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UNION BUDGET 2015-16
1
The highlights of the Union Budget 2015-16, presented by Finance Minister
Shri Arun Jaitley in Parliament today:
The Budget has laid out a clear and tangible roadmap for the future. Fiscal deficit for
the current fiscal has been contained at 4.1% and for the next fiscal it is budgeted at
3.9%, 30 bps higher than the 14th
Finance Commission recommendations.
Target to complete the journey to a fiscal deficit of 3% in 3 years, rather than the two
years envisaged previously and have targeted 3.5% for 2016-17 and, 3.0% for 2017-
18. In principle, in achieving this, the additional fiscal space will go towards funding
infrastructure investment.
A number of steps taken to give a better autonomy to the PSBs, with the creation of a
Bank Board Bureau and eventually a holding company are being seen as key positives
emerging for banks from the Governments budget, even as limited capital allocation
for the current year may prove to be an immediate constraint.
Disinvestment target set at Rs 69,500 crore. We believe the current buoyant condition
in the equity market will be extremely good for achieving the target.
Non-Plan expenditure for FY16 are budgeted at Rs 13.12 lakh crore to revive growth
and investment in providing jobs for the youth. Total expenditure estimated to grow
at 5.7% to Rs 17.8 lakh crore.
Devolution to the States is budgeted at Rs 5.24 lakh crore and share of Central
Government will be Rs 9.20 lakh crore. However, an immediate jump in the states
share in the tax revenue would lead to unused resources by end of the financial year.
Gross tax revenue is expected to grow by 15.8% in FY16 to Rs 14.5 lakh crore. This
revenue target from taxation is supported by 10.5% growth in corporation tax and
17.5% rise in income tax from direct tax side. The estimated tax buoyancy at 1.4
(basis gross tax revenue) looks perfectly reasonable given the increase in service tax
and rationalization of excise taxes.
Total direct tax revenue is budgeted to grow by 13.1% and indirect tax revenue at
19.5%. The indirect tax revenue seems to be on a higher side but the tax measures
taken to boost indirect tax revenue are quite significant. This optimistic view on
revenue collection is mostly due to 2% rise in service tax rate is from 12% plus
education cess to 14%.
Abolition of Wealth Tax with additional 2% surcharge for the super-rich with income of
over Rs 1 crore.
Subsidies to decline by 10.5% to Rs 2.27 lakh crore.
Rs 70,000 crores to be mobilized for infrastructure sector. Tax-free bonds for projects
in rail, road and irrigation. PPP model for infrastructure development to be revitalized
and Government to bear majority of the risk.
Government proposes to set up 5 ultra-mega power projects, each of 4000 MW.
AIIMS to be set up in Jammu and Kashmir, Punjab, Tamil Nadu, Himachal Pradesh,
Bihar and Assam. IIT in Karnataka; Indian School of Mines in Dhanbad to be upgraded
to IIT. IIM for Jammu and Kashmir and Andhra Pradesh.
KEY HIGHLIGHTS OF THE UNION BUDGET 2015-16
UNION BUDGET 2015-16
2
Two game-changing reforms to be introduced: GST & JAM Trinity. GST will be
implemented by April 2016.
MUDRA bank to refinance micro finance organisation to encourage first generation
SC/ST entrepreneurs.
New scheme for depositors of gold to earn interest and jewellers to obtain loans on
their metal accounts.
Forward Markets Commission to be merged with the Securities and Exchange Board of
India.
NBFCs registered with the RBI and having asset size of Rs 500 crore and above to be
considered as financial institution under SARFAESI Act, 2002, enabling them to fund
SME and mid-corporate businesses.
In order to promote investment in the country, Public Debt Management Agency
(PDMA) to be setup, which will bring both Indias external borrowings and domestic
debt under one roof.
In the budget, there is no change in tax slabs or minimum taxable limit for individual
tax payers. However, it has increased exemption limits on health insurance premium
and transport allowance.
The Government has proposed a 5% reduction of the basic rate of corporate tax to
25% from current 30% over the next four years, starting from the year 2015-16.
The Government has formally made an announcement of adopting inflation targeting
as a nominal anchor for conducting monetary policy. It has also said that the
Government has concluded a Monetary Policy Framework Agreement with the RBI and
necessary amendment required to the RBI Act will be done. This framework gives a
mandate of keeping inflation below 6%.
The Union Budget for FY16 makes a clear case for pushing up public investment. The
3.9% fiscal deficit assumption is well thought out and the revenue numbers could be over
achieved if the economy revives as per expectations. The assumptions of a nominal GDP
growth at 11.5% and a tax buoyancy at 1.4 looks perfectly reasonable given the increase
in service tax and rationalization of excise taxes.
Tax Buoyancy vis--vis Nominal GDP Growth
Source: SBI Research
MACRO VIEW
UNION BUDGET 2015-16
3
It was high time to revisit the controversy regarding the relationship between private and
public investment. In broad terms public sector investments lowers private investment if
it utilizes scare and physical financial resources that would otherwise be available to
private sector. However public investment can also be complementary to private
investment if it is related to infrastructure, as historical evidence in several countries,
including developed ones like US suggests. Public investment of this type can enhance
the possibility for private investment and raise the productivity of capital, increase the
demand for private output and augment overall resources through an increase in
aggregate output and savings.
