A Brief Analysis of Union Budget 2015

Union Budget 2015Introduction:

The Finance Minister (‘FM’) hasfinally presented his much hypedUnion Budget of2015 on February 28, 2015.Undoubtedly, the FM has set the momentum for India growth story which is duly reflected in the optimismof 7.4% GDP growth rate in currentfinancial year (‘FY’) andgrowth rate at 8.1% for the subsequent year. This, if achieved,will make India as the fastest growing economy in the club of big economies. And really, the budget has set the stage for it.

It can be observed from the FM’s budget speechthat hisfocus is on India’s balanced and phase wise growth while maintaining financial discipline in terms of managing fiscal deficit. The FM has well performed a tough task of covering maximum participants’ viz. agriculture, industry and SMEs/MSMEs by taking encouraging steps in some or the other way.Further, some of the provisions reconfirm that this government is committed to tackle tough issues like black money, corruption and also working towards skill development, health, sanitation, and fair allocation of resources between states and center etc.

Analysis:

A macro analysis of key economic figurespaints a rosy picture of the Indian economyas CPI inflation has reduced to 5.1%, the current account and fiscal deficit is expected to be 1.3% and 3.9% respectively, and foreign inflows in the countryhas been about USD 55 billion since April 2014, resulting in forex reserve increase to a record USD 340 billion.

A key highlight reflecting how this budget will impact the Indiaeconomy in a short and long term is as below.

  1. Curbing Fiscal deficit at 3.9% and Current Account Deficit at below 1.3% for FY 15-16:

Impact:

  • Lower fiscal deficit will help India in stabilizing or up gradation of sovereign rating. In these conditions, the government will be able to raise debt at comparatively lower rate.
  • Low Current Account Deficit reflects reduction in import bill (largely wake of lower crude price). At the same end, the country’s exports have been stagnant, though not declined.
  • As a consequence, it leaves space for the Reserve Bank of India to start reducing key rates in the current FY, which can make borrowings for individual and industries cheaper. Lower cost of borrowings would encourage domestic borrowing and discourage external commercial borrowings.
  • All these together would provide thrust to the economy.
  1. Higher allocations towards Social Sector:Social Sector

Impact:

It is clear that the government does not want growth at the cost of negligence of social sector and hence the FM has allocated higher resources vide different schemes for this sector.Below is the brief discussion on some of the announced schemes.

  • Insurance coverage to all Indians at cheaper rates through PM Jeevan Jyoti Yojna’and second one is to provide pension cover through‘Atal Pension Yojna.’
  • A special allocation for Swatch Bharat and relief to senior citizens in their medical expenditure.
  • The government’s aim to build house for every one by 2022 and electrification for every one till 2020 is an ambitious plan which will encourage low and affordable housing.
  • Higher allocations for MNREGA will ensure hike inminimum wages level in rural Indiawhich in turn will improve disposal income of rural Indian.
  • Though details of the above schemes are awaited and will have to also see that how soon these are implemented.

The governments wants to transfers of above benefits through JAM Trinity (Jan dhan, Aadhar and Mobile Platform),and ensure that transfer of benefits should be in a leakage-proof, well-targeted and cashless manner.

  1. SMEs and MSMEs:

Impact:

  • The government haswell understood difficulties faced by SMEs and MSMEs in its working capital cycle and hence introduced electric bill discounting schemes. This will be a kind relief to SMEs and MSMEs who are suffering from working capital issues. Though details of the scheme is awaited.
  • Priority funding to entrepreneurs from Schedule Cast and Schedule Tribes through Mudra Bank. It will provide access credit to them which they can use in expansion of their business. (Details are awaited)
  1. Infrastructure:Infrastructure

Impact:

  • Increase in capital expenditure of Rs. 80,844 crore by Public Sector Units. The higher capex will result in enhance gross capital formation ratio and creation of fixed assets for these companies.
  • Setting up a special National Infrastructure and Investment Fund (‘NIIF’) will provide much required funding to infrastructure companies. They can utilize such funds for development of infrastructure.
  • Further, tax free bonds would bring much required funds in road, rail and irrigation projects.
  • Announcement of Atal Innovation Mission (AIM) to bring world class expertise will gain in better management of these large scale projects.
  1. Education:education-budget

Impact:

  • 68,968 crore to the education sector and announcements of new AIIMS, IITs, IIMs, in selected states to provide more opportunities. Further encouragement for world class research institutes to make India’s young graduates employable.
  • Addition/upgradation of new schools to ensure enrollment of every child into formal schooling system, to help in eradiating illiteracy.
  • Support tominority youth who do not have a formal school-leaving certificate to obtain one through ‘NaiManzil’ scheme to find better employment.
  1. Make in India:

Impact:

  • Reduction in corporate tax rate from 30% to 25% over the next 4 years will encourage higher investment, high growth and in turn creation of more jobs.
  • Announcement of Goods and Service Tax has reflected the government’s will to bring global best practices to Indiataxation system.
  • Announcement of removal of unnecessary approvals and simplification of tax procedures. Thiswill help in ease of doing business in India and thus fulfilling dream of the prime minister’s brain project of ‘Make in India’.
  • Online central excise and service tax registration will be done in two working days. Time limit for taking CENVAT credit on inputs and input services is being increased from 6 months to 1 year as a measure of business facilitation.
  1. Impact on a common man’s budget:Impact on a common man’s budget
  • It was expected by many that the FM would raise personal income tax exemption limit to Rs. 3 lakh per year but unfortunately it has not happened. However, there is some relief given in way of increase in transport allowances (beneficial for employees) limit to Rs. 19,200 and medical expense limit to Rs. 25,000 under section 80 D.
  • The rate of service tax has been increased from 12% to 14%in this budget which will make services costlier for common man.

Conclusion:

Though, it is very difficult to please everyone and full fill their expectations but Mr. FM has tried to do so in a balanced way. In other words, I would say he has acted like a pilot, who runs an aircraft on active runway at full speed before its takes-off. The FM has rolled out a budget which will propel growth of the economy at full speed before it starts to fly in next couple of years.


Contributed by Janmang Mehta ( Class of 2010, IBS AHEMDABAD )

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