India Budget: No Major Gold And Silver Import Curbs

India raised the value of Gold that can be brought home from abroad by NRI’s (Non Resident Indians). A male passenger can now bring Gold worth 50,000 Rupees without paying any dut,y while a woman passenger can bring Gold worth up to 100,000 Rupees for free. NRI’s have long demanded that the Indian government should levy the customs duty based on the weight of Gold, instead of the value of Gold as the rate will keep changing. However, India reduced the amount of gold as the maximum permissible weight of Gold that can be imported from 10 kgs to 1 kg. India introduced a 4% excise duty on Silver manufactured from smelting zinc or lead. India's budget for 2013-14 indicated that rising gold imports remained a major contributor to the country’s widening Current Account Deficit (CAD). Mr. Chidambaram said the country needs to find a whopping $75 billion to finance Current Account Deficit. He also added that the CAD remains a major worry for the country’s development, adding that the current year’s economic growth rate will be below India’s potential growth rate of 8%. Finance minister P. Chidambaram however, did not raise import duty on Gold in his budget presentation as was widely expected. He introduced a 0.01% Commodity Transactions Tax (CTT) for Commodity Futures in a limited way from the next fiscal year, and exempted Agro commodities from the CTT. The Finance Minister introduced a string of reforms, opening India to wider foreign investment, cutting deficit-ballooning spending and subsidies to avert a damaging credit rating downgrade to boost corporate spending.

The Commodities Transaction Tax – CTT:
The Finance Bill 2013 proposes to introduce Commodities Transaction Tax (CTT) in a limited way, which is expected to deliver Rs.5000 crores (Rs. 50,000 Million) in government revenue. Finance Minister P. Chidambaram said that CTT shall be levied on non-agricultural commodities future contracts at the same rate as on equity futures, at 0.01% of the price of the trade. Gold, Silver, non-ferrous metals and Crude Oil will attract a 0.01% duty in Commodities Transaction Tax, which applies to buy and sell sides. The trading in commodity derivatives will not be considered as a ‘speculative transaction’, and CTT can be used as a deduction if the income from the transaction forms part of business income. Mr. Chidambaram also said that there is no distinction between derivative tradings in the securities and commodities markets - only the underlying asset is different. Hence, it is time to introduce CTT in a limited way. However, agricultural commodities will be exempt. Some market analysts think that this may have an impact on trading volumes.

India Budget Highlights:

FISCAL DEFICIT

Fiscal deficit seen at 5.2% of GDP in 2012/13.

Fiscal deficit seen at 4.8% of GDP in 2013/14; revenue deficit at 3.3%

Faced with huge fiscal deficit,Indiahad no choice but to rationalize expenditure.

BORROWING

Gross market borrowing seen at 6.29 trillion Rupees in 2013/14

Net market borrowing seen at 4.84 trillion Rupees in 2013/14

Short-term borrowing seen at 198.44 billion Rupees in 2013/14

To buy back 500 billion Rupees worth of bonds in 2013/14

SPENDING

Total budget expenditure seen at 16.65 trillion Rupees in 2013/14

Non-plan expenditure estimated at about 11.1 trillion Rupees in 2013/14

India’s 2013/14 plan expenditure seen at 5.55 trillion Rupees.

Revised estimate for total expenditure is 14.3 trillion Rupees in 2012/13, which is 96 pct of budget estimate.

SUBSIDIES

2013/14 major subsidies bill estimated at 2.48 trillion Rupees from 1.82 trillion Rupees.

Set aside 100 bln Rupees towards spending on food subsidies in 2013/14

Petroleum subsidy seen at 650 billion Rupees in 2013/14

Revised petroleum subsidy for 2012/13 at 968.8 billion Rupees.

Estimated 900 billion Rupees spending on food subsidies in 2013/14

Revised food subsidies at 850 billion Rupees in 2012/13

Revised 2012/13 fertilizer subsidy at 659.7 billion Rupees.

TAX

Proposes surcharge of 10 pct on rich taxpayers with annual income of more than 10 million Rupees a year.

