Posted On Saturday, Feb 28, 2015
Snapshot of the Budget 2015
The Finance Minister delivered a tepid budget where everyone was hoping for a path-breaking budget or "super budget". The Finance Minister, Mr. Arun Jaitley remained committed to the path of fiscal consolidation, although the expected deficit for next year was more than what the markets hoped to see.
Here is a snapshot of those parts of the budget which are pertinent to you, as an investor. Our fund managers have also given their views on their individual asset classes and the impact that this budget has had on them.
Our verdict – a typical budget which outlines the growth path for India till 2020, nothing path breaking or sensational.
Highlights of the Budget:
For the Economy
|•||GDP growth for 2015-16 is projected between 8 - 8.5 percent (under the changed calculation method). Estimated GDP for current fiscal is 7.4%. The FM has kept this figure in mind while outlining the budget for this fiscal year.|
|•||GST will be put in place as a state of art indirect tax system by April 1st 2016. Implementation of this could pose a challenge, but a good move by the FM to put a date to the implementation.|
|•||Infrastructure outlays for roads and railways go up. Investment in infrastructure will go up by Rs. 70,000 crore in 2015/16 over last year. The need of the hour is to boost infrastructure spending, another positive from the FM.|
|•||FM proposes to introduce gold monetization scheme to allow investors to earn interest in metal account. Also says an alternative sovereign gold bond to replace physical gold.|
|•||It is also proposed to work on developing an Indian gold coin which carries the Ashok Chakra to help recycle gold available in country.|
|•||FM proposes to reduce the rate of corporate tax to 25 percent from the current 30 percent over the next four years.|
|•||Service tax has been raised from 12.36 percent to 14 percent. Dividends paid by companies and mutual funds will get affected by this change.|
|•||Indirect tax: Government to reduce custom duty on 22 items.|
|•||Increased limit on deduction of health insurance premium from Rs 15,000 to Rs 25,000.|
|•||Additional deduction of Rs 50,000 for NPS under section 80CCD, with aim of moving from pensionless to a pension society.|
|•||Transport allowance increased to Rs 1600 a month from the current Rs 800.|
|•||Debit card transactions to be encouraged and cash transaction dis-incentivized.|
|•||EPF contribution by employees may become optional. Employee may opt for EPF or the New Pension Scheme (NPS).|
|•||FM proposes to replace wealth tax with additional 2% surcharge on the super rich (those earning above Rs 1 crore in a year). This will add Rs 9000 crore to the government's kitty|
|•||Quoting PAN made compulsory for transactions more than Rs 1 lakh.|
There were some high expectation from budget and it has not lived up to that. On the positive side, there have been measures to increase infra funding as well as implementation of projects. Corporate tax rates are proposed to be reduced by 5%, and many of the exemptions will be taken away. The effective rates will actually increase for corporate India as a whole-although some specific companies may benefit from lower taxes.
There has been social and rural spending. Measures have been announced on tackling of domestic as well as off shore black money in-line with promise made by the government earlier. However, fiscal deficit targets have been postponed and government maintains to introduce Goods and Services Tax (GST) by the start of April 2016. GAAR has been deferred, as was expected. There have also been benefits announced which will help SMEs. It wasn’t a “dream budget” or a “super budget” as was made out by markets or media.
The fiscal deficit target has been modified to 3.9% in 2015-16, 3.5% in 2016-17 and 3% in 2017-18. The previous targets was 3.6% of GDP and 3% levels This is due to 14th Finance Commission recommendations. 62% of the central revenue would now go to states from 52% level. The revenue deficit is targeted at 2.8% of deficit for the current financial year. Finance minister has accepted the monetary policy framework of making RBI responsible for maintaining CPI inflation below 6% levels. The finance minister also expects CPI inflation to be around 5% in the current financial year.
In some way, measures like introducing the gold monetization scheme, the sovereign gold bond etc. serve as a useful link towards monetizing gold/curtailing gold demand. However, there are a few concerns on the successful working of the scheme. A gold bank/corporation dedicated towards this task should have been setup to ensure smooth implementation/functioning of the gold monetization program which was missing in the announcements. There have been several gold monetization schemes launched over years but none seem to have been close to the desired objective. The success would depend on various factors most importantly interest rates offered on gold metal accounts and the sovereign gold bond. The current interest rates of close to 1% are not enough to incentivize holders to part away with their gold. Something like 5-6% interest rates are likely required to entice investors.
To conclude, we believe that the Budget is a decent attempt by the FM to chart a growth path for the economy, which had been stagnating in the past. However, as the FM has laid out a fiscal path for the country, as investors, we need to plan our household budgets just as well and must remember to be focused on our long term fiscal goals.
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