Touted as the ‘Make or Break’ Budget for Team Modi which was looking to regain numero uno position
in the county’s political charts after a heavy defeat in Delhi, Arun Jaitley, the man in charge of fixing the
country’s broken fiscal wings didn’t disappoint as he delivered a reformist and balanced budget for
2015-16. While the budget was silent on a slew of big bang reforms, Jaitley rolled out some key tax
changes, offering a fiscal roadmap that will help inspire investor confidence.
“India is about to take-off on a faster growth trajectory once again. The credibility of the Indian
economy has been re-established. The world is predicting that it is India’s chance to fly”, Jaitley said as
he predicted Asia’s third biggest economy scoring an 8-8.5% growth in FY 16, the best in 5 years.
A bonanza for Corporates, but Common Man left High & Dry
The budget was a bonanza for India Inc. as it deferred the GAAR for another two years, slashed the
corporate tax rate by 5% to 25% in four years, paving the way for an investment and employment boost.
The promise to roll-out the Goods & Services Tax (GST) from FY 2015-16 will transform India’s indirect
tax structure, boosting tax efficiency and productivity, while reducing input costs for businesses, helping
India climb up the ladder of the ‘ease of doing business’ ranking, and aiding in the success of Modi’s
ambitious ‘Make in India’ program. “GST will put in place a state-of-the-art indirect tax system by 1st
April, 2016”, the Finance Minister stressed.
However, the common man was left slightly displeased as the income tax exemption slabs were left
unchanged at Rs 2.5 lakh while the service tax rate was hiked from 12.36% to 14%, but deductions for
medical spends, pension savings and travel, coupled with the announcement of a universal social
security and pension scheme is something to cheer about. The abolition of the wealth tax and replacing
it with an additional 2% surcharge on super-rich i.e. those earning over Rs 1 crore is a good move as it
will boost direct tax revenue while the attack on black money may help curb tax evasion.
Jaitley walks on a tight rope amid limited fiscal scape
Against widespread expectations of a reduction in subsidies, Jaitley strongly defended the subsidy
program, instead stressing on improving the subsidy delivery system and removing leakages. “We need
to cut subsidy leakages, not subsidies themselves”.
The Finance Minister pushed back the 3% fiscal shortfall target by one year to FY 18, while altering this
fiscal’s deficit target to 3.9% from 3.6% of GDP, allowing the government more room to boost spending
on infrastructure by an additional Rs 70,000 crore, while bolstering social spending by another Rs 5,000
crore including an additional allocation on rural development schemes.
“I want to underscore that my government still remains firm on achieving the medium term target of
3% of GDP. We need to be mindful of the need for fiscal discipline in spite of rising demands for public
investment”, Jaitley said.
In a wrap, Jaitley has delivered a sound and visionary budget which may help tame the fiscal bug in the
long-term while helping the country embark on an era of high growth, investment and employment
path.
Key Take-Aways from Union Budget 2015-2016
Re-establishing the credibility of India
In the last nine months, the Finance Minister and his core team has worked hard to restore the
credibility of the Indian economy after inheriting an economy form UPA government with
sentiments of “doom and gloom” with adverse macro-economic indicators.
India’s GDP Growth Rate(%)
With a real GDP growth expected to grow at 7.4% in FY15 vs 5.1% in FY13, Indian economy is
about to take-off on a fast growth trajectory, eyeing double digit growth in the coming years.
For 2015-16, it was being pointed out the radical shift in inflation and crude oil rout will help
economy to grow at a real gross domestic product (GDP) growth of 8-8.5 per cent, 0.6-1.1 per
cent points higher than that estimated for the current financial year.
Fiscal Consolidation: An uphill road to recovery
Moving towards fiscal consolidation, Budget 2015-16 has proposed that the government will be
able to meet the stated 4.1% fiscal deficit target for the current fiscal year. The Finance Minister,
however, delayed the target of meeting the fiscal deficit to 3% of GDP by one year to 2017-18,
giving himself some fiscal space to boost capital expenditure through higher public spending.
Worried over high budget deficit derailing growth, Jaitley, in his first full year budget, had set a
challenging fiscal deficit target of 3.9% for 2015-16, 3.5% for 2016-17 and 3% for 2017-18,
hoping that the economy will return to the path of high investment, higher growth, lower
inflation and long-term sustainability.
