Union Budget Analysis essay

It also in a way indicates the stance that may be taken by the RIB when formulating the monetary policy and hence is quite all encompassing. Being the first policy that is announced before the start of the Fiscal New Year, it really gives one time to assimilate the content and prepare for the year ahead.

The Budget has taken a pro-growth stance and it does appear that the government is keen to expedite the growth process by directly contributing to investment.The creditable part of this exercise is that it has been accomplished by being pragmatic with the level of fiscal deficit which will be at 3. 9% for the year even though the glide path to 3% is still On the agenda. The proposals do reinforce the commitment to making things happen which means that there will be focus on easing the processes that are involved in doing business in the country. The Budget has to also garner additional resources and in this context has decided on making changes in the indirect tax rates so as to collect this additional revenue.

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There are sops given for direct taxes which will lead to a net loss of revenue which is finally uncompensated by indirect tax collections. In particular, the proposal to lower the corporate tax rate by 5% over the next four years which should be interpreted with caution as there is also a move to rationalize the exemptions that are presently provided. Further, we are once again looking for disinvestment to be an integral part of the fund raising effort and it remains to be seen whether it would materialize.If it does, we can expect a boost to be given to the markets. The analysis which has been done by our team looks at both the macro implications of the proposals as well as the impact on various sectors. We do hope to hence provide a comprehensive view of the Budget which the reader should find useful. This effort of CARE has been part of our tradition to provide this analysis as soon as possible after the Budget is introduced and I would personally like to commend the team for doing an excellent job as always. D.

R.Dogma MD & CEO 2 Macro-Economic Backdrop The Economic Survey for the year 2014-15 The Survey based on developments of FYI 5, indicate an improvement in the macroeconomic fundamentals which is reflected both in temporal and cross- country comparison. Macroeconomic Performance As indicated above, the fundamentals have shown a significant improvement.

The highlights are as follows; Acceleration in growth Growth in FYI 5 settled at 7. 4% , mostly driven by the industry and services sector Declining price levels WHIP has registered moderation at 3. %, while ICP has moderated to 6. 2% up to December 2014. Structural shifts in inflation are due to lower oil prices, deceleration in agriculture prices & wages and improved household inflation expectations Stagnating trade outcome The trading environment is becoming more challenging as the buoyancy of Indian exports has declined with respect to world growth, and as the negotiation of mega- regional trading arrangements threatens to exclude India Improved Balance of Payments Current account deficit (CAD) declined sharply from a record high of 4. % of GAP in FYI 3 to 1. 7% of GAP in IFFY, which increased marginally to 1. 9% in HI Foreign exchange reserves increase to $ 328.

7 billion at end January 2015 Fiscal deficit is expected to be contained at 4. 1 % as mentioned in the budget estimates. Macro-economic Indicators (%) IFFY FYI 5 GAP growth 5. 1 Inflation (WHIP) 8. 9 6.

0 Inflation (ICP) 10. 4 6. 2* Savings rate 33. 9 31 . 8 30.

6 Investment rate 38. 2 36. 6 32. 3 CAD (You of GAP) 4. 2 4. 7 1. 7 294. 4 292 304.

2 328. 7# Export growth Fore Reserves ($ ban) 21 . 8 -1. 8 Import growth 0. 3 3. * Source: Economic Survey 2014-15, *up to Deck’ 14, Data for HI, to Jan’1 5 3 Challenges and Proposed Strategy Fiscal Framework Need to adhere to the medium term target of 3% Provide for the required fiscal space to insure against future shocks Move towards eliminating of revenue deficit and ensure borrowing used for only capital formation Introduction of SST and expenditure control to help in meeting these targets Expenditure needs to be shifted from consumption towards investments Investment Challenge Stalled projects stand at 7% of GAP, mostly accounted for by the private sector, specially manufacturing and infrastructure owing to changed market conditions and impeded regulatory clearances Need for public sector investment to rise up capital formation and recreate an environment to crowd-in the private sector Banking Challenge Banking balance sheet suffering from ‘double financial repression On the abilities side, high inflation lowered real rates of return on deposits On the asset side, SSL and priority sector lending (SSL) requirements depressed returns to bank assets. The survey proposes the ads of policy going forward, deregulate, differentiate, diversify and disinter Putting Public Investment on Track – the Rail Route to Higher Growth Over the years the railways has been characterized by underinvestment resulting in lack of capacity addition and network congestion, poor services and consequent financial weakness resulting in below potential contribution to economic growth In the long run, efforts need to be taken to make railways commercially viable and railway reforms such as adoption of commercial practices, tariff rationalization and technology overhaul need to be adopted Skill India to Complement Make in India Make in India should be targeted at sectors that are capable Of facilitating structural transformation in an emerging economy, which includes characteristics such as; Have high level of productivity Show convergence to the technology frontier over time Draw in resources from rest of the economy to spread the fruits of growth Be aligned with the economy’s comparative advantage Be treatable Need to bolster the Make in India initiative by complementing it with the Shilling India initiative. This would enable a larger section of the population to benefit from the structural transformation that such sectors will facilitate A National Market for Agricultural Commodities Markets in agricultural products are regulated under the AMPS Act enacted by the State governments Masc.

levy multiple fees of substantial magnitude, that are non – transparent and hence a source of political power There is a need to introduce integrated single licensing system (based on the Karakas model) which will remove the barriers that militate against the creation of choice for farmers and against the creation of marketing infrastructure by the private sector 4 The 14th Finance Commission Unprecedented increase in tax devolution would confer more fiscal autonomy on the states, enhanced by the FCC induced imperative of having to reduce the scale of other central transfers to the state All states gain from the extra resources, although some variation between states would exist Outlook for FYI 6 GAP growth likely be in the range of 8. 1% – 8. 5% growth to receive boost from the cumulative impact of reforms, lower oil prices, likely monetary policy easing facilitated by lower inflation and forecast of normal monsoon Inflation likely to remain in the range of 5% – 5. % CAD to be limited to 1% of GAP 5 union Budget 2015-16 The first full year budget of the new government has attempted to carry forward the positive sentiments surrounding the Indian economy by providing for a roadman for the future.

The broad measures/allocations announced, including the various social and welfare allocations, will provide for benefits in the long term as opposed to any significant changes in the immediate timeshare. While recognizing the various challenges faced, the budget has rightly focused on 4 key areas – agriculture, infrastructure, manufacture and fiscal discipline, to realist it vision and trajectory for the country economy. The thrust laid on the infrastructure sector, the measures announced to stimulate the “Make in India” programmer and for the facilitation of “Ease of Doing Business” sets the tone for the revival of the country.

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