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MUMBAI FRIDAY, MARCH 1, 2013BUDGET 2013-14

Rakesh Khar

The run up to the B-day was marked by high drama specu-lating whether he will be popu-list or reformist? The man of the moment has chosen to be nei-ther.

The man who presented his eighth budget on Thursday af-ternoon was expected by his foes and friends alike to put out the best at his command to re-write the India story. But alas it was not be!

Having come into bat in the slog over in a keenly watched tie, P Chidambaram was to wield the long handle given this was the only option available.

But he chose instead to leave the ball watching it until the last minute. Well left, except that, this was a 20-20 tie and not a test match.

Oh, yes, the man who gave India the dream budget and was expected to better his own per-formance this time is now safe-ly ensconced in his crease.

But thereby hangs a tale!Did the finance minister stick

to the brief: make the right noises, proclaim intent is sincere but steer clear of some big hits? In short, play safe, this is election year!

Chidambaram unlearnt his own lessons of 2008 when he

became the Santa to waive off the loan. The Sensex red flagged him then as today but he did take some credit for the return of the UPA to power.

As expected the Prime Minis-ter has commended the budget saying achieving 8 per cent growth is a prerequisite but it would not happen in a year. Yes, what was left unsaid was that it did not take a century to climb off the 8 per cent growth to touch a low of 5 to 5.5 per cent this fiscal. The slide began 2008 end itself.

They say his hands were tied but then Chidambaram is no pushover. Now look at the to-kenism that came across as the key sentiment this budget. In-dia’s first all women public sec-tor bank, gold duty limit raised to Rupees one lakh for women, Rs 1000 crore a piece for women

safety and skill development for estimated 55 crore Indian youth (too much for leveraging the demographic dividend pre-scribed by the economic sur-vey). Yes, Nirbhaya, is the voice of middle class anger, hence with women as the target group, a Nirbhaya fund too got an-nounced.

Be safe hence do not revise tax slabs but be wedded to to-kenism. A 2000 rupees credit for 2 to 5 lakh income slab assesses who file returns while the ma-jority tax payers are left high and dry to manage on their own the inflation index.

Chidambaram did not want to be seen as being pro rich or pro corporate: it would hurt the ‘aam admi’ image of his party. But penalizing about 43,000 one crore plus income assesses for they declare their income

while many others just evade any tax but earn much higher defies logic.

Count the luxury cars sold in last one year or premium hous-es bought and sold and you have only yet touched the tip of the iceberg when it comes to iden-tifying the real big ticket tax evaders. Tax the luxury goods with high end cars in focus and you are safely ‘seen’ in the com-pany of the ‘aam admi.

SUVs are diesel guzzlers (it is another matter that diesel as an auto fuel is a fraction of the other industry uses). But target it must be: hence you have to pay more for it but not if you are smart enough to convert it into a taxi!

Is mobile phone a luxury? That too at Rs 2,000 plus: Chid-ambaram thinks so. Did not we push for digital penetration with India billed to be among the biggest smart phones mar-kets in the world? But then in the give and take balance sheet, housing loan interest waiver is increased to Rupees 2.5 lakh on a loan of 25 lakh.

Mind you if have bought a house for Rs 50 lakh and above, you would have to pay now 1 per cent transaction tax. Infla-tion mitigation got a novel solu-tion this budget: do not eat out, especially in summer. For any

spend in an AC restaurant is go-ing to result in a levy.

Yes, it is safe, and perhaps will fetch some middle class votes too: ATMs across India sponsored by PSU banks (if only they run) is indeed a good move. MSME sector benefit continuation for three years covering micro firms as they grow would induce growth in this vital sector.

But where are the big hits? How does one actually arrest the declining growth? Fears abound that if India does not grow continually at minimum 8 per cent there is going to be danger to the basic equilibrium that keeps India united? What is the roadmap for bringing cur-rent account deficit to begin with below 5 per cent level to about 3 per cent? As of Septem-ber 2012, India’s external debt was 25 per cent higher than country’s total foreign ex-change reserves. Clarity on definitions is welcome. But what about reversing the threat of hot money giving us com-pany today suddenly abandon-ing us for greener pastures? Foreign Institutional Investors (FIIs) love the equity market but how does one get them inter-ested in the debt market. Where is the roadmap for boosting ex-ports?

But where are the big strokes?

R N Bhaskar

The biggest game changer in this budget is the announce-ment that Rs.1,000 crore would be provided to the NSDC for gkiving an award of Rs.10,000 to any student who passes a national skill evaluation ex-amination that NSDC would put into place.

That single move immedi-ately transforms the very face of vocational education in India.

1. It creates a national stand-ard for skills. Currently several standards of skills exist, many promoted by state bodies, ITIs, Khadi & Village Industries Commission and a variety of other certification bodies.

2. NSDC becomes a national certification body, much like the central Board of Secondary Education, which will soon compete for respectability and credibility in the face of corrod-ing standards of state level ex-aminations.