Fiscal Deficit as a % of GDP
The FM made a commendable attampt to attract foreign investment in India by introducing two
major initiatives for India Inc, deferred the controversial General Anti Avoidance Rule (GAAR) tax
proposals by two years and laid out roadmap for implementation of much awaited the Goods
and Service Tax (GST) with effective from April 2016.
Moving ahead with his government’s focus to create more job opportunity for youth, the
Finance Minister reduced corporate tax from 30 per cent to 25 per cent for the next four years.
Subsidies: FM bites the bullets
The Finance Minister, Mr. Jaitley, in his budget speech quoted that “Government did not intend
to cut subsidies, but to cut subsidy leakages”, giving a loud and clear message that NDA
government is committed to rationalizing subsidies.
The Union Budget 2015-16 highlighted that the total major subsidies in fell 9.5 percent
compared to the previous year, from Rs 2.51 lakh crore to Rs 2.27 lakh crore.
Among the key subsidies, FM proposed a total urea subsidy of around Rs 72,968 crore for FY16,
compared to Rs 72,970 crore in the last year. Subsidies for food, disturbed through the public
distribution system or ration shops, are forecast to increase from Rs 1.15 lakh crore last year. In
the Economic Survey 2014-15, the FM has acknowledged that the Food Subsidy Bill has
increased substantially in the past few years putting a severe strain on the public exchequer.
According to economic survey, Food Subsidy Bill stands at Rs 1,07,823.75 crore during 2014-15
(upto January, 2015), as compared to Rs 89,740 crore in the last fiscal, registering a growth of 20
per cent over previous year.
Black Money: FM goes all out, proposes new tough and comprehensive law
Finance Minister Arun Jaitely , in his maiden Budget 2015-16 speech has taken on the menace of
black money and said that the solutions for the problems of injustice and poverty won’t be
possible unless generation of black money and its cover-up was dealt with efficiently and
powerfully.
FM spoke about passing new comprehensive law on black money to specifically deal with black
money stashed away abroad. The Bill in this regard is proposed to be introduced in the current
Session of the Parliament. The key features of the bill will include punishment of rigorous
imprisonment up to ten years.
Meanwhile, a new and more comprehensive Benami Transactions (Prohibition) Bill will be
introduced to tackle domestic black money. Quoting of PAN is being made mandatory for any
purchase or sale exceeding the value of Rs.1 lakh.
Infrastructure hogs limelight
In order to spur India’s economic growth, Finance Minister Arun Jaitley, in his Budget 2015-16,
proposed a sizeable Rs 70,000 crore increase in investment in the infrastructure sector.
To narrow down the infrastructure and India’s growth ambitions, FM increased the outlay on
both the roads and the gross budgetary support to the Railways by Rs. 14,031 crore and Rs.
10,050 crores respectively.
On public private partnership, he said, “The PPP mode of infrastructure development has to be
revisited, and revitalised. The major issue involved is re-balancing of risk. He said permitting tax
free infrastructure bonds for projects in rail, road and irrigation sectors is also on the anvil.
Individual tax exemption hiked to Rs 4.44 lakh
Finance Minister Arun Jaitley fell short of making any changes to the income tax slabs but
extended the income tax exemption benefit of up to Rs 4.44 lakh for individual tax payers .
The limit of deduction in respect of health insurance premium has been increased from Rs
15,000 to Rs 25,000. For senior citizen above the age of 80 years deduction is allowed for Rs
30,000 toward medical expenditure.
The limit on deduction on account of contribution to a Pension Fund and the New Pension
Scheme has been raised from Rs1 lakh to Rs1.5 lakh.
The transport allowance exemption has been increased from Rs 800 to Rs1, 600 per month.
Additionally, disabled and very senior citizens too will get higher deductions.
Additionally, the deduction of Rs 25,000 is allowed for differently-abled persons, increasing the
limit from Rs 50,000 to Rs 75,000.
Social Security in Focus
Finance Minister announced host of schemes in order to woo the middle class and poor in the
first full-fledged Budget of the NDA government.
Encouraged by the success of the Pradhan Mantri Jan Dhan Yojana, the Finance Minister
proposed to work towards creating a universal social security system for all Indians, specially the
poor and the under-privileged.
The government will also launch education welfare scheme ‘Nayi Manzil’ for unemployed
minority youth and added that the government is planning to upgrade over 80,000 secondary
schools in the country.
Pradhan Mantri Suraksha Bima Yojana will be launched to cover accidental death risk of Rs. 2
lakh for a premium of just Rs. 12 per year. Similarly, FM also spoke about the Atal Pension
Yojana, which will provide a defined pension.
