Union Budget 2015 of India

Comments on the Budget

• ·         The Indian economy decelerated from an 8.4 per cent growth rate in GDP in 2003-04 to 4.8 per cent in 2013-14.The UPA’s decade of economic decline has been wrongly attributed to the global economic meltdown
• ·         This budget is aimed at achieving growth and fiscal consolidation in a sustainable environment.
• ·         Budget crafted keeping in mind long term gains [Budget 15-16 is different from the budgets post 1997 Budget (P.Chidambaram budget)]
• ·         The Budget strives to attain a balance in the government’s agenda to maintain fiscal discipline and simultaneously bolster growth
• ·         It plans to achieve its goals through increasing the tax base and planned capital expenditure, while digitising subsidy transfers
• ·         Infrastructure and manufacturing are the two sectors, where it emphasises its attention on.
• ·         Additional fiscal space is being used to fund infrastructure investment. Having a pre-existing regulatory mechanism for approvals, infrastructure bonds and a comprehensive bankruptcy code are steps in the right direction.
• ·         Revitalising the PPP model, with the sovereign bearing a major part of the risk would lead to a much needed rebalancing and crowding in of the private sector.
• ·         Establishment of a National Investment & Infrastructure Fund for Rs. 20,000 crore will assist in funding infrastructure projects
• ·         A proposal to set up five new Ultra Mega Power Projects, each of 4000 MW in the plug-and-play mode is welcoming
• ·         Clarity on the implementation of the GST in 2016, staggered reduction of corporate tax, deferring GAAR by two years and increasing defence expenditure is a welcome move for the Make in India initiative
• ·         Tweaking the customs duty on raw material augurs well in revamping the inverted duty structure.
• ·         The intent towards avoidance of retrospective taxation is commendable.
• ·         Setting up a Public Debt Management Agency (PDMA) will bring both India’s external borrowings and domestic debt under one roof. This will lead to the debt market being at par with the equity market thereby leading to deepening of the Indian Bond market.
• ·         A proposal to overhaul capital gains taxes paves the way for the listing of Real Estate Investment Trusts (REITs).
• ·         An autonomous Bank Board Bureau would help in overhauling the governance structure of public sector banks.
• ·         Gold monetisation and investment in the National Pension Scheme is a move towards creating an alternate financial asset class that would channelise public savings towards asset creation.
• ·         A comprehensive Bill for curbing black money and incentivising digital transfer of funds would encourage the inflow of liquidity into the real economy.
• ·         Abolishing wealth tax and taxing the super-rich attempts is a prudent move to reduce inequality.
• ·         The Rs 20,000 crore National Investment and Infrastructure Fund (NIIF), the proposal to float tax-free infrastructure bonds and the various other steps for boosting infrastructure are welcome ones indeed.
• ·         The proposal to launch a National Skills Mission to enhance employability is another extremely welcome step
• ·         Overall, the budget ensures a path towards sustainable growth
• Targets and expectations
• ·         Estimated GDP growth for 2014-15 is 7.4%. Growth in 2015-16 is expected to be between 8 to 8.5%.
• ·         Fiscal deficit of 3% in 3 years. Thus, for the next three years, targets are: 3.9%, for 2015-16; 3.5% for 2016-17; and, 3.0% for 2017-18.
• ·         Inflation targeting 6%

Energy sector

·         India cannot grow at double-digit pace without adequate power to drive its industries

·         Aim: To reach a power capacity of 1,25,000 MW by 2022 with major emphasis on clean energy

Positives

·         Proposal to set up five UMPPs (Ultra Mega Power Projects)

·         The conclusion of the coal auction process is sure to add to the positive sentiment.

·         35 per cent of India’s generation capacity is privately-owned

Negatives

·         The increase in the clean fuel cess from Rs.100 to Rs. 200 per tonne

·         6.30 per cent hike in the freight rates for coal

·         the budget is silent on several other structural issues dogging the sector involving power evacuation and distribution.

Financial sector

·         The three notable aspects are the

1.    focus on innovation,

2.    steps towards structural strengthening, and

3.    move to develop various segments of the financial sector.

·         Other key highlights include

1.    steps to channelise savings from physical assets to financial ones,

2.    enhance financial inclusion, and

3.    remove constraints for foreign investors.

MUDRA Bank

·         Budget laid a clear emphasis on enhancing innovation in the financial sector.

·         Proposal to set-up Micro Units Development and Refinance Agency (MUDRA Bank) will enable microfinance institutions to lend to individual-run micro-enterprises.

