In-depth analysis of Union Budget

The Finance Minister has presented the Union Budget 2013-14 with the ambitious plan to reduce the fiscal deficit as a percentage of GDP to 4.8 per cent in FY2014 from 5.2 per cent in FY2013, while further plans to reduce the fiscal deficit to 3.0 per cent by FY2017.

However, the fiscal deficit for FY2013 was also contained at 5.3 per cent, despite sharp moderation in economic growth and sharp increase in subsidy bill.

More importantly, the fiscal deficit as a percentage of total expenditure is expected to ease to 32.6 per cent in FY2014 from 36.4 per cent in FY2013 and 39.6 per cent in FY2012.

The reduction in fiscal deficit is planed with the tax measures, more than double divestment target, spectrum receipts.

However, the Union Budget 2013-14 has failed to contain the subsidy bill meaningfully for FY2014.

The total receipt are expected to increase 21 per cent for FY2014, mainly driven by strong 33 per cent increase in non-tax revenue on account of spectrum allocated receipts projected at Rs 40,000 crore (Rs 400 billion), while government has planned the divestment of Rs 40,000 crore along divestment of stake in non-government companies of Rs 14,000 crore (Rs 140 billion) for FY2014.

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Within the tax revenue, the service tax receipt are expected to surge 36 per cent, after shortening of list of services exempt from the tax net, with the sharp increase in tax revenue to 15 per cent in FY2014 from 13 per cent in FY2013 and 11 per cent in FY2012.

The excise duty has been raised for select sectors with one year surcharge imposed on the rich and on corporates above a certain threshold. But, the Union Budget has failed to control expenditure, which is budgeted to increase by 16% to Rs 1665297 crore for FY2014 compared to 9.7% increase for FY2013.

Positively, the plan expenditure share is proposed to be improved to 33% in FY2014 from 30% in FY2013. Meanwhile, the capital expenditure is estimated to surge 37% in FY2014, with the increase in its share in total expenditure to 13.8% in FY2014 from 11.7% in FY2013.

The subsidy bill has increased particularly after FY2009 and continuously remain above 2% of GDP. The continuous sharp deviation in the subsidy bill from budgeted level has again destabilized the budget estimates for FY2013. The subsidy bill budgeted at 13.3% of the total expenditure for FY2013 increased to 18.0% as per revised estimates.

Government had planned to contain the subsidy bill at 2% of GDP, which widely missed the target at 2.6% of GDP for FY2013.

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The subsidy bill is estimated at 13.9% of the total expenditure and 2.0% of GDP for FY2014, with the sharp increase in share of food subsidy.

The Government plans to finance 89.2% of its fiscal deficit of Rs 542499 crore for FY2014 with net market borrowing of Rs  484000 crore compared to 89.7% in FY2013 and 84.5% in FY2012. shows an increase of 3.6% compared to 7.1% growth recorded for FY2013.

The gross market borrowing for FY2014, including repayments of Rs 145000 crore, stands at Rs 629009 crore for FY2013 against Rs 558000 crore for FY2013.

The Budget has also placed an estimate for gross borrowings under the 91-Day, 182-Day and 364-Day T-Bills at Rs 592890 crore, Rs 130007 crore and Rs 130473 crpre, respectively.

The total net short-term borrowing for the government through T-Bills, cash management bills and ways & means advances is placed at Rs 19844 crore for FY2014, against Rs 45745 crore for FY2013.

Direct Tax Proposals

1)  No revision in either the slabs or the rates of Personal Income Tax.

2) Relief for Tax Payers in the first bracket of Rs.2 lakhs to Rs. 5 lakhs with a tax credit of Rs.2000.

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3) Surcharge of 10% on persons whose taxable income exceed Rs.1 crore to augment revenues.

4) Increase surcharge from 5 to 10% on domestic companies whose taxable income exceed Rs.10 crore.

5) In case of foreign companies who pay a higher rate of corporate tax, surcharge to increase from 2 to 5%, if the taxabale income exceeds Rs.10 crore.

