India’s Union Budget 2014 - 15


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India’s new finance minister, Arun Jaitley, presented his maiden Budget on July 10. Much has been expected from this government, which is widely considered to be pro-industry and reform-friendly.

While the Budget had significant announcement like the raising of foreign investment caps in defense and insurance, as well as a change in income-tax norms, it also set very ambitious growth targets.

Can Jaitley achieve them even as the global economy struggles to get back on track? This is an uphill task and will require more bold and politically tough decisions.

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India’s Union Budget 2014 - 15

  1. 1. India’s Union Budget 2014-15 India’s Finance Minister Arun Jaitley presented his maiden Union Budget on July 10. The Budget, which had been eagerly awaited from a new government that is widely considered to be industry-friendly and pro-reform, was the first glimpse into the mindset of the Narendra Modi regime. Here are the highlights of the Budget and its implications: Growth  With growth stagnating over the past three years, the economy was thought to be in a precarious position.  The Economic Survey (2014-2015) has pegged GDP growth at 5.4%-5.9% in 2014-15, overcoming the sub-5% growth of the past two years.  Jaitley has now set an ambitious growth target of 7%-8% over the next three years. Fiscal Deficit As % of GDP 2014-15 2015-16* 2016-17* 4.1% 3.6% 3% Spending In Rs trillion 2014-15 Total expenditure 17.94 Plan expenditure 5.75 Non-plan expenditure (with additional provisions for fertiliser subsidies and capital expenditure for armed forces) 12.19
  2. 2. Direct Taxes Income slab Tax rate Up to Rs 250,000 Nil Rs 250,000 lakh – Rs 500,000 10% Rs 500,000 – Rs 10,00,000 20% Rs 10,00,000+ 30%  No revision of tax rates.  Personal income-tax exemption limit for senior citizens (above 60 years) increased from Rs 250,000 to Rs 300,000.  Personal income-tax limit raised from Rs 200,000 to Rs 250,000 for all others.  No change in rate of surcharge for corporations and individuals.  Tax deduction limit on housing loan interest in case of self-occupied property raised to Rs 200,000 from Rs 150,000 lakh.  Education cess for all taxpayers remains 3%.  Investment limit under section 80C raised to Rs 150,000 from Rs 100,000. Corporate and Indirect Taxes  Investment allowance of 15% to manufacturing companies that invest more than Rs 25 crore in a year in new plants and machinery. This benefit will be available for three years – that is, for investments up to March 31, 2017.  Income for foreign portfolio investors from transaction in securities to be treated as capital gains.  Colour picture tubes exempted from basic customs duty to make cathode ray TVs more affordable.  Increase in basic customs duty on imported flat-rolled products of stainless steel from 5% to 7.5%.  Concessional basic customs duty of 5% extended to machinery and equipment required for setting up solar energy production projects.
  3. 3.  Reduction in basic customs duty from 10% to 5% on forged steel rings used in the manufacturing of bearings of wind-operated electricity generators.  Basic customs duty on metallurgical coke raised from nil to 2.5%, in line with the duty on coking coal.  Duty on ship-breaking scrap and melting scrap of iron or steel rationalised by reducing the basic customs duty on ships imported for breaking – from 5% to 2.5%.  Export duty on bauxite raised from 10% to 20%.  Excise duty on footwear of retail price between Rs 500-Rs 1,000 per pair reduced from 12% to 6%.  Specific rates of excise increased on cigarettes in the range of 11% to 72%.  Excise duty on paan masala increased from 12% to 16%, on unmanufactured tobacco from 50% to 55% and on gutkha and chewing tobacco from 60% to 70%.  Additional excise duty of 5% on aerated waters containing added sugar. Goods and Services Tax  Jaitley committed to rolling out the Goods and Services Tax (GST) in the current year to streamline tax administration.