On the Innovation front

·         Clarity and rationalisation of taxation rules for Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs) will pave the way for these new vehicles to be introduced during the year.

·         This will benefit real estate players having lease-generating commercial assets and infrastructure developers with operating projects.

·         The plan to set-up the National Investment and Infrastructure Fund (NIIF) for taking equity in infrastructure projects will catalyse the infrastructure investments.

·         With the approval for Gujarat International Finance Tec-City (GIFT), India will take baby steps towards developing as a global financial centre.

·         Finally, the planned Trade Receivables Discounting System (TReDS) will help SMEs to reduce their working capital cycle.

·         Once implemented, these innovations have a potential to significantly develop the Indian financial sector to support multiple stakeholders and industries.

On the Structural front

·         Finance Minister has announced reforms in the bankruptcy law, which will effectively address the non-performing assets challenge for banks in the long term.

·         Allowing large non-banking finance companies (NBFCs) to use the SARFAESI Act will significantly augment their recovery efforts.

·         The proposed merger of Securities and Exchange board of India (SEBI) and Forward Markets Commission (FMC) will ensure better regulatory supervision of financial markets that are becoming increasingly complex.

·         The establishment of a Bank Boards Bureau to select heads of government-owned PSU banks and drive their capital management strategies will also strengthen the sector.

·         Finally, path towards a Bank Holding Company over the medium term will enhance governance practices and allow better visibility of capital for public sector banks.

·         Another notable push has been given to the alternate asset management, insurance, pension, and asset management sectors.

·         Alternate Investment Funds have been made pass-through from an income tax perspective and foreign investment has also been allowed.This has the potential to significantly increase the flow of funds to real estate, start-ups and early stage companies and infrastructure projects through professionally managed specialised structure

·         Given the large investment needs, the bond markets and banking sector are expected to play a critical role in providing the necessary debt funding.

·         Similarly, a higher capital allocation for public sector banks would have prepared them well for growth, as well as to meet their current challenges.

Taxation Reforms

·         putting off the implementation of General Anti-Avoidance Rule (GAAR) by two more years

·         GST withheld till 2016

·         The perennial problem of subsidies falls into this category (expenditure reform).

·         Fiscal federalism received a boost with the Fourteenth Finance Commission awarding a larger share of gross tax revenues to the States and the reduced space available to the Centre has been cited as one reason for going slow on fiscal consolidation.

·         The budget has promised to reduce corporation tax from 30 to 25 per cent over the next four years.

·         Abolishment of wealth tax, similar to what the government did in 1986 in relation to estate duty, is a welcome step. Replacement of this tax with a 2 per cent surcharge on the super-rich is a clever act of substituting a more effective way of recovering tax on the rich rather than tax on assets.

Participatory Notes

·         crony/crooked facilitator for black money-based portfolio investment.

·         The Budget does not treat PNs as a time bomb and to seek to abolish this derivative, as the Tarapore Committee had wanted (so it is still left the way it is. Instead seriouds measure will be taken to combat the menace of black money)

Factors that can positively impact growth

·         demographic dividend,

·         12 months a year of farm-friendly weather

·         a highly competitive, skilled and semi-skilled labour force and

·         low wage rates at the national level, the advantages of which have already been proved to the world by the outsourcing phenomenon.

Infromal Sector

·         ‘fund the unfunded’ 58 million micro and small businesses in the non-formal sector.

·         This sectoris unique to India. While in other countries the informal sector is largely illegal, in India, it is non-formal because government policies have not reached it.

·         These 58 million non-formal micro businesses generate millions of rural and semi-urban entrepreneurs and provide 128 million jobs.

·         Two-thirds of these units are operated by Scheduled Castes, Scheduled Tribes and Other Backward Classes.

·         Yet, this Kamadhenu of job creation gets only 4 per cent of its credit needs from banks.

·         The sector now borrows at usurious rates of interest of 120 per cent and beyond.

·         they have posted the fastest growth among all segments of the Indian economy. But economic policymaking in India continued to ignore them

What has changed this time

·         In the last budget, the Modi government had announced a committee to structure a new financial architecture for this sector. The Reserve Bank of India reportedly opposed any new architecture.

·         But this Budget has gone ahead and announced a new financial architecture, the Micro Units Development Refinance Agency (MUDRA), for the non-formal sector with a corpus of Rs.20,000 crore and budgetary support of Rs.3,000 crore for credit guarantee.