Commodities
Finance Minister Arun Jaitley said that the government would merge “FMC with SEBI” in order
to streamline the monitoring of commodity futures trading and curb wild speculations.
In September, 2013, FMC was brought under the Finance Ministry
The decision came after National Spot Exchange Ltd. suffered Rs 5,600 crore payment crisis.
Gold: What’s in Store?
In order to utilize the 20,000 tonnes available within the country; India will introduce gold deposit
accounts.
India will also launch a sovereign bond, which will act as an alternative to buy gold. This bond will carry a
fixed rate of interest and holders will be able to redeem them in cash on the face value of gold. Such a
move will help the biggest gold consumer in cutting the imports of the metal.
Finance Minister did not mention anything about cutting the 10% import duty.
According to the Finance Minister, the country imports around 800-1000 tonnes of precious metal a
year despite huge reserves which are neither traded nor monetized.
Finance Minister announced introduction of gold monetization scheme which will help gold depositors
to earn interest on their metal accounts. The scheme will also help Jewellers as they can obtain loans on
it.
Jaitley also announced introduction of Indian gold coins to reduce the demand for foreign-minted coins.
Impact
The move will help increase the demand of gold in the country as investors will find more ways
to invest in the bullion.
Gold jewellery stocks like Rajesh Exports, PC jewelers, SRS, Tribhovandas Bhimji Zaveri, Shrenuj
& Company are likely to benefit.
Introduction of sovereign bond as well as gold monetization scheme will facilitate multiple ways
to invest into gold, thus will boost demand.
Using India’s unutilized reserves will help in reduction of imports, which will automatically cut
the import bill, resulting in the development of the country.
Banking & Financial services Sector cheers Budget Proposals
In Union Budget 2015-16, the Finance Minister Arun Jaitley recommended to infuse `79.4
billion ($1.29 billion) of capital into state-owned lenders during the fiscal year ending March
2016 in order to facilitate financing needs.
In a bonanza for farmers and agriculture, the Finance Minister raised the agriculture credit
target by `50,000 crore to `.8.5 trillion in a Union Budget 2015-16.
Fiscal deficit target at 3.9% of GDP and inflation at 5% target would further open more room
for monetary easing in a monetary policy review by the Reserve Bank of India (RBI).
With an aim to fund the unfunded, the government proposes Micro Units Development
Refinance Agency (MUDRA) Bank with a corpus of `20,000 crores to refinance loans of
microfinance companies at a lower rate.
In order to improve governance of public sector banks, the Finance Minister Arun Jaitley
recommended setting up an autonomous banks board bureau for aiding lenders to raise
capital for meeting expansion needs.
The government plans to set up Public Debt Management Agency (PDMA) in order to bring
both external and domestic borrowings under one roof this year.
In order to ease regulatory issue, the Finance Minister proposes Forward Markets commission
(FMC) to merge with SEBI will reduce speculation.
Postal network with 1,54,000 points of presence spread across villages to be used for
increasing access of the people to the formal financial system.
The Union Finance Minister proposed to create a Task Force to establish sector-neutral
financial re-addressal agency that will address grievance against all financial service providers
The government also recommended NBFCs registered with RBI and having asset size of 500
crore and above may be considered for notifications as ‘Financial Institution’ in terms of the
SARFAESI Act, 2002. This will allow lenders to recover non-performing assets without court’s
intervention.
With higher economic growth prospects and substantial increase in infrastructure spending, the
demand for credit will rise in the years. Deepening of bond market and introduction of public debt
agency will help banks to manage the asset-liability mismatch. Given the emphasis on infrastructure
investments in an budget 2015-16, the government has provided Rs 79.4 billion capital support to Public
Sector Banks (PSBs), whose capital needs are estimated at over Rs 2 trillion over FY 2015-19. By scraping
the Board for Financial and Industrial Reconstruction and the Sick Industrial Companies Act, the finance
minister also proposed to bring new bankruptcy codes, which in turn would help banks in recovering
dues if promoters default. Differentiated banks serving niche interests would benefit customers and also
provide impetus to financial inclusion.
Auto Sector can be a Major Beneficiary
Key budget proposals-
The Finance Minister Arun Jaitley set aside Rs 75 crore for faster implementation and
manufacturing of electric vehicles in 2015-16.
The government increased custom duty on commercial vehicles to 40% from 10%.
The Finance Minister recommended to increase excise duty to 12.5%
Consumer Price Index (CPI) inflation target kept at 5% by the end of FY15E and Monetary
Policy Framework Agreement with RBI to keep inflation below in FY16 will further ease the
interest rate.
