Budget 2015: Civil Services Mentor Magazine - May - 2015

Budget 2015

Union government presented its first full budget in the parliament on 28th feb 2015. This year’s budget was aimed at high growth, providing investment friendly conditions and improving the physical infrastructure. Along with above objectives budget has also focused on improving the fiscal discipline and making legislative and tax reforms. This was the first budget presented after Centre accepted the Finance commission recommendation. Union government accepted the recommendation of Finance commission to increase the state’s tax pool to 42 percent from central taxes, earlier this used to be 32 percent. Taking all transfers together, about 62% of the money available (including non-plan grants and loans, central assistance to states and UTs and centrally sponsored schemes) to be spent now in India will be with the states. Increase in the size of the states revenue reduces the financial space of the Centre. Several key sectors like education, health etc. will not have a one size fits all policy from central government rather states will have the resources and the policy according to their needs.
Some important facts and policies presented in the budget:-

Headline Numbers

In the interim budget presented last year government set the target to contain the fiscal deficit below 4.1 percent. While the target for 2015-16 was set at 3.5 percent and for the next fiscal year target was reduced to 3 percent. In this years budget government has achieved the target for this year but it has increased the fiscal deficit target to 3.9 percent next year and 3.5 and 3 percent in following years. In this way government will get to the Finance Commission recommendation of 3% fiscal deficit a year later than planned. This has been done to provide adequate public spending in the infrastructure sector and not for the subsidization. Budget document expects consumer inflation to remain close to 5 percent by March, opening room for more monetary policy easing. The GDP growth projections are higher at 8%-8.5% for the next year. But these numbers are also due to change in method of calculating GDP along with change in base year for calculating GDP.

Taxation

Government has tried to make the taxation system simple and more friendly to the investors.

The Wealth Tax has been abolished but an additional surcharge of 2 percent has been imposed on those who have the net taxable income above one crore. Wealth Tax used to get in total around 1000 crore, which is very less as compare to the overall tax collection in India. Administrative cost to collect wealth tax was equivalent to the amount what government used to get from total wealth tax. The 2% surcharge – being a surcharge and not an increase in the marginal rate – can be taken off at any time if the overall tax collections stabilize and look positive.
The Corporate Tax rate will be reduced from 30% to 25% over 4 years starting next. Reduction in corporate tax would be accompanied by removing the exemptions given to corporates. At present most corporate entities pay tax in the range of 20-23% after exemptions. And lot of litigation also happen due to exemptions given, so this step will reduce the litigations of corporates as well.
Service Tax has been increased from 12.36% to 14% to bring the rates in line with the proposed GST rates. This will help in smooth transition from present tax system to proposed GST in 2016.
The General Anti Avoidance Rules or GAAR implementation is deferred by 2 years and also it will not be used retrospectively.

Agriculture

The Government fully support Agriculture Ministry’s organic farming scheme – “Paramparagat KrishiVikas Yojana”.
Pradhanmantri Gram Sinchai Yojana is aimed at irrigating the field of every farmer and improving water use efficiency to provide ‘ Per Drop More Crop’’ , Government proposed allocation of Rs. 5,300 crore to support micro-irrigation, watershed development and the Pradhan Mantri Krishi Sinchai Yojana.
In order to support the agriculture sector with the help of effective agriculture credit and focus on small and marginal farmers, the Finance Minister proposed to allocate Rs. 25,000 crore to the corpus of Rural Infrastructure Development fund (RIDF) set up in NABARD, Rs. 15,000 crore for Long Term Rural Credit Fund; Rs. 45,000 crore for Short Term Cooperative Rural Credit Refinance Fund; and Rs. 15,000 crore for Short Term RRB Refinance Fund.

Infrastructure

Government proposed increased outlays on both the roads and the gross budgetary support to the railways, by Rs. 14,031 crore and Rs. 10,050 crore respectively. The CAPEX of the public sector units is expected to be Rs. 3,17,889 crore, an increase of approximately Rs. 80,844 crore over RE 2014-15.
Government also proposed to establish National Investment and Infrastructure Fund (NIIF) with an annual flow of Rs. 20,000 crore.
Tax free infrastructure bonds for the projects in the rail, road and irrigation sector.
Atal Innovation Mission(AIM) will provide Innovation Promotion Platform involving academicians, and drawing upon national and international experiences. A sum of Rs. 150 crore is proposed to be earmarked for the mission.
Government also proposes to set up 5 new Ultra Mega Power Projects each of 4000 MWs in the plug-and-play mode.