·         MUDRA will come into existence by a separate law.

·         This will fund the millions of entrepreneurs by an innovative financial architecture that will integrate the existing private financiers of small businesses as last-mile lenders.

·         It is a completely indigenous, India-centric and innovative solution for the most job-intensive, yet totally credit-starved, segment of an economy unique to India.

·         The MUDRA idea requires millions of private financial intermediaries, who are currently providing finance to non-formal businesses, to be registered and integrated into the new architecture as the last mile delivery instrumentalities.

Monetisation of gold

·         monetisation of gold — creating and circulating money based on gold.

·         Modern economists would dismiss gold as a wasteful item; as a “relic of barbarism.”

·         through the sovereign gold bonds proposed in the Budget, the government can generate a substantial gold stock as buffer stock, India can aggregate its demand for gold and use that power in the international market.

·         If it builds a decent buffer stock, it can play the global gold market which, barring China perhaps, no other country can, because only in India private gold consumption is as high as a fourth of the world’s.

·         Despite that, India has no gold refining and standardisation infrastructure. This new policy will help build this.

·         government would introduce gold deposit schemes in a bid to curb imports of the yellow metal, a key contributor to the current account deficit of India

·         Over 20,000 tonnes of gold lies idle with Indian households without being traded or monetised. India does not produce gold and imports 800-1,000 tonnes of it every year, hurting the trade balance.

·         Indians mainly prefer to hold their gold in the form of ornaments, and the Finance Minister wants these to be put into productive use.

·         Mr. Jaitley said he planned to offer a gold monetisation scheme and a sovereign gold bond as an alternative to buying metal gold. He did not offer a time frame for them.

·         The new scheme [gold monetisation] will allow the depositors of gold to earn interest in their metal accounts, and jewellers to obtain loans in their metal account. Banks/other dealers would also be able to monetise this gold

·         On gold bonds, he said it would carry a fixed rate of interest and be redeemable in cash in terms of the face value of gold at the time of redemption.

·         The government will start work on developing an Indian gold coin, carrying the image of Ashok Chakra. “Such an Indian gold coin will help reduce the demand for coins minted outside India and help recycle the gold available in the country

·        

Challenges

·         The only concern is that unless full tax immunity is granted to gold to be lodged in bonds, the entire stock of black gold may not enter monetisation.

·         The idea of gold monetisation also calls for a massive campaign to convince the millions of Indians possessing gold to look at gold bonds as equal to gold itself.

Insurance

·         A large proportion of India’s population is without insurance of any kind -- health, accidental or life. Worryingly, as our young population ages, it is also going to be pension-less

·         2011 Census, which showed that India’s southern States had already achieved replacement levels of fertility, and the country would need to start dealing with a growing proportion of elderly people in its population.

·         Mr. Jaitley announced three insurance schemes — Pradhan Mantri Suraksha BimaYojna, which will cover accidental death risk of Rs. 2 lakh for a premium of Rs. 12 per year, Atal Pension Yojana, a contributory pension scheme, and the Pradhan MantriJeevanJyotiBimaYojana, to provide both natural and accidental death cover of Rs. 2 lakh with a premium of Rs. 330 per year, for the age group 18-50.

·         For the Atal Pension Yojana, the government will contribute 50 per cent of the beneficiaries’ premium up to Rs. 1,000 per year for five years in new Jan Dhan accounts opened before December 31, 2015.

·         The budget had additional offers for senior citizens. Mr. Jaitley proposed the creation of a Senior Citizen Welfare Fund which would appropriate unclaimed deposits in the Public Provident Fund and the Employee Provident Fund.

Criticism

·         criticised the government for failing to enact a comprehensive universal pension scheme

·         the government has cut allocations to the National Social Assistance Programme, which provides pensions to the elderly, widows and differently abled people, by Rs. 1,000 crore in the new budget.

·         accident insurance for Rs.2 lakh at Rs.12 per annum; for life insurance at a premium of Rs.330 per annum and lifelong pension on an annual premium of up to Rs.1,000, each to be contributed by the beneficiary and the government equally. This ambitious plan aims to reach crores of poor Indians.

·         The insurance and pension idea also needs mobilisation of crores of beneficiaries into the network.

Women Safety

·         Nirbhaya fund gets Rs. 1,000 crore

Middle class

·         In this Budget, the middle class has little to cheer about.

