BUDGET 2013-2014

Key features Major purposes Sector wise discussion Speech of P. Chidambaran Macro Economic framework Analysis discussion

BUDGET A FLASH BACK

The budget process of our country predates the

independence Budget was first introduced on 7th April 1860 The first Finance Member, James Wilson presented the budget Liaquat Ali Khan, member of the interim Govt. presented the budget of 1947-48 After independence, Indias first Finance Minister R.K. Shanmukhan Chetty, presented the 1st budget on 26th November, 1947

MEANING OF BUDGET
The word budget has been derived from the French

word bougetts which means a small bag. It emphasizes a bag containing the financial proposals The use of the term budget for the annual financial plans of the govt. dates back to 1733 In general, a budget shows financial accounts of the previous year, the budget and revised estimates of the current year and the budget estimates for the forthcoming year Article 112 annual financial statement

THE ECONOMY & THE CHALLENGES

Global economic growth slowed from

3.9% in 2011 to 3.2% in 2012 India is part of the global economy exports and imports amount to 43% of GDP- International Transmission eg. Recent financial crisis

CURRENT GROWTH RATE OF THE INDIAN ECONOMY

ESTIMATING AUTHORITY CSO RBI POTENTIAL GR GNP GAP GROWTH RATE (%) 5% 5.5% 8% 3% / 2.5%

CHALLENGE
Getting back to that growth rate is the challenge that

faces the country There is no reason for gloom or pessimism Even now, of the large countries of the world, only China & Indonesia are growing faster than India in 2012-13 If we grow at the rate projected by many forecasters in 2013-14 only China will grow faster than India The average for the 11th plan period, entirely under the UPA Govt., was 8%, the highest ever in any plan period

STRATEGY / MANTRA OF THE BUDGET

Our goal is higher growth leading to inclusive and

sustainable development Growth is a necessary condition for economic dvpt It is growth that will lead to inclusive dvpt Without growth there will be neither dvpt nor inclusiveness consider SC, ST, Minorities, Women As Joseph Stiglitz, Nobel Prize winning economist, said, There is a compelling moral case for equity; but it is also necessary if there is to be sustained growth. A countrys most important resource is its people. The UPA Govt believes in inclusive dvpt, with emphasis on improving human dvpt indicators

FISCAL DEFICIT, CURRENT ACCOUNT DEFICIT & INFLATION

The purpose of a budget to create the economic

space and find the resources to achieve the socioeconomic objectives

At present, the economic space is constrained due to:
1)
2) 3) 4) 5) 6)

High fiscal deficit Reliance on foreign inflows to finance CAD Lower savings Lower investment Tight monetary policy to contain inflation Strong external headwinds

FORMS OF DEFICITS IN PF
RD = total revenue expenditure TR receipts BD = total expenditure total revenue FD = TE (revenue receipts + non-debt creating

capital receipts) FD = Budget deficit + borrowings (that part of the govt. expenditure which is financed out of borrowing) Primary Deficit = FD interest payments Monetized Deficit means the extent to which the govt. borrows from the RBI and not from the market. RBI prints fresh currency which monetize the economy by bringing more money into circulation called deficit financing

CURRENT ACCOUNT DEFICIT (CAD)

It is defined as deficit b/w receipts on account of trade

& invisibles and payments on account of trade & invisibles in the BoPs account of the country TWIN DEFICIT An economy is deemed to have a Twin Deficit if it has CAD and Fiscal Deficit

FISCAL DEFICIT, CURRENT ACCOUNT DEFICIT & INFLATION

In September, 2012 Govt. accepted the

main recommendations of the Dr. Vijay Kelkar A new fiscal consolidation path was announced Red lines were drawn for the FD at 5.3% of GDP in 2012-13 and 4.8% in 2013-14

CAD; IS ANY AMICABLE SOLUTION

The greater worry of the budget CAD
The CAD continues to be high mainly because of:
1) 2) 3) 4)

Our excessive dependence on oil imports High volume of coal imports Our passion for gold Slow down in exports

This year, and perhaps next year too, we have to find

over USD 75 billion to finance the CAD

HOW CAN WE FINANCE CAD

There are only 3 ways before us
Foreign

Direct Investment (FDI) Foreign Institutional Investment (FII), and External Commercial Borrowing (ECB)
Hence, we have no choice between welcoming and

spurning foreign investment Foreign investment is an imperative What we can do to encourage foreign investment that is consistent with our economic objectives

INFLATION: FOOD & NON-FOOD

Economic evils; namely: inflation and deflation Looming large over our efforts to stimulate growth is inflation.

