Prime Minister Narendra Modi’s government has unveiled a reform-focused budget and targeted sustained economic growth rates of 7-8 per cent over the next four years by promoting manufacturing, bolstering infrastructure and creating a stable tax regime in the country. In the maiden budget of his government, the 63-year-old Modi, who promised better days to the 1.2 billion people of India in his campaign pitch, has indicated a long-term road map for rejuvenating the Indian economy.
The budget has evoked mixed reactions from business and industry leaders.
Mr. Ajay Shriram, president of the Confederation of Indian Industries(CII), called the budget “a comprehensive and reformist package.” “Budget 2014-15 provides an extensive roadmap for all sectors of the economy and would lay a strong and stable foundation for boosting savings and investments. We are particularly happy since a large number of suggestions of CII have found place in the Budget. This budget is directional and aimed at the medium term,”
Alluding to the provision to maintaining a stable and predictable tax regime he said “Investment promotion and boosting business confidence has received high attention and is greatly welcomed by industry.”
Neeraj Roy, MD & CEO Hungama Digital Media Entertainment, was encouraged by the governments move towards digitalisation, he wanted to see a much bigger stride. “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.”
Divya Baweja, Partner, Deloitte Haskins & Sells LLP, was, however, a little disappointed. “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.”
N. Chandrasekaran CEO & MD, Tata Consultancy Services remained optimistic as he talked about the government’s intention to drive the next generation of reforms and swiftly put India on a higher GDP growth path.
Highlights of Budget 2014
Here are the highlights of the India’s 2014 budget.
- The finance minister’s budget speech emphasised the need to usher in policies for higher growth, and lower inflation. In an ambitious plan he had targeted for sustained growth of 7-8 percent in the next 3-4 years.
- Talking about India’s reliance on fiscal deficit, he announced that India cannot spend beyond its means and aimed at a fiscal deficit of 4.1 percent of GDP for 2014/15; targeting to reduce it further to 3.6 percent of the GDP in 2015/16.
- The reduction of fiscal deficit would increase the need to improve the Tax-to-GDP ratio which needs to be raised. He added that he seeks to approve good and service tax by the end of 2014, and has asked for further changes in the transfer pricing mechanism.
- Targeting improved investments into the country, the budget announced that the foreign direct investment in defence sector will increase from 26 per cent to 49 per cent, while raising the FDI limit in the insurance sector to 49 percent. He also reserved 70.6 billion rupees to the creation of 100 new smart cities across India.
- Subsidies, especially in food and petroleum, will be more targeted. The Finance minister added that the rural job-guarantee scheme, which provides 100 days of paid employment a year, will be remodelled to focus on asset creation.
- Tax Exemption limit for small and marginal, and senior tax payers has been raised from Rs 2.0 to Rs 2.5 lakhs. Additionally, for senior citizens, no tax for income up to Rs 3 lakh per annum.
- Budget targets 4 percent growth per year in the agriculture sector. It proposes a long-term rural credit fund with an initial corpus of 50 billion rupees. It also sets farm credit target at 8 trillion rupees for 2014/15.
- The finance minister’s budget forecast net market borrowing at Rs 4.6 trillion in 2014/15, and gross market borrowing forecast at Rs 6 trillion in 2014/15 increasing it from the Rs 5.97 trillion in interim budget. He added that the forecasts interest payments and debt servicing will total Rs 4.27 trillion in 2014/15.
- Jaitley vows to maintain a stable tax environment, but stops short of scrapping rules on retrospective tax. He added that all pending cases of retrospective tax for direct transfers will be examined by a committee before any action is taken. Additionally, the budget retains tax collection targets and makes no major changes to direct tax rates.
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