·         Smile on their faces only after abolishing personal income tax.current minimum taxable limit unchanged at Rs. 2.5 lakh

·         The tax deduction limit for individuals, which provides deduction in respect of investment in saving instruments such as Provident Fund, Equity Linked Savings Scheme, life insurance premium, housing loan repayment and National Savings Scheme, was left unchanged at Rs. 1.5 lakh

Salaried middle class

·         disappointment for the salaried middle-class individual with neither an increase in the minimum taxable limit nor reduction in personal tax rates

·         Instead it offered marginal benefits by increasing exemption limits for premium payments on health insurance and additional exemption for contribution towards the New Pension Scheme (NPS).

·         For an individual tax payer, what is new in terms of deductions is the increase in the health insurance premium to Rs. 25,000 from Rs.15,000 and increase in transport allowance to Rs. 19,200 a year from Rs. 9,600 a year. Also there is an additional exemption of Rs. 50,000 contribution towards the NPS.

·         Instead focussed on increasing the tax exemptions on premium payment towards health insurance and contribution towards pension, among others.

Senior Citizens

·         For senior citizens, the medical premium limit was increased to Rs. 30,000 from Rs. 20,000.

·         For those above the age of 80 not covered under medical insurance, a deduction of up to Rs. 30,000 towards medical expenditure is allowed.

Black money

·         Rolling out a multipronged strategy to clamp down on the parallel economy

·         proposed the introduction of two comprehensive Bills in the current Parliament session to tackle black money — both on the domestic and international front.

·         The government will soon introduce a Bill on black money to specifically deal with illicit money stashed abroad and another, the Benami Transactions (Prohibition) Bill, to enable confiscation of benami property, particularly in real estate, and enable prosecution of offenders.

·         Under the proposed law on black money, concealment of income and assets and evasion of tax on foreign assets will be declared a non-compoundable offence, punishable with upto 10 years’ rigorous imprisonment and penalty at the rate of 300 per cent tax.

·         Offenders will no more have the option of approaching the Settlement Commission.

·         Abettors, whether individuals, companies or financial institutions, will also be prosecuted and penalised.

·         The proposed law will make it mandatory for beneficial owners or beneficiaries of foreign assets of any value to file returns. Assessees will be bound to quote the date of opening of foreign accounts.

No exemptions

·         Non-filing or inadequate disclosure will attract up to seven years’ imprisonment, whereas income/undisclosed income from undisclosed/disclosed assets abroad will be taxable at the maximum marginal rate. In such cases, no exemptions or deductions will be allowed.

Seizure clause

·         Under the proposed law, the government will also make concealment or tax evasion on foreign assets a predicate offence under the Prevention of Money Laundering Act (PMLA), enabling prosecution of offenders, besides attachment and confiscation of unaccounted assets situated abroad.

·         The definition of “proceeds of crime” under the Act is accordingly being amended to facilitate confiscation of assets in India equivalent to such a property, if it cannot be forfeited.

·         False declarations or documents in business transactions relating to Customs is also being made punishable under PMLA.

·         The government plans to amend the Foreign Exchange Management Act to enable seizure of domestic assets of a value equivalent to foreign exchange/security or immovable property located abroad, held in violation of the Act. Such violations will also attract up to five years’ punishment and penalty.

Curbs on advance

·         Besides, Income Tax Act provisions are being improved to prohibit acceptance or payment of an advance of Rs.20,000 or more in cash for purchase of immovable property, levying penalty of equal amount.

·         While quoting PAN will be made mandatory for purchase/sale exceeding value of Rs.1 lakh, third-party reporting entities will have to furnish details of foreign currency sales and cross-border transactions. The common practice of splitting of reportable transactions to evade detection will also be addressed.

Defence

·         Modest hike in outlay for Defence

·         “one rank, one pension” (OROP) scheme found no mention in the Union Budget

·         The methodology of calculating OROP is pending between the Services and the Defence Ministries

·         With a major modernisation drive under way, the defence budget was increased by a modest Rs. 24,000 crore over the previous year’s to Rs. 2,46,727 crore.

·         This is 7.7 per cent over the budget estimates of 2013-14 and about 11 per cent over the revised estimates of Rs. 2,22,370 crore.

·         Of the allocation of Rs. 2,46,727 crore, revenue expenditure gets Rs. 1,52,139 crore and capital expenditure Rs. 94,588 crore.

·         However, committed liabilities within the capital budget are so high that it leaves little money for new acquisitions.