The decision to incentivise credit card transactions coupled with a new law on black
money will clearly lower the social cost for unaccounted money. Along the entire supply
chain for supply of cash, banking system bears the highest cost primarily because of high
fixed costs of ATM machines and others. Interestingly, the use of electronic payment
instruments allows the unbanked to start building a transaction history, which can be a
step towards initiating them towards financial inclusion. The lack of wide spread
electronic payments infrastructure makes it difficult for the financial industry to deliver
micro-version of payment products in a sustainable way.
Otherwise, the proposed introduction of a gold deposit scheme is a big positive and
conservative estimates show even at a 30% strike rate, the monetary value of gold
deposits mobilized may be as much as Rs 3 lakh crore. Drawing inspiration from China,
tapping such vast gold reserves will also strengthen the case for rupee as an international
currency in the years to come. The gold deposit scheme could be a game changer by
incentivising the banks to hold a part of the deposits as CRR or SLR. This measure could
instil a sense of confidence in public and free up resources for productive purposes. The
gold mobilised could also add to overall gold reserves and help the central bank to
diversify into assets from existing dollar denominated ones.
The Gold Deposit scheme should not be looked at from the myopic lens. Drawing
inspiration from China, tapping such vast gold reserves will also strengthen the case for
rupee as an international currency in the years to come. This should be an objective from
a long-term strategic interest, given that India is exploring trade swap agreements
currently.
The measure, minting Indian Gold Coin carrying Ashok Chakra is measure similar to
American Eagle Bullion Coins issued by the United States Government. Similar coins are
also issued by Perth Mint of the Government of Western Australia. But the focus is to
recycle the domestic gold such as scrap gold. This will provide investors with a
convenient and cost-effective way to add a small amount of physical metal to their
portfolio.
This apart, the proposal to channelise pension funds to infrastructure is a welcome move
and will give a fillip to the NPS. Pension funds by design are vehicles to create financial
claims on future output. Hence, when pension funds are channelized in infrastructure, it
creates a bi-directional positive feedback loop where supply infrastructure boosts further
GDP growth. Interestingly, in the erstwhile Twelfth Plan (2013-17) it was estimated that
the infrastructure requirement was at Rs 55.7 lakh crore (debt plus equity), and the
pension funds were expected to contribute at least Rs 1.5 lakh crores in debt component.
This estimated contribution by pension funds towards infrastructure is on the lower side
given the potential for developing pension market in India. As per latest data, the number
of subscribers under NPS are 71.05 lakh with a corpus of only Rs 58,523crore. Hence,
UNION BUDGET 2015-16
4
convincing pension funds to invest in infrastructure as an asset class has remained a
challenge till now. Therefore, the need to push savings in pension funds is an appropriate
step.
The decision to have a flexible limit for own provident fund contributions for people
below a threshold income will encourage people to balance between consumption and
savings.
The other positive steps in the budget include the proposal to frame a Bankruptcy Law
and a Dispute Settlement. These will help the banks to fasten recovery and enable a
pickup in activities in sectors like construction marred by disputes. The move to align
NBFCs at par with financial institutions will allow banks to clean up their balance sheets.
The Government has proposed a 5% reduction of the basic rate of corporate tax to 25%
from current 30% over the next four years, starting from the year 2015-16, accompanied
by fewer exemptions. This is not to be misinterpreted. While the details and fine print are
yet to be deciphered, a broad outline of the revenue forgone due to exemptions in central
tax system, as per union budget 2012-2013 and 2013-2014, on a safer footing, one may
assume the extent of removal of certain deductions at 20% of revenue forgone of tax
receipts in 2012-13. The amount is expected to be around Rs 13,500 crore and is likely
to square off against the decline in corporate tax proposed.
In the end, as emphasized in Economic Survey, We must emphasize that given the
expectations surrounding the upcoming budget, one question that was to be addressed
head on: Does India need Big Bang reforms? Much of the cross-country evidence of the
post-war years suggests that Big Bang reforms occur during or in the aftermath of major
crises. India today is not in crisis, and decision-making authority is vibrantly and
frustratingly diffuse. From this point, the manifestations in Budget are just the ideal one.
Overall, the Budget is a pragmatic vision and a roadmap for the future. This coupled with
the Railway Budget seems a well concerted move by the Government to sustain the
existing momentum.
