Overview of the Economy
The Indian economy is estimated to have registered a growth rate of 5.0 per cent in 2012-13 in terms of gross domestic product at factor cost at constant 2004-05 prices, following a growth of 6.2 percent in 2011-12. Growth in 2011-12 and 2012-13 is on the lower side, in the context of the decadal average of 7.9 per cent during 2003-04 to 2012-13. This is attributable mainly to weakening industrial growth in the context of tight monetary policy followed by the Reserve Bank of India (RBI) through most of 2011-12, and continued uncertainly in the global economy.
The slowdown in 2011-12 and 2012-13 has been precipitated by domestic factors as well as has been precipitated by domestic factors emanating from the rest of the world, particularly advanced economies and India’s major trading partners. The crisis in the Euro-zone area and slow growth in many other advanced economies have affected growth in India through dynamic linkages. Domestic factors, including the tightening of monetary policy, in order to control inflation and rein in inflationary expectations, resulted in slowing down of investment and growth, particularly in the industrial sector.
Overall budget size
In the revised budget for 2012-13, total expenditure has been reduced to Rs 1430825 crores from Rs 1490925 crores. In the new budget, plan expenditure in 2013-14 has been raised by 29.4% to Rs 555322 crores to support the twelfth five year plan. Because of the additional thrust on plan expenditure, the total expenditure has been increased to Rs 1665297 crores.
- A. Programmes and Initiates
SC, ST, Women and Children
The gender budget: the gender budget has an allocation of Rs 97,134 crore and the child budget has Rs 77,236 crore in 2013-14.
SC, ST Development: the budget allocates Rs 41,561 crore to the scheduled caste sub plan and Rs 24,598 crore to the tribal sub plan. The total represents an increase of 12.5 percent over the BE and 31 percent over the RE of the current year.
Women support: Women belonging to the most vulnerable groups, including single women and widows, must be able to live with self-esteem and dignity. Young women face gender discrimination everywhere, especially at the work place. Ministry of Women and Child Development has been asked to design schemes that will address these concerns. The budget proposes to provide an additional sum of Rs 200 crore to that Ministry to begin work in this regard.
Minorities: the budget has allocated Rs 3,511 crore to the Ministry of Minority Affairs. This is an increase of 12 percent over the BE and 60 percent over the RE of 2012-13.
Funding to Maulana Azad Foundation: The Maulana Azad Education Foundation is the main vehicle to implement educational schemes and channelize funds to non-government organisations for the minorities. The budget raises the fund to the foundation to Rs 1,500 crore during the 12th Plan period. In the budget, there is an allocation of Rs160 crore to the corpus fund. The Foundation wishes to add medical aid to its objectives. The Finance Minister has accepted this allowed providing medical facilities such as an infirmary or a resident doctor in the educational institutions run or funded by the Foundation. For this initiative, the budget sanctions Rs100 crore.
Disabled persons: The budget makes an allocation of Rs 110 crore to the Department of Disability Affairs for the ADIP Scheme in 2013-14, an increase from Rs 75 crore in the last year.
Health and education
Health: The budget allocates Rs 37,330 crore to the Ministry of Health and Family Welfare. Of this, the new National Health Mission that combines the rural mission and the proposed urban mission will get Rs 21,239 crore, an increase of 24.3 percent over the RE. The budget provides Rs 4,727 crore for medical education, training and research.
National Programme for the Health Care of the Elderly: The National Programme for the Health Care of Elderly is being implemented in 100 selected districts of 21 States. Eight regional geriatric centres are being funded for the development of dedicated geriatric departments. The budget provides Rs 150 crore for this programme.
AYUSH: The budget allocates Rs 1,069 crore to the Department of AYUSH. The programme is a very important part of the National Health Mission.
AIIMS peers: The six AIIMS-like institutions have admitted their first batch of students in the academic session that commenced in September 2012. The hospitals attached to the colleges will be functional in 2013-14. The budget proposes to provide a sum of Rs1, 650 crore for these institutions.
Education: the budget proposes Rs 65,867 crore to the Ministry of Human Resource Development, which is an increase of 17 percent over the RE of the previous year. The Sarva Shiksha Abhiyan (SSA) and the Right to Education Act are firmly in place. The budget provides Rs 27,258 crore for SSA in 2013-14.
For higher secondary education, the budget proposes to provide Rs 3,983 crore for RMSA (Rashtriya Madhyamik Shiksha Yojana), which is an increase of 25.6 percent over the RE of the current year.
Scholarships for SCs, STs and Minorities: allocation for scholarships for Scheduled Castes, Scheduled Tribes, Other Backward Classes and Minorities, and girl children, in 2013-14 has been proposed to increase. The allocation for this is Rs 5,284 crore to the various Ministries, as compared to Rs 4,575 crore in the RE of the current year.
Mid- Day Meal Scheme: The Mid-Day Meal Scheme (MDM) will be provided Rs13, 215 crore.
Reconstruction of the Nalanda University: The reconstruction of the Nalanda University has gathered momentum. The Government is committed to the creation of Nalanda University as a centre of educational excellence.
ICDS: the budget proposes to allocate Rs 17,700 crore in 2013-14, representing an increase of 11.7 percent. The focus will continue to be on early childhood care and education.
Maternal and child health by eliminating malnutrition: Maternal and child malnutrition in a country with abundant foodgrains is a shame that the country must overcome. A multi-sectoral programme that was announced last year will be implemented in 100 districts during 2013-14 and it will be scaled up to cover 200 districts the year after. The budget proposes to allocate a sum of Rs 300 crore for the programme in 2013-14.
Drinking Water: the budget allocates Rs 15,260 crore to the Ministry of Drinking Water and Sanitation, as against the RE of Rs 13,000 crore in the current year.
