Tuesday, 18 February 2014

Dear students of Grade IX -D
You are suppose to analyze the Annual Budget Declared yesterday by Finance Minister and send your view as comment for this post. 


  1. The year’s fiscal deficits of 4.6% of GDP and the projected deficit for the next year at 4.1% of GDP are truly impressive, yet the reduce in excise duty for cars at around 3.8% will impact the balance of payments tipping it towards an already existing deficit side. Also a decrease in excise duty for home appliances and electronics will add on. Yet this decrease in price will act as factor pulling the market close to that of a perfectly competitive nature. This will benefit the consumers with lower prices, more choices and variety, improved quality of products as now the Indian automobile sector will be facing a potential threat from these already dominating foreign producers. The tata nano will be experiencing a drop in price of about Rs 5,000 and the Mercedes E-class will experience a drop of about Rs 1.14 lakh. The phone producing company, Micromax, which has begun to gradually increase it’s prices; will have to rethink this with the falling prices of smart phones as the South Korean gadget giant, Samsung, will be able to exploit this opportunity. There will be an increased supply of smart phones due to falling price and increased demand, thus reducing the chances of inflated prices as supply will be able to meet a greater proportion’s of the demand.
    There is a predicted 19% increase in tax revenue which should provide fruitful results. The increased revenue will allow the government to achieve a stable inflation rate by buying back a certain amount of the rupee, reducing supply. The government can spend on the improvement of health and communication facilities in rural areas as well as supply of electricity and well developed irrigation systems. The assurance of work being done for the development of the economy is given to us by the FM as he states the government has cleared projects worth Rs 6.6 lakh crore which may be used for development of infrastructure and maintenance of tourist locations. Also the upcoming statue of Sardar patel is milestone in the heritage and infrastructural abilities of this nation. Yet the total spending in 2013-14 has been cut by Rs 75,000 crore below the budget. The revenue deficit has fallen to 3.3% this year and is predicted to fall to 3% next year which means the government must have covered some of the loop holes in the tax laws or the population is becoming more honest, both of which are beneficial for the government and the economy. Farmers who repay loans on time will get credit 4% of the effective rate for the next year. This will motivate the falling number of farmers to take loans in order to increase their yield and increase supply to meet the demand. 9.9 lakh students are believed to benefit from the interest waiver for education loans taken before march 31, 2009. This will help improve the literacy rate of india and improve its HDI ranking. The increase in literacy will lead to an increase in the labour supply for skilled jobs and also increase confidence within citizens to work, thus increasing GDP per capita. Yet employment of all is not guaranteed and hence the government will have to increase spending for unemployment benefits. But an overall increase in GDP will increase the incomes of the workers allowing them to lead a better lifestyle. Yet the increase in incomes might lead to a demand pull inflation situation, the possibilities are never-ending.
    Just to conclude I would like to say that there has been a good improvement in the fiscal deficit and that the excise duty decrease, even though may lead to balance of payments deficit, will encourage healthy competition and eventually keep the consumer satisfied and build an ethical and encouraging atmosphere for the economy.
    - Eshan Savla, IX D

  2. The interim budget has pegged the fiscal deficit to be 4.6% of FY14 GDP as against the budgeted estimates of 4.8%.For FY15, the Fiscal deficit is pegged at 4.1% of GDP. The current account deficit was projected to be at USD 45 billion, down from USD 88 billion in FY13. The foreign reserves account is expected to go up by USD 15 billion, despite challenging overseas inflows environment. Planned expenditure was capped at Rs555322 Cr in FY15, unchanged from FY14 Budget estimates and un-planned expenditure was pegged at Rs1207892 Cr. While Merchandise export, a key contributor to GDP growth, is estimated to reach USD 326 billion indicating a growth rate of 6.3 percent in comparison to the previous year. Riding on lowering inflationary pressure and improving demand scenario, the interim budget pegged the FY14 GDP to come in at 4.9%. On tax proposals, the budget statement did not have any proposals relating to direct taxes. However, the Finance minister went on to tweak some of the indirect tax rates, benefiting sectors like Automobile, Consumer-Durables, Capitals Goods, etc. Excise duty on all goods falling under Chapter 84 & 85 of the Schedule to the Central Excise Tariff Act was reduced from 12 percent to 10 percent for the period upto 30.06.2014. To encourage domestic production of mobile handsets, the excise duties for all categories of mobile handsets were restructured.

