Budget 2013: FM uses Budget to heighten welfare focus: CARE Research

CARE Research

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Analysis of the Union Budget 2013-14

The Indian economy is going through challenging times with GDP growth slowing down to 5% in FY13. Industrial activity has also come down sharply and would just about show growth of 1-2% for the entire year. To add to the problems, inflation has remained high through the year with the CPI inflation number being above 10% and WPI inflation at around 6.5-7%.

There are twin problems on savings and investment which has further constrained growth in the economy with both these rates coming down over time. Although inflation has come down recently, it still remains a concern for the RBI, constraining its ability to lower interest rates.

Despite a slowing economy, capital markets in comparison have been relatively upbeat on account of increasing FII inflows. Foreign exchange reserves too remain steady and the rupee has been largely stable in the range Rs.52-55 to a dollar. However, the current account deficit remains under pressure on account of increasing imports of gold, coal and oil. This concern has been voiced by both the government and RBI.

The fiscal balance in FY13 has been under pressure due to lower growth and increasing expenditures especially on account of subsidies. Further, the disinvestment programme has not taken off fully nor have the receipts under spectrum sale been realized. Therefore expenditure cuts were necessary to curtail the increasing fiscal deficit which in turn has affected growth.

On the other hand there have been high expectations from different sections of industry from the FM to bring in a growth oriented budget that can kick start the economy. There were numerous demands from various sections to lower taxes and increase productive expenditure. It is against this background that the Finance Minster has presented the Union Budget for 2013-14.

The Finance Minster appears to be determined to maintain the fiscal balance, and lowering its fiscal deficit is its highest priority. At the same time the FM has made it clear that the priority for the government is to ensure inclusive growth which is sustainable over a longer time period. The Budget hence focuses on expenditure programmes particularly to bring in social advancement and development. It thus concentrates on improving quality of human resources.

The Budget has largely retained the earlier tax slab and rates in case of both direct and indirect taxes. With limited tax concessions its approach remains conservative although it has made efforts to provide incentives. However, we feel that the attainment of the Budget goals is contingent on growth numbers and any deviation can affect the achievement of fiscal deficit targets.

The Budget on the whole has various macro implications and would impact various industries. Our Research and Economics teams have done an in depth analysis of all the macro and sectoral implications of the budget which is presented in this Report. I do hope that you enjoy reading this analysis and will be happy to receive your feedback which will help to enhance our own understanding.

ECONOMIC SURVEY: 2012-13

The Ministry of Finance today released the Economic Survey for the year 2012-13. The survey based on developments of FY13, draws out a rather cautious picture of the year gone by, emphasising the continued need for reforms in the coming months with an outlook for the next fiscal pointing towards gradual improvements.

Current Marco-economic Scenario: captured in the deteriorating lead indicators The survey notes that India’s current economic slowdown is deeply rooted in external causes and domestic weakness. Monetary tightening had been inevitable in the face of increased external headwinds and spiking inflation on account of stimulus support prompting consumption boost matched by inadequate supply-side flows.

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