The sops might carry on: Sunil Godhwani

Chidambaram said duty cut could not wait for the regular Budget as the manufacturing sector needed an immediate boost

Vote-on-accounts are never considered an exciting event, as outgoing governments do not make any significant announcements in the direct tax structure. Even so, the finance minister tabled a seemingly populist interim Budget.

The excise duty on a wide range of manufactured products, including capital goods, consumer durables and both two-wheelers and four-wheelers, have been cut in the range of two to six per cent. In his speech, the FM said duty cut could not wait for the regular Budget, as the manufacturing sector needed an immediate boost. While the move is in the right direction, the reduction could have even come earlier through a notification.

Importantly, it remains to be seen if the industry will pass on the benefits of duty reduction to push sales or absorb the cut to improve profitability. The duty cuts are applicable till June 30, by when the new government is expected to present a full-fledged Budget. But it is likely these sops might continue, as the new government will not want to start its tenure on a sour note.  

With the fiscal deficit for 2013-14 at 4.6 per cent, the finance minister has been able to beat the target of 4.8 per cent. While the deficit is better than what was promised, a substantial chunk of fuel subsidy, of Rs 35,000 crore, has been rolled over to next year. If that subsidy is included in Budget calculations, the deficit will be higher.

The next year’s target is also ambitious at 4.1 per cent of gross domestic product, as it assumes an 18 per cent growth in tax revenues.

Another key takeaway is that actual Plan expenditure for 2013-14, which creates productive assets and drives growth, has been lower by nearly Rs 80,000 crore when compared to the Budget Estimate. Perhaps the government could have aggressively spent this remaining component as well to revive growth.

Overall, the exercise around  the vote-on-account is a formality till a new government with a fresh mandate is in place. One will have to wait for the real action.

Sunil Godhwani
Chairman and managing director, Religare Enterprises Ltd