In what could be seen as a politically sensitive move, the last budget of the UPA-II government has made it essential for the next government to raise taxes sharply to finance capital expenditure to boost growth.
Presenting the budget in the Lok Sabha Monday, Finance Minister P Chidambaram projected a massive 18 per cent rise in tax revenues for 2014-15, which is far above the projected growth-plus-inflation projections for the economy.
The difference between the two estimates works out to Rs 81,225 crore for the year or about 5 per cent of the estimates for government receipts in FY15.
At the same time, he has kept expenditure projections limited to just 11 per cent by under-providing for subsidies and carrying out a massive re-organisation of investment or plan expenditure, a task which should have been left for after the general elections.
It is this headroom which he has used to claim a reduction in the overhang of the fiscal deficit for FY15.
In the process, Chidambaram has also kept no fiscal room for the 14th Finance Commission award, due in October. He has budgeted for a 4.1 per cent target for fiscal deficit in FY15 despite easing up on fiscal consolidation by giving tax sops to the automobile, mobile handsets and other consumer durables sectors which will run through until June 30.
Automobile companies including Tata Motors, Maruti Suzuki and the Mahindras, however, took the cue and announced they would cut prices.
Asked later if the sops were aimed to woo voters, Chidambaram said: “My intention was not to please anyone. I wanted to talk to the people directly that we are going through a turbulent phase in the economy.”
The changes carried out by the minister in the plan budget means a number of social sector ministries at the centre including HRD, health and rural development could become marginal as most of their budgets have been transferred to the states.
As part of the reworking of the plan or investment expenditure, the finance minister has cut that spending by Rs 70,000 crore in FY14, which has allowed him to project a rise of 19 per cent in plan spend during FY15. However, if the projection is compared to the sum mentioned in the budget estimates of FY14, the number actually declines by Rs 987 crore.
A HSBC note said the finance minister had made his numbers work by “pushing back expenditures and moving forward tax and dividend collections. It, therefore, implies that the targeted fiscal consolidation will be more difficult to come by next fiscal year”.
Giving more powers to the states could help the UPA government gain support from those which have continued…