India Fiscal


India: Government presents optimistic budget

February 28, 2013

On 28 February, the government announced the Union Budget for the fiscal year 2013/14 (April 2013 - March 2014), which is the last budget programmed by the current government before the 2014 national election. According to the document, the central government deficit is expected to narrow to 4.8% of GDP, down from the 5.2% of GDP gap estimated for the current fiscal year. Contrary to expectations of an austerity budget, Finance Minister P. Chidambaram outlined a large increase in public spending, which the government expects to fund mainly by imposing higher taxes on wealthy individuals as well as corporations.

According to the outline presented by the Ministry of Finance, total revenues are projected to increase 21.2% nominally over the previous year. While the government will maintain the income tax unchanged, it include a 10% tax surcharge on taxpayers reporting annual incomes above INR 10 million (USD 180,000) and an increase in the surcharge from 5% to 10% on net profits of businesses that report taxable revenues above INR 100 million (USD 1.8 million). The government stated that these tax surcharges would last one year. Regarding indirect taxes, the government announced that it will leave the basic customs duty, the rate of excise duty and the normal rate of services tax unchanged, but plans to raise import duties on big-ticket luxury items.

On the outlays side, total expenditures will increase 16.4% compared to the previous year, as the government intends to raise capital expenditures by 29.4% and current expenditures by 10.8%, even as the allocation of subsidies is projected to fall, mainly due to lower subsidies for fuels.

The Finance Ministry stated that the government remains committed to reducing the fiscal deficit in the medium term. According to the Ministry, the central government deficit should continue to narrow to 4.2% of GDP in the fiscal year 2014/15 and to 3.6% of GDP in FY 2015/16.Private sector analysts have expressed concerns that the government's revenue projections are too optimistic given the current economic slump. FocusEconomics Consensus Forecast panellists expect the fiscal deficit to reach 5.1% of GDP in FY13/14 and 4.7% of GDP in FY14/15.

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