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What Can You Expect?

Monday, February 09, 2015

First Full Term Budget Of The New Government

This Special Issue of the ADC focuses on the Budget and has got the best and most respected names across the business and financial spectrum to give you their views on what is required and what can be expected on the last day of this month

Counting on Jaitley’s prudence and competence
The feel good factor has already set in and has been reflected in the optimistic and bullish fervour on D-street over the last few weeks. Economic numbers also reflect a certain betterment in the overall economic scenario.

So when Finance Minister Arun Jaitley, delivers the first full term budget of his government on February 28th, he will be doing so in a scenario pregnant with extremely high expectations. Any let down, could see the markets going into a tailspin, crashing perhaps as a reflection of perceived disappointment. A few positives could see the euphoria extending and taking the stock markets to further fresh highs. So what holds in the budget? What can be expected?

While the plans on the government's table are good and feasible, the ground reality is slightly different.  Finances for concluding existing commitments and further spending for future projects are the greatest constraint in the present fiscal situation. So it boils down to raising revenues in an extremely difficult situation. If he raises taxes, he will be taking off money from the public and this would directly or indirectly reflect on consumption spending. That will have an indirect domino effect on many other factors including manufacturing, GDP, public sentiment etc,etc.

If he doesn't raise taxes and instead incentivizes savings and consumption through concessions, than he will have the long term situation under control, but in the short term will have to struggle to ensure prudent spending with efficient tax collection systems. Disinvestment of government holdings in PSUs could also help to some extent.

So what will he do? We don' know...But our confidence lies in the fact that this man will use prudence added with his own competence to better a situation that is already improving.

Saturday, February 28th will tell.

—Deepak Sahijwala
Business Editor

In terms of expectations...

  • The government is likely to go along with the earlier set target of 3.6% fiscal deficit for FY16. This will be in line with the FRBM target of 3% by FY17. The government would be seen to adopt fiscal discipline and curtail discretionary expenditure. Sops and relief sought by the various states are unlikely to materialize under these circumstances. 
  • The FY16 Budget is expected to bring about a reduction in the government’s subsidy bill, especially that of petroleum subsidy. Given the sharp decline in global crude oil prices (by over 50% in the last 6 months) and the deregulation of diesel, the fuel subsidy is likely to be around Rs. 30,000-40,000 crs lower than the Rs. 63, 432 crs of FY15. The savings on this account can be diverted towards infrastructure spending.
  • With regard to welfare spending, the government is likely to have a consolidated focus on social schemes with emphasis to better targeting of beneficiaries. One can also expect to see lower allocations, anywhere between Rs. 7,000 – 10,000 crs, being made to the rural employment guarantee programme (NREGA)
  • The Budget should address and enable the financing of infrastructure given that it is the key inhibitor to our growth. There is need for re-introducing the concept of tax free bonds which will go a long way in providing the much needed investment funding as well as help channelize savings.  Not only the public sector companies but even those associated with big infrastructure projects should be permitted to issue tax free bonds. This will also provide a boost to the debt market.
  • The debt markets could look forward to seeing some major changes given the governments thrust on bringing about reforms and creating an enabling environment for the markets. This is one area which will be closely watched as the development and vibrancy of these markets could prove to be a major source of funding, for the infrastructure sector in particular. There could also be measures undertaken to cater to the financing of the SME segments, such as creating a debt market segment for these entities that raises funds via pooled sources. Municipal bonds is another area that the budget would stress upon against the background of the recent report brought out by SEBI. With urban-development being a priority area and financing of the same being constrained, municipals would be encouraged/mandated to tap the markets for their funding requirements. Tax benefits could be provided for such to make them attractive to investors. The government could also introduce “market making” in the debt segment to help develop the secondary markets which in turn would boost the primary markets. 
  • The PSU Banks are unlikely to get any relief from the government by way of capital infusion. They would have to divest and raise money on their own to meet their increasing capital requirements, keeping government holding at a minimum 52%.Such disinvestment is likely to find mention in the Budget.
  • The government will focus on the manufacturing sector to provide the required momentum for the overall economy and for achieving its goal for its “Make in India” initiative. Tax and duty structures could see revisions and rationalization. Also tax holidays/exemption could be provide for advanced manufacturing. Allocations towards skill development and measures to encourage entrepreneurship by way of policy measures too would be on the anvil. Capital investments in the manufacturing sector would see an increase.
  • The government is likely to earmark funds towards R&D, advance skill development, training institutes and education (primary and higher) and introduce long term measures to build the country’s skill base and competitiveness.
  • The budget is likely to include measures that will enhance agriculture production viz. of pulses and oil seeds. It would focus on R&D for the sector as a whole.
  • The income tax exemption limit could see a upward revision. The exemption limit could be increased by another Rs. 50,000 to Rs. 3 lakhs. The deduction limit on interest on housing loan to be raised to Rs. 3 lakhs from the current Rs. 2 lakhs.
  • The disinvestment target for FY16 would once again be in the region of Rs 50,000 cr and based on this years’ experience, the programme would start from the beginning of the year.

