Yet again, the Finance Minister has made his arithmetic work to achieve the desired number, just as he did in last year's Budget. The fiscal deficit of 4.6% was achieved by controlling spends on Plan expenditure that is likely to impact the pace of economic recovery (curbing non-Plan expenditure is a more prudent approach), rolling-over Rs300bn worth of subsidies to next year and earning ~Rs350bn more than last year from dividends by making PSUs declare larger than usual dividends. The 2014-15 fiscal deficit target of 4.1% hinges on over-stated revenue collections and under-stated subsidy assumptions. A 19% yoy growth in tax revenues is highly unlikely given the slow pace of the economy and an extremely gradual recovery. Restricting subsidies to the same level of 2013-14, especially post roll-over of Rs300bn, is a tough ask. Even the Plan expenditure for 2014-15 has been budgeted at the same level of 2013-14. Quick estimates suggest that the real fiscal deficit number is more likely to be ~5% for 2014-15.  The new Government is bound to relook these estimates on assuming power.

Having said that, the achievement of 4.6% fiscal deficit and with the Current Account Deficit expected to be around $45bn, India may be off the radar of global agencies looking to downgrade the country's rating. Contrary to expectations, there was no relief given to Gold importers. The vote-on-account was largely a non-event barring some sops in terms of excise duty cuts for the manufacturing sectors and automobiles industry.

Excise duty cuts for auto sector: demand booster

Amongst the little that the Finance Minister could do in the Vote on Account, he chose to provide some relief to the ailing automobile sector where demand has fallen to historical lows. The FM cut excise duties extensively across many categories as listed below

These duty cuts will be passed on to the retail customers through price cuts by the OEMs. We expect two-wheelers and passenger cars to be the biggest beneficiaries. CV demand recovery is dependent on easing of macro headwinds such as slow industrial activity, paucity in infrastructure investments and weak mining activity.

• Fiscal deficit for FY14 to be contained at 4.6%, below the budgeted estimate of 4.8%.  FY15 fiscal deficit pegged at 4.1%, lower than the target set by the new fiscal consolidation path.
• FY14 CAD to be contained at US$45bn, sharply below last year's US$88bn
• Subsidies for food, fertilizer and fuel budgeted at Rs2.46tn, marginally higher than the revised estimate for FY14. Rs1.15bn has been allocated for food subsidies taking in to account the implementation of National Food Security Act.
• Rs113bn has been proposed for capital infusion in Public Sector Banks, lower than the current fiscal 
• The target of Rs7tn agricultural credit is likely to be exceeded by the banks in FY14. The target for FY15 set at Rs8tn.
• Interest subvention scheme on farm loans extended for FY15. Effective rate of interest on loans at 4% after subvention of 2% and incentive of 3% for prompt payment.
• Excise duty on capital goods and consumer non-durables lowered from 12% to 10%.
• Excise duty on all categories of mobile handsets restructured. The rates will be 6% with CENVAT credit or 1% without CENVAT credit.
• Custom duty on non-edible grade industrial oils and its fractions, fatty acids and fatty alcohols rationalized to 7.5%
• CVD exemption on specified road construction machinery withdrawn to encourage domestic production.
• Loading and un-loading, packing, storage and warehousing of rice exempted from Service Tax