Major factors responsible for inflation:

Imported

inflation Supply demand mismatch, eg. Oilseeds & pulses Excessive aggregate demand
Our efforts in the past few months have brought down

headline WPI inflation to about 7.0% and core inflation to about 4.2% It is food inflation that is worrying, and we shall take all possible steps to augment the supply side to meet the growing demand for food items

INFLATION
CORE INFLATION: Take only

manufacturing items only practiced in developed countries not food & fuel HEADLINE INFLATION: Take all sectors like manufacturing, food and fuel items practiced in India

WHOLE PRICE INDEX (WPI)

SL.N O. COMPONENTS WEIGHTAGE (%)

1 2 3

MANUFATURE ITEMS PRIMARY ARTICLES FUEL & POWER NO. OF COMMODITIES BASE YEAR

64.97 20.12 14.91 676 2004-05

8 CORE INDUSTRIES
1) 2) 3) 4) 5) 6)

7)
8)

COAL FERTILIZERS CEMENT ELECTRICITY CRUDE OIL NATURAL GAS REFINARY PRODUCTS STEEL

GOVERNMENT EXPENDITURE
Govt. expenditure boosts AD and it has both good and

bad consequences Wisdom lies in finding the correct level of govt. expenditure; some propsals:
Rationalization

of PE Disciplined budget (tax & expenditure) Market mechanism (forces of DD & SS) Review of certain tax policies
The dvpt must be sustainale economically,

ecologically, democratic legitimacy & approval

THE PLAN AND BUDGETARY ALLOCATIONS

Budget estimate of 2012-13 BE Rs. 14,90,925 crore
Due to the slowdown & the austerity measures, the

revised estimate is Rs. 14,30,825 crore 96% of the BE BE of 2013-14 Rs. 16,65,297 crore & plan expenditure at Rs. 5,55,322 crore Plan expenditure in 2013-14 will be 29.4% more than the revised estimate of the current year All flagship programs have been fully & adequately funded

MAIN GOAL OF THE BUDGET

One side Economic policy and other side is

Economic welfare The link b/w policy and welfare can be expressed in a few words: opportunities, education, skills, jobs & incomes One overarching goal: to create opportunities for our youth to acquire education & skills that will get them decent jobs or self employment that will bring them adequate incomes that will enable them to live with their families in a safe and secure environment

SC, ST, WOMEN & CHILDREN

The total (SC & ST sub plans) represents an increase of

12.5% over the BE and 31% of the revised budget (RB) of the current year Fund Allocation
CATEGORY FUND (in crore)

SC sub plan ST sub plan Gender budget

41,561 - III 24,598 - IV 97,134 _ I

Child budget Ministry of Minority Affairs

77,236 - II 3,511 - V

WOMEN
Ministry of Women & Child Dvpt has

been asked to design schemes that will address gender discrimination every where, especially at the work place additional sum of Rs. 200 crore

MAULANA AZAD EDUCATION FOUNDATION

Main vehicle to implement educational schemes and

channelize funds to non-govt. organizations for the minorities Its corpus stands at Rs. 750 crore Budget allocated Rs. 160 crore to the corpus fund of the institution to increase corpus fund to RS. 1,500 crore during the 12 FYP Rs. 100 crore to this foundation to launch medical aid to its objectives

DISABLED PERSONS
Allocate a sum of Rs. 110 crore to the

Department of Disability Affairs for the ADIP Scheme in 2013-14, as against the RE of Rs. 75 crore in 2012-13

HEALTH AND EDUCATION

Health for all and education for all remain our

priorities Allocate 37,330 crore to the Ministry of Health & Family Welfare. Of this, the new National Health Mission (combines NRHM & proposed NUHM) will get 21,239 crore, an increase of 24.3% over the RE Rs. 4,727 crore for medical education, training & research Rs. 1,069 crore to the Department of AYUSH The National Program for the Health Care of Elderly is being implemented in 100 selected districts of 21 states

