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Tuesday, March 3, 2015

Indian Union Finance budget 2015-16 analysis

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Indian Union Finance budget 2015 analysis: Finance Minister Arun jaitley presented his first full-year Union finance budget in Parliament of india on 28th February 2015. Following are analysis of key announcements of the budget 2015 and complete analysis of Indian Union Budget 2015. Analysis would be a strongly influenced by the direct impact of these newly announced provisions
and how it would work/affect Indian economic growth. Highlights of the budget are categorized according to the part of economy which they affect directly. I have tried to do point by point analysis of whole budget acting as critic of those which could be avoided and favouring those which were necessary and pending from long time.

Economic Growth Projection

# GDP growth seen at between 8 percent and 8.5 percent on yearly basis
- Global economy is facing a lean period and can be seen as growth rate of Chinese GDP has deteriorated a little and is in 7-7.8 percent range. So for 2015-16 India's GDP growth should be in same range too as global market is in first gear and moving slowly currently.
# Nominal economic growth seen between 11 and 12 percent
- fingers are crossed but this scenario is highly unlikely as no steps are taken in budget keeping increase in spending capacity of the tax-payers. Can happen if there are quality job creations in this year.
# Aiming double digit growth rate, achievable soon
- Aim is good, but first point contradicts this point itself.


# Fiscal deficit seen at 3.9 percent of GDP in 2015-16
- Is achievable as govt has not changed any tax rate however government earning from sale of petrol and diesel has increased by INR7.50 per liter for petrol and INR 6.50/litre for diesel, Excise from sale of fuel is major income source for indian government.
# Will meet the challenging fiscal target of 4.1 percent of GDP.
- Challenge met , thanks to falling crude oil prices and increasing excise duty on retail fuel which contradict with government's stance of market linked prices of fuel.
Remain committed to meeting medium term fiscal deficit target of 3 percent of GDP, Current account deficit below 1.3 percent of GDP
- Good news but where this extra money earned is utilized is more important to know.
- Jaitley says have to keep fiscal discipline in mind despite need for higher investment.
- Clearly showing that this budget would focus on enriching the billionaires even further and nothing would be done for congress vote-bank(poor, underprivileged) as for keeping fiscal deficit at this level there would be definite decrease in social reforms


#Revenue deficit seen at 2.8 percent of GDP.
# Non tax revenue seen at 221000 crore INR.
# Details about utilization of this revenue is what is more important to know for every citizen.
# Agricultural incomes are under stress

- So, where are the measures, Recently government has sent an affidavit to Supreme court clearly mentioning that MSP of agricultural products cannot be increased by 1.5 times from present, This is something which was part of BJP's manifesto but now can be called Jumla(oops! I am becoming Shahji)
# Net receipts under market stabilisation scheme estimated at 20000 crore INR
- Good

Public Sector Disinvestment

# Government targets 41000 crore INR from stake sales in companies in 2015-16
- Very good move indeed.
# Total stake sale in 2015-16 seen at 69500 crore INR
- Make private corporates major stakeholders in majority of PSU's as it would help in making them competitive instead of just sitting there for getting govt grants
# Sets stake sale target for 2016-17 at 55000 crore INR
-Good move again, but details about how to invest this money back inti economy is more important as of now.
# Revises down stake sale target for 2014-15 to 31350 crore INR
-We understand as elections were around this year.

Corporate Tax Reforms

# To abolish wealth tax
-Time to pay back the money spent during elections by waelthy/corporations
# Replaces wealth tax with additional 2 pct surcharge on super rich.
- Does it matter? or equals amount of money received from weath tax?, probably not!
# Proposes to cut to 25 percent corporate tax over next four years
# Corporate tax of 30 percent is uncompetitive
-OK, so sector in which company operates doesnot matter.
# Net gain from tax proposals seen at 15068 crore INR
# Arun Jaitley proposes modification of permanent establishment norms so that the mere presence of a fund manager in India would not constitute a permanent establishment of the offshore fund, resulting in adverse tax consequences.
-Good Move
# Proposes to rationalise capital gains tax regime for real estate investment trusts
# Extends withholding tax concession on foreign debt purchases by two years
# Expects to implement goods and services tax by April 2016
-Are all states willing for it Mr. Finance Minister?
# To reduce custom duty on 22 items
# Basic custom duty on commercial vehicle doubled to 20 percent
# Proposes to increase service tax rate and education cess to 14 percent from 12.36 percent

-Salaried class an easy target and would bear the burnt of this increase
# Plans to introduce direct tax regime that is internationally competitive on rates without exemptions
- Any deadline when this plan would be ready?
# Exemptions for individual tax payers to continue
- During election campaign in Punjab in 2014 Arun Jaitely strongly signalled to increase tax slab from 2lac to 5 lac Arun jaitely's Jumla. Was it just a chunavi Jumla from the now FM of India?
# To enact tough penalties for tax evasion in new bill
- Even for corporates who paid for election campaigning costs?
# Tax dept to clarify indirect transfer of assets and dividend paid by foreign firms


