Millennium Post

Painting a glorious picture

Finance Minister P Chidambaram utilised the vote-on-account budget for 2014-2015 he presented to the Lok Sabha on 17 February to project a story of ‘unparalleled’ growth record of UPA government in its 10 years of power (2004-2014) coupled with an appeal to political parties to carry forward left-over tax reforms (DTC and GST) and ensure continued stability of the Indian economy.

Understandably, there were no policy pronouncements with the country going to polls in less than three months and thus Chidambaram could elaborate on UPA’s record of achievements in fiscal management and ‘stellar’ performance in agriculture at an annual average of four per cent.

Chidambaram cited credible data on emerging signs of growth recovery to around five per cent in 2013-2014 and a significant drop in the headline inflation from seven to 5.05 per cent in January and predictably trumpeted his success in containing the fiscal deficit to 4.6 per cent of GDP, lower than the ‘red line’ (4.8 per cent) he had set for himself and the revenue deficit at 3.3 per cent.

Also, the current account deficit had been brought down from 88 billion in fiscal 2013 to 45 billion in 2013-2014 and adding 15 billion to the country’s foreign exchange reserves. There are now no threats of any ‘downgrade’ by international credit agencies, and Chidambaram hoped Indian experts too would now agree that ‘UPA did what it had meant’.

The finance minister firmly rejected the oft-heard ‘policy paralysis’ in UPA and said, ‘Our way of governance has not come in the way of lifting 140 million people out of poverty in the last 10 years.  That is the greatest achievement of the UPA government, and we are proud of it’.

Addressing himself to whichever party takes charge of the nation, Chidambaram said, ‘We owe responsibility to whole world to keep our economy in robust health’. Such tasks, apart from manufacturing and infrastructure, would include fiscal consolidation – to achieve target of three per cent by 2016 – as envisaged in the UPA’s road map. He also suggested that RBI, in its monetary policy, must try to balance between price stability and growth.

The vote-on-account budget has kept plan expenditure in 2014-2015 at current year’s level of Rs 5,55,322 crores while non-plan expenditure would be Rs 12,07,892 crores as at present. Defence expenditure would increase by 10 per cent to Rs 2,24,000 crore.

The budgeted receipts and expenditure totalling Rs 17,63,214 crores in 2014-2015 would leave a fiscal deficit of 4.1 per cent, which would be below the target set by the new fiscal consolidation path.  Revenue deficit is estimated at 3.0 percent in 2014-2015. These estimates would certainly undergo changes with the new policies that the post-election government at the centre would come up with in the final budget for 2014-2015 by June-July.

But Chidambaram took care to point out, for the next government, that the economy ‘is more stable today than what it was two years ago’, with inflation moderating, fiscal deficit declining, exports rising, exchange rate being stable and current account deficit being contained.

While not proposing any new taxes by an outgoing government, the finance minister announced indirect tax concessions, mainly union excise to give a boost to manufacture, especially the automobile sector. To stimulate growth in capital goods and consumer non-durables, the excise duty has been revised from 12 to 10 per cent on all goods falling under 84 and 85 of the schedule to the Central Excise Tariff for the period upto 30 June and these rates can be reviewed at the time of the regular budget.

Similarly, relief has been provided for the automobile industry, which has been registering negative growth. For small cars, motor cycles, scooters and commercial vehicles, the duty would be reduced from 12 to eight per cent and for SUVs from 30 per cent to 24 per cent. Some reduction has also been made for large and mid-segment cars. Chidambaram was also at pains to point out that the state of world economy which had slowed over the last three years was the ‘decisive factor’ affecting all developing countries and India was no exception.

In his review of economic developments in the year ending March 2014, Chidambaram referred to clearance of 296 projects by the Cabinet Committee on Investment with estimated cost of Rs 6,60,000 crores. But the UPA government moved into action on such clearances after long delays invited criticism from both industry and global institutions.

While there was sharp recovery in India’s exports which are estimated to reach 326 billion dollars in current year, and it helped to narrow trade deficit, the equally sharp reduction in imports had become a matter of concern for manufacturing and domestic trade sector. The finance minister attributed the sluggish growth in manufacturing sector to the deceleration in investment. The UPA government’s National Manufacturing Policy of 2011 with laudable goals in raising the share of manufacture in GDP to 25 per cent and generation of 100 million jobs over a decade, is yet to show signs of take-off. Projecting a vision for future, Chidambaram listed major tasks such as fiscal consolidation (three per cent of GDP by 2016-2017), limiting subsidy to the absolutely needy and price stability and growth, i.e.  growth which entails only a moderate level of inflation. Other tasks included completion of financial sector reforms as proposed by the Financial Legislative Reforms Commission, massive investment in infrastructure through public-private partnership, targeting subsidy to the absolutely needy, management of urbanisation and priority for skill training with
secondary and university education.

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