Budget 2014-15: Prologue to Modi 2014-19
Without pressure
The maiden budget of Modi government presented by the Finance
Minister Arun Jaitely on Thursday, was only a continuation of the rail budget
presented earlier this week. The minister showed no sign of any pressure from
any lobby or economic conditions; though the longest budget speech did
stretched him physically.
Status quo
The minister did not attempt to disturb the status quo on
anything. He skillfully skirted all tricky issues like GST, GAAR, food subsidy,
etc. by avoiding specifics.
Resource constraint
The resource constraint was conspicuous throughout his speech.
He made meager allocations to numerous schemes that have mark of Modi and RSS.
He avoided committing any resource for areas like bank recapitalization and
pledged sub-optimal money for infrastructure development.
Focus on strengths
As we have been repeatedly suggesting, the finance minister
emphasized the need to focus on internal strengths of the economy. He suggested
numerous schemes to harness the economic benefits of Indian cultural heritage,
youth, and tourism potential. Though the schemes are sketchy and resource
allocation abysmal, nonetheless a new beginning has been made.
...and weaknesses too
It is matter of great comfort that besides focusing on
strengths, the government appeared to have identified many key areas of
weaknesses that present immediate challenges to the economy, e.g., water
resources, regional imbalances, power generation and distribution, SME, long
term funding for infra projects, fiscal discipline. Given that this government
is just 6weeks old, it is remarkable to see that it has already set the agenda
for meeting this challenges through concrete measures.
Businesslike approach
The best part of the general budget like rail budget is its businesslike
approach in most matters.
Key highlights
v The
subsidy regime to be made more targeted.
v Convergance
with International Financial Reporting Standard (IFRS) by Indian Companies.
v The
composite cap of foreign investment to be raised to 49 per cent with full
Indian management and control through the FIPB route.
v The
composite cap in the insurance sector to be increased up to 49 per cent from 26
per cent with full Indian management and control through the FIPB route.
v Requirement
of the built up area and capital conditions for FDI to be reduced from 50,000
square metres to 20,000 square metres and from USD 10 million to USD 5million
respectively for development of smart cities.
v 100%
retail allowed for all manufacturing units located in India including through Ecommerce
platforms.
v Bank
capitalization through retail investors. No budgetary provision.
v PSUs
to invest INR2480bn in current fiscal.
v INR71bn
allocation for "100 smart cities" project. Special emphasis on Low
cost housing.
v Complete
pass through status for REITs and INVITs.
v Higher
allocation for rural development including INR144bn for rural roads (PMGSY).
v Special
emphasis on drinking water and sanitation.
v 5
new AIIMS, IITs and IIMs.
v Allocation
for 600 new community radios and Kisan TV channel.
v Present
corpus of Pooled Municipal Debt Obligation Facility facility to be enlarged to
50,000 Crore from ` 5000 crore.
v 4%
sustainable agriculture growth targeted.
v Special
emphasis on employment generation and skill development.
v Schemes
to develop coastal transport, ports, inland water transport and smaller
airports.
v 8500kms
of national highways to be constructed during FY15.
v Emphasis
on augmentation of electricity generation through conventional and renewable
means.
v Necessary
changes in the MMDR Act, 1957 to be introduced to encourage investment in
mining sector and promote sustainable mining practices.
v Financial
Inclusion Mission to be launched on 15 August.
v Fiscal
deficit of 4.1% of GDP and Revenue deficit of 2.9% estimated for FY15 Market
borrowing at Rs46121bn.
Budget highlights –
Financial Markets
v Ongoing
process of consultations with all the stakeholders on the enactment of the Indian
Financial Code and reports of the Financial Sector Legislative Reforms Commission
(FSLRC) to be completed.
v Government
in close consultation with the RBI to put in place a modern monetary policy
framework.
v Introduction
of uniform KYC norms and inter-usability of the KYC records across the entire
financial sector.
v Introduce
one single operating demat account.
v
Uniform tax treatment for pension fund and
mutual fund linked retirement plan.
v Banks
to be permitted to raise long term funds for lending to infrastructure sector
with minimum regulatory pre-emption such as CRR, SLR and Priority Sector
Lending (PSL).
v RBI
to create a framework for licensing small banks and other differentiated banks.
v Differentiated
banks serving niche interests, local area banks, payment banks etc. are contemplated
to meet credit and remittance needs of small businesses, unorganized sector,
low income households, farmers and migrant work force.
v Six
new Debt Recovery Tribunals to be set up.
v Kissan
Vikas Patra (KVP) to be reintroduced.
v A
special small savings instrument to cater to the requirements of educating and
marriage of the Girl Child to be introduced.
v A
National Savings Certificate with insurance cover to provide additional
benefits for the small saver.
v In
the PPF Scheme, annual ceiling will be enhanced to Rs1.5 lakh p.a. from Rs1
lakh at present.
