiscal (April-December) stood at 5.1%, lower than 6.6% in the year-ago period. The economy had grown by 5.5% and 5.3% in the first quarter and the second quarter, respectively, of 2012-13. The Economic Survey of 2012-13 tabled in Parliament yesterday has predicted a growth rate of 6.1-6.7% for the next fiscal.
During October-December quarter of 2012-13, manufacturing sector grew marginally by 2.5%, against 0.7% growth in the same period of 2011-12. Farm sector output expanded by just 1.1% in the October-December period this fiscal, against 4.1% in the same quarter last fiscal. Mining and quarrying sector, however, showed some improvement and contracted by 1.4% during the quarter, as against a decline in output by 2.6% in the third quarter of 2011-12.
Trade, hotels, transport and communications segment also witnessed lower pace of growth at 5.1% in the quarter against 6.9 per cent in the same quarter in year ago. The growth rate of electricity, gas and water supply also dipped to 4.5 per cent in the third quarter, from 7.7 per cent witnessed in the same quarter of 2011-12.
Construction sector expanded by 5.8 per cent in Q3 of 2012-13, as against 6.9 per cent in the year-ago period. Growth rate of services sector, including insurance and real estate, stood at 7.9 per cent in the third quarter, against 11.4 per cent in same quarter last fiscal. According to the CSO data, during April-December period of this fiscal manufacturing sector grew by just 1.2 per cent against 3.6 per cent in the same period last fiscal.
    In the first nine months of current fiscal, mining and quarrying marginally recovered to a growth of 0.1 per cent from a contraction in the output by 2.8 per cent. The farm and allied sectors growth declined to 1.7 per cent in the nine month period under review cent compared to 4.3 per cent a year ago.

Somewhere in Pune....

Encore !

Incumbent parties have stormed back to power in the three northeastern states of Tripura, Nagaland and Meghalaya. In assembly election results the Left Front not only retained its last bastion Tripura, winning 50 of 60 seats, but did one better than in 2008. This was the fifth straight victory for the CPM and a huge vote of confidence for its chief minister Manik Sarkar, at the helm now since 1998.
In Nagaland, the Naga People’s Front (NPF), which promised to solve the vexed insurgency issue dogging the state since 1959, snapped up 38 of the 60 seats that went to polls on February 23. The Nagas gave a clear verdict to Neiphiu Rio, who will be heading the coalition along with the JD(U) and BJP – that won 1 seat each - for the third successive time. The Congress won just eight seats here.
Meanwhile in Meghalaya, the Congress, led by the youthful Mukul Sangma, managed to bag 29 out of 60 seats even as speculations were rife that the party would ‘discard’ its regional allies and form the government with independents, a large bloc with 13 MLAs. It also marked the worst defeat for ex-Lok Sabha speaker PA Sangma. His National People’s Party won just two seats. In 2008, when PA Sangma was still with the NCP – he broke away after the presidential elections last year – he had won from 11 constituencies. This time his younger son Conrad, who was also leader of opposition in the Meghalaya assembly, lost though elder brother James came through in Dadengre. Just two short of a majority, the Congress will look to ensnare a few of the 13 independent candidates. The other large bloc, United Democratic Party, has eight seats.