EDUCATION
Allocate Rs. 65,867 crore to the Ministry of Human

Resource Development Sarva Shiksha Abhiyan (SSA) Rs. 27,258 crore Right to Eductaion Act (1st April, 2010, Article 21A) Rashtriya Madhyamik Shiksha Abhiyan (March 2009) alloted Rs. 3,983 crore Scholarships 5,284 crore Mid-Day Meal Scheme (15th August,1995) Rs. 13,215 crore The Govt. is committed to the creation of Nalanda University as a centre of educational excellence

ICDS
Allocate Rs. 17,700 crore in 2013-14

(15,850- 2012-13) representing an increase of 11.7% The focus will continue to be on early childhood care & education

DRINKING WATER
Allocate Rs. 15,260 crore to the Ministry of

Drinking Water and Sanitation Provide rs. 1,400 crore towards setting up water purification plants

RURAL DEVELOPMENT
Allocated Rs. 80,194 crore
MGNREGS (Feb,2006) -

Rs. 33,000 crore PMGSY (25 Dec, 2000) Rs. 21,700 IAY (1985-86) Rs. 15,184 The budget proposed to carve out PMGSY-II and allocate a portion of the funds to the new programs that will benefit states such as AP, Haryana, Karnataka, Maharashtra, Punjab & Rajasthan

JNNURM
Jawaharlal Nehru National Urban Renewal Mission is

being continued in the 12th plan (2005-2012) Allote Rs. 14,873 crore

AGRICULTURE

The average annual growth rate of agriculture 9th FYP 2.5% 10th FYP 2.4% 11th FYP 3.6% Total food grain production 2012-13- over 250 MTs Agricultural exports from April to December, 2012 have crossed Rs. 138,403 crore Allocate Rs. 27,049 crore to the Ministry of Agriculture Of this, agricultural research will be provided Rs. 3,415 crore

AGRICULTURE
Agricultural credit is the driver of agricultural

production It is a state subject Agricultural credit target for 2013-14 Rs. 700,000 crore Interest subvention scheme for short-term crops loan continued 4% per annum The budget proposed to extend the scheme to crop loans borrowed from private sector scheduled Commercial Banks

GREEN REVOLUTION
Continue to support the eastern Indian states with an

allocation of Rs. 1000 crore in 2013-14 Crop diversification Punjab & Haryana Rashtriya Krishi Vikas Yojana (RKVY-Aug 16, 2007) 9,954 crore to mobilize higher investment in agriculture 11th plan allocation was 25,000 crore National Food Security Mission (NFSM-Rabi, 2007-08) 2,250 crore intended to bridge yield gaps Integrated Watershed Program Rs. 5,387 crore

PROPOSED INSTITUTIONS
National Institute of Biotic Stress Management for

addressing plan protection issues will be established at Raipur, Chhattisgarh Indian Institute of Agricultural bio-technology will be established at Ranchi, Jharkhand

NATIONAL LIVESTOCK MISSION

NLM will be launched in 2013-14 to attract investment

and to enhance productivity taking into account local agro-climatic conditions The budget proposed to provide Rs. 307 crore for the mission There will be a submission for increasing the availability of feed and fodder

FOOD SECURITY
National Food Security Bill is a promise of the UPA

Government The budget set apart Rs. 10,000 crore, over and above the normal provision for food subsidy, towards the incremental cost that is likely under the Act

INVESTMENT, INFRASTRUCTURE & INDUSTRY

The growth rate of an economy is correlated with the

investment rate Investment is an act of faith. Doing business in India must be seen as easy, friendly and mutually beneficial. It is the infrastructure that needs large volumes of investment The 12th plan projects an investment of USD 1 trillion or Rs. 55, 00,000 crore in infrastructure The plan envisages that private sector will share 47% of the investment

INVESTMENT IN INFRASTRUCTURE
Govt. has taken or will take the following measures to

increase investment in infrastructure:

1) 2) 3) 4) 5)

Infrastructure Dept Funds (IDF) will be encouraged India Infrastructure Finance Corporation Ltd (IIFCL), in partnership with the ADB In the last two years, a number of institutions were allowed to issue tax free bonds Multilateral Development Banks ADB, World Bank NABARD operates the Rural Infrastructure Development Fund (RIDF). RIDF has successfully utilized 18 tranches so far. The budget proposed to raise the corpus of RIDF-XIX in 2013-14 to Rs. 20,000 crore

