More continuity than change

Over the years, the Indian budget has ceased to be a mere statement of accounts and has also laid down the broad contours of economic policies to be followed. The NDA government assumed office less than two months before the >presentation of the budget with a promise to overhaul the economy. No doubt, the expectations from the Finance Minister have been unrealistically high. Not just the stock markets but practically everyone had been expecting him to deliver on the election promises of a paradigm shift to boost the economy. Arun Jaitley has done well to emphasise that the measures announced in the budget are only “the beginning of a journey towards a sustained growth of 7-8 per cent or above within the next 3-4 years along with macroeconomic stabilisation that includes lower levels of inflation, lesser fiscal deficit and a manageable current account deficit.” Those words, along with some robust but realistic budget targets and a wide range of allocations to diverse sectors, helped stabilise the markets and earned the Finance Minister appreciation for his maiden effort. Among the noteworthy measures are the move towards a friendlier and more stable tax regime, encouragement to FDI in critical sectors, the focus on infrastructure including power and roads, and the emphasis on removing obstacles to mining.

The challenge before the NDA government was to persist with fiscal consolidation while simultaneously creating more space for desperately needed public investment. The UPA government’s interim budget had set an overly ambitious >fiscal deficit target of 4.1 per cent for the current year. While acknowledging that it would be a daunting task in the backdrop of two years of low GDP growth and the subsidy burden among other factors, the government has retained the target. The fiscal deficit targets for the immediate future are even more challenging, at 3.6 per cent and 3 per cent for 2015-16 and 2016-17 respectively. The revenue deficit is slated to come down to below 3 per cent. Fiscal consolidation over the recent past has been achieved by reduction in expenditure rather than by revenue accretion. Even though the economy is yet to come out of the sub-5 per cent growth trajectory, the budget has targeted an ambitious 17 per cent growth in net tax revenues — from the revised estimate of Rs.8,36,026 crore in 2013-14 to Rs.9,77,258 crore by the year-end. Plan expenditure is budgeted at Rs.5,75,000 crore, an increase of 26.9 per cent over 2013-14. Non-Plan expenditure with additional provision for fertilizer subsidy is slated to go up to over Rs.12,19,892 crore, up from Rs.12,07,900 crore in the interim budget. As expected, the budget is depending heavily on public sector disinvestment to narrow the deficit. The target of over Rs.58,000 crore can be achieved only if the present high valuations in the stock markets continue for the remainder of this year. Recent SEBI rules mandating higher public shareholding for public sector undertakings will no doubt help the government. Expenditure control will remain a priority area. An Expenditure Management Commission to look into various aspects of expenditure reforms has been promised. Its interim report, to be submitted within a year, will be keenly watched.

Much was expected from the budget in rationalising subsidies. The Finance Minister has promised an overhaul of the entire subsidy regime including food and fertilizer subsidies at a future date. The budget has only made minor adjustments in >personal income tax , raising the tax exemption limit by Rs.50,000, from Rs.2 lakh to Rs.2.5 lakh in the case of individuals below 60 years of age, with corresponding increases for senior citizens. The investment limit under Section 80C of the Income Tax Act has been raised to Rs.1.5 lakh from Rs.1 lakh. The deduction limit on loan in respect of self-occupied housing property has been raised. A more conducive tax regime has been promised for infrastructure investment trusts and >real estate investment trusts. There have been no significant changes in indirect taxes either. The “sin” tax on cigarettes, cigars and other tobacco products has been increased. The service tax net is being widened. More than the changes in the rates, it is the emphasis on a friendlier tax regime that is both fair and certain that is noteworthy. The budget announcement on avoiding retrospective taxation is not as categorical as many industry bodies and tax consultants would have expected. The government, while retaining the retrospective changes made in 2012, has decided to get specific cases under the changes scrutinised before proceeding on them. The effort is to move towards a more stable and predictable taxation regime. A similar sentiment is behind the decision to enlarge the scope of advance ruling and generally tone up tax administration. The absence of a more definitive road map for Goods and Services Tax is understandable, but the Finance Minister’s commitment to pursuing it is to be welcomed.

>Foreign direct investment is being encouraged in a wide range of sectors including defence, insurance and real estate and in the development of smart cities. The MGNREGA, a flagship programme of the previous government, will be retained but oriented to works that are more productive, asset-creating and substantially linked to agriculture. Public-private partnerships in infrastructure will receive a boost. A new institution with a corpus of Rs.500 crore will help mainstream PPPs. Freeing infrastructure lending from the constraints of reserve requirements should bring additional resources into the infrastructure sector. While many more sectors are set to receive increased Plan allocations, the overall message of Budget 2014-15 is one of continuity. There has been no directional change, obviously on the reading that none was warranted.

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