While presenting the interim budget, the finance minister juxtaposed the Indian economy against the global economy citing parallels on the economic situation with some of the developed economies of the world. He noted that the Indian economy has been able to sail through the global risks mapped out in Global Risks 2014 report. In his discourse over the performance of the UPA-2 over the last year or so, he seemingly messaged that all is well with the Indian economy and noted the key achievements. Also, as expected, Chidambaram did not miss the opportunity to present his and his partys vision and roadmap for the future which entailed fiscal consolidation, measures to control the current account deficit, price stability and growth, sector reforms, sharing of responsibility between the states and the Centre.
While detailing the achievements of the UPA, the finance minister stated that the fiscal deficit for 2013-14 will be contained at 4.6% (below the red line margin of 4.8%) of the GDP and the current account will be contained at $45 billion. He also pointed out the key achievements of his government in the past one year which included correction of diesel prices, rationalisation of rail fares, the National Food Security Act, the new Companies Act. He also spurned the charge of policy paralysis which the incumbent government has had to face over the past couple of years and stated that the Cabinet Committee on Investment had cleared 296 projects by the end of January 2014. As a pre-poll sop, Chidambaram announced a moratorium period for interest on all education loans borrowed upto March 31, 2009 and outstanding on December 31, 2013. This, along with a number of budget allocations for the needy seemed suggestive of a populist posturing of the government, just before the elections.
The vote-on-account does not seek to make variations in the direct taxes nor does it seek to make any other policy announcements. Keeping in line with tradition, the finance minister did not propose any changes on the direct tax front. The income tax rates, surcharge and cess applicable for the FY14 has been rolled over to FY15, thus the existing rates would continue to be applicable as of now.
Chidambaram, addressing the concern on illegal off-shore accounts held by Indians, cited that prosecution for wilful tax evasion had been launched in 17 cases and more enquiries have been initiated into accounts reportedly held by Indian entities in tax havens.
With a view to stimulate scientific research, he has proposed to set-up a research funding organisation which will fund the research projects selected through a competitive process. The contributions to such an organisation will be eligible for income tax benefits.
Though the finance minister made a mention of the Direct Tax Code Bill, 2010, however with the current Parliament coming to an end, this tax reform seems to be further stalled. He also expressed his disappointment for non-passing of Insurance Law (Amendment) Bill and Securities Laws (Amendment) Bill during the tenure of this government.
On the allocation of funds, he proposed liberal distribution of funds for the north-eastern Indian states by way of special assistance, Ministry of Health and Family Welfare, defence sector (allocation for defence is up 10%), the railway sector, social welfare, rural development amongst others.
Overall, the finance minister has attempted to curb imports and promote manufacturing and consumption of home grown goods. Fiscal stability has been assumed as a top priority. As is evident from his speech, price stability, self-sufficiency in food, reviving the growth cycle, enhancing investments, promoting manufacturing, encouraging exports, quickening the phase of implementation of projects, reducing a stress on important sectors and tackling tax evasion has been the prime focus of this interim Budget. It continues to remain to be seen how the general elections scheduled to take place in the second quarter of calendar 2014, would redefine the current political and economic environment of the country.
With inputs from Sumeet Hemkar, director, BMR & Associates LLP
The author is leader, Direct Tax, BMR & Associates LLP . Views are personal