Budget 2014: Mapping out India’s economic reforms

Arun Jaitley1Unveiling the roadmap for India’s economic reforms, Finance Minister Arun Jaitley presented the maiden budget of the Narendra Modi government in the Indian parliament on July 10. The pre-budget Economic Survey forecasts India’s GDP growth in the range of 5.4 and 5.9 percent in 2014/15 and argues for a host of corrective steps to bolster and rejuvenate the country’s economy. 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.

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