UNION BUDGET 2015-16
5
FY 13 FY 14 FY 15 (RE )FY 16
(BE )
FY 16 /
FY 15
(%Gr)
FY 15 /
FY 14
(% Gr)
FY 14/
FY 13
(% Gr)
5 Y r CAGR
(FY 11-15,%)
Decadal CAGR
(FY 06-15,%)
1.1 Revenue Receipts 8,79,232 10,14,724 11,26,294 11,41,575
% of GDP 8.8 8.9 8.9 8.1
1.1.1 Tax Revenue (Net to centre) 7,41,877 8,15,854 9,08,463 9,19,842
% of GDP 7.4 7.2 7.2 6.5
1.1.2 Non-Tax Revenue 1,37,355 1,98,870 2,17,831 2,21,733
% of GDP 1.4 1.8 1.7 1.6
1.2 Capital Receipts 5,31,140 5,44,723 5,54,864 6,35,902
% of GDP 5.3 4.8 4.4 4.5
1.2.1 Recoveries of Loans 15,060 12,497 10,886 10,753
% of GDP 0.2 0.1 0.1 0.1
1.2.2 Other Receipts 25,890 29,368 31,350 69,500
% of GDP 0.3 0.3 0.2 0.5
1.2.3 Borrowings and other liabilities* 4,90,190 5,02,858 5,12,628 5,55,649
% of GDP 4.9 4.4 4.1 3.9
1. Total Receipts 14,10,372 15,59,447 16,81,158 17,77,477
% of GDP 14.1 13.7 13.3 12.6
2.1 Non-Plan Expenditure 9,96,747 11,06,120 12,13,224 13,12,200
% of GDP 10.0 9.7 9.6 9.3
2.1.1 On Revenue Account of which, 9,14,306 10,19,040 11,21,897 12,06,027
% of GDP 9.2 9.0 8.9 8.5
2.1.1 a) Interest Payments 3,13,170 3,74,254 4,11,354 4,56,145
% of GDP 3.1 3.3 3.3 3.2
2.1.2 On Capital Account 82,441 87,080 91,327 1,06,173
% of GDP 0.8 0.8 0.7 0.8
2.2 Plan Expenditure 4,13,625 4,53,327 4,67,934 4,65,277
% of GDP 4.1 4.0 3.7 3.3
2.2.1 On Revenue Account 3,29,208 3,52,732 3,66,883 3,30,020
% of GDP 3.3 3.1 2.9 2.3
2.2.2 On Capital Account 84,417 1,00,595 1,01,051 1,35,257
% of GDP 0.8 0.9 0.8 1.0
2. Total Expenditure 14,10,372 15,59,447 16,81,158 17,77,477
% of GDP 14.1 13.7 13.3 12.6
2.a) Revenue Expenditure (2.1.1+2.2.1) 12,43,514 13,71,772 14,88,780 15,36,047
% of GDP 12.4 12.1 11.8 10.9
2.a).1 Of Which, Grants for creation of Capital Assets1,15,710 1,29,418 1,31,898 1,10,551
% of GDP 1.2 1.1 1.0 0.8
2.b) Capital Expenditure (2.1.2+2.2.2) 1,66,858 1,87,675 1,92,378 2,41,430
% of GDP 1.7 1.7 1.5 1.7
3. Revenue Deficit (2.a)-1.1) 3,64,282 3,57,048 3,62,486 3,94,472
% of GDP 3.6 3.1 2.9 2.8
4. Effective Revenue Deficit (2.a)-2a).1) 2,48,572 2,27,630 2,30,588 2,83,921
% of GDP 2.5 2.0 1.8 2.0
5. Fiscal Deficit {2-(1.1+1.2.1+1.2.2)} 4,90,190 5,02,858 5,12,628 5,55,649
% of GDP 4.9 4.4 4.1 3.9
6. Primary Deficit (3-2.1.1 a)) 1,77,020 1,28,604 1,01,274 99,504
% of GDP 1.8 1.1 0.8 0.7
Nominal GDP 99,88,540 1,13,45,056 1,26,53,762 1,41,08,945
Growth rate 13.1 13.6 11.5 11.5
-27.4-21.3-1.7 24.8-7.7
Memoranda
Source:Union Budget Documents & SBI Research
-2.01.58.8 16.4
-8.41.323.1 0.0
2.61.98.4 14.9
9.5
0.0
8.2
10.38.53.2 14.5
11.81.9-16.2 -
12.52.525.5 12.6
9.4
10.8
5.3
7.14.0-10.0 14.1
19.20.533.9 15.0
10.67.85.7 14.3
3.9
11.7
8.9
19.59.910.9 13.4
5.64.916.3 10.4
9.63.2-0.6 14.3
15.1
-0.1
5.4
10.67.85.7 13.8
11.09.78.2 14.3
11.510.17.5 14.6
9.0
10.3
11.5
12.4
-0.1
7.9
15.411.01.4 9.3
Budget at a glance (Rs Crore and as a % of GDP)
44.89.51.8 12.3
14.0
10.011.41.3 14.4
2.61.914.6 14.9
-17.0-12.9-1.2 0.2
13.46.7121.7 39.4
2.61.98.4
-3.2
8.2
8.2 14.9
UNION BUDGET 2015-16
6
Fiscal deficit is budgeted at 3.9% of GDP and Revenue Deficit at 2.8% of GDP for FY16.
The Budget estimate of fiscal deficit was Rs 5.31 lakh crore for 2014-15. FM has also
hinted on possible uncertainties in fiscal space due to implementation of GST and the
likely burden from the 7th
Pay Commission. FM targets to complete the journey to a fiscal
deficit of 3% in 3 years, rather than the two years envisaged previously and have targeted
3.9%, for 2015-16; 3.5% for 2016-17; and, 3.0% for 2017-18. However, in achieving this
the additional fiscal space will go towards funding infrastructure investment.