Could Take India On A Higher Growth Trajectory
D.R Dogra, MD & CEO,  CARE Ratings

The forthcoming budget would no doubt be a critical one for the country and markets alike. Expectations abound that the prevailing positive sentiments surrounding the country’s business environment and economic prospects will be re-validated by the first full term budget of the new government.

The better economic growth prospects increase in foreign inflows and the moderation in inflation have provided the much needed respite to the Indian economy. Further the long term reforms oriented approach, new initiatives undertaken and the business friendly perception associated with the government signal that India could be on the path of a higher growth trajectory.

However, the optimism encompassing the improvements in the business environment and the economy over the last 8-10 months is yet to translate into quantifiable growth and investments for the country. The structural weakness that has built into the Indian economy over the years, owing to absence of significant reforms, investments& infrastructure building coupled with policy uncertainty, delayed project implementation and fiscal profligacy at the expense of public investments, makes it difficult for a sudden reversal in the economic health of the country. The progress is more likely to be steady yet gradual. Moreover, the weak global economic environment too has not been very supportive and going forward, atleast in the medium terms, with no significant improvement expected on this front the hoped for boost from the export market is unlikely to materialize.

Given the constraints under which the Indian economy is operating, the Budget would necessary have to be an exercise that would primarily be concerned with reigning in and better targeting of government expenditure with focus on capital building/investments, its financing being a thrust area. The budget would also include measures to increase domestic demand and output.

The confidence in the potential of the Indian economy prevails given its fundamental strengths and the general consensus is that the government will continue with its administrative and legislative measures in an ongoing manner. The FY16 budget is likely to capitalize on this and set the tone for the year.

Accept recommendations of the 14th Finance Commission
Dr. Arun Singh, Sr. Economist, Dun & Bradstreet, India.

The first full budget of the NDA government will be a defining document in 2015 as it is expected to lay down the framework for policy reforms to get the economy back on track. The most keenly watched figure in the budget will be the worrisome fiscal deficit and how the government manages to restrict it.
According to data released by the Controller General of Accounts, the fiscal deficit during April-November has already reached 98.9% of the FY15 budget estimates. The shortfall in tax revenues and disinvestment proceeds could see some major expenditure prioritization by the Government during the remaining part of the fiscal year.

While there are challenges on fiscal deficit front, the precipitous decline in the global crude oil prices, benign inflation trajectory and the reversal in the interest rate cycle will be the three major positives for the government.

We expect fiscal prudence to be the central theme for the budget and would be watchful about how the government maneuvers public expenditure on manufacturing and infrastructure. Besides rationalization of the tax structure could be explicit given fiscal consolidation to be achieved. However, given the increased thrust on infrastructure development, allocation of funds towards this segment might see some enhancement.

Accepting recommendations of the 14th Finance Commission would bring about a fundamental change in centers’ area of policy intervention. It is likely that the share of states in the centre's tax revenue would be increased significantly from the current 32% as per 14th Finance Commission's recommendations. Greater devolution of taxes would provide more flexibility and power to the states in formulating their expenditure strategies. Politically, the increase could help the Government in resolving some of the pivotal issues between the centre and states towards introducing the Goods and Service Tax.

SMEs Call
R Narayan, Founder & CEO, Power2SME

“Start-ups have become the powerhouse of India’s GDP growth rate. It thus, becomes imperative for the government to constantly develop an environment where in these micro units continue to flourish. Easier access to credit, simplified regulatory framework, relaxation on the service and capital gain tax policies, incentives/subsidies to support smooth operations are few issues that need to be addressed in the 2015 budget. The emergence of SMEs in the SEZs of the country is another point to be looked at. The government should support the set-up base of the SMEs in these zones as the manufacturing capabilities of these small enterprises has a direct bearing on the growth of larger enterprises. With the coming in of the ‘Make in India’ and ‘Digital India’ campaigns, not only will the start-up community get a boost but also has the potential to lead the success story of India. Thus, we are highly positive on the coming budget considering the way government is working towards pushing the micro, small and medium enterprises”.