3. The award becomes a clever way of reimbursing the fees to students who pass the qualifying standards. It provides a scholarship only after passing the test, not before.

4. It allows for private train-ing institutes -- for example, Nokia and Samsung could train people on how to repair mobile phones. What matters is that

the student passes the certify-ing examination. It does not have to be a recognised or state-approved educational institute. Expect more private play of quality training by private play-ers.

What remains to be seen is (a) how quickly and effectively NSDC can create the template for outcome based national certification examinations for each skill, and, (b), how to avoid duplication of prize money to a person who is already a su-perbly skilled person and who opts to appear for and pass a basic examination for say an electrician, and then appears for an intermediate level ex-amination, and then an ad-vanced examination, and col-lects three times the prize money.

But overall, a brilliant scheme to promote skills, and private initiative.

Parnika Sokhi @thtTALLgirl

Mumbai: Until Thursday, the Reserve Bank of India’s (RBI) prime worry has been the government’s fiscal consoli-dation plans. But that mor-phed into quiet relief as fi-nance minister P Chidam-baram disclosed his strategy for taming fiscal risks in his Budget proposals.

The RBI said the Budget will go a long way towards lowering fiscal risks. “The budget has taken significant steps for keeping the fiscal deficit down and the chal-lenge of the subsidies is be-ing met,” the bank’s deputy governor Urjit Patel.

Numbers relating to both 2012-13 and 2013-14 “indi-cate that the government expenditure and borrowing are being brought down. Overall, that’s a good thing,” said Patel.

The RBI said that the fiscal target achieved in 2012-13 and that laid down for 2013-14 would lay the foundation for sustainable re-balancing of the government finances.

“This would impart confi-dence in the economy and support domestic and for-eign investment,” said Patel.

He added that the Budget is intent on lowering twin deficits, moderating the draft of government on household

1000 crore to change vocational education

RBI flashes thumbs up to Budget

Not much for infrastructure sector in the Budget

Revenue foregone more than fiscal deficit

Debt mutual funds in for a rough patchAswathy Varughese, @Aswathy_04, Mumbai

Debt mutual funds got a major setback as the Union Budget hiked dividend distribution tax to 25% from 12.5%. Now re-gardless of the type of scheme, dividend payouts from debt mutual funds to individuals will be taxed 25% as dividend distribution tax (DDT).

Unlike earlier days, equity mutual funds are not taxed un-der the new regime. The debt mutual funds will be less at-tractive from a taxation point of view.

What will be the impact on fund holders? The impact of imposition of DDT will be felt in the net asset value (NAV) of the fund. For instance, if a per-son holds a fund with an NAV Rs 11 and the dividend payout is Rs 1 per unit with 25% DDT, then NAV will be down by 9.75. “It will become less at-tractive for those opting for a dividend fund and there will not be an impact on those hav-ing growth funds,” said Dwi-jendra Srivastava, head- fixed income, Sundaram Mutual fund This change in tax regime will be applicable from 1st June 2013. According to ex-perts, with the new tax rule on debt mutual funds will take the sheen off from dividend options and hence it is better for investors to switch to growth option to get saved from DDT. Under growth op-tion one has to pay only 10% tax as earlier.

Tax-efficient RGESS puts first-time investors on a pedestal

Budget fails to enthuse marketsTeam DNA ● Mumbai

The Budget has turned out to be a non-event for markets, given that the expectations were high among partici-pants, evident from the Nifty being 31 points high at the start of Budget.

However, by the end of the Budget speech, the mar-kets had given up their en-tire gains and was trending down.

As at 1.30 pm, Sensex was trading 150 points down,

breaking 19000 mark.V K Sharma, head of pri-

vate broking and wealth management at HDFC Secu-rities, said the Budget has been a non-event of sorts, considering the hype at the start. “The Budget is alright with no major negative or positive surprises. It’s just one of the events which has passed, and from now on markets will move in sync with what’s happening glob-ally,” said Sharma.

From equity markets per-

spective, there was nothing in it to boost domestic inves-tors’ participation, experts said.

Moreover, the Budget speech did not clarify how the government will fund the planned and non-planned announcements. The government will garner additional revenues of Rs 18,000 crore from direct and indirect taxes, but a 33% hike in planned expenditure has probably the markets jittery, they said.

Rajiv Ranjan Singh ● Mumbai

There was a lot of speculation that the Budget would give impetus to the infra sector. But a major fall of capital goods, infra and power companies scrips after the Budget speech bared the disappointment of investors with his Budget. There was no concrete road-map how capital expenditure will be spurred. Barring men-tion of few industrial corridors and setting up two smart in-dustrial townships in Maha-rashtra and Gujarat, there was little on bridging the burgeon-ing infrastructure deficit.

