“HIGHER GROWTH LEADING TO INCLUSIVE AND SUSTAINABLE DEVELOPMENT”

SOP-4

DCSMAT,TVM

Budget Review 2013‐14

What is Budget ?

An estimate of income and expenditure for a specific period of time.

The purpose of budgeting is to: Provide a forecast of revenues and expenditures Enable the actual financial operation Establish the cost constraint for a project, program,

or operation

BUDGET AT A GLANCE

The Union Budget for 2013-14 aims at higher growth rate leading to inclusive and sustainable development

The Finance Minister P Chidambaram has sought to increase allocation to key areas and provide incentives for investments and savings while containing the fiscal deficit to 4.8% of GDP.

Three Promises: To Women, Youth and the Poor Nirbhaya Fund - with the Government contributing Rs. 1000 crore. The Minister also announced Rs. 1,000 crore scheme for training youth to

boost their employability and productivity. For the benefit of the poor, the Minister assured that Direct Benefit Transfer

(DBT) schemes will be implemented.

The Finance Minister (FM) aims to reduce the Fiscal Deficit to 4.8% in FY14 from 5.2% in FY13

Controlling the deficit will be a challenge as the government has projected a 19% increase in tax revenues although real GDP growth is currently 5 to 6%.

A 10% surcharge has been imposed on individuals with taxable income more than Rs 1cr while the surcharge has been hiked to 10% for Corporate earning over 10cr.

The Food Security Bill is expected to be passed in this session and an additional provision of Rs 10,000 cr has been made for it. We anticipate that the final provision will be much higher.

ECONOMIC SURVEY 2013

Current fiscal deficit is at 5.2%, and is expected to bring down fiscal deficit to 4.8%

Foreign exchange reserves were steady at $295.6 billion at December 2012 end

Food inflation was mainly driven by cereal prices. Diesel price hike will put upward pressure on inflation

GDP growth target of 5% not difficult to achieve Fund flows to be influenced by risk perception of investors Need to hike Diesel, LPG prices in line with global prices Need to access credit at lower costs

The Chennai-Bengaluru and Delhi-Mumbai industrial corridors are being supported by the Centre. We expect these steps to help them win state support for GST

Tax proposals on the Direct Tax side are estimated to yield Rs 13,300 cr and Rs 4,700cr on the Indirect Tax side

One time Service Tax Voluntary Compliance scheme proposed. Defaulter may avail of the scheme on the condition that he files truthful declaration of Service Tax dues since 1st October 2007.

STT cut on equity futures from 0.17% to 0.10%.

Budget Estimates

Plan expenditure is placed at ` 5,55,322 crore.

Non Plan Expenditure is estimated at ` 11,09,975 crore.

Fiscal deficit for the current year contained at 5.2 per cent and for the year

2013-14 at 4.8 per cent.

Revenue deficit for the current year at 3.9 per cent and for the year 2013-14

at 3.3 per cent.

By 2016-17 fiscal deficit to be brought down to 3 per cent, revenue deficit to

1.5 per cent and effective revenue deficit to zero per cent.

Budget 2013: Ten ways how it impacts Indians

High earners Home buyers Car buyers Consumers Women Jewellery buyers Retail investors Traders Corporate Foreign investors

AUTOMOBILES SECTOR

BUDGET IMPACT: NEGATIVE (Sector ignored by the policy makers)

Budget 2013‐14 disappointed automobile sector, Status-quo on basic excise duty for �small cars, large cars(ex. SUVs), commercial vehicles (ex. chassis fitted), two-

wheelers, three-wheelers and tractors.

Excise duty on SUVs intended for non-taxi use increased to 30% from the current �rate of 27%.

Reduction in excise duty on chassis fitted trucks to 13% from 14% earlier.� Purchase of 10,000 buses under JNNURM.� Increase in basic customs duty on motorcycles (with engine capacity of 800cc or �

more) to 75% from 60% earlier and on luxury cars/SUVs to 100% from 75% earlier.

CAPITAL GOODS

BUDGET IMPACT: NEUTRAL (Below expectations as no major reforms

announced)

High value investments (ie greater than `100cr) in plant and machinery,

during the period April 1, 2013 to March 31, 2015; will be eligible for

deduction of investment allowance of 15% (of the total investment). This will

be in addition to the current rates of depreciation.

The impact will be, It would encourage companies to revive stalled projects �and make new investments; thus positive for all companies in the Capital

Goods sector

INFRASTRUCTURE

BUDGET IMPACT: NEUTRAL (But a lot could have been done) Budget Developments

Issuance of tax-free bonds amounting to `50,000cr (vs 25,000cr raised in FY2012-13) through

various institutions for financing infrastructure projects has been proposed over FY2013-14

Allocation to Ministry of Drinking Water and Sanitation is being stepped up by 17.4% to

`15,260cr for FY2013-14.

