Finance Minister of India – Arun Jaitley
By Sharan Bhagavath
At the outset let me state, I am not a financial expert, economist or analyst. My view of the Modi Government’s first budget is purely from a layman’s perspective. If I were asked to define the key themes of the budget, then I would Infrastructure, Energy, and Manufacturing. But I guess Arun Jaitley made that clear in his opening speech, on the State of Economy, where his priorities would lie, to revive growth in manufacturing and infrastructure. The emphasis was laid on the fact that the Fiscal Deficit declined from 5.7% of GDP in 2011-12, to 4.8% in 2012-13. To put it in simple terms, the Fiscal Deficit generally occurs when the Government’s expenditure is much less than the Revenue generated. Generally, Governments try to seek more revenue-generating sources to bridge the gap, but in this case, what the previous UPA Government was doing was cutting down expenditure without actually generating revenue. Even the reduction in Current Account Deficit, from 4.7 in 2012-13 to 1.7 was done through restriction on imports. What was basically happening was a sort of austerity measure to try to balance budgets by cutting down on expenditures, cutting down on shopping. But the fact is that unless you are getting revenues from somewhere, such cost cutting measures are more of a Band-Aid measure.
Taxation:
Goods and Services Tax, a long due measure, has been introduced pending issues to be settled with states (some apprehensive of surrendering their jurisdiction and others wanting compensation). Maybe a final take on this issue could be in 2015 Budget. In case of the very contentious Retrospective Tax, the Government has decided not to go for any random application of it, and would refer to a High Level Committee by CBDT.
At a personal level, hiking the investment limit under Section 80C to 1.5 lakhs, and deduction limit on housing loans to 2 lakhs would be beneficial for me as a tax payer. Personally, I really don’t gain or lose much by increasing the IT exemption limit to 2.5 lakhs, but it would sure benefit many in that category.
FDI:
With the Modi Government’s emphasis on FDI for revenue generation, the Budget also follows the same path. FDI has been raised in Defence manufacturing to 49% from the previous cap of 26%. In a way, this would reduce dependence on foreign manufacturers and having to import such equipment. FDI has been increased in the Insurance sector too from 26% to 49%. For FDI in Smart Cities, built up area and capital conditions have been reduced, to get more investors here. One more feature is that manufacturing firms can sell through Retail or Online sans approval.
Banking:
One interesting proposal to raise equity in the Banking sector to 240,00cr by 2018 is to increase shareholding in public banks while retaining the public ownership of the banks. Another proposal was to make the Public Sector banks more autonomous. But knowing Public Sector inefficiencies, I’m not sure how effectively this can be implemented.
E-Visa:
One of the better proposals in the Budget (introducing an E-Visa to visitors at 9 airports in India) will definitely give a strong boost to the Tourism industry. Another good proposal is to have a Uniform Account Number for EPFO. Having faced lot of hassles transferring PF amounts from my earlier companies, this sure would be a relief.
MGNREGA still continues, while Jaitley says its beneficiaries would be put to productive work, it still essentially is old wine in a new bottle. I honestly feel that the MGNREGA program is one that needs to be scrapped, but am sure it won’t happen as it is such a political hot potato.
Extending the provision of bank loans to women’s Self Help Groups in Rural Areas to an additional four districts is a good step as is the proposal to set up a Village Entrepreneurship Program for Rural Youth.
Healthcare:
I was hoping to see much heavier investment in the Healthcare sector. But the Government is proposing to build four more AIIMS and approving fifty-eight more Government medical colleges. The proposals here are vague and ambiguous and I’m hoping to see these plans fleshed out in more detail in the near future.
Education:
Apart from announcing funds allocations for some grandiose yojanas, I’m not seeing much emphasis on Education. Also the obsession with setting up more IIT’s and IIM’s continues without looking at ways to improve the quality of the existing institutions.
Agriculture:
Good proposal to set up two more Agricultural Research Institutes at Jharkhand and Assam. Agricultural Universities have been proposed for Andhra Pradesh, Rajasthan, while Telangana and Haryana get Horticultural Universities. Mobile Soil Testing Labs I feel is a good idea, considering the increasing salinity in many soils all over India. Good to see landless farmers, the most vulnerable group in India today, getting attention with a proposal to provide finance through NABARD, however unless the leakages are plugged effectively, will be the same story. Most of the existing schemes of NABARD continue with funds raised for Rural Infrastructure Development Fund and Short Term Cooperative Rural Credit Fund.
