Union Budget 2015-2016 Pushing the growth pedal


finance minister arun jaitley has delivered a bu dget which sacrifices structural reforms at the altar of growth. While india inc. has given a comprehensive thumbs up to the bu dget and it is definitely pro-bu siness, certain hitches and complications, like its reliance on low crude price and increased global liquidity, remain. the lack of agricultural reforms and increased service tax may also spoil the broth. And the contentious issue of economic inclusion of the poor is clearly missing
By Tathagata Bhattacharya

Fiscal deficit seen at 3.9 per cent of GDP in 2015-16
Will meet the challenging fiscal target of 4.1 per cent of GDP
Remain committed to meeting medium term fiscal deficit target of 3 per cent of GDP
Current account deficit below 1.3 per cent of GDP
Jaitley said he had to keep fiscal discipline in mind despite need for higher investment

India’s Prime Minister Narendra Modi has hailed the Union budget 2015-2016 as one “with a clear vision”. “It is a budget that is progressive, positive, practical, pragmatic & prudent,” he contended on Twitter, his preferred mode of communication with people. And he has added that the budget would “further reignite our growth engine, signalling the dawn of a prosperous future”. And the fact is that though India’s Union Budget 2015-16 is markedly low on reforms and talks of somewhat unrealistic revenue targets and has been criticised by some for missing the chance to address deepseated structural issues, it has won sufficient plaudits from businesses and investors.

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

But if someone, more than anyone else, knew that this budget was a safe one and not one of hard choices, it would be Union Finance Minister Arun Jaitley who, while wrapping up his February 28 budget speech, said, ““People who urged us to undertake ‘big bang’ reforms also say the Indian economy is a super giant which moves slowly but surely.”
This year’s Budget is clearly focussed on growth and cutting fiscal deficit takes a clear backseat. Actually drastic reforms are not the best prescription for a government that is still enjoying its honeymoon period. Initiating big bang reforms in a democracy like India always involves the inherent risk of a rollback. That way, Jaitley has actually presented a prudent budget which does not expose vulnerable political capital, gained after a long time and a lot of meticulous planning, to undue and unforeseen risk. Now, before getting down to cleaving the meat, a bit of number crunching invariably comes in. And one is afraid that in this case, the bit may very well turn into a lot. The key ballpark figures are as follows with a few key observations:
The non-Plan expenditure for the Financial Year is estimated at Rs 13,12,200 crore and Plan expenditure at Rs 4,65,277 crore which is close to the Revenue Expenditure of 2014-15. Total Expenditure has accordingly been estimated at Rs 17,77,477 crore. The Gross Tax receipts are estimated to be to the tune of Rs 14,49,490 crore of which the Centre’s share will be Rs 9,19,842 crore. Devolution to the States is estimated to be around Rs 5,23,958 crore. There have been adequate provisions for expenditure on Defence, Internal Security.
The country’s fiscal deficit target has been set at 3.9 per cent of the GDP and the Union finance minister has said that the aim is to reduce it to 3 per cent in 2017-2018, which is a year later than expected.
Some of the key take-aways from the Budget are as follows

Government targets 410 billion rupees ($6.7 billion) from stake sales in companies
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

• Abolition of Wealth Tax
• Additional 2 per cent surcharge for the super rich with income of over Rs 1 crore
• Rate of corporate tax to be reduced to 25 per cent over the next four years
• No change in tax slabs
• Total exemption of up to Rs 4,44,200 can be achieved
• 100 per cent exemption for contribution to Swachch Bharat, apart from CSR
• Service tax increased to 14 per cent

• Rs 25,000 crore for Rural Infrastructure Development Bank
• Rs 5,300 crore to support Micro Irrigation Programme
• Farmers credit target has been set at Rs 8.5 lakh crore

• Rs 70,000 crore to infrastructure
• Tax-free bonds for projects in rail road and irrigation
• PPP model for infrastructure development to be revitalised and government to bear 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 4,000 MW capacity

Revenue deficit seen at
2.8 per cent 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


• AIIMS in Jammu and Kashmir, Punjab, Tamil Nadu, Himachal Pradesh, Bihar and Assam
• IIT in Karnataka; Indian School of Mines in Dhanbad to be upgraded to IIT.
• PG institute of Horticulture in Amritsar
• Kerala to have University of Disability Studies
• Centre of film production, animation and gaming to come up in Arunachal Pradesh
• IIMs for Jammu & Kashmir and Andhra Pradesh

Consumer inflation expected to
remain close to 5 per cent by March,
opening room for more monetary
policy easing
Monetary policy framework agreement
with the RBI clearly states objective of
keeping inflation below 6 per cent
“One of the achievements of my
government has been to conquer
inflation. This decline in my view represents a structural
shift.” – Arun Jaitley

• Allocation of Rs 2,46,726 crore, an increase of 9.87 per cent over last year
• Focus on ‘Make in India’ for quick manufacturing of Defence equipment

Government defers
rollout of General Anti-tax
Avoidance Rules by two years
GAAR to apply prospectively
from April 1, 2017
Retrospective tax
provisions will be

