Indian Budget Highlights ( FY 2015-16)

PERSONAL INCOME TAX

•    No revision of income tax brackets.
•  Limit of deduction of health insurance premium increased to INR 25,000 from 15,000; limit increased to  INR 30,000 from 20,000 for the elderly People.
•  People aged above 80 and not covered by health insurance to be allowed deduction of  INR 30,000  for medical expenses.
•  Additional deduction of  INR 25,000 for the disabled.
•  Limit on deduction for contributions to pension fund and new pension scheme increased to 150,000  from 100,000.
•  Additional deduction of 50,000 rupees for contribution to new pension scheme under section 80CCD.
•  Monthly transport allowance exemption doubled to 1,600.

FISCAL DEFICIT

• Fiscal deficit seen at 3.9 percent of GDP in 2015/16.
• Remain committed to meeting medium term fiscal deficit target of 3 percent of  GDP. ( By FY 2017-18).
  

GROWTH

• GDP growth seen at between 8 - 8.5 % y/y.
• Expects consumer inflation to remain close to 5% by March.

REVENUES

• Revenue deficit seen at 2.8 percent of GDP.
• Non tax revenue seen at 2.21 trillion rupees.

MARKET REFORMS

• Propose to merge  FMC  with SEBI.
• Bankruptcy code to be brought by FY 2015-16.
• Public Debt Management Agency (PDMA) bringing both external and domestic borrowings under one roof to be set up this year.
• Proposes to introduce a public contract resolution of disputes bill.

POLICY REFORMS

•  To enact a comprehensive new law on black money.
•  Propose to create a social security system for  all Indians.
•  To raise visa-on-arrival facility to 150 countries from 43.
  

GENERAL ANTI-AVOIDANCE RULES (GAAR).

• Government defers rollout of anti-tax avoidance rules GAAR by two years.
• GAAR to apply prospectively from April 1, 2017.
• Retrospective tax provisions will be avoided.

TAXATION

• To abolish wealth tax.
• Replaces wealth tax with additional 2 pct surcharge on super rich.
• Proposes to cut Corporate tax  to 25 % over next four  years from 30%.
• Net gain from tax proposals seen at 150.68 billion rupees.
• Expects to implement goods and services tax by April 2016.
• To reduce custom duty on 22 items.
• Basic custom duty on commercial vehicle doubled to 20%.
• Proposes to increase service tax rate and education cess to 14% from 12.36 %.

IMPORT TAX

• Import tax on iron and steel increased to 15 %from 10 %.
• Import tax on metallurgical coke increased to 5 % from 2.5 %.

INFRASTRUCTURE

• Investment in infrastructure will go up by 700 bln rupees in 2015/16 over last year
• Plans to set up national investment infrastructure fund ( NIIF).
• Ports in public sector will be encouraged to corporatize under Companies Act.
• Proposes tax-free infrastructure bonds for projects in roads, rail and irrigation projects.
• 5 New  "ultra mega" power projects for 4,000 MW each to be set up.
  

EXPENDITURE

•  Plan expenditure estimated at about 4.65 trillion rupees.
• Non-plan expenditure seen at about 13.12 trillion rupees.
• Allocates 2.46 trillion rupees for Defence.
• Allocates 331.5 billion rupees for health sector.

SUBSIDIES

• Food subsidy seen at 1.24 trillion rupees
• Fertiliser subsidy seen at 729.69 billion rupees
• Fuel subsidy seen at 300 billion rupees
• Major subsidies estimated at 2.27 trillion rupees.

31 Minerals to be notified from major to Minor in India

The Ministry of Mines in India  will notify 31 additional minerals as minor minerals. These minerals are currently under the list of major minerals. Notifying them as minor minerals will give regulatory and administrative powers to the State Governments over these minerals. This is being done with the intention to devolve more power to the States, and consequently expedite the process of mineral development in the country.

After being notified as minor minerals, State Governments can frame rules, prescribe rates of royalty, contribution to District Mineral Foundation and decide on the procedure for granting mineral concessions for these 31 minerals. These minerals account for over 55% of the total number of leases and nearly 60% of total leased area. Further  in order to strengthen the mineral inventory database of India, the Government is planning to notify PSUs to carry out prospecting work and  the Geological Survey of India has plans to scale-up exploration operations.

Currency war

There is a growing consensus  that an unspoken currency war has broken out. Countries from Australia,  Japan, China, South Korea, Singapore, Thailand, New Zealand, Israel,  Sweden, Switzerland, Denmark, Norway &  to those that are part of the European Union are now  trying to  stabilize prices or gain competitiveness, simply by  easing the monetary policies  to weaken their currencies.

Many countries, earlier  used tools like  rate cuts,  quantitative easing ( QE)  or direct interventions on the  currency markets  to export deflationary problems to others and gain growth . With out much of success,   now they seems to  apply the other  mechanism available to generate demand  is  the  monetary policy.

But this is ultimately   a zero-sum game,  as someone gains only because someone else will lose.  A weak currency might provide a short-term boost to the countries engaging in currency devaluation. However, if everyone is playing the same game,  we will end up with  more and higher FX volatility. This in turn likely exact a toll on global trade and capital flows.

Shift to new base year lifts India GDP growth in FY14 to 6.9%

India  revised its  growth rate to  6.9 %  in 2013-14, almost 50 per cent higher than the 4.7 % estimated earlier.  The growth estimate was revised on account of  a  move  to adopt 2011-12 as the base year for computation of national incomes instead of   earlier base 2004-05.

India  has decided to adopt the international practice of presenting industry-wise estimates as ‘Gross value added at basic prices’ (GVA) instead of  GDP at  factor cost. With this move, ‘GDP at market prices’ will be the basis for ascertaining GDP.

The Centre had set a fiscal deficit target of 4.1 per cent of GDP for 2014-15 and achieving this target will not be much of a challenge now since  the GDP computation concept has been changed and also given that global oil prices have plummeted.

These latest numbers are likely to give more elbow room to the Finance Minister in the upcoming Budget and one can expect  spending to go up without the government dithering from its fiscal target.