Budget 2015-16: Balanced between growth & fiscal prudence, says ICICIdirect

Union Budget 2015-16 analysis by ICICIdirect:

NDA’s first full-fledged Budget was balanced between growth & fiscal prudence and saw a paradigm shift in its thinking to bring ideas of social security for the weaker section. It also expanded the savings pool by creating a fungibility mechanism to convert physical savings into financial savings. In its refined architecture, the government has realigned its relationship with the states by empowering them through higher devolution (62 percent of national revenue), which could be channelised towards on-the-ground spending. Though fiscal roadmap has been stretched by a year, incremental deficit is being earmarked for infrastructure spending while a concrete mechanism to dissuade black economy is encouraging. Overall, the Budget addresses three strategic pillars of the economy by inter-weaving pro-poor, pro-growth and pro-investors agenda in the same breath.

On the tax receipt front, the government is targeting 15.2 percent YoY growth in gross tax revenues for FY16E vs. 9.9 percent in FY15E and appears reasonable given the increase in indirect taxes (full impact of excise hike for petroleum products and hike in service tax). However, net tax revenues could grow 1 percent YoY in FY16E given cooperative federalism  Incidentally, the government for the first time highlighted its fiscal road map and aims to achieve fiscal deficit target of 3.9 percent in FY16E; 3.5 percent in FY17E and 3 percent in FY18E. Further, the quality of expenditure is also improving with a shift towards capital expenditure vs. revenue expenditure. Finally, though the government revised its FY16 fiscal deficit target to 3.9 percent vs. 3.6 percent pre-planned earlier, the incremental deficit is being utilised for infrastructure spending  A new bill would be introduced to tackle benami transaction and domestic black money. The enforcement agencies would be empowered to attach assets. Further, undisclosed income would be taxed at the maximum marginal rate. Deductions and exemptions for such income will not be allowed while tax evasion could attract punishment of up to 10 years of rigorous imprisonment. The government also made quoting of PAN mandatory for transaction worth Rs 1,00,000  We believe the government’s FY16E fiscal deficit target hinges on its disinvestment target of Rs 69,500 crore.

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