Market’s Perception on Budget 2014 – Rajesh Agarwal Jindal

rajeshagarwalPresenting the Union Budget for FY15, Finance Minister Mr. Arun Jaitley highlighted that the Government has a challenging road ahead of it so far as boosting economic growth is concerned due to the need for simultaneous revival of both manufacturing and infrastructure sectors. The Finance Minister has unveiled a budget which proposed structural reforms that are aimed at reviving growth, but at the same time has resisted the temptation to resort to higher borrowing.

The Finance Minister highlighted that the decline in fiscal deficit from 5.7% of GDP in 2011-12 to 4.8% in 2012-13 and 4.5% in 2013-14 was mainly achieved through reduction in expenditure instead of through higher revenue realization. The external sector had turned around with Current Account Deficit (CAD) of 1.7% of the GDP at the end of FY14, against 4.7% in FY13. But the results came mainly on account of restriction on non-essential imports and overall slowdown in aggregate demand.

While inflation has remained at elevated levels relative to what is perceived as acceptable, there has been a gradual moderation in WPI recently, from a high of 7.35% in 2012-13 and 5.98% in 2013-14. The Government has no option other than to undertake some bold steps in order to enhance economic activity and spur growth in the economy.

Going forward, the Government will remain watchful of the CAD. The Fiscal Deficit target for FY15 has been retained at 4.1% of GDP. It has been set at 3.6% for 2015-16 and 3% for 2016-17.

The Government has delivered a pragmatic budget with an eye on long-term economic growth.

The Government intends to promote “minimum government and maximum governance”. It has acknowledged the need to roll out GST in order to restructure taxation. The Finance Minister wants a solution by December on introducing a national Goods and Services Tax (GST), promising that the government would be “more than fair” in its dealings with India’s states on how revenue would be allocated.

The retrospective tax policies have been retained. The Government will launch a tax reform this year to unify India’s 29 states into a common market, a measure that economist say would boost revenue and at the same time make it easier to do business.

The Finance Minister has tried to attract capital flow into India by encouraging FDI. The limits of FDI investment in Defence and Insurance have been significantly hiked. To boost demand the Government has given several tax consessions to sectors such as consumer durables, non-durables and footwear industries.

On the whole, the union budget had a few important announcements and sector specific positives   

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