Vote on Account: FM avoids populism, but targets ambitious

Moneycontrol BureauFinance Minister P Chidambaram steered clear of populist measures in the final Budget of UPA II, offered sops to select industries, tried to woo the middle class and set ambitious fiscal targets for the coming year.Yet, the market shrugged it off as a non-event, and in a way, investors were happy that the Vote on Account, or Interim Budget, was just that. The Sensex ended the day at 20464, up 97 points and the Nifty at 6073, up 25 points.The auto sector was the biggest beneficiary, with excise duties across two-wheelers, cars, sports utility vehicles and commercial vehicles being cut.The government is set to lose Rs 300-400 crore for the remainder of this year, through this move even as it hopes that it can make up for this revenue loss if the companies are able to sell more vehicles.Excise duty for capital goods and consumer durables industries were reduced by 2 percentage points to 10 percent. In other measures, excise duties on locally produced mobile handsets were lowered, and concessions on imported road machinery were withdrawn to encourage local production.The Finance Minister managed to over deliver on the fiscal deficit target by containing it at 4.6 percent of GDP, against the targeted 4.8 percent. However, many economists questioned the quality of the number, saying it was achieved mainly through aggressive cuts in Plan Expenditure.Chidambaram has set a fiscal deficit target of 4.1 percent for FY15, which many feel is an ambitious target. A key assumption for meeting the target is a 19 percent growth in tax revenues, which given the present economic conditions appear optimistic. Also, the revised tax collection estimates for the current fiscal is 6 percent lower than the original forecast.On the subsidy front, the Finance Minister has forecast FY15 subsidy bill at Rs 2.46 lakh crore, the same as that for FY14.“Subsidies worth 1 percent of GDP will get rolled over from FY14 into FY15, suggesting that the budgeted subsidy amount will be insufficient to meet the entire demand,” wrote Nomura economist Sonal Varma, adding “hence, the government will need to continue to prune its spending in the next one year as well, if it has to meet the budgeted fiscal deficit target.”In other key announcements in the Vote on Account, the government has accepted the principle of one rank one pension for the Defence Forces to be implemented prospectively from the FY 2014-15.  In a move that is expected to benefit around 9 lakh student borrowers, the government has proposed a moratorium period for all education loans taken up to 31.3.2009 and outstanding on 31.12.2013. The government will take over the liability for outstanding interest as on December 31, 2013, but the borrower would have to pay interest for the period after April 1, 2014.