Finance Minister seen harping on keeping deficits within the ‘red line’

Finance Minister P Chidambaram, who has presented eight Budgets till now, is not expected to make major announcements in his first Vote-on-Account that he will present on Monday.

Rather than make any key announcements even with elections imminent, this ‘interim’ Budget, for the remaining four months of the present Government, is likely to spell out the reasons for the fall in the economic growth and highlight the reining in of the ‘twin deficits’ — fiscal and current account.

As convention prescribes, no changes will be made to the income-tax rates or slabs.

Technically, this exercise is to get Parliament’s approval for expenditure for the four months after March 31. The previous full Budget provides for expenditure till March 31, and the next full Budget will be presented only by the new government.

Expectations

Yet, even in the interim Budget, good news can come in the form of relaxation of some import curbs on gold. Since any revision of the import duty on gold does not require any amendment to the law, the interim Budget may propose lowering of duty by 2 percentage points from the present 10 per cent. The gem and jewellery industry has been pressing this demand.

The other sector that may get some relief could be automobiles. As the sector has good job-creation potential, the Finance Minister may bow to the demand of the Heavy Industries Ministry and cut excise duty on automobiles, particularly commercial vehicles, to 8 per cent from 12 per cent.

Achievements

Chidambaram is expected explain how he has managed to contain the deficits within the ‘red line.’ The new estimate could be around 4.6 per cent against 4.8 per cent announced in the last Budget (2013-14).

This is because expenditure has been curtailed and subsidies for fuel and fertilisers have been partly rolled over to the next year. Also, improved tax collections, earning from disinvestment and residual stake sale, and spectrum auction have helped improve the fiscal situation. The current account deficit (difference between inflow and outflow of foreign exchange) is another aspect that he is expected to stress on. Thanks to curbs on gold imports and other such measures, the CAD is expected to be around $40 billion (or 2 per cent of GDP), much below the projected $70 billion.

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(This article was published on February 16, 2014)
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