The Interim Budget of India 2014-15 (for the beginners and enthusiasts)

First of all, let me tell you why this is called an interim budget. I hope you know that General Elections are due this year and hence it is possible that the same government does not come to power (which most of us are hoping for). If the new government that comes to power, is not impressed with the current budget, they will have the opportunity to change its features as per their will. Anyway, till the elections are held, money needs to be spent here and there and thus this budget is necessary to keep things going till the elections are held and the new government takes over. This is also called “Vote-on-account” budget. Hence it cannot be assumed that this budget will be in place for the entire fiscal year, so the name “interim budget”

Now that I have explained the purpose of the budget, let me come to the budget itself. The budget starts with describing how pathetic the world economy has been in past few years. World economic growth has been declining and our major trade partners haven’t been doing well. Even our loving and caring eastern neighbor China has shown a decline in its growth. However, Japan and the oil-o-philic big brother (which shall not be named) are showing trends of recovery.

We weren’t cruising either. The two deficits which are Current Account Deficit (roughly the difference between values of exports and imports) and the fiscal deficit (that is the difference between what government earns and what government spends) have been a giant pain in the a** for the government.

You might wonder how can there be a deficit. How can somebody spend more than they earn? It is very simple. Suppose you earn 1000 rupees per month. If you have already spent 800 rupees and you want to buy tickets to a movie worth Rs 400, what would you do? Of course you will ask your friend to lend you Rs 200 and that you will return the money later. Similarly, a Government has FRIENDS who give it the money and government keeps borrowing and returning the money. So anyway, this borrowing was going beyond the comfort zone and hence Govt decided to cut down its expenses. It decided to buy a ticket worth Rs 250 and also decided not eat popcorn at all at the movie and hence borrowed only Rs 50. Surprisingly Mr Chidambaram (our Finance Minister) decided to cut down the expenses on MGNREGA, the flagship employment scheme of the UPA government. If you do not get the idea, it is like, to cut down expenses, you decided not to buy a pair of (pink) sandals for your girl-friend. Naturally, the girl-friend (Jairam Ramesh) got upset but somehow things got settled. As for the CAD, Govt took some steps that made the imported products very costly and gave incentives to exporters.

Just so you know, these measures worked and now we have a Fiscal deficit of 4.6% of the GDP which is better than the target (4.8%) and CAD which amounted to $88 Billion last year, has been contained to $45 Billion this year. So, we can be happy for now.

Next problem was inflation. If you don’t know what that means, let me give you another simple example. Suppose, you buy fake Ray-Ban sunglasses for Rs 100 today. Next year, the same fake glasses will cost you Rs 150. There is nothing different about it. It looks equally bad as the previous one, but still you are supposed to pay extra 50 rupees this time. This phenomenon of increase in price of a commodity without any value addition is termed inflation. It shows that the purchasing power of your currency is declining. Like, a few years ago, I could eat 10 gup-chups (golgappa, panipuri) for 10 rupees, but today I can eat only 5 gupchups for 10 rupees. This shows that the purchasing capacity of our currency has decreased over the years. So, this problem of inflation was killing us all. The prices of several commodities rose sharply and people started proposing their girl with an onion instead of a diamond ring. By the efforts of RBI and Government, this inflation has been brought down. More needs to be done however. (Food inflation declined from 13.6% to 6.2%)

Now let me come to sector-wise performance, which is obviously going to be very brief.

Agriculture: Massive increase in production. Highest ever recorded production of food grains of 263 million tones

Investment: was suffering; so Cabinet Committee on Investment was formed that helped in clearance of several projects.

Foreign trade: Exports rose, imports declined. Minister wants that both should have a robust growth

Manufacturing: Everybody (even Rahul Gandhi) wanted this sector to do well. But somehow, it got bad…and worse. Mr Minister said they have taken steps to increase investment in this sector and is WORRIED about the situation (thank you so much sir, that should solve the problem)

Infrastructure: This refers to sadak, bijli, pani etc….that is roads, power and other basic structures which are essential for economy to develop efficiently and at a faster pace. So we built roads, generated more power, gifted  allocated coal and gas blocks, created funds for infrastructure etc. Honestly speaking, I am not sure how good the condition is but we MUST develop infrastructure to be the best.

Exchange rate: This is the Rupee v/s dollar thing and I don’t need to tell you how the value of rupee nosedived. However, situation looks under control for now.

GDP Growth: GDP is the monetary value of goods or services produced within our country. It grew by only 4.9% this year. It would have been even less but the last few months saw a rise in GDP.

After this, Mr Chidambaram went on to say how this was the most corrupt efficient government till date. He informed us how they took so many initiatives in the economic and social sectors that led to the growth of the people of this nation. He also told us that 140 million people were lifted from the poverty. He did not clarify whether that estimate was by the criteria of his government or the Gujarat govt. I should not forget to mention that in the end he gave away the credit for all this success to the PM Dr Singh and the BOSS. If you want to know more about this in detail as the economic sphere, space, power sector etc, then please refer to the Highlights of the budget.

Some important initiatives:

·         India Inclusive Innovation Fund for Micro and Small Medium Industries

·         JE vaccine, diagnostic test for Thalassaemia, detection of cervical cancer

·         Mars Obiter Mission, heavy satellite launch capability

·         Additional fund of Rs 1000 crore as Nirbhaya Fund for safety and dignity of women

·         Bharat Mahila Bank established. This is the All Women’s Bank

·         Defence budget increased by 10% (which is still one-third of that of China)

·         A moratorium period is proposed for all education loans taken up to 31.3.2009 and outstanding on 31.12.2013, i.e. those students who took loans upto 21^st March 2009 won’t be paying their loans for the date till 31^st December 2013.

·         One rank, one pension for armed forces. This simply means no matter when you retired from defense services, your pension will be hinged to your retired position and not on the pay-scale on which you retired

·         Proposed to set up a Research Funding Organization for funding scientific research

·         Information about 67 illegal off-shore accounts has been gathered (swiss bank accounts).

These accounts do not include that of the Rashtramata (or her family for that matter)

Changes in Tax Rates:

·         Excise duty (tax imposed on production of a commodity) has been reduced on automobiles. So, two wheelers, four wheelers will get cheaper.  The same goes for soaps, and mobile handsets.

·         Service tax won’t be imposed on loading and un-loading, packing, storage and warehousing of rice. Blood Bank services will also be exempted from service tax.

MY REACTION:

Obviously this is a populist budget to keep everyone happy and attract votes. This was expected. Whether the voters will respond positively to it or not is yet to be seen. One thing is clear though, the worst is over. Whichever political entity forms a government at the centre, can change gears and race ahead. It is for this very reason that we require a very stable political scenario. A third front government is the worst that can happen in the upcoming polls. Let us hope that Indian voters vote wisely and we usher as a strong nation in the coming years.