#No revision of income tax brackets
-During election campaign in Punjab in 2014 Arun Jaitely strongly signalled to increase tax slab from 2lac to 5 lac Arun jaitely's Jumla. Was it just a chunavi Jumla from the now FM of India?
# Limit of deduction of health insurance premium increased to 25,000 INR from 15,000 INR; limit increased to 30,000 INR from 20,000 INR for the elderly
- OK, Insurance companies which are in hands of corporates would now increase premiums of health insurance for sure, more money to fill their pockets, Trickle down economics failure here
# People aged above 80 and not covered by health insurance to be allowed deduction of 30,000 INR for medical expenses
- Good Move
# Additional deduction of 25,000 INR for the disabled
- very good move
#Limit on deduction for contributions to pension fund and new pension scheme increased to 150,000 INR from 100,000 INR
#Would bring additional money in circulation
# Additional deduction of 50,000 INR for contribution to new pension scheme under section 80CCD
# Monthly transport allowance exemption doubled to 1,600 INR

- Mr. Finance Minister why don't you link this component with retail prices of fuel instead. This is raised from INR800 per month to INR1600 after 18 years


# Government defers rollout of anti-tax avoidance rules GAAR by two years
# Shit! how can you do that?
# GAAR to apply prospectively from April 1, 2017
# Retrospective tax provisions will be avoided

- Good Move


# To enact a comprehensive new law on black money
- 15 lac in bank account Jumla has already started hurting BJP's prospects in state elections, Results are needed now rather then just giving time to account holders to make adjustments to stashed money.
#Propose to create a universal social security system for all Indians
- End of Road for Aadhar card/UID?
# To launch a national skills mission soon to enhance employability of rural youth
-How many new jobs would be created for these employable rural youth?
# To raise visa-on-arrival facility to 150 countries from 43
Good Move. Any increase in tourist safety index ranking of India?
#Govt set aside 34699 crore INR for rural employment guarantee scheme.
- Good Move
Raises threshold for application of transfer pricing rules to 20 crore INR from current 5 crore INR
- Rich benefitted

Changes to Import Tax

# Import tax on iron and steel increased to 15 percent from 10 percent
- Good for domestic manufacturers
#Import tax on metallurgical coke increased to 5 percent from 2.5 percent.
- Good for Local manufacturers

Development of Infrastructure

# Investment in infrastructure will go up by 70000 crore INR in 2015-16 over last year
-Good Move, how much percentage of this would be used at ground level is what matters the most.
# Plans to set up national investment infrastructure fund
- Lot of private Infrastructure funds are already present
# Proposes tax-free infrastructure bonds for projects in roads, rail and irrigation projects
-Infact a good move
# Proposes 5 "ultra mega" power projects for 4,000 MW each
-Thermal,hydro, nuclear? which one
# Second unit of Kudankulam nuclear power station to be commissioned
- Good Move.

Govt Investment Proposals

# Government to provide 7940 crore INR capital infusion to state-run banks.
-Ok, don't invest it in sick units though
# Propose to do away with different types of foreign investment caps and replace them with composite caps
# To allow foreign investment in alternative investment funds
# Will need to build additional 100,000 km of road
# Ports in public sector will be encouraged to corporatise under Companies Act

-Disinvestment needed here

Tobacco sector

# Raises excise duty on cigarettes by 25 percent for cigarettes of length not exceeding 65 mm
-ITC is already down and it's market cap has declined from 2nd to 3rd place
# Raises excise duty by 15 percent for cigarettes of other lengths
-Again a good move

Updates on Subsidies

# Food subsidy currently at 124000 crore INR
# Fertiliser subsidy seen at 72969 crore INR

- How many ministers have fertilizer plants?
# Fuel subsidy seen at 30000 crore INR
- Kerosene, LPG comes under it.
#We are committed to subsidy rationalisation based on cutting leakages.
- Subsidy directly to bank account is a nice move

Summarizing the Union Finance Budget 2015:
The budget looks very pro-corporates/rich/businessman. Majority of the exemptions/sops were given to the superrich in budget and frankly speaking votebank of Congress party and others was ignored completely. Government has increased rates of indirect taxes. Service tax on broadband is increased to 14 percent. There is no increase in tax slabs which is quite in contrast with Arun jaitely's rant during electoral rallies ahead of lok sabha polls in 2014. Service class(as usual) is again taken for a ride and would expect minimum 5000 per month overall increase in monthly budget(for a family of 4 in metro). Government has tried to woo businessmen by giving tax benifits but remains mute on how many new jobs creation it targets for the fiscal year 2015-16. This concludes analysis of Finance Budget 2015, keep your fingers crossed and hope that government meets the growth targets as proposed in Budget

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