Industry:
One really good proposal is setting up a common platform, that would run 24/7 for all business and investment related clearances with an integrated payment gateway. This would go quite a long way in reducing the red tape and hassles. Seven Industrial Smart cities have been identified, of which three are Krishnapatnam in Andhra Pradesh, Ponneri in TN and Tumkur in Karnataka. The announcement of the Bangalore-Mumbai and Vizag-Chennai corridor would surely boost growth in both the regions. Andhra Pradesh seems to have got special focus, with Kakinada being identified as a hub for hardware manufacturing. It is not all about the large industries as there has been due focus on SMEs with proposals to generate more funds. Setting up Textile Clusters in 6 cities- Surat, Kutch, Bhagalpur, Mysore,Bareilly, Lucknow and one in TN, is a good step that will boost the industry.
One really good proposal for manufacturing is spreading the investment allowance at a rate of 15% to any company that invests more than 25cr, in new machinery and plants – it was 100cr earlier. What this effectively means is that for a 3-year period, if a company wishes to invest more than 25cr in new plants or machinery, it gets a good benefit and this can create great stimulus to boost manufacturing growth. Another good step is extending the investment level deduction to semi-conductor wafer fabrication manufacturing units, which could boost the industry.
Basic customs duty has been cut on items related to the petrochemicals sector, as also many other items involved in industries like soap making, spandex yarn. Special Additional Duty has been exempt for components used in manufacture of personal computers and smart cards, a step that seems to have been taken to boost the computer hardware sector. CRT TVs have been made cheaper, while basic customs duty has been slashed on LCD, LED TVs to boost their production. So if you are planning to buy that LCD or LED TV for your home, this could be the right time. On the other hand, tariffs and duties have been increased on imported items, ostensibly in a bid to protect domestic industry.
Uniform duty has been placed for all varieties of coal, uncut diamonds as well as polished diamonds, not sure how effective this would be.
Infrastructure and Energy:
Infrastructure and Energy is another focus area of the Budget as we can see with the proposal of 16 new Ports under Sagar Mala project, and development of Outer Harbor in Tuticorin. The inland waterway between Allahabad and Haldia on the Ganga is one really good proposal, which if implemented well, can give a boost to inland shipping. Inland waterways have been effectively used in Europe, US, Canada and the UK for trade and commerce and the same can be implemented well in India too. Rupees 3000cr has been earmarked for North East Roadways, which is a good step for achieving further integration with the Indian mainland. Giving a 10-year tax holiday to power companies undertaking Production, Transmission and Distribution of power will be a good step for the power sector as well.
Emphasis on renewable energy is quite visible in this budget with the proposal to set up Solar Energy projects in Ladakh, Rajasthan, Gujarat, and Tamil Nadu. Allocating funds for solar driven agricultural pump sets would be quite an effective proposal in a power starved country like India. One more step is slashing customs duty for components used in manufacture of solar photo voltaic cells, modules as well as equipment needed for manufacture of wind operated electricity generators. Concessional duty has been given to machinery, and equipment for a Bio-CNG plant to boost investments there.
Defense:
As expected, the Government has hiked the spending on Defense, to around 229,000cr, and increasing capital outlay by 5000cr for modernization of Defence forces, a long-standing demand. Another long overdue measure is setting up the War Memorial and War Museum. Allocation has also been increased for police forces, strengthening infrastructure in border areas as well as development of villages there.
Smaller initiatives:
Promotion of Community Radio Stations is a good proposal, as also setting up a National Centre for Excellence in Gaming and Animation.
Metro Projects announced for Lucknow and Ahmedabad, as also increasing allocation to Pooled Municipal Debt Obligation Facility for Urban Development.
Regarding Tourism, Science and Technology and Sports, there are some announcements full of rhetoric, which may possible, contain very little substance. Converting Employment Exchanges to Career Counseling Centers is a good proposal though.
What costs more and what costs less?
If you are a smoker, or love guzzling down cold drinks, cut down on the habits, as these would surely be costing more in the future. Consumer electronics like LED, LCD TVs would cost less, so this is the right time to splurge on that TV set you had wanted to buy. With ready-made garments and footwear to cost less you could also be splurging there. Again if you use radio cabs a lot, do look out, service tax has been placed on that, and you could end up paying more.
My take on the budget overall is that the focus seems to be on Manufacturing, Renewable Energy, Infrastructure, and Defense while Taxation and Agricultural Schemes are status quo. There was not much to celebrate about regarding Education, and Healthcare, and that is a bit disappointing. Based on my personal assessment, it is not a Dream Budget, but it is not a Nightmare Budget either.
Leave a Reply