Realty Sector

·         Budget fails to confer industry status to realty sector’ or the affordable housing segment and

·         there are only few positives from the thrust on infrastructure, which could benefit the real estate sector.

·         The Finance Minister said the government proposed to build two crore houses in urban areas and four crore houses in rural areas under the ‘Housing for all by 2022’ scheme. This could potentially boost the sector.

·         sadly the budget does not give any direction towards executing this

·         With regard to Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (INViTs), the Finance Minister said the treatment granted to the sponsor on offloading of units at the time of listing will be same as that granted if the shareholding of the special purpose vehicle (SPV) had been offloaded at the stage of direct listing. Further, rental income from real estate assets directly held by REITs are proposed to be allowed to pass through and taxed in the hands of the unit holders of the REIT.

·         Higher service tax from 12.36 to 14 per cent will increase the cost of housing.

·         On the positive side, the withdrawal of wealth tax could boost investments by the middle-class and some sections of high net-worth individuals.

·         Lowering of corporate tax by 5 per cent in the next few years could attract investments.

Investment environment for corporates, foreign players

·         right noises to corporates and foreign investors, by assuring a stable tax regime and ease of doing business in India.

·         lower the corporate tax rate over the next four years to 25 per cent from 30 per cent.

·         This will lead to higher level of investment, higher growth and more jobs. This process of reduction has to be necessarily accompanied by rationalisation and removal of various kinds of tax exemptions and incentives for corporate taxpayers, which incidentally account for a large number of tax disputes

·         The budget also said the key tax reform in the form of goods and services tax (GST) would be rolled out from April 1, 2016

·         inverted duty structure by reducing basic customs duty on inputs, intermediates and reduction in Special Additional Duty to incentivise manufacturers.

·         Increase in service tax rate to 14 per cent and pruning of negative list as a precursor for GST, Cenvat credit time limit increased from 6 months to 1 year

·         In one of the key moves for offering clarity mainly to foreign investors, the budget deferred the implementation of the controversial General Anti-Avoidance Rules or (GAAR) until 2017.

·         gave an assurance of quick resolutions for pending tax disputes.

·         He removed the distinction between direct and portfolio investors, a move which would encourage foreign investors to take stakes in Indian firms.

·         “There has also been an attempt to address the key issues of the investors like clarity on REITs and non-applicability of minimum alternative tax on foreign portfolio investors.

·         Reduction in tax rate on royalty payments to 10 per cent etc. will help boost business confidence

·         The budget also raised the threshold for applicability of transfer pricing norms to Rs. 20 crore from Rs. 5 crore.

·         This will significantly reduce the compliance burden for a large number of taxpayers. This is a welcome move and shows the intent of the government to reduce the pains of the honest taxpayer

Healthcare

·         Union Finance Minister ArunJaitley’s announcement of new AIIMS-like institutions, tax sops for those who buy health insurance, and Rs. 33,150 crore allocation has given the health sector little to cheer.

·         Though the draft of the government’s new national health policy wants public health expenditure to increase to 2.5 per cent of the GDP, the allocation seems insufficient to meet the government’s ambitious universal health assurance mission that includes free diagnostics and drugs up to a certain quantum, besides improved services.

·         The medical community feels that opening of new All India Institutes of Medical Sciences in Jammu and Kashmir, Punjab, Tamil Nadu, Himachal Pradesh and Assam in itself holds little meaning, till the government provides quality doctors.

·         Mr. Jaitley’s push to health insurance has also received a mixed response. India has a sizeable population without insurance. The Minister himself admitted: “A large proportion of India’s population is without insurance of any kind — health, accidental or life.”

·         By encouraging private insurance, we are pushing the middle class towards private health care. This will also lead to a dual structure, in which there will be tax breaks for those who can afford insurance and poorly resourced public provisions for those who can’t pay

·         The plan to run a scheme for giving physical aids and assisted living devices to senior citizens, living below the poverty line, has met with public approval, though there are wide gaps in geriatric care

·         Senior citizens are always an ignored part of the budget, but this one seems to have addressed it partially through the reduction of health insurance premium. But what about senior citizens who do not have health insurance cover?

·         The decision not to increase import duty on medical devices and to bring down service tax on ambulance has also been welcomed.

·         100 per cent automatic FDI route in medical device industry.

·         Didn’t make the ‘Buy India’ policy mandatory

·         Ambulance services have been exempted from tax, and basic custom duty, and artificial hearts have been taken off countervailing duty, a move that will help patients.

