Tuesday 18 February 2014

The nuts and bolts of Interim Budget

The nuts and bolts of Interim Budget
The fiscal deficit for 2013-14 will be contained at 4.6% of GDP, well below the red line drawn last year.

The fiscal deficit for 2013-14 will be contained at 4.6% of GDP, well below the red line drawn last year. The Current Account Deficit, which threatened to exceed last year’s CAD of $88 billion, will be contained at $45 billion, and about $15 billion is expected to be added to the foreign exchange reserves by the end of FY14. Analysts and rating agencies no longer speak about a downgrade.

Both WPI and core inflation fall 

Wholesale Price Index (WPI) headline inflation stood and core inflation declined from 7.3% and 4.2% respectively on Budget Day 2013 to 5.05% and three% at the end of January 2014. However, there is still some distance to go. Food inflation is still the main worry, although it has declined sharply from a high of 13.6% to 6.2%.

Agriculture GDP growth 4.6% 

Foodgrain production in 2012-13 was 255.36 million tonnes and the estimate for the current year is 263 million tonnes. Agricultural GDP growth is estimated at 4.6%. Estimates of the output of sugarcane, cotton, pulses, oilseeds and quality seeds point to new records. Agricultural GDP growth increased to 3.1% during the five years of UPA-I and further to four% in the first four years of UPA-II.

No steep decline in investment rate 

The savings rate was 31.3% in 2011-12 and 30.1% in 2012-13. The corresponding investment rate was 35.5% and 34.8%, respectively, indicating there was no steep decline in investment, except in mining and manufacturing. The Cabinet Committee on Investment cleared a number of stalled projects, and by the end of January, 2014, the way was cleared for completing 296 projects with an estimated project cost of '660,000 crore.

Exports on the uptrend 

Merchandise exports were $300.4 billion in 2012-13 – a fall of 1.8% over the previous year. The year 2013-14 is expected to end with estimated merchandise exports of $326 billion, indicating a growth rate of 6.3%. However, imports are down, and this does not augur well for either manufacturing or domestic trade.

8 NIMZs along DMIC approved 

Eight National Investment and Manufacturing Zones (NIMZ) have been announced along the Delhi-Mumbai Industrial Corridor and nine projects have been approved by the DMIC Trust. Five NIMZs outside DMIC have also been given in-principle approval. Three more corridors connecting Chennai and Bengaluru, Bengaluru and Mumbai, and Amritsar and Kolkata are under different stages of preparatory work.

Infrastructure gets big push 

Infrastructure and capacity addition in infrastructure industries have received a big push. In 2012-13 and in the first nine months of 2013-14, we have added 29,350 Mw of power capacity; 3,928 km of national highways; 39,144 km of rural roads under PMGSY, 3,343 km of new railway track, and 217.5 million tonnes of capacity per annum in the ports. Besides, 19 oil and gas blocks were given out for exploration and seven new airports are under construction.

GDP growth to recover in FY14 

In nine quarters, the GDP growth rate declined from 7.5% in Q1 of 2011-12 to 4.4% in Q1 of 2013-14. However, growth in Q2 of 2013-14 is 4.8% and growth for the whole year has been estimated at 4.9%. Thus, growth in the third and fourth quarters of 2013-14 will be at least 5.2%.

All growth parameters up under UPA 

Under ten years of UPA, foodgrain output is up from from 213 million tonnes to 263 million tonnes of food grains; installed power capacity rose from 112,700 Mw; to 234,600 Mw; coal production rose from 361 million tonnes per year to 554 million tonnes; rural roads went up from 51,511 km to 389,578 km; Central government expenditure on education rose from '10,145 crore to '79,451 crore; and spending on health rose from '7,248 crore to '36,322 crore.

UPA delivers 7.5% average growth 

Over a period of 33 years, the trend growth rate in India has been 6.2%. Average annual GDP growth during the period 1999-2004 was 5.9%, or below the trend rate. In 2004-2009 it was 8.4% and, in the period 2009-2014, the CSO has estimated it to be 6.6%. UPA-I and UPA-II have delivered above the trend growth rate.

12.8 land titles distributed 

As many as 12.8 lakh land titles covering 18.80 lakh hectares were distributed under the Scheduled Tribes and Other Traditional Forest Dwellers Act.

Land Acquisition Act notified 

The Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act was notified on 1.1.2014, finally putting to rest an oppressive colonial law of 1894.

Food security law passed 

The National Food Security Act was passed during the current financial year, assuring foodgrain to 67% of the population.
New Companies Act comes into being. Parliament enacted a new Companies Act, which replaced a law of 1956 vintage.

NPS given statutory basis 

The PFRDA Act was passed placing the New Pension System on a statutory basis and establishing a statutory regulator.
Centrally sponsored schemes restructured.

Centrally Sponsored Schemes were restructured into 66 programmes for greater synergy. Funds under these programmes will be released as Central assistance to state plans, thus giving states greater authority and responsibility. As a result, Central assistance to plans of states and Union Territories will rise from '136,254 crore in 2013-14 to '338,562 crore in 2014-15.

PSUs to set record in capex 

Public sector enterprises will achieve a new record in capital expenditure of '257,641 crore in 2013-14.
50,000 Mw capacity being created.

About 50,000 Mw of thermal and hydel power capacity is under construction after receiving all clearances and approvals. About 78,000 MW of power capacity has been assured coal supply.

FDI policy was liberalised 

The FDI policy was liberalised to attract larger investments in telecommunication, pharmaceuticals, civil aviation, power trading exchanges and multi-brand retail.

2 semi-conductor units approved  

Approval was granted to establish two semi-conductor wafer fabrication units, which will be the bedrock of the electronics hardware industry.

