Budget 2014: FM Arun Jaitley says eyeing 'expansion of economy without hurting aam aadmi'; reforms hype fails

Written by Agencies | New Delhi | Updated: Jul 11 2014, 03:42am hrs
Budget 2014Finance Minister Arun Jaitley poses as he leaves his office to present the federal budget for the 2014/15 fiscal year, in New Delhi. (Photo: Reuters)
The Budget for 2014-15 today left income tax rates unchanged but provided sops to small and marginal assessees by raising the threshold exemption limit from Rs 2 lakh to Rs 2.5 lakh and investments under 80C by Rs 50,000 to Rs 1.5 lakh while promising not to bring tax changes with retrospective effect.

However, given the extreme hype generated by the govt as well as the media, the Budget failed to deliver on any big ticket issue.

While the Budget is low on big-bang announcements, it is highly focused on smoothening out the operational irritants that impede business decision making. The Budget aims at creating a business friendly environment and sending a strong signal that the government is focused on fiscal discipline," Amit Rathi, MD, Anand Rathi Financial Services Ltd.

Presenting the maiden budget of the BJP-led NDA government, Finance Minister Arun Jaitley raised the deduction limit on interest on housing loan for self-occupied property from Rs 1.5 lakh to Rs 2 lakh and free-baggage allowance for inbound passengers from Rs 35,000 to Rs 45,000.

"Considering the inflationary trends in the economy, a substantial increase in the Income tax slab was expected. However, there is only a marginal relief of INR 5,000 (excluding surcharge and Cess) in the Union Budget 2014, leading to a disappointment to the individual tax payers. This relief of INR 5000 is without considering the impact of the increased deduction under Section 80C of the Income tax Act. Although, the Government seems to be focused on providing incentives for women, no special tax relief has been granted to the working women," says Divya Baweja, Partner, Deloitte Haskins & Sells LLP.

The Budget makes cigarettes, tobacco, pan-masala, gutka and cold-drinks costlier by raising excise duties while CRT TVs used by poor, LCD and LED TV panels of less than 19-inches will be cheaper through cuts in customs duties.

In encouraging signals to domestic and foreign investors, Jaitley announced that all fresh cases arising out of retrospective amendments of 2012 in respect of indirect transfers will be scrutinised by a high level committee to be constituted by the CBDT before any action is initiated.

"I hope the investor community both within India and abroad will repose confidence on our stated position and participate in the Indian growth story with renewed vigour," he said, offering a stable and predictable tax regime.

He also said the government will revive the revised Direct Taxes Code (DTC) taking into account the comments of stakeholders.

The Finance Minister said government will promote FDI by raising the cap to 49 per cent in Defence and Insurance with full Indian management and control.

The direct tax proposals involve a sacrifice of Rs 22,200 crore while indirect tax proposal will yield a revenue of Rs 7,725 crore.

The Budget raises defence spending by 12.5 per cent to Rs 2.29 lakh crore. Non-plan expenditure for the current year has been estimated at Rs 12,19,892 crore with additional amount for fertiliser subsidy and capital expenditure for armed forces.

There is everything for everyone, the Budget is positive. Keeping the short time the government is in power, the Budget tries to inject motivation and momentum. But disappointed with no big reform announced except FDI in Defence and supply of capital for long term capital assets looks good. Not a firecracker budget, beginning of acche gin has started in a small way, Pramoud Rao, MD, Zicom

The total expenditure estimates stand at Rs 17,94,892 crore. Gross tax receipts will be Rs 13,64,524 crore, of which Centre's share will Rs 9,77,258 crore. Non-tax revenues for current financial year will be Rs 2,12,505 crore and capital receipts other than borrowings will be Rs 73,952 crore.

The Budget pegs the fiscal deficit for the current fiscal at 4.1 per cent of the GDP and 3.6 and 3 per cent in 2015-16 and 2016-17 respectively.

In an apparent reference to the previous government, Jaitley said slow decision making had resulted in a loss of opportunity and two years of sub-5 per cent growth in the economy has resulted in challenging situation.

He said government intends to usher in a policy regime that would bring the desired growth, lower inflation, sustained level of external sector balance and prudent policy stance.

The Finance Minister said the present situation presents a challenge of slow growth in manufacturing sector, in infrastructure and also the need to introduce fiscal prudence.

The tax to GDP ratio must be improved and non-tax revenue increased, he said while pruning the negative list for levy of service tax.

