We have already done two write-ups on government budgeting, covering (1) Basics of Government Budgeting and (2) Budget Documents. These two articles serve not only for this year, but for many more years, unless a substantial change happens in the budget presentation process. In this post, let’s see and analyse the Interim Budget of India for the period 2014-15. Let’s take this Interim Budget as an example to understand the complex budgeting process and budget terms too.
Interim Budget of India 2014 -15 Highlights
Finance Minister Mr. P.Chidambaram made a brilliant budget speech highlighting the status of Indian economic situation at the time of turbulent world economic situation. Surprisingly, India seems to have done well in many fronts, including Fiscal Deficit and Current Account Deficit. The main area of worry is the declining GDP growth mostly due to a stagnant manufacturing sector.
State of Indian Economy
- The fiscal deficit for 2013-14 contained at 4.6 percent .
- The current account deficit projected to be at USD 45 billion in 2013-14 down from USD 88 billion in 2012-13.
- Foreign exchange reserve to grow by USD 15 billion in this Financial Year.
- WPI inflation down to 5.05 percent and core inflation down to 3.0 percent in January 2014.
- Food inflation down to 6.2 percent from a high of 13.8 per cent.
- Food grain production estimated for the current year is 263 million tonnes compared to 255.36 million tonnes in 2012-13.
- Agriculture export likely to cross USD 45 billion higher from USD 41 billion in 2012-13.
- Agricultural credit to exceed the target of 7 lakh crores.
- Agricultural GDP growth for the current year estimated at 4.6 percent.
- The sluggish import is a matter of concern for manufacturing and domestic trade sector.
- The National Manufacturing Policy has set the goal of increasing the share of manufacturing in GDP to 25 percent and to create 100 million jobs over a decade.
- 8 National Investment and Manufacturing Zones (NIMZ) along Delhi Mumbai Industrial Corridor (DMIC) have been announced. 9 Projects had been approved by the DMIC trust.
- 3 more Industrial Corridors connecting Chennai and Bengaluru, Bengaluru and Mumbai & Amritsar and Kolkata are under different stages of preparatory works.
- Notification of a public procurement policy, establishing technology and common facility centres, and launching the Khadi Mark are steps taken to promote Micro Small and Medium Enterprises.
- GDP growth for the whole year is estimated at 4.9 percent.
Interim Budget of India 2014 -15 Highlights
SC Sub-Plan and Tribal Sub-Plan, Gender Budget and Child Budget
- 48,638 crore and 30,726 crore are allocated to the SC Sub-Plan and Tribal Sub-Plan respectively.
- Gender Budget and Child Budget has 97,533 crore and 81,024 crore respectively.
Non Plan Expenditure (Including Subsidies)
- Non Plan expenditure is estimated at 12,07,892 crore.
- The expenditure on subsidies for food, fertilizer & fuel will be 246,472 crore.
- 115,000 crore has been allocated for food subsidies.
Changes in Tax Rates
- The Excise Duty on all goods falling under Chapter 84 & 85 of the Schedule to the Central Excise Tariff Act is reduced from 12 percent to 10 percent for the period upto 30.06.2014.
- To give relief to the Automobile Industry, which is registering unprecended negative growth, the excise duty is reduced for the period up to 30.06.2014 as follows: Small Cars, Motorcycle, Scooters – from 12 % to 8% and Commercial Vehicles SUVs – from 30% to 24% Large and Mid-segment Cars – from 27/24% to 24/20%.
- To encourage domestic production of mobile handsets, the excise duties for all categories of mobile handsets is restructured. The rates will be 6% with CENVAT credit or 1 percent without CENVAT credit.
- To encourage domestic production of soaps and oleo chemicals, the custom duty structure on non-edible grade industrial oils and its fractions, fatty acids and fatty alcohols is rationalized at 7.5 percent.
- To encourage domestic production of specified road construction machinery, the exemption from CVD on similar imported machinery is withdrawn.
- A concessional custom duty 5 percent on capital goods imported by the Bank Note Paper Mill India Private Limited is provided to encourage domestic production of security paper for printing currency notes.
- The loading and un-loading, packing, storage and warehousing of rice is exempted from Service Tax.
- The services provided by cord blood banks is exempted from Service Tax.
If you need to read more on Interim Budget, it is always best to turn to the official documents from indiabudget.nic.in. Documents that offer quick insights include:
- Budget at a glance.
- Key Features of the budget.
- PIB – Budget Infographics.
- The current financial year will end on a satisfactory note with the fiscal deficit at 4.6 percent (below the red line of 4.8 percent) and the revenue deficit at 3.3 percent.
- Fiscal Deficit in 2014-15 estimated to be 4.1 percent which will be below the target set by new Fiscal Consolidation Path and Revenue Deficit is estimated at 3.0 percent.
- The estimate of Plan Expenditure is 555,322 crore. Non Plan expenditure is estimated at `12,07,892 crore.
Interim Budget of India 2014 -15 Analysis
A quick, overall analysis of the budget figures leads the following inferences:
- Though Indian growth has declined in 2013-14, by the time the budget is presented (ie Feb 2014), the government along with the efforts of RBI managed to put good numbers on the board. (FD of 4.6% of GDP, reduced CAD, increased Forex, good show in agriculture etc.)
- The main areas of concern : Low GDP growth, low manufacturing growth, low investment in manufacturing and infrastructure.
- Very low allocation for Capital Expenditure. (Less than the 2013-14 budget estimates)
- Revenue expenditure in the form of subsidies, pensions and interest payments which are unproductive form more than 80 percent of tax revenue.
- Low non-tax estimates when compared to the revised estimates of budget 2013-14.
- Budget documents mention about reduced deficits like FD, RD, ERD, PD etc in 2014-15, but upon keen analysis it can be identified that those figures are arrived because of the low capital expenditure.
- India, without doubt, needs to find ways to cut its revenue expenditure in the non-plan expenditure part – the unproductive spending on interest payments, subsidies and pensions.
- Total tax receipts as percentage of GDP for 2014-15 is proposed at 10.7%, while total expenditure is proposed at 13.7%.
- Interest payments as a percentage of net-tax revenue for 2014-15 is proposed at 43.3%.