Infrastructure

·         weak corporate balance sheets, an impaired banking system, difficulty of exit, and the deficiencies of the public-private partnership model in infrastructure” held back private investments.

·         sought to set right India’s troubled infrastructure sector with increased public investments

·         Our infrastructure does not match our growth ambitions. There is a pressing need to increase public investment

·         Rs. 70,000 crore more as investments in infrastructure

·         A large chunk of the allocation will go toward roads and railways.

·         Minister proposed measures such as simplified bankruptcy laws, a mechanism for easier regulatory clearances, and revisiting of the public-private partnership model.

·         A national investment and infrastructure fund was announced, with an annual flow of Rs. 20,000 crore.

·         All these are measures to get the private sector serious about infrastructure again

·         would use the space created by relaxing the fiscal deficit targets to fund infrastructure. (Fiscal deficit, the excess of expenditure over revenues, will now be reduced slower than earlier proposed, freeing up more money).

·         Another source of funds will come about through the conversion of the excise duty on petrol and diesel of Rs. 4 a litre into road cess. This cess has been estimated to bring in Rs. 40,000 crore.

Bankruptcy law reform

·         would be key to “improving the ease of doing business,” something the earlier Acts failed to do.

·         The plan to make regulatory clearances easier involved creating a system with a pre-existing regulatory mechanism.

·         five new ultra mega power projects, each of 4,000-megawatt capacity.

·         The Minister intends to allow tax-free infrastructure bonds for rail, road and irrigation projects. One of the key proposals is to rework public private partnerships.

·         For the model to work, the Minister indicated the “sovereign will have to bear a major part of the risk without, of course, absorbing it entirely.”

Comprehensive ‘Bankruptcy Code’ proposed

·         In a bid to improve the ease of doing business environment in the country, Finance Minister ArunJaitley on Saturday said the government will unveil a comprehensive Bankruptcy Code in the current fiscal.

·         “Bankruptcy law reform, that brings about legal certainty and speed, has been identified as a key priority for improving the ease of doing business,” he said in the Budget 2015-16 presented to Parliament.

·         “SICA [Sick Industrial Companies Act] and BIFR [Bureau for Industrial and Financial Reconstruction] have failed in achieving these objectives. We will bring a comprehensive Bankruptcy Code in fiscal 2015-16, that will meet global standards and provide necessary judicial capacity,” he said.

New money-sharing regime is in

No budgetry support

·         For eight schemes and programmes, the Union government has completely stopped its budgetary support

·         The government has decided to delink eight Centrally Sponsored Schemes (CSS), including National e-Governance Plan, Backward Regions Grant Funds, Modernisation of Police Forces and Rajiv Gandhi Panchayat SashaktikaranAbhiyaan (RGPSA), from its support.

Greater share of the states

·         For an additional 24 schemes, States will now have to shoulder a greater burden as the Union government takes a step back.

·         These include flagship schemes, including the Swachh Bharat Abhiyaan, the National Health Mission, the RashtriyaMadhyamikShikshaAbhiyaan, the Integrated Child Development Scheme, the National AIDS and STD Control Programme and the Rural Housing scheme.

Fully centre funded

·         Thirty-one schemes, including the Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS), the Mid Day Meal Scheme, the SarvaShikshaAbhiyaan and scholarship schemes, will remain fully funded by the Central government.

Things that will costs more

·         Smoking and consumption of tobacco in other forms will be more expensive. Excise duty is being increased by 25 per cent on cigarettes of length not exceeding 65 mm and by 15 per cent on cigarettes of other lengths.

·         the increase in service tax will make a whole lot of services costlier, including air travel, eating out and paying bills.

·         Subsequently, eating out at restaurants, stay in hotels, air travel, cable and DTH services, services at beauty parlours, courier service, credit and debit card services, dry cleaning of clothes, stock brokering, asset management and insurance that require service of another party will become expensive.Plastic bags and sacks will become costlier as the tariff rate of excise duty has been hiked to 18 per cent from 12 per cent. Cement will become more expensive with excise duty being increased to Rs. 1,000 a tonne from Rs. 900 a tonne.

·         Aerated, flavoured drinks and packaged water will cost more as excise duty has gone up to 18 per cent from 12 per cent.

Things that will costs less

·         Products that will turn cheaper include leather footwear, locally made mobile phones, tablets, microwave ovens, peanut butter, packaged fruits, ambulance service and agarbattis.

