Union Budget 2015-16February 28, 2015

Peter Bellini, Associate Director, Head of Public Affairs

“Some flowers have bloomed and someare yet to bloom. The trouble is thereare many thorns in the garden", saidIndia’s Finance Minister in his secondbudget speech. He put forth a budgetaimed at removing hurdles and buildingthe stability and confidence that couldmake it India’s time to bloom.Yesterday’s economic survey certainlytakes the view that it could.

Speaking to investors and the commonman, with specific focus on financialassistance for the electorates of keyupcoming battleground states such asBihar and West Bengal, the FM set aconfident tone. Clearly positioning therole of the central Government to set aframework that will help the states –which will bear the lion’s share of thelifting - make the economy roar again.

The Government has clearly recognisedthree pillars for driving growth –infrastructure building (agriculture, railand roads), competitive & simpler taxmechanisms, and ease of doing

business. But the FM was at pains topoint out that growth in and of itselfwas not enough. Growth should benefiteveryone, ensuring people are lifted outof poverty and that the neo middle classare taken care of. The Government willhope that the announcement of movestowards universal social security, anumber of insurance and healthschemes and a commitment to the ruralemployment guarantee scheme(MGNREGA) will help to diminish thecharge from the opposition that theyare not concerned about the commonman.

In order to deliver the first of the pillarsthe Government is boldly putting itsmoney where its mouth is, by investingin infrastructure to drive growth, withthe hope of building greater confidenceto trigger an investment cycle.

A headline-grabbing cut in corporationtax has been balanced with the removalof exemptions. Service Tax has beenincreased as has the clean energy cesson coal. This Government cannot yetafford to cut taxes. So instead mostinitiatives focus on improving theefficiency and effectiveness of the taxsystem, and removing disincentives togrowth, through many of the measuresannounced today. The continued desireto move forward with GST is testamentto that. The Government has alsoannounced much to crack down on tax

evasion and corruption in moves thatare both necessary to protect theexchequer and popular with theelectorate.

Stability and certainty are key toeconomic confidence. The move todefer the General Anti-Avoidance Rules(GAAR) on taxation, for two years is asignificant marker of the Government’sdesire to end the adversarial tax regimethat is cited by many as a cause ofscepticism towards investing in India.Measures such as extending visas onarrival to more countries, not necessaryto announce in the budget, are signalsto the heightened priority to makeinteracting with, and doing business in,India easier.

Hopes ran high following the BharatiyaJanta Party’s election last year and theGovernment, particularly in light ofelectoral upsets in Delhi, is keen tomanage expectations. In light of thisthe FM’s speech was a steady affair thatset out a framework aimed at buildingthe stability and confidence in theeconomy imperative to growth. Hesought to be clear that, with thisagenda, growth would come about,slowly but surely. Rome wasn’t built ina day, as they say, and we may just haveto wait a little longer for ‘Acche din’(Good days).

• No change in tax slabs. Wealth Tax to beabolished with additional 2 percentsurcharge for the people with income ofover INR 10 million

• Corporate tax to be reduced from 30percent to 25 percent over next four years

• Service Tax increased to 14 percent

Taxation

• Farmers credit targeted at INR 8.5 trillionwith focus on micro-irrigation programme

• NITI Ayog to work on a national unifiedmarket for agriculture

Agriculture

• Push for local manufacturing of defenceequipment

• Job creation through promotion ofdomestic manufacturing and ‘Make inIndia’

Manufacturing

• Set up five ultra-mega power projects,each of 4000MW

• PPP mode of infrastructure to berevisited. Govt. to bear a major part of therisk

• National Investment and InfrastructureFund to be established with overallallocations for infra increased

• Tax-free bonds for projects in rail roadand irrigation

Infrastructure & Roads

Key Budget AnnouncementsKey Policy PointsHassle Free Business Environment:

• New law to promote ease of doing business. An expert committee to prepare a draft legislation for obtaining regulatory clearances

• Creating a non-adversarial tax regime

Governance of Public Sector Banks:

• Autonomous banks board bureau to be established• Micro Units Redevelopment Bank (MUDRA) with a

corpus of INR 200 billion to be established, which will re-finance micro companies

New Law on Black Money:

• Bill to be introduced in parliament with punishment of up to 10 years imprisonment

• Incentivisation of debit and credit card transaction to curb the flow of black money

RBI act and Bankruptcy Law

• A Monetary Policy Committee to work towards maintaining inflation below 6 percent

• A Bankruptcy Code in fiscal 2015-16 to be brought to ease business

Atal Innovation Mission

• To work on research and innovation with the help of entrepreneurs and researchers

Forex conversion (approx.):INR 1 million = USD 16,222 = GBP 10,507

Union Budget 2015-16February 28, 2015

Social Security

Universal Social Security System to be introduced

Welfare programmes such as MGNREGA, rural schemes to continue

New scheme for providing Physical Aids and Assisted Living Devices for senior citizens