Gems and Jewellery Trade Needs A Boost
As part of its pre-Union Budget recommendations, All India Gems and Jewellery Trade Federation (GJF), the national nodal and the largest single trade body in India for the promotion and growth of trade in gems and jewellery across India, has urged the Union Finance Minister to bring down the duty on gold from 10% to 2% to encourage ‘Make in India’ initiative in the gems & jewellery sector. At present, the current account deficit is under control due to reduction in global gold prices (40% down) from USD 1,900 to USD 1,200 today. Fortunately, crude prices (which account for the highest bill for imports) have reduced 60% in last 6 months.

According to the GJF, increasing import duty on gold has neither helped the Government nor the trade – very few have benefitted and smuggling increased. Referring to these dynamically changing macro-economic indicators, GJF has reiterated its demand for the Government to formulate a comprehensive gold policy for India and make India a global jewellery hub.

GJF has categorically asked the Government to exclude jewellery from all bilateral or multi-lateral free trade agreements (FTAs). Stating that the Government should not encourage jewellery imports at cheaper rates, GJF referred to the earlier FTA with Thailand - which was a failure as it discouraged indigenous jewellery manufacturing.

Haresh Soni, Chairman, GJF, said, ““Keeping in mind, Hon. Prime Minister’s vision of promoting ‘Make In India’ brand we have to protect & nurture our indigenous industry. Both oil and gold prices globally have fallen substantially now vis-à-vis last few years. We propose that the difference between import duty of raw material (gold & silver) and finished jewellery (gold & silver) to be maintained at minimum 10% (for gold) and 15% (for silver).
Jewellery manufacturing cluster should be revamped by including common facility center and skill upgradation. And we also urge the Government to create a comprehensive gold mining policy for domestic exploration and for cluster development for ‘Make in India’ fashion jewellery. This will also encourage NRIs to buy jewellery from India.”

Manish Jain, Vice Chairman, GJF, said, “To provide incentive for the organised manufacturing facility, Government must reintroduce metal gold loans (MGL) and innovative finance options for sector. If we are not competitive on the global front, we won’t be able to become a global hub and therefore MGL rate of interest should be at par with international rate (3.5 to 6% in India vis-a-vis 1.5% in international markets). We seek removal of excise duty on fashion jewellery and also abolish excise duty on precious metals as Government is not earning any revenue on it. As India is a vast country, the Government must facilitate more friendlier and accessible rules for transportation from manufacturing hubs to airports/ ports. Government has to offer incentives for importing technology as many indigenous processes are still manual.”

GJF has urged the Government to monetize existing investment and reduce import burden through recycling the large gold reserves held with temple trusts, banks, NBFCs and retail customers. It has also sought widening of the availability of gold deposit schemes through banks making them more attractive to people. It hopes that the Government will liberalize regulations affecting value chain through reduction of import duty, increased finance options and ensuring consumer protection through standardization. It has asked for a multipronged approach to improve industry opaqueness through better industry and consumer interface, enforce hallmarking standards, diligence in sharing of information or listing of companies, greater transparency and elimination of unofficial supply of gold.

GJF has urged the Government to develop infrastructure to improve skill sets through upgradation and skill development by promoting and standardizing professional vocational courses, introducing fee subsidies, offering scholarship programs, reviving dying arts and crafts, more training. It has urged the Government to roll out the National Skill Certification and Monetary Reward Scheme (NSCMRS) to increase productivity and attract young manpower. It has sought an increase in investment in technology to improve health and working conditions as well as labour productivity. It has asked the Government to provide adequate thrust for skill and infrastructure development through easy financing, incentives, subsidies, facilitation of land allocation, and supply of utilities.

The All India Gems and Jewellery Trade Federation (GJF) represents over 6,00,000 players comprising manufacturers, wholesalers, retailers, distributors, laboratories, gemologists, designers and allied services to the domestic Gems & Jewellery industry. The Gems & Jewellery industry is a hand crafted and labour intensive with over 1 crore strong labour force engaged in the manufacturing of jewellery industry in the domestic sector.


  • Seeks reduction in gold import duties as global oil & gold prices have fallen
  • Urges Government to exclude jewellery from all FTAs
  • Seeks a comprehensive gold mining policy that encourages domestic exploration
  • Urges Government to stimulate enhanced recycling schemes for idle gold
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