Interim budget an 'election budget': Analysts

Written by PTI | New Delhi | Updated: Feb 18 2014, 01:01am hrs
Budget 2014-15, PAnalysts termed the interim budget as an 'election budget', and cautioned the pre-polls 'sweeteners'. Reuters
Analysts today termed the interim budget as an "election budget", and cautioned the pre-polls "sweeteners", especially excise duty cuts, will make it difficult to achieve the deficit target.

Finance Minister P. Chidambaram while presenting the ninth Budget today said the fiscal deficit for the current financial year will be contained at 4.6 per cent of GDP and also announced a reduction in excise duty, on capital goods and consumer non-durables.

"The interim budget rightly targets further fiscal consolidation. However, it was clearly an election budget," HSBC Chief Economist for India and ASEAN Leif Lybecker Eskesen said, adding: "the pre-election sweeteners, especially excise duty cuts, will make it difficult to achieve the deficit target. The subsidy target could also prove a challenge."

"However, the full budget to be presented after the elections will be the real test of the existing or the new government's willingness and ability to deliver fiscal consolidation," he added.

Experts are of the opinion that the vote on account would bring the much needed relief to the struggling consumer goods sector owing to reduction in excise duty.

The two major "roadblocks" of fiscal consolidation of the Indian economy going ahead would be provisioning of food subsidy from FY'15 and the likely implementation of the 7th pay commission from Jan 2016.

"Containing the fiscal deficit at 4.6 per cent for the current fiscal year seems to bode well for the overall economy and fiscal consolidation. However, the implications of a lower fiscal deficit with reduced capital expenditure planned for a slow growing economy needs to be evaluated cautiously," Dun & Bradstreet India Senior Economist Arun Singh said.

The government today said the fiscal deficit for the current financial year will be contained at 4.6 per cent of GDP.

The fiscal deficit, which is the gap between expenditure and revenue, was 4.9 per cent of GDP in the previous financial year.

Echoing similar sentiments, Ketan Dalal, joint tax leader, PwC India said "the fiscal deficit has been contained 4.6 per cent of GDP; clearly, curbs on global imports and a slight acceleration in exports has helped."

The vote of account (interim budget) for FY14-15 has been presented against backdrop of the impending elections, and therefore, no major changes were expected.

On reduction of excise duty reduction on capital goods and consumer non durables, Dalal said "these changes will hopefully have some effect in boosting these segments, particularly automobile, which is reeling under one of the worst slowdowns in recent memory."

According to Sachin Menon, National Head - Indirect Tax, KPMG in India "vote on account gave the much needed relief to the capital goods, consumer durables and Auto sector at a time when the demand is low. This would spur the demand in the interim provided the benefit is passed on."

Excise duty for small cars, scooters, motorcycles and commercial vehicles will come down to 8 per cent from 12 per cent earlier. Moreover, SUVs will attract excise duty of 24 per cent as against 30 per cent earlier, as per the budget document.

The Finance Minister today stressed that rebuilding and adding a huge quantity of new infrastructure was one of the key tasks to achieve Indias vision for the future.

"While leveraging the PPP model is essential for infrastructure development, it is hoped that the new Government also gives due emphasis on learning from past experiences so that the issues faced in the last few years can be avoided," Deloitte India Senior Director Vishwas Udgirkar said.

According to Aditi Nayar, Senior Economist, ICRA "On the revenue side, the specific reduction in excise rates till the end of Q1FY15 will provide a boost to domestic manufacturing."