Assistance to create water purification plants: There are still 2,000 arsenic- and 12,000 fluoride-affected rural habitations in the country. The budget provides Rs1,400 crore towards setting up water purification plants.
Flagship programmes for rural development: The Ministry of Rural Development steers a number of flagship programmes. The budget proposes to allocate Rs 80,194 crore in 2013-14 for flagship programmes, marking an increase of 46 percent. MGNREGS will get Rs 33,000 crore, PMGSY will get Rs 21,700 crore, and IAY will get Rs 15,184 crore.
PMGSY II: The objectives of PMGSY have been substantially fulfilled in several States. Naturally, these States wish to do more. Hence, it is proposed to carve out PMGSY-II and allocate a portion of the funds to the new programme that will benefit States such as Andhra Pradesh, Haryana, Karnataka, Maharashtra, Punjab and Rajasthan. Details of PMGSY-II will be announced by the Minister of Rural Development in due course.
The Jawaharlal Nehru National Urban Renewal Mission (JNNURM) is being continued in the 12th Plan. The 14,000 buses sanctioned during 2009 to 2012 have made a big contribution to urban transport. The budget proposes to provide Rs 14,873 crore for JNNURM, as against the RE of Rs 7,383 crore in the current year. Out of this, a significant portion will be used to support the purchase of upto 10,000 buses, especially by the hill States.
The average annual growth rate of agriculture and allied sector during the 11th Plan was 3.6 percent as against 2.5 percent and 2.4 percent, respectively, in the 9th and 10th Plans. In 2012-13, total foodgrain production will be over 250 million tonnes. Minimum support price of every agricultural produce under the procurement programme has been increased significantly. Farmers have responded to the price signals and produced more. Agricultural exports from April to December, 2012 have crossed Rs 138,403 crore.
For the agricultural sector the budget allocates Rs 27,049 crore to the Ministry of Agriculture, an increase of 22 percent over the RE of the current year. Of this, agricultural research will be provided Rs 3,415 crore.
Agricultural credit: For 2013-14, the budget proposes to increase the agricultural credit target to Rs 700,000 crore.
Interest subvention scheme: The interest subvention scheme for short-term crop loans will be continued and a farmer who repays the loan on time will be able to get credit at 4 percent per annum. So far, the scheme has been applied to loans extended by public sector banks, RRBs and cooperative banks. The budget extends the scheme to crop loans borrowed from private sector scheduled commercial banks in respect of loans given within the service area of the branch concerned.
Green Revolution: Bringing the green revolution to eastern India has been a remarkable success. Assam, Bihar, Chhattisgarh and West Bengal have increased their contribution to rice production. The budget proposes to continue to support the eastern Indian States with an allocation of Rs1000 crore in 2013-14.
The original Green Revolution States face the problem of stagnating yields and over-exploitation of water resources. The answer lies in crop diversification. Hence an allocation of Rs 500 crore is made to start a programme of crop diversification that would promote technological innovation and encourage farmers to choose crop alternatives.
RKVY and National Food Security Mission: The Rashtriya Krishi Vikas Yojana is intended to mobilise higher investment in agriculture and the National Food Security Mission is intended to bridge yield gaps. The budget proposes to provide Rs 9,954 crore and Rs 2,250 crore, respectively, for these two programmes.
Integrated watershed programme: Small and marginal farmers are vulnerable everywhere, and especially so in drought prone and ecologically-stressed regions. Watershed management is crucial to improve productivity of land and water use. Hence, the budget proposes to increase the allocation for the integrated watershed programme from Rs 3,050 crore in 2012-13 (BE) to Rs 5,387 crore.
Pilot programme on Nutri- Farms: Eminent agricultural scientists have suggested that we start a pilot programme on Nutri-Farms for introducing new crop varieties that are rich in micro-nutrients such as iron-rich bajra, protein-rich maize and zinc-rich wheat. The budget proposes to provide a sum of upto Rs 200 crore to start the pilots. Ministry of Agriculture will formulate a scheme. The programme will bring together agri businesses and farmers to start a sufficient number of pilots in the districts most affected by malnutrition.
National Institutes for Agricultural Research: The National Institute of Biotic Stress Management for addressing plant protection issues will be established at Raipur, Chhattisgarh. The Indian Institute of Agricultural Bio-technology will be established at Ranchi, Jharkhand and will serve as a centre of excellence in agricultural bio-technology.
Coconut Development: A pilot scheme to replant and rejuvenate coconut gardens that was implemented in some districts of Kerala and the Andaman & Nicobar Islands will be extended to the entire State of Kerala, and the budget proposes to provide an additional sum of Rs 75 crore in 2013-14.
Farmer Producer Organizations
Farmer Producer Organizations (FPO), including Farmer Producer Companies (FPC), have emerged as aggregators of farm produce and link farmers directly to markets. To signal support to them, the budget provides matching equity grants to registered FPOs upto a maximum of Rs 10 lakh per FPO to enable them to leverage working capital from financial institutions. The budget proposes to provide Rs 50 crore for this purpose. Besides, a Credit Guarantee Fund will also be created in the Small Farmers’ Agri Business Corporation with an initial corpus of Rs 100 crore. State Governments should support such FPOs through necessary amendments to the APMC Act and in other ways.
National Livestock Mission
The National Livestock Mission will be launched in 2013-14 to attract investment and to enhance productivity taking into account local agro-climatic conditions. The budget proposes to provide Rs 307 crore for the Mission. There will be a sub Mission for increasing the availability of feed and fodder.
Food security is as much a basic human right as the right to education or the right to health care. The National Food Security Bill is a promise of the UPA Government. The Parliament will pass the Bill as early as possible. The budget set asides Rs 10,000 crore, over and above the normal provision for food subsidy, towards the incremental cost that is likely under the Act.