ROAD CONSTRUCTION
Govt. has decided to constitute a regulatory authority

for the road sector

CABINET COMMITTEE ON INVESTMENT (CCI)

Revival of investment in the industrial sector,

especially manufacturing, is a key challenge CCI has been set up to monitor investment proposals as well as projects under implementation, including stalled projects, and guide decision-making in order to remove bottlenecks and quicken the pace of implementation

NEW INVESTMENT
A company 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 aim to attract new investment and to quicken the implementation of projects The National Electronics Policy, 2012 is intended to promote manufacture of electronic goods in India

SAVINGS
Increasing savings and their optimal allocation for

productive uses lead for higher economic growth High saving rate 36.8% - 2007-08 Gross domestic saving fell by 6% points in 2011-12 The private, comprising households and corporate, remains the main contributor to saving The household sector must be incentivized to save in financial instruments rather than buy gold

MEASURES TO INCREASE THE AMOUNT OF SAVING

Rajiv Gandhi Equity Savings Scheme (proposed in the

budget, 2012-13 income tax deduction of 50% on retail investments of up to Rs. 50,000 made directly in equities by those earning an annual income of less than Rs. 10 lakh) will be liberalized to enable the first time investor to invest in mutual funds as well as listed shares Home loan interest deduction Inflation Indexed Bonds or Inflation Indexed National Security Certificates

INDUSTRIAL CORRIDORS
Delhi Mumbai Industrial Corridor (DMIC) project has

made rapid progress Work on two new smart industrial cities at Dholera, Gujarat and Shendra Bidkin, Maharashtra will start during 2013-14 support of Japan The department of Industrial Policy and Promotion (DIPP) & the Japan International Cooperation Agency (JICA) are currently preparing a comprehensive plan for the Chennai Bengaluru Industrial Corridor The next corridor will be the Bengaluru Mumbai Industrial Corridor

LEH-KARGIL TRANSMISSION LINE

To improve power supply in the Leh-Kargil region and

connect the Ladakh region to the northern grid, the govt. will construct a transmission system from Srinagar to Leh at a cost of Rs. 1,840 crore. The budget proposed to provide Rs. 226 crore in 2013-14 for the project

CURRENT AFFAIRS HEAD II

Brazilian Roberto Azevedo new head of

WTO Replaced Frenchman Pascal Lamy Azevedo Brazilian career diplomat 159 member WTOs Geneva based He has been Brazils WTO Ambassador since 2008

CURRENT AFFAIRS - SPORTS

Sir Alex Ferguson Manchester United

Manager retirement Took over from Ron Atkinson in 1986 and has won 13 league titles - 5 FA

cups 2 Champions League

PORTS
Two major ports will be established in

Sagar, WB and in AP A new outer harbour will be developed in the VOC port at Thoothukodi, TN

NATIONAL WATERWAYS
Five inland waterways have been declared as national

waterways Move a Bill Lakhipur Bhanga stretch of river Barak in Assam as the 6th national waterway The first transport contract has been awarded in WB from Haldia to Farakka

COAL
We must reduce our dependence on

imported coal Coal imports during the period AprilDecember, 2012 have crossed 100 MTs It is estimated that imports will rise to 185 MTs in 2016-17

MICRO, SMALL & MEDIUM ENTERPRISES

Enhance the refinancing capability of

SIDBI(April,2,1990) from the current level of Rs. 5,000 crore to Rs. 10,000 crore per year SIDBI set up the India Microfinance Equity Fund in 2011-12 Rs. 100 crore

TEXTILES
Continue the Technology Upgradation Fund Scheme (TUFS) for the textile sector in the 12th plan with an investment target of Rs. 151,000 crore
The major focus would be on modernization of the powerloom sector. The budget provide Rs. 2,400 crore in 2013-14 for the purpose Textile parks have been set up under Scheme for Integrated Textile Parks (SITP)

TEXTILES
A new scheme with an outlay of Rs. 500

crore called the Integrated Processing Development Scheme will be implemented in the 12th plan to address the environmental concerns of the textile industry, including improving the effluent treatment infrastructure. The budget provide Rs. 50 crore in 2013-14 for the scheme

