Union Budget 2015

In the much-anticipated Union Budget presented on 28 February 2015, Finance Minister Arun Jaitley tried to do a balancing act between the imperatives of reducing the fiscal deficit and the need to increase public investment for kick-starting the investment cycle.

By delaying the government’s fiscal consolidation road map, Mr Jaitley gave himself some room to push public investment in roads, railways and infrastructure. He set a target of bringing fiscal deficit down to 3.9 per cent of gross domestic product (GDP) in 2015-16, against the 3.6 per cent targeted earlier; the deficit is to be gradually narrowed to 3.5 per cent in 2016-17, and three per cent in 2017-18.

Mr Jaitley also showed an intention to formally codify the proposed inflation-targeting regime which will require amending the Reserve Bank of India (RBI) Act. The aim, he said, was to keep inflation stable. A formal inflation-targeting regime will reduce pressure and interference from the government in the central bank’s stance and monetary policy direction.

Tax free infrastructure bonds in rail, roads and irrigation have also been proposed as also a national investment infrastructure fund.

A key point that the budget made was the need for the government to take greater part of the risk of projects in infrastructure. This suggests a reworking of the models under which infrastructure projects will be awarded. The budget also proposed a “plug and play” model, where all clearances will be put in place before a project is auctioned. This model which will cut the time for getting clearances is likely to ensure faster project implementation in roads, railways and infrastructure.

A big step is the setting up of the public debt management agency.

On subsidies the budget suggests taking advantage of the JAM trinity— Jhan Dhan, Adhaar and mobile—to plug the leakages in the system and make the current subsidy regime more targeted. In this regard, the Finance Minister has asked the postal network, which has over 100,000 touch points, to apply for the payment bank license.

A big theme in the budget was creation of social security framework. Mr Jaitley has announced a universal security system that would require half the corpus being contributed by the Union. And the premium would be as low as ₹12 per annum. He also announced the Atal Pension Yojana, where the government will bear 50 per cent of premium and a Prime Minister Jeevan Jyoti Bima Yojana which will provide an insurance cover of ₹3 lakh with a premium of just ₹330 per year. The Pradhan Mantri Suraksha BimaYojna will cover accidental death risk of ₹2 lakh for a premium of just ₹12 per year.

The budget also talked about creating India’s first international finance centre at GIFT city in Gujarat.

The Finance Minister has also proposed to merge the Forward Markets commission (FMC) with Securities and Exchange Board of India (SEBI). This would require amendments in the SEBI Act, Securities Contract Regulation Act (SCRA), Forwards Act (FCRA) and FEMA (Foreign Exchange Management Act).

Initiatives under the FSLRC recommendations by Justice Srikrishna that includes setting up agencies such as an appellate body, redressal agency have also been announced. This is likely to bring significant and far reaching changes to the country’s financial system.

The proposals in the corporate tax regime are likely to significantly reduce tax litigation which has been a major demand of the industry.