Investment, Infrastructure and Industry
The key to restart the growth engine is to attract more investment, both from domestic investors and foreign investors. Investment is an act of faith. The government will improve communication of our policies to remove any apprehension or distrust in the minds of investors, including fears about undue regulatory burden or application of tax laws. ‘Doing business in India’ must be seen as easy, friendly and mutually beneficial.
While every sector can absorb new investment, it is the infrastructure sector that needs large volumes of investment. The 12th Plan projects an investment of USD 1 trillion or Rs 55,00,000 crore in infrastructure. The Plan envisages that the private sector will share 47 percent of the investment. Besides, we need new and innovative instruments to mobilise funds for this order of investment. Government has taken or will take the following measures to increase investment in infrastructure:
Infrastructure Debt Funds (IDF) will be encouraged. These funds will raise resources and, through take-out finance, credit enhancement and other innovative means, provide long-term low-cost debt for infrastructure projects. So far, four IDFs have been registered with SEBI and two of them were launched in the month of February, 2013.
India Infrastructure Finance Corporation Ltd (IIFCL), in partnership with the Asian Development Bank, will offer credit enhancement to infrastructure companies that wish to access the bond market to tap long term funds.
Tax free bonds: In the last two years, a number of institutions were allowed to issue tax free bonds. They raised Rs 30,000 crore in 2011-12 and are expected to raise about Rs 25,000 crore in 2012-13. The budget proposes to allow some institutions to issue tax free bonds in 2013-14, strictly based on need and capacity to raise money in the market, upto a total sum of Rs 50,000 crore.
Loans from multilateral institutions: Multilateral Development Banks are keen to assist in efforts to promote regional connectivity. Combining the ‘Look East’ policy and the interests of the North Eastern States, the budget proposes to seek the assistance of the World Bank and the Asian Development Bank to build roads in the North Eastern States and connect them to Myanmar.
RIDF: NABARD operates the Rural Infrastructure Development Fund (RIDF). RIDF has successfully utilised 18 tranches so far. The budget proposes to raise the corpus of RIDF-XIX in 2013-14 to Rs 20,000 crore.
Generation of warehousing facilities: Pursuant to the announcement made last year, a sum of Rs 5000 crore will be made available to NABARD to finance construction of warehouses, godowns, silos and cold storage units designed to store agricultural produce, both in the public and the private sectors. This window will also finance, through the State Governments, construction of godowns by panchayats to enable farmers to store their produce.
The road construction sector has reached a certain level of maturity. But it faces challenges not envisaged earlier, including financial stress, enhanced construction risk and contract management issues that are best addressed by an independent authority. Hence, Government has decided to constitute a regulatory authority for the road sector. Bottlenecks stalling road projects have been addressed and 3,000 kms of road projects in Gujarat, Madhya Pradesh, Maharashtra, Rajasthan and Uttar Pradesh will be awarded in the first six months of 2013-14.
Cabinet Committee Investment
Revival of investment in the industrial sector, especially manufacturing, is a key challenge. Many projects are stalled because they are unable to clear regulatory hurdles. The Cabinet Committee on Investment (CCI) has been set up to monitor investment proposals as well as projects under implementation, including stalled projects, and guide decision-making in order to remove bottlenecks and quicken the pace of implementation. Two meetings of the CCI have been held already and decisions were taken in respect of a number of oil and gas, power, and coal projects. CCI will take up some more projects shortly.
Attracting New Investment
To attract new investment and to quicken the implementation of projects, the budget proposes to introduce an investment allowance for new high value investments. A company investing Rs 100 crore or more in plant and machinery during the period 1.4.2013 to 31.3.2015 will be entitled to deduct an investment allowance of 15 percent of the investment. This will be in addition to the current rates of depreciation. There will be enormous spill-over benefits to small and medium enterprises.
National Electronic Policy: The National Electronics Policy 2012 is intended to promote manufacture of electronic goods in India. We recognise the pivotal role of semiconductor wafer fabs in the eco-system of manufacture of electronics. The budget provides appropriate incentives to semiconductor wafer fab manufacturing facilities, including zero customs duty for plant and machinery.
Increasing savings and their optimal allocation for productive uses lead to higher economic growth. After touching a high of 36.8 percent in 2007-08, gross domestic saving fell by 6 percentage points in 2011-12. The private sector, comprising households and corporate, remains the main contributor to saving. The household sector must be incentivised to save in financial instruments rather than buy gold. Hence, the budget brings the following measures:
Rajiv Gandhi Equity Savings Scheme: Firstly, the Rajiv Gandhi Equity Savings Scheme will be liberalised to enable the first time investor to invest in mutual funds as well as listed shares and she can do so, not in one year alone, but in three successive years. The income limit will be raised from Rs 10, 00,000 to Rs 12, 00,000.
Home Loans: Secondly, a person taking a loan for his first home from a bank or a housing finance corporation upto Rs 25,00,000 during the period 1.4.2013 to 31.3.2014 will be entitled to an additional deduction of interest of upto Rs 100,000. This will promote home ownership and give a fillip to a number of industries like steel, cement, brick, wood, glass etc. besides jobs to thousands of construction workers.
Inflation Indexed Bonds: Thirdly, in consultation with RBI, the government propose to introduce instruments that will protect savings from inflation, especially the savings of the poor and middle classes. These could be Inflation Indexed Bonds or Inflation Indexed National Security Certificates. The structure and tenor of the instruments will be announced in due course.
The Delhi Mumbai Industrial Corridor (DMIC) project has made rapid progress. Plans for seven new cities have been finalised and work on two new smart industrial cities at Dholera, Gujarat and Shendra Bidkin, Maharashtra will start during 2013-14. We acknowledge the support of the Government of Japan. In order to dispel any doubt about funding the government will provide, if required, additional funds during 2013-14 within the share of the Government of India in the overall outlay for the project.
