The Government of India is scheduled to present the Union
Budget for FY13-14 on Feb. 28, 2013. Commenting on the budget expectations, Edelwiess Securities said the following:
Budget 2013-14 will be a budget that will signal that the government is serious about cutting the high fiscal deficit on the one hand and to shore up growth on the other hand.
Finance Minister P. Chidambaram may not be able to meet the revised fiscal deficit target of 5.3% of GDP for FY13. But, there is no doubt that the Centre is making all efforts towards fiscal consolidation not just for the short-term period but on a sustainable basis.
For FY14, the Finance Minister is likely to set himself a target of 4.8% of GDP citing some recovery in tax revenue, reduction in oil subsidies and rationalization in other expenditure.
A cut in budget deficit will help shift demand in Indian economy away from consumption (towards investment) and from Government (towards private sector). A lower fiscal deficit also helps to narrow the current account deficit (CAD), which has been putting pressure on inflation, interest rates and the rupee.
Inflation too is likely to moderate if government manages to control its expenditure, especially on various subsidies. The recent government moves to allow a marginal increase in diesel prices (Rs 0.45/litre per month) will help contain total oil subsidy burden. This will also enable the RBI to lower interest rates further.
Decline in interest rates will support private demand, which will offset the impact of a sharp contraction in public demand due to fiscal tightening.
This will be achieved via subsidy reduction and lower growth in non-subsidy revenue expenditures. Meanwhile, tax revenue growth is likely to be normal while capital expenditure growth will be above average. In addition, the government may increase the allocation of plan expenditure (especially capital spending) to boost investments.
No major change is expected on the tax front, but a new timeline for the implementation of the Goods and Services Tax (GST) is expected. We expect tax growth in FY14 to be similar to FY13 (15% YoY). In FY14, it expects growth in direct and indirect taxes to be a more balanced 14% YoY and 17% YoY versus 11% and 21% in FY13, respectively.
The government should be able to realise Rs 300 billion through disinvestment in FY13. In FY14, the Finance Minister is expected to target a slightly higher amount of Rs 400 billion via disinvestments. The government is also likely to introduce the Food Security Bill in the Union Budget.
The government will be keen to announce the Food Security Bill as this is the last full Budget before next year's general elections. Based on estimates made by the Rangarajan Committee, additional burden from the Foodsecurity Bill could be Rs 150 billion - 200 billion (assuming partial coverage).
Source : myiris.com