Chidambaram's interim budget pegs deficit at 4.6%; cars, consumer durables to get cheaper
Finance Minister P Chidambaram on Monday presented the interim budget for the fiscal year 2014-15 to cover expenditure until the government's term ends in May.
"Our objectives were fiscal consolidation, reviving growth cycle, and enhancing manufacturing", Mr Chidambaram said. (Read the full speech here)
The biggest highlight of Mr Chidambaram's speech was the announcement on fiscal deficit. The finance minister said the government will curtail its 2013-14 fiscal deficit to 4.6 per cent of GDP, lower than the red line at 4.8 per cent he drew in the last budget. India's fiscal deficit will come down to 3 per cent of GDP by 2016-17, Mr Chidambaram added. (Read: Fiscal deficit to be contained at 4.6% of GDP)
Mr Chidambaram also announced that India's current account deficit for 2013-14 will come down to $45 billion and forex reserves will rise by $15 billion by end of the current fiscal.
Sajjid Chinoy, India economist at JP Morgan told NDTV that the finance minister has shown admirable fiscal restraint and the interim budget is positive in the near term.
India's deficit is the highest among the BRIC nations and a breach of the red line would have led to a downgrade by ratings agencies, which Indian cannot afford at a time when it is growing at the slowest pace in a decade. The finance minister rolled over fuel subsidy worth Rs 35,000 crore in 2014-15 to meet the deficit target.
"The subsidy payment roll over was along expected lines, so no incremental negative surprise. Overall, one could say that it's largely a non-event budget," Shubhada Rao of Yes Bank said.
Mr Chidambaram raised the spending to Rs 2.24 lakh crore in 2014-15, up 10 per cent year on year, but kept the plan expenditure for the next fiscal at the same level as previous year. The non-plan spending may rise to about Rs 12.08 lakh crore in 2014-15, Mr Chidambaram added.
Food, fertilizer and fuel subsidy for 2014-15 is seen at 2.46 lakh crore, slightly more than 2.45 lakh crore in 2013-14, Mr Chidambaram said. Fuel subsidy is pegged at Rs 65,000 crore, while food subsidy is seen at Rs 1.15 lakh crore in 2014-15, Mr Chidambaram added.
In good news for consumers, Mr Chidambaram cut excise duty on small cars and two-wheelers from 12 per cent 8 per cent. The cut in duty will be applicable up to June 20, 2014, when the new government is likely to present the full year budget. He also cut duty on consumer durables from 12 per cent to 10 per cent.
Mr Chidambaram's duty-cut is aimed to spur domestic manufacturing at a time when India's economy is growing at the slowest pace in a decade. Industrial output has fallen 0.1 per cent in the first nine months of the current fiscal year, and annual car sales declined by about 5 per cent in 2013.
Ahead of elections, Mr Chidambaram also announced a subsidy scheme on education loans taken before March 31, 2009, a move which will help 9 lakh students. (Read the full story)
Analysts told NDTV that Mr Chidambaram's interim budget was on expected line and the government's fiscal math is likely to cheer markets.
Ms Rao said the finance minister refrained from populist announcements and the budget has proposed a few measures to support investments and consumption by cutting excise duty.
"Clarity on fiscal deficit and government's borrowing program is a greater positive. Now we have a roadmap on government borrowing, we were earlier thinking it to be about Rs 6.30 lakh crore and what has come is much better than expectations. This is positive for equities," Aneesh Srivastava of IDBI Federal Life Insurance told Reuters.
Markets were range bound. The BSE Sensex traded 52 points or 0.25 per cent higher at 20,419, while the broader Nifty traded up 13 points at 6,061 as of 1.08 p.m. (Track stocks)
Mr Chidambaram's speech was repeatedly disrupted by protests over the proposed division of Andhra Pradesh.
