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Budget 2014: Chidambarm cuts excise duty on cars, consumer goods to boost economy

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Chidambarm-BudgetFinance 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. Mr. Chidambaram cut indirect taxes on cars and mobile phones in an effort to revive growth in the interim budget.

“I can confidently assert that the economy is more stable today than what it was two years ago. The fiscal deficit is declining, the current account deficit has been constrained, inflation has moderated, the quarterly growth rate is on the rise, the exchange rate is stable, exports have increased and hundreds of projects have been unblocked,” Mr. Chidambaram said.

The biggest highlight of Mr. Chidambaram’s speech was the announcement on fiscal deficit and government borrowing target for the next fiscal. 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 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.
Gross market borrowing for 2014-15 is seen at Rs. 5.97 lakh crore, while net market borrowing is estimated at Rs. 4.57 lakh crore, Mr Chidambaram said.

Sajjid Chinoy, India economist at JP Morgan told that the finance minister has shown admirable fiscal restraint and the interim budget is positive in the near term.

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 Rs. 5.55 lakh crore, which is the same as current 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. Food subsidy is seen at Rs. 1.15 lakh crore, while fertiliser subsidy is pegged at Rs. 67,971 crore for 2014-15. Fuel subsidy is estimated at 63,427 crore versus revised figure of Rs. 85,480 crore for 2013/14.

Indirect taxes cut ahead of polls:

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.

Analysts told 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 said.

Indian stock markets closed near the day’s high in an indication that traders were happy with the interim budget. The Sensex closed 0.5 per cent or 97 points higher at 20,464, while the Nifty ended 25 points higher at 6,073. Banking stocks closed 1.2 per cent higher, while auto stocks gained 0.8 per cent.

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