    As far as financial markets were concerned, the interim budget has announced a few steps to strengthen the financial markets. It has been proposed to revamp the ADR/GDR schemes along with an enlargement of the scope of depository receipts. It has also been proposed to liberalize rupee denominated corporate bond markets, deepen and strengthen currency derivatives markets to allow Indian companies to hedge forex risks better, to create one record for all financial assets of every individual, to better the process of clearing and Settlement of international investors willing to invest in India.

    The interim budget also enlisted important steps as a road map to secure steady growth of the economy in the future. These included bringing down the fiscal deficit to 3% of GDP by FY17, keeping the CAD and inflation under check, enhancing investments in infrastructure, targeting subsidies to the deserving sectors, investing more in skill development, etc.

    However,provision for subsidy looks in adequate, particularly if crude prices rise or rupee falls.₹11200 crore for bank capitalization is inadequate considering asset slippage(difference between estimated transaction costs and costs actually paid).
    Aditya Malik 9D

  3. The Interim budget involves taking many recommendations into action. It involves increasing the GDP by 5.2% and economic growth by 4.9%. However, increasing the level of economic growth might not be advantageous as it might cause inflation. The fiscal deficit is also projected to decrease from 4.8% to 4.1% and they wish to bring it down to 3% of the GDP. The Forex reserves are also being increased by $15 Billion. However, this depreciate the value of the nations currency, as less of the foreign currency would be bought with more of our currency. Indirectly, imports would increase as they would buy more of the countries exports with their own currency. Imports would increase and exports would decrease, leading to Balance Of Payments Deficit.Setting the budget is also increasing the total spending on food, fertilisers and fuel at 2.5 trillion rupees in 2014/15, by increasing the amount of subsidies to the primary sector, which is not necessarily advantageous. Investing highly in the primary sector is an indicator of a developing country. I would recommend to increase the resource allocation to the Secondary and Tertiary Sectors. Cutting excise duty on larger vehicles would promote the usage of larger vehicles. External Costs would arise, such as pollution and congestion, for which no appropriate compensation would be paid. Thus, the government would have to impose pollution taxes on these vehicles. However, this would in turn help in the transportation of raw materials and finished goods and services
    -Kunal Mishra IX-D.

  4. Fiscal deficit is the difference between the government’s expenditures and its revenues. The fiscal deficit target has not only been maintained within 4.8 per cent of GDP, but has actually been lowered to 4.6 per cent of GDP. when there is an increase in fiscal deficit it means that the government is spending too much while it is earning less. Hence, it is important that the government keeps its expenses under control or else there will an increase in government spending, inflation and lower revenue. All this would also lead to disequilibrium in balance of payments as government will buy less of imports.india has rising population so if india imports less of basic necessities then the death rate will increase with birth rate because of all this the government will borrow more from other countries and so the lending countries will have a favourable balance of payment. Also if imports increase exports then the country's currency will depreciate.Like India, many developing countries are making an effort to resolve big fiscal deficits. On the bright side, for India, among other sources of revenue and foreign investments has helped avoid high deficits.Budget 2014 has decided to support growth by cutting excise duty to the extent possible within the overall push towards fiscal consolidation. Relief to the automobile industry, by almost 4 per cent, should help to turn it around, and also further the development of India as an auto hub. This will also make up for the strict control of plan expenditure.Increase in defense expenditure will also help development of the domestic sector.Irrespective of election results, balancing inflation and growth, creating jobs for those that will come into the workforce, skill development, giving a boost to manufacturing and hence exports, building infrastructure should be the focus of the government.

