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Interim Union Budget Analysis

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Interim Union Budget Analysis

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MBA Aspirants are expected to know and understand the implications of Budgets because of immediate effect on our economy and common man. This general awareness will be useful to you in GD & PI also. 
 
Read:  Interim Union Budget Analysis
 
Budgets of the governments are a reflection of the society’s aspirations. It becomes even truer in a democracy. India’s economic and political system is going through a metamorphosis and therefore a General Budget in an election year holds significance.
 
As expected, the interim general budget had some sops to offer. But as far as tax slabs are concerned, the Finance Ministry had given clear indications even before the budget that tax slabs will not be changed and that there was likely to be only minor tinkering with excise duties. 
 
But on indirect tax front, FM has gone for excise duty cuts, particularly related to the auto sector. The slab for small cars has been slashed from 12% to 8%, medium cars from 24% to 20%, large cars from 27% to 24% and on SUVs from 30% to 24%. 
 
Mobiles are likely to be cheaper with the now standard 6% duty; and capital and consumer durable goods industries would also benefit with a 2% duty cut. FM made an attempt to spur local manufacturing of 'Made in India' cell phones by cutting excise duty on mobile phones manufactured in India.
 
Prices of air conditioners, washing machines, small-screen LED TVs, digital cameras, laptops, kitchen appliances, microwave ovens and electronic personal care gadgets will come down by a marginal 1-2% with the interim budget announcing a cut in excise duty from 12% to 10%. 
 
It is a welcome change since the market has been impacted with recurrent price increases last year due to rupee depreciation and increase in commodity prices.
 
Despite water purifiers, air purifiers and vacuum cleaners qualifying for an excise duty cut, there will be no change in pricing since market leaders like Eureka Forbes and Kent have their plants in no-excise zone. 
 
The finance minister has retained the super rich surcharge for now, but held out hope that it would be dropped when the new government presents the full budget a few months from now. Last year, Chidambaram had imposed 10% surcharge on those with taxable income in excess of Rs1 crore and said it would be in force only for a year. 
 
But the surcharge has been retained for now as the finance minister has chosen to follow the convention of outgoing governments not tinkering with direct taxes.
 
The government in budget  accepted the long-standing demand of ex-servicemen for 'one-rank, one-pension' and allocated Rs 500 crores for the fund, a decision that is expected to benefit around 30 lakh retired personnel of the Armed forces. 
 
Students from economically weak section of society who borrowed prior to 2009 will benefit as government announced in budget to pay interest component for a period up to December 31, 2013 on loans taken prior to 2009 by a section of borrowers. The centre would allocate Rs 2600 crores and about 9 lakh students would benefit with this move. 
 
What is worrying is that the FM has overstated the revenues and understated the costs. He had deferred revenue expenditure and cut capital expenditure. He over-booked revenue, only to 'revise' it downward. This year, he cut capital expenditure by Rs 91,000 crores, which would have disastrous long-term consequences for the investment cycle and job-creation. 
 
The budget documents reveal that the Drinking Water and Sanitation budget would be slashed from Rs 12,000 crores this year to Rs 231 crores next year which is very surprising in a country like India which needs funds in these areas.
 
On reforms front, the FM announced in budget to introduce a single data point that will track all financial records, like investments, of an individual to simplify record keeping and ensure greater tax compliance. This is among the five steps that Finance Minister P Chidambaram has outlined in interim Budget 2014-15 to deepen the financial market.
 
The steps include comprehensively revamp the ADR, GDR scheme and enlarge the scope of depository receipts, liberalize the rupee denominated corporate bond market and deepen and strengthen the currency derivatives market to enable Indian companies to fully hedge against foreign currency risks.
 
The Budget has announced further measures to improve financial efficiency and financial stability. The fiscal deficit target has not only been maintained within 4.8 per cent of GDP, but has actually been lowered to 4.6 per cent of GDP. For the coming year, the target of 4.1 per cent of GDP is in line with medium term goals.
 
Overall, Fiscal prudence was something FM has taken care of in his interim budget making it a balanced budget in its form and spirit. 
 
  
 
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