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Interim Budget 2014-15: An Analysis by CII


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The Hon’ble Finance Minister, Mr. P Chidambaram presented the Interim Budget for 2014-15 in the Parliament on 17 February 2014.

While not being a full-fledged budget, the Interim Budget details some interventions on the indirect taxes front and announcements of the policy roadmap.

Contents: Key Features of Interim Budget 2014-15; Analysis of the Budgetary Proposals; Fiscal Trends; Indirect Taxes – Sector & Industry Specific Analysis

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Interim Budget 2014-15: An Analysis by CII

  1. 1. 2014-15 Interim Budget An Analysis
  2. 2. 2014INTERIM BUDGET 2014-15 An Analysis 17th February, 2014 Confederation of Indian Industry 2
  3. 3. Contents Chapter Title Page No 1 Key Features of Interim Budget 2014 – 15 4-12 2 Analysis of the Budgetary Proposals 13-21 3 Fiscal Trends 22-26 4 Indirect Taxes – Sector and Industry Specific Analysis 27-32 Confederation of Indian Industry 3
  4. 4. Chapter 1 2014Key Features of Budget 2014-15 Confederation of Indian Industry 4
  5. 5. Chapter 1 2014Key Features of Budget 2014-15 The Current Economic Situation and the Challenges The world economy has been witnessing a sliding trend in growth, from 3.9 percent in 2011 to 3.1 percent in 2012 and 3 percent in 2013. The economic situation of major trading partners of India, who are also the major source of our foreign capital inflows, continues to be under stress. United States has just recovered from long recession, Euro zone, as a whole, is reporting a growth of 0.2 per cent, and China’s growth has also slowed down. State of Economy Deficit and Inflation The fiscal deficit for 2013-14 contained at 4.6 percent . The currect account deficit projected to be at USD 45 billion in 2013-14 down from USD 88 billion in 2012-13. Foreign exchange reserve to grow by USD 15 billion in this Financial Year No more talk of down grade of Indian Economy by Rating Agencies. Fiscal stability at the top of the Agenda. Confederation of Indian Industry 5
  6. 6. Government and RBI have acted in tandem to bring down inflation. WPI inflation down to 5.05 percent and core inflation down to 3.0 percent in January 2014. Food inflation down to 6.2 percent from a high of 13.8 per cent. Agriculture Agricultural sector has performed remarkably well. Food grain production estimated for the current year is 263 million tonnes compared to 255.36 million tonnes in 2012-13. Agriculture export likely to cross USD 45 billion higher from USD 41 billion in 2012-13. Agricultural credit to exceed the target of Rs. 7 lakh crores. Agricultural GDP growth for the current year estimated at 4.6 percent compared to 4.0 percent in the last four years. Investment Savings rate at 30.1 percent and investment rate of 34.8 percent in 2012-13. Government set up a Cabinate Committee on investment and the Project Monitoring Group to boost investment. By end of January 2014, Projects numbering 296 with an estimated project cost of Rs. 660,000 crore cleared. Foreign Trade Despite a decline in growth of global trade, our export have recovered sharply. The estimated merchandise export is estimated to reach USD 326 billion indicating a growth rate of 6.3 percent in comparison to the previous year. Manufacturing The sluggish import is a matter of concern for manufacturing and domestic trade sector. 8 National Investment and Manufacturing Zones (NIMZ) along Delhi Mumbai Industrial Corridor (DMIC) have been announced. 9 Projects had been approved by the DMIC trust. 3 more Industrial Corridors connecting Chennai and Bengaluru, Bengaluru and Mumbai & Amritsar and Kolkata are under different stages of preparatory works. Additional capacities are being installed in major manufacturing industries. Confederation of Indian Industry 6
  7. 7. Infrastructure In 2012-13 and in nine months of the current financial year, 29, 350 MW of power capacity, 3, 928 Kms of National Highways, 39, 144 Kms of Rural Roads, 3,343 Kms of New Railway track and 217.5 milliion tonnes of capacity per annum in our ports have been created to give a big boost to infrastructure industries. 19 Oil and Gas blocks were given out for exploration and 7 new Air ports are under construction. Infrastructure debt funds have been promoted to provide finances for infrastructure Projects. GDP Growth The GDP slow-down which began in 2011-12 reaching 4.4 percent in Q1 of 2013-14 from 7.5 percent in the corresponding period in 2011-12 has been controlled by numerous measures taken by the Government. Growth in the third and fourth quarter of the current year is expected to be 5.2 percent and that for the whole year has been estimated at 4.9 percent. UPA’s record of Growth Production of food grains up from 213 million tonnes to 263 million tonnes, installed power capacity up to 2,34,600 MW from 1,12,700 MW, coal production 554 million tonnes from 361 million tonnes, 3,89,578 Kms of Rural Roads under PMGSY from 51,511 Kms, over a period of 10 years. The expenditure on Health & Family Welfare has reached Rs. 36,322 crore from Rs. 7,248 ten years ago. The expenditure on Education has reached Rs. 79,451 crore from Rs. 10,145 ten years ago. Report Card of 2013-14 De-controlling sugar, gradual correction of diesel prices, rationalization of railway fares, were some of the courageous and long over due decisions taken by the Government. Applications were invited for issue of new bank licences. DISCOMS, mostly sick are being restructured with generous central assistance. 12.8 lakhs land titles covering 18.80 lakh hectare were distributed under the Scheduled Confederation of Indian Industry 7
