New Delhi:
P Chidambaram, shackled by the worst economic slowdown in a decade and the political demands of an election year, served a Budget 2013 today that has been described at best as balanced and pragmatic and at worst as disappointing and lacking substance. The Prime Minister said Mr Chidambaram had done a "commendable job", while RBI Deputy Governor Urjit Patel said the Budget would go a long way to lower the fiscal risk in the economy and lays the foundation for an effective rebalancing of the economy.
But the markets which were in the green ahead of the Budget, sank as he finished his speech.
The Finance Minister unveiled higher-than-expected spending for fiscal 2013-14, aiming to fund it with higher revenues - including new taxes on the rich and on large companies - in a budget aimed at reviving growth. Mr Chidambaram said it was imperative to climb back to the Indian economy's potential of 8 per cent growth.
Total budget expenditure will rise by an unexpectedly high 16 per cent in the fiscal year that begins on April 1 to Rs. 16.65 trillion, but, Mr Chidambaram said, fiscal deficit for the current year will fall to 5.2 per cent of the gross domestic product, besting a revised target of 5.3 per cent.
"Fiscal consolidation cannot be effective only by cutting expenditure," Chidambaram said in his speech, a balancing act to stave off a credit rating downgrade and meet demands for populist spending heading into an election year.
The budget caps an intensive campaign by Finance Minister P. Chidambaram since he was appointed last August to turn around the fortunes of Asia's third-largest economy after years of policy drift and global economic turmoil.
Mr Chidambaram also stressed that attracting foreign investment was crucial to stemming India's economic slowdown. The country he said was facing a current account deficit crisis due to huge imports of oil, coal and gold and a slowdown in exports and that he would need around $75 billion (Rs. 407,481.69 crore) to bridge the gap. This is proposed to be achieved through foreign investment and external commercial borrowings, he said. "India at the present juncture does not have the choice of welcoming and spurning foreign investment. We need to welcome foreign investment," he said.
The current account is a broad measure of trade and investment balances with the rest of the world.
The plan expenditure in 2013-14 will be 29.4 per cent more than the revised estimate of the current year, Mr Chidambaram said, adding that all flagship welfare programmes have been fully and adequately funded.
"My budget for 2013-14 has before it one overarching goal: to create opportunities for our youth to acquire education and skills that will get them decent jobs or self-employment that will bring them adequate incomes that will enable them to live with their families in a safe and secure environment," he added.
The Budget has earmarked Rs. 10,000 crore as an incremental cost to implement the Food Security Bill, a centrepiece of the ruling government's campaign in 2009.
There was the bow to popular sentiment, though restrained. In the segment of his Budget most keenly watched by the aam aadmi, he left income tax slabs unchanged, announcing a tax credit of Rs. 2,000 on an income of up to Rs. 5 lakh a year. He also proposed a surcharge of 10 per cent on the super-rich with taxable incomes of over Rs. 1 crore a year. He announced an additional deduction of up to Rs. 1 lakh on the first housing loan of up to Rs. 25 lakh.
The Prime Minister said, "The Finance Minister has done a commendable job in containing the deficit while simultaneously addressing the growth imperatives," concurring with the minster that, "We need to create 10 million jobs a year for the duration of the 12th Plan which can be achieved only if we reach 8 per cent GDP growth level," he said.
The BJP has, predictably, slammed the Budget. "In the past nine years, the UPA put the economy in distress and then the Finance Minister has very little elbow room. The Budget is verbose but the substance is extremely low," BJP's Arun Jaitley said. Mulayam Singh Yadav and Mayawati, who prop up the Manmohan Singh government with external support, too criticised the Budget.
There were mixed reactions from Industry. Malvinder Mohan Singh, chairman at Fortis Healthcare, said, "It is a good, balanced, pragmatic Budget and this is what India needs today. It will certainly help the economy grow at faster rate." And Keki M Mistry, CEO at HDFC, said it was a "growth-oriented, balanced and pragmatic Budget". But Uday Kotak, executive vice chairman and managing director at Kotak Mahindra Bank, said profitable corporates will have to pay a higher corporate tax.
The markets slumped to the day's low with the BSE Sensex dropping 190 points to 18,961, while the 50-share Nifty declined 65 points to 5,732. The rupee also slipped into the red and traded at 54.18 to the dollar.