  4. 4. Manufacturing  Jaitley has pushed for the setting up of 100 smart industrial cities.  Six textile clusters at a cost of Rs 200 crore in Rae Bareli, Lucknow, Surat and Bhagalpur.  Rs 100 crore for a National Industrial Corridor Authority. Utilities  Rs 500 crore for ultra-mega solar power projects in Gujarat, Rajasthan, Tamil Nadu, Andhra Pradesh and Ladakh.  10-year tax holiday extended to undertakings which begin generation, distribution and transmission of power by March 31, 2017.  Rs 100 crore initially provided for the ‘Ultra-Modern Super Critical Coal Based Thermal Power Technology’ scheme.  Rs 200 crore for power and Rs 500 crore for water reforms in Delhi.  15,000 km of additional gas transport infrastructure to be introduced under the public-private- partnership mode. Transportation and tourism  Rs 100 crore for metro rail services in Lucknow and Ahmedabad.  Rs 4,200 crore for the Jal Marg Vikas project on the Ganga, connecting Allahabad to Haldia across 1,620 km.  E-visa facility at nine airports.
  5. 5. Infrastructure  Rs 37,880 crore for road building through the National Highway Authority of India; the allocation includes Rs 3,000 crore for the North-East.  The national highway construction target of 8,500 km for this fiscal to be achieved.  Rs 11,635 crore for Phase 1 of the Outer Harbour Project in Tuticorin.  Emphasis on new airports for Tier 2 cities. Agriculture  Agricultural Research Institute of excellence to be launched in Assam and Jharkhand with an initial sum of Rs 100 crore.  Rs 100 crore set aside for the ‘Agri-Tech Infrastructure Fund.’  Scheme to provide every farmer a soil health card in a ‘mission mode’; Rs 100 crore provided for this. An additional Rs 56 crore to set up 100 mobile soil testing laboratories across India.  Rs 500 crore to establish a ‘Price Stabilisation Fund’ to mitigate the risk of price volatility in agricultural produce.  Rs 800,000 crore target for agriculture credit in 2014-15.  Rs 5,000 crore for the Warehouse Infrastructure Fund.  Rs 50,000 crore for short-term cooperative rural credit.  Rs 1,000 crore for the Pradhan Mantri Krishi Sinchayee Yojna for assured irrigation.  Rs 100 crore dedicated to Kisan TV will ensure price, weather and related information to farmers and help them take timely decisions
  6. 6. Rural Development  Rs 14,389 crore for the Pradhan Mantri Gram Sadak Yojna.  Allocation for the National Housing Bank increased to Rs 8,000 crore to support rural housing.  ‘Neeranchal’ programme to push watershed development with an initial outlay of Rs 2,142 crore.  Allocation of Rs 500 crore for ‘Digital India’, an initiative to set up a broadband network in villages and to promote local manufacturing of hardware and Indian software products. Defence  FDI in defence hiked to 49% from the present 26%.  Capital outlay increased by Rs 5,000, crore including Rs 1,000 crore for accelerating the development of a railway system in border areas.  Rs 3,000 crore for modernisation of state police forces.  Rs 2,250 crore to strengthen and modernise border infrastructure. Healthcare  AIIMS-like institutions to be introduced in Andhra Pradesh, West Bengal, Vidarbha and Poorvanchal  15 model rural health research centres to be set up for research on local health issues. Education  Rs 28,635 crore for the Sarva Shiksha Abhiyan and Rs 4,966 crore for Rashtriya Madhyamic Shiksha Abhiyan.  Rs 500 crore for the ‘Pandit Madan Mohan Malviya New Teachers Training Programme’ to introduce new training tools and to motivate teachers.
  7. 7.  Rs 500 crore for five more IITs in Jammu, Chhattisgarh, Goa, Andhra Pradesh and Kerala.  IIMs to be introduced in Himachal Pradesh, Punjab, Bihar, Odisha and Rajasthan. Women’s empowerment  Rs 50 crore for pilot testing a scheme on safety of women in public road transport.  Rs 150 crore on a scheme to increase women’s safety in large cities.  Crisis management centres to be introduced across the National Capital Territory in government and private hospitals.  Rs 100 crore for the ‘Beti Bachao, Beti Padhao Yojana’, a focused scheme to generate awareness and help in improving the efficiency of delivery of welfare services for women. Capital Markets/Banking and Insurance  FDI in insurance increased to 49% from 26%, with full Indian management and control.  Uniform tax treatment for pension fund- and mutual fund-linked retirement plans.  Banks encouraged to extend long-term loans to the infrastructure sector with flexible structuring.  Six new debt recovery tribunals.  For venture capital for medium and small enterprises, a Rs 10,000-crore fund to act as a catalyst to attract private capital by providing equity, quasi-equity, soft loans and other risk capital for start- ups.