Budget 2015-16 marks the dawn of ‘Co-operative federalism’ and empowerment of the States. The creation of National Institution of Transforming India (NITI) and acceptance of 14th Finance Commission’s (FFC) recommendation of substantially higher devolution of Union taxes to States are landmarks in this direction. This Budget marks the beginning of the award period (2015- 2020) of the FFC during which States will be devolved 42% of the divisible pool of Union taxes from existing 32%. This enhanced untied resource available to the States would
enable them to address their specific needs through flexibility in design,implementation and financing of Programmes and schemes. This is expected to bring in high growth and faster development of different regions of
the country contributing to overall National growth. The idea is to build ‘Team India with stronger States’. The
Government firmly believes that “India grows when States grow”.
India’s Finance Minister Arun Jaitley announced a budget aimed at high growth, saying the pace of cutting the fiscal deficit would slow as he seeks to boost investment and ensure that ordinary people benefit.
Development, Development of Ayurveda, Yoga, Sidha and Homeopathy, Export Promotion, Industrial Corridor Development, Development of North East, Drinking Water and Sanitation, Health and Family Welfare, Health Research, AIDS Control, School Education, Higher Education, Renewable Energy, Science and Technology, Biotechnology, Shipping, Social Justice and Empowerment, Disability Affairs, Tribal Affairs and Urban Development, have either been retained or increased.
To give a major boost to infrastructure development allocation for Roads and Railways sector have been significantly enhanced. Similarly, allocation for Delhi–Mumbai Industrial corridor (DMIC) has been almost doubled. Resources have been targeted towards Pradhan Mantri Krishi Sinchai Yojana, Rural Electrification and Sagar Mala
Project.
The enhanced financial empowerment on account of higher devolution also entails greater responsibility to States in using these resources for Socio-economic development. States will have greater flexibility in designing and running Programmes and Schemes as per local requirements and conditions. Government has decided that it will continue to support State Plans of national priorities especially those which are targeted towards Poverty Alleviation and upliftment of socially disadvantaged groups. Centre will play a catalytic role in Socio-economic development by contributing resources to these Programmes.
Central Government will continue certain programmes unaltered as they are either legal/constitutional obligations, or are privileges available to the elected representatives for welfare of their constituents. Further, and more importantly it is proposed that the Union Government may continue to support certain programmes which are for the benefit of socially disadvantaged in an unaltered manner from its own resources.
FINANCE MINISTER’S COMMENTS
“We inherited a sentiment of doom and gloom. The investment community had almost written us off. We have come along way since then.”
“We have turned around the economy, dramatically restoring macroeconomic stability and creating the conditions for sustainable poverty elimination, job creation, durable double digit economic growth.”
“While being mindful of the challenges … this gives us reason to feel optimistic.”
“Domestic and international investors are seeing us with renewed interest and hope.”
Here are the highlights of Jaitley’s budget for the fiscal year that begins on April 1.
FISCAL DEFICIT
Fiscal deficit seen at 3.9 percent of GDP in 2015/16.
Will meet the challenging fiscal target of 4.1 percent ofGDP.
Remain committed to meeting medium term fiscal deficit target of 3 percent of GDP.
Current account deficit below 1.3 percent of GDP.
Jaitley says have to keep fiscal discipline in mind despite need for higher investment.
GROWTH
GDP growth seen at between 8 percent and 8.5 percent y/y.
Nominal economic growth seen between 11 and 12 percent.
Aiming double digit growth rate, achievable soon.
INFLATION
Expects consumer inflation to remain close to 5 percent by March, opening room for more monetary policy easing.
Monetary policy framework agreement with the RBI clearly states objective of keeping inflation below 6 percent.
“One of the achievements of my government has been to conquer inflation. This decline in my view represents a structural shift.”
REVENUES
Revenue deficit seen at 2.8 percent of GDP.
Non tax revenue seen at 2.21 trillion rupees.
Agricultural incomes are under stress.
Net receipts under market stabilisation scheme estimated at 200 billion rupees.
DISINVESTMENT
Government targets 410 billion rupees ($6.7 billion) from stake sales in companies in 2015/16.
Total stake sale in 2015/16 seen at 695 billion rupees.
Sets stake sale target for 2016/17 at 550 billion rupees
Revises down stake sale target for 2014/15 to 313.5 billion rupees.
MARKET REFORMS
Propose to merge commodities regulator with SEBI.
To bring a new bankruptcy code.
Jaitley says will move to amend the RBI act this year, and provide for a monetary policy committee.
To set up public debt management agency.
Proposes to introduce a public contract resolution of disputes bill.
To establish an autonomous bank board bureau to improve management of public sector banks.
POLICY REFORMS
To enact a comprehensive new law on black money.
