FICCI Article by Mr. Nath on Union Budget FY 2013-14

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Information about FICCI Article by Mr. Nath on Union Budget FY 2013-14

Published on March 18, 2014

Author: ReligareEnterprises



FICCI Article by Mr. Shachindra Nath, Group CEO, Religare Enterprises, on union budget FY- 2013-14

1 Union Budget FY 2013-14 The expectation from the budget was that it will be populist in nature as this was the last full budget of the United Progressive Alliance government prior to the general elections next year; however, the budget is balanced and inclusive with focus on poor, women and employment generation for youth. While the Finance Minister and the Economic Survey has identified the concern of a high fiscal deficit and high current account deficit as constraining the growth of the economy, steps to reduce the fiscal deficit to 4.8% next year from 5.2% of GDP for FY13 remain unclear. Reducing the current account deficit has been identified as a priority by the government and the finance minister emphasized that foreign investment is essential to address this. In this regard it is heartening to note that SEBI will work on simplifying the procedures for entry of foreign portfolio investors. For the Micro, Small and Medium Enterprise (MSME) industry, the announcement to extend non-tax benefits for a period of three years even after MSMEs move in to a higher category is welcome. SMEs represent over 95% of the industrial units in India, and are going to be the growth engine for manufacturing in this country. For financial services, multiple steps are being taken which are largely positive for the sector. The securities transaction tax (STT) for equity futures, mutual fund redemption at fund counters and mutual fund purchase/ sale on exchanges has decreased, which will benefit the participants of the market. However, the reduction may not be valid for more than a period of one year as the finance minister has taken this decision based on the condition of the market, which may change by the end of the next fiscal. The commodity market in India is nascent and needs time to grow. Introduction of commodity transaction tax on non-agriculture products is a negative move. Even though it is limited to non- agriculture products, which includes gold, silver, non-ferrous metals and crude oil it will lower the trading volumes of these products. In the insurance industry, allowing insurance companies to open branches in non-urban cities without prior approval from IRDA and banks being permitted to act as insurance brokers will not only widen the insurance net but increase the penetration of insurance. By allowing additional tax deduction of Rs. 1 lakh to first home buyers who take a loan of Rs. 25 lakh or less will result in an additional thrust for the affordable housing and will also benefit other industries that are directly connected to the growth of the housing industry. The Rajiv Gandhi equity scheme aimed at getting new investors into the equity markets has been a big step in the direction of increasing equity ownership in India. This year, the government has taken another small step in the same direction by increasing the income limit of the scheme from the current Rs. 10 lakh to Rs. 12 lakh and allowing the investment not in one year but over a period of three successive years. The execution of the scheme is the key success factor with estimations of large fresh investments expected in the equity markets.

2 For the banking sector, the budget has proposed further capital infusion into the Public Sector Banks directly to the tune of over Rs. 14,000 crore higher than the Rs. 12,157 crore expected for the current fiscal year, which will help in the needs of the system to keep up with credit growth as well as the upcoming Basel III. Overall the budget has provided a path to returning to the high growth rate but it may not necessarily be in the next 15-18 months that the economy will start to experience the high growth as is envisaged.

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