FINANCIAL SECTOR
Financial sector is at the heart of the economy
Govt. constituted the Financial Sector Legislative

Reforms Commission (FSLRC) in 2011

BANKING
Rs. 12,517 crore to infuse additional capital into 13

public sector banks In 2013-14 budget allocated further amount of Rs. 14,000 crore for capital infusion Ensure that public sector banks always meet the Basel III regulations Bring all banks under core banking solutions (CBS) CBS and e-payment systems by 31/12/2013 Rs. 1000 crore to set up Indias 1st Womens Bank as a PS bank

HOUSING SECTOR BANKING

The Rural Housing Fund set up

through the NHB is used to refinance lending institutions, including RRBs, that extend loans for rural housing Budget proposed to start a fund for urban housing to mitigate the huge shortage of houses in urban areas

INSURANCE
IRDA
Rashtriya Swasthiya Bima Yojana ULIPs (Unit Linked Insurance Plans), a highly popular

hybrid financial product marketed by the insurance companies The SEBIs case that ULIPs with a large investment component were oriented more towards the capital market than to life insurance and, therefore, should be regulated by SEBI and not IRDA Ordinance ULIPs will be regulated by IRDA

CAPITAL MARKET
Best regulated market SEBIs (1988 as per the recommendations of the G.S. Patel

Committee in 1992- statutory body through an Act) silver jubilee year 2013 - SEBI set up a new Committee headed by former Chief Justice of Karnataka HC, Justice N.K. Sodhi to review insider trading norms (6/3/13) Some proposals simplify the procedures In order to remove the ambiguity that prevails on FDI & FII adopt international practice and lay down a broad principle where an investor has a stake of 10% or less in company treated as FII More than 10% - treated as FDI A committee will be constituted to examine the application of the principle and to work out the details expeditiously

ENVIRONMENT
Waste to energy project promotion
Clean & Green energy is a priority of the Govt. The budget proposed to reintroduce generation-based

incentive for wind energy projects and provide Rs. 800 crore to the Ministry of Non Renewable Energy for the purpose.

OTHER PROPOSALS
Backward Regions Grant Fund (BRGF) is a vital source

of gab funding Rs. 11,500 crore in 2013-14 BRGF will include a state component for Bihar, the Bundelkand region, WB, the KBK districts of Odisha and 82 districts under the Integrated Action Plan Skill Development NSDC We have set an ambitious target of skilling 50 million people in the 12th plan period, including 9 million in 2013-14 NRLM & NULM releasing funds

DEFENCE
Allocation for defence to Rs. 203,672 crore

SCIENCE & TECHNOLOGY

Rs. 6,275 crore to the Ministry of S&T
Rs. 5,615 crore to the Department of Space Rs. 5,880 crore to the Department of Atomic Energy Problem we do not pay enough attention to S & T for

the common man Institutions of Excellence

SPORTS
The budget proposed to set up the

National Institute of Sports Coaching at Patiala

PANCHAYATI RAJ
The Rajiv Gandhi Panchayat Sashaktikaran

(RGPSA) was started in 2013 with a modest allocation of Rs. 50 crore Allocated Rs. 455 crore to the Ministry of Panchayati Raj in 2013-14

GHADAR MEMORIAL
To mark the centenary of the Ghadar

movement, the Govt. will fund the conversion of the Ghadar memorial in San Francisco into a museum and library

CENTRAL SCHEMES
Reduced from 173 in number (11th plan)

to 70 schemes As a part of fiscal consolidation

MAKE THREE PROMISES

1st is the face of the woman Nirbhaya Fund
2nd is the face of the Youth - NSDC 3rd face of the poor Direct Benefit Transfer scheme

BUDGET ESTIMATES
Plan Expenditure

Rs. 5,55,322 crore 33.3% of

total expenditure Non plan Expenditure Rs.11,09,975 crore FD 5.2% (2012-13) - 4.8% (2013-14) RD 3.9 ,, - 3.3% ,, By 2016-17 bring down the FD 3% - RD 1.5% and the Effective RD to zero FRBM Act

PART- B : TAX PROPOSALS

An emerging economy must have a tax system that

reflects best global practices The budget propose to set up a Tax Administration Reform Commission to review the application of tax policies and tax laws and submit periodic reports that can be implemented to strengthen the capacity of our tax system

