UPA II’s last Budget in the form of ‘vote-on-account’ to be presented on Monday does not leave much headroom for Finance Minister P Chidambaram to push any ‘big-ticket’ populist giveaways, but there could be, nonetheless, some indirect tax concessions (which can be passed through Government notifications) announced as ‘indicative’ vote-bank lures in the run-up to lok Sabha elections.
On the fiscal deficit target front, the FM would have a tightrope walk. There is general apprehension on whether the fiscal deficit target of 4.8 per cent pegged for the current fiscal as was being claimed by North Block, would be met. “The proceeds from recent disinvestment would go in the capital account receipts and cannot be clubbed in the revenue receipts,” said CP Chandrashekar, noted economist from JNU. Hence, there could be some last-minute data jugglery to meet the 4.8 per cent number.
Corroborating this, Planning Commission member NC Saxena said: “There is less likelihood of the FM being able to meet the fiscal deficit target this time.” The FM would try to announce a higher outlay on its present social schemes even though there is very less room in the Vote-on-Account (VoA) which is largely a expenditure accounting for an interim period. But on the flip side, even as he may want it, Chidamabaram would not be able to announce sweeping giveaways as the fiscal deficit target for 2014-15 will be trimmed further to 4.2 per cent of the GDP.
“I feel that the economic survey to be presented later will be a mere presentation (read votebank propaganda of UPA II) this time. As the UPA will paint its achievements in a big way in the survey,” added Chandrashekar.
RC Bhargava, Chairman, Maruti Suzuki India ltd, however, discounted expectations of any concessions and said: “We do not expect any major annoucements from the FM as it will be a VoA this time; any announcements for the sector would have to come thereafter.” He was responding to the query on whether there could be any indicative sops for the auto-sector which has been reeling under declining sales and a prolonged slowdown for last many years.
It may be recalled that Minister of Heavy Industries Praful Patel had last fortnight at the Auto Expo 2014, said he had written to the FM seeking reduction in excise duty on commercial vehicles from 12 per cent to 8 per cent. There is a likelihood that the surcharge of 5 per cent and 3 per cent on earnings of domestic and overseas companies may see a let go as the FM is not likely to extend it to the next year.
On similar lines, though the VoA Budget would not have provisions to change the income tax slabs, the surcharge imposed last year by the FM, including the surcharge of 10 per cent for income of over Rs 1 crore, would also lapse and it is unlikely to be extended. There is also a possibility of reduction in customs tariff on gold as the CAD account deficit was falling in place. Import tariff on gold was hiked to a whopping 10 per cent from 2 per cent. However, this had led to a flurry in gold smuggling in recent months. Arvind Mayaram, secretary, Department of Economic Affairs, told The Pioneer: “The Government was in line to meet CAD target and hence could ease up import areas which were tightened earlier.”
The FM would without doubt shift the burden of the several votebank giveaways in 2013-14 and ‘roll-it-over’ to the next Government. “As is usual, we will be shifting the subsidy burden on the new government,” Mayaram had said. A ‘back-of-the-envelope’ calculations indicate that subsidy burden on account of food, fertilizer as well as oil to the tune of Rs 1,23,000 crore will be ‘rolled over to the next Government.
This will be on account of Rs 50,000 crore on account of oil, Rs 48,000 crore on account of food and as much as Rs 26,000 crore on account of fertilizers. With this, the new Government would be indeed hard pressed to meet the deficit target (projected at 4.2 per cent) and borrowing plans for the fiscal 2014-15. This essentially means that the borrowing schedule laid out in the interim budget will be valid only for the first quarter of fiscal 2014-15 as the VoA will provide for four months until the full Budget is presented.
Sources said that gross market borrowings for 2014-15 would be around Rs 5-6 trillion even as the fiscal deficit target is pegged at 4.2 per cent of GDP. As per the fiscal consolidation plan of the Finance Ministry, the fiscal deficit target has to be trimmed down by 0.6 per cent per annum. Markets are keeping their fingers crossed and hope that there are positive announcements for the industry, banking sector and infrastructure. They are hopeful that expenditure cuts may help bring fiscal deficit target below the projected 4.8 per cent in the current fiscal and project the revenue-expenditure gap next fiscal at 4.2 per cent of GDP.
Higher non-tax revenues, including disinvestment proceeds, could surprise on the upside as dividend flows from State-run enterprises have been higher than anticipated. The ongoing spectrum auctions are likely to yield enough revenues to meet the budgeted proceeds. On Thursday, the spectrum auction concluded with a whopping Rs 61,162 .22 crore in bid amounts. “But all these accruals would go in the capital account receipts; hence will not affect the fiscal deficit computations,” said Chandrashekhar.
Sources said that tax revenue is expected to see a growth of 15.3 per cent growth for next fiscal particularly as GDP growth recovers. In line with the expected trend in current fiscal, the increase is likely to come from robust income tax and services tax collections. Experts hold that combined tax and non-tax revenue collection at 9.7 per cent of GDP for next fiscal, marginally better than 9.3 per cent of GDP.
General expectations of an economic turnaround in 2014-15, both at home and overseas; better forex reserves at US $ 292.22 billion by February last week; higher-than-expected collections from spectrum auction at Rs 61,162.22 crore; expectations of normal monsoons and in turn higher-than-expected non-tax revenue as well as CAD level coming down to manageable levels would indeed give FM a more leeway to announce some ‘indicative’ concessions.
In order to attain the target of 4.2 per cent for 2014-15 -- which is lesser by 0.6 per cent of GDP for the current fiscal -- the Government will have to cut spending by at least another 0.3 per cent of GDP in fiscal 2014-15. However, that will be what the next Government will inherit as legacy of UPA II.