·         To facilitate a smooth transition to the levy of tax on services by both the Centre and the States, it is proposed to increase the present rate of service tax, plus education cesses, from 12.36 per cent to a consolidated rate of 14 per cent

·         commonly used items by reducing duties. Leather footwear priced above Rs. 1,000 a pair will cost less as excise duty has gone down to 6 per cent from 12 per cent. Packaged fruits and vegetables will become cheaper as pre-cooling, ripening, retail packing and labelling have been exempted from service tax.

·         Excise duty on locally made mobile phones, LED/LCD panels, LED lights and LED Lamps has been cut.

·         Microwave ovens are likely to become cheaper as a key component, magnetron, has been exempted from basic customs duty as against 5 per cent earlier. Refrigerator prices could also come down.

·         Similarly, solar water heaters will be less expensive

·         Agarbatti prices will come down as the item will now attract nil excise duty.”

·         Visits to a museum, zoo, national park, wildlife sanctuary or tiger reserve will become cheaper with Mr. Jaitley exempting such activities from service tax.

Clean energy sector

·         Though budget reiterated government’s ambitious capacity addition plans in renewable energy sector, it failed to talk about funds towards development of clean energy, feels the industry.

·         Besides seeking priority sector lending status, the industry was expecting government announcements with regard to access of low cost funds and various other avenues such as ECBs (external commercial borrowings). But no announcement was made on finance side.

·         The government has set an ambitious target of generating 175,000 MW of energy through renewable energy sources by 2022. In this, solar is expected to contribute 100,000 MW (current 3 GW to 100 GW), followed by wind (60,000 MW), biomass (10,000 MW) and small hydro (5000 MW). As of December 2014, India’s total renewable energy installed capacity stood at 33,792 MW.

·         Unlike rail and roads, tax free bonds have not been specifically proposed for renewable energy.

·         However, the proposal to increase the clean energy CessRs. 100 to Rs. 200 will benefit the industry as it would significantly boost the National Clean Energy Fund

Farming

·         Irrigation, organic farming take centre stage

·         Pradhan Mantri Gram SinchaiYojna aimed at ‘per drop more crop’ and ParamparagatKrishiVikasYojna (organic farming) as the two most important progammes in the farm sector to enhance productivity and production.

·         He announced an allocation of Rs. 5,300 crore for micro-irrigation, watershed development and the “sinchaiyojna’’ and Rs. 300 crore for organic farming with a request to state governments to “chip in’’ for both.

·         Prime Minister Narendra Modi had recently launched the Soil Health Card Scheme from Suratgarh in Rajasthan.

·         Recognising that agriculture incomes were under stress, Mr. Jaitley announced that a Unified National Agriculture Market would be set up to increase farmers’ incomes with an “incidental’’ advantage of moderating increase in prices which has been the bane of many a government. “While farmers are no longer in the clutches of traders, his produce does not command the best national price’’

·         Farm credit underpins the efforts of hardworking farmers. Raising the farm credit target by Rs. 50,000 crore to Rs. 8.5 lakh crore for 2015-16, which he expects banks to surpass.

·         At the same time to support the sector through effective and “hassle-free” agriculture credit with a special focus on small and marginal farmers, the Finance Minister allocated Rs. 25,000 crore to the corpus on small and marginal farmers.

·         However, funding for the UPA flagship programmes of RashtriyaKrishiVikasYojna has been reduced and the National Food Security Mission, Extension programme and crop insurance schemes have been ignored.

MGNREA

·         set aside Rs. 34,699 crore for the programme with the promise that Rs. 5,000 crore would be thrown in if additional resources are mobilised from tax buoyancy.

Domestic electronics

·         To promote domestic electronics manufacturing, the government removed 4 per cent special additional duty on PC parts but computer makers lamented absence of any incentive for export of ‘Made in India’ IT products.

·         Finance Minister ArunJaitley proposed removal of 4 per cent special additional duty (SAD) on PC components and imposition of education cess on imported electronic products to spur domestic manufacturing.

·         I propose to fully exempt all goods, except populated printed circuit boards for use in manufacture of ITA bound items from SAD and reduce the SAD on imports of certain other inputs and raw materials subject to actual user condition

·         The government has proposed to impose basic customs duty at 10 per cent on specified telecom products that are outside the purview of the Information Technology Agreement (ITA).

·         introduction of the much awaited GST from next year, which is aimed at rejuvenating the industry, will mitigate cascading and double taxation in a major way and pave the way for a common national market, making manufacturing more competitive.