6) In all other cases such as dividend distribution tax or tax on distributed income, current surcharge increased from 5 to 10%.

7)  Additional surcharges to be in force for only one year.

8) Education cess to continue at 3%.

9) Permissible premium rate increased from 10% to 15% of the sum assured by relaxing eligibility conditions of life insurance policies for persons suffering from disability and certain ailments.

10) Contributions made to schemes of Central and State Governments similar to Central Government Health Scheme, eligible for section 80D of the Income tax Act.

11) Donations made to National Children Fund eligible for 100% deduction.

12) Investment allowance at the rate of 15% to manufacturing companies that invest more than Rs.100 crore in plant and machinery during the period 1.4.2013 to 31.3.2015.

13) 'Eligible date' for projects in the power sector to avail benefit under Section 80IA extended from 31.3.2013 to 31.3.2014.

14) Concessional rate of tax of 15% on dividend received by an Indian company from its foreign subsidiary proposed to continue for one more year.

15) 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.

16) Investor Protection Fund of depositories exempt from Income-tax in some cases.

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Parity in taxation between IDF-Mutual Fund and IDF-NBFC.

17) A Category I AIF set up as Venture capital fund allowed pass through status under Income-tax Act.

18) TDS at the rate of 1% on the value of the transfer of immovable properties where consideration exceeds Rs. 50 lakhs. Agricultural land to be exempted.

19) A final withholding tax at the rate of 20% on profits distributed by unlisted companies to shareholders through buyback of shares.

20) Proposal to increase the rate of tax on payments by way of royalty and fees for technical services to non-residents from 10% to 25%.

21) Reductions made in rates of Securities Transaction Tax in respect of certain transaction.

22) Proposal to introduce Commodity Transaction Tax (CTT) in a limited way. Agricultural commodities will be exempted.

23) Modified provisions of GAAR will come into effect from 1.4.2016.

Indirect Tax Proposals

Excise duty:

1) 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% at the fibre stage.

2) Handmade carpets and textile floor coverings of coir and jute totally exempted from excise duty.

3) To provide relief to ship building industry, ships and vessels exempted from excise duty. No CVD on imported ships and vessels.

4) Specific excise duty on cigarettes increased by about 18%. Similar increase on cigars, cheroots and cigarillos.

5) Excise duty on Sport Utility Vehicles (SUVs) increased from 27% to 30%. Not applicable for SUVs registered as taxies.

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6) Excise duty on marble increased from Rs.30 per square meter to Rs. 60 per square meter.

7) Proposals to levy 4% excise duty on silver manufactured from smelting zinc or lead.

8) Duty on mobile phones priced at more than Rs.2000 raised to 6%. MRP based assessment in respect of branded medicaments of Ayurveda, Unani, Siddha, Homeopathy and bio-chemic systems of medicine to reduce valuation disputes.

Customs duty

The Union Budget 2013-14 proposals on customs duty include:

i) Period of concession available for specified part of electric and hybrid environment-friendly vehicles extended up to 31 March 2015.

2) Duty on specified machinery for manufacture of leather and leather goods including footwear reduced from 7.5 to 5%.

3) Duty on pre-forms precious and semi-precious stones reduced from 10 to 2%.

4) Export duty on de-oiled rice bran oil cake withdrawn.

5) Duty of 10% on export of unprocessed ilmenite and 5% on export on ungraded ilmenite.

6) Concessions to air craft maintenaince, repair and overhaul (MRO) industry.

7) Duty on import of Set Top Boxes increased from 5 to10%.

8) Duty on import of raw silk increased from 5 to 15%.

9) Duties on Steam Coal and Bituminous Coal equalised and 2% custom duty and 2% CVD levied on both kinds coal.

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10) Duty on imported luxury goods such as high end motor vehicles, motor cycles, yachts and similar vessels increased.

11) Duty free gold limit increased to Rs.50000, in case of male passenger and Rs.100000 in case of a female passenger subject to conditions.

