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%).