DoP IT upgrade to be ready in 2015 

The IT modernisation project of the Department of Posts, with an outlay of '4,909 crore, will be operational by 2015 in all 155,000 locations.

Seven new nuclear reactors by end of Twelfth Plan 

Seven nuclear power reactors are under construction, with the aim of achieving an installed capacity of 10,080 Mw by the end of the Twelfth Plan. The Kudankulam Nuclear Power Plant Unit I achieved criticality and is generating 180 million units of power. The 500 Mw prototype fast breeder reactor at Kalpakkam is nearing completion.

Thrust on solar power 

Four ultra mega solar power projects each with a capacity of over 500 MW are proposed to be taken up in 2014-15.After exceeding the target and achieving 1,684 Mw of grid-connected solar power, the National Solar Mission entered the second phase on April 1, 2013.

New fund to support grassroots innovations 

The Ministry of micro, small and medium enterprises (MSME) will create the ‘India Inclusive Innovation Fund’ to promote grassroots innovations with social returns to support enterprises in the MSME sector. An initial contribution of Rs100 crore has been made to the corpus of the Fund.

Boost for SC entrepreneurship 

In order to promote entrepreneurship among the scheduled castes and to provide concessional finance to them, IFCI will set up a Venture Capital Fund for Scheduled Castes, with initial capital of Rs 200 crore.

Push for agro forestry 

The government has approved the National Agro-Forestry Policy 2014, which has multiple objectives, including employment, productivity, conservation and adaptation. A mechanism for marketing minor forest produce has been introduced, with a budget allocation of Rs 444.59 crore, to continue the scheme in 2014-15.

Scheme to encourage community radio stations 

A new plan scheme with an allocation of Rs 100 crore has been approved to promote community radio stations.
Mars Orbiter Mission launched.

India joined a handful of countries when it launched the Mars Orbiter Mission. India now has capabilities in launch vehicle technology, cryogenics, and navigation, meteorological and communication satellites, and is largely self-reliant. Several flight tests, navigational satellites and space missions are planned for 2014-15.

Money for Nirbhaya Fund 

In order to make it clear that the Nirbhaya Fund is a permanent one, government proposes to declare the grant of Rs 1000 crore as non-lapsable. And in order to support more proposals, it will contribute to the Fund another sum of Rs 1000 crore next year. So far, the government has approved two proposals that will receive support from the Fund.

More money for skill development programme 

Rs 1000 crore allocated to the National Skill Monetary Reward Scheme will be transferred to the NSD Trust and another sum of Rs 1,000 crore will be given next year to enable the Trust to scale up the programme of NSDC rapidly. The National Skill Certification and Monetary Reward Scheme was launched in August 2013. At last count, 204 job roles had been finalised, 168,043 youth had enrolled and 77,710 have completed their training.

Taking care of gender and child budget 

Rs 48,638 crore has been proposed to be allocated to the scheduled caste sub-plan and Rs 30,726 crore to the tribal sub-plan. The gender budget has Rs 97,533 crore and the child budget has Rs 81,024 crore.
‘One rank, one pension’ in the defence services

The government has accepted the principle of ‘one rank, one pension’ for the defence forces. This decision will be implemented prospectively from 2014-15. The requirement for 2014-15 is estimated at Rs 500 crore and the government will transfer a sum of Rs 500 crore to the Defence Pension Account in the current financial year itself.

Funds for the central armed police forces 

A modernisation plan at a cost of Rs 11,009 crore has been approved to strengthen the capacity of the Central Armed Police Forces and to provide them state-of-the-art equipment and technology. Funds have been provided in the current financial year and for next year.

Credit expansion for minority communities 

The number of bank accounts held by the minorities, in 121 districts of India where there is a concentration of minorities, increased from 14,15,000 ten years ago to 43,52,000 at the end of March 2013, and the volume of lending jumped from Rs 4,000 crore to Rs 66,500 crore. Loans to minority communities in the whole country stood at Rs 211,451 crore at the end of December 2013. The number of women’s Self-Help Groups provided credit by banks increased from 971,182 ten years ago, to 4,116,000 at the end of December 2013.

Bonanza for students with loans 

A moratorium period has been proposed for for all education loans taken up to March 31, 2009 and outstanding on December 31, 2013. The government will take over the liability for outstanding interest as on December 31, 2013, but the borrower will have to pay interest for the period after January 1, 2014. It is estimated that nearly nine lakh student-borrowers will benefit to the tune of approximately Rs 2,600 crore.

Public Debt Management Agency on the anvil 

Following the announcement in the Budget speech of 2011-12, the government is ready with the Public Debt Management Agency Bill. Following precedent, it is proposed to establish a non-statutory PDMA that can begin work in 2014-15.

Funding scientific research 

The government proposes to set up a Research Funding Organisation that will fund research projects selected through a competitive process. Contributions to the organisation will be eligible for tax benefits. This will require legislative changes which will need to be introduced at the time of the regular Budget. Currently the Income-tax Act allows deductions for expenditure on scientific research, but it is limited to direct funding.

Action on tax evasion on off-shore accounts 

The Government has succeeded in obtaining information in 67 cases of tax evasion on off-shore accounts, and action is underway to determine the tax liability as well as impose penalty. Prosecutions for wilful tax evasion have been launched in 17 other cases. More enquiries have been initiated into accounts reportedly held by Indian entities in no-tax or low-tax jurisdictions.

Cord blood banks exempt from service tax 

The government proposes to exempt loading, unloading, packing, storage and warehousing of rice from service tax. A ministry of health and family welfare request that services provided by cord blood banks are also healthcare services and should be exempt from service tax has been accepted.


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