K A L E I D O S C O P E

prime concern
union BUDGET 2013 
All eyes on Chidambaram
The UPA-II government will present its last Budget on February 28. Fiscal deficit, inflation and fall in consumption are the major challenges, as are the expectations of the people. With GDP growth down to 5 per cent, can Chidambaram deliver a dream Budget the country is hoping for?
By Sanjeev Sharma
As Finance Minister P. Chidambaram presents the last Budget of the UPA-II government it will be a challenging task to maintain the fiscal balance while at the same time giving a please-all Budget ahead of the 2014 general election.

What the industry wants

States looking for regional incentives
Ruchika M Khanna
With the Finance Minister giving final shape to his Budget proposals for the year 2013-14, the industry, agriculture sector and common man is hoping he will have a ready concoction to do away with the sagging economic conditions in the country.

prime concern
union BUDGET 2013 
All eyes on Chidambaram
The UPA-II government will present its last Budget on February 28. Fiscal deficit, inflation and fall in consumption are the major challenges, as are the expectations of the people. With GDP growth down to 5 per cent, can Chidambaram deliver a dream Budget the country is hoping for?
By Sanjeev Sharma

As Finance Minister P. Chidambaram presents the last Budget of the UPA-II government it will be a challenging task to maintain the fiscal balance while at the same time giving a please-all Budget ahead of the 2014 general election. But this is not a new challenge for Chidambaram, who has in the past delivered many dream Budgets and conceived the farm loan waiver scheme in 2009 which was a big factor in the victory of the UPA in the elections. However, this time the economic situation is far from rosy with India set to register its slowest growth in a decade.

In his road shows across Asia and Europe last month, Chidambaram spelled out that the Budget, to be presented on February 28, will stick to the 5.3 per cent fiscal deficit target for this fiscal and 4.8 per cent for next year as announced earlier by the government.

Public policy expert Ramesh Adige says, “Reining in fiscal deficit is crucial. Credit rating agencies may otherwise not only give negative outlook, but also may actually downgrade sovereign rating”.

The message to foreign investors is to expect a “responsible” Budget that will carve a credible path for fiscal consolidation. The markets are enthused by the Finance Minister’s message and recent reform measures of the government. The BSE Sensex crossed the 20,000 mark recently, mainly on account of foreign inflows as globally the liquidity is very high, with the US and Europe giving stimulus packages. However, retail participation has been absent from the stock market rally and small investors are in fact liquidating their old positions as they had been stuck for almost five years, the last time when the stock market touched the 20k mark.

Warning signs

Thumbs up to Sensex crossing the 20,000 mark Growth in foreign inflows The challenges Raising tax-GDP ratio Consumer price inflation rising at 10.8 per cent Investments slack Industrial production for December negative Car sales set to register negative growth for first time in a decade Consumption under strain Job creation

The news on the economy, however, is not good with the Central Statistical Organisation (CSO) projecting a GDP growth of an alarming 5 per cent this year. The Finance Ministry believes it will be higher at around 5.5 per cent. Industrial production for December has turned negative and consumer price inflation is rising at 10.8 per cent and car sales are set to register a negative growth for the first time in a decade.

While the reform measures initiated by the government in the last few months had boosted sentiment of industry and investors, evidence on the ground suggests that weakness in the economy continues. Investments are not happening due to several factors and many projects remain stuck. Investment activity is the key to revive the growth momentum which will create jobs and accelerate economic activity. A think tank associated with the Planning Commission has submitted a report which suggests growth in the last few years has not created enough jobs.

The second leg of the economy, consumption, which was holding up in the last couple of years, is also coming under strain now, as exhibited in results of consumer companies with persistent inflation and increasing expenses of households on food, LPG, diesel, electricity, telecom and other expenses that have gone up while incomes remain stagnant. The current account deficit remains very high and is being funded by fickle FII inflows that could be risky.

Indications are that the Budget will focus on controlling the fiscal deficit, which will in turn help counteract inflation. The fiscal situation is also important as rating agencies had warned of a downgrade last year and though that threat has waned, it has not disappeared altogether.

The focus will also be on giving a growth and investment-oriented Budget as the government strategy has been to give “bitter medicine” in the run-up to the Budget (LPG, diesel, rail hike) so that the fiscal situation is eased and hope to return to a high growth trajectory later in the year.

Job creation will be another thrust area and with Rahul Gandhi taking on a more serious role within the Congress, youth-oriented schemes are expected. Lack of adequate job creation due to the slowdown in the economy and lack of investments will be of concern to the middle class, which the Congress cited as a key constituency in the Jaipur conclave. Going into an election year, focus on agriculture and agri-based industries will also be a priority.

Tax collection

Collecting income tax and raising the tax-GDP ratio, which is among the lowest in the BRIC (Brazil, Russia, India and China) countries, has been a problem that successive governments have faced. Apart from the top 1,000 or so companies and the salaried employees, income tax collections from the remaining strata have been a huge problem despite several measures. The Finance Ministry lamented that only 14 lakh people have shown an income of more than Rs 10 lakh this year, which by all accounts is not realistic. Widening the tax net is something that is expected from the Budget as the government will need to raise more resources.

Adige says, “It is believed that there are millions of people who are not paying income tax. New measures to bring in these people into the direct tax net are likely to be announced”. The Finance Ministry has announced it has prepared a list of 12 lakh entities who have PAN but have not filed returns and letters are being sent to some 35,000 entities in the first phase.

To maintain the fiscal deficit, the government will have to cut expenditure and boost revenues. On the revenue side, the two big talking points have been inheritance tax and tax on the super rich. Some measures on these lines may come through. A road map on GST could also be announced for its launch in 2014. Some measures to boost equity markets are also on the anvil.