Composition of Tax Revenue
Source: SBI Research
Indirect tax revenue growth is budgeted at 19.5%, though it may seem to be on higher
side but the tax measures taken in relating to boost indirect tax revenue are quite
significant. Customs duty is budgeted to grow by 10.4% to Rs 2.1 lakh crore, higher than
the revised growth of 9.7% in FY15. This seems to be achievable as Basic Customs duty
has been raised in many cases including customs duty on metallurgical coke being
increased from 2.5% to 5% and Basic customs duty on Commercial Vehicles increased
from 10% to 20%. Union Excise duty is projected to grow considerably by 23.9% from
previous year as there has been increase in excise duty on condensed milk, peanut
butter, solar water heater and systems, mobile handsets etc. Total service tax revenue is
budgeted to grow by 24.8% to Rs 2.1 lakh crore, primarily based upon the 2% rise in
service tax rate from 12% plus education cesses to 14%. The underlying theme of the
indirect tax policy during the year is to boost domestic manufacture, to bring about
clarity in tax laws, stability in duty rates & rationalization of duty structure.
The fiscal policy of 2015-16 has been calibrated with a two fold objective first, to aid
economy in growth revival; and second, to institutionalize the co-operative federal
structure in light of emerging views on the Centre-State fiscal relations. While, allocations
in the social and welfare sectors have been protected, it is expected that the States will be
bringing in greater share to give fillip to government spending in these sectors. Under the
Central Plan, which falls under the exclusive domain of the Centre, allocation has been
increased in the Capital spending. Similarly, higher allocations have been made to core
sectors of infrastructure which have the potential to give impetus to manufacturing and
job creation. It is a noteworthy achievement indeed.
Accordingly, Budget 2015-16 provides for a realistic growth of 15.8 % over RE 2014-15,
with tax-GDP ratio at 10.3 %. With higher devolution to States, following FFC award, Tax
revenue of the Centre shows marginal improvement over RE 2014- 15, about 1.3 %,
despite the growth on gross taxes. Non-tax revenue has witnessed higher growth in last
HIGH TAX BUOYANCY TO SUPPORT FISCAL MANAGEMENT
UNION BUDGET 2015-16
7
few years due to higher dividend payment from PSUs and Banks, higher dividend paid by
RBI and increase in estimates of Spectrum charges. However, with higher potential under
this item already realized, Budget 2015-16 provides for marginal increase of 1.8 % over
RE 2014-15. Thus, total revenue receipts of the Centre remains stagnant, with marginal
increase of 1.4 % over RE 2014-15.
We believe the budget has set a realistic targets, and can actually overshoot its 3.9%
target at the year end. Moreover, we also envisage that slight digression of fiscal deficit
target on account of more capital spending will not affect RBIs decision regarding
monetary policy. The RBI has also made it clear that not the fiscal deficit number but also
quality of fiscal is equally important.
Fiscal Ratio
% of GDP FY15
(RE)
FY16
(BE)
FY17
(Target)
FY18
(Target)
Effective Revenue Deficit 1.8 2 1.5 0
Revenue Deficit 2.9 2.8 2.4 2
Fiscal Deficit 4.1 3.9 3.5 3
Old Fiscal deficit target 3.6 3
Source: Union Budget document & SBI Research
FY12 FY13 FY14 FY15 (RE) FY16 (BE)FY16 /
FY15 (%Gr)
FY15 /
FY14 (% Gr)
FY14/ FY13
(% Gr)
5 Yr CAGR
(FY11-15,%)
Decadal CAGR
(FY06-15,%)
Gross Tax Revenue 8,89,177 10,36,235 11,38,734 12,51,391 14,49,491
% of GDP 10.1 10.4 10.0 9.9 10.3
Corporation Tax 3,22,816 3,56,326 3,94,678 4,26,079 4,70,628
% of GDP 3.7 3.6 3.5 3.4 3.3
Taxes on Income
Other than
Corporation Tax
1,64,485 1,96,512 2,37,817 2,72,607 3,20,836
% of GDP 1.9 2.0 2.1 2.2 2.3
Customs 1,49,328 1,65,346 1,72,085 1,88,713 2,08,336
% of GDP 1.7 1.7 1.5 1.5 1.5
Union Excise Duty 1,44,901 1,76,535 1,70,197 1,85,480 2,29,809
% of GDP 1.6 1.8 1.5 1.5 1.6
Service Tax 97,509 1,32,601 1,54,778 1,68,132 2,09,774
% of GDP 1.1 1.3 1.4 1.3 1.5
Source: Union Budget documents & SBI Research
10.4 9.7 4.1 8.6 12.6
23.9 9.0 -3.6 7.7 5.8
24.8 8.6 16.7 24.0 24.7
Indiect Taxes
Direct Tax
10.5 8.0 10.8 9.3 17.3
17.7 14.6 21.0 18.3 18.9
Direct and Indirect taxes (Rs crore and as a % of GDP)
15.8 9.9 9.9 12.1 14.6
UNION BUDGET 2015-16
8
14th
FC
Budget
2015-16
Difference
(in bps)
Gross Revenue Receipts 12.25 14.03 178