Service Tax Proposals

1) Maintain stability in tax regime.

2) 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.

3) Exemption of Service Tax on copyright on cinematography limited to films exhibited in cinema halls.

4) Proposals to levy Service Tax on all air conditioned restaurant.

5) For homes and flats with a carpet area of 2,000 sq.ft. or more or of a value of Rs.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%.

6) 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.

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7) Tax proposals on Direct Taxes side estimated to yield to Rs.13,300 crore and on the Indirect Tax side Rs.4,700 crore.

Good and Services Tax

1) A sum of Rs. 9,000 crore towards the first instalment of the balance of CST compensation provided in the budget.

2) Work on draft GST Constitutional amendment bill and GST law expected to be taken forward.

SC, ST, Women, Children, Disabled and Minority

1) Rs. 97,134 crore allocated for programmes relating to women and Rs. 77,236 crore allocated for programmes relating to children.

2) An increase of 12% over the BE and 60% over the RE of 2012-13 to Ministry of Minority Affairs.

3) Allocation of Rs. 160 crore to the corpus of Maulana Azad Education Foundation to raise its corpus to Rs. 1,500 crore during 12th Plan period.

4) A sum of Rs. 110 crore to the Department of Disablity Affairs for ADIP scheme in 2013-14 against RE 2012-13 of Rs. 75 crore.

Health and Education

1) Rs. 37,330 crore allocated to the Ministry of Health & Family Welfare.

2) New National Health Mission will get an allocation of Rs. 21,239 crore.

3) Rs. 4,727 crore for medical education, training and research.

4) Rs. 150 crore provided for National Programme for the Health Care of Elderly.

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5) Ayurveda, Unani, Siddha and Homoeopathy are being mainstreamed. Allocation of Rs. 1,069 crore to
Department of AYUSH.

6) Rs. 1,650 crore allocated for six AIIMS-like institutions.

7) Allocation of Rs. 65,867 crore to the Ministry of Human Resource Development, an increase of 17% over the RE of the current year.

8) Rs. 27,258 crore provided for Sarva Shiksha Abhiyaan (SSA).

9) An increase of 25.6% over RE of the current year for investments in Rashtriya Madhyamik Shiksha Abhiyan (RMSA).

10) Rs. 5,284 crore allocated to Ministries/Departments in 2013-14 for scholarships to students belonging to SC, ST, OBC, Minorities and girl children.

11) Mid Day Meal Scheme (MDM) to be provided Rs. 13,215 crore.

12) Government committed to the creation of Nalanda University as a centre of educational excellence.
ICDS.

13) Rs. 17,700 crore allocated for ICDS in 2013-14 representing an increase of 11.7% over 2012-13.

14) Allocation of Rs. 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

1) Rs. 15,260 crore allocated to Ministry of Drinking Water and Sanitation.

2) Rs. 1,400 crore provided for setting-up of water purification plants in 2000 arsenic -and 12000 fluoride-affected rural habitations.

Rural Development

1) Allocation of Rs. 80,194 crore in 2013-14 for Ministry of Rural Development marking an increase of 46% over RE 2012-13.

2) 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.

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JNNURM

1) Rs. 14,873 crore for JNNURM in BE 13-14 as against RE of Rs. 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

1) 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.

2) In 2012-13, total food-grain production will be over 250 million tonnes. Minimum support price for every agricultural produce has increased significantly under the UPA Government.

3) Rs. 27,049 crore allocated to Ministry of Agriculture, an increase of 22% over the RE of current year.

4) Agricultural research provided Rs. 3,415 crore.

5) For 2013-14, target of agricultural credit kept at Rs. 7 lakh crore.

6) Interest subvention scheme for short-term crop loans to be continued scheme extended for crop loans borrowed from private sector scheduled commercial banks.

Green Revolution

1) Bringing green revolution to eastern India a remarkable success. Rs. 1,000 crore allocated in 2013-14.