TAX GDP RATIO

In 2011-12, the ratio was 5.5% for Direct Taxes

and 4.4% fro Indirect Taxes Aggregate 9.9% (lowest ratio we must reclaim that peak) In 2007-08 the ratio touched a peak of 11.9% Laffer Curve

DIRECT TAXES
Current slabs of personal income tax were introduced

only last year no change in the budget The budget give some relief to the tax payers in the first bracket of 2 lakh to 5 lakh tax credit of Rs. 2,000 1.8 crore tax payers are expected to benefit to the value of Rs. 3,600 crore Fiscal consolidation both PE cut & augment PR

SUPER RICH TAX

The budget proposed to impose a surcharge of 10% on

persons whose taxable income exceeds Rs. 1 crore 42,800 persons Increased the surcharge from 5% to 10% on domestic companies whose taxable income exceeds Rs. 10 crore In the case of foreign companies, who pay the higher rate of corporate tax, the surcharge will increase from 2% to 5% Dividend distribution tax or tax on distributed income increase the current surcharge of 5% to 10% Educational cess for all tax payers shall continue at 3%

INCOME TAX SLAB

BASE OF THE TAX RATE OF THE TAX

Up to 2 lakh 2.1 lah t0 5 lakh 5.1 lakh to 10 lakh Above 10 lakh 60-79 age group 80 & above age

Nil 10% 20% 30% 2.5 lakhs nil 5 lakh - nil

SOME FACTS
Venture Capital Funds the relevant regulations of SEBI

have been replaced by Alternative Fund Regulations registered with SEBI Introduced Commodities Transaction Tax (CTT) on nonagricultural commodities futures contracts The Finance Act, 2012 introduced the General Anti Avoidance Rules (GAAR) An expert committee was constituted to consult stakeholders and finalize the GAAR guidelines Impermissible tax avoidance arrangements will be subjected to tax The budget proposed to bring the modified provisions into effect from 1/4/2016

SOME FACTS
The Rangachary Committee was appointed to look

into tax maters relating Development Centers & IT sector and Safe Harbor Rules for a number of sectors The 5th Large Tax payer Unit will be opened at Kolkata shortly Income tax department is rapidly moving towards technology based processing (e-filing) Central Processing Cell set up at Bengaluru & Central Processing Cell-TDS inaugurated a few days ago at Vaishali, Ghazibad

DIRECT TAX CODE (DTC)

Income Tax Act 1961 2011 marked the 50th year
Proposed to a new code based on the best

international practices that will be compatible with the needs of a fast developing economy

INDIRECT TAXES
Customs duty

peak rate 10% - no change Excise duty - 12% ,, Service tax - 12% ,, As a measure of relief to the ship building industry exempt ships and vessels from excise duty Increased the specific excise duty on cigarettes by about 18% Items under service tax enlarged levy service tax all air conditioned restaurants

ESTIMATES
T he budget proposals on the Direct Taxes side are

estimated to yield Rs. 13,300 crore Indirect Taxes side Rs. 4,700 crore

GOODS AND SERVICES TAX (GST)

GST first mentioned in the budget of 2007-08 and

planned to implement on 1/4/2010 Need constitutional amendment GST council Compensation

CONCLUSION
India 10th largest economy in the world
We can become 8th, or perhaps 7th largest by 2017 By 2025, we could become a USD 5 trillion economy

and among the top five in the world Swami Vivekananda (Jan 12th 1863), whose 150th birth anniversary we celebrate in 2013, told the people: All

the strength and succour you want is within yourself. Therefore, make your own future.

RUPEES COMES FROM

1.
2. 3. 4. 5. 6. 7. 8.

Borrowing & other liabilities Corporate Tax Income Tax Union Excise Duties Customs Duties Service Tax & other Taxes Non-Tax Revenue Non-Debt Capital Receipts -

27 21 12 10 9 9 9 3

RUPEES GOES TO
1.
2. 3. 4. 5. 6. 7.
8.

Central Plan Interest Payments States share of taxes & duties Subsidies Other non-plan expenditure Defence Plan assistance to states & UTs

Non-plan assistance to states & UTs -

21 18 17 12 11 10 7 4