BUDGET 2014-15

ISHAN TRIVEDI

Union budget of India The Union Budget of India, referred to as the

Annual Financial Statement in Article 112 of the Constitution of India, is the annual budget of the Republic of India, presented each year on the last working day of February by the Finance Minister of India in Parliament. The budget, which is presented by means of the Financial Bill and the Appropriation bill has to be passed by the House before it can come into effect on April 1, the start of India's financial year.

Definition of 'Budget'

An estimation of the revenue and expenses over a specified future period of time. A budget can be made for a person, family, group of people, business, government, country, multinational organization or just about anything else that makes and spends money. A budget is a microeconomic concept that shows the tradeoff made when one good is exchanged for another. 

About 2014-15 Budget

The incumbent Government presented the Union Budget for FY14-15 on 10th JULY, 2014. Indian Government having attained a full majority after 30 years.

The Priorities before the Government in the FY14-15 is more challenging as the country is caught between low growth, high inflation particularly food inflation, deteriorating employment conditions, diminishing energy security, slowdown in manufacturing activities, vulnerability of currency fluctuations and not to mention the fiscal and current account imbalances. Social issues like women safety and lack of sanitation and corruption calls for immediate attention.

The main themes for the FY15 budget:

Invoke measures to revive GDP growth. Striking a balance between fiscal consolidation &

public spending while maintaining sustainable inclusive growth.

In particular take stance on subsidies and hence indicate policy relating to fuel pricing. The ultimate targeted number will be indicative of the policy that will be followed during the year on calibrating prices of diesel, LPG and kerosene to the market.

Focusing on increasing infrastructure investment which can provide a big push to the economy.

Cont…

Moving towards implementation of GST and DTC.

Measures to revive financial savings which have been declining in the last couple of years and also getting reflected in pressure on CAD.

Improving investor confidence by addressing issues that have caused apprehension in the past.

Budget at Glance

2012-13 Actual

2013-14 BE

2013-14RE 2014-15BE

Revenue Receipts

879232 1056331 1029252 1189763

Tax Revenue 741877 884078 836026 977258

Non-Tax Revenue

137355 172252 193226 212505

Capital Receipts

531140 608967 561182 605129

Recoveries of Loans

15060 10654 10802 10527

Other Receipts

25890 55814 25841 63425

Borrowings, other liabilities

490190 542499 524539 531177

Total Receipts

1410372 1665297 1590434 1794892

Cont…

2012-13 Actual

2013-14 BE 2013-14RE 2014-15BE

Non-Plan Expenditure

996747 1109975 1114902 1219892

On Revenue Account

914306 992908 1027689 1114609

Interest Payments

313170 370684 380066 427011

On Capital Account

82441 117067 87214 105283

Plan Expenditure 413625 555322 475532 575000

On Revenue Account

329208 443260 371851 453503

On Capital Account

84417 112062 103681 121497

Total Expenditure 1410372

1665297 1590434 1794892

Revenue Expenditure

1243514

1436169 1399540 1568111

Grants forcreation of Capital assets

115710 174633 138228 168104

Capital Expenditure

166858 229129 190894 226781

Cont…

2012-13 Actual

2013-14 BE

2013-14RE

2014-15BE

Revenue Deficit

364282 (3.6)

379838 (3.3)

370288 (3.3)

378348 (2.9)

Fiscal Deficit

490190 (4.8)

542499 (4.8)

524539 (4.6)

531177 (4.1)

Primary Deficit

177020 (1.8)

171814 (1.5)

144473 (1.3)

104166 (0.8)

Note: GDP for BE 2014-2015 has been projected at Rs.12876653 crore assuming 13.4% growth over the Advance Estimates of 2013-2014 (Rs.11355073 crore) released by CSO.

