The
Hon’ble Finance Minister presented union budget in the parliament on 28th
February’2013. The task was difficult as our economy is under pressure due to
more of internal issues like fiscal deficit, current account deficit,
inflation, higher interest rates and falling rupee. In
the current year, the CSO has estimated the GDP growth at 5 percent while the
RBI has estimated growth at 5.5 percent which is the lowest in recent
past. The budgetary deficit is
estimated at 5.2% of the GDP for FY 2013 and is estimated at 4.8% for FY 2014. Given all circumstances prevailing presently he has
tried his best to balance the budget by not increasing taxes on middle and poor
class and at the same time taken steps
to maintain fiscal deficit levels to keep the foreign investors in good humour.
He had no option but have to give world a message that he means business by
maintaining the deficit. He did a good job by taxing the
corporate and upper class more and spares the middle and poor class as the
general elections are round the corner.
He
started his speech with his concern over current account deficit. He quoted “My greater worry is the current account deficit
(CAD). There are only three ways before
us: FDI, FII or External Commercial
Borrowing (ECB). That is why I have been at pains to state over and over again
that India, at the present juncture, does not have the choice between welcoming
and spurning foreign investment. If I
may be frank, foreign investment is an imperative. What we can do is to encourage foreign
investment that is consistent with our economic objectives”. The message
was loud and clear that Government wants to address the deficit first as
foreign investors have shown serious concern over the issue. Even RBI has taken
a cautious stand on deficit and has reduced repo rate only by 0.25% in last
review. He needs to address the same on priority as the threat of down grade
was also looming large on our head since few months. Looking at seriousness of
the issue he did not announce any major changes in Income Tax, Excise duty and
service tax laws. There is no change in personal income tax slabs except a rebate of up to Rs. 2,000 for the small
tax payers having income less than 5 lakhs. A 10% levy of surcharge is also
introduced on tax payers where the total income is above 1 crore. There is no change in the peak rate of basic customs duty
of 10 percent for non-agricultural products. Also there is no change proposed
in the normal rate of excise duty and service tax of 12 percent.
He
has also announced some measures to attract foreign investment which are as
follows.
§ FIIs
will be allowed to participate in the exchange traded currency derivative
segment to the extent of their Indian rupee exposure in India.
§ FIIs
will also be permitted to use their investment in corporate bonds and
Government securities as collateral to meet their margin requirements.
§ With a view to attract
investment in long term infrastructure bonds in foreign currency, the rate of
tax on interest paid to non-resident investors was reduced last year from 20
percent to 5 percent. The same is
extended for another year to investment made through a designated bank account
in rupee-denominated long term infrastructure bonds.
The current
budget for the society at large was like a non event as it has failed to
address local issues and growth specifically. The stock market also reacted
negatively and the mood of the market is not good for the investment as people
fear down trend to continue. The real worry still is there is no road map
suggested for reducing the current account deficit and also there is no word on
disinvestments target for next year. The future course of course depends on how
the foreign investors take their call on measured taken by FM to reduce the
fiscal deficit. Investors need to be extra careful while investing in equity
and should prefer SIP route of mutual fund.
