Union Budget 2015: FM sets ambitious reform agenda, says Aditya Birla Money

the deferment of GAAR by two years, the budget would be received favorably in most quarters of the global investor community. Budget is not very expansionary which will assuage the concerns of the RBI, leading to a likely reducation in the interest rates.

March 01, 2015 / 13:40 IST

Union Budget 2015-16 analysis by Aditya Birla Money Research:

Budget fittingly tackles balancing of conflicting objectives - higher share of government revenues going to the states, maintaining a tight fiscal balance, allocating higher public investments to spur growth as private investments are still lagging. In the process it deliberately compromised on the deficit target which is projected at a tad higher at 3.9% vs 3.6% for the year with the 3% target being pushed back by a year to 2018 from 2017. But importantly the additional spending – Rs. 70000cr additional Gross Budgetary Support - targeted on infrastructure will be released immediately to kick start growth (including 40000cr of GBS to Railways). Shovel ready projects will support immediate kick off of infra capex to push prime the economic growth creating multiplier effect.

Phased cut in the corporate income tax starting FY17 from 30 to 25% is significantly positive along with simplification of the tax structure (Rationalisation and removal of various tax exemptions). Support for “Make in India” was demonstrated through a 15% cut in royalty and fees for technical services; lower corporate tax and commitment to implement GST by April 2016. Deferment of GAAR by 2 (prospective basis ONLY) years will add to the confidence of foreign investors. Bringing NBFCs having asset size in excess of Rs. 5 bn under SARFAESI Act, Comprehensive Bankruptcy Code, an independent debt management unit and a monetary policy committee for the RBI to deal with a formally mandated inflation target were some of the major structural reforms announced which will lead to ease in doing business and propel the GDP growth to 8%+.

On its revenue front, the gross tax collections have been budgeted to grow at 15.8% to Rs.14.49 lakh crores. On spending side, slump in crude price is a god sent opportunity supporting subsidy reduction in Oil. Budget targets to check subsidy leakages with further expansion of Direct Transfer of Benefit. The FM has also spelt out provisions relating to the proposed bill (To be introduced in the current session) to curb both domestic and foreign black money. In keeping with this theme, there is increasing thrust on financial inclusion and social security including Housing for all, employment generation and poverty reduction. FM has budgeted for higher divestment proceeds (~70k crore). Pick up in taxes will be gradual and linked to revival of the economy and therefore targeted disinvestments will be the key to boosting government’s non-tax revenue kitty.

In conclusion, Budget gives clarity of long term vision and stability of fiscal policies in a potentially high growth environment. It carries forward the government’s thrust on taking our economy towards global standards of governance by making it more investment-friendly, fairer and transparent. It will help create a business friendly tax environment and infrastructure spending boost while slightly relaxing the deficit reduction plan. FM has clearly set up an ambitious reform agenda. Now he needs to ensure that the key initiatives are implemented flawlessly and we see tangible difference. Given the deferment of GAAR by two years, the budget would be received favorably in most quarters of the global investor community. Budget is not very expansionary which will assuage the concerns of the RBI, leading to a likely reducation in the interest rates. Rating upgrade for India in sometime in future and paucity of investment opportunities in other EM spaces will keep the $ inflow robust.