Story Of The Week

Budget 2015- Views on Key Highlights

The Narendra Modi government delivered its first full budget amidst high hopes and expectations. According to Finance minister Arun Jaitley, India’s economy is about to take off. The markets may have initially reacted negatively due to lack of so-called ‘Big Bang’ measures but as clarity dawns on various issues, it seems there are more gainers than losers in the Union Budget proposals.


  • What is being seen as highly positive is the commitment to simplification and rationalization of the taxation structure and setting a clear roadmap of reform for the next four years. For India Inc. the gradual lowering of corporate tax rate from 30 per cent currently to 25 per cent over four years starting 2016-17 will add to their earnings and enhance cash flows, though not immediately.

  • The announcement that the much awaited GST will be introduced on 1st April 2016, will definitely rejuvenate the industry. The GST will make manufacturing more competitive and thereby support the ‘Make in India’ Campaign.

  • However, the short term impact arising out of increase in surcharge and service tax are seen as a matter of concern.

  • Also tax evasion was addressed by way of compliances that the proposed laws required.



  • In the immediate term, with its emphasis on infrastructure – roads, power, ports, and housing – the Budget aims to kick-start the investment cycle signaling that companies that make or maintain infra like IL&FS Transportation, L&T, financiers like IDFC, REC and Power Finance and equipment providers like BHEL, ABB, and Siemens, stand to gain.

  • Infrastructure building measures such as building 100,000 kilometers of road point to significant orders for companies.

  • Power Grid, too, is seen among gainers. More importantly, this time there will likely be few hurdles. For instance, the government is aiming to set up five UMPPs totaling 20,000 MW, entailing an investment of Rs 100,000 crore, wherein all approvals will be taken in advance and bid winners will only run the risk of development and execution.


Foreign Investments

  • Foreigners can invest in alternative investment funds (AIF). AIF taxes pass through foreign fund managers can relocate in India and do not have to worry about paying tax in India on either domestic income or global income. These are very significant changes; they are small but very important changes focusing on doing business in India.
  • GAAR deferral is a positive relief. Government wants to be sure that foreign investors don’t run away from India. There should be no confusion prevailing on this now. More importantly, they have clarified that when GAAR comes into force, it will not be applicable retroactively, and that clears a big uncertainty for investors. It should provide some stability on perception of India’s tax policies.
  • Having no distinction between foreign direct investments and foreign portfolio investments would provide more confidence to portfolio investors. Both investments would be treated same in the eyes of government and regulators. This should attract more portfolio flows in near to medium term in debt as well as equities.


Fiscal Deficit

  • The deadline for cutting the fiscal deficit to 3 per cent of gross domestic product has been pushed back by a year, to 2017-18. In 2015/16, the deficit will be 3.9 per cent of GDP, above the 3.6 per cent target inherited from the last government.
  • Although possibly controversial and against economist expectations, the pushing out of meeting the fiscal deficit target by a year shows pragmatism in bringing in additional public investments for infrastructure development, compensating (for) lack of private investment and showing seriousness on improving overall infrastructure.
  • Trying to stick to a 3.6 percent fiscal deficit target would be far riskier, in terms of ultimately ending up with low growth and having to slash expenditure further and getting into this vicious downward cycle that we have been in for the last couple of years, partly because of this fetishisation of a particular number of the fiscal deficit.
  • The higher target is unlikely to attract the immediate ire of rating agencies and the markets, but will need the higher-frequency fiscal performance to back that faith. Rightfully, public investments have been given precedence to kick start the capex cycle, picking up the slack from the stressed private/corporate and banking sectors.


  1. The Times of India- No big bang, but Budget goes for growth, investment                                                         
  2. Business Standard- Budget 2015: A please-all balancing act

  3. Reuters- Expert views: Budget goes for growth, delays cut in fiscal deficit


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