Gross Tax Revenues 10.72 10.27 -45
Corporation Tax 3.61 3.34 -27
Income Tax 2.27 2.32 5
Customs 1.55 1.48 -7
Union Excise Duties 1.5 1.63 13
Service Tax 1.75 1.49 -26
Net Revenues to Centre 8.25 8.09 -16
Revenue Expenditure 10.81 10.89 8
Subsidy 1.7 1.73 3
Food 0.67 0.88 21
Others 1.03 0.85 -18
Capital Expenditure 1.64 1.71 7
Fiscal Deficit 3.6 3.94 34
Revenue Deficit 2.56 2.80 24
Source: SBI Research
Union Budget vis--vis Finance Commission
As % of GDP
For 2015-16
Revenue
Expenditure
Deficit
The debate on fiscal austerity (fiscal consolidation) in Euro Zone and other economies has
focused exclusively on Government budget deficits and public debt as a percentage of
GDP. The impact of this fiscal austerity program is closely related to the size of the
Keynesian multiplier of public expenditure, which was believed to be large when the
neoclassical synthesis of Keynesian economics prevailed up to the 1970s. Also, reducing
Government spending is not so easy and wise. According to traditional Keynesian theory,
if you manage to reduce the fiscal deficit, you run into another problem: the country
might slide into recession. There is a significant misunderstanding, perhaps deliberate,
around the notion of fiscal consolidation, as policy measures are not clearly
differentiated from policy outcomes. Fiscal austerity is a policy measure; fiscal
consolidation is the goal that may or may not be achieved through fiscal austerity; yet
fiscal consolidation is used with both meanings, as if the desired outcome from policy
tightening was assured. However, many factors can mediate and have an impact on the
economic result. If slow growth or recession is due to insufficient demand, a new round
of fiscal tightening will further depress the economic activity. Conversely, by
strengthening the domestic demand, fiscal stimulus may actually contribute to fiscal
consolidation.
FISCAL AUSTERITY AND PUBLIC EXPENDITURE
UNION BUDGET 2015-16
9
Pre-Crisis
2005-2007
Crisis
2008-2010
Post -Crisis
2011-2013
Pre-Crisis
2005-2007
Crisis
2008-2010
Post -Crisis
2011-2013
France -2.7 -5.7 -4.7 64.1 75.3 88.3
Germany -1.6 -2.5 -0.2 67.3 74.6 79.8
Greece -6.2 -12.2 -6.4 105.3 130.3 167.5
Ireland 1.5 -16.6 -9 24.6 64.1 108.8
Italy -3.2 -4.2 -3.2 105.1 113.9 126.7
Portugal -4.5 -7.9 -5.2 64.9 83.1 120.4
Spain 1.9 -8.4 -9.1 39.7 51.9 83.4
Canada 1.6 -3.3 -3.4 69.4 79.5 87.6
India* -3.3 -5.7 -5.1 77.3 71.5 65
Japan -3.5 -7.9 -8.9 185.1 206 236.8
UK -3 -8.7 -7.2 42.7 65.8 88
USA -3 -10.6 -8.1 64.2 84.6 101.9
Gross Debt (% of GDP)
Euro Zone
Other Economies
Source: IMF, SBI Research; * Financial Year
Deficit and Debt during 2005 to 2013
Country
Fiscal Balance (% of GDP)
It was high time to revisit the controversy regarding the relationship between private and
public investment. In broad terms public sector investment lowers private investment if it
utilizes scare and physical financial resources that would otherwise be available to private
sector. However public investment can also be complementary to private investment if it
is related to infrastructure. Public investment of this type can enhance the possibility for
private investment and raise the productivity of capital, increase the demand for private
output and augment overall resources through an increase in aggregate output and
savings.
In conclusion, fiscal austerity has become part of the problem, not of the solution. This
does not mean that fiscal discipline is not important or fiscal consolidation is not
desirable, but the first must be exercised within a global programme for restarting
growth, and the second will be the medium- to long-term result of that process, not its
precondition. There are enough instruments for pursuing pro-growth policies, although
they must go beyond the macroeconomics of big aggregates (for example, fiscal balances
and monetary aggregates) and intervene in the level and composition of fiscal
expenditure and revenues, in the direction of credit and in the distribution of income.
Instruments, including specific structural and institutional reforms, must also be better
suited to their goals. To avert sovereign debt crisis, a lender of last resort is the best way
to eliminate the risk of default and maintain risk premium and interest rates at
manageable levels, instead, new doses of austerity would only deepen the recession and
further deteriorate long-run solvency.