Propose to create a universal social security system for all Indians.
To launch a national skills mission soon to enhance employability of rural youth.
To raise visa-on-arrival facility to 150 countries from 43.
Allocates 346.99 billion rupees for rural employment guarantee scheme.
Raises threshold for application of transfer pricing rules to 200 million rupees from current 50 million rupees.
BORROWING
Gross market borrowing seen at 6 trillion rupees.
Net market borrowing seen at 4.56 trillion rupees.
GENERAL ANTIAVOIDANCE RULES (GAAR)
Government defers rollout of antitax avoidance rules GAAR by two years.
GAAR to apply prospectively from April 1, 2017.
Retrospective tax provisions will be avoided.
TAXATION
To abolish wealth tax.
Replaces wealth tax with additional 2 pct surcharge on super rich.
Proposes to cut to 25 percent corporate tax over next four years.
Corporate tax of 30 percent is uncompetitive.
Net gain from tax proposals seen at 150.68 billion rupees.
Jaitley proposes modification of permanent establishment norms so that the mere presence of a fund manager in India would not constitute a permanent establishment of the offshore fund, resulting in adverse tax consequences.
Proposes to rationalise capital gains tax regime for real estate investment trusts.
Extends withholding tax concession on foreign debt purchases by two years.
Expects to implement goods and services tax by April 2016.
To reduce custom duty on 22 items.
Basic custom duty on commercial vehicle doubled to 20 percent.
Proposes to increase service tax rate and education cess to 14 percent from 12.36 percent.
Plans to introduce direct tax regime that is internationally competitive on rates without exemptions.
Exemptions for individual tax payers to continue.
To enact tough penalties for tax evasion in new bill.
Tax dept to clarify indirect transfer of assets and dividend paid by foreign firms.
PERSONAL INCOME TAX
No revision of income tax brackets.
Limit of deduction of health insurance premium increased to 25,000 rupees from 15,000 rupees; limit increased to 30,000 rupees
from 20,000 rupees for the elderly.
People aged above 80 and not covered by health insurance to be allowed deduction of 30,000 rupees for medical expenses.
Additional deduction of 25,000 rupees for the disabled.
Limit on deduction for contributions to pension fund and new pension scheme increased to 150,000 rupees from 100,000 rupees.
Additional deduction of 50,000 rupees for contribution to new pension scheme under section 80CCD.
Monthly transport allowance exemption doubled to 1,600 rupees.
IMPORT TAX
Import tax on iron and steel increased to 15 percent from 10 percent.
Import tax on metallurgical coke increased to 5 percent from 2.5 percent.
INFRASTRUCTURE
Investment in infrastructure will go up by 700 bln rupees in 2015/16 over last year.
Plans to set up national investment infrastructure fund.
Proposes tax-free infrastructure bonds for projects in roads, rail and irrigation projects.
Proposes 5 “ultra mega” power projects for 4,000 MW each.
Second unit of Kudankulam nuclear power station to be commissioned.
Will need to build additional 100,000 km of road.
Ports in public sector will be encouraged to corporatize under Companies Act.
EXPENDITURE
Plan expenditure estimated at about 4.65 trillion rupees.
Non-plan expenditure seen at about 13.12 trillion rupees.
Allocates 2.46 trillion rupees for defence spending.
Allocates 331.5 billion rupees for health sector.
If revenue improves, hope to raise budgeted allocations for rural job scheme by 50 billion rupees.
INVESTMENT
Government to provide 79.4 billion rupees capital infusion to state-run banks.
Propose to do away with different types of foreign investment caps and replace them with Composite caps.
To allow foreign investment in alternative investment funds.
Public investment needed to catalyse investment.
GOLD
To launch gold deposit accounts and sovereign bond.
Import duty stays at 10 percent; disappoints jewellers.
To work on Indian-made gold coin to cut imports.
CIGARETTES
Raises excise duty on cigarettes by 25 percent for cigarettes of length not exceeding 65 mm.
Raises excise duty by 15 percent for cigarettes of other lengths.
SUBSIDIES
Food subsidy seen at 1.24 trillion rupees.
Fertiliser subsidy seen at 729.69 billion rupees.
Fuel subsidy seen at 300 billion rupees.
Major subsidies estimated at 2.27 trillion rupees.
We are committed to subsidy rationalisation based on cutting leakages.
Some of the challenges mentioned by the Finance Minister are: poor agricultural income, decline in manufacturing and the need for fiscal discipline.
Sector – Wise Highlights:
1. Taxation
Abolition of Wealth Tax.
Additional 2% surcharge for the super rich with income of over Rs. 1 crore to fetch Rs. 9000 crore.
Rate of corporate tax to be reduced to 25% over next four years.