  8. 8. Economic Initiative About 50,000 MW of Thermal and Hydel Power capacity is under construction after receiving all clearances and approvals. 78,000 MW of power capacity have been assured coal supply. Liberalised FDI policy in tele-communication, pharmaceuticals, civil aviation, power trading exchange, and multi brand retail to attract large investment. Approval to establish 2 semi conductor wafer fab units. Approval of IT modernization project of Department of Post. Kudankulam Nuclear Power Plant Unit-I achieved criticality and is generating 180 Milliion Units of power. Ministry of MSME will create the ‘India Inclusive Innovation Fund’ to promote grass root innovations with social returns to support enterprises in the MSME sector with an initial contribution of Rs.100 crore to the corpus of the fund. Redeeming promises The National Skill Certification and monitary reward schemes launched in August 2013 with an allocation of Rs. 1000 crore has been widely hailed as a success. A sum of Rs 1000 crore is proposed to be transferred to the NSD Trust to scale up its programme rapidly. Government remains fully committed to Aadhar under which 57 crore Unique Numbers have been issued so far and to opening bank accounts for all Aadhar holders to promote financial inclusion. Through the Direct Benefic Transfer (DBT) Scheme, a total of Rs 628 crore (54,20,114 transactions) has been transferred directly to the beneficiaries till 31st January 2014 under 27 Schemes. Overview of the Interim Budget In order to sustain the pace of plan expenditure, it has been kept at the same level in 2014-15 at which, it was budgeted in 2013-14. Non Plan Expenditure Non Plan expenditure is estimated at Rs. 12,07,892 crore. The expenditure on subsidies for food, fertilizer & fuel will be Rs. 246,472 crore slightly higher than the revised estimates of Rs. 245,453 crore in 2013-14. Confederation of Indian Industry 8
  9. 9. Rs 115,000 crore has been allocated for food subsidies taking in to account, government‘s firm and irrevocable commitment to implement the National Food Security Act throughout the country. Defence 10 per cent hike in Defence allocation has been given in comparison to BE 2013-14. Government has accepted the principle of one rank one pension for the Defence Forces which will be implemented prospectively from the FY 2014-15. A sum of Rs. 500 crore is proposed to be transferred to the Defence Pension Account in the current Financial Year itself. Financial Sector All the announcements concerning the Financial sector made in the Budget Speech of February 2013 have been implemented. Rs 300 crore is proposed to be provided for Capital infusion in Public Sector Banks. 5,207 new branches have been opened against the target of 8,023. Bhartia Mahila Bank has been established. Rs 6,000 crore and Rs. 2,000 crore have been provided to Rural and Urban Housing Funds respectively. The target of Rs. 700,000 crore of Agricultural Credit is likely to be exceeded by the Banks. The target for 2014-15 is Rs. 800,000 Crore. Rs 23,924 crore has been released under the Interest Subvention Scheme on farm loans, with effective rate of interest on farm loans at 4 percent including subvention of 2 percent and incentive of 3 percent for prompt payment. Education Loans A moratorium period is proposed for all education loans taken up to 31.3.2009 and outstanding on 31.12.2013. Government will take over the liability for outstanding interest as on 31.12.2013 but the borrower would have to pay interest for the period after 1.1.2014. An amount of Rs. 2,600 crore has been provided this year and it will benefit nearly 9 lakh student borrowers. Insurance Confederation of Indian Industry 9
  10. 10. LIC and the four public sector general insurance companies have opened around 3000 offices in towns with a population of 10,000 or more to serve peri-urban and rural areas. Financial Markets Steps envisaged to deepen the Indian Financial Market : • ADR/GDR Scheme revamp, an enlargement of the scope of depository receipt • Liberalization of rupee denominated corporate bond market. • Currency Derivatives Market to be deepened and strengthened to enable Indian Companies to fully hedge against foriegn currency risk • To create one record for all financial assets of every individual • To enable smoother clearing and settlement for international investors looking to invest in Indian bonds. Commodity Derivatives Markets Proposal to amend the Forward Contracts (Regulation) Act. Vision for Future India poised to be third largest economy along with US and China, to play a leading an important role in global economy. 10 Tasks as part of the road map ahead include: 1. Fiscal consolidation: We must achieve the target of fiscal deficit of 3 percent of GDP by 2016-17 and remain below that level always. 2. Current Account Deficit: CAD will be inevitable for some more years which can be financed only by foreign investment. Hence, there is no room for any aversion to foreign investment. 3. Price Stability and Growth: In a developing economy, a high growth target entails a moderate level of inflation. RBI must strike a balance between price stability and growth while formulating the monetary policy. 4. Financial Sector reforms to be completed as laid down by Financial Sector Legislative Reforms Commission. 5. Massive investment in infrastructure: to be mobilized through the Public Private Partnership. 6. Manufacturing sector to be the base of India’s development: All taxes, Central and State that go into an exported product should be waived or rebated. There should be a minimum tariff protection to incentivize domestic manufacturing. Confederation of Indian Industry 10