The government will constitute an Expenditure Management Commission to look into every aspect of expenditure reform. It will overhaul the subsidy regime while providing full protection to the marginalised.

Jaitley said the government would like to introduce the Goods and Services Tax (GST) to streamline tax administration, avoid harassment of business and ensure higher revenue collection.

The Budget proposes to infuse Rs 2.40 lakh crore in PSU banks in which citizens will be allowed direct shareholding.

The Budget sets a target of Rs 8 lakh crore for agriculture credit during the current year and will continue the interest subvention scheme and raise the corpus of rural infrastructure development fund (RIDF) to Rs 25,000 crore.

Towards food security, the government commits itself to restructuring Food Corp of India (FCI), reducing transportation and distribution losses and efficacy of PDS.

Wheat and rice will be provided at reasonable prices to weaker sections.

In direct taxes, the Budget makes no changes in the rate of surcharge for any class of tax payer while continuing the education cess at 3 per cent for all.

As a measure of encouraging infrastructure and construction sectors to revive growth and provide jobs, the Budget provides tax incentives for real estate investment trust and infrastructure investment trust.

In manufacturing, considering the need to incentivise smaller entrepreneurs, it provides investment allowance at the rate of 15 per cent to a manufacturing company that invests more than Rs 25 crore in a year in plant and machinery for three years.

Jaitley also proposed to extend the investment linked deduction to new sectors namely slurry pipelines for transportation of iron ore.

The concessional tax rate of 15 per cent on dividends received by Indian companies from foreign subsidiaries is being continued because it has resulted in enhanced repatriation of funds. There is no sunset date to ensure stability of policy.

To enhance the functioning of income tax department as facilitators, 60 more Ayaykar Seva Kendras will be opened to promote excellence in service delivery.

Taking note of the fact that power supply continues to a major area of concern in the country, the Budget proposes to extend the 10-year tax holiday to undertakings which begin generation, transmission and distribution by March 31, 2017,

instead of annual extensions.

As part of financial inclusion mission, a special small savings instrument to cater to the requirement of education and marriage of the girl child will be introduced.

A National Savings Certificate with insurance cover will also be launched to provide additional benefits for small savers. In the PPF scheme, annual ceiling will be enhanced to Rs 1.5 lakh per annum from Rs 1 lakh at present.

In defence allocation, Rs 1000 crore has been set apart for implementing one-rank-one-pension policy. Capital outlay for defence has been raised by Rs 5,000 crore over the amount provided in the interim budget.

The Finance Minister also announced setting up a war memorial, war museum and a national police memorial. For modernisation of state police forces, Rs 3,000 crore has been allocated.

An integrated Ganga conservation mission, called 'Namami Gange' is proposed to be set up with an outlay of Rs 2,037 crore for this year.

An NRI fund for Ganga will be set up which will finance special projects. Rs 100 crore have been set aside for ghat development and beautification of river front at Kedarnath, Varnasi, Haridwar, Kanpur, Allahabad, Patna and Delhi.

A 1,620-km Ganga inland waterway development from Haridwar to Haldia is planned to be completed in 6 years at a cost of Rs 4,200 crore, Jaitley said.

Budget reactions: CEOSpeak

Chanda Kochhar, MD & CEO, ICICI Bank

The Budget has sought to lay out a prudent fiscal path for the country; and address existing issues that have halted infrastructure investment. The budget has announced a range of initiatives to boost investment & growth. The policy direction is clear, and as the decisions and plans announced today are executed, I am sure the country will move back towards a robust growth path.

Bhaskar Pramanik, Chairman, Microsoft India

There were five specific priorities that I was looking for to be addressed in this maiden budget by the new Government - ubiquitous use of technology for inclusive growth, enhancing the education ecosystem, promoting a tax regime that is stable and growth oriented, focus on the start-up ecosystem and greater impetus to the manufacturing sector. It is heartening to note that the budget has provided the right direction on these.Indias transformation has to be powered by technology - this is well recognized by the Government and has been articulated in the various initiatives in the Budget. I see this budget setting the stage for higher growth on strong fundamentals of manufacturing and infrastructure sectors, built on the backbone of technology.

N. Chandrasekaran, CEO & MD, Tata Consultancy Services

The Finance Minister's maiden budget signals, both in sentiment and policy, the new government's intention to drive the next generation of reforms and swiftly put India on a higher GDP growth path. For the IT sector, the budget has provided clarity on some long-pending issues in transfer pricing and offered a collaborative framework to minimise future disputes. Above all, the government has strongly signalled that we will see lot more reforms across sectors shortly. This is a positive start to a long term process.