UNION BUDGET 2015-16
10
FY13 FY14 FY15(RE) FY16(BE)FY16 /
FY15 (%Gr)
FY15 /
FY14 (% Gr)
FY14/ FY13
(% Gr)
5 Yr CAGR
(FY11-15,%)
Decadal
CAGR
(FY06-15,%)
1. Non Plan Expenditure 996742 1106120 1213224 1312200
% of GDP 10.0 9.7 9.6 9.3
1.1 Interest payments 313170 374254 411354 456145
% of GDP 3.1 3.3 3.3 3.2
1.2 Defence Expenditure 181776 203499 222370 246727
% of GDP 1.8 1.8 1.8 1.7
1.3 Subsidies 257079 254632 266692 243811
% of GDP 2.6 2.2 2.1 1.7
1.4 Other Non Plan Expenditure 244723 273735 312808 365517
% of GDP 2.5 2.4 2.5 2.6
2. Plan Expenditure 413625 453327 467934 465277
% of GDP 4.1 4.0 3.7 3.3
2.1 on Revenue Account 329208 352732 366883 330020
% of GDP 3.3 3.1 2.9 2.3
2.2 on Capital Account 84417 100595 101051 135257
% of GDP 0.8 0.9 0.8 1.0
3. Total Expenditure 1410372 1559447 1681158 1777477
% of GDP 14.1 13.7 13.3 12.6
3.1 on Revenue Account 1243514 1371772 1488780 1536047
% of GDP 12.4 12.1 11.8 10.9
3.2 on Capital Account 166858 187675 192378 241430
% of GDP 1.7 1.7 1.5 1.725.5 2.5 12.5 5.3 12.6
Source: Union Budget documents & SBI Research
5.7 7.8 10.6 8.9 14.3
3.2 8.5 10.3 9.4 14.5
-10.0 4.0 7.1 3.9 14.1
33.9 0.5 19.2 11.7 15.0
16.9 14.3 11.9 5.1 13.0
-0.6 3.2 9.6 5.4 14.3
11.0 9.3 12.0 9.6 11.9
-8.6 4.7 -1.0 11.4 21.1
Expenditure Trends (Rs crore and as a % of GDP)
8.2 9.7 11.0 10.3 14.3
10.9 9.9 19.5 15.1 13.4
In line with Governments new fiscal target, the fiscal deficit for 2015-16 of 3.9% of GDP
and total borrowings requirement for 2015-16 has been budgeted at Rs 5,55,649 crore.
Though in nominal terms net borrowing projections at Rs 4,56,405 crores shows an
increase of 2.1% over the previous year, but In terms of GDP, net market borrowing is
budgeted to decline to 3.2% as compared with 3.5% in 2014-15. Interestingly the
Government has earmarked Rs 32,000 crore of switch/buyback of Government securities
due for maturity in the next fiscal, thus bringing down overall maturity and Gross
borrowings by Rs 32,000 crore in the next fiscal. The budget also set aside Rs 50,000
crore of Government Bond Switch for the next fiscal.
As per the budget, dependence on market borrowing for financing fiscal deficit has come
down by 5%, whereas, other means that would now be used to meet that gap are buoyant
small saving inflows and utilization of Government cash balance.
The weighted average maturity of primary issuances of dated securities in fiscal year
2014-15 increased to 14.66 years from 14.28 years in the previous year. The weighted
average yields of issuance in fiscal year 2014-15 went marginally up to 8.51% from 8.48%
in the previous year. We expect with further reduction in repo rate along with conducive
domestic macroeconomic environment, the average cost of Government borrowing is
expected to come down by ~100bps in the coming fiscal. Commercial banks are a major
investor in the Government bonds (around 45% of outstanding dated securities). The
deposits of commercial banks during 2014-15 saw a y-o-y growth of ~11%. With increase
in broad money and improvement in economic condition, we expect banks to continue to
remain large subscriber of Government bonds. Insurance companies are another major
investor category (around 20% of outstanding dated securities), the budget has given
number of avenues for insurance companies to scale up their business. In addition to
that, insurance linked with Pradhan Mantri Jan Dhan Yojana and continuous increase in
penetration level will also increase demand for bonds. Nonetheless easing interest rate
cycle and benign issuances of government augers well to further softening of yield.