REVENUE RECEIPTS(TAX) (Rs. In Crore)

Corporation Tax 451005 33.05%

Taxes on Income 284266 20.83%

Wealth Tax 950 0.07%

Customs 201819 14.79%

Union Excise Duties 207110 15.18%

Service Tax 215973 15.83%

Taxes of Union Territories 3401 0.25%

Total 1364524 100%

REVENUE RECEIPTS(Non-TAX) (Rs. In Crore)

Interest receipts 19751 9.29%

Dividend and Profits 90229 42.46%

External Grants 2405 1.13%

Other Non Tax Revenue

99009 46.59%

Receipts of Union Territories

1111 0.53%

Total 212505 100%

Total Expenditure (Rs. In Crore)

Total Non-plan Expenditure

1219892 (67.96%)

Total Plan Expenditure

575000 (32.04%)

Total 1794892 (100%)

Non-plan Expenditure (Rs. In Crore)

Non-plan ExpenditureDefence Services 134412 11.02%

Subsidies 260658 21.37%

Pensions 81983 6.73%

Police 46390 3.80%

Interest Payments 427011 35%

Others 269438 22.09%

Total 1219892 100%

Plan Expenditure (Rs. In Crore)

Revenue Expenditure

453503 78.87%

Capital Expenditure

121497 21.13%

Total 575000 100%

Deficit (% OF GDP)

Revenue Deficit 378348 (2.9%)

Effective Revenue Deficit

210244 (1.6%)

Fiscal Deficit 531177 (4.1%)

Primary Deficit 104166 (0.8%)

Tracking Consolidated fiscal deficit

As% of GDP F’09 F’10

F’11

F’12

F’13

F’14

F’14*

F’15BE

F’15e

Central Fiscal Deficit

6 6.5 4.8 5.7 4.8 4.5 5 4.1 4.5

Major off-budget exp.

1.6 0.2 0.7 0.2 0.2 0.2 0.2 0.2 0.2

Central fiscal deficit incld. Off budget

7.5 6.7 5.5 5.9 5 4.7 5.2 4.3 4.7

State fiscal deicit1.

2.4 2.9 2.1 1.9 2.3 2.4 2.4 2.2 2.2

Combined headline deficit 4.

9.9 9.6 7.6 7.7 7.4 7.1 7.6 6.5 6.9

Inter-gov. adjustment

-0.1 - - - - - - - -

Overall fiscal deficit

9.9 9.6 7.5 7.7 7.4 7.1 7.6 6.5 6.9

Overall fiscal deficit (Excluding telecom license fee)

NA NA 8.9 7.9 7.6 7.5 8 6.9 7.3

Tax Revenue receipts expected to increase

YoY% F2012 F2013 F2014RE

F2014* F2015BE

Gross tax revenue

12.1 16.5 11.8 11.8 19.8

Indirect tax Customs

10 10.7 5.9 5.9 17.2

Excise 5.3 21.2 1.7 1.7 22.2

Service tax 37.3 36 24.4 24.4 39.7

Direct tax 8.1 10.4 10.5 10.5 14.3

Personal income tax

18.3 19.5 20.2 20.2 17

% of GDP F2012 F2013 F2014RE

F2014* F2015BE

Gross tax revenue

9.9 10.2 10.2 10 10.6

Indirect tax Customs

1.7 1.6 1.5 1.5 1.6

Excise 1.6 1.7 1.6 1.5 1.6

Service tax 1.1 1.3 1.5 1.4 1.7

Direct tax 3.6 3.5 3.5 3.5 3.5

Personal income tax

1.8 1.9 2.1 2.1 2.2

Ratio of taxes to GDP

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015*

2016*

2017*

9

10

11

12

9.9

11

11.9

10.8

9.6

10.29.9

10.2 10.2

10.610.9

11.2

Column1

Analysis of Tax and non-tax Revenue receipts

0

200000

400000

600000

800000

1000000

1200000

In Rs. Crore

TAX RevenueNon-Tax Revenue

TAX REVENUE EXPECTED TO GROW MOST SINCE 2010-11

06-07 07-08 08-09 09-10 10-11 11-12 12-13 13-14(RE)

14-15(BE)

28.86

25.27

2.05 3.18

26.99

12.12

16.54

11.84

17.74

(Y-o-Y in %)

SPURT IN SERVICE TAX COLLECTION TO FUEL GROWTH

06-07 07-08 08-09 09-10 10-11 11-12 12-13 13-14(RE)

14-15(BE)

63.08

36.45

18.79

-4.13

21.56

37.31 35.99

24.38

30.95

Y-o-Y in %

OPTIMISM ON DIRECT TAX GROWTH AS WELL…

06-07 07-08 08-09 09-10 10-11 11-12 12-13 13-14(RE)

14-15(BE)

38.3634.68

8.08

14.9219.24

11.31 13.45 13.93 15.78

Y-o-Y in %

…BUT MOST OPTIMISTIC OUTLOOK IS FOR INDIRECT TAXES

06-07 07-08 08-09 09-10 10-11 11-12 12-13 13-14(RE)

14-15(BE)

21.6417.13

-3.94

-9.95

38.03

13.11

20.29

9.45

20.08

Y-o-Y in %

Budget in Detail

Non-plan Expenditure of Rs.12,19,892cr. with additional provision for fertilizer subsidy and Capital expenditure for Armed forces.