Dipen Shah, Head- Private Client Group Research, Kotak Securities:

The FM has, expectedly, used the budget to lay down the road map for the economy over the next few years. Various initiatives have been announced towards this goal. Plan expenditure is budgeted to grow by 20% YoY. Infrastructure and manufacturing, which can create several jobs, have received significant attention. FDI limits have been enhanced in Insurance and Defence. Various initiatives have been announced to increase ease of doing business and remove uncertainties on the taxation front. All-in-all, we think this a pro-growth and responsible budget, which is positive for the economy and markets in the medium-to-long term.

BD Park, President & CEO, Samsung India

We expect the budget plan announced by the new governmentto furtherstrengthen and developthe economy of India.

Sunil Lalvani, Managing Director, BlackBerry, India

The budget is prudent and cautious even while it aims to address key sectoral concerns and brings in vital initiatives to spur growth especially in critical sectors like manufacturing, healthcare, education, skill development and infrastructure as well as assuring a stable tax and regulatory regime that is expected to incentivize investments. With technology as a key component for delivery of government services, mobile will be a key enabler. M2M technologies will be vital to realize the governments vision of 100 smart cities, as well enhancing the delivery of healthcare and education services. We believe these are positive signs that will transform the standard of healthcare, education and urban living, as IoT becomes a reality.

Amar Babu, MD, Lenovo India

The Modi governments Budget for the year is positive, encouraging, and includes some much-needed reforms. With a strong focus on infrastructure, connectivity and with the rollout of GST, the FM has given a boost to the economys growth momentum, making it easier for businesses to operate. The reduction in Income Tax for the salaried comes as a relief, with a resultant rise in disposable income, encouraging IT purchases. Furthermore, with a boost given to e-governance, and the focus on broadband penetration, the Budget has adequately harnessed technology to propel future growth.

Debjani Ghosh, Vice President Sales & Marketing Group, Managing Director, South Asia, Intel

We at Intel have always been strong advocates of the use of technology for nation building. We are pleased to see the government putting its efforts in tapping the potential for ICT to promote the interests of our citizens in a sustainable manner enabling them to contribute across different sectors of progress. This budget envisages using ICT to deliver services to citizens as well as furthering the growth of other sectors like the Railways. Setting aside of funds for the Digital India program to ensure broadband connectivity at the village level and in facilitating transparent governance is a step in the right direction and we applaud the government for the same. We also welcome the governments move in empowering women with the allocation of the funds for the Beti padhao, beti badhao yojana."

Ravi Swaminathan Managing Director, AMD India & VP (Sales & Marketing) AMD South Asia.

We welcome the announcement for the IT sector, the budget looks very pragmatic and realistic. The government has pledged to support the growth of domestic information technology capabilities in both hardware and software, focused on enabling the timely delivery of citizen services and creating new jobs opportunities, especially in rural areas. The FM talked about Smart Cities and Digital India which clearly speaks about governments intention to go aggressive in developing the nation by taking help of technology.

CP Gurnani - MD & CEO - Tech Mahindra Limited

We welcome the new governments first budget of structural reforms aimed at reviving growth and connectivity though theres no clarity on how the government plans to cap the big fiscal deficit. We at Tech Mahindra feel that the only way forward for the IT industry is Collaborate, Connect and Co-Create and this thought seems to echo by the government as the budget proposes an allocation of Rs 7,060 crore this financial year for developing 100 'smart cities' in the country.Further, Jaitleys Rs 500 crore National Rural Internet and Technology Mission aims at connecting the rural and urban India and thus connect the nation with technology. We feel the government should also have pondered over renegotiating tax treaties, facilitating cross border transfer pricing adjustments, for Indian MNCs to penetrate emerging markets in IT.

Sanjay Kapoor, Chairman, Micromax for your perusal.

Budget is not a one day event; it is a journey to reach Governments visionfor its term. Given the current situation, budget creation was anarduous task by any standards! The Finance Minister has made pragmatic choices around available resources and has articulated a road map towards reducing the fiscal deficit andfueling economic growth. While we welcome his stand on retrospective tax policy and intent to finalise GST this year, the current Government has thepotential and mandate to take a stronger stance on subsidy and policy.