  11. 11. 7. Subsidies, which are absolutely necessary should be chosen and targeted only to the absolutely deserving. 8. Urbanisation to be managed to make cities governable and livable. 9. Skill development must be given priority at par with secondary and university education, sanitation and universal health care. 10. States to partner in development so as to enable the Centre to focus on Defense, Railways, National Highways and Tele-communication. Revenues GST and DTC Government appeals to all political parties to resolve to pass the GST Laws and the Direct Tax Code in 2014-15 Off-shore Accounts The Government has succeeded in obtaining information on illegal off-shore accounts held by indians in 67 cases and action is under way. Prosecution for willful tax evasion has also been launched in 17 other cases. More enquiries have been initiated in to accounts reportedly held by Indian entities in no tax or low tax jurisdictions. Changes in Tax Rates Following changes in development so as to enable the Centre to focus on Defense, Railways in some indirect tax rates are proposed: • States to partner, National Highways and Tele-communication. • The Excise Duty on all goods falling under Chapter 84 & 85 of the Schedule to the Central Excise Tariff Act is reduced from 12 percent to 10 percent for the period upto 30.06.2014. The rates can be reviewed at the time of regular Budget. • To give relief to the Automobile Industry, which is registering unprecedented negative growth, the excise duty is reduced for the period up to 30.06.2014 as follows: Small Cars, Motorcycle, Scooters - from 12 % to 8% and Commercial Vehicles, SUVs - from 30% to 24%, Large and Midsegment Cars - from 27/24% to 24/20% Confederation of Indian Industry 11
  12. 12. • It is also proposed to make appropriate reductions in the excise duties on chassis and trailors The rates can be reviewed at the time of regular Budget • To encourage domestic production of mobile handsets, the excise duties for all categories of mobile handsets is restructured. The rates will be 6% with CENVAT credit or 1 percent without CENVAT credit. • To encourage domestic production of soaps and oleo chemicals, the custom duty structure on non-edible grade industrial oils and its fractions, fatty acids and fatty alcohols is rationalized at 7.5 percent. • To encourage domestic production of specified road construction machinery, the exemption from CVD on similar imported machinery is withdrawn. • A concessional custom duty 5 percent on capital goods imported by the Bank Note Paper Mill India Private Limited is provided to encourage domestic production of security paper for printing currency notes. The loading and un-loading, packing, storage and warehousing of rice is exempted from Service Tax. Budget Estimate The current financial year will end on a satisfactory note with the fiscal deficit at 4.6 percent (below the red line of 4.8 percent) and the revenue deficit at 3.3 percent. Fiscal Deficit in 2014-15 estimated to be 4.1 percent which will be below the target set by new Fiscal Consolidation Path and Revenue Deficit is estimated at 3.0 percent. The estimate of Plan Expenditure is Rs.555,322 crore. Non-Plan expenditure is estimated at Rs.12,07,892 crore. Confederation of Indian Industry 12
  13. 13. Chapter 2 Analysis of the Budgetary Proposals Confederation of Indian Industry 13
  14. 14. Chapter 2 2014Analysis of the Interim Budget 2014-15 1. Introduction The Interim Budget, which was announced by Finance Minister in the Parliament today, has come at a time when the economy continues to be in the midst of a slowdown, the manufacturing sector is showing a subdued performance, investment sentiment is down and inflation is above the comfort zone. Under these circumstances, the Finance Minister has attempted a fine balance to provide a fillip to economy and manufacturing, revive the ‘feel good factor‘, while keeping the fiscal deficit under check. What is also commendable is the 10-point vision laid out by the Finance Minister, which besides dwelling on the reduction in the twin deficits, provides emphasis to a balanced monetary policy, implementation of infrastructure projects and development of cities. CII hopes that the new government will further strengthen the support given to industry and extend the support to other sectors. We appreciate that the announcement of tax measures should be left to the presentation of the full Budget, but the vision articulated by the Finance Minister showed that the government means business. Some of the announcements made by the Finance Minister in the speech deserve special mention under the following broad headings: 2. Fiscal Consolidation The commitment of the finance Minister towards fiscal consolidation is indeed commendable. CII welcomes the Finance Minister’s announcement to contain the fiscal deficit at 4.6 % of GDP for 2013-14, which is lower than 4.8% budgeted for the year. This would help to channelize resources for investment and help contain inflation. Similarly, the new target for fiscal deficit at Confederation of Indian Industry 14
