Change of Reigns in China: Xi Jinping Takes Over as Country’s President, Military Commission Chief; Li Keqiang Becomes Nation’s Premier

Xi Jinping emerged as China's most powerful leader in decades after he was named President and head of the powerful Military Commission on March 14. He was also named chief of the ruling Communist Party, smoothly completing a 10-yearly transition of power in the world's second-largest economy. Officially, Xi is being elected for a five-year term, but barring extraordinary events the 59-year-old president will hold the position for a decade.

In addition to being the general secretary of the Communist Party of China (CPC), which effectively rules the country, Xi has been appointed as the chairman of the powerful Military Commission, when he was elected as the new leader of the party in November 2012.

According to an official announcement here, Xi was elected as president by 3,000-strong National People’s Congress, which also endorsed his appointment as the chairman of the Military Commission.

The Military Commission supervises 2.3 million-strong and the world’s largest standing army called People’s Liberation Army (PLA), incorporating Army, Navy and Air Force.

Xi’s election a formality as the NPC, dominated by the CPC functionaries completed the once-in-a-decade power transfer from the administration headed by Hu, 70, who along with team of leaders including premier Wen Jiabao formally retires.

With today’s election Xi has emerged as the most powerful leader in China as heads the country, CPC and the Military.

The NPC also elected Li Yuanchao, a reformist and Politburo member of the CPC, as vice president. Yi who was reportedly picked by Xi ignoring pressures within the factions to energize the economic reform process to revitalize slowing economy.

Widely regarded as smooth transfer of power, Xi along with seven member standing committee of the CPC which virtually rules the country completed over 100 days in the leadership running various public campaigns against corruption, austerity both in the government and military and revamping the administration by cutting down size of cabinet.

Election of New Prime Minister

China’s annual Parliament confirmed Li Keqiang as the country’s new prime minister to replace Wen Jiabao on March 15, who retires after a decade in the post. Approximately 3,000 delegates to the National People’s Congress, the ruling Communist Party’s nominal state Parliament, endorsed Li’s recommendation by the party.

Li was nominated to the Congress by state president. He won 99.7 per cent of the 2,949 votes counted, with just three votes against him and six abstentions

Profile of New President

Xi is the son of one of China's most esteemed generals and known as a "princeling", the name given to relations of China's first generation of Communist leaders, who grew up immersed in the ruling party's upper echelons. But he has threatened to target not only lowly "flies" but also top-ranking "tigers" in corruption crackdowns, warning that graft could "kill the party".

Born in Beijing in 1953, Xi Jinping is the son of revolutionary veteran Xi Zhongxun, one of the Communist Party's founding fathers.

Xi Zhongxun was purged from the post of vice-premier in 1962 prior to the Cultural Revolution and eventually imprisoned.

The younger Xi was then sent aged 15 to work in the remote village of Liangjiahe for seven years, like most other "intellectual youth" of the time.

A local village official who knew Xi at that time described him as "very sincere and honest", adding that he was just like one of them "so everybody liked him very much".

Xi has acknowledged that this time spent working alongside villagers was a key experience for him.

He went on to study chemical engineering at Tsinghua University in Beijing, which has produced many of China's current top leaders, including Hu Jintao.

Accepted into the party in 1974, Xi served as a local party secretary in Hebei province and then went on to ever more senior roles in Fujian and then Zhejiang provinces.

He was named party chief of Shanghai in 2007 when its former chief, Chen Liangyu, was sacked over corruption charges. Shortly after, he was promoted to the party's Standing Committee and became vice-president in 2008.

Challenges Ahead

In November 2012, in his first speech to the Communist Party’s elite Politburo,.Xi denounced the prevalence of corruption and said officials needed to guard against its spread or it would “doom the party and the state.”

In following month of the same,. Xi made his first trip outside of Beijing with a visit to special economic zone of Shenzhen in south China that has stood as a symbol of the nation’s embrace of a state-led form of capitalism. Xi’s trip was seen as a strong signal of support for greater market-oriented economic policies.

The new Chinese president is well-traveled and intimately familiar with the West. His daughter attends Harvard, and he is said to enjoy Hollywood films about the Second World War.

Hu, a onetime hydroelectric power technician, worked his way up through jobs in China’s hardscrabble interior. The new Chinese president is the son of a Communist Party aristocrat, Xi Zhongxun, who was present at the birth of China’s turn to capitalism and helped develop the special economic zone of Shenzhen.

Assessment

The Presidency coupled with the post of the chairman of the Military Commission which supervises 2.3 million-strong world's largest standing military, People's Liberation Army (PLA), gives him a head start to begin his 10-year stint in power.Hu got the post of head of the military from Jiang Zemin two years after he took over as the president.