The government plans to establish two major ports in West Bengal (Sagar) and Andhra Pradesh

which would add 100mn tonne capacity

To overcome various headwinds such as financial stress, enhanced construction risk and

contract management issues faced by the road sector, the Budget proposes to form a

regulatory authority for the road sector.

INFORMATION TECHNOLOGY

BUDGET IMPACT: NEUTRAL (No new development…)

Plan allocation for general education has been increased by 17% to `65,867cr

for FY2013-14 from `56,200cr in FY2012-13.

Under Sarva Shiksha Abiyan, `27,258cr has been allocated, which is 7% higher �than that allocated in the FY2012-13 budget.

Initiatives to modernize the Postal network are currently ongoing at an overall

cost of `4,909cr. An additional outlay of `532cr has been provided to make post

offices part of the Core Banking Solution and offer real time banking services.

POWER

BUDGET IMPACT: POSITIVE (Fuelled with small positive but major reforms

still pending)

�Extension of tax exemption under Section 80-IA for power generation companies

until FY2014

Generation-based incentive for wind energy projects and allocation of `800cr to �Ministry of Non-Renewable Energy for the same has been proposed.

Basic customs duty on steam coal to be increased from NIL to 2%. Counter veiling �duty on steam coal to be increased from 1% to 2%.

Public-Private Partnership (PPP) with Coal India to raise production�

BANKING & FINANCIAL SERVICES

BUDGET IMPACT: NEUTRAL (Lacks direction)Budget Developments

Capital infusion of `14,000cr in PSU banks, in-line with Expectations

Interest subvention for short-term crop loans retained for PSU banks, RRBs

and Co-operative banks and has also been extended for private banks.

Banks have now been permitted to act as insurance brokers.� An additional deduction of `1 lack (over and above 1.5lakh) under Sec 24 �

will be available for a person taking loan upto `25lakh for his first home

from a bank or a housing finance company.

FMCG

BUDGET IMPACT: POSITIVE (Rural consumption to boost revenue

growth)

The Budget has increased the allocation to rural development programs by

46% to `80,194cr.

SED on cigarettes has been increased by 18%

Tax on royalty paid by Indian subsidiaries to foreign parent companies

increased from 10% to 25%. However, the applicable rate will be the rate

stipulated in the Double Tax Avoidance Agreement (DTAA).

TELECOM / MEDIA

BUDGET IMPACT: NEUTRAL (Regulatory constrains remain)

The Budget indicated that the government expects to have revenue receipts

of ~`40,850cr overall through the telecom sector, out of which ~`23,000cr is

expected to be raised from spectrum auctions.

Excise duty on mobile phones priced above `2,000 raised to 6% from 1% �currently.

Government proposes to add 839 new FM radio channels covering 294 cities.

Their auction is to be conducted in FY2013-14.

Custom duty on set top boxes (STB) has been increased from 5% to 10%.�

What goes up! Cigarettes

Cigars

Cheroots

High-end mobile phones

Imported luxury cars

High-end motor vehicles

Sports Utility Vehicles

Imported Watch and motorboats

Marbles for flooring

Set-top boxes

Dining in air conditioned restaurants

Silk clothes

Homes and flats

What goes down! Jewellery

Precious stones

Cotton garments

Branded apparels

Carpets

Textile floor

Agricultural testing procedures

Ships and vessels

Cinema and films

Machinery for manufacturing of leather goods

Electric hybrid vehicles

Branded non-allopathic medicines

Ready-made garments

Home furnishing products

CONCLUSION There are mixed reactions to the Union Budget

A large section of industrials welcomed the budget

The budget will revive the manufacturing sector which had come under stress. The

schemes like Rajiv Gandhi Equity Savings Scheme and one time settlement for

service tax assesses are greatly appreciated

It is a responsible budget given the fact the fiscal deficit is being brought down

from 5.3% to 4.5%

As on 2012 survey the present poverty rate is 29.8% and measures are taken to

bring it down.

The present unemployment rate is 3.8% which is also expected to be brought down

Current account deficit and fiscal deficit are the problems faced by Indian economy.

Current Account Deficit can be reduced by implementing FDI, FII, Loans, NRI

deposits, Forex Reserve.

Fiscal Deficit can be decreased by increasing the tax base coverage , reducing the

non-planned expenditure, inviting more investments etc

In previous years the agricultural and industrial sectors were underperforming. But

necessary steps have been taken to improve the outcome of these sectors.