  5. The Planned expenditure for 2014/15 seen at 5.55 trillion rupees, the same level as the previous fiscal year. This may not be a very wise move as it will not contribute towards a reduction in the rate of inflation which is steadily becoming a pressing issue in India; the expenditure should've been reduced in order to reduce the total amount of money flowing in the economy. However, it will help is increasing the employment level which is also a major problem in our country. Also, it will contribute to economic growth as the demand for goods will now increase therefore supply will rise in order to satisfy it.
    Food subsidy estimated at 1.15 trillion rupees, fertiliser subsidy at 679.71 billion rupees. Petroleum subsidy seen at 634.27 billion rupees versus revised figure of 854.8 billion rupees for 2013/14. The subsidies on food and fertilisers will be beneficial towards India’s most valuable sector of the economy: Primary sector. Also it will help to overcome social problems such as famine in India and will raise the average standard of living. Whereas, the fall in subsidies on fuel will not only increase transport costs, but also may lead to a further increase is in the price of goods and services. Furthermore, it will increase business costs and my discourage firms from producing more, which will negatively affect the GDP.
    Spending raised to 2.24 trillion rupees in 2014/15, up 10 percent year on year for defences. I personally believe that this is a terrible investment. The money spent on defences is almost twice as much as that spent on food. If some of the money were to be reallocated from defences to food, India could majorly increase the standard of living and overcome several food and water shortages. This would improve the value of India’s human resources, which will be one of India’s main advantages in the future: A high population!
    The govt. has cut excise duty on small cars, two wheelers, and commercial vehicles to 8 percent from 12 percent, recommended excise duty reductions on larger vehicles and restructured factory gate tax for mobile handsets. There is no requirement for more cars on India’s already congested roads, while sustainable growth can definitely not be achieved by polluting the environment with the extra vehicle fume. Instead, the money should have been invested in the public transportation, encouraging the population to become more eco-friendly. The reduction in taxes for handsets will lead to cheaper, more affordable mobile phones which will help in communication improvement.
    The government has predicted that there will be a GDP expansion in third and fourth quarters of 2013/14 estimated at 5.2 percent. Growth for the whole year expected at 4.9 percent. Fiscal deficit seen at 4.6 percent of GDP in 2013/14, below target of 4.8 percent. Fiscal deficit is projected at 4.1 percent of GDP in 2014/15.
    The Current account deficit for 2013/14 estimated at $45 billion from last fiscal year's $88 billion, while Forex reserves are predicted to rise by $15 billion by end of 2013/14.
    Ria Pai