Key tax proposals
v Personal
Income-tax exemption limit raised by ` 50,000/-
v Investment
limit under section 80C of the Income-tax Act raised from Rs1 lakh to Rs1.5lakh.
v Deduction
limit on account of interest on loan in respect of self occupied house property
raised from Rs1.5 lakh to Rs2 lakh.
v Investment
allowance at the rate of 15 percent to a manufacturing company that invests more
than Rs25 crore in any year in new plant and machinery. The benefit to be available
for three years i.e. for investments upto 31.03.2017.
v Investment
linked deduction extended to two new sectors, namely, slurry pipelines for the
transportation of iron ore, and semi-conductor wafer fabrication manufacturing units.
v 10
year tax holiday extended to the undertakings which begin generation, distribution
and transmission of power by 31.03.2017.
v Income
arising to foreign portfolio investors from transaction in securities to be
treated as capital gains.
v Concessional
rate of 15 percent on foreign dividends without any sunset date to be continued.
v It
is proposed to include the investment linked deduction u/s 35AD within the
ambit of alternate minimum tax (AMT) after making adjustment for depreciation.
v Any
advance received by the seller during the course of negotiations for transfer
of capital assets if the transfer does not take place and such amount is
forfeited, to be taxes as Income from other sources.
v Income
from sale purchase of shares of the companies whose primary business is dealing
in shares etc. to be treated business income and not speculative income as per
the explanation to s 73.
v Rate
of tax on long term capital gains increased from 10 percent to 20 percent on
transfer of units of Mutual Funds, other than equity oriented funds. Indexation
benefits will not be available on capital gains from these funds.
v Income
and dividend distribution tax to be levied on gross amount instead of amount paid
net of taxes.
v TDS
@2% on taxable receipts in respect of life insurance policies.
v In
case of non deduction of tax on payments, 30% of such payments will be
disallowed instead of 100 percent.
v To
boost domestic manufacture and to address the issue of inverted duties, basic customs
duty (BCD) reduced on certain items.
v The
scheme of Advance Ruling in indirect taxes to be expanded to cover resident private
limited companies. The scope of Settlement Commission to be enlarged to facilitate
quick dispute resolution.
Budget Estimates
v Non-plan
Expenditure of ` 12,19,892 crore with additional provision for fertilizer subsidy
and Capital expenditure for Armed forces.
v Rs.5,75,000
crore Plan expenditure – increase of 26.9 per cent over actuals of 2013-14.
v Plan
increase targeted towards Agriculture, capacity creation in Health and
Education, Rural Roads and National Highways Infrastructure, Railways network
expansion, clean energy initiatives, development of water resources and river
conservation plans.
v Total
expenditure of Rs.17,94,892 crore estimated.
v Gross
Tax receipts of ` 13,64,524 crore estimated.
v Net
to centre of ` 9,77,258 crore estimated.
v Fiscal
deficit of 4.1% of GDP and Revenue deficit of 2.9% estimated.
v Allocation
of ` 53,706 crore for North East Regions.
|
|
FY14RE
|
FY15BE
|
Change
|
|
Gross Tax Revenue
|
1158906
|
1364524
|
18%
|
|
Corporation
Tax
|
393677
|
451005
|
15%
|
|
Taxes
on Income
|
241691
|
284266
|
18%
|
|
Wealth
Tax
|
950
|
950
|
0%
|
|
Customs
|
175056
|
201819
|
15%
|
|
Union
Excise Duties
|
179538
|
207110
|
15%
|
|
Service
Tax
|
164927
|
215973
|
31%
|
|
Taxes
on Union Territories
|
3067
|
3401
|
11%
|
|
Non Tax Revenue
|
193226
|
212505
|
10%
|
|
Total Revenue Receipts
|
1029252
|
1189763
|
16%
|
|
Capital Receipts
|
| ||
|
Miscellaneous Capital Receipts
|
25841
|
63425
|
145%
|
|
Market Loans
|
453902
|
461205
|
2%
|
|
Other receipts
|
66439
|
63339
|
-5%
|
|
Total Capital Receipts (A+B)
|
546182
|
587969
|
8%
|
|
Non Plan Expendirure
|
1114902
|
1219892
|
9%
|
|
Revenue
|
1027688
|
1114609
|
8%
|
|
Capital
|
87214
|
105283
|
21%
|
|
Plan Expendirure
|
475532
|
575000
|
21%
|
|
Revenue
|
371851
|
453503
|
22%
|
|
Capital
|
103681
|
121497
|
17%
|
Fiscal roadmap
Assumptions
v Projections
for 2014-15 have been made taking into account a realistic economic recovery
and continuation of set of tax measures announced in the budget for 2013-14. It
is also expected that reforms in the administrative machinery oriented towards
strict implementation will yield result.
v This
will require an average tax growth of 17.7% which would be possible through a
combination of better tax effort.
v The
fiscal plan outlined in this document will have to be redesigned if the 14th Finance
Commission changes the State share.
v Certain
one-time receipts budgeted in 2014-15 will not be available in 2015-16 and
2016-17. With regard to dividends from PSUs, the policy of the Government would
be to enable them in investing their retained earnings in their capital projects.
However, in the absence of any concrete capital investment plan PSUs should pay
their cash surpluses as dividend to Government and other share holders. From
telecom sector it has been assumed that renewal of licenses issued for 20 years
earlier will come up for renewal during the projection period.
v The
amount estimated under disinvestment works out to be Rs.63,425 crore for general
budget 2014-15. Sale of SUTTI shares is estimated at Rs6500crores. Over the
medium term frame work, an amount of Rs.55,000 crore has been estimated for the
years 2015-16 and 2016-17.
v Total
borrowings requirement for 2014-15 has been budgeted at `6,00,000 crore or 4.7 per
cent of GDP. Net market borrowings of `4,61,205 crore has been budgeted to
finance 86.8 per cent of the fiscal deficit.
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