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Budget 2015 endorses popular pragmatism, finely balances growth and fiscal discipline

The Budget is a step forward in similar pragmatic thinking. This budget attempts to give a direction that, if well implemented, will inspire confidence that India is serious about economic growth that is truly inclusive and balanced.


Nitin Atroley

Amid tremendous hype and speculation, Finance Minister Arun Jaitley presented Union Budget 2015 in Parliament. This is perhaps the most important budget after India launched its bold economic reforms. The time is such. As Chief Economic Advisor Arvind Subramanian said, India is in a sweet spot-rare in the history of nations-in which it could finally be launched on a double-digit medium-term growth trajectory.

The Budget is a step forward in similar pragmatic thinking. This budget attempts to give a direction that, if well implemented, will inspire confidence that India is serious about economic growth that is truly inclusive and balanced.

In a brave and pragmatic step, Jaitley deferred the target of limiting the fiscal deficit to 3 per cent of gross domestic product (GDP) by one year to 2017/18.

With this he has given himself some fiscal space to boost capital expenditure through higher public spending.

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The 14th Finance Commission had recommended achieving the 3 per cent fiscal deficit target in two years by 2016/17 with a 3.6 per cent target for 2015/16.

Jaitley announced that he has achieved the challenging 4.1 per cent fiscal deficit target for 2014/15 and set a target of 3.9 per cent for 2015/16 and 3.5 per cent for 2016/17.

Considering the fact that our infrastructure does not match our ambitions, most of us agree with his view to give the lion's share of the Budget to infrastructure. In keeping with last year's focus on infrastructure spending, the Finance Minister has suggested an incremental expenditure of Rs 70,000 crore in infrastructure projects for 2015/16.

Additionally, Jaitley has proposed to establish a National Investment and Infrastructure Fund (NIIF) with an annual flow of Rs 20,000 crore. Another major bright spot is that infrastructure bonds are back on the table. Jaitley has proposed to bring back the tax-free bonds.

These bonds are secured, redeemable, non-convertible debentures issued by government entities to individuals and institutional investors to mobilise funds needed for projects in the infrastructure development sector.

As per the economic survey, the slew of reforms that Prime Minister Narendra Modi's government has initiated since it took office has led to "partial revival" of investor interest but it is yet to translate into an uptick in private sector investments.

The rail budget came first and it shunned populism and stood strong by the idea of improving amenities for passengers. It announced Rs 40,000 crore support to Railways along with planned investments of Rs 1 lakh crore.

It also lends attention to details such as more and better food, increase in women's safety and easy ticketing, but primarily the rail budget is a clear attempt to put railway finances back on track. This, I believe, is the right thing to do and an important step in increased public spending to kick-start the investment cycle. The railways support a host of ancillary industries and hopefully increased railway spending will help create demand and confidence.

The government's Make in India initiative and its thrust on expanding the share of manufacturing in India's gross domestic product has the potential to transform the fortunes of micro, small and medium enterprises. With GST now a reality, we have taken the step that everyone has been waiting for. In addition, the allocation of Rs 20,000 crore through Micro Units Development Refinance Agency (MUDRA) Bank for the SME sector will enhance credit facility to small businesses and manufacturing units. He also allocated Rs 1,000 crore to support start-ups.

The FM also proposed an overhaul of capital gains taxes to make way for the listing of Real Estate Investment Trusts (REITs). This reiterates his commitment made in the last budget that announced REITs will enjoy pass-through status on taxation. By offering the assurance that capital gains will not be levied on developers transferring property, Jaitley has removed a major hurdle that was holding up the launch of REITs in India. Also, FIIs will be happy with the tax changes and the bulls are likely to stay interested in the Indian stock markets.

In all, Budget 2015 is a prudent and inclusive budget that has attempted to uphold the sentiment of positivity across segments. A viable and receptive eco system will be necessary to make these plans a reality. This is a task that is bigger than the budget itself, and the responsibility will lie with each of us.

(The author is Head-Sales & Markets, KPMG India. The views are personal)

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