  6. Response to Interim Budget 2014
    While there have been no major changes in tax rates, factory gate tax was reduced from 12% to 10% on some capital goods, consumer durables. This means less tax for producers which will decrease their cost of production and will thus cause an increase in production and supply. This will cause a decrease in market prices, making consumer durables more affordable, thus increasing demand and sales and standard of living. Sales have remained low for slow for close to two years due to high interest rates which discourage borrowing, rising fuel prices (increase in price of complementary good) and an overall slowdown in the economy. Thus this will help to revive demand. However too much of an increase in demand may lead to inflation.
    A decrease in excise duty on small cars, two wheelers and SUV's from 12% to 8% and from 30% to 24% will cause prices to fall, boosting consumer demand as prices will go down since manufacturers of the vehicles may decide to pass on the benefits of the slashed duties. Also, prices of refrigerators, washing machines and AC’s will also be cut. However this will affect the balance of payments, as imports will exceed exports due to a lower price, causing a deficit in balance of payments. Smartphone and computer prices will also decrease causing an increase in demand. Manufacturers will have to increase supply, to meet the demand and to prevent inflation.
    Merchandise exports are seen at $326 billion, up 6.3% which will help achieve a favorable balance of payments. Agriculture exports are also expected to touch $45 billion, up from $41 billion which will further contribute to a favorable balance of payments. However, India should aim towards exporting things apart from agriculture, raw material, etc. and should try to graduate to supplying technology, etc.
    The government is also spending Rs. 2.5 lakh crore in total on food, fertilizers and fuel which will help farmers to meet rising demand, people suffering from poverty to buy food and industries to buy fuel. Also the spending on defense has been raised to 2.24 lakh crore, up 10% year on year which will improve defense facilities. Also a ‘One rank, one pension’ scheme has been set up for ex-servicemen, which will encourage existing servicemen to work harder and more efficiently, to ensure a secure future. Education loan terms have been relaxed further, and an interest holiday has been provided on student loans which will encourage education, increasing our literacy rate and HDI, making the labour force more skilled. There has also been an increase in the target for bank credit to farmers, encouraging them to borrow and repay loans on time.
    The Planned expenditure for 2014/15 is 5.55 trillion rupees, the same level as the previous fiscal year. This does not help to reduce the rate of inflation, a major issue. The expenditure should've been reduced in order to reduce the total money in the economy.
    On the positive side, GDP expansion in the third and fourth quarters in estimated at 5.2% which will lead to increased standards of living and economic growth. Also, current account deficit is estimated at $45 billion from last year’s $88 billion, which is almost half, meaning India is moving towards a favourable balance of payments, which may cause the rupee to appreciate, as demand for it increases. Forex reserves are expected to rise to $15 billion by the end of 2013-2014. Also, fiscal deficit has also decreased to 4.6% of GDP from 4.8%, a decrease in fiscal deficit means that the government is spending less while it is earning more, which is beneficial. However, the government will aim to further lower the fiscal deficit to 3% by 2016-2017, which will allow the government to use the remaining for other, more productive purposes.

    Rashi Balachandran
    Class 9D

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  8. The planned expenditure (5.55 trillion rupees) has not changed from 2013-14; however, the non-planned expenditure has fallen considerably from 16.65 trillion in 2013-14 to around 12 trillion. As Chidambaram aims to make India the 3rd largest economy in the world he has kept a few factors in mind. Since he wants the manufacturing industry to be the base of our nation's development, excise duty for cars has been reduced in order to boost production. But even if the reduction in excise duties can boost production and may help in growth, it raises the chance of higher inflation which is already a major problem in our nation. Thus, i think that was a poor descion. However, the idea of sanctioning 246397 crores for subsidies and deciding to only give them to those who totally deserve it was a good idea as it can ensure efficiency. The increase in manufacturing was also to help produce more exports which can help achieve better balnce of payments. This could lead to currency appreciation which is a major concern at the moment. The aim of achieving a fiscal defecit of 3% by 2016-17 seems to be going well as we have projected a fiscal defecit of 4.1% for the coming year. Chidambaram claimed that 140 million people are now out of poverty, which could probably be the reason why a higher tax revenue is predicted. These factors are viatl for reducing the fiscal defecit.
    Overall, I still believe that this is a positive result thanks to the fiscal defecit reduction and our aims for the future. Even though there are some risks , I'm sure an increase in manufacturing will help correct many issues as well. Soham Deb- 9D

  9. The Interim budget has projected a fiscal deficit of 4.1% for the year 2014-2015, from a fiscal deficit of 4.6% in the year 2013-2014. Moreover, the GDP for the whole year is expected to be at 4.9%. Also, the Current Account Deficit for the year 2013-2014 is expected to be at $45 billion, which is an impressive $43 billion less than last year’s $88 billion. The foreign exchange reserves are also estimated to be at $15 billion by the end of 2013-2014. An increase in exports are also being expected, since merchandise exports are expected to rise by 6.9% and agricultural exports are expected to rise by $4 billion.

