Majority of the domestically produced natural gas is priced at $4.2 per mmBtu, one-third of the imported cost. Domestic and international firms have been saying that this cost is unremunerative for undertaking exploration in deeper and risky basins
Finance minister P Chidambaram on Thursday said the pricing policy will be reviewed and uncertainties removed. This comes in the wake of oil firms like BP Plc complaining of artificially low gas rates in the country which is holding back investments.
Majority of the domestically produced natural gas is priced at $4.2 per million metric British thermal unit (mmBtu), one-third of the imported cost. Domestic and international firms have been saying that this cost is unremunerative for undertaking exploration in deeper and risky basins.
Chidambaram, while presenting the Budget for 2013-14, said: “The natural gas pricing policy will be reviewed and uncertainties regarding pricing will be removed.”
A government appointed committee headed by C Rangarajan has suggested pricing domestically produced gas at an average of international hub prices and stripped down cost of imported liquid gas (LNG).
Currently, this average comes to about $8-$8.5 per mmBtu, half-way meeting expectations of companies of being allowed to charge a price equivalent to imported liquefied natural gas (LNG).
Oil minister M Veerappa Moily has already accepted the recommendations and is moving Cabinet for a formal approval.
Chidambaram also said the oil and gas exploration policy will be reviewed to move from profit sharing to revenue sharing contracts.
The cost-recovery model of the New Exploration Licensing Policy (NELP), which allows operators to recover all their investment in successful as well as unsuccessful wells from sale of oil and gas before sharing profits with the government, had come in for strong criticism from the Comptroller and Auditor General of India (CAG).
The CAG felt the cost recovery model incentivises firms to keep raising investment to postpone government’s profits.
To put an end to the controversy, the Rangarajan Committee has suggested moving to a revenue sharing model where companies will have to bid upfront stating the part of the production they will share with the government from the very first day.
The finance minister also said NELP blocks that were awarded but are stalled for defence and other clearances will be cleared soon.
Chidambaram also said a policy to encourage exploration and production of shale gas will be announced.
Further developments in India's economic growth prospects, its external position, fiscal reforms including subsidies and GST, and political climate will determine the medium-term trajectory of the sovereign ratings on India, the ratings agency said
The much-hyped pre-election Budget turned out to be too superficial. What the minister did not say was more important than what he did. A confused stock market, unable to add up the contradictory facts highlighted by the FM, did the best thing it could under the available circumstance: sell
P Chidambaram, the finance minister (FM) was not only trending on social networking site Twitter, but almost everybody interested in money and finance was glued to his Budget speech. Not just taxpayers, but analysts and economists were expecting a bonanza from the FM ahead of the general election. In the end, however, it turned out to be short on facts, leaving everyone confused as to how he will add up the giveaways while creating growth.
“While the finance minister has, we believe, presented a prudent budget, the question is whether the numbers are achievable. Expenditure growth is budgeted to rise 16.4% year-on-year in FY14, from 9.7% in FY13, with a steep rise in plan expenditure. Government expenditure will rise to 14.7% of GDP from 14.3% in FY13. Food subsidies have shot up to Rs90,000 crore due to the Food Security Bill—a prelude to elections, which the government expects to be financed by keeping the oil and fertiliser subsidy burden under check,” said Nomura Financial Advisory and Securities (India) Pvt Ltd, in a note.
Kunj Bansal, chief investment officer of SANLAM India, said, “There are no path-breaking measures in the Budget to push the economic growth of the country and to take it out of its present state of slumber. There has been more focus than expected on populism. The fine-print has created more confusion. It is a missed opportunity which could have been used to present the India story to the world. The positive thing is continuation of taxes without too much tinkering, but some measures to curb parallel economy transactions would have been revenue generating.”