Chennai- Bengaluru Industrial Corridor: The Department of Industrial Policy and Promotion (DIPP) and the Japan International Cooperation Agency (JICA) are currently preparing a comprehensive plan for the Chennai Bengaluru Industrial Corridor. The corridor will be developed in collaboration with the Governments of Tamil Nadu, Andhra Pradesh and Karnataka. The next corridor will be the Bengaluru Mumbai Industrial Corridor on which preparatory work has started.
Leh-Kargil Transmission Line
To improve power supply in the Leh-Kargil region and connect the Ladakh region to the northern grid, the Government will construct a transmission system from Srinagar to Leh at a cost of Rs 1,840 crore. The budget proposes to provide Rs 226 crore in 2013-14 for the project.
Two new major ports will be established in Sagar, West Bengal and in Andhra Pradesh to add 100 million tonnes of capacity. In addition, a new outer harbour will be developed in the VOC port at Thoothukkudi, Tamil Nadu through PPP at an estimated cost of Rs 7,500 crore. When completed, this will add 42 million tonnes of capacity.
Five inland waterways have been declared as national waterways. The government will move a Bill in Parliament to declare the Lakhipur – Bhanga stretch of river Barak in Assam as the sixth national waterway. Preparatory work is underway to build a grid connecting waterways, roads and ports. The 12th Plan has an adequate outlay for capital works, including dredging, on the national waterways. The objective is to choose barge operators, through competitive bidding, to transport bulk cargo on the national waterways. The first transport contract has been awarded in West Bengal from Haldia to Farakka.
Oil and Gas
The oil and gas exploration policy will be reviewed to move from profit sharing to revenue sharing contracts. A policy to encourage exploration and production of shale gas will be announced. The natural gas pricing policy will be reviewed and uncertainties regarding pricing will be removed. NELP blocks that were awarded but are stalled will be cleared. The 5 MMTPA LNG terminals in Dabhol, Maharashtra will be fully operational in 2013-14.
Despite abundant coal reserves, we continue to import large volumes of coal. Coal imports during the period April-December, 2012 have crossed 100 million tonnes. It is estimated that imports will rise to 185 million tonnes in 2016-17. If the coal requirements of the existing power plants and the power plants that will come into operation by 31.3.2015 are taken into account, there is no alternative except to import coal and adopt a policy of blending and pooled pricing. In the medium to long term, we must reduce our dependence on imported coal. One of the ways forward is to devise a PPP policy framework, with Coal India Limited as one of the partners, in order to increase the production of coal for supply to power producers and other consumers. These matters are under active consideration and the Minister of Coal will announce Government’s policies in this behalf in due course.
The Government has approved a scheme for the financial restructuring of DISCOMS to restore the health of the power sector. The centre would urge the State Governments to prepare the financial restructuring plans quickly, sign the MOU, and take advantage of the scheme.
Micro, Small and Medium Enterprises
Micro, small and medium enterprises (MSME) have a large share of jobs, production and exports. Too many of them do not grow because of the fear of losing the benefits associated with staying small or medium. To encourage them to grow, the budget propose that the benefits or preferences enjoyed by them will stay with them for upto three years after they grow out of the category in which they obtained the benefit. To begin with, the budget provides that the non-tax benefits may be made available to a MSME unit for three years after it graduates to a higher category.
To provide greater support to MSMEs, the budget proposes to enhance the refinancing capability of SIDBI from the current level of Rs 5,000 crore to Rs10,000 crore per year.
SIDBI set up the India Microfinance Equity Fund (IME Fund) in 2011-12 with budgetary support of Rs 100 crore to provide equity and quasi-equity to Micro Finance Institutions (MFI). An amount of Rs 104 crore has been committed to 37 MFIs. There was an allocation of Rs 100 crore to the IME Fund in the last budget and now it is proposed to provide another sum of Rs100 crore to the Fund.
The Factoring Act 2011 has been passed by Parliament. The budget proposes to provide a corpus of Rs 500 crore to SIDBI to set up a Credit Guarantee Fund for factoring.
Tool Rooms and Technology Development Centres set up by the Ministry of Micro, Small and Medium Enterprises have done well in extending technology and design support to small businesses. The budget proposes to provide, with World Bank assistance, a sum of Rs 2,200 crore during the 12th Plan period to set up 15 additional Centres.
CSR Fund to technology incubators:
Incubators play an important role in mentoring new businesses which start as a small or medium business. The new Companies Bill obliges companies to spend 2 percent of average net profits under Corporate Social Responsibility (CSR). The budget announces that the Ministry of Corporate Affairs will notify that funds provided to technology incubators located within academic institutions and approved by the Ministry of Science and Technology or Ministry of MSME will qualify as CSR expenditure.
The Technology Upgradation Fund Scheme (TUFS) will be continued for the textile sector in the 12th Plan with an investment target of Rs 151,000 crore. The major focus would be on modernisation of the powerloom sector. The budget proposes to provide Rs 2,400 crore in 2013-14 for the purpose.
Textile parks have been set up under Scheme for Integrated Textile Parks (SITP). It is proposed to set up Apparel Parks within the SITPs to house apparel manufacturing units. To incentivise such Apparel Parks, the budget proposes to allocate Rs 50 crore to the Ministry of Textiles to provide an additional grant of upto Rs10 crore to each Park.
A new scheme with an outlay of Rs 500 crore called the Integrated Processing Development Scheme will be implemented in the 12th Plan to address the environmental concerns of the textile industry, including improving the effluent treatment infrastructure. The budget proposes to provide Rs50 crore in 2013-14 for the scheme.
The handloom sector is in distress. Very large proportion of handloom weavers is women and belongs mainly to the backward classes. For them the budget recommends to accept their demand for working capital and term loans at a concessional interest of 6 percent. Around 150,000 individual weavers and 1,800 primary cooperative societies will benefit in 2013-14. In the new budget, an additional allocation of Rs 96 crore is made for 2013-14 to the Ministry of Textiles for interest subvention.