    The government plans to buy back bonds worth 500 billion rupees. This may be done in order to increase the money supply in the market, thus allowing firms and consumers to borrow cheaply. This will reduce prices of goods in the country and increase aggregate demand, thus helping to meet the objective of the GDP at 4.9%. Since the goods are cheaper, their demand from overseas consumers will increase, thus it might help to obtain a surplus balance of payments and appreciation of the rupee.
    However, there is a possibility that the existing balance of payments deficit may increase, since excise duties on some vehicles have been cut by 4%. This will make exports cheaper, thus increasing the demand for exports. This will also help in increasing the standard of living of the citizens, since goods of higher quality can be imported and this will pressurise domestic firms to increase the quality of their products in order to compete with imports.
    In addition, total spending on food and fertilisers of 2.5 trillion rupees will help increase output and goods can be easily distributed between different regions in order to reduce regional disparities and poverty.
    Gross market borrowing of 5.97 trillion rupees will be used to fund government spending; however, the debt repayment is only 1.397 trillion rupees, thus it will lead to an increase in the national debt of India.

    Ritik Chopra. 9D.

  10. The Interim-Union budget proposed by P. Chidambaram had led a the development of a new macroeconomic framework statement, which states that different macroeconomic aims will be accomplished In the year 2014-2015 with the help of macroeconomic policies.
    It has also allocated its expenditure to the manufacture of other goods and services. For example, it has increased its budget for railway support and development to Rs.29,000 crores. To create new railways and support existing ones, various jobs will be created which will increase the GDP per capita of the country and improve the dependency ratio. The standard of living will also increase and consumers will be able to afford the highest quality of goods and services, which will improve the HDI. Demand for certain goods and services will be created, which will help increase the supply of these products. To do so, more jobs will have to be created so that demand can meet the supply. If it is unable to do so, prices will rise and create a conflict in the governments list of macroeconomic aims, which is to have low and stable prices. However these measures only support the short term.
    The government has also invested in a child budget and education loans, which will improve the literacy rate and provide education to underprivileged children. Due to an improvement in education, the quality and quantity of skilled workers in the labour force will increase. Thus aggregate supply of goods and services produced by the Indian economy will increase and so the GDP will increase leading to economic growth. If there is an excess of supply in the economy, it can be exported to the rest of the world which will help to achieve another macroeconomic aim of a stable balance of payments. This would be a long term improvement.
    Neev Vora

  11. This budget can largely be seen as more of a political one rather than an economic one since the Elections are around the corner and the UPA government wants to start them off on a positive note. However, the few positive takeaways are:
    1) Fiscal Deficit has been contained at 4.6% of GDP which is better than the target of 4.8%. This is expected to reduce further to 4.1% and over the long-term, aimed to be at 3%. Though, this is positive news, the FM said expect tax rises of up to 18%. He also added the massive cutback in government expenditure was worth 70,000 Crore Rupees. All this comes at a time when government when the government increased the subsidies a massive 11.5%.

    2) Excise Cuts: The major highlight of this budget, in order to boost consumer demand and increase investment the government has cut down excise rates for goods under Chapter 84 and 85 of the Central Excise Tariffs Act. This makes many consumer electronics cheaper with immediate effect. This is both positive and negative news for the economy since cheaper goods will spurn domestic demand, however, tariff reductions will cut down government tax revenues and also make imported goods cheaper. Nevertheless, the lack of revenue will be dealt with by increased sales, the cheaper imports will only widen our current account deficit whose value right now is pegged at 2.2% of GDP.

    3) One Rank One Pension: The election aim of the UPA government has finally been met, generating positive responses from the public. Though it will add to government spending it will ensure more incoming equality for our ex-servicemen.

    4) The government also plans to hedge more foreign currency in order to prepare and meet future currency crises. It has also advised other companies to do the same lest they suffer incase of a massive depreciation of our currency as their products become cheaper on the global market.

    5) Excise Duty on Automobiles has been reduced too, this again is a positive for the consumer but a negative for the economy as many imported automobiles are set to go cheaper.

    In all, the government has set very lofty standards for the incoming government to meet. Yet, this budget has very little for the common man, hence causing further criticism of the UPA government and change of sentiments for the same.