Proposal to create Senior Citizen Welfare Fund under the Finance Bill

Easier transfer of cash for INR 103 million beneficiaries using AADHAR under Jan Dhan Yojna Scheme

Accidental death risk cover of INR 200,000 for a premium of just INR 12 per year

INR 50,000 proposed to be provided for contribution to the New Pension Scheme

Forex conversion (approx.):INR 1 million = USD 16,222 = GBP 10,507

newold

12.36%

14%

Service Tax Excise Duty Corporate Tax

newold

12.36%

12.50%

newold

30%

25%

KEY FIGURES

Budget Expenditure FY 15: INR 16.8 trillionFY 16: INR 17.8 trillion

Fiscal Deficit:FY 15: 4.1 per centFY 16: 3.9 per cent

1Centre of film production, animation and gaming to come up in Arunachal Pradesh

6AIIMS

2IITs

2 IIM

Funding for New Institutions

Union Budget 2015-16February 28, 2015

© Edelman India, 2015

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Aradhna Aggarwal,Professor of IndianStudies, Departmentof InternationalEconomics andManagement,CopenhagenBusiness School

“Finance Minister delivers a ‘SuperBudget’, ensures inclusive growth”

What are your views on the UnionBudget 2015-16 presented by theFinance Minister?

The Economic Survey released by theFinance Minister yesterday highlightedchallenges with respect to all threepillars of development, namely,economic, social and environment. Inthe budget presented today, he hasannounced measures to addressing allthree dimensions. Thus the budget isquite comprehensive from thisperspective. There are severalprogressive measures taken by theGovernment to promote growth such associal and health insurance schemes,increased allocations to MGNREGA,setting up of National InfrastructureFund, capital gains tax rationalisation,and impetus to Clean India initiatives.

A good aspect is that no big bang socialschemes have been announced asdoles. They are all linked with growthand will have inclusive growth effect.

This budget has been termed as ‘SuperBudget’ by ‘growth economists’ and hasbeen given a thumbs up by the industry.

What more could have been done?

A selective approach could have beenadopted to promote ‘Make in India’ bydirecting tax benefits to priorityindustries. The Finance Minister shouldhave adopted a focused carrot and stickapproach in industry. Most countries inthe world are focusing on high growthfirms but we still remain in format ofhorizontal approach. There is no pointin extending the benefits to allirrespective of the performance.

There is a cut in royalty fee for the start-ups but in general the domestic R&Dgets no mention. SEZs once again weredropped from the agenda. Thecorporate tax cut process could havebeen started from this fiscal yearonwards.

Finally, I did not see anyannouncements to seal the leakages incorporate tax.

How will it impact businessconfidence?

Much will depend upon theimplementation of the announcementsand the fate of several bills that arestuck in the Parliament. Budget is onlyone aspect of the Governmentfunctioning. I believe that Governmenthas to show performance to buildbusiness confidence. After the SEZ andtax (Vodafone and others) fiasco,investors may not easily be lured.

Do you think this government will beable to deliver what it has promised?

That’s the ultimate measure of successfor any government and this remains tobe seen in the context of the presentGovernment. Modi seems to be a toughman and I would like to believe that hewould be able to deliver. Politicalcompulsions such as impending stateelections may deter him from takingharsh steps to ensure deliverance. Thechances that the Government succumbsto vote bank pressures cannot be fullyignored. Even if it delivers 60 percent ofwhat it has promised, the impact will bevisible.

Overall, I rate it 7 out of 10 and not 8.

Thoughts on the BudgetKanhaiya Singh,Senior Fellow,National Council ofApplied EconomicResearch (NCAER)“Finance Ministerdelivers a ‘SuperBudget’, ensuresinclusive growth”

The fiscal deficit target of 3.9 per cent ispragmatic when matched with theexpected GDP growth rate of 8.5 percent. Achieving the expected growthrate should not be a challenge given thecurrent economic environment withinflation rate in control, reduced oilprices and the reduction in the cost ofdoing business. Additionally, if the

Reserve Bank of India amends itsmonetary policies to offer lowerinterest rates, the growth rate isexpected to receive a further boost.

The increase in service tax is probablyaimed at increasing revenue to meetthe fiscal deficit target. This alsoappears to be a balancing act for theloss of expendable revenue left with thecentral government after increases inshare of states in devolution of centralfund, which now stand at more than 60per cent as compared to about 49 percent earlier.

With respect to taxation, there are nodirect benefits for the middle class.However, incentives have beenintroduced to encourage savings. Thesesavings are expected to fuel theinfrastructure and other investment

plans laid out by the Government. Andwhile the budget provides incentives forsavings, it does not enhance directdisposable income to encourageconsumption.

It is encouraging that the Governmenthas stated the implementation date forGoods and Services Tax (GST) as April2016, however, the budget should havealso provided a detailed roadmap forimplementation. Similarly, the GAAR hasbeen further delayed by two years.

The other key thing worth highlighting isthat the budget has stayed away fromproviding any immediate ‘gifts’ in theforms of tax cuts, and aims to attain far-reaching results through increase ininvestments and productivity.