India has a rich heritage of traditional industries. Khadi, village industries and coir were taken up for development during the 11th Plan under the Scheme of Fund for Regeneration of Traditional Industries (SFURTI). The 12th Plan has provided an outlay of Rs 850 crore. The budget proposes to leverage assistance from Multilateral Development Banks to extend SFURTI to 800 clusters during the 12th Plan. 400,000 artisans are expected to be benefited.
The Financial Sector Legislative Reforms Commission (FSLRC) in 2011. The recommendations will be examined and the government will act quickly and decisively so that India’s financial sector stands on sound legal foundations and remains well-regulated, efficient and internationally competitive. The budget proposes to constitute a Standing Council of Experts in the Ministry of Finance to analyze the international competitiveness of the Indian financial sector, periodically examine the transaction costs of doing business in the Indian market, and provide inputs to Government for necessary action.
The public sector banks are well regulated; they must also be adequately capitalized. Before the end of March, 2013, thirteen PSBs should be provided with Rs 12,517 crore to infuse additional capital. For 2013-14, the budget proposes to provide a further amount of Rs 14,000 crore for capital infusion. We shall ensure that public sector banks always meet the Basel III regulations as they come into force in a phased manner.
Financial inclusion has made rapid strides. All scheduled commercial banks and all RRBs are on core banking solution (CBS) and on the electronic payment systems (NEFT and RTGS). The government is working with RBI and NABARD to bring all other banks, including some cooperative banks, on CBS and e-payment systems by 31.12.2013. Public sector banks have assured me that all their branches will have an ATM in place by 31.3.2014.
The budget proposes to set up India’s first Women’s Bank as a public sector bank and provides Rs 1,000 crore as initial capital. The bank will lend mostly to women and women run businesses that support women SHGs and women’s livelihood that employs predominantly women.
The Rural Housing Fund set up through the National Housing Bank is used to refinance lending institutions, including RRBs that extend loans for rural housing. So far, 400,000 rural families have taken loans. In the last Budget, the government has provided Rs 4,000 crore to the Fund. In consultation with RBI, the budget proposes to provide Rs 6,000 crore to the Rural Housing Fund in 2013-14.
Similarly, it is proposed to start a fund for urban housing to mitigate the huge shortage of houses in urban areas. The budget proposes to ask National Housing Bank to set up the Urban Housing Fund, in consultation with RBI. The budget allocates Rs 2,000 crore to the Fund in 2013-14.
A multi-pronged approach will be followed to increase the penetration of insurance, both life and general, in the country. The budget makes a number of proposals that have been finalized in consultation with the regulator, IRDA.
- Insurance companies will be empowered to open branches in Tier II cities and below without prior approval of IRDA.
- All towns of India with a population of 10,000 or more will have an office of LIC and an office of at least one public sector general insurance company. The budget proposes to achieve this goal by 31.3.2014.
- KYC of banks will be sufficient to acquire insurance policies.
- Banks will be permitted to act as insurance brokers so that the entire network of bank branches will be utilised to increase penetration.
- Banking correspondents will be allowed to sell micro-insurance products.
- Group insurance products will now be offered to homogenous groups such as SHGs, domestic workers associations, anganwadi workers, teachers in schools, nurses in hospitals etc.
- There are about 10, 00,000 motor third party claims that are pending before Tribunals/Courts. Public sector general insurance companies will organize adalats to settle the claims and give relief to the affected persons/families.
The Insurance Laws (Amendment) Bill and the PFRDA Bill are to be considered soon.
The Rashtriya Swasthiya Bima Yojana covers 34 million families below the poverty line. It will now be extended to other categories such as rickshaw, auto-rickshaw and taxi drivers, sanitation workers, rag pickers and mine workers.
A comprehensive and integrated social security package for the unorganised sector is a measure that will benefit the poorest and most vulnerable sections of society. The package should include life-cum-disability cover, health cover, maternity assistance and pension benefits. The present schemes such as AABY, JSBY, RSBY, JSY and IGMSY (Indira Gandhi Matritva Sahyog Yojana (IGMSY) Scheme is a special intervention designed to target pregnant and lactating mothers on a pilot basis) are run by different ministries and departments. The budget proposes to facilitate convergence among the various stakeholder ministries/departments so that we can evolve a comprehensive social security package.
The capital market regulator- SEBI is celeberating its silver jubilee this year and the government will empower SEBI to strengthen its regulation. The budget proposes a number of measures in consultation with the SEBI related with the capital market.
- There are many categories of foreign portfolio investors such as FIIs, sub-accounts, QFIs (Qualified Foreign Investors)etc. and there are also different avenues and procedures for them. Designated depository participants, authorised by SEBI, will now be free to register different classes of portfolio investors, subject to compliance with KYC guidelines.
- SEBI will simplify the procedures and prescribe uniform registration and other norms for entry of foreign portfolio investors. SEBI will converge the different KYC norms and adopt a risk-based approach to KYC to make it easier for foreign investors such as central banks, sovereign wealth funds, university funds, pension funds etc. to invest in India.
- Difference between FDI and FII solved: In order to remove the ambiguity that prevails on what is Foreign Direct Investment (FDI) and what is Foreign Institutional Investment (FII), the budget proposes to follow the international practice and lay down a broad principle that, where an investor has a stake of 10 percent or less in a company, it will be treated as FII and, where an investor has a stake of more than 10 percent, it will be treated as FDI. A committee will be constituted to examine the application of the principle and to work out the details expeditiously.
- FIIs will be allowed to participate in the exchange traded currency derivative segment to the extent of their Indian rupee exposure in India.
- FIIs will also be permitted to use their investment in corporate bonds and Government securities as collateral to meet their margin requirements.
