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Friday, March 1, 2013

Political Mirror: Budget 2013-14

Allow me to assert at the outset that this budget is far more visionary than it actually looks. I will try not getting into a debate of any kind; to ensure beforehand I have no intentions of rating this budget as “Good, bad or ugly”. Having made my intentions clear, it makes for an interesting discussion on how this budget is a smart move, considering 2014 (Read: elections) is just a stone’s throw away.

Our economy has taken a hit from the cold winds of the west; investments have been low, supplemented by zooming inflation that has resulted in lowest rate of GDP growth we have seen in the last decade or so. If that was not all UPA had little support from RBI, and rightly so taking inflation into account. It was a clear stand from RBI- tackle inflation, and until then let’s not think about tinkering with bank rates.

Amid such hullabaloo arrived the budget session, and the ball was in PC’s (Read: Palaniappan Chidambaram) court. There was little margin for error and it seems PC endorsed the view- “when it gets complicated, stick to the basics”.

Deficit management and reinstating fiscal discipline were at the top of PC’s agenda. PC assured fiscal deficit (total expenditure-{revenue receipts + recoveries of loan + other receipts}) shall be restricted to 5.3% of GDP this year, further declaring 4.8% as next year’s target. Spontaneous question now is- how credible is this target? Well PC managed to bring down fiscal deficit this year to 5.3% where most analysts claimed that it would be impossible to slip below 5.8%. On face value it seems PC has played a masterstroke by imposing a 10% surcharge (temporary) on taxable income of over Rs 1 Cr. 4.8% target looks more than pragmatic. New tax is estimated to raise Rs 18,000 Cr.

Applauding the robustness of capital market regulations, PC has simplified norms for foreign institutional investors (FIIs) at entry level. Foreign direct investment will further act as a life saver and a supplement in tackling the widening gap between exports and imports. It shall help restore our current account deficit to acceptable standards.

While we are still unaware of the effectiveness of effective revenue deficit (revenue deficit-grants for creation of capital assets), on papers it definitely slipped to 3.3% of revenue deficit (revenue expenditure-revenue receipts) to 1.8% as effective revenue deficit. Thanks to the troubleshooter Mr. Mukherjee who introduced this all together new term in Indian economy.

The above measures are clearly in the direction of netting inflation by the end of this year. If we see closely fiscal deficit, revenue deficit and current account deficit have direct association with inflation. Inflation moves in the same direction as these deficits on the parallel path, and this budget’s impact might just start to show up as 2014 arrives.

Discussed measures shall help bring down inflation; in return UPA will have RBI’s support with liberal bank rates inducing a better investment environment providing much needed fuel for GDP growth. However, intentions have been made clear for a better investment environment by providing 15% allowance for investments over Rs 100 Cr.

Having discussed the core economic side and its possible effects, PC had something in store as a women’s bank to woo women and not to forget the “Nirbhaya fund”, Rs 90000 Cr. Allocation to food security bill is being considered as a welcome move, smokers have a higher price tag on their addiction while luxury cars may now have an elevated snob appeal (apologies if I sound diplomatically incorrect). These measures will surely hit the bull’s eye of social target.

As expected mobile phones will cost more, which now more or less draws a vertical curve on the demand graph considering mobile phones are a necessity these days.

While the debates are on over how good, bad or ugly this budget is, UPA clearly has a sorted out path leading them to 2014. The major economic crack of inflation and inadequate investment which has been dampening growth has been looked into, and social buttons have been turned on at the right time. These measures might just restore our economy in time and come the monsoon session, PC will be ready with the GST (goods and services tax) turbo-booster, which is expected to change the face of India’s supply chain.

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