India is targeting Rs 55 lakh crore investment in 12th Five Year Plan for infrastructure development where private sector is expected to contrib-ute 47% of the capital. But nei-ther the Planning Commission nor finance minister has ever clarified how this mammoth capital will be tied up for infra projects.

Reduction in tax-free bonds from Rs 60,000 crore in fiscal 2013 to Rs 50,000 crore in fiscal 2014 reflects that gov-ernment has understood the poor appetite of investors for such bonds.

With 2% increase of custom

duty on steam coal and hike of countervailing duty from 1% to 3% imported coal will be costlier in coming days. JSW Energy and Adani Power that are running all their power units on imported coal are likely to be hit.

But all is not gloomy for power, capital goods and in-fra sectors in this Budget.

Extension of tax sops to power generators under sec-tion 80-IA for one more year, re-introduction of genera-tion based incentives for wind sector and proposal for low-cost funding for renew-able energy are some of the silver linings for the power sector.

But the biggest positive surprise comes with the pro-posal of providing 15% in-vestment allowance to man-

ufacturing units for capital expenditure involving pur-chase of new plants and ma-chinery over Rs 100 crore. Well, this step could help in boosting capex that has been almost stalled for past one year owing to slowdown in the economy. It will also pro-vide job opportunities in the manufacturing sector. Fine-print of how this incentive will be provided is not clear, but will spur investments as corporate houses will see ben-efit in setting up new units.

Second big announce-ment is allocation of Rs 1,400 crore for setting up water treatment plant. Companies including Thermax and Va Tech Wabug, Triveni Engi-neering, L&T and Voltas are big players in water treat-ment plant.

Iftikhar Gilani ● New Delhi

Finance minister P Chidam-baram has projected revenue foregone under various ac-counts at Rs 573,626.5 crore, well above the fiscal deficit number of Rs 520,925 crore.

Revenue forgeone from central taxes (both direct and indirect) has shown an up-ward trend, rising to Rs. 113,471.7 crore and Rs 44,127 crore in terms of export pro-motion concessions during 2012-13.

Among the commodity groups, which account for 86% of total revenue foregone, in-cludes exemptions on crude oil, machinery, diamond and gold, vegetable oils, chemicals and plastics, fertilisers, salt and ores and drugs.

The budget also appre-hends increase in actual reve-nue foregone in respect of units located in various special economic zones.

Last year the revenue fore-gone in respect of industries engaged in the commercial

production of minerals and oil had gone up to Rs 7,999 crore as against the budget estimate of 2011-12 of Rs 3,978 crore.

And as much as Rs 206,188 crore in revenues forgone pro-jected by the end of 2012-13 includes excise exemptions applicable to North-Eastern states, Uttaranchal, Himachal Pradesh, Jammu & Kashmir and the Kutch district of Guja-rat. The Left parties, which took up these figures, making a point how government goes after small tax payers and showers sops for the rich, said the fiscal deficit could be very well controlled if these reve-nues were realised.

Congress spokesman Sand-eep Dikshit, however, con-tested the argument, saying these concessions were not tax sops, but aimed to promote business and employment generation. “It is not a benefit extended to rich, but to help them in profit generation to absorb employments and en-couraging them to invest in particular areas,” he said.

Aswathy Varughese @Aswathy_04

In a bid to increase retail par-ticipation in the capital mar-kets, Budget 2013-14 has liberalised tax provisions in the Rajiv Gandhi Equity Sav-ing Schemes or RGESS.

Finance minister P Chid-ambaram has tweaked the provisions of RGESS to attract first-time investors to stocks.

Such investors can put their money in specified mu-tual fund (MF) schemes and listed shares of companies and enjoy tax deductions for three successive years.

The income limit for avail-ing tax benefit has been raised (read relaxed) to Rs 12

lakh from Rs 10 lakh.“The main objective of re-

laxation of provisions is to channelise these savings into capital market and shift in-vestors’ focus away from other asset classes like gold and real estate,” said Chid-ambaram in his Budget speech.

RGESS was introduced by Pranab Mukherjee, Chidam-baram’s predecessor, last year for giving tax benefits to first-time stock investors un-der the new clause of deduc-tion under Section 80 CC G.

Earlier, investors with in-come less than Rs 10 lakh could avail of a tax break up to 50% of the amount invest-ed in equity. As per earlier

provisions, investments in subsequent years were not counted for the tax benefits.

“This is a step in the right direction that will give an im-petus to the flow of savings into the equity market,” said Parizad Sirwalla, partner (tax) at KPMG India.

According to tax experts, the proposed changes will make RGESS an efficient tax-saving instrument with po-tential to channelise house-hold savings into equity mar-kets.

Also, the Budget has al-lowed pension funds and provident funds to invest in exchange traded funds or ETFs, debt mutual funds and asset-backed securities.

Finance minister P Chidambaram with finance ministry colleagues and officials ahead of the presentation of Budget in Parliament on Thursday