To increase surcharge to 10 pct on domestic companies with annual income of more than 100 million Rupees.

For foreign companies, who pay the higher rate of corporate tax, the surcharge will increase from 2 pct to 5 pct.

To continue 15% tax concession on dividend received byIndiacompanies from foreign units for one more year.

Propose to impose withholding tax of 20 pct on profit distribution to shareholders.

Amnesty on service tax non-compliance from 2007.

10 billion Rupees for first installment of balance of GST (Goods and Services Tax) payment.

Propose to reduce securities transaction tax on equity futures to 0.01 pct from 0.017 pct

Time to introduce commodities transaction tax (CTT)

CTT on non-agriculture futures contracts at 0.01%

GROWTH

India faces challenge of getting back to its potential growth rate of 8%

India must unhesitatingly embrace growth as highest goal.

REVENUE

Expect 133 billion Rupees through direct tax proposals in 2013/14

Expect 47 billion Rupees through indirect tax proposals in 2013/14

Target 558.14 billion Rupees from stake sales in state-run firms in 2013/14

One-time Amnesty Scheme for service tax due from 2007

To set aside Rupees 9,000 crore as compensation to states for CST.

To impose service tax on all AC restaurants.

Nirbhaya Fund for women safety.

TDS of 1% on land / property deals over Rupees 5 million.

Import duty on luxury cars to 100% from 75%

Import duty on imported motor vehicles hiked.

Import duty on set-top boxes to 10% from 5%

To reduce STT on equity futures, MF units.

To continue with education cess of 3%

INFLATION

Food inflation is worrying, will take all steps to augment supply side.

CORPORATE SECTOR AND MARKETS

Plans to issue inflation-indexed bonds.

Proposes capital allowance of 15% to companies on investments of more than 1 bln Rupees.

Foreign institutional investors (FIIs) can use investments in corporate, government bonds as collateral to meet margin requirements.

Insurance, provident funds can trade directly in debt segments of stock exchanges.

FIIs can hedge Forex exposure through exchange-traded derivatives.

Investor with less than 10% stake in a company will be regarded as FII, more than 10% stake as FDI (foreign direct investment).

Stock exchange regulator will simplify know-your-customer norms for foreign portfolio investors.

To implement quickly recommendations of financial sector legislative reforms commission.

SMEs allowed to listed on MSME exchange without making a public offer.

POWER AND ENERGY SECTOR

Proposes zero customs duty for electrical plants and machinery.

Proposes to move to revenue-sharing from profit-sharing policy in oil and gas sector.

To equalize duties on steam and bituminous coal to 2% customs duty and 2% CVD (countervailing duty)

FOREIGN TRADE

To cut duty on exports of precious and semi-precious stones to 2% from 10%

BANKING

To provide 140 billion Rupees capital infusion in state-run banks in 2013/14

Rs 2000 crore for Urban Housing fund.

Regulatory authority for the road sector.

Dedicated debt section in Stock exchanges.

KYC of banks sufficient to acquire insurance policies.

Insurance firms to open branches in tier iii cities with out IRDA approval.

Rs 2000 crore for urban housing fund.

Social security package for unorganized sector

14,000 crore for capital infusion for public sector banks.

Social security package for unorganized sector.

Banks to be permitted to act as insurance brokers.

By Oct 2013 to get approval to constitute panel on transaction costs, financial policies.

India’s first Women’s Bank as public sector bank; Rs 1000 crore as initial capital.

Rs 14,000 crore to public sector banks for additional capital infusion to meet BASEL III requirements by March 2014.

Public sector banks: 12517 crore – additional capital for banks by March 2013.

DEFENCE

To allocate 2.03 trillion Rupees to defense in 2013/14.

AGRICULTURE

To allocate 801.94 billion Rupees to rural development in 2013/14.

Plan to allocate 270.49 billion Rupees for agriculture in 2013/14

FINANCE MINISTER COMMENTS

“Faced with a huge fiscal deficit, I have no choice but to rationalize expenditure. We took a dose of bitter medicine. It seems to be working.”