While retiring, Hu ensured that the head of the country and the party has single power structure to ensure stability. Seen as having a zero-tolerance attitude towards corrupt officials, Xi has twice been drafted in to trouble-shoot major problems.

In Fujian, he helped to clear up a corruption scandal in the late 1990s which involved the jailed smuggling kingpin Lai Changxing.

Xi takes charge at a time when the public is looking for leadership that can address sputtering economic growth and mounting anger over widespread graft, high-handed officialdom and increasing unfairness. A growth-at-all-costs model that defined the outgoing administration's era has befouled the country's air, waterways and soil, adding another serious threat to social stability.

Union Budget 2013-14: Focuses on Economic Growth, Middle Class To Pay More

Finance minister P. Chidambaram presented the Union Budget for 2013-14 in the Parliament on February 28. It was Chidambaram's eighth annual budget, the second highest by anyone in India after a record ten by former Prime Minister Morarji Desai. Overall, it was 82nd Union Budget in the Indian history, including interim and special-situation budgetary proposals, since the first one of independent India was presented by then finance minister R.K. Shanmukham Chetty on November 26, 1947.

Individually, Chidambaram presented the Union Budget for the eighth time, the second-highest by any finance minister. The maximum number of 10 budgets have been presented by Morarji Desai, while Pranab Mukherjee (currently President of the country), Yashwant Sinha, Y.B. Chavan and C.D. Deshmukh have presented seven budgets each in the past.

Plan Outlay

The finance minister has proposed a 29.4 percent hike in the plan expenditure for the union budget 2013-14. The plan expenditure for the next fiscal will be about Rs.5.53 lakh crore, the finance minister said.

The budget expenditure is Rs.16,65,297 crore and the plan expenditure is Rs.5,55,322 crore," Chidambaram said, adding that the plan expenditure in 12th Five-Year Plan was revised to Rs.14,30,825 crore or 96 percent of budgeted expenditure.

Growth Rate

India’s economic growth, as per official estimates, decelerated to 5 percent and 6.2 percent in the past two years, from 8.6 percent and 9.1 percent in the two years preceding them. Chidambaram said the Indian economy was today constrained by three factors: high fiscal deficit, slow growth and high inflation.

The finance minister said a whopping Rs.16.65 lakh crore (Rs.16.65 trillion or nearly $300 billion) would be spent under plan expenditure during 2013-14, which will be 30 percent higher than the outlay for this fiscal.

Fiscal Deficit

While doing a shade better than the targeted fiscal deficit of 5.3 percent of Gross Domestic Product (GDP) at 5.2 percent for the current fiscal, the finance minister has stuck to his target of 4.8 percent of GDP for 2013-14, even while stepping up defense allocation by 14 percent over the revised estimates in the current fiscal.

Similar hikes have been proposed in various sectors. although it is clear that he managed to create a cushion through compression in spending during the current financial year. Expenditure under several key heads, including roads and rural housing actually fell in the current fiscal compared to the previous year.

Tax Rates

The 2013-14 Budget proposed a tax cut of Rs.2,000 for people earning an annual income of between Rs.200,000 and Rs.500,000 and said anything beyond that was not possible given the current circumstances. The finance minister said any hike in the exemption limit for direct tax that is paid by individuals would take millions out of the tax net and was neither a desirable proposition, nor feasible. Accordingly, he proposed a Rs.2,000 tax credit for those in the first slab. This measure will benefit 1.8 crore (18 million) tax payers," he said, adding that this would entail an outgo of Rs.3,600 crore ($650 million) to the exchequer.

The finance minister sought to kick-start the engines of growth by providing incentives for productive investment, stepping up expenditure in social sectors to invigorate the economy in the longer term and giving a token tax break at the lowest slab rate to offset the inflationary burden on the middle class.

The Budget proposed to levy a surcharge of 10 percent on individuals whose annual taxable incomes exceed Rs.1 crore. The surcharge will be levied for the 2013-14 financial year. The finance minister said there are only 42,800 individuals in the country who will be liable to pay the surcharge.

To provide for the various increased allocations, the finance minister moved to tap the well-heeled by way of a one-year surcharge of 10 percent on the ‘super rich’ section of tax payers – all 42,800 of them, that is — along with duties on imported or domestic luxury vehicles such as SUVs, mobile phones (priced over Rs. 2,000), and what has been the tax horse of most Finance Ministers —cigarettes. With other minor tinkering of duties, including Tax Deducted at Source (TDS) on sale of property worth Rs. 50 lakh, the net additional tax revenue in the kitty works out to Rs. 18,000 crore.