2) Rs. 500 crore allocated to start a programme of crop diversification that would promote technological innovation and encourage farmers to choose crop alternatives.

3) Rashtriya Krishi Vikas Yojana and National Food Security Mission provided Rs. 9,954 crore and Rs. 2,250 crore respectively.

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4) Allocation for integrated watershed programme increased from Rs. 3,050 crore in 2012-13 (BE) to Rs. 5,387 crore.

5) Allocation made for pilots programme on Nutri-Farms for introducing new crop varieties that are rich in micro-nutrients.

6) National Institute of Biotic Stress Management for addressing plant protection issues will be established at Raipur, Chhattisgarh.

7) The Indian Institute of Agricultural Bio-technology will be established at Ranchi, Jharkhand.

8) Pilot scheme to replant and rejuvenate coconut gardens implemented in some districts of Kerala and the Andaman & Nicobar extended to entire State of Kerala.

Farmer Producer Organisations

1) Matching equity grants to registered Farmer Producer Organization (FPO) upto a maximum of Rs. 10 lakhs per FPO to enable them to leverage working capital from financial institutions.

2) Credit Guarantee Fund to be created in the Small Farmers'Agri Business Corporation with an initial corpus of Rs. 100 crore.

National Livestock Mission

1) National Livestock Mission to be set up.

2) A provision of Rs. 307 crore made for the Mission.

Food Security

1) Additional provision of Rs. 10,000 crore for National Food Security Act.

Investment, infrastructure and industry

1) Communication with investors to be improved to remove any apprehension or distrust, including fears about undue regulatory burden.

2) Need of new and innovative instruments to mobilise funds for investment in infrastructure sector.

Measures such as:

Infrastructure Debt Funds (IDF) to be encouraged

IIFCL to offer credit enhancement.

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3) Infrastructure tax-free bond of Rs. 50,000 crore in 2013-14

4) Build roads in North eastern states and connect them to Myanmar with assistance from WB & ADB

5) Raising corpus of Rural Infrastructure Development Fund (RIDF) to Rs. 20,000 crore

6) Rs. 5,000 crore to NABARD to finance construction for warehousing. Window to Panchayats to finance construction of godowns.

Road Construction

1) A regulatory authority for road sector.

2) 3000 kms of road projects in Gujarat, Madhya Pradesh, Maharashtra, Rajasthan and Uttar Pradesh will be awarded in the first six months of 2013-14.

3) Cabinet Committee on Investment

4) The Cabinet Committee on Investment (CCI) has been set up. Decisions have been taken in respect of a number of gas, power and coal projects.

New Investment

1) Companies investing Rs. 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% of the investment.

2) Incentives to semiconductor wafer fab manufacturing facilities, including zero customs duty for plant and machinery.

Savings

1) Need to incentivise greater savings by household sector in financial instruments.

Following measures proposed:

1) Rajiv Gandhi Equity Savings Scheme to be liberalized.

2) Additional deduction of interest upto Rs. 1 lakh for a person taking first home loan upto Rs. 25 lakh during period 1.4.2013 to 31.3.2014

3) In consultation with RBI, instruments protecting savings from inflation to be introduced.

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Industrial Corridors

1) Plans for seven new cities have been finalized and work on two new smart industrial cities at Dholera, Gujarat and Shendra Bidkin, Maharashtra will start during 2013-14

2) Delhi Mumbai Industrial Corridor (DMIC) to be provided additional funds during 2013-14 within the share of the Government of India in the overall outlay, if required.

3) Chennai Bengaluru Industrial Corridor to be developed.

4) Preparatory work has started for Bengaluru Mumbai Industrial Corridor.

Ports

1) Two new major ports will be established in Sagar, West Bengal and in Andhra Pradesh to add 100 million tonnes of capacity.

2) A new outer harbour to be developed in the VOC port at Thoothukkudi, Tamil Nadu through PPP at an estimated cost of Rs. 7,500 crore.

