Presenting his interim budget for 2014-15 in the Lok Sabha, the finance minister also offered a package of indirect tax benefits to push spending and investment in consumer durables and capital goods sectors. Chidambaram’s giveaways appeared to be aimed at appeasing a sizeable section of middle-class voters — from women to students to ex-servicemen, as his Congress Party prepares to fight one of the toughest electoral battles within the next three months.
Cars, motorcycles, television sets, washing machines and their likes, which have recorded sales declines in the past several quarters, emerged clear winners this time.
Mobile phones priced less than Rs 2,000 will cost more after Chidambaram proposed to levy a uniform excise duty of 6 per cent on all handsets. But this would be a boon for local handset makers, the industry said.
The moratorium on education loans is expected to benefit 9 lakh borrowers, and it will cost the exchequer Rs 2,600 crore. There are an estimated 20 lakh ex-servicemen who will benefit from the one-rank, one-pension scheme.
The indirect tax concessions apart, Chidambaram did not propose any change in the existing taxation regime, both direct and indirect. However, since the interim budget is essentially a vote-on-account for the first three month of the next fiscal year beginning April, a new government, which will assume office after the general elections scheduled in April-May, will come out with a full-fledged budget.
Chidambaram had enough of a rationale not to raise taxes anywhere in the name of giving stunted economic growth a desired push, leaving it completely to the next government to look for ways to mobilise revenues. In keeping the buoyant mood of the pre-election budget theme, the 10 per cent surcharge on super-rich with annual income of above Rs 1 crore was left untouched.
Besides, the one-rank, one-pension scheme for defence forces entails Rs 500 crore by way of expenditure in 2014-15. The corpus of the Nirbhaya Fund, floated in last year’s budget for safety of women, was raised by Rs 1,000 crore.
Allocations for social sectors and related ministries were either enhanced or kept at the same level for the UPA’s flagship programmes to run efficiently. Allocations to poverty alleviation programmes, which also include urban housing, were raised by a whopping Rs 6,008 crore in 2014-15 from last year’s Rs 1,208 crore. The Minority Affairs Ministry’s share was enhanced to Rs 3,734 crore in 2014-15 from the revised estimates of Rs 3,130 crore last year.
Nevertheless, it was the fiscal deficit number of 4.6 per cent for the current fiscal which pleased investors and ratings agencies – a number arrived at by postponing a huge part of the government’s liabilities onto the next one. The finance minister resorted to rolling over Rs 35,000 crore in fuel subsidies from the current fiscal to the next, and similarly slashed close to Rs 80,000 crore in planned expenditure during the current fiscal.
Although Chidambaram said subsidies should be given only in case of absolute necessity, his Budget projected food subsidy outgo for 2014-15 at Rs 1.15 lakh crore and fuel subsidy at Rs 65,000 crore. Taken with the rollover of Rs 35,000 crore, the fuel subsidy bill alone works out to Rs 1 lakh crore. Fertiliser subsidy has been pegged at Rs 74,000 crore.
Chidambaram also insisted on the need to cut interest rates in order to revive growth and claimed that some amount of inflation is unavoidable in a growing economy.
The finance minister, however, rejected allegations of policy paralysis for an economy which has logged the lowest growth rate in a decade and a drastic drop in investment, which has sparked fears of a investment ratings downgrades by global ratings firms.