- Angel investors bring both experience and capital to new ventures. SEBI will prescribe requirements for angel investor pools by which they can be recognized as Category I AIF (Alternative Investment Fund) venture capital funds. (An angel investor is an affluent individual who provides capital for a business start-up, usually in exchange for convertible debt or ownership equity.)
- SME public issue promotion: Small and medium enterprises, including start-up companies, will permitted to list on the SME exchange without being required to make an initial public offer (IPO), but the issue will be restricted to informed investors. This will be in addition to the existing SME platform in which listing can be done through an IPO and with wider investor participation.
- Development of the debt market: With the object of developing the debt market, stock exchanges will be allowed to introduce a dedicated debt segment on the exchange. Banks and primary dealers will be the proprietary trading members. In order to create a complete market, insurance companies, provident funds and pension funds will be permitted to trade directly in the debt segment with the approval of the sectoral regulator.
- Mutual fund distributors will be allowed to become members in the Mutual Fund segment of stock exchanges so that they can leverage the stock exchange network to improve their reach and distribution.
- The list of eligible securities in which Pension Funds and Provident Funds may invest will be enlarged to include exchange traded funds, debt mutual funds and asset backed securities.
The budget proposes to evolve a scheme to encourage cities and municipalities to take up waste-to-energy projects in PPP mode which would be neutral to different technologies. The budget aims to support municipalities that will implement waste-to-energy projects through different instruments such as viability gap funding, repayable grant and low cost capital.
Clean and Green energy is a priority of the Government. However, despite cost advantages in labour, land and construction, the consumer pays a high price for renewable energy. One of the reasons is high cost of finance. In order to provide low cost finance, Government will provide low interest bearing funds from the National Clean Energy Fund (NCEF) to IREDA to on-lend to viable renewable energy projects. The scheme will have a life span of five years.
The non-conventional wind energy sector deserves incentives. The budget proposes to reintroduce ‘generation-based incentive’ for wind energy projects and provide Rs 800 crore to the Ministry of Non Renewable Energy for the purpose.
Backward Regions Grant Fund
The Backward Regions Grant Fund (BRGF) is a vital source of gap funding. The budget allocates Rs 11,500 crore in 2013-14 as well as another sum of Rs 1,000 crore for LWE affected districts. BRGF will include a State component for Bihar, the Bundelkand region, West Bengal, the KBK districts of Odisha and the 82 districts under the Integrated Action Plan.
The present criteria for determining backwardness are based on terrain, density of population and length of international borders. It may be more relevant to use a measure like the distance of the State from the national average under criteria such as per capita income, literacy and other human development indicators. The budget proposes to evolve new criteria and reflect them in future planning and devolution of funds.
National Skill Development Corporation was established after the budgetary proposal of 2008-09. The Corporation has since been set up and has done good work, but there is a long way to go. The government has set an ambitious target of skilling 50 million people in the 12th Plan period, including 9 million in 2013-14. Large volume of investment is needed to promote the skill development programme. Funds will be released by the National Rural Livelihood Mission and the National Urban Livelihood Mission to be spent on skill development activities, 5 percent of the Border Area Development Programme Fund, 10 percent of the Special Central Assistance to the Scheduled Caste sub plan and the Tribal sub plan, and some other funds will also be used for skill development.
The budget proposes to increase the allocation for Defence to Rs 203,672 crore. This will include Rs 86,741 crore for capital expenditure.
Science & Technology
Despite constraints, the nation must find resources for science and technology and for Space, Atomic Energy etc. the budget propose to allocate Rs 6,275 crore to the of Science & Technology; Rs 5,615 crore to the Department of Space; and Rs 5,880 crore to the Department of Atomic Energy.
For the promotion of S&T for the common man, the budget proposes to set apart Rs 200 crore to fund organizations that will scale up S &T and make products for the common people. The National Innovation Council will formulate a scheme for the management and application of the fund.
Institutions of Excellence
Continuing the tradition of supporting institutions of excellence, a grant of Rs 100 crore each will be awarded to:
Aligarh Muslim University, Aligarh campus
Banaras Hindu University, Varanasi
Tata Institute of Social Sciences, Guwahati campus
National Trust for Art and Cultural Heritage (INTACH)
For the promotion of sports infrastructure, a National Institute of Sports Coaching will be established at Patiala at a cost of Rs 250 crore over a period of three years.
The Government proposes to expand private FM radio services to 294 more cities. About 839 new FM radio channels will be auctioned in 2013-14 and, after the auction, all cities having a population of more than 100,000 will be covered by private FM radio services.
The Rajiv Gandhi Panchayat Sashaktikaran Abhiyan (RGPSA) was started in the current year with a modest allocation of Rs 50 crore. Keeping in view the importance of building capacity in panchayati raj institutions, the government has already allocated Rs 455 crore to the Ministry of Panchayati Raj in 2013-14. For futher strengthening the capacity building process of the Panchayath Raj Institutions, the government proposes to provide an additional Rs 200 crore in this budget.
Government has initiated an ambitious IT driven project to modernize the postal network at a cost of Rs 4,909 crore. Post offices will become part of the core banking solution and offer real time banking services. The budget provides Rs 532 crore for the project in 2013-14.
To mark the centenary of the Ghadar movement, the Government will fund the conversion of the Ghadar Memorial in San Francisco into a museum and library.
Restructuring of the Central Schemes
Government is concerned about the proliferation of Centrally Sponsored Schemes (CSS) and Additional Central Assistance (ACA) schemes. They were 173 in number at the end of the 11th Plan. These schemes will be restructured into 70 schemes. Each scheme will be reviewed once in two years. Central funds for the schemes will be given to the States as part of central plan assistance.
Fund for women empowerment: the budget proposes to set up a fund – to be called as Nirbhaya Fund – and Government will contribute Rs 1,000 crore. Ministry of Women and Child Development and other ministries concerned will be requested to work out the details of the structure, scope and application of the fund.