• GST and JAM trinity (Jan Dhan Yojana, Aadhaar and Mobile) to improve quality of life and to pass benefits to common man
• Sixty million toilets across the country under the Swachh Bharat Abhiyan
• MUDRA bank will refinance micro finance organisations to encourage first generation SC/ ST entrepreneurs
• Housing for all by 2020
• Upgrade of 80,000 secondary schools
• Direct Benefits Transfer will be further expanded from 1 crore to 10.3 crore
• For the Atal Pension Yojana, government. will contribute 50 per cent of the premium limited to Rs 1,000 a year
• New scheme for physical aids and assisted living devices for people 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

• Government to create universal social security system for all Indians


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 offer visa-on-arrival facility to nationals from 150 countries
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

• Rs 75 crore for electric cars production
• Renewable energy target for 2022: 100K MW in solar; 60K MW in wind; 10K MW in biomass and 5K MW in small hydro

• Develpoment 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 toursim scheme
• Visa on Arrival for 150 countries

Gross market borrowing seen at
6 trillion rupees
Net market borrowing seen
at 4.56 trillion rupees

• Sovereign Gold Bond as an alternative to purchasing metal gold
• Scheme for gold depositors to earn interest, jewellers to obtain loans on metal accounts
• To develop an Indian gold coin, which will carry the Ashok Chakra on its face, to reduce the demand for foreign coins and recycle the gold available in the country




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

• Forward Markets Commission to merge with the Securities and Exchange Board of India
• NBFCs registered with the RBI and having asset size of Rs 500 crore and above to be considered as ‘financial institution’ under Sarfaesi Act, 2002, enabling them to fund SME and midcorporate businesses
• Permanent Establishment norms to be modified so that mere presence of offshore fund managers in the country does not lead to “adverse tax consequence.”
Now, when it comes to deciding on the Union Budget of a country like India, one needs to realise it’s impossible to do a foolproof job. It is more about making hard choices at the cost of others. Let us take a look at the positives first.
The investment arena is likely to witness sunnier climes. The share of capital formation in 2014-15 has dropped from 30.8 per cent during the third quarter of 2013-14 to below 30 per cent to 29.1 per cent in the corresponding period. Recognising the need to ramp up capital formation, Jaitley has made a necessary intervention by providing increased allocation of public sector investments though it may very well cause some slippages in the fiscal deficit target. These include the establishment of the National Investment and Infrastructure Fund to fund infrastructure finance companies, establishment of the Gold Monetisation Scheme to channel physical gold savings among various others.


Import tax on iron and steel
increased to 15 per cent from 10 percent
Import tax on metallurgical
coke increased to
5 percent from 2.5 percent

The provision of a roadmap for reduction in corporate tax rates to bring it at par with other Asian countries’ levels is one of the key takeaways being championed by India Inc. This may help the economy to get more competitive and may attract fresh investments. Also this may act as an incentive for the industries to expand their operations and thus lead to greater investment in research and development, apart from generating employment. The budget aims at reducing corporate taxes from the current level of 30 per cent to 25 per cent over the next 4 years which, the government hopes, will further encourage growth and employment creation.


To abolish wealth tax
Replaces wealth tax with additional
2 per cent surcharge on super rich
Proposes to cut to
25 per cent corporate tax over next four years
Net gain from tax proposals seen at 150.68 billion rupees
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

Well, this is entirely not a positive. Welfare is on a clear backfoot but social security seems like there on the government’s radar. India still suffers from cyclically weak economic growth.


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
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

There are rising income inequalities, a large number of young people and trouble in the political-religious-economic milieu. The first step of the current government in this regard was with the initiation of the Pradhan Mantri Jan Dhan Yojana (PMJDY) in August 2014 though there are severe doubts whether this measure of financial inclusion can trigger the larger requirement of economic inclusion. But encouraged by the popular reception of PMJDY, Jaitley announced the Pradhan Mantri Suraksha Bima Yojna which will cover accidental death risk of Rs 2 lakh at a premium of Rs 12 per year. Yet another scheme called the Atal Pension Yojana has been launched, to which the government will contribute 50 per cent of the beneficiaries’ premium up to Rs 1,000 for 5 years in all new accounts opened before December 2015. A Senior Citizen Welfare Fund has also been announced.
Now, let us dive into the clear-cut minuses. First, the service tax rate has been increased to 14 per cent at the composite level. The increase in the service tax rate is unlikely to be warmly received garner support and there are apprehensions of increased unbilled transactions, thus robbing the government of necessary inflow. Also, raising service tax at a time of limited growth can lead to a re-adjustment of the demand-supply equilibrium as a lower point of demand. Given that services is the single largest contributor to the economy and the fastest of the sectors, a hike in service tax rate can lead to unforeseen slowdown. India’s industry has not been out of the well. The monthly industrial production figures have grown at an average annual rate of 2.1 per cent during the April-December 2014-15 period. Jaitley mentioned the much-branded ‘Make in India’ campaign as an important programme for manufacturing and has given boost to the nearly stalled capital expenditure cycle. But the steps being undertaken to revive industry and manufacturing lack clarity and clear outlines.
India’s inflation has been significantly lower at 5 per cent as per the consumer price index than the Reserve Bank of India had predicted. But food inflation has started going northwards again for quite some time. Reforms in the agriculture sector to ensure better storage, irrigation and steps towards less dependence on the vagaries of nature are crucially missing.
Also, the Budget has two other major points which can give a relaxed soul a worried mind. If the price of crude goes above $65 a barrel, a lot of Jaitley’s plans may be jeopardised and a lot of the figures may not be realised. The budget hinges on the premise that global crude will remain below $60 a barrel.