  15. 15. 4.1% of GDP and revenue deficit at 3% of GDP in FY15 shows that Government remains committed to the objective of fiscal consolidation even during the next fiscal. As per the data provided in the Interim Budget 2014-15, total receipts have been budgeted at 17,63,214 crores, which is 10.9 percent higher than the revised estimates of 2013-14. Similarly, plan-expenditure has been estimated at Rs. 5,55,322 crore, which is 16.8 percent higher than the revised estimates of 2013-14 . And non-plan expenditure at Rs. 12,07,892 crore is budgeted 8.4 higher than the revised estimates of last year. No doubt, our fiscal deficit has been below the red line identified by the Finance Minister. But this has been achieved at the cost of a cut in developmental expenditure, which is crucial for asset creation in the country. This is borne out from the fact that the capital expenditure on plan account, as per revised estimates for 2013-14, is 7 per cent below that budgeted for the year. Similarly, non-plan revenue expenditure, incurred on subsidies, wages etc has gone up in the revised estimates for 2013-14 when compared to the budgeted amount. Current Account Deficit The Current Account Deficit (CAD) that has threatened to exceed last year’s CAD of USD 88 billion, is expected to be contained at USD 45 billion. The Finance Minister further stated that about USD 15 billion is expected to be added to the foreign exchange reserves by the end of the financial year 2013-14. CII welcomes the commitment to reduce current account deficit, which would help stabilising the rupee. Tax Reform CII has advocated the need for putting in place a consistent and transparent tax policy, for which, among other critical measures, it has recommended early implementation of GST. GST would simplify and rationalize the current indirect tax regime, eliminate tax cascading and put the Indian economy on higher growth trajectory. This would send positive signals to the investor community. The Finance Minister’s appeal to all political parties to evolve a consensus to enactment of GST is in line with CII’s suggestions. The announcement that the Direct Taxes Code (DTC) will be put on the website of the Ministry of Finance for a public discussion is also reflective of CII’s suggestion. CII has been advocating the implementation of DTC, which contains provisions for effecting simplicity in tax structure by lowering the tax rate, broadening the tax base and removing exemptions. Food, Fertilizer and Fuel Subsidies Confederation of Indian Industry 15
  16. 16. In the Union Budget 2012-13, the government had announced its target to keep subsidies under 2 percent of GDP and reduce it to 1.7 in the next 3 years. CII has been in favour of rationalising subsidies on food, fuel and fertilizers to conserve scarce resources, which could then be channelized for development. The Budget announcement stating that the subsidies for food, fertilizer and fuel for the coming financial year is slightly more than the revised estimates for 2013-14 is a cause for concern. The Finance Minister said that an allocation of Rs. 65,000 crores has been made for fuel subsidy. Similarly, Rs. 115,000 crore has been allocated for food subsidy, keeping in mind the UPA Government’s firm and irrevocable commitment to implement the National Food Security Act. 3. Promote Manufacturing The share of manufacturing has continued to hover at around 16 percent of GDP for the last two decades. The government has set a target of taking the share of manufacturing in GDP to 25 percent by 2022, which requires the sector to record a growth of 12-14% per annum. The growth of manufacturing sector is crucial for harnessing the demographic dividend and achieving inclusive growth in our economy. To give immediate boost to manufacturing sector, the interim budget has introduced the following changes: (a) To stimulate growth in the capital goods and consumer non-durables, it has reduced the excise duty from 12% to 10% on all goods falling under Chapter 84 and 85 of the schedule to the Central Excise Tariff Act for the period up to 30.06.2014. The rates can be reviewed at the time of the regular budget. CII welcomes the move. (b) To give relief to the automobile industry, which is registering unprecedented negative growth, the Finance Minister has reduced the excise duty as follows for the period up to 30.06.2014. CII welcomes the reduction of excise duty on capital goods and consumer non-durables from 12% to 10%. CII also welcomes the reduction in excise duty from 12% to 8% on small cars, two wheelers and commercial vehicles and from 30% to 24% on SUVs. These reductions are applicable upto 30 June 2014. Excise duty rates have also been reduced on other vehicles. Confederation of Indian Industry 16