Skill development support for the youth
A large number of youth must be motivated to voluntarily join skill development programmes. The National Development Corporation is asked to set the curriculum and standards for training in different skills. Any institution or body may offer training courses. At the end of the training, the candidate will be required to take a test conducted by authorized certification bodies. Upon passing the test, the candidate will be given a certificate as well as a monetary reward of an average of Rs 10,000 per candidate. Skilltrained youth will give an enormous boost to employability and productivity. On the assumption that 10, 00,000 youth can be motivated, the budget proposes to set apart Rs1, 000 crore for this ambitious scheme.
Direct Benefit Transfer for the poor: the direct benefit transfer scheme has been initiated in the country on 1st of January, 2013. Nearly 11 lakh beneficiaries have received the benefit directly into their bank accounts.
B. Tax proposals
Formation of Tax Administration Reform Commission
Tax Administration Reform Commission to review the application of tax policies and tax laws and submit periodic reports that can be implemented to strengthen the capacity of our tax system. (According to the Finance Minister “clarity in tax laws, a stable tax regime, a non-adversarial tax administration, a fair mechanism for dispute resolution, and an independent judiciary will provide great assurance”)
Enhancement of tax revenues is needed: In 2011-12, the tax GDP ratio was 5.5 percent for direct taxes and 4.4 percent for indirect taxes. These ratios are one of the lowest for any large developing country and will not garner adequate resources for inclusive and sustainable development. The tax revenue position was much comfortable in 2007-08, when the tax GDP ratio touched a peak of 11.9 percent. In the short term, we must reclaim that peak.
There is little room to give away tax revenues or raise tax rates in a constrained economy. No case to revise either the slabs or the rates of Personal Income Tax. Even a moderate increase in the threshold exemption will put hundreds of thousands of Tax Payers outside Tax Net.
- Tax credit on the lowest income slab: However, relief for Tax Payers in the first bracket of Rs 2 lakhs to Rs 5 lakhs. A tax credit of Rs 2000 to every person with total income upto RS 5 lakhs. Assuming an inflation rate of 10 percent and a notional rise in the threshold exemption from Rs 2, 00,000 to Rs 2, 20,000, the budget propose to provide a tax credit of Rs 2,000 to every person who has a total income upto Rs 5 lakh. 1.8 crore tax payers are expected to benefit to the value of Rs 3,600 crore.
- Surcharge on upper income group: The budget proposes to impose a surcharge of 10 percent on persons whose taxable income exceeds Rs 1 crore per year. This will apply to individuals, HUFs, firms and entities with similar tax status.
- Tax concession for first time home buyer: had referred to the tax benefit to the first-home buyer who takes a loan for an amount not exceeding Rs 25,00,000. The budget proposes to allow such home buyers an additional deduction of interest of Rs 100,000 to be claimed in AY 2014-15. If the limit is not exhausted, the balance may be claimed AY 2015-16. This deduction will be over and above the deduction of Rs150,000 allowed for self-occupied properties under section 24 of the Income-tax Act.
- Increase surcharge from 5 to 10 percent on domestic companies whose taxable income exceed Rs 10 crore.
- In case of foreign companies who pay a higher rate of corporate tax, surcharge to increase from 2 to 5 percent, if the taxable income exceeds Rs 10 crore.
- In all other cases such as dividend distribution tax or tax on distributed income, current surcharge increased from 5 to 10 percent.
- The additional surcharges will be in force for only one year; that is Financial Year 2013-14.
- Education cess to continue at 3 percent.
- Permissible premium rate increased from 10 percent to 15 percent of the sum assured by relaxing eligibility conditions of life insurance policies for persons suffering from disability and certain ailments.
- Contributions made to schemes of Central and State Governments similar to Central Government Health Scheme, eligible for section 80D of the Income tax Act.
- Donations made to National Children Fund eligible for 100 percent deduction.
- Investment allowance at the rate of 15 percent to manufacturing companies that invest more than Rs 100 crore in plant and machinery during the period 1.4.2013 to 31.3.2015.
- ‘Eligible date’ for projects in the power sector to avail benefit under Section 80- IA extended from 31.3.2013 to 31.3.2014.
- In order to encourage repatriation of funds from overseas companies, the budget proposes to continue for one more year the concessional rate of tax of 15 percent on dividend received by an Indian company from its foreign subsidiary. Further, the Indian company shall not be liable to pay dividend distribution tax on the distribution to its shareholders of that portion of the income received from its foreign subsidiary.
- Securitisation Trust to be exempted from Income Tax. Tax to be levied at specified rates only at the time of distribution of income for companies, individual or HUF etc. No further tax on income received by investors from the Trust.
- Investor Protection Fund of depositories exempt from Income-tax in some cases.
- Parity in taxation between IDF-Mutual Fund and IDF-NBFC: The budget provides parity in taxation between an IDF-Mutual Fund that distributes income and an IDF-NBFC that pays interest, when the payment is made to a non-resident. The rate of tax on such distributed income or interest will be 5 percent.
- A Category I AIF set up as Venture capital fund allowed pass through status under Income-tax Act: Venture Capital Funds have been allowed pass through status under the Income-tax Act. The relevant regulations of SEBI have been replaced by Alternative Investment Fund Regulations. Hence, the budget extends, subject to certain conditions; pass through status to Category I Alternative Investment Funds registered with SEBI as venture capital funds. Angel Investors who are recognised as Category I AIF venture capital funds will also get pass through status.
- TDS at the rate of 1 percent on the value of the transfer of immovable properties where consideration exceeds Rs 50 lakhs. Agricultural land to be exempted.
- A final withholding tax at the rate of 20 percent on profits distributed by unlisted companies to shareholders through buyback of shares.
- With a view to attract investment in long term infrastructure bonds in foreign currency, the rate of tax on interest paid to non-resident investors was reduced last year from 20 percent to 5 percent.