  12. The fiscal deficit target is an attractive 4.1% of total GDP. Excise duties have seen a fall from 12% to 8% on small cars, from a 30% to a 20% on larger cars, a 10% on capital goods and a 10% from a 12% on consumer durables. Along with that, there is a 19% increase in gross tax collection, with a 31% increase in service taxes. This will make services even more expensive. However, this could lead to a rise in the revenue of the government, leading to a fall in fiscal deficit, making it easier for us to achieve the 4.1% target that has been set. By decreasing the excise duties, the cost of production will decrease as there is a fall in the price of the raw materials that can be passed on to the consumers, making the firms more competitive. The budget has been careful to decrease the import duties on the raw materials that are required for the domestic production, which will also help to bring down the overall cost of production. If the competitiveness of the firms rise, there will be a rise in profits. The firms will be able to employ more, causing a fall in unemployment rates and the GDP of India will see a rise. Because of the low prices, overseas consumers will also want to purchase the domestic goods produced, increasing the export and causing favourable balance of payment. Because it is an interim budget as it is an election year, there isn’t much change in the planned and unplanned expenditure from a budget point of view. However, last year, since the government wanted to maintain a fiscal deficit of 4.1% and didn’t want it to rise much further, the government reduced its planned expenditure in the current fiscal by Rs.79,790 and hence, was able to maintain it. An interesting point in the budget is the introduction of the research funding organization that will fund research projects selected through a competitive process. At present, the income tax allows for deduction for expenditure on scientific research, but it is based on direct funding. Therefore, the firms were able to control research expenditure and outcome. Now, however, the proposal of the research funding might remove control of the outcome of scientific research from the firms. Since the firms won't be aware of how their profits are being spent as far as research is concerned, they may be hesitant to invest in it, leading to a fall in research and development. This could result in a retardation in competition and growth and therefore, a stationary standard of living.
    Oishika Roy, 9D.

  13. Response to the interim budget 2014

    The new budget projects massive 18% rise in tax revenue and fiscal deficit has been contained at 4.6% against a target of 4.8%. This is likely to fall to 4.1% by 2015.Current account deficit for 2013/14 estimated at $45 billion has reduced from last fiscal year's current account deficit of $88 billion. This is beneficial as due to this the Forex reserves are to rise by $15 billion. It is expected that interest rates will rise to 4.27 trillion rupees. This is likely to increase the foreign direct investment and efficiency of firms as well as create more job opportunities,increasing level of employment.
    The Food subsidy increased to 1.15 trillion rupees and fertiliser subsidy to 679.71 billion rupees. Thus there will be an increase in the production and quality of this basic necessity, and also a decrease in cost of production and therefore prices will be reduced. Even people of lower income group will be able to afford these rates, reducing the gap between people of different income groups. The agriculture sector has displayed a remarkable performance. Foodgrain production in 2012-13 was 255.36 million tonnes and the estimate for the current year is 263 million tonnes. Agriculture exports in 2012-13 stood at USD 41 billion versus imports of USD 20 billion.This increase in exports indicates a shift towards current account surplus. However our economy should try to export other goods as well such as those in the field of technology. In 2013-14, agriculture exports are likely to cross USD 45 billion. Agricultural credit is likely to touch Rs. 735,000 crore, exceeding the target of Rs. 700,000 crore, which has boost Agricultural GDP growth to 3.1 percent.
    There has been restoration of duty free import of flat panel televisions thus increasing the demand for these imports, leading to a current account deficit as they may exceed exports.To give relief to the automobile industry which is registering unprecedented negative growth,the excise duties have been reduced; Small cars, motor cycles, scooters and commercial vehicles - from 12% to 8%, SUVs - from 30% to 24%, Large and mid-segment cars - from 27/24% to 24/20%. This will lead to a decrease in prices ,thus an increase in consumer demand and increase in their revenue, helping them recover from prior losses.
    However if demand gets too high, and is not matched by supply, it could lead to demand pull inflation.

    Kimberly Dsilva - 9D


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