Rs.5,75,000cr. Plan expenditure – increase of 26.9 per cent over actual of 2013-14.

Total expenditure of Rs.17,94,892cr. estimated.

Gross Tax receipts of Rs.13,64,524cr. estimated.

Net to centre of Rs.9,77,258cr. estimated.

Cont…

Current Year Fiscal Deficit is 4.1% and Road map for fiscal consolidation outlines fiscal deficit of 3.6 % for 2015-16 and 3 % for 2016-17.

Revenue Deficit is Rs.378348cr. And Primary deficit is Rs.104166cr.

Sectoral Impact

AutomobilePositiveAnnouncement Impact

Increase in exemption limit for direct tax by Rs.50,000 to Rs.2,50,000 for individuals and to Rs.3,00,000 for senior citizens. Exemption under section 80C raised by Rs.50,000 to Rs.1,50,000 for individuals.

Agricultural growth maintained at 4%; allocation of Rs.8lakh cr for agricultural credit in FY2015 and Rs.25,000cr for increasing warehousing capacity.

Positive for the sector as it will increase the disposable income of individuals, thereby boosting demand in personal mobility segments like two-wheelers and hatchbacks.

Agricultural reforms will drive demand for tractors. Demand for two-wheelers in non urban areas will likely get a boost. Thus, a positive for companies like Mahindra & Mahindra, Hero MotoCorp, VST Tillers, and Kirloskar Oil Engines.

Banking Positive

Announcement Impact

The composite cap in the insurance sector is to be increased to 49% from 26% earlier with full Indian management and control through the FIPB route. Allocation for National Housing Bank increased to Rs.8,000cr to support rural housing and Rs.4,000cr for urban housing. Tax on long term capital gains increased from 10% to 20% for Debt Mutual Funds and eligibility for LTCG indexation benefit increased to 3 year tenure. Interest on loan in respect of self occupied house property raised from Rs.1.5 lakh to Rs.2 lakh.

Increase in cap to 49% will enable insurance firms to get capital from overseas players and this will lead to value unlocking. Positive for housing finance compnies like Repco Home Finance and Can Fin Homes. This will reduce tax arbitrage as compared to bank FDs thereby affecting mutual fund industry including companies like Reliance Capital.

Positive for all the banks.

Capital GoodsPositiveAnnouncement Impact The government has increased the composite cap of foreign investment in the defense sector from 26% to 49%. This would be applicable for companies with full Indian management and control.

Allocation of Rs.1,000cr for development of rail connectivity in the North East region.

Positive for the sector as it will accelerate investments in the defense sector. Defense equipment manufacturing companies like Bharat Forge, Astra Microwave Products, Pipavav Defence etc. will be beneficiaries.

Positive for companies involved inmanufacturing signals, locomotives and also contractors. KEC international, BHEL, ABB etc would stand to benefit.

Consumer GoodsMixedAnnouncement Impact

An increase in the specific excise duty on cigarettes has been proposed, which will be in the range of 11% to 72%.

Reduction in excise duty on footwear from 12% earlier to 6%.

Custom duty on fatty acids, crude palm stearin, RBD and other palm stearin, and specified industrial grade crude oils reduced from 7.5% earlier to Nil.

It is a negative for cigarette manufacturing companies like ITC, Godfrey Phillips and VST Industries.

It is a positive for footwear manufacturing companies like Bata India and Relaxo Footwear. Positive for soap and Oleo manufacturers. This is Could benefit Adi-Finechem, HUL, GCPL.

Infrastructure PositiveAnnouncement Impact Rs.14,389cr has been provided for the Pradhan Mantri Gram Sadak Yojna(PMGSY).

An investment of Rs.37,880cr in national highways and state roads has been proposed which includes an allocation of Rs.3 000cr for the North East. A target of national highway construction of 8,500km has been announced (vs 4,000km in the 2013-14 budget)

National Building Construction Corporation would be a beneficiary since it draws construction orders from the government.