However, given the challenges that he faced by way of low growth, high inflation, the widening fiscal and current account deficits coupled with lower than targeted revenue collection during 2012-13, Chidambaram may have disappointed taxpayers looking for some major breaks. But he did provide a tax break of Rs. 2,000 to individual tax payers with taxable income of up to Rs. 5 lakh. This itself is estimated to benefit 1.8 crore tax payers and work out to a revenue sacrifice of Rs. 3,600 crore. Likewise, first-time buyers of affordable homes will get an additional deduction of interest of Rs. 1 lakh for home loans up to Rs. 25 lakh, which will be over and above the current Rs. 1.5 lakh deduction allowed for self-occupied dwellings.

Defense Allocation

The government has marginally increased its defense spending by 5.31 percent than 2012-13. The defense budget for 2013-14 starting April 1 will be Rs 2,03,672 crore, an increase of Rs 1,93,407 crore more from the 2012-13 budget.

The revised budget after the mid-fiscal cut was Rs 1,78,504 crore in December 2012. The hike is 14.10 percent, much lower than last year’s 17.6 percent hike. Also the share of defense spending in the GDP will be reduced from 1.9 percent for the year ending March 31 to 1.79 percent of the GDP. The share of defense spending in the overall expenditure will be 10 percent of government expenses, a decrease of 11 percent this year.

Finance Minister P. Chidambaram said that India plans to spend up to 2.03 trillion rupees ($37.7 billion) on defense next year, up from a revised 1.78 trillion rupees this year.

The finance minister said 867.41 billion rupees will be spent to buy defense equipment in the next fiscal year, up from this year's about 695.79 billion rupees. The government had originally planned to spend 795.78 billion rupees on purchasing defense equipment this year.

Despite the cut in this year's defense budget, India will become the world's fourth-largest defense spender by 2020, behind the United States, China and Russia, and surpassing France, Japan and the United Kingdom. It is predicted that India's defense spending will reach $65.4 billion in 2020.

Boost to Agriculture

Finance Minister P Chidambaram hiked the agriculture budget by 22 percent, increased farm credit limit to small and marginal farmers from Rs 5,75,000 crore to Rs 7,00,000 crore in 2013-14 and announced setting up “nutri-farms” pilot project.

The sector got a major boost, in line with the UPA’s ambitious food security Bill (which got an allocation of Rs 10,000 crore) and the next general election, as sufficient sops have been announced for farmers in the Budget.

Also for the first time perhaps, the government set aside separate funds - Rs 500 crore - to start a program on crop diversification.

Education Sector

The Union Budget set aside a budget of Rs 79,451 crore for the entire education sector, including literacy and higher and technical education. This represents a meagre Rs 5,395 crore increase over the budget estimate of Rs 74,056 crore for the Ministry of HRD in the last financial year. The hike constitutes 7.2 percent over 2012-13, whereas last year the increase for the education sector budget was a handsome 18.6 percent. Expenditure on education as a proportion of the GDP has increased from 2.59 percent in 2007-08 to 3.31 percent in 2012-13.

The Plan Budget is Rs 65,869 crore which is Rs 4,442 crore more than Rs 61,427 crore in last fiscal. It will certainly ask for more money with the Right to Education Act (RTE) in mind.

The budget for school education is Rs 49,659 crore which is only 8 percent more than last year. The allocation for the Sarva Shiksha Abhiyan (SSA) is up from Rs 25,500 crore last fiscal to Rs 27, 258 this year an increase of Rs 1,758 crore which is very low considering SSA is the main vehicle to implement the RTE Act. Midday Meal Scheme has been allocated Rs 13,125 crore as against Rs 11,937 crore last year, an increase of Rs 1,260 crore.

Skill Development of Youth

The 2013-14 Budget has allocated Rs.1,000 crore to develop job-oriented skills among youth. Assuming that 10 lakh (one million) youth can be motivated in one year, skill trained youth will give enormous boost in employment and productivity," Chidambaram said, while presenting the federal 2013-14 budget to the Lok Sabha, the lower house of parliament.

The finance minister allocated Rs.1,000 crore (Rs.10 billion) for the "ambition", saying that it would be a "trigger for skill development in the country".

Infrastructure

Infrastructure got a major thrust in the 2013-14 budget with Finance Minister P. Chidambaram announcing a slew of measures to boost sector's growth, like raising Rs 50,000 crore through taxfree bonds and setting up of major ports.