The government’s intention to introduce GST, reduce the corporate tax from 30% to 25% over
a 4 year period.
The government’s focus on increased investment in infrastructure, agriculture investment will
enhance auto demands.
Union Budget 2015-16 remained positive for the auto sector. Hike in custom duty on commercial
vehicles to 40% will restrict the import of auto vehicle, which in turn come as a bonanza for domestic
automobiles companies. Decline in corporate tax would also help auto companies in enhancing their
earnings visibility. Further, the government thrust on infrastructure and agriculture investment, road
development in rural area will enhance the growth in the automobile industry. Inflation at 5% target in
FY15 and Monetary Policy Framework Agreement with RBI to contain the inflation below 6% will further
open more room for more monetary policy easing by RBI, which will result in lower interest rate, and
subsequently create more buying.
A mixed bag for FMCG stocks
For FMCG, the Union budget 2015-16 remained a mixed bag with the following major announcements:
Excise duty on tobacco to be increased to Rs. 70/kg from Rs. 60/kg. A proposal to increase the
excise duty on cigarettes by 25% for 65 mm cigarettes and by 15% for other cigarette
categories has also been made.
Excise duty on leather footwear is proposed to be reduced to 6% from the previous 12%.
While the first full union budget announced by the newly formed Modi-led government is likely to have
a positive impact on footwear companies like Bata India, Liberty Shoes etc.; the same would leave the
cigarette manufacturers like ITC in pain. The government’s proposal to reduce the excise duty on leather
would help pushing the Prime Minister’s ‘Make in India’ campaign as leather is one of the 25 major
sectors identified in the campaign, thereby giving a boost to manufacturing. Further, a 25% hike in
excise duty would make it difficult for the manufacturers to pass on this cost to the consumers when the
cigarette prices which already have gone up by ~75-100% in the past three years. Meanwhile, the
government has made high allocations for rural growth which would encourage growth in FMCG
companies as these companies are highly dependent on rural markets. Providing a clear roadmap to the
most awaited announcement for goods and services tax (GST), the Finance Minister said it to be
implemented from April 1, 2016.
While cheering the thrust on IT start-ups, IT industry gave thumbs-up to SAD exemption
Jaitley in Union Budget 2015-16 took a step further from what he said in his first Budget announced on
July 10, 2014. While previously he intended to boost capital flows to start-ups and small & medium
enterprises (SMEs) with an allocation of Rs. 10,000 crore, this time he allocated an amount of Rs. 1,000
crore to enable information technology (IT) start-ups, create additional funding avenues to raise money
which in turn would generate more employment. As per the National Association of Software and
Services Companies (NASSCOM), India presently has over 3,100 product start-ups with ~800 being
added annually. The allocation of funds would give a boost to IT start-ups in the country. Riding on Make
in India drive, the government has also proposed a reduction in royalty and related taxes from 25% to
10% for technology start-ups, strengthening the prospects for IT firms. Further, providing a much
needed relief to domestic manufacturers of personal computers (laptops, desktops) and tablets, the
Finance Minister exempted Special Additional Duty (SAD) on import of components used in
manufacturing computers. The Union Budget 2015-16 is likely to impact HCL Tech, TCS and Mindtree
positively.
Infra: Ease of fund procurement to boost growth
Adhering to the mantra of ‘Infrastructure Development’ Finance Minister Arun made vital proclamations
for the infra space. The major highlights could be summarized as:
Outlay for Rural Infrastructure Fund has been proposed at `25,000 cr to support agricultural
sector with the help of effective and hassle-free agricultural credit with special focus on small
and marginal farmers.
Establishment of national investment and infrastructure fund, earmarking a corpus of `20,000
crore that infrastructure funds could use to leverage and raise further resources to fund their
operations.
Increased expenditures on roads and railways by `14,031 crore and `10,050 cr, respectively
whereas capex plan for PSUs have been envisaged at `3, 17,889 cr.
Bonds for roads, rails and irrigation projects will be tax free.
PPP mode of infrastructure development to be revisited and revitalized.
Ports in the public sector will be encouraged, to corporatize, and become companies under
the Companies Act to attract investment and leverage the huge land resources
Drawing parallels between the last and the current budget, we believe that these announcements will
impact the stocks in infra space as the envisaged developments unfold but at a sooner stage will not
have any major influences. While the budget has earmarked more funds no announcements were made
on the initiatives highlighted in the previous budget. It failed to examine the progress of PPPPs, Jal Marg
Vikas, SEZs and aviation development for Tier II cities introduced in last budget.