GOVERNMENT BORROWINGS
UNION BUDGET 2015-16
11
Financing Fiscal Deficit
Source: SBI Research
FY13 FY14 FY15 (RE) FY16 (BE)FY16 /
FY15 (%Gr)
FY15 /
FY14 (% Gr)
FY14/ FY13
(% Gr)
5 Yr CAGR
(FY11-15,%)
Decadal
CAGR
(FY06-15,%)
Total Subsidies 257078.6 254631.8 266691.8 243811
% of GDP 2.6 2.2 2.1 1.7
Fertiliser Subsidy 65612.81 67338.77 70967.31 72968.56
% of GDP 0.7 0.6 0.6 0.5
Food Subsidy 85000 92000 122675.8 124419
% of GDP 0.9 0.8 1.0 0.9
Petroleum Subsidy 96879.87 85378.16 60270 30000
% of GDP 1.0 0.8 0.5 0.2
Interest Subsidies 7270.37 8137.19 11147.17 14903.42
% of GDP 0.1 0.1 0.1 0.1
Other Subsidies 2315.55 1777.72 1631.55 1520
% of GDP 0.0 0.0 0.0 0.0
Source: Union Budget documents & SBI Research
33.7 37.0 11.9 24.2 19.9
-6.8 -8.2 -23.2 -21.2 4.2
1.4 33.3 8.2 17.7 20.4
-50.2 -29.4 -11.9 12.0 41.3
Subsidy Trends (Rs crore and as a % of GDP)
-8.6 4.7 -1.0 11.4 21.1
2.8 5.4 2.6 3.3 16.1
FY13 FY14 FY15 (RE) FY16 (BE)FY16 /
FY15 (%Gr)
FY15 /
FY14 (% Gr)
FY14/ FY13
(% Gr)
5 Yr CAGR
(FY11-15,%)
Decadal CAGR
(FY06-15,%)
Gross Market Borrowings 558000 564147 592000 600000
% GDP 5.6 5.0 4.7 4.3
Less repayments 90644 110597 145078 143595
% GDP 0.9 1.0 1.1 1.0
Net Market Borrowings 467356 453550 446922 456405
% GDP 4.7 4.0 3.5 3.22.1 -1.5 -3.0 8.3 18.7
Source: Union Budget documents & SBI Research
Government Borrowings (Rs crore and as a % of GDP)
1.4 4.9 1.1 7.9 18.2
-1.0 31.2 22.0 6.8 16.9
UNION BUDGET 2015-16
12
(Rs Cr) S tate Corporation
tax
Income
tax
W ealth
tax Customs
Union
E xcise
Other taxes
& DutiesT otal S hare (%) S ervice T ax
Grand Total
(Total + Service
Tax)
Share (%)
1 Andhra Pradesh 7,499 5,537 -0 3,481 22638 4.31
2 Arunachal Pradesh 2386.0 1762.0 -0.1 1108.0 7232 1.37
3 Assam 5,768 4,258 -0 2,677 17401 3.31
4 Bihar 16836.0 12430.0 -0.5 7815.0 50748 9.67
5 Chhattisgarh 5,365 3,961 -0 2,490 16213 3.08
6 Goa 658.0 486.0 0.0 306.0 1981 0.38
7 Gujarat 5,372 3,966 -0 2,494 16236 3.08
8 Haryana 1888.0 1394.0 -0.1 876.0 5686 1.08
9 Himachal Pradesh 1,242 917 - 577 3744 0.71
10 Jammu & Kashmir 3230.0 2384.0 -0.1 1499.0 8088 1.85
11 Jharkhand 5,468 4,037 -0 2,538 16499 3.14
12 Karnataka 8210.0 6061.0 -0.2 3811.0 24790 4.71
13 Kerala 4,355 3,215 -0 2,021 13122 2.5
14 Madhya Pradesh 13148.0 9707.0 -0.4 6103.0 39705 7.55
15 Maharashtra 9,617 7,100 -0 4,464 29062 5.52
16 Manipur 1075.0 794.0 0.0 499.0 3238 0.62
17 Meghalaya 1,118 826 - 519 3371 0.64
18 Mizoram 801.0 592.0 0.0 372.0 2414 0.46
19 Nagaland 868 640 0 403 2614 0.5
20 Odisha 8086.0 5970.0 -0.2 3753.0 24412 4.64
21 Punjab 2,747 2,028 0 1,275 8273 1.58
22 Rajasthan 9572.0 7067.0 -0.3 4443.0 28925 5.5
23 Sikkim 639 472 0 297 1925 0.37
24 Tamil Nadu 7008.0 5174.0 -0.2 3253.0 21150 4.02
25 Telangana 4,245 3,134 0 1,970 12823 2.44
26 Tripura 1118.0 826.0 0.0 519.0 3369 0.64
27 Uttar Pradesh 31,284 23,097 -1 14,521 94313 17.96
28 Uttarakhand 1833.0 1353.0 -0.1 851.0 5526 1.05
29 West Bengal 12,758 9,419 0 5,922 38462 7.32
TOTAL 174197.0 128607.0 -5.1 80855.0 523958 100
Source:Union Budget Documents & SBI Research
Statement Showing State-Wise Distribution Of Net Proceeds Of Union Taxes And Duties For BE 2015-2016
9444.0 0.0 78344.0 18.2 15969.0
3851.0 0.0 31950.0 7.4 6511.0
193.0 0.0 1601.0 0.4 324.0
1282.0 0.0 10631.0 2.5 2192.0
262.0 0.0 2172.0 0.5 441.0
829.0 0.0 6879.0 1.6 1394.0
2903.0 0.0 24085.0 5.7 4977.0
338.0 0.0 2801.0 0.7 570.0
1651.0 0.0 13694.0 3.2 2805.0
1315.0 0.0 10906.0 2.5 2216.0
1622.0 0.0 13454.0 3.2 2782.0
375.0 0.0 3110.0 0.7 633.0
0.0 14444.0 3.4 2957.0
1620.0 0.0 13436.0 3.2 2777.0
1741.0
2264.0 0.0 18780.0 4.4 3858.0
The 2015-16 Union Budget has set a divestment target Rs 69500 crore, higher than the
previous fiscal's target of Rs 58,425 crore. As per the budget documents, proceeds from
disinvestments in this year would be at Rs 31,350 crore. The success of the disinvestment
target will again largely depend upon Hindustan Zinc and Bharat Aluminium (Balco) along
with stake sale of Government holdings in private firms through SUUTI. We believe
remaining part of the targeted amount will be conditioned upon timely execution and
buoyant equity market, where we do not envisage any large slippages.