No change in tax slabs.
Total exemptions of up to Rs. 4,44,200 can be achieved.
100% exemption for contribution to Swachh Bharat, Clean Ganga projects apart from CSR.
Service Tax increased to 14%.
GAAR implementation deferred by 2 years to April 2017.
2015-16 growth between 8-8.5%, double digit growth feasible.
Retail inflation close to 5% by March, room for monetary policy easing.
Fiscal Deficit target 3.9% in 2015- 16, 3.5% in 2016-17.
Revenue Deficit to be 2.8% in 2015-16.
Current Account Deficit for 2014-15 to be below 1.3% of GDP.
To introduce comprehensive law to deal with black money.
Internationally competitive direct tax regime to be put in place to incentivise saving.
Incentivise use of credit, debit cards; disincentivise cash transaction to curb black money.
2. Agriculture
Rs. 25,000 crore for Rural Infrastructure Development Bank.
Rs. 5,300 crore to support Micro Irrigation Programme.
Farmers credit – target of 8.5 lakhs crore.
3. Infrastructure
Rs. 70,000 crore to Infrastructure sector.
Tax-free bonds for projects in rail roads and irrigations.
PPP model for infrastructure development to be revitalised and government to be majority of the risk.
Atal Innovation Mission to be established to draw on expertise of entrepreneurs, and researchers to foster scientific innovations, allocation of Rs. 150 crore.
Government proposes to set up 5 ultra mega power projects, each of 4000 MW.
Benami property transaction bill to tackle black money transaction in real estate soon.
4. Education
AIIMS in Jammu and Kashmir, Punjab, Tamil Nadu, Himachal Pradesh, Bihar and Assam.
IIT in Karnataka, Indian School of Mines in Dhanbad to be upgrated to IIT.
PG institute of Horticulture in Amritsar.
Kerala to have university of Disability Studies.
Centre of film production, animation and gaining to come up in Arunachal Pradesh.
IIM for Jammu and Kashmir and Andhra Pradesh.
5. Defence
Allocation of Rs. 246,726 crore, an increase of 9.87% over last year.
Focus on Make in India for quick manufacturing of Defence equipments.
MARKET REACTION
BSE index gains 0.48 percent; NSE index up 0.65 percent.
ITC slumps after budget hikes excise duty on cigarettes.
($1 = 61.6489 Indian rupees).
6. Welfare schemes
GST and JAM trinity (Jan Dhan Yojana, Aadhaar and Mobile) to improve quality of life and to pass benefits to common man.
6 crore toilets across the country under the Swachh Bharat Abhiyan.
MUDRA Bank will refinance micro finance orgs. to encourage first generation SC/ST entrepreneur.
Housing for all by 2010.
Upgradation 80,000 secondary schools.
DBT will be further be expanded from 1 crore to 3 crore.
For the Atal Pension Yojana, government will contribute 50% of the premium limited to Rs. 1,000 a year.
New schemes for physical aids and assisted living devices for people and aged over 80.
Government to use Rs. 9,000 crore unclaimed funds in PPF/EPF for senior citizens Fund.
Rs. 5,000 crore additional allocation for MGNREGA.
Government to create universal social security system for all Indians.
Health Insurance Premium deduction hiked from Rs. 15,000 to Rs. 25,000 for senior citizens to Rs. 30,000.
Transport Allowance Exemption hiked to Rs. 1,600 from Rs. 800 per month.
Rs. 50,000 deduction for contribution to New Pension Scheme.
7. Renewable Energy
Rs. 75 crore for electric cars production.
Renewable energy target for 2022: 100 KMW in solar, 60 KMW in wind, 10 KMW in biomass and 5 KMW in small hydro.
8. Tourism
Development schemes for churches and convents in old Goa, Hampi, Elephanta caves, Forests of Rajasthan, Leh Palace, Varanasi, Jallianwala Bagh, Qutb Shahi tombs at Hyderabad to be under the new tourism scheme.
Visa on arrival for 150 Countries.
9. Gold
Sovereign Gold Bond, as an alternative to purchasing metal gold.
New schemes for depositors of gold to earn interest and jewellers to obtain loans on their metal.
To develop an Indian gold coin, which will carry on the Ashok Chakra on its face, to reduce the demand for foreign coins and recycle the gold available in the country.
10. Financial Sector
Forward Market Commission to be merged with the Securities and Exchange Board of India.
NBFC’s registered with the RBI and having assets size of Rs. 500 crore and above to be considered as “financial institutions” under Sarfaesi Act, 2002, enabling them to fund SME and mid-corporate businesses.
Permanent Establishment norms to be modified to that mere presence of offshore fund managers in the country does not lead to “adverse tax consequences”.