In some other decisions which would boost the infrastructure development in the country, the government also said that it would set up a road regulatory authority in the financial year 2013-14 to address financial stress, construction risk and contract management in the road sector and start work on two more industrial corridors between Bangalore and Chennai and Bangalore and Mumbai.

"The power transmission system from Srinagar to Leh will be constructed at the cost of Rs 1,840 crore, Rs 226 crore provided in current budget," Chidambaram said in his budgetary proposals for next fiscal.

In a move that is also strategic for the region, the proposed 220 kV line from Srinagar to Leh, to be implemented by Power Grid Corp, will pass through Kargil, Drass, Khalsi and is aimed at enhancing the reliability of power supply.

Highlights

* Fiscal deficit for 2013-14 pegged at 4.8 percent of GDP and 5.2 percent in 2012-13

* Plan expenditure pegged at Rs. 5,55,322 crore and Non-Plan at Rs. 11,09,975 crore

* New taxes to collect Rs. 18,000 crore for government

* Voluntary Compliance Encouragement Scheme launched for Recovering service tax dues

* Rs 14,000 crore earmarked for capital infusion in public Sector banks in 2013-14

* Refinance capacity of SIDBI raised to Rs. 10,000 crore

* TUF Scheme for textile sector to continue in 12th Plan With an investment of Rs. 1.51 lakh crore

* No change in income tax slabs

* Relief of Rs. 2,000 for tax payers in tax bracket of Rs2-5 lakh

* Ten percent surcharge on persons with taxable income of over Rs. 1 crore

* Tobacco products, SUVs and mobile phones to cost more

* Income limit under Rajiv Gandhi Equity Savings Scheme Raised to 12 lakh from Rs. 10 lakh

* First home loan of up to Rs. 25 lakh to get extra Interest deduction of up to Rs. 1 lakh

* Duty free limit of gold import increased to Rs. 50,000 For male passengers and Rs. 1 lakh for female passengers

* India’s first women’s bank to be set up by October

* Concessional six percent interest on loans to weavers

* Commodity transaction tax of 0.01 percent proposed on non-agri futures traded on commodity bourses

* Securities transaction tax brought down to 0.01 percent

* No change in basic customs duty; normal excise and Service tax rates unchanged at 12 percent

* Handmade carpets and textile floor coverings of coir or jute exempted from excise duty

* Excise duty on SUVs increased to 30 percent from 27 percent

* Chidambaram says India to become $5 trillion economy, And among top five in the world by 2025

* Rashtriya Swasthya Bima Yojana benefit extended to Rickshaw pullers, auto and taxi drivers, among others

* ‘Nirbhaya Fund’ of Rs. 1,000 crore to empower women and Provide safety in the wake of Delhi gang rape incident

*Rs 9,000 crore earmarked as first installment of balance of CST compensation to states

* Defense allocation at Rs. 203,672 crore, education Rs. 65,867 crore and rural development ministry Rs. 80,194 crore

* Rs 10,000 crore earmarked for national food security toward incremental cost

* Farm credit target set at Rs. 7 lakh crore as against Rs. 5.75 lakh crore in 2012-13

* Direct benefit transfer scheme to be rolled out in the entire country during tenure of UPA government

Assessment

At first glance, the budget may appear harmless to the middle-class. In fact, it might even appear friendly what with all those improvements in housing loan deductions and stock market investments. But make no mistake, this budget will bite the average citizen in more ways than one.

Just take the seemingly innocuous proposal to impose service tax on all air-conditioned restaurants. With most decent restaurants — we are not talking of the up-market ones here — climate-controlled, eating out will become at least another 12 percent more expensive. Remember that restaurants are in the process of revising their price-lists even now with rising prices of food commodities.

Cellular phones are now a necessity and smart phones are increasingly becoming so as they help you do your daily business on the go. As much as 97 percent of all telephone connections in the country are cellular. Yet, smart phones (or phones that cost more than Rs.2,000) will now become pricier with the sharp rise in excise duty to 6 percent from 1 percent. In addition to driving business to the grey market, this proposal will also undo the efforts to push people into using their mobiles extensively for transactions.

It can be said that it must not be forgotten that the finance minister appears to have placed enormous trust in the growth figures going northward in the coming months, and with that he hopes the revenues will follow. After all, by not changing the income tax slabs or too significantly altering the indirect tax proposals which previously existed, Chidambaram hopes to mop just under Rs18,000 crore from his new tax proposals.

However, since that is far less than what the Government needs to meet its expenditure, the Minister is banking heavily on upward economic growth to trigger revenue generation. But growth has dipped from a high of nine percent only a few years ago to around five percent now. While the Minister hopes for a turnaround to six percent and above, there remains a big ‘if'.