The second budget of the NDA government had peaked up high voltage expectations from across the nation and beyond.
However, the speech of the finance minister during the Union Budget made it abundantly clear that it was laying down a road map for the next 3 years and articulating its economic priorities of boosting domestic investments, improving infrastructure, ensuring ease of doing business in India as well as providing a stable and non-adversarial tax regime and not just working on a 12-month agenda.
For the common man, while wealth tax is abolished, it would be a tricky situation of setting apart additional sums as investment for the future (pension scheme or health insurance) for availing additional tax incentives but being mindful that it would arise from lower disposable income which would be available.
Most goods and services would now be expensive with the hike in service tax/excise duty to 14 per cent and 12.50 per cent and no attempts were made to increase tax exemption/ deduction such as interest on housing loans, medical reimbursements etc. where amendments were anticipated.
The government’s vision is to commit to a fiscal deficit of 3 per cent by FY 2017-18 and expects gross tax revenues to go up by an ambitious 15.8 per cent in the FY 2015-16 and expects GDP to improve between 8.1-8.5 per cent.
The medium term fiscal policy statement indicates that the government expects to balance its books by also hoping to meet a cumulative disinvestment target of '146,000 crores over the next 3 years while anticipating its pension payments to rise to a high of 0.7 per cent of GDP, target subsidies at 1.6 per cent of GDP while trimming down its plan and non-planned expenditure owing to higher devolution plan to the states under the 14th Finance Commission.
Foreign investors have reasons to cheer since GAAR has been deferred and made prospective from FY 2017-18 and there is an intent to commit corporate tax rates to 25 per cent over the next four years and clarity has been brought in on taxation of indirect transfers.
This is not withstanding the fact that in the Budget the finance minister has actually increased the corporate tax rates by levying additional surcharge of 2 per cent and they effectively stand at 34.60 per cent for FY 2015-16, the broad details of how the tax rates would be brought down by more than 10 per cent needs to be seen.
It was disappointing that Mr Jaitley chose to ignore extending concessions on MAT/DDT to special economic zones, deductibility of CSR spends, more clarity on transfer pricing provisions and further there was no mention on incentivising exports.
However, the minister has made attempts to correct the prevalent inverted duty structure in certain capital goods sector to promote the ‘Make in India’ initiative.
Having said this, the proposal to put in place a pre-existing regulatory framework whereby the multiple prior approvals are done away with, extending foreign investments in AIF, clubbing of FDI and PIS scheme for foreign investment into India, clarity on taxation of FIIs, pass through status for specified categories of AIFs, parity to the sponsors of REITs, etc. alongwith the stringent policy measure to curb black money should provide the needed impetus to the economy which is important to the NDA government striving to achieve the double digit GDP growth and impart momentum to the capex cycle.
However, like the railway budget, Mr Jaitley only made passing references to policy reforms/ initiatives such as corporatisation of ports, coal auction, issuance of tax free infrastructure bonds, Indian gold coins/ bonds.
While the Budget may not be a populist one, it is a prudent one which seeks to repair the balance sheet of the country in the medium term and reflect commitment to provide basic necessities/ security to the Aam Aadmi by 2022.