  17. 17. (c) To encourage domestic production of soaps and oleo chemicals, Shri P. Chidambaram has rationalized the customs duty structure on non-edible grade industrial oils and its fractions, fatty acids and fatty alcohols at 7.5%. (d) To encourage domestic production of six specified road construction machinery, the Finance Minister has withdrawn the exemption from CVD on similar imported machinery. (e) To encourage indigenous production of security paper for printing currency notes, the Interim Budget provides a concessional customs duty of 5% on capital goods imported by the Bank Note Paper Mill India Pvt. Ltd. (f) To encourage domestic production of mobile handsets and reduce the dependence on imports, the Finance Minister has restructured the excise duties for all categories of mobile handsets. Similarly, 5 NMIZ have been given in principle approval and 3 more freight and industrial corridors are in the works to provide a fillip to promote greater investment in green-field manufacturing projects, increase employment and promote all round development. The Finance Minister has made a special mention of the forward looking policy to promote Electronics sector. It is hoped that CII recommendation of abolition of SAD and reduction in CST for electronics sector will be taken up in the regular budget. This is important as electronics is a zero duty sector on account of ITAI. An amount of Rs 11,200 crore has been provided for capital infusion in Public Sector Banks (PSB’s) in the Interim Budget 2014-15. Promoting MSMEs The MSME sector is known for its immense contribution for promoting employment intensive growth in the country. Recognising the crucial role played by the MSME sector in promoting inclusive growth, the Finance Minister has set aside an Initial contribution of Rs. 100 crore to the corpus of ‘India Inclusive Innovation Fund’ under the Ministry of MSME. Confederation of Indian Industry 17
  18. 18. Promoting Investment It has been widely acknowledged that the deceleration GDP growth from 9% to 4.9% has been due to slowing investments. Taking cognisance of the imperative need to rev up investments, CII welcomes the bold steps taken by the government to fast track clearances of projects. As a result, by the end of January, 2014, 296 projects with an estimated project cost of Rs 660,000 crore have been cleared by the government. 4. Reforming Financial Sector The Interim Budget has set the right chord of harmony and appears forward looking for the sustainable and inclusive growth of the financial sector. The Budget has struck a balance of meeting the financing needs of the economy adequately, while also focusing on fiscal prudence and consolidation path. Due emphasis has also been laid on expanding and broad-basing the financial inclusion agenda. Given below are the key announcements made in the Budget for the Financial Sector: Banking While the Interim Budget maintained overall expenditure on a tight leash, the Finance Minister has managed to make some important allocations for the banking sector. Given the stressed assets in the banking sector, the Finance Minister’s allocation of Rs 11,300 crore for strengthening the capital base of public sector banks is welcome. Some of the other notable measures, which require a special mention is the creation of a non–statutory Public Debt Management Agency (PDMA). Financial Markets Proposal for amendment to the Forward Contract Regulation Act in order to strengthen the commodity derivative trading in India. This bodes well for the commodities markets, which will result in efficient price discovery and risk management. Liberalizing the framework for Rupee denominated bond market and proposal to strengthen the currency derivative market to allow Indian companies to hedge currency risk. Cross-border transactions expose Indian corporates to currency volatility. Allowing Indian companies to hedge their positions would ease the stress Confederation of Indian Industry 18
  19. 19. on account of currency fluctuations, especially since Mark-to-market positions have to be disclosed periodically. Measures announced to smoothen clearing and settlement mechanism would attract foreign investors and encourage capital inflows. The provision of one record for all financial assets for individual investors would bring greater transparency and enhance regulatory supervision. By enlarging the scope of depository receipts and also revamping the ADR and GDR scheme, it would be possible for Indian Companies to raise money abroad. The fact that CAD has been contained at USD 45 billion and the Government is looking to finance CAD through foreign flows by making structural changes to ADR/GDR regulations is a positive step. Allocation of funds (Rs 200 Cr) for IFC Venture Fund would provide the much-needed boost to nurture innovation and entrepreneurship To enable smoother clearing and settlement for international investors looking to invest in Indian bonds. 5. Agriculture CII welcomes the exemption of Loading, Unloading, Packing, Storage and Warehousing of Rice from Service Tax. Stating this, while presenting the Interim Budget 2014-15, Finance Minister clarified that by virtue of the definition of ‘agricultural produce’ in Finance Act, 2012, read with the Negative List, storage or warehousing of Paddy was excluded from the levy of service tax; but rice was not. As this distinction was somewhat artificial, the same has been done away with and now rice has also been exempted. Continuation of interest subvention scheme for agriculture sector along with a Credit Target of Rs 7 lakh crore for FY 2014-15 to adequately meet the financing needs of farmers and would help sustain the agricultural growth. 6. Skill Development Keeping in view the need to boost the skill development, a sum of Rs.1,000 crore has been transferred to National Skill Development Council (NSDC). This will provide a boost to the activities of NSDC and complement the initiatives of several ministries, which steer skill development programmes such as UDAAN in Jammu & Kashmir. Confederation of Indian Industry 19