Hari Om Rai, Chairman & Managing Director, LAVA International

Overall this is a positive budget from our perspective. Focus on domestic manufacturing, stable taxation structure, investments in Technology development fund and National rural Internet and Technology mission are welcome signs. Such positive intent will benefit the telecom & handset industry, especially companies like Lava International which are now looking to tap Indias manufacturing potential and create jobs in the country. We do not feel there will be any cost passed on to the consumer due to the additional education cess on imported electronic products.


Whilst it is very encouraging to see the government giving more attention to the internet and support of animation and gaming, I view the initial allocations as a small step in the right direction. China has a near $1 Trillion internet economy, India will transition from 2G to 4G and add another 400 million mobile internet users over the next 3 years, we need an unprecedented push toward digital for a significantly higher consumer adoption as it will spark productivity across sectors. The aspect of bringing back online advertising into the service tax ambit, whilst it is still a fledgling segment, is therefore almost a conflicting action and not a welcome move.


"Commitment to the 4.1 percent fiscal deficit target as well as the aim to bring it down to 3 percent in two years is hugely positive for bond markets. They have also announced a few important structural reforms including FDI liberalization in defence and insurance and some amount of manufacturing relaxation, tax benefits for REITs and commitment to no retrospective taxation going forward. I think these are very very significant steps from a larger macro as well as structural perspective."


"The initial trickle of proposals under the FY15 budget accords priority to fiscal prudence and a wide-ranging developmental agenda laid down by the new government. Achieving this year's deficit target might prove to be a challenge if the bullish revenue projections from the interim budget are maintained as well.

Higher FDI limits are encouraging, but will require an overhaul on the infrastructure and the regulatory framework. Specifics of the game plan laid out in today's budget will be important to support the markets."


"I think everything is better than expectations. FDI in defence and insurance have come which shows government is focussed on restarting the investment cycle. Fiscal deficit target at 4.1 percent is also a positive surprise. The finance minister has a comprehensive package for all the issues and economic challenges that India is facing. I will look at increasing exposure to shares now. Equity is falling just on event-based profit-taking but will catch up in the near term."


"Fiscal consolidation is a strong takeaway. The FDI in insurance and defence and the plethora of schemes for improving the rural economy with all round focus on development programmes, are a key thrust. It's a good beginning.

For the 4.1 percent target of the fiscal deficit, the heavy lifting may be done by PSU disinvestment and non-tax revenue streams."


"It seems to be a neutral budget with positive light on key economic variables to tackle the current stagflation. Though targeting the earlier fiscal deficit of 4.1 percent is a surprise favour to the market, the conviction of fiscal management in revenue and expenditure sides is being awaited."

Modi budgets for Indian growth, aims to curb deficit

(Reuters) Prime Minister Narendra Modi's new government on Thursday unveiled a first budget of structural reforms aimed at reviving growth, winning praise from investors despite a lack of clarity over how he would cap the big fiscal deficit.

Expectations had been high that the government would utilise India's strongest election mandate in 30 years to take radical steps comparable to the 1991 market reforms that unleashed an era of high economic growth.

But in a bid to halt a two-year spell of weak growth, the government instead announced incremental steps to boost capital spending in Asia's third largest economy and reassure foreign investors that they would get fair treatment.

"We shall leave no stone unturned in creating a vibrant and strong India," Finance Minister Arun Jaitley told parliament, vowing to raise the pace of economic growth to 7-8 percent in three to four years from less than 5 percent now.

Jaitley, 61, told lawmakers he would uphold the fiscal deficit target for this year inherited from the last government - 4.1 percent of gross domestic product - despite expectations he would be forced to raise it due to weak revenue and high subsidy costs.

Ratings agency Moody's said a lack of detail on how India would cut the fiscal gap made it "challenging to assess the credit impact" of Jaitley's budget, but still said it would keep its investment grade rating for India.

Jaitley announced an 8 percent rise in spending, roughly unchanged after taking inflation into account. The government will also seek to raise a record $13 billion from selling state assets - nearly four times what the previous government raised in the fiscal year ended in March 2014.

India's budget, an act of theatre concentrating decisions that in other countries are spread over months, was delayed by a general election in May that handed Modi's Bharatiya Janata Party (BJP) a landslide victory.

Delivering the second half of his two-and-a-quarter hour address seated, Jaitley raised the minimum income level at which people start paying tax and hiked levies on cigarettes and soft drinks.


Jaitley announced he would raise ceilings on foreign investment in the defence and insurance sectors, but still bar non-residents from taking majority control in projects to supply the world's largest arms buyer.