For the SC and ST sub-plans, the FM allocated Rs41,516 crore and Rs24,598 crore, respectively. This represents an increase of 12.5% over the Budget estimate and 31% over the revenue estimate of the current year. “I reiterate the rule that the funds allocated to the sub-plans cannot be diverted and must be spent for the purposes of the sub plans,” the finance minister said.
While allocating Rs3,511 crore for the ministry of minority affairs, the FM also allocated Rs160 crore to Maulana Azad Education Foundation to increase its corpus to Rs1,500 crore during the 12th plan. He also allocated Rs150 crore to launch medical facilities like an infirmary or a resident doctor in educational institutions run by the Foundation.
Chidambaram, in his Budget speech, tried to woo women as well. “Women are at the head of many banks today, including two public sector banks, but there is no bank that exclusively serves women. Can we have a bank that lends mostly to women and women-run businesses, that supports women SHGs and women’s livelihood, that employs predominantly women, and that addresses gender-related aspects of empowerment and financial inclusion?” he asked. The FM then announced of setting up India's first women's bank as a public sector bank and provided Rs1,000 crore as initial capital.
The FM said he hopes to obtain necessary approvals and the banking licence for the women's bank before October 2013. The question is what will a women’s bank achieve? If it was more money to support women through social services, policing and judicial system, it would have made sense. But a bank for and by women? Bizarre idea.
No change in tax slabs
Chidambaram, while keeping the personal income tax rates or slabs unchanged, said, “The rates of personal income tax have survived four finance ministers and four governments. The current slabs were introduced only last year. Hence, I am afraid; there is no case to revise either the slabs or the rates. Nevertheless, I am inclined to give some relief to the tax payers in the first bracket of Rs2 lakh to Rs5 lakh. Assuming an inflation rate of 10% and a notional rise in the threshold exemption from Rs2 lakh to Rs2.20 lakh, I propose to provide a tax credit of Rs2,000 to every person who has a total income up to Rs5 lakh.”
This move is likely to benefit 1.8 crore tax payers to the value of Rs3,600 crore.
Kuldip Kumar, executive director for tax & regulatory services at PwC India, said, “Granting tax rebate of Rs2000 to those earning less than Rs5 lakh hardly means anything, keeping in view the current inflationary environment. Those earning more than Rs1 crore would also get irked as levy of surcharge of 10% on them is just a counter balancing measure without any specific purpose.”
Besides announcing a tax credit, the FM also tried to boost the housing sector. He provided an additional interest benefit of Rs1 lakh on first-time home loans for up to Rs25 lakh.
Calling the Budget as tepid for Indian real estate sector, Anuj Puri, chairman and country head, Jones Lang LaSalle India, said, “...this (Rs1 lakh additional interest benefit) provision is only for the first year and with a carry-forward benefit of the unutilised deduction to the second year. This will help boost housing sales in tier II and III cities and peripheral areas and distant suburbs of metros, but not within the metros, where housing is more targeted towards the mid and upper income segments.”
Gagan Banga, chief executive of Indiabulls, feels that this budget will provide a big relief for affordable home seekers and will be a boon for the housing industry. “The proposal to offer an additional interest deduction of Rs1 lakh on housing loans of up to Rs25 lakh for first-time home buyers will not only help housing as such, but will also lead to an increase in demand for steel, glass, cement and several other industries,” he said.
“While steps like Rs2,000, relief to taxpayers in the Rs2-Rs5 lakh bracket and Rs1 lakh additional relief on home loans of up to Rs25 lakh would certainly put more disposable income—howsoever little—in the pockets of the common man, these were much less than expected. Given continued inflation, there is very little real relief and cheer for the common man,” said Sunil Duggal, chief executive, Dabur India.
Rajiv Gandhi Equity Savings Scheme (RGESS)
In order to incentivise the household sector to save in financial instruments instead of buying gold, the FM allowed first-time investors to invest in mutual funds as well as in listed shares for three consecutive years. He also raised the income limit for RGESS to Rs12 lakh from Rs10 lakh per year.