Positive for companies which are intoengineering procurement and construction (EPC) of roads IRB Infrastructure Developers, IL&FS Transportation Networks & AshokaBuildcon would be beneficiaries.

TAX PROPOSALS

Direct Taxes Personal Income-tax exemption limit raised by

Rs.50,000/- that is, from Rs.2lakh to Rs.2.5lakh in the case of individual taxpayers, below the age of 60 years. Exemption limit raised from Rs.2.5lakh to Rs.3lakh in the case of senior citizens.

No change in the rate of surcharge either for the corporats or the individuals, HUFs, firms etc.

The education cess to continue at 3 percent. Investment limit under section 80C of the Income-

tax Act raised from Rs.1lakh to Rs.1.5lakh.

Cont…

Deduction limit on account of interest on loan in respect of self occupied house property raised from Rs.1.5lakh to Rs.2lakh.

Income arising to foreign portfolio investors from transaction in securities to be treated as capital gains.

Concessional rate of 15 percent on foreign dividends without any sunset date to be continued.

Government to review the DTC in its present shape and take a view in the whole matter.

Cont…

To remove tax arbitrage, rate of tax on long term capital gains increased from 10 percent to 20 percent on transfer of units of Mutual Funds, other than equity oriented funds.

Income and dividend distribution tax to be levied on gross amount instead of amount paid net of taxes.

Net Effect of the direct tax proposals to result in revenue loss of Rs.22,200 crore.

THE CURRENT ECONOMIC SITUATION AND THE CHALLENGES

Decisive vote for change represents the desire of the people to grow, free themselves from the curse of poverty and use the opportunity provided by the society. Country in no mood to suffer unemployment, inadequate basic amenities, lack of infrastructure and apathetic governance.

Challenging situation due to Sub five per cent growth and double digit inflation.

Continued slow-down in many emerging economies a threat to sustained global recovery.

First budget of this NDA government to lay down a broad policy indicator of the direction in which we wish to take this country.

Cont…

Recovery seen with the growth rate of world economy projected at 3.6 per cent in 2014 vis-à-vis in 2013.

Steps announced are only the beginning of the journey towards a sustained growth of 7-8 per cent or above within the next 3-4 years along with macro-economic stabilization.

Growing aspirations of people will be reflected in the development strategy of the Government led by the Prime minister Shri Narendra Modi and its mandate of “Sab ka Saath Sab ka Vikas”.

Need to revive growth in manufacturing and infrastructure sectors.

Tax to GDP ratio must be improved and Non-tax revenues increased.

FLUCUATION OF MARKET ON DAY OF BUDGET

DATES BUDGET DAY 1 WEEK LATER YEAR END2/28/2005 2.12 2.46 39.982/28/2006 0.86 3.43 32.952/28/2007 -4.01 -2.77 56.82/29/2008 -1.38 -9.12 -45.122/16/2009 -3.42 -5.19 87.68

7/6/2009 -5.83 -4.58 24.362/26/2010 1.08 3.44 24.832/28/2011 0.69 2.24 -13.293/16/2012 -1.19 -0.6 11.222/28/2013 -1.52 2.93 12.247/10/2014 -0.28

PPF Calculation for 25 years

Years Balance Investment

Interest Year Return

1 0 150000 13050 163050

2 163050 150000 27235 340285

3 340285 150000 42655 532940

4 532940 150000 59416 742356

5 742356 150000 77635 969991

6 969991 150000 97439 1217430

7 1217430 150000 118966 1486397

8 1486397 150000 142367 1778763

9 1778763 150000 167802 2096565

10 2096565 150000 195451 2442017

11 2442017 150000 225505 2817522

Cont…Years Balance Invest

mentInterest Year

Return

12 2817522 150000 258174 3225697

13 3225697 150000 293686 3669382

14 3669382 150000 332286 4151668

15 4151668 150000 374245 4675914

16 4675914 150000 419854 5245768

17 5245768 150000 469432 5865200

18 5865200 150000 523322 6538522

19 6538522 150000 581901 7270424

20 7270424 150000 645577 8066000

21 8066000 150000 714792 8930793

22 8930793 150000 790029 9870821

23 9870821 150000 891811 10892633

24 10892633

150000 960709 12003342

25 12003342

150000 1057341 13210683