Limits on foreign investment in defence and insurance ventures will go up to 49 percent from 26 percent - still less than sought by foreign contractors to justify sharing technology when they locate operations in India.

In another signature initiative, the government will launch a tax reform this year to unify India's 29 federal states into a common market, a measure that would boost revenue while making it easier to do business.

Investors have piled into Indian stocks on hopes that Modi's leadership and mandate would break a logjam thwarting a host of reforms during the 10-year tenure of his predecessor Manmohan Singh, whose coalition government became increasingly divided.

While the concrete measures announced by Jaitley fell short of the most bullish expectations, Indian stocks and bonds finished a volatile day stronger, thanks to his commitment to fiscal probity.

"These measures are very progressive and good for the bond and equity markets," said Murthy Nagarajan, head of fixed income at Quantum AMC in Mumbai. "It would lead to a reduction of inflation in the coming years due to a lower fiscal deficit."


Modi, 63, won election with a pledge to create jobs for the 1 million people who enter India's workforce every month. Since taking office, he has warned that Indians should expect "bitter medicine".

Reflecting that change in tone, Jaitley vowed to adhere to this year's "daunting" 4.1 percent budget deficit set by the previous government.

"I have decided to accept this challenge - one fails when one stops trying," Jaitley told the lower house of parliament. He said the budget deficit would be reduced to 3.6 percent in the following two fiscal years.

With the deficit already approaching half of the annual target just three months into the fiscal year, many economists had expected Jaitley to raise the borrowing target to 4.4 percent.

Jaitley managed to find room in the budget to fund projects to upgrade India's food distribution infrastructure. He raised subsidies on fertilisers and, against expectations of a reduction, extended diesel subsidies - key measures to aid farmers who face poor monsoon rains this year.


The minister said he would set up a high-level committee to review retrospective tax claims blamed for choking off foreign investment after companies such as Britain's Vodafone were hit with massive demands.

Vodafone and India have been locked in a $2.2 billion tax standoff since the British company acquired Hutchison Whampoa's Indian mobile assets in 2007.

Vodafone, the world's second-largest mobile operator, thought it had finally secured victory in the case in 2012, when India's Supreme Court dismissed the tax demand. But the government responded by announcing retrospective legislation that would change the rules.

Jaitley sought to reassure investors by promising a stable tax regime and saying the government would not "ordinarily" create new liabilities retrospectively, but stopped short of moving to scrap the law. Several cases in the court will be concluded through the legal process, he said. ($1 = 59.7600 Indian rupees)

Here are some highlights


* Accepts fiscal deficit target of 4.1 percent of GDP for 2014/15

* Fiscal deficit seen at 3.6 percent of GDP in 2015/16

* Finance Minister says: "We cannot spend beyond our means"

* Tax-to-GDP ratio must be raised


* Aims for sustained growth of 7-8 percent in the next 3-4 years

* Finance minister says he is bound to usher in policies for higher growth, lower inflation


* Aims to approve goods and services tax by end of this year

* Will not change rules on retrospective tax. All pending cases of retrospective tax for indrect transfers to be examined by a high-level committee before action is taken

* Proposes changes in transfer pricing mechanism

* Extends 5 percent withholding tax on corporate bonds until June 30 2017

* Will provide the necessary tax changes to introduce real estate investment trusts and infrastructure investment trusts


* Raises limit on foreign direct investment in defence sector from 26 percent to 49 percent

* Raises FDI limit in insurance sector from 26 percent to 49 percent


* Capital outlay for defence raised by 50 billion rupees over interim budget

* Earmarks 70.6 billion rupees to create 100 "smart cities"

* Proposes 50 billion rupees for warehousing capacity; 100 billion rupees of private capital for start-up companies; and 378 billion rupees of investment in national and state highways

* 40 billion rupees for affordable housing proposed through national housing bank and extends tax incentives for housing loans

* Proposes 80 billion rupees for rural housing scheme


* Plans to make food and petroleum subsidies more targeted

* Rural job-guarantee scheme, which provides 100 days of paid employment a year, will become more focused on asset creation


* Will focus on acheiving 4 percent growth per year in agriculture

* Sets farm credit target at 8 trillion rupees for 2014/15

* Proposes a long-term rural credit fund with an initial corpus of 50 billion rupees


* "We have no option but to take some bold steps to spurt economy; these are only the first steps and are directional."

* "Slow decision making has resulted in a loss of opportunity"

Arun Jaitley's Journey

Economic Survey 2013

Economic Survey 2014