While the Reserve Bank of India is trying to woo people away from buying gold, the FM increased the duty-free limit for the precious metal. He said, “Gold prices have risen since, and passengers have complained of harassment. Hence, I propose to raise the duty-free limit to Rs50,000 in the case of a male passenger and Rs1 lakh in the case of a female passenger, subject to the usual conditions.”
The baggage rules permitting eligible passengers to bring jewellery was last amended in 1991.
1% TDS on transfer of immovable property
Chidambaram also proposed to levy additional 1% tax deducted at source (TDS) on transfer of immovable property. He said, “Transactions in immovable properties are usually undervalued and underreported. One half of the transactions do not carry PANs of the parties concerned. With a view to improve the reporting of such transactions and the taxation of capital gains, I propose to apply TDS at the rate of 1% on the value of the transfer of immovable property where the consideration exceeds Rs50 lakh. However, agricultural land will be exempt.”
However, according to Mr Puri, charging TDS on gross transaction value instead of net gains would affect sellers. “The TDS of 1%, to be charged on the transfer of immovable property, is an obvious move to curb speculation and bring about improved reporting and accountability in high-value immovable property transactions. Considering that the TDS is to be charged on the gross transaction value rather than net gains, sellers will have a cash-flow impact in situations where the sales are at a loss or at zero or negligible gains,” he said.
Taking note of the changes and shifts in the market regarding Securities Transaction Tax (STT), the finance minister, while reducing the STT, decided to impose transaction tax on commodities trading, except agricultural products. The STT on equity futures is now reduced to 0.01% from 0.017%, mutual fund (MF) and exchange traded fund (ETF) redemptions at fund counters to 0.001% from 0.25% and for MF, ETF purchase or sale on exchanges to 0.001% from 0.1% only on the seller. In other words, STT in derivative segment would be now charged at Rs1,000 per transaction of Rs1 crore, from Rs1720 earlier.
He also proposed to levy Commodities Transaction Tax (CTT) on non-agricultural commodities futures contracts at 0.01% of the price of the trade. He said, “Trading in commodity derivatives will not be considered as a ‘speculative transaction’ and CTT shall be allowed as deduction if the income from such transaction forms part of business income. As I said, agricultural commodities will be exempt.”
While welcoming the step to introduce transaction tax on commodities trading, DK Aggarwal, chairman and managing director of SMC Investments & Advisors, said, “Imposition of CTT on commodity non-agri futures will be a detrimental step for the growing popularity of commodity future as hedging instrument. However, the decision to consider commodity derivative profit and loss as business income against speculative income is a welcome step.”
SUVs to become costlier
Sports utility vehicles (SUVs), the hot favourite, did not find favour with Chidambaram. He said, “SUVs occupy greater road and parking space and ought to bear a higher tax. I propose to increase the excise duty on SUVs to 30% from 27%. However, the increase will not apply to SUVs registered as taxis.”
Indian automakers, especially SUV producers are not happy with the decision. S Sandilya, president of Society of Indian Automobile Manufacturers said, “This is the only segment in the industry which has been doing well this year and increasing price of these vehicles would dampen sales and impact market sentiments further.”
Chidambaram said there is an affluent class in India that consumes imported luxury goods such as high-end motor vehicles, motorcycles, yachts and similar vessels and he was sure that they will not mind paying a little more. He increased the duty on such motor vehicles to 100% from 75%; on motorcycles with engine capacity of 800cc or more to 75% from 60% and on yachts and similar vessels to 25% from 10%.
Welcoming the finance minister's decision to increase duty on imported vehicles, Mr Shandilya, said, “The increase in customs duty for luxury cars and motorbikes seems to be an effort to raise more revenue and to encourage local manufacturing, value addition and employment. The proposal to increase duty on second-hand vehicles to 125% from 100% is the right step. It clearly conveys that India is not ready to accept old vehicles from other countries.”