  20. 20. 7. Education Loan Education loan moratorium to the tune of Rs 2600 crore to provide significant support to students during their non-earning years. Providing a major relief for Education Loan Borrowers, the Interim budget has announced a Moratorium period for all education loans taken-up to 31.3.2009 and outstanding on 31.12.2013. Government will take over the liability for outstanding interest as on 31.12.2013, but the borrower would have to pay interest for the period after 1.1.2014. Nearly 9 lakh students borrowers will benefit to the tune of approximately Rs 2,600 crore. Confederation of Indian Industry 20
  21. 21. Budget at a Glance 2012-2013 Actuals Revenue Receipts Tax Revenue (net to centre) 3 Non-Tax Revenue 4 Capital Receipts (5+6+7)$ 5 Recoveries of Loans 6 Other Receipts 7 Borrowings and other liabilities * 8 Total Receipts (1+4)$ 9 Non-Plan Expenditure 10 On Revenue Account of which, 11 Interest Payments 12 On Capital Account 13 Plan Expenditure 14 On Revenue Account 15 On Capital Account 16 Total Expenditure (9+13) 17 Revenue Expenditure (10+14) 18 Of Which, Grants for creation of Capital Assets 1 2 19 Capital Expenditure (12+15) 20 Revenue Deficit (17-1) 21 Effective Revenue Deficit (20-18) Fiscal Deficit {16-(1+5+6)} Primary Deficit (22-11) 22 23 (In crore of Rupees) 2013-2014 2014-2015 Revised Budget Estimates Estimates 1029252 1167131 877613 2013-2014 Budget Estimates 1056331 740256 137357 532754 16267 25890 490597 1410367 996742 914301 313169 82441 413625 329208 84417 1410367 884078 172252 608967 10654 55814 542499 1665297 1109975 992908 370684 117067 555322 443260 112062 1665297 836026 193226 561182 10802 25841 524539 1590434 1114902 1027689 380066 87214 475532 371851 103681 1590434 986417 180714 596083 10527 56925 528631 1763214 1207892 1107781 427011 100111 555322 442273 113049 1763214 1243509 115513 1436169 174656 1399540 121283 1550054 146581 166858 229129 190894 213160 365896 -3.6 250383 -2.5 490597 -4.9 177428 -1.8 379838 -3.3 205182 -1.8 542499 -4.8 171814 -1.5 370288 -3.3 249005 -2.2 524539 -4.6 144473 -1.3 382923 -3 236342 -1.8 528631 -4.1 101620 -0.8 Actuals for 2012-13 in this document are provisional. $ Excluding receipts under Market Stabilisation Scheme. * Includes draw-down of Cash Balance. 1. GDP for BE 2014-2015 has been projected at ` 12839952 crore assuming 13.4% growth over the advance Notes: estimates of 2013-2014 (` 11320463 crore) released by CSO. 2. Individual items in this document may not sum up to the totals due to rounding off. Source: Budget Documents Confederation of Indian Industry 21
  22. 22. Chapter 3 Fiscal Trends Confederation of Indian Industry 22
  23. 23. Chapter 3 Fiscal Trends Fiscal Scenario The fiscal deficit of the central government for 2013-14 has been re-estimated at 4.6 per cent of GDP as compared to the budgeted estimate of 4.8 per cent. We are however worried by the nature of this deficit compression. The fine-print of the budget reveals that bulk of the reduction in fiscal deficit has been achieved by cutting of plan expenditure, which is inimical for the pickup in growth. Finance Minister has pegged fiscal deficit and revenue deficit at 4.1 and 3.3 per cent of GDP respectively for 2014-15. To lower the fiscal deficit to 4.1 per cent of GDP in 2014-15, the government is betting on revenue growth of 13.4 per cent and expenditure growth of 10.9 per cent compared to the revised estimates for the current year. With the government’s revenue collection falling below the budgeted revenue in five of the past six years, including the current fiscal year, the revenue targets for 2014-15 look ambitious. As per the fiscal consolidation plan laid by the government, the fiscal deficit is envisaged to reach 3 per cent of GDP by 2016-17 and remain below that level always. Revenue deficit is estimated at 3.0 per cent for the comparable period. Presenting the last budget of the current incumbent UPA government, Finance Minister, while refrained from announcing any major changes in direct tax rates, he did tinker with the indirect tax rates in order to prop up the growth of certain ailing sectors. CII is happy with the announcement of cutting of the excise duty on various segments of automobile, capital and consumer non-durables sectors. This is expected to help these sectors get back on the growth track in months to come. Confederation of Indian Industry 23
