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Chidambaram's excise duty cut on durables, automobiles aimed at fiscal consolidation

Ajay Modi     February 17, 2014

Ajay Modi
The Interim Budget of UPA-II has an election tinge to it, with Lok Sabha polls coming up later in the year. Finance Minister P. Chidambaram's speech was like an election campaign speech, as he listed the achievements of 10 years of UPA rule in areas such as food security, agriculture, and other welfare schemes.

He also announced excise cuts to help the consumer durables and automobile industries do better in these challenging times. No changes were announced in direct taxes.

Chidambaram announced a cut in excise duty on small cars and two-wheelers from 12 to 8 per cent, and on SUVs from 30 to 24 per cent. Excise duty on consumer durables has been reduced to 10 per cent from 12 per cent.


In order to encourage domestic production of mobile handsets, he announced an excise duty reduction to 6 per cent with CENVAT (Central Value Added Tax) credit or 1 per cent without CENVAT. In the last Budget, excise on all mobile handsets was raised from 1 to 6 per cent.

All these changes will be valid till June 2014, and will be reviewed when the regular Budget is presented by the next government.

At the beginning of his speech, Chidambaram said that India's challenges are common to all emerging economies. The UPA government has put the fiscal deficit at the top of its agenda. Food inflation remains the main worry, although it has declined, he said.

He hit back at allegations of policy paralysis, and added that by the end of January 2014, the government had cleared 296 projects with a proposed investment of Rs 660,000 crore. "History will judge the achievements of 10 years of UPA rule", he said.

The finance minister announced a one-year moratorium on interest on student loans taken before March 31, 2009. He said it would benefit 900,000 borrowers.


He proposed three more industrial corridors - Chennai-Bangalore, Bangalore-Mumbai, and Amritsar-Kolkata. He announced a Rs 200-crore venture capital fund for Scheduled Caste entrepreneurs, and proposed to contribute another Rs 1,000 crore for the Nirbhaya fund for women's safety.

He said the fiscal deficit for the current financial year would be 4.6 per cent. "Let me begin with the good news," he said. "The fiscal deficit for 2013/14 will be contained at 4.6 per cent of GDP, well below the red line that I had drawn last year."

Chidambaram also pegged a fiscal deficit target of 4.1 per cent for 2014/15. He listed fiscal consolidation, revival of the growth cycle, and stepping up manufacturing as the government's targets.

The country's current account deficit (CAD) will be contained at $45 billion this financial year, well below the record high level of 2012/13, he said.


"The CAD, which threatened to exceed last year's $88 billion, will be contained at $45 billion," he said in the interim budget presented in Parliament today.

He also said he expects to add about $15 billion to the country's foreign exchange reserves by the end of the financial year. He said exports are likely to touch $326 billion in 2013/14. They were about $304.5 billion in 2012/13.

The interim budget has retained plan expenditure for 2014/15 at last year's level of Rs 555,000 crore. It has provided Rs 246,397 crore on account of three key subsidies - food, fuel and fertiliser. Of this, Rs 115,000 crore has been earmarked for food subsidies where the government seeks to implement the Food Security Act. An amount of Rs 65,000 crore has been allocated for fuel subsidies.

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