Budget 2014-15 An in-depth look

Prof. Manasi Phadke
“The verdict of the people shows their exasperation with status-quo”
“Its not wise to expect everything that can be done to be done in the
first budget announced within first 45 days of formation of the
“Sab kaa saath, sab kaa vikaas”
Fiscal consolidation: Can’t expect future generations to pay
taxes for our excesses today
Infrastructure development
Growth revival in manufacturing
Expenditure on agriculture, better PDS towards food security
Tax relief for the Aam Admi
Sustainable livelihoods for economically disadvantaged,
differently-abled people
Long term soft programs like sanitation, health care,
technical education, management education
Cultural revival: Sacred rivers, art and craft, sports and
Use of technology for smart cities, neo rich middle class
What we expected
What he’s given
Fiscal consolidation
FD to be capped at 5% of GDP
Targeted at 4.1% of GDP:
Gone a bit overboard
Tax relief
•Raising the basic exemption
•Raising the benefits under
•Raising benefits for home loan
Raised to Rs.2.5 lakhs
Raised to Rs.1.5 lakhs
Raised to Rs. 2 lakhs
Subsidy reduction
•Reduction in the urea subsidy
•Reduction in the gap in the
NPK subsidy group
Urea subsidy untouched
Food subsidy risen
Fuel subsidy reduced
Overall bill higher
Revenue deficit
To be capped at 2- 2.5%
Targeted at 2.9%
Should be the thrust area to
cure the supply bottlenecks
Plenty of action on Road,
ports, rails, power
Tax sops, other development
announcements to help revival
Done very vibrantly
What we expected
What he’s given
Food security
More investment in
agriculture, revamp of
Agriculture has been a
key area of reform
FDI limits clearance
Just take a decision
49% allowed in insurance
and defence
Rationalization of taxes
Simplicity in structures
All coal categories
under one custom
 10 year tax holiday on
FII fund managers’
income to be treated as
capital gains
Overall rating on the budget: 4/5 
FM loses a point on:
Overdoing the fiscal consolidation story
Not doing enough on subsidies
Not enough guidance on how the PPP routes will come in
No numbers on expected FDI flows to insurance and defence
Only fleeting mention of FCI and PDS reform; no specifics on
the food security
Will he walk the talk?
Takes on 4.1% target as a challenge thrown by Chidambaram
Unnecessary bravado when the economy is in a slowdown
No external pressure from rating agencies as well
Also suggests 3.6% and 3% as FD for FY16 and FY17, while
himself saying that a growth of 7% can only be achieved in 45 years
This reduces the potential spend on infrastructure
Puts more pressure on delivering on taxes
Net impact of give-aways through raising exemption limit,
PPF limit and interest incentive is Rs.22,000 crores on the
negative side
Net impact of indirect taxes is additional Rs. 7525 crores
There is Rs.14000 crores pressure on the negative side
On top of it, he increases the overall subsidy burden to push
the revenue deficit to 2.9% of GDP
Chidambaram target
(Rs. crores)
Jaitey target
(Rs. crores)
Food subsidy
Fertilizer subsidy
Fuel subsidy
251397 (2.4% increase
over last fiscal)
Expenditure head
Amounts (Rs. crores)
Non- Plan
Plan expenditure includes that which is included in the 12th
Plan blue print: Typically includes capital expenditure
This is at 46.7% of the Non-Plan expenditure which includes
subsidies, salaries and interest outgoes
Interest payment eats a typical 40%, which is unavoidable
Subsidies account for 19% of the expenses, which should
have been capped at 2% of GDP
A reduction of Rs.50,000 cr on subsidy account would have
helped to reign in the revenue deficit at 2.5%, offering
significant benefits to the account
Major fertilizers used are urea (nitrogeneous based), MoP (potassic)
and DAP (phosphatic)
While urea is sold at around Rs. 5360 per tonne, MoP and DAP are 4
times its price
Main feedstock in urea is natural gas, the price of which was
increased to incentivize producers and to ease up the supply to a
fuel starved power sector
This increases the cost of urea subsidy by Rs. 12000 crores, if prices
are not hiked
Since 2000, urea prices have seen only 16.5% hikes whereas
MoP and DAP have seen tripling and quadrupling of the prices
This leads to indiscriminate usage of urea by farmers with
serious ecological impacts
92% of the urea sold in India is produced in India whereas 8%
needs to be imported
Since the farmers use more urea, the level of subsidy
increases even more: Add on burden of subsidy estimated to
be Rs.50000 crores
“New urea policy and an overhaul of the subsidy regime” is
about the only thing he said in the budget
While stocks are up on the news of an “overhaul” the real
problem of the fertilizer industry is the under-recoveries of
the dues from last year
Unless the overhaul includes a mechanism to repay the dues
quickly, the industry won’t be able to improve margins
More clarity was definitely expected on this issue
A large chunk of the smart cities, trains and ports are to be
developed using the PPP route
What is the history we have with regards to the PPP model?
Only started using the PPP model after reforms were ushered
in 1991
From 1991 to 2006, hardly any progress made in PPP models
Primarily at state level and only witnessed in roads and urban
This is the phase where the PPP shows some movement,
though its not very encouraging
Only 758 projects worth Rs.3,83,300 crores have started
under the PPP mode in India so far
Main deterrents: No regulatory authority for PPPs, the
commissioning authorities often do not have full clarity about
timelines and targets associated with the projects, private
sector dependence on the cash trapped banks is probably the
biggest hurdle in the process
While the budget announces reliance on PPP mode, it does
nothing to address any of the above issues
Less than 5% of Indian population is insured
A move to the rural hinterland will require capital, that could
potentially come from foreign partners looking to increase
their stake
Winners could be Standard Life (Scotland), Lombard (France)
and Allianz (France)
Local banks to benefit as the move may require piggy backing
on their rural network
The industry estimates that $3 to $5 billion could come in the
next 6 months, but no guidance from the budget
Thrust on infrastructure: The BJP PMGSY revived, Power, Rural Drinking
Water, Health and Sanitation, Education Girl Child
Growth revival in industries: Tax rationalization, industrial cities and parks to
be notified, SEZs revival, fund for start-ups, credit for MSMEs, investment
allowance upto Rs.25 crores investment in plant and machinery
Food security: Farm credit targets, interest rate subvention, irrigation outlay,
agriculture infrastructure fund, warehousing fund
Power sector: 10 year tax holiday instead of 1-year differential tax
treatments, separating power feeders for farms and households, fund
allocations for ultramodern solar projects, or development of solar parks on
the banks of canals (Gujarat model copies!), dovetailing solar energy to drive
irrigation pumps, impressive outlays given in the budget. Input costs for
solar panels have been reduced through reduction in the customs and excise
duties of components
Total sanitation for every household by 2019
Drinking water and health spends are very healthy
AIIMS in every state, 5 new IITs and IIMs
Skill development in the youth
Thrust on sports
Ancestral skills, art and craft villages, cleanup of the
sacred rivers
Thank you!!!
This is a pictoral representation of the policy uncertainty index created
by economists Scott Baker and Nicholas Bloom
High score on blue line indicates an uncertain environment that adversely
Affects GDP: Hopefully the blue and the red will cross over soon!
Acche Din Aayenge!
Thank you!
[email protected]

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