  24. 24. Fiscal Deficit as a % of GDP 6.5 5.5 5.9 6.0 5.6 5.7 4.9 4.8 4.4 4.6 4.1 3.8 3.9 3.2 Source: Union Budget 2013-14 2014-15 BE 2013-14 RE 2012-13 2011-12 2010-11 2009-10 2008-09 2007-08 2006-07 2005-06 2004-05 2003-04 2002-03 2001-02 2000-01 2.6 Note: BE- Budget Estimates, RE – Revised Estimates The economic downturn particularly the weak industrial performance has dented government revenues quite severely. Revenue receipts declined by 2.6 per cent in 2013-14 as compared to the budget estimates underpinned by 6.2 per cent contraction in tax revenue. It’s pertinent to note however that non-tax revenue increased by 12.2 per cent due to the money garnered from the recent spectrum sales. Under gross tax revenue, corporation tax growth contracted by 6.2 per cent, while excise duty growth also contracted, albeit by a smaller clip as per revised estimates of 2013-14 over the budgeted estimates. Customs duty growth declined by 6.5 per cent over the same period. Sluggish macroeconomic growth, global headwinds and lower corporate profitability have all resulted in muted tax collections in 2013-14. Confederation of Indian Industry 24
  25. 25. Growth in Government Receipts (%) 2013-14 (RE) over 2013-14 (BE) Revenue Receipts -Tax Revenue 2014-15 (BE) over 2013-14 (RE) -2.6 13.4 -6.2 19.0 Corporate Tax -6.2 14.6 Income Tax -2.4 26.8 Customs Duty -6.5 15.0 Union Excise Duties 1.7 11.7 Service Tax -8.4 30.7 12.1 -6.5 - Non-Tax Revenue Source: Union Budget 2014-15 According to the revised estimates of 2013-14, total expenditure recorded a decline to the tune of 4.5 per cent as per the revised estimates of 2013-14 compared with the budgeted estimates. Bulk of the decline in total expenditure was due to contraction in plan expenditure. In contrast, non-plan expenditure grew by 0.4 per cent as per the revised estimates of 2013-14 over the budgeted estimates. Out of the non-plan expenditure, subsidy outgo rose by 10.6 per cent as per the revised estimates for 2013-14 as compared to a budgeted contraction to the tune of 10.3 per cent. Under subsides, the biggest breach came on the petroleum subsides front, as it grew by 31.5 per cent in 2013-14 as compared to a decline budgeted to the tune of 33 per cent. For 2014-15, non-plan expenditure is estimated at Rs 12079 billon, which translates into a growth of 8.3 per cent over the revised estimates of 2013-14. Of this, the expenditure on subsidies for food, fertilizer and fuel will be Rs 2464 billion. This is slightly more than the revised estimate of Rs 2455 billion in 2013-14. For fuel subsidy only Rs 634 billion have been provided for the year 2014-15, which translates into a contraction to the tune of 25.8 per cent over the revise estimates of 2013-14. In contrast, food subsidy is budgeted to record the maximum jump to the tune of 25 per cent in 2014-15 over the revised estimates of 2013-14, in order to account for the implementation of the National Food Security Act throughout the country. Plan expenditure is budgeted to rise by 16.8 per cent in 2014-15, led by increase in both plan revenue and capital components. Plan revenue expenditure is expected to grow by 18.9 per cent whereas plan capital expenditure would register a growth of 9.0 per cent in 2014-15. Though, the fiscal deficit as a per cent of GDP is budgeted to moderate in 2014-15 underpinned by a moderation in non-plan expenditure, the nature of expenditure compression needs to be kept in mind. Capital expenditure Confederation of Indian Industry 25
  26. 26. needs to be kept robust in order to revive the sagging investor sentiments while aiming for a compression on the revenue front. Encouragingly, in 2014-15, capital expenditure is budgeted to grow at 11.7 per cent as compared to 10.8 per cent growth in the revenue expenditure. However, the share of revenue expenditure in total expenditure is still dominant as compared to that of capital expenditure. Expenditure of Government (%) 2013-14 (RE) over 2013-14 (BE) 2014-15 (BE) over 2013-14 (RE) NON-PLAN EXPENDITURE 0.4 8.3 Revenue Account 3.5 7.8 Capital Account -25.5 14.8 PLAN EXPENDITURE -14.4 16.8 On Revenue Account -16.1 18.9 On Capital Account -7.5 9.0 Total Capital Expenditure -16.7 11.7 Total Revenue Expenditure -2.6 10.8 Total Expenditure -4.5 10.9 Source: Budget 2014-15 Subsides Outgo (%) 2013-14 (RE) over 2013-14 (BE) Food Subsidy Fertiliser Subsidy Petroleum Subsidy Other Subsidy Total Subsides 2.2 2014-15 (BE) over 2013-14 (RE) 25.0 3.0 0.0 31.5 -25.8 -7.9 -55.2 10.6 0.1 Source: Budget 2014-15 Confederation of Indian Industry 26
  27. 27. Chapter 4 Indirect Taxes Sector and Industry Specific Analysis Confederation of Indian Industry 27
  28. 28. Automobiles Items 2013-14 Excise Duty% Interim Budget 2014-15 8 Motor cycles, scooters and mopeds (8711) 12 Small cars of length not exceeding 4000 mm and engine capacity not exceeding 1200 cc in case of petrol, LPG and CNG/1500 CC in case of diesel (8702, 8703) Motor vehicles of engine capacity 12 8 - not exceeding 1500 cc (8702, 8703) 24 20 - exceeding 1500 cc but excluding SUVs (8702, 8703) 27 24 - SUVs including utility vehicles exceeding 1500 cc and length exceeding 4000 mm, ground clearance of 170 mm or more (8703) Hybrid vehicles (8703) 30 24 12 8 Motor vehicles for transport of 10 or more persons including driver (8702 10 91, 8702 10 92, 8702 10 99,8702 90 91, 8702 90 92, 8702 90 99) Three wheeled vehicles for transport of not more than 7 persons including driver (8703) Motor vehicles for transport of goods other than petrol driven dumpers (8704) 12 8 12 8 12 8 Three or more axled motor vehicles for transport of