Oil and Gas

1) A policy to encourage exploration and production of shale gas will be announced.

2) The 5 MMTPA LNG terminal in Dabhol, Maharashtra will be fully operational in 2013-14.

Power

1) 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

1) Benefits or preferences enjoyed by MSME to continue upto three years after they grow out of this category.

2) Refinancing capacity of SIDBI raised to Rs. 10,000 crore.

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3) Another sum of Rs. 100 crore provided to India Microfinance Equity Fund.

4) A corpus of Rs. 500 crore to SIDBI to set up a Credit Guarantee Fund for factoring.

5) A sum of Rs. 2,200 crore during the 12th Plan period to set up 15 additional Tool

6) Rooms and Technology Development Centres with World Bank assistance.

7) Ministry of Corporate Affairs to notify that funds provided to technology incubators located within academic Institutions and approved by the Ministry of Science and Technology or Ministry of MSME will qualify as CSR expenditure.

Textiles

1) Technology Upgradation Fund Scheme (TUFS) to continue in 12th Plan with an investment target of Rs. 1,51,000 crore.

2) Allocation of Rs. 50 crore to Ministry of Textile to incentivise setting up Apparel Parks within the SITPs to house apparel manufacturing units.

3) A new scheme called the Integrated Processing Development Scheme will be implemented in the 12th Plan to address the environmental concerns of the textile industry.

4) Working capital and term loans at a concessional interest of 6% to handloom sector.

5) Scheme of Fund for Regeneration of Traditional Industries (SFURTI) extended to 800 clusters during the 12th Plan.

Banking

1) Compliance of public sector banks with Basel III regulations to be ensured.

2) Rs. 14,000 crore provided in BE 2013-14 for infusing capital.

3) All branches of public sector banks to have ATM by 31.3.2014.

4) Proposal to set up India's first Women's Bank as a public sector bank. Provision of Rs. 1,000 crore as initial capital.

5) Rs. 6,000 crore to Rural Housing Fund in 2013-14.

6) National Housing Bank to set up Urban Housing Fund. Rs. 2,000 crore to be provided to the fund in 201314.

Insurance

1) A multi-pronged approach to increase the penetration of insurance, both life and general, in the country.

2) Number of proposals finalized, 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.

3) 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.

4) A comprehensive social security package to be evolved for unorganized sector by facilitating convergence among different schemes.

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Capital Market

1) Proposal to amend the SEBI Act, to strengthen the regulator, under consideration.

2) Number of proposal finalised in consultation with SEBI.

3) Designatged depository participants, authorized by SEBI, may register different classes of portfolio investors, subject to compliance with KYC guidelines.

4) SEBI will simplify the procedures and prescribe uniform registration and other norms for entry for foreign portfolio investors.

5) Rule that, where an investor has a stake of 10% or less in a company, it will be treated as FII and, where an investor has a stake of more than 10%, it will be treated as FDI will be laid.

6) FIIs will be permitted to participate in the exchange traded currency derivative segment to the extent of their Indian rupee exposure in India.

7) FIIs will also be permitted to use their investment in corporate bonds and Government securities as collateral to meet their margin requirements.

8) SEBI to prescribed requirement for angel investor pools by which they can be recognized as Category I AIF venture capital funds.

9) Small and medium enterprises, to be permitted to list on the SME exchange without being required to make an initial public offer (IPO).

10) Stock exchanges to be allowed to introduce a dedicated debt segment on the exchange.

Defence

1) Allocation for Defence increased to Rs. 2,03,672 crore including Rs. 86,741 crore for capital expenditure.

2) Constraints not to come in the way of providing any addition requirement for the security of nation.

Three promises

Promises made to woman, youth and poor

1) 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 Rs. 1,000 crore.

2) Youth to be motivated to voluntarily join skill development programmes.

3) National Skill Development Corporation to set the curriculum and standards for training in different skills. Rs. 1000 crore set apart for this scheme.

4) 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 "Aapka paisa aapke haath".