On the positive side, government has opened up vast avenues for fund procurement in order to fastrack
the ongoing and upcoming projects via competitive bidding thus reducing risks. Moreover, the budget
has eliminated taxes on infra bonds thus facilitating investments for further development and providing
mutual benefits to the players and the investors. As and when more projects come up with more funds
and fewer hassles, the sector will evolve as an attractive investment avenue.
Energy: Green India in focus
Swearing by its policies of Green India, the Union Budget 2015-16 contained following announcements
for the energy sector:
Target of renewable energy capacity revised to 175000 MW till 2022, comprising 100000 MW
Solar, 60000 MW Wind, 10000 MW Biomass and 5000 MW Small Hydro.
A need for procurement law to contain malfeasance in public procurement
Clean energy cess has been doubled from `100 to `200 per metric tonne of coal, etc. to finance
clean environment initiatives.
Second unit of Kudankulam nuclear power station to be commissioned in 2015/16.
Govt also proposed to set up 5 ultra-mega power projects, each of 4000 MW, in plug & play
mode.
We believe that the companies engaged in renewable energy will gain enormously post the budget.
Steps like increasing renewable energy targets and doubling cess in coal procuring companies will
encourage the set-up of more companies and projects and will attract more investments thus boosting
the overall sector. Also, the introduction of Self-Employment and Talent Utilization) (SETU) will support
all aspects of start-up businesses in this sector. Also, the proposal to set up 5 UMPPs will be favorable
for the companies engaged in power providing opportunities of expansion and investments.
Jaitley makes healthcare a national priority
The government announced that it will provide Housing facilities by constructing 2 crore houses
in Urban areas and 4 crore houses in Rural areas.
Pradhan Mantri Suraksha Bima Yojna will cover accidental death risk of 2 Lakh for a premium of
12 per year.
Pradhan Mantri Jeevan Jyoti Bima Yojana will cover both natural and accidental death risk of 2
lakh at premium of 330 per year for the age group of 18-50.
A new scheme for providing Physical Aids and Assisted Living Devices for senior citizens living
below the poverty line was announced.
AIIMS will be opened in Jammu and Kashmir, Punjab, Tamil Nadu, and Assam, with AIIMS like
institution being planned in Bihar.
3 new National Institute of Pharmaceuticals Education and Research in Maharashtra, Rajasthan
& Chhattisgarh were also announced.
The government will improve quality of life and public health through Swachh Bharat campaign.
Limit of deduction of health insurance premium is increased from `15000 to `25000, while the
same for senior citizens increased from `20000 to `30000. Senior citizens above the age of 80
years, who are not covered by health insurance, will be allowed a deduction of `30000 towards
medical expenditures. Deduction limit of `60000 with respect to specified decease of serious
nature is enhanced to `80000 in case of senior citizen. Additional deduction of `25000 is allowed
for differently abled persons.
Impact
Overall, the Budget offers no direct benefit to the pharmaceutical industry, though it is certainly
positive for the health-care sector. Because of various initiatives, the net disposable income for the
middle class will go up, which again could mean more money going into health care. Also, extension
of health covers and through initiatives to boost health insurance, out-of-pocket spending is likely to
be reduced. While the percentage of budgetary allocation to health care has not increased, the
Budget has enabled EPF funds to also go into health care by making it optional for the employees.
Jaitley gives Textiles a miss
Textile being one of the major contributors for India’s export basket contributes 12% of India’s total
forex earnings and has registered exciting export growth in recent years. The budget saw an expectation
of potential loans being provided at an interest rate of 7%, to encourage the investment by significantly
reducing the Interest payment burden of Textile exporter and attract more and more investments. Also,
to ease this burden of Cost Of Credit, the Government had launched “Interest Subvention Scheme”
which was discontinued in 2014. This scheme was expected to be continued for next 3 to 5 years. Long
processing time due to Perennial complexities for getting TUF refunds were expected to be shortened.
Textile Industry being the second largest employment generator faces lack of Skill development as one
of thrust areas of concern for which devisal of a policy for developing multiskilling institutes through
Public Private Partnership (PPP) were expected. However, Jaitley did not announce any specific
developments for the industry.
All in all, the Union Budget garnered mixed reactions from the different strata of the country. While
some hailed and termed it a “balanced and landmark” budget, the others chose to call it “unrealistic”
and a “missed opportunity.”