goods or for transport of 8 or more persons, including driver (other than articulated vehicle (8702, 8703, 8704) Trailers and semi-trailers not mechanically propelled and parts thereof (8716) 12 8 12 8 Road tractors for semi-trailers of engine capacity more than1800 cc (8701) 12 8 Petrol driven dumpers (8704 10 90) 24 20 Automobile Chassis (8706 00 43, 8706 00 49, 8706 00 29) 14 10 Automobile Chassis of diesel motor vehicles for transport of goods (8706 00 42) 13 9 Chassis fitted with engine for three wheeled motor vehicles (8706 00 31, 8706 00 41) 10 8 Chassis filled with engines for tractors (8706 00 11, 8706 00 19) 12 8 Comments • Changes in Excise duty have been done by Excise notification 4/2004 dated 17 February, 2014. • Reduction in Excise duty rates on automobiles are valid upto 30.06.2014. • Excise duty has also been reduced from 12% to 10% on inputs for vehicles falling under chapters 84 and 85. Confederation of Indian Industry 28
  29. 29. Machinery & Equipments Items Excise Duty% 2013-14 Nuclear reactors, boilers, machinery and mechanical appliances and parts thereof (chapter 84 except 8424 81 00, 8432, 8433, 8436,8437, 8452 10 12, 8452 10 22, 8452 30, 8452 90, 8469 00 30, 8469 00 40, 8479 89 92) 12 Interim Budget 2014-15 10 Electrical machinery and equipment and parts thereof (Chapter 85 except 8548 10) 12 10 Comments • Changes have been done by Excise notification 4/2014 dated 17.02.2014 • Reduction in excise duty from 12% to 10% will have positive impact on large number of goods under chapter 84 and 85 which include capital goods and consumer non-durables. • Most of the goods excluded from the reduction of excise duty to 10% already attract excise duty of either NIL or 6% • Reduction in Excise duty is applicable upto 30 June 2014. • With the reduction of excise duty, there will be correspondence reduction in CVD on imported goods also. Confederation of Indian Industry 29
  30. 30. Mobile Handsets Items Excise Duty 2013-14 Mobile handsets including cellular phones (8517) 6% having MRP of Rs. 2000 or more Mobile handsets including cellular phones (8517) 1% having MRP of less than Rs. 2000 Interim Budget 2014-15 6% 1% without CENVAT credit Comments • Amendments have been done by Central Excise notification 04/2014 dated 17.2.2014. • Earlier imported handsets having MRP of less than Rs. 2000 was attracting 1% CVD. Now these will attract CVD of 6%. • Earlier 6% excise duty with CENVAT credit was applicable on handsets having MRP of Rs 2000 or more. Now it is applicable on all handsets irrespective of price. Confederation of Indian Industry 30
  31. 31. Road Construction Machinery Items Customs Duty% 2013-14 Basic+CVD 21 specified equipments for construction of roads – list 16 of customs (84 or any other chapter) 6 specified equipments for road construction – list 16 A of Customs (84 or any other chapter) NIL+NIL on 21 equipments Interim Budget 2014-15 Basic+CVD NIL+NIL on 15 equipments NIL+NIL NIL+10 Comments • Changes have been done by Customs notification 5/2014 dated 17 February 2014. • 21 specified road construction equipments were exempted from basic customs duty, countervailing duty (CVD) and 4% additional duty of customs (SAD). 6 equipments have been deleted from the list of 21. Description of item at sl. no. 21 has been modified as “Tunnel Excavation and Lining Equipments”. • On 6 equipmnets deleted, customs duty will now be NIL basic plus 10% CVD plus 4% SAD. • These equipments are: 1. Hot mix plant batch type with electronic controls and bag type filter arrangements ore than 120 T/hour capacity, 2. Electronic paver finisher (with sensor device) for laying bituminous pavement 7m size and above, 3. Kerb laying machine, 4. Mobile concrete pump placer of 90/120 cu m/hr capacity, 5. Skid steer loaders, 6. Drilling jumbos, Loaders, Excavators, Shortcrete machine and 3 stage crushers. Confederation of Indian Industry 31
  32. 32. Soaps & Oleo Chemicals Items Customs Duty% 2013-14 10 Interim Budget 2014-15 7.5 12.5 7.5 20 7.5 Palm fatty acid distillate, industrial mono-carboxylic fatty acids and industrial fatty alcohols (3823 11 90, 3823 12 00, 3823 13 00, 3823 19 00, 3823 70) 15 7.5 Palm stearin-crude, RBD and other (3823 11 11, 3823 11 12, 3823 11 19) 20 7.5 Crude palm sterin having free fatty acid (FFA) 20% or more imported for manufacture of soaps, fatty acids and fatty alcohols by a manufacturer having plant for splitting up of such oils into fatty acids and glycerols (1511) Oils (except crude palm oil and crude palm stearin) having a Free Fatty Acid (FFA) 20% or more imported for manufacture of soaps, industrial fatty acids and fatty alcohol by a manufacturer having plant for splitting up of such oils into fatty acids and glycerols (1507 to 1515) Oils (except crude palm oil), having a Free fatty Acid (FFA) 20% or more for manufacture of soaps, industrial fatty acids and fatty alcohols (1507 to 1515) Comments • Changes in customs duty rates have been done by customs notification 05/2014 dated 17.02.2014. • Customs duty on soaps and soaps noodles is 10% where as number of inputs were attracting customs duty ranging from 10% to 20%. This anomalous situation has now been corrected by rationalizing the customs duty on non-edible grade industrial oils and its fractions, fatty acids and fatty acids at 7.5%. Confederation of Indian Industry 32