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The Finance Minister has delivered on one of the most critical  aspect in this Budget – fiscal consolidation. The budgeted fiscal deficit for FY2014 at 4.8% of GDP is in line with market expectations and the indications given by the FM a month back in the various country roadshows he undertook .  In terms of the fiscal deficit for FY2013, the Finance Minister has exceeded expectations and reined it at 5.2% and it is slightly lower than the government’s own estimate of 5.3% of GDP. (The high fiscal deficit was emerging at the biggest problem area for India, with credit rating agencies also threatening to review India’s credit rating given the backdrop of high fiscal deficit) .

 Overall the budget is realistic and focuses on fiscal consolidation. The Finance Minister has refrained from announcing any big bang reformist measures, which were widely expected and is a mood dampener in that regard. However given it’s T-1 year to the Central Government Election in 2014, he has not announced any major populist (politically inclined) measures either. That’s a zero sum game , one might say.

 The Economic Survey report a day earlier,  indicated that the growth will start climbing up and reach a level of 6.1-6.7% for the fiscal year 2013-14. However the q3 GDP (Oct-Dec’12) growth at 4.5%, was a shocker for many (lowest GDP growth in a quarter in last decade for India). This lower growth was mainly due to slow growth in services sector, which was standing tall over the last few quarters despite sluggishness all around.

 Coming back to the Budget. The budget is summarised by many as lackluster yet smartly balanced budget given the context India is in. The main highlights of the budget and its implications are expected as follows :

 Tax Proposals :

  • There have not been any significant tax proposals in the budget except for a 10% Income tax surcharge for the Super Rich (Defined as those earning more than 10mln INR per annum)
  • Import duty increase in high end cars (75% to 100%) and bikes  (60% to 75%)
  • Proposal on tax rate on royalty paid to foreign companies up from 10% to 25% (this is however linked to the stipulation in the Double Tax Avoidance Agreement with respective countries)

 Incentivising Investments: 

  • To encourage investments, the Budget has proposed a 15% investment allowance for new high value investments (Investments of 1 Bln INR  or more) in plant and machinery done between April 1, 2013 to 31st March 2015.
  • Affordable End User housing project demand push by allowing 0.1Mln INR additional tax incentive on Interest paid for housing loan taken by first time home buyers (for a loan value of upto 2.5 mln INR) .

…could see some housing demand pickup in Tier I/II cities and towns.

 Development Programs :

  • The allocation to rural development programs have increased by 49%

..could be beneficial for fast moving consumer good companies.

 Capital Raising :

  • Issuance of tax free bonds for up to 500 bln INR through various institutions for financing infrastructure projects

…positive for Infrastructure companies , especially road companies (where the Government has also set up higher targets for 2013-14.

 Plan Expenditure :

  • The major recipients of Plan expenditure are Agricultural/ Rural sector, Education and Health/Welfare/Water Supply

…companies in these sectors likely to benefit.

 Not a fancy budget, one may argue- but one which definitely delivered on the first priority (need of the hour) – Fiscal consolidation. For the close second priority- Growth & Investments, maybe it could have done some more (but we will like to believe “budget is not the only place to announce and take actions with reference to growing the economy “ as some people say) . The coming few quarters could be crucial for the economy & some rapid , efficient actions need to happen on the ground, to convey to the world – we are still hungry and capable of delivering sustainable growth !!

 For more information about Indian Union Budget visit: http://indiabudget.nic.in/budget.asp

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About The Author

Founder & Managing Director at Expand in India, and IIM Lucknow Alumni having close to 20 years experience in business management, industrial management, strategic planning, marketing, operations, team building, leadership , consulting and six sigma process orientation.

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