The finance minister kept his promise to curtail the fiscal deficit in spite of the failure in auctioning 2G spectrum and the ballooning of the subsidy bill from R1.9 trillion to Rs 2.6 trillion. The fiscal deficit turned out to be 5.2% of GDP?just lower than the 5.3% ?red line?. This, hopefully, will keep the rating agencies and international investors assured of India?s commitment to fiscal prudence even in a pre-election year. The main objective, though, is to ensure credibility amongst international investors and thereby ensure the continued financing of the current account deficit.
Expenses were cut drastically in response to the failure to garner revenues as budgeted and to meet some of the runaway expenses. The finance minister candidly mentioned that the budgeted Plan expenditure was too ambitious and the budgeted non-Plan expenditure was too conservative.
Details show that Plan expenditure was cut by R918 billion and defence spending was cut by R149 billion. As a result, the government managed to bring down its total expenditure to R14.3 trillion, which is lower than the R14.9 trillion it had budgeted to spend.
While the Budget has kept a leash on expenditure, it also has an eye on the elections. The attempt seems to be to gain popularity through the most relevant tokenism. The target is the female voter. They comprise a substantial proportion of the voter population. A gender budget that is up 44% in 2013-14, a new Nirbhaya Fund and a women?s bank are the big announcements. Top this up with an additional allowance to carry gold as baggage for women and the message is clear. The additional cost was not much?R1,000 crore each for the Nirbhaya Fund and the women?s bank. The dividends in terms of inclusion and, hopefully, votes would be significant.
Besides balancing the books, wooing potential investors and voters, the finance minister made significant progress in trying to get the economy back on the growth track.
The biggest effort to spur investments is the 15% investment allowance given to manufacturing companies that invest more than R100 crore in 2013-14 and 2014-15. This could accelerate the implementation of some projects that may have deferred execution for non-critical reasons. It could also motivate companies into executing small new investments into the manufacturing sector.
According to the CapEx database, there were over 400 projects in the manufacturing sector with investments worth over R5 trillion that were scheduled to be completed during 2013-14 and 2014-15. Usually, many of these projects are not completed in time. In the recent past, time-slippages have increased. It can be safely assumed that if the current trend continues, then only about half of these projects will get commissioned during the stated period.
However, the investment allowance announced in the Budget increases the probability of these projects getting commissioned in the stipulated time. We also expect more projects to be announced in the manufacturing sector in the coming months?many of which are likely to be commissioned within the tax benefit period.
We, therefore, expect investments worth more than R5 trillion to be commissioned in the manufacturing sector collectively during the two years 2013-14 and 2014-15. This would imply an almost doubling of the commissioning of manufacturing projects compared to what has been seen in the previous two years.
The investment allowance is not the only measure that would help the manufacturing sector regain its lost ground. The announcement that medium and small-scale enterprises would continue to get their benefits for three years even after they cross the small-scale sector threshold would make a significant contribution. The Economic Survey had dwelt upon this subject and had identified the problem of enterprises not willing to grow because they stand to lose the benefits available to MSMEs. The Budget has responded to the problem in an innovative manner. Given that there are a very large number of small enterprises, the potential growth from this measure could be quite substantial.