Union Budget 2013 - 14: Promising Economic Growth

Dr.Renu Pothen
Fundsupermart.com India

The Budget of 2013-14 has a practical intent with the underlying tone being “No Pain No Gain”. Chidambaram and his colleagues at the Finance Ministry have put together a Budget Document which is a clear indicator that this government is serious about fiscal prudence. The budget has tried to address some grave issues which have been impacting the economy for some time now. The Reserve Bank of India (RBI) had been waiting for a long time for the government to take actions which will have a positive impact on inflation. Since Chidambaram took charge at North Block he has taken measures on the fiscal front to contain inflation. This unlike his predecessor who remained tight lipped whenever the RBI governor made his displeasure known, whereby he reiterated that the government needs to be pro-active to reduce inflation which was hurting all segments of the society. In this Budget the finance minister has explicitly stated that food inflation is a cause of concern and the government will take all steps to solve the supply bottlenecks. This should come as music to the ears of Subbarao and team as they have been impatiently waiting for government to walk the talk so that monetary softening can take place. My aim of writing this column is to touch upon a few measures presented in this Budget and see the impact that it will have on investors.

Whenever a budget speech takes place all investors wait in anticipation to hear what are the changes that are being brought about in the personal income tax levels. For a change the finance minister has left this untouched which seems to be a relief to all investors.

Similar to the last two years when the government allowed certain institutions to raise tax-free bonds, this year also the emphasis on these bonds was made. In this budget also, the government has decided to allow some more institutions to issue tax free bonds upto a total sum of INR 50,000 crore. This definitely  is a boon to investors who are waiting for more tax efficient options other than the already existing ones .This will enhance the retail participation in the infrastructure development of the economy.

In a country where investors are getting a negative real rate of return on  majority of their savings instruments, it has come as a relief that the government has decided to launch Inflation Indexed Bonds or Inflation Indexed National Security Certificates.These instruments will be suitable for all those investors who want their returns to be protected against inflation. This is a novel concept as far as India is concerned and we will have to wait and watch to get more details on the same.

In our analysis of last year’s budget we had mentioned that the annual income under Rajiv Gandhi Equity Savings Scheme should be increased. This budget has done the same with the limit raised from INR 10 lakh to INR 12 lakh, however we were expecting more modifications on the definition of first time retail investors, simple lock-in periods, etc, which has  not materialized.

Some other measures in the budget like in the case of dividend distribution tax, wherein the current surcharge has been increased from 5% to 10%, reduction in STT for equity futures,MF/ETF redemptions at fund counters, all this  will have only a limited impact on the investor community.
The decision to tax the rich along with the profitable companies is a wise one, however,it needs to be seen if the government can actually track the ones who fall within this bracket as many of them could be evading tax in some form or the other.

To sum it up, the budget has tried to reduce the spending of the investors while not having too much of an impact on their investments. Although the markets have reacted negatively to some of the revenue enhancing measures that have been announced we are of the view that the UPA government has presented a responsible and prudent budget.

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