INTERIM BUDGET 2014-15: REALISTIC ? (OR )IDEALISTIC?

When the Finance Minister, Shri P. Chidambaram, rose to present the Interim Budget 2014-15 on Monday, February 17, 2014 the expectations were pragmatic, with some policy direction in terms of the plans to address the current account deficit and the inflationary pressure.

As expected, he reiterated that ‘Fiscal Stability’ continues to be at the top of the agenda and he presented a vote-on-account to enable carrying out regular expenses till the new government assumes office after the general elections. The statistics speak that the fiscal deficit for 2013-14 is contained at 4.6% and foreign exchange reserve are to grow by US$ 15 billion with core inflation down to 3% in January 2014.

There were no changes proposed in the direct tax rates or in the direct tax laws. However, there has been a significant amount of duty cuts on the indirect tax front, of which the key changes have been captured here:

·         The Excise Duty on all goods falling under Chapter 84 & 85 of the Schedule to the Central Excise Tariff Act is reduced from 12% to 10% for the period upto 30.06.2014. The rates would be reviewed at the time of the regular Budget.

·         For the benefit of the Automobile Industry, the excise duty is reduced for the period up to 30.06.2014 from 12% to 8% for small cars, motorcycle, scooters and commercial vehicles; from 30% to 24% for SUVs and from 27/24% to 24/20% for large and mid-segment cars. Appropriate reductions are also proposed in the excise duties on chassis and trailors. The rates would be reviewed at the time of  the regular Budget.

·         For production of mobile handsets, the excise duty rates will be 6% with CENVAT credit or 1% without CENVAT credit.

·         To encourage domestic production of soaps and oleo chemicals, the custom duty structure on non-edible grade industrial oils and its fractions, fatty acids and fatty alcohols are rationalized at 7.5%.

·         To encourage domestic production of specified road construction machinery, the exemption from CVD on similar imported machinery is withdrawn.

·         A concessional custom duty of 5% on capital goods imported by the Bank Note Paper Mill India Private Limited is provided to encourage domestic production of security paper for printing currency notes.

·         The loading and un-loading, packing, storage and warehousing of rice and the services provided by cord blood banks are exempted from Service Tax

The Interim Budget, however, contained nothing about the Direct Taxes Code (‘DTC’) and the Goods and Services Tax (‘GST’) barring an appeal to political parties to resolve to pass the GST and DTC laws in 2014-15.

To sum up, it appears that this Budget is aimed at preventing a downgrade and to boost the general business sentiment, especially targeted at the manufacturing community. It could be said that the major takeaways would be on the defence front, for adopting ‘one rank, one pension’ scheme and the other would be the interest waiver of INR 2,600 crores for nine lakh students. We hope that the Interim Budget can live upto its promise of growth, estimated at 4.9% for the whole year and delivers on the agenda of fiscal stability and inclusive growth for the nation.