Union Budget 2013 - Analysis
The Union Budget of 2013-14 held special importance this year as it was announced in the backdrop of a challenging macroeconomic environment where India had achieved its lowest GDP growth in a decade. Characterized with a depressed global economic outlook and prevalence of domestic policy bottlenecks, the year started with news that the previous fiscal’s fourth quarter GDP had dropped to 5.5%. That coupled with low growth, macro-economic issues such as high fiscal deficit, expansionary subsidies and worsening current account balance has added to the slowdown. Expectations were therefore high as to the path the Finance Minister will take in guiding the Indian economy to recovery.
Though there were no high profile announcements or big recovery plans outlined, the Finance Minister did not disappoint. He acknowledged the pain points in the economy and recognized that to boost industrial sector growth, proactive actions would be needed. Policy announcements on creating additional industrial corridors and promoting micro, small and medium enterprises through SIDBI are welcome. However, often we have seen that such policy announcements need strong ground level implementation.
A key positive aspect of the Budget was in respect to commitment shown towards the fiscal consolidation plan. Despite the fact that planned expenditure has increased by almost 30% from the last year, the Finance Minister continued to target fiscal deficit of 4.8% in 2013-14. The Finance minister also announced that fiscal deficit for 2012-13 has been limited to 5.2%. This is clearly due to the focused measures undertaken in the second half of the year in cutting expenditure. With lower than estimated tax collections, meeting fiscal deficit targets was always going to be difficult. The Finance Minister needs to be lauded on this.
Coming to the direct tax policies, not many amendments are suggested in the budget. With regard to GAAR, announcements made by the Finance Minister in January 2013 have been partially incorporated in the legislation. This is expected to provide some level of assurance. On personal taxes, a surcharge of 10% has been introduced on individuals with taxable income in excess of Rupees 1 crore for a period of one year. An important amendment relates to tax on royalty and fees for technical services to non-residents which stands increased from 10% to 25%. Showing his commitment to infrastructure, the Finance Minister has extended the tax holiday in the power sector by one year for commencement of operations. As a matter of comfort, the Finance Minister reiterated his commitment to the Direct Taxes Code by mentioning that the Bill will be tabled in parliament before the end of the budget session.
On indirect taxes, the peak rate of customs duty, excise duty and service tax have remained unchanged though reduction has been provided on basic customs duty related to certain articles. The scope of the negative list has been proposed to be expanded to include courses offered by institutes affiliated to the State Council for Vocational Training and testing activities in relation to agricultural produce. On the service tax front, exemptions related to certain services have been curtailed.