Indian Finance Minister Arun Jaitley presented the budget for 2015-16 (FY2016 starts 1 April 2015 and ends 30 March 2016) today to the parliament. It is the first full budget by PM Modi’s government following the landslide election victory last year. Indian PM Narendra Modi termed it a “pro-growth budget” and a “pro-poor budget”. Essentially, the budget has a medium-term narrative with a strong focus on sustainable fiscal finance and accelerated economic growth.
Here are the major highlights of the budget:
- GDP growth target of between 8% and 8.5%.
- Inflation target of below 6% (as per RBI’s strategy)
- Revenue target (includes net tax revenue to center, non-tax revenue, recoveries of loans, and other receipts) of 8.7% of GDP
- Expenditure target of 12.6% of GDP
- Capital expenditure target of 3.4% of GDP
-
- As a share of GDP, both revenue and expenditure targets appear lower than the provisional figure for FY2014
- Capital expenditure allocation is nevertheless increased
-
- Fiscal deficit target of 3.9% of GDP
- Fiscal deficit target of 3.0% of GDP over three years
- Additional fiscal space will go into funding infrastructure investment
-
- Primary fiscal deficit (fiscal deficit minus interest payments) target of 0.7% of GDP
- Revenue reforms:
- Reduce corporate tax from 30% to 25% over the next four years
- Rationalization of various tax exemption and incentives
- Efforts to implement GST from next year
- No change in rate of personal income tax
- Basic custom duty for some imported goods increased
- Metallurgical coke from 2.5% to 5%
- Tariff rate on iron and steel and articles of iron and steel increased from 10% to 15%
- Tariff rate on commercial vehicle increased from 10% to 40%
-
-
- Divestment in loss-making units as well as some strategic divestment
- Stress on cutting subsidy leakages, not subsidies themselves. Rationalization of subsidies on cards
- NITI Ayog and States to work for the creation of a Unified National Agriculture Market
- Micro Units Development Refinance Agency (MUDRA) Bank to be created for refinancing all micro-finance institutions that lend to small businesses through Pradhan Mantri Mudra Yojana
- A sharp increase in outlays for roads and railways
- National Investment and Infrastructure Fund (NIIF) to be established
- Tax free infrastructure bonds for rail, road and irrigation projects
- PPP mode of infrastructure development to be revisited & revitalized
- 5 new ultra mega power projects, each of 4,000 MW
- NITI Ayog to have units for innovation promotion platform and self-employment and talent utilization incubation
-
- Public Debt Management Agency to be set up in FY2016 by bringing both external and internal borrowings under one roof
- Sovereign Gold Bond as an alternative to purchasing metal gold scheme to be developed
- Gold import duty remains at 10%
- Main priorities: agriculture, education, health, MGNREGA, rural infrastructure including roads, manufacturing through Make in India program, catalyze private investment
- To make India the manufacturing hub of the world through Make in India and Skill India programs
Five major challenges identified in the budget:
- Agricultural income under stress
- Increasing investment in infrastructure
- Decline in manufacturing
- Resource crunch in view of higher devolution in taxes to states
- Maintaining fiscal discipline
Below is a snapshot of the performance of Indian economy sourced from Economic Survey 2014-15, Vol.2