- Transactions in immovable properties are usually undervalued and underreported. One-half of the transactions do not carry the PAN of the parties concerned. With a view to improve the reporting of such transactions and the taxation of capital gains, the budget proposes to apply TDS at the rate of one percent on the value of the transfer of immovable property where the consideration exceeds Rs50 lakhs. However, agricultural land will be exempt.
- Some tax avoidance arrangements have come to notice and the Finance Minister propose to plug the loopholes. Some unlisted companies have avoided dividend distribution tax by arrangements involving buyback of shares. The budget proposes to levy a final withholding tax at the rate of 20 percent on profits distributed by unlisted companies to shareholders through buyback of shares.
- Another case is the distribution of profits by a subsidiary to a foreign parent company in the form of royalty. Besides, the rate of tax on royalty in the Income-tax Act is lower than the rates provided in a number of Double Tax Avoidance Agreements. This is an anomaly that must be corrected. Hence, the budget proposes to increase the rate of tax on payments by way of royalty and fees for technical services to non-residents from 10 percent to 25 percent. However, the applicable rate will be the rate of tax stipulated in the DTAA.
- Securities Transaction Tax (STT) has a stabilizing effect on transactions, although it adds to the transaction cost. Taking note of the changes and shifts in the market, the budget recommends to make the following reductions in the rates of tax:
- Equity futures: from 0.017 to 0.01 percent
- MF/ETF redemptions at fund counters: from 0.25 to 0.001 percent
- MF/ETF purchase/sale on exchanges: from 0.1 to 0.001 percent, only on the seller
- There is no distinction between derivative trading in the securities market and derivative trading in the commodities market, only the underlying asset is different. It is time to introduce Commodities Transaction Tax (CTT) in a limited way. Hence, the budget proposes to levy CTT on non-agricultural commodities futures contracts at the same rate as on equity futures that is at 0.01 percent of the price of the trade. Trading in commodity derivatives will not be considered as a ‘speculative transaction’ and CTT shall be allowed as deduction if the income from such transaction forms part of business income. Agricultural commodities will be exempt.
- GAAR: The committee on GAAR has submitted its report. After careful consideration of the report, Government announced certain decisions on 14.1.2013 which were widely welcomed. The present budget proposes to incorporate those decisions in the Income-tax Act. The modified provisions preserve the basic thrust and purpose of GAAR. Impermissible tax avoidance arrangements will be subjected to tax after a determination is made through a well laid out procedure involving an assessing officer and an Approving Panel headed by a judge. The budget proposes to bring the modified provisions into effect from 1.4.2016.
- The Rangachary Committee was appointed to look into tax matters relating to Development Centres & IT sector and Safe Harbour rules for a number of sectors. We have issued a circular covering IT sector exports and will shortly issue a circular covering Development Centres. Rules on Safe Harbour will be issued after examining the reports of the Committee, the last of which is expected by 31.3.2013.
- The fifth Large Tax payer Unit will be opened at Kolkata shortly. Administrative measures: The budget proposes to expand the scope of annual information returns, extend e-payment facility through more banks, extend the refund banker system to refunds of more than `50,000, and make e-filing mandatory for more categories of assessees. The Income-tax department is rapidly moving towards technology based processing as would be evident from the Central Processing Cell set up at Bengaluru and the Central Processing Cell-TDS inaugurated a few days ago at Vaishali, Ghaziabad.
- The DTC: The DTC is not intended to be an amended version of the Income-tax Act, 1961 but a new code based on the best international practices that will be compatible with the needs of a fast developing economy. The Standing Committee on Finance has submitted its report and we attach great weight to its recommendations. Ministry of Finance is examining the recommendations and intend to work with the Standing Committee and its Chairman in order to finalise the official amendments
There will be no change in the peak rate of basic customs duty of 10 percent for non-agricultural products. There will also be no change in the normal rate of excise duty of 12 percent and the normal rate of service tax of 12 percent.
To encourage manufacture of environment-friendly vehicles, the budget propose to extend the period of concession now available for specified parts of electric and hybrid vehicles upto 31.3.2015.
Leather and leather goods are a thrust sector for exports. The budget proposes to reduce the duty on specified machinery for manufacture of leather and leather goods, including footwear, from 7.5 percent to 5 percent.
To encourage exports, the budget proposes to reduce the duty on pre-forms of precious and semi-precious stones from 10 percent to 2 percent.
Export duty on de-oiled rice bran oil cake has made our exports uncompetitive. Hence, the budget proposes propose to withdraw the said duty.
Prices of unprocessed ilmenite have gone up several fold in the export market. Considering the need to conserve our natural resources, the budget propose to impose a duty of 10 percent on export of unprocessed ilmenite and 5 percent on export of upgraded ilmenite.
The aircraft manufacture, repair and overhaul (MRO) industry is at a nascent stage. Encouraging the MRO sector will generate employment besides other benefits. Hence, the budget proposes to provide certain concessions to the MRO industry, details of which are in the budget documents.
To encourage domestic production of set top boxes as well as value addition, the budget proposes to increase the duty from 5 percent to 10 percent.
In order to give a measure of protection to domestic sericulture, the budget proposes to increase the duty on raw silk from 5 percent to 15 percent.
Steam coal is exempt from customs duty but attracts a concessional CVD of one percent. Bituminous coal attracts a duty of 5 percent and CVD of 6 percent. Since both kinds of coal are used in thermal power stations, there is rampant misclassification. The budget proposes to equalise the duties on both kinds of coal and levy 2 percent customs duty and 2 percent CVD.
The customs duty on high-end motor vehicles, motorcycles, yachts and similar vessels has been increased. The duty on such motor vehicles goes from 75 percent to 100 percent; on motorcycles with engine capacity of 800cc or more from 60 percent to 75 percent; and on yachts and similar vessels from 1