The Interim Budget: Cheaper Cars And A Big Education Loan Subsidy


Quick notes on the interim budget.

Cars will become cheaper as excise duties will be cut until 30 Jun 2014. For commercial vehicles, small cars and bikes, excise duty goes from 12% to 8%. SUVs get a huge cut as excise goes from 30% to 24%. Mid-segment cars: 24% down to 20%. This is effective immediately (all indirect taxes are applicable from the day of the budget).

Excise duty on certain manufactured items in the capital goods segment like boilers and nuclear power equipment and other such machinery are down to 10% (from 12%) till June 2014. This is such a waste of time because it provides visibility of only three more months!

No service tax on:

  • Cord blood banking services
  • warehousing of rice.

A large bank NPA scam has been education loans. Many such loans have been taken by fraudsters. In fact just public sector banks have seen fraud documents submitted to get loans, and have lost over 8,700 crore as of October 2013. Who bears the cost?

You and me, says Mr. Chidambaram in the interim budget. Education loans given before 31 March 2009 that have outstanding interest as of 31/3/2014, will not have to pay this interest – the government will. (We are already subsidizing all interest for student loans given AFTER 31/3/2009, for students during their study). The subsidy will cost us Rs. 2,600 cr. 

Agri subsidies will continue, with agri-loans getting a 2% interest rate subvention and a 3% incentive.

The “one-rank-one-pension” demanded by retired army personnel has been implemented for the next financial year. The good thing? The FM has provided for that cash from this year’s accounts, and is estimated to cost only Rs. 500 cr.

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The Fiscal Deficit for 2013-14 will be 4.6% of GDP. Current account deficit will only be $45 billion.

For the next year, the food, fertilizer and fuel subsidies will be Rs. 246,000 cr. Of which 35,000 crores is rolled over from the current year. This is a rough estimate and assumes that much of the subsidies won’t be rolled back when there is a new government next year.

Impact: The good thing is that the government seems to have not introduced a lot of bad things. Oh yes, and cars will be cheaper, but that’s only if manufacturers cut retail prices today. They have only increased them in Jan.

The bad thing is the massive education loan subsidy of Rs. 2,600 crore is something I don’t agree with, however small it may seem. In many ways some of the damage is left for the subsequent government (rollover of fuel subsidies, a huge food security bill, cut in excise duties and no real additional revenue).


  1. Regarding the educational loans – the government will pay the outstanding interest liability for the period till December 31, 2013, but the borrower would have to pay interest for the period after January 1, 2014. Deal breaker considering that most borrowers cover the Principal + Interest on a monthly basis. Penalized for paying up regularly?

    • It simply seems to be a bailout of PSU banks as Deepak has pointed out. Why no one in the media points this out promptly, we will never know…

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