The Union Budget of India for the financial year 2013-14 predictably was on similar lines, as anticipated and in fact, failed to evoke the positive reaction that was much needed to speed up the economy.
To use a cliché, Finance Minister P. Chidambaram had the opportunity to address issues contributing to slowdown in a radical way but, sadly I believe electoral compulsions prevented him and the federal government and instead they chose to play a safe act lest, it proves costly later during the elections. I am tempted to make a comment on my favourite topic — NRI taxation:
NRIs and Direct Tax Code
Work relating to Direct Tax code (DTC) is still in progress. The minister affirms that the new DTC is based on the best international practices and will be compatible with the needs of a fast developing economy. Although the Standing Committee on finance had submitted its report, it is still under review and the government is yet to publicise the list of final recommendations. The trepidation still exists with regard to what the final proposals shall be. Should the committee stick to the old proposals with a watered down version then, the NRIs face the uncertainty of taxation on their global income, which in turn is determined by stay and residency in India and not to forget retrospective taxation. It would be better if there is no introduction of the same.
Further, the Vodafone issue will really test the mettle of the political brass and will eventually determine the popularity of India as a safe and steady investment destination. It remains to be seen as to how the government is going to bring the proposals before the end of the current session of the parliament.
The finance minister has openly acknowledged the fact that over $75 billion is required to finance the current account deficit. The only way is to encourage actively, the foreign investment consistent with economic objectives of the country. The growth rate of 5 per cent projected by Central Statistical Organisation (CSO) does not offer great effort particularly amongst the backdrop of rapid growth rate seen in China and Indonesia. In the previous years, the growth rate had crossed 7 to 8 per cent and hence, the 5 per cent given the size and strength on India, is not an encouraging number. All is certainly not well and therefore, more efforts needed by the government on the fiscal and economic front.
In absolute terms, fiscal deficit is at 5.2 per cent for the current year and at 4.8 per cent estimated for the year 2013-14. Further, with the revenue deficit for current year and 2013-14 at 3.9 per cent and 3.3 per cent respectively, we are not "out of woods at-least not yet". He has claimed that fiscal numbers are in line with recommendations of Dr Vijay Kelkar's committee recommendations made in September 2012. Adding to the woes is government expenditure. The minister has also informed that it will be their promise to bring down the fiscal deficit to 3 per cent by 2016-17 and the revenue deficit to 1.5 per cent and the effective revenue deficit to zero. Honestly, it is not an easy task. Some of the interesting budgetary proposals are as under:
Government will raise Rs142
illion during 2013-14 towards capital infusion in the public sector banks so that they meet capital adequacy, as required by Basel III regulations. To my reckoning, it could be raised via the capital market so that the money could be externally generated instead of government infusing funds for recapitalisation. There are good 'cherry-picking in the bank stocks' which will in turn provide more vibrancy to stock market. I am sure, small capitalised banks, looking to expand should find fancy of the investors.
The minister doubled the disinvestment target for next fiscal to Rs558.14 billion from Rs240 billion estimated in the current fiscal. But sadly, as against the planned disinvestment of R