Highlights

  • Fiscal deficit seen at 3.9 percent of GDP in 2015-16. Will meet the challenging fiscal target of 4.1 percent of GDP
  • Remain committed to meeting medium term fiscal deficit target of 3 percent of GDP
  • Current account deficit below 1.3 percent of GDP
  • GDP growth seen at between 8 percent and 8.5 percent year-on-year
  • Aiming double digit growth rate, achievable soon
  • 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
  • Revenue deficit seen at 2.8 percent of GDP
  • Non tax revenue seen at 2.21 trillion rupees
  • Net receipts under market stabilisation scheme estimated at 200 billion rupees
  • Government targets 410 billion rupees ($6.7 billion) from stake sales in companies in 2015-16
  • Sets stake sale target for 2016-17 at 550 billion rupees
  • Revises down stake sale target for 2014-15 to 313.5 billion rupees
  • To bring a new bankruptcy code
  • 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
  • To enact a comprehensive new law on black money
  • To launch a national skills mission 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
  • Gross market borrowing seen at 6 trillion rupees
  • Net market borrowing seen at 4.56 trillion rupees
  • Defers rollout of anti-tax avoidance rules GAAR by two years. GAAR to apply prospectively from April 1, 2017
  • Wealth tax abolished; to be replaced by surcharge of 2% on income of Rs 1 crore and above. Move to fetch govt Rs 9,000 cr against Rs 1,008 currently mobilised under wealth tax.
  • No change in individual income tax rates and slabs; overall deduction benefits to individual taxpayers hiked to ₹4.44 lakh a year.
  • Net gain from tax proposals seen at 150.68 billion rupees
  • Proposes to rationalise capital gains tax regime for real estate investment trusts
  • 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
  • Service tax rate and education cess clubbed and new rate to be 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
  • Investment in infrastructure will go up by 700 bln rupees in 2015-16 over previous year
  • Plans to set up national investment infrastructure fund
  • Proposes tax-free infrastructure bonds for projects in roads, rail and irrigation projects
  • Five “ultra mega” power projects for 4,000 MW each announced
  • Ports in public sector will be encouraged to corporatise under Companies Act
  • Plan expenditure estimated at about 4.65 trillion rupees
  • Non-plan expenditure seen at about 13.12 trillion rupees
  • Allocates 331.5 billion rupees for health sector
  • If revenue improves, hope to raise budgeted allocations for rural job scheme by 50 billion rupees
  • Government to provide 79.4 billion rupees capital infusion to State-run banks
  • Budget allocates ₹5,300 crore for micro-irrigation, ₹25,000 crore for rural infrastructure and ₹34,699 cr for MNREGA and ₹8.5 lakh crore for farm credit
  • Transport allowance doubled from ₹800 to ₹1600 per month
  • Deduction limit for health insurance premium raised to ₹25,000 from ₹15,000. The same for senior citizens has been raised to ₹30,000.
  • Exemption of ₹50,000 for contribution to pension scheme.
  • Propose to do away with different types of foreign investment caps and replace them with composite caps
  • Road Cess on petrol and diesel increased to ₹8/L from ₹2/L
  • Foreign investments in Alternate Investment Funds to be allowed
  • To float a sovereign gold bond
  • To introduce gold monetisation scheme to allow depositors to earn interest
  • To introduce Indian-made gold coin to reduce demand for foreign gold coins
  • Food subsidy seen at 1.24 trillion rupees
  • Fertilizer subsidy seen at 729.69 billion rupees
  • Fuel subsidy seen at 300 billion rupees
  • Major subsidies estimated at 2.27 trillion rupees
  • 100% deduction for contributions, other than by way of CSR contribution, to Swachh Bharat Kosh and Clean Ganga Fund.
  • Farm credit target of ₹8.5 lakh crore.
  • ₹1000 crore alloted to the Nirbhaya Fund
  • Atal Innovation Mission to be established to draw on expertise of entrepreneurs, and researchers to foster scientific innovations; allocation of ₹150 crore
  • National Investment and Infrastructure Fund (NIIF), to be established with an annual flow of ₹20,000 crores to it
  • Atal Innovation Mission (AIM) to be established in NITI to provide Innovation Promotion Platform involving academicians, and drawing upon national and international experiences to foster a culture of innovation , research and development. A sum of ₹150 crore has been earmarked for it
  • SETU (Self-Employment and Talent Utilization) to be established as Techno-financial, incubation and facilitation programme to support all aspects of start-up business. ₹1000 crore to be set aside as initial amount in NITI.
  • Deen Dayal Upadhyay Gramin Kaushal Yojana to enhance the employability of rural youth
  • A student Financial Aid Authority to administer and monitor the front-end all scholarship as well Educational Loan Schemes, through the Pradhan Mantri Vidya Lakshmi Karyakram
  • Public Debt Management Agency (PDMA) bringing both external and domestic borrowings under one roof to be set up.
  • Government to bring enabling legislation to allow employee to opt for EPF or New Pension Scheme. For employee’s below a certain threshold of monthly income, contribution to EPF to be optional, without affecting employees’ contribution.
  • Pradhan Mantri Gram Sinchai Yojna to provide for ‘per drop more crop’
  • 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
  • IIM for Jammu and Kashmir and Andhra Pradesh
  • Three new National Institute of Pharmaceuticals Education and Research in Maharashtra, Rajasthan and Chattisgarh, and one institute of Science and Education Research to be set up in Nagaland and Odisa each.
  • Defence allocation of ₹2,46,726 crore; an increase of 9.87 per cent over previous year
  • GST and JAM trinity (Jan Dhan Yojana, Aadhaar and Mobile) to improve quality of life and to pass benefits to common man
  • Six crore toilets across the country under the Swachh Bharat Abhiyan
  • MUDRA bank will refinance micro finance organisations to especially encourage first generation SC/ST entrepreneurs
  • For the Atal Pension Yojana, government will contribute 50% of the premium limited to ₹ 1,000 a year.
  • Pradhan Mantri Jeevan Jyoti Bima Yojana to cover both natural and accidental death risk of ₹2 lakh at premium of ₹330 per year for the age group of 18-50
  • New scheme for physical aids and assisted living devices for people aged over 80
  • Government to use ₹ 9,000 crore unclaimed funds in PPF/EPF for Senior Citizens Fund
  • Government to create universal social security system for all Indians.
  • 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.
  • Forward Markets Commission to be merged with the Securities and Exchange Board of India
  • NBFCs registered with the RBI and having asset size of ₹500 crore and above to be considered as ‘financial institution’ under Sarfaesi Act, 2002, enabling them to fund SME and mid-corporate businesses
  • 75th year of Independence of India to be celebrated as Amrut Mahotsav
  • Government to work with the States, in NITI, for the creation of a Unified National Agriculture Market
  • A Trade Receivables discounting System (TReDS), which will be an electronic platform for facilitating financing of trade receivables of MSMEs, to be established.

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