The two big electoral cash cows will be the Direct Cash Transfer (DCT) that the government has launched and the Food Security Bill. The DCT scheme may also help the fiscal deficit. “The DCT is likely to reduce outflow by plugging leaks and preventing bogus muster rolls. The Finance Minister is likely to show savings on this count,” says Adige. 

What the industry wants

Ficci

Avoid imposition of inheritance tax. To impose a tax that could potentially require a promoter to dilute his shareholding in a company merely to pay incidence of inheritance tax is likely to prove counterproductive. The tax could be onerous for illiquid assets, for example, self-occupied housing where the value of the property may have steeply escalated

Introduce measures to avoid litigation and improve dispute resolution process.

Grant pending refund claims of all taxes and duties.

Expedite implementation of Goods and Services Tax (GST) and ensure all central and state taxes are subsumed in the proposed GST framework.

Do away with tax on dividends from investments made overseas.

Maximum rate of personal income tax of 30 per cent be made applicable to income of over Rs 20 lakh rather than Rs 10 lakh as it casts a sizeable burden on the middle class, reducing the disposal surplus in their hands for consumption spending.

CII

On indirect taxes, status quo at the current rates for excise, customs duty and service tax, in order to maintain stability in taxation. The rates may be re-aligned at the time of GST implementation.

Need for kick starting the investment cycle by fast-tracking decision-making process for approval of projects by putting in place policy measures to clear 50 large projects in consultation with state governments and relevant ministries within a pre-decided time frame; raising rate of depreciation from 15 per cent to 25 per cent for investment in plant and machinery in a pre-defined period of three years; and raising Rs 50,000 crore (out of the Rs 4 lakh crore) for asset creation through facilitating the settlement of funds locked up in disputes and litigations.

On fiscal consolidation, raising Rs 50,000 crore through disinvestment, monetising surplus land available with the government, utilising the free cash flows of PSUs (pegged at Rs 41,500 crore) and unlocking assets locked up in chronically sick PSUs. 

States looking for regional incentives
Ruchika M Khanna

With the Finance Minister giving final shape to his Budget proposals for the year 2013-14, the industry, agriculture sector and common man is hoping he will have a ready concoction to do away with the sagging economic conditions in the country. With the country passing through a phase of low growth and almost stagnant business expansion, people across Punjab, Haryana and Himachal Pradesh are hoping the Budget proposals will help uplift the economic sentiment and take the country into another phase of rapid growth. With inflation, especially food inflation, remaining high and employees’ salaries remaining either static or bonuses and perks shrinking, on the wish list is raising tax exemptions for individuals as well as industry, better investment climate, and level playing field vis-a-vis industry located near the ports.

Haryana aspires for exports

Satish Gupta, a former president of the Haryana Chamber of Commerce and Industry, says the industry in the North was becoming incompetitive due to high freight charges. “Since export is based on international pricing, exporters here have to suffer losses by sending goods at the same price as their counterparts in port cities, without calculating the freight cost in the pricing of products. We have been urging the Finance Minister for a freight subsidy.

Wish list Freight subsidy Focus on farm research MSP for more crops Infrastructure development International airports

We also hope that infrastructure development is expedited and international airports are set up to make it convenient for exporters and their clients to do business here. The scope of the Market Development Assistance Scheme should be enhanced to allow exporters to explore new markets,” he says.

On the agriculture front, the region is hoping for an impetus to research and development in the wake of the plateauing of production. Agro-economist Sucha Singh Gill says he hopes Chidambaram initiates measures to make farming economically viable. “We hope for a regional as well as national focus on research and agriculture extension service. There is need for regeneration in agriculture by restoring the fertility of soil. The MSP and procurement for more crops need to be introduced. As many as 2.50 lakh suicides by farmers have been reported. We hope a package for their families is announced,” he says.

Freight hurting Punjab

Amarjit Goyal, chairman of Modern Steels, says the industry is passing through a recessionary phase. “Capital has been eroded in the past two years. There is need for a stimulus package, which should include cutting interest rates on funds. Also, with the Goods and Service Tax (GST) rollout being delayed yet again, the government should cut central sales tax from the present 2 per cent to 1 per cent,” he says.

Wish list Stimulus package for industry Reduction in interest rates Focus on infrastructure Cut in central excise rate Freight concessions Increased tax limit

Maintaining political will is missing, Gaurav Sood, a leather exporter from Jalandhar, says considering the huge revenue and fiscal deficit, he did not expect many sops from the government. “The least it can do is create conducive atmosphere for the industry. This could include investing in infrastructure, which could help the industry get new orders,” he says.

AK Kohli, senior vice-president of the Punjab Chamber of Small Exporters, says northern states should get freight concessions. “Exporters should get a minimum 25 per cent concession on freight rates so they are on a par with exporters based near port cities. Central excise rate should be cut from 12 per cent to 8 per cent,” he says.

HR Saldi, an advocate, feels the only thing the Finance Minister can do for the common man is to raise the limit of income tax. “A period of 30 years has passed but the monetary limit under Section 44 AB of the Income Tax Act has not been raised proportionately. Monetary limit for mandatory tax audit should be based on the cost of inflation index and these should be enhanced according to the rise in the cost of index.

Pharma HP concern

It’s not just in Punjab and Haryana that the industry is under fire because of the weak economic environment. Pawan Chaudhary, chairman and managing director of the Baddi-based Venus Remedies, is also hoping the Finance Minister would take corrective steps to give a fillip to the industry, especially in the healthcare sector. “We expect the overall government focus on healthcare to improve and look forward to policies incentivising healthcare infrastructure in the country. The Budget should give suitable directions to lift confusion over foreign direct investments, national drug pricing policy and essential drugs procurement mechanism,” he says.