The eagerly awaited Budget came and went with a marginal downward impact on the Sensex, but it is still considered by many as one of the best under the circumstances. The thrust was on bringing the fiscal deficit down from 5.2% of GDP in 2012-13 to 4.8% in 2013-14 (part of fiscal consolidation) by cutting down government expenditure and raising revenues.
Broadly, the Plan expenditure, indicating an increase of 29.4% over the revised estimates of 2012-13, comprises only 33 % of the total expenditure. The non-plan expenditure (67% of the total expenditure) shows an increase of only 11% over the previous year. The Budget has also highlighted the risk of a widening current account deficit with high imports of oil (35% of total imports over April-November 2013), coal (4.5%) , gold and silver (10.5%) and slow growth in exports (only 9 % higher in rupee terms and 7% lower in dollar terms over April-November). The Budget tries to adopt appropriate steps to reverse these negatives as well as to encourage FDI, FIIs and ECBs to meet the shortfall in the CAD. One primary assumption on which the budgetary receipts and expenditure estimates are based relates to 13.4% growth assumed in nominal GDP at market prices in 2013-14 against 10.7% achieved in 2012-13 (advance estimates of CSO).
The industry would, however, evaluate the Budget in terms of the positives for investment, ranging from infrastructure debt funds, issuance of R50,000 crore-worth of tax- free bonds and award of 3,000 km of road projects to creation of new industrial corridors with overseas aid and construction of two new ports, which is likely to boost the PPP route of investment and result in additional inflows into the infrastructure sector. The most notable announcement relates to a 15% investment allowance for a company investing funds exceeding R100 crore in plants and machinery over 2013-15. On the projected mega-ticket investments for 2013-14, it would lead to savings of R25,000 crore.
The additional deduction of interest on home loan repayments is likely to promote construction sector?s demand. The Cabinet Committee on Investment is likely to expeditiously clear a higher number of projects by resolving inter-ministerial issues.
Apart from the spurt in investment, a few other steps will also benefit the steel industry. These include full exemption from export duty for galvanised steel sheets retrospectively from 1 March 2011 and full exemption from excise duty and CVD for imported ships and other vessels, a move that is likely to help the ship-breaking industry. The compounded levy on SS Patta Patti has been enhanced by R10,000 per machine per month. Increasing coal production through the PPP route, along with CIL, may bring down coal imports in the long term and improve BOP.
All in all, however, this year?s Budget is hard on liquidity. The skewed pattern of expenditure by the various departments, which culminates in a bigger chunk earmarked for the last quarter, has not been encouraged. Besides, some bold statements about brining to life India?s spirits usher in a welcome departure from the traditional Budget speech. This is also likely to lift market sentiment.
The author is DG, Institute of Steel Growth and Development. The views expressed are personal