Ports

·         Ports to set sail on corporatisation

·         Union Finance Minister ArunJaitley has asked major ports to go in for corporatisation and become companies under the Companies Act.

·         Presenting the Union Budget, he said the private sector had shown that minor ports could be an attractive investment.

·         Ports in the public sector need to both attract such investment as well as leverage the huge land resources lying unused with them. To enable us to do so, ports in public sector will be encouraged to corporatise, and become companies under the Companies Act

·         The Kamarajar Port is the first corporate port in the country.

School Education

·         Centre drops out of school education

·         The allocation for the Department of School Education and Literacy in the Union Human Resource Development Ministry has seen a drastic drop

·         effective administration of school education essentially a job of the States

·         The overall allocation for education sector, including higher education, is Rs. 68,968 crore.

Private equity industry

·         This has truly been a breakthrough budget for the private equity/venture capital industry.

·         Tax pass-through for all category I and category II funds, and the ability to blend foreign capital in AIFs, will provide significantly greater access to funds for Indian private equity/venture capital industry.

·         Two budget measures that will greatly accelerate the availability of debt capital to unlisted mid-sized companies are:

(1)  enabling NBFCs (mid-sized) with SARFAESI Act and

(2)  MSME refinancing mechanism through the MUDRA Bank.

·         These measure give greater protection to the lending NBFCs, and hence enhance their ability to lend particularly at the growth stages of companies.

·         The clarifications on permanent establishment regarding India-focused offshore fund managers in India is a good initial platform to enable offshore fund managers to operate from India.

Public Sector Banks

·         In order to improve the governance of Public Sector banks, the government intends to set up an autonomous Bank Board Bureau.

·         The Bureau will search and select heads of Public Sector banks and help them in developing differentiated strategies and capital raising plans through innovative financial methods and instruments.

·         This would be an interim step towards establishing a holding and investment company for banks.

·         This is in line with recommendations made in the Nayak Committee wherein the government stake in the banks be transferred to a separate bank investment company, which will be professionally managed and be able to raise resources.

·         The holding company concept has been successfully implemented elsewhere in the world. One good example described in the report is the UK Financial Investments

SARFAESI Act to cover NBFCs

·         The Budget proposal to treat non-banking financial companies (NBFCs) as financial institutions under the SARFAESI Act will be a big boost to the sector.

·         A long-standing demand of the industry, this will allow NBFCs to enjoy the benefits that presently apply only to banks.

·         To bring parity in regulation of NBFCs with other financial institutions in matters relates to recovery.

·         It is proposed that NBFCs registered with RBI and having asset size of Rs.500 crore and above will be considered for notifications as ‘financial institution’ in terms of the SARFAESI Act, 2002

·         NBFCs are not covered under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act.

·         Though the Reserve Bank of India has tightened the NPA recognition norms, it has not laid out clear guidelines either on the recovery mechanism or the provisions for NBFCs to take action against defaulters under SARFAESI Act.

·         Most of the NBFCs are unable to recover bad debts. There have been lakhs of cases that are dragged to court every year by NBFCs. Hence, the working group of RBI, headed by UshaThorat, had recommended that the Act be extended to cover the NBFCs also.

·         Thus, the budget announcement is a big boost to NBFCs. The measure will help strengthen the recovery capabilities of NBFCs. The Sarfaesi Act was enacted to facilitate banks and financial institutions to realise long-term assets, improve recovery by exercising powers to take possession of securities, and sell them in order to reduce NPAs.

·         It is a huge positive for NBFCs. This will enable lending with greater confidence as they can be assured of speedier recovery

Textile Industry

·         Textile industry disappointed

·         allocation for the Technology Upgradation Fund Scheme had been reduced to Rs.1,520 crore for 2015-16 from Rs.1,864 crore allocated for 2014-15.

·         Payments under the scheme were pending for the last three quarters and the provision had to be doubled to disburse the pending amount.

·         need to remove import duty and reduce Central Excise on man-made fibres. Indian man-made fibres were 23 per cent higher compared to international price and, therefore, the growth of the sector in the country was stagnant.

Time deposits to include recurring deposits too

·         The budget has proposed to amend the definition of ‘time deposits’ so as to include recurring deposits within its scope for the purpose of deduction of tax

·         However, the existing threshold limit of Rs. 10,000 for non-deduction of tax shall also be applicable in case of interest payment on recurring deposits to safeguard interests of small depositors.