By Dr R Seetharaman
Yesterday the Indian Union Budget 2015 was presented by the Indian Finance Minister, Arun Jaitley. The budget is based on GDP growth 8 – 8.5% in FY 2016. The current account deficit for FY 2015 is expected to be below 1.3% of GDP. The fiscal deficit is expected at 3.9% of GDP in 2015- 16 and 3.6% of GDP in 2016-17. The fiscal target of 4.1% of GDP for 2014-15 will be achieved. The budget has been developed keeping in mind the fiscal discipline despite need for investment and committed to meeting medium term fiscal deficit target of 3% of GDP. It expects consumer inflation to remain close to 5% by March 2015 and thereby, opening room for more monetary policy easing.
The monetary policy framework agreement with the RBI clearly states objective of keeping inflation below 6%. The budget considers scaling the disinvestment target and will continue with this programme and also cut subsidy leakage to improve efficiency.
The government plans to set up public debt management agency, which is an important measure taken to revitalise Indian bond markets. The budget plans to bring a new bankruptcy code, thereby bringing regulatory reforms into the corporate restructurings in India. The budget has proposed $20bn public investment for FY 2016. Investment in infrastructure will go up by Rs700bn in 2015-16 over last year. It plans to set up national investment infrastructure fund and propose and tax-free infrastructure bonds for projects in roads, rail and irrigation projects. It has proposed 5 “ultra mega” power projects for 4,000 MW each . The budget also plans regulatory reform law for infrastructure. Budget has brought measures to improve capex cycle with focus on infrastructure which will also kick start the growth. The corporatisation of ports in public sector is also a welcoming move as part of infrastructure development.
The government defers rollout of anti-tax avoidance rules GAAR by two years and apply prospectively from April 1, 2017. The budget also 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. The Alternate Investment Funds have got a major boost with foreign investments allowed & tax pass-through status afforded. The budget plans to implement a uniform countrywide goods and services tax (GST) by April 2016. Aiming to improve the ease of doing business in the country, the budget has proposed appointing an expert committee to prepare a draft legislation for obtaining regulatory clearances expeditiously. These reforms are beneficial for overseas investors.
The budget has proposed enacting a comprehensive new law on black money and creating an “universal social security” for all Indians. It will also visa on arrival facility to 150 countries from 43 and thereby benefit tourism. On the taxation front it has abolished wealth tax and replaced it with 2% surcharge on super rich. The budget has proposed to cut to 25% corporate tax over next 4 years and also rationalise and remove exemptions for corporates. The move towards lower corporate tax rate and removal of exemptions will enhance competitiveness of India Inc and boost spending and job creation. The budget has proposed an overhaul of capital gains taxes to pave the way for the listing of Real Estate Investment Trusts (REITs) in India. The capital gains incentives for investment trusts and REITS will allow such vehicles to take off soon.
Taking into consideration India’s huge appetite of gold, the budget introduced gold monetisation scheme to allow depositors to earn interest.
It has also proposed a sovereign gold bond and introduce Indian-made gold coin to reduce demand for foreign gold coins. To cheer the common man, the budget has proposed tax exemption limit for health insurance was increased from Rs 15,000 to Rs 25,000 to encourage people to take more health insurance. The tax exemption limit for contribution to the National Pension Scheme was raised from Rs 1,00,000 to Rs 1,50,000. Also, the transport allowance for salaried, which currently stands at Rs 800 per month was increased to Rs 1,600 per month. There are no changes in personal income tax and an individual taxpayer will get tax benefit of Rs 4,44,200.
India aims to accelerate its growth and the budget has given emphasis to this by increasing investment in infrastructure and thereby improve capex cycle, bring fiscal discipline and keep inflation under control. It has also brought reforms to benefit overseas investors, financial markets reforms and measures for common man. On the whole it is a landmark budget.
Dr R Seetharaman is Group CEO of Doha Bank.
