Union Budget 2013 – What is there in it for me?

End February every year is an exciting time for Indians, whether they are residents or non-residents. It is the time when we have budget presentations which spell out the tariff and concessions which is bound to have an impact on our finances.

As a Non Resident Indian from the Middle East, I did not have too much of an interest in Railway budget (I have not travelled by train since a long time). But it did have an impact on my portfolio! Stock markets tanked on the day Railway Budget was presented and Sensex came down by more than 300 points! So the lesson learnt is even when you do not travel by train, Railway Budget can definitely have an impact on your finances!

Then came the Union Budget on 28th February 2013. This was an event which had generated lots of expectations. This was being presented by perhaps the most credible face in the Government and he was doing it for the 8th time in his career. Further, his earlier budgets did have the X factor! Added excitement was due to the fact that this would be last full Budget before the next general elections due in May 2014.

But as the highlights of the Budget started flashing across my Bloomberg screen, I felt a bit let down! There were no big bang announcements and there was nothing which could be termed as innovative. The markets too felt that they should repeat the welcome given to the Railway Budget and Sensex  again tanked by almost 300 points. Two Budgets conspired against my portfolio and it is now less than what is was at the beginning of this year!

Finance Minister, at the beginning of the Budget speech mentioned two facts which were a bit disturbing. The first one referred to GDP growth and he said “In the current year, the CSO has estimated growth at 5 percent while the RBI has estimated growth at 5.5 percent. Whatever may be the final estimate, it will be below India’s potential growth rate of 8 percent. Getting back to that growth rate is the challenge that faces the country” This is some sort of admission that we cannot even reach our potential in GDP growth!

The second statement which was equally disturbing was about Current Account Deficit (CAD). This is what FM had to say on CAD “My greater worry is the current account deficit (CAD). The CAD continues to be high mainly because of our excessive dependence on oil imports, the high volume of coal imports, our passion for gold, and the slow down in exports. This year, and perhaps next year too, we have to find over USD 75 billion to finance the CAD. There are only three ways before us: FDI, FII or External Commercial Borrowing (ECB). That is why I have been at pains to state over and over again that India, at the present juncture, does not have the choice between welcoming and spurning foreign investment. If I may be frank, foreign investment is an imperative. What we can do is to encourage foreign investment that is consistent with our economic objectives.”

Now let me present my two paisa worth thoughts:

  • CAD is a definite worry. As per Economic Survey presented a day before the Budget, CAD widened to 4.6 percent of GDP in the first half of 2012-13. This is a big number. But FM sited only three ways to deal with CAD i.e., FDI, FII and ECB. Glaring is the omission of remittances and deposits from NRIs. Let us take a look at the numbers. As per Economic Survey, in 2011-12 (where the latest projections of the whole year is available), Net FDI amounted to USD 22.06 billion, Net Portfolio Flows (FII) amounted to USD 17.17 billion and Net ECBs amounted to USD 10.34 billion. Compared to these,  Net NRI Deposits amounted to USD 11.92 billion (Which is higher than Net ECBs) and Net Transfers under Invisibles which include remittances from NRIs (significant portion is remittances from workers in Gulf Countries) amounted to USD 63.49 billion. Yet, FM did not recognize this substantial forex inflow from NRIs! While encouraging foreign investment is welcome, why not encourage NRI inflows too?
  • On the same day of Budget presentation, we got GDP numbers which were a bit startling – GDP growth had fallen to 4.5% in Q3 of 2012-13! This news and widening CAD appears to have pushed Indian Rupee lower against US Dollar. Given the trend in CAD as well as in GDP growth, one can reasonably expect Indian Rupee to remain under pressure. Delaying remittances into India may get rewarded with better exchange rates! (Any ways FM is not really worried too much about NRI remittances and NRI Deposits!)
  • I am happy that FM has liberalised the baggage rules for bringing in jewellery. This is what he had to say on this subject “The baggage rules permitting eligible passengers to bring jewellery was last amended in 1991. Gold prices have risen since, and passengers have complained of harassment. Hence, I propose to raise the duty-free limit to Rs 50,000 in the case of a male passenger and Rs 100,000 in the case of a female passenger, subject to the usual conditions”.
  • The excise duty on SUVs has gone up. I regret that I did not buy Mahindra Xuv 5OO when I visited India last time.
  • There will be more banks competing for deposits! Apart from new licensing announcement from RBI, we will have Post Office Bank and also one All Women Bank. I am looking forward to visit a branch of all Women Bank just to see how different will it be from those manned by men!
  • There is going to be TDS of 1% when you buy or sell property worth Rs 50 lakhs or more! However, Securities Transaction Tax is reduced! FM is perhaps hinting to us that it is preferable to invest in equities than in real estate.

On the whole, there will not be too much of an impact for guys like me largely because Income Tax rates have been left unchanged (and we are miles away from becoming Super Rich – earning more than Rs 1 crore in India! Super Rich guys will have to pay a surcharge of 10%).

4 thoughts on “Union Budget 2013 – What is there in it for me?

  1. Satish Raoji, a very nice analysis of the Budget 2013. Even I too felt that NRIs were not given due weightage in this budget. Further please elaborate on the point of TRC and the implications proposed in this budget.

  2. PC has been somewhat sober and also a bit detached from expectations on him for a spectacular budget. The slow down has been partly global and partly (even largely) a by product of policy paralysis of UPA. When UPA came to senses, there is hardly anytime. PC appears to have chosen signalling and tokenism in lieu of doing anything substantial. It seems he did not find it worth investing too much of labour into this pre election budget. He seems to have oversimplified the exercise by picking up legacy issues of taxation and rigours of bureaucracy on which foreign investors needed clarity and assurance. He has dampened the real estate, a key driver of the economy by the 1% levy over Rs 50 lacs which is these days just about a middle class deal in Metros. CAD is a worry that looms so large for reasons of both fuel and gold, the former pushing inflation beyond control. Insofar as fiscal consolidation is concerned, the revenue manoeuvres being limited, no matter what with surcharge on less than 43000 super rich tax assesses and all and given the political compulsions and habitual profligacy of the UPA Government in announcing give aways outside realm of budget exercise, one wonders whether the fiscal consolidation will actually materialize in this pre election year. All said, PC has been a face saver for the UPA. Satish, I appreciate your coverage and insights on the NRI remittances not being reckoned well. I think it is a mindset issue. NRIs are playing a role in the betterment of India’s foreign exchange reserves. But they are not being approached with an open heart and encouraging moves. NRIs can perhaps be easily mobilized to remit even more, given the weakening rupee. I hope a weak rupee compensates you for the losses in your portfolio. More than the budget, I liked your blog. Splendid analysis. And not surprising, coming as it does from Tonserao.

  3. Satish, your point about NRI remittances being ignored as a source of inflows is well taken. But I feel the bigger source of inflows and the real solution to all of India’s problems is the extensive amount of black money – both within the economy as well as the amounts stashed in secret bank accounts abroad. Political will to bring this wealth into the economic mainstream will transform India from 3rd world ( or the grander term of BRICs) into the first world within 20 years and the USD/INR to the INR 7 to 10 per USD level over that same time period! Who will bell the cat?

  4. I guess the NRI inflows are taken from granted and hence not spoken about.
    ‘What else will these NRIs do with their earnings in any case except send it to India’ seems to be the thought – especially since a significant portion of these, as rightly pointed out by you, come from the Gulf.

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