Government has announced 100% deduction for contributions, other than by way of CSR
contribution, to Swachh Bharat Kosh and Clean Ganga Fund.
Clean energy cess has been increased from Rs 100 to Rs 200 per metric tonne of coal,
etc. to finance clean environment. Doubling of cess is expected to fetch additional Rs
5000 crore per year in the clean corpus. Excise duty on sacks and bags of polymers of
ethylene other than for industrial use increased from 12% to 15%.
DISINVESTMENT
SWACHH BHARAT
UNION BUDGET 2015-16
13
The move will accelerate Construction of toilets under Prime Minister Narendra Modi's
dream project, Swachh Bharat Abhiyan and ensure uninterrupted progress. The
programme entails an investment of nearly Rs 2 lakh crore over the next five years to
construct 12 crore toilets in India. Government has constructed 7.10 lakh individual
household toilets in the month of January15 alone taking the total of 31.83 lakh toilets
up to January 2015. Further, concessions on custom and excise duty available to
electrically operated vehicles and hybrid vehicles has been extended upto 31st
March
2016.
In order to promote investment in the country, FM has proposed to set up a Public Debt
Management Agency (PDMA) which will bring both Indias external borrowings and
domestic debt under one roof.
Moving public debt management from the Central Bank to a Debt Management Office
(DMO) is an internationally accepted best practice. Most OECD countries has already
established dedicated debt management units. Several emerging economies, Brazil,
Argentina, Colombia, and South Africa, have also restructured and consolidated debt
management. The first Report of the Internal Working Group on Debt Management had
laid down the formats and structure of DOMs. As per that report there are certain
common features across countries that have restructured and modernized public debt
management:
The Central Bank no longer manages public debt; there is a clear separation between
monetary policy and public debt management.
Debt management is integrated in one entity rather than dispersed over several
departments and authorities.
The split between external and domestic debt management gives way to integrated
debt management, with a front-middle-back office structure.
The DMO focuses on making debt management more transparent.
The DMO focuses on communicating regularly and clearly with financial markets.
In the Budget, a number of steps has been taken to give better autonomy to the PSBs,
with the creation of a Bank Boards Bureau and eventually a holding company are being
seen as key positives emerging for banks from the budget, even as limited capital
allocation for the current year may prove to be an immediate constraint.
The budget provides Rs 7,940 crore for capitalization of banks. The capital infusion is
small given the fact that even after reduction of the minimum Government holding in
PSBs to 52%, a sum of Rs 1.02 lakh crore will be required during the period 2015-16
to 2019-20 from the Government for complying with Basel III norms (according to
14th Finance Commission).
To improve governance of PSBs, FM has proposed setting up autonomous Bank Board
Bureau for helping lenders raise capital for meeting expansion needs. This would be a
step towards establishing a holding and investment company for banks. This issue
was discussed extensively at the Gyan Sangam and PSBs heads suggested the
BANKING SECTOR
DEBT MANAGEMENT
UNION BUDGET 2015-16
14
creation of Bank Investment Committee (BIC) and transfer of the Government's
investment in banks to BIC. Creation of BIC would over time enable the Government to
reduce ownership to below 51% and help banks generate capital for growth. Earlier, in
Dec14, the Government decided to permit public sector banks to raise capital up to
Rs 1.6 lakh crore from capital markets by diluting Government holding to 52% in
phases so as to meet Basel III capital adequacy norms. PSBs alone require Rs 2.40 lakh
crore by 2018 to meet global Basel III norms. However, 14th Finance commission has
the view that proposal to create a holding company will result in indirect and non-
transparent fiscal obligations for the Union Government.
The move to bring NBFCs at par with financial institutions will help banks to clean up
their balance sheets by selling stressed assets at an early stage to ARCs. This is
because NBFCs, on account of their inability to access SARFAESI would only take on
NPA accounts where SARFAESI already invoked. Now SMA accounts would also be
applicable.
In line with US Chapter 11 bankruptcy code, Government is to form a new bankruptcy
code, by scrapping the Board for Financial and Industrial Reconstruction (BFIR) and the
Sick Industrial Companies Act (SICA). The loopholes existing on account of multiple
laws like SICA (Sick Industrial Companies Act) and Board for Industrial and Finance
Construction (BIFR) that allowed defaulters to exploit and delay recovery will stand
altered.
Also, the decision to have commercial courts acting under the judicial courts may fast
track debt recovery. For lender this appears to be a big positive as tightening of
defaults will lead to ease of doing business.
Government also proposes to utilise the 1.55 lakh of postal network to promote
PMJDY by venturing into payment bank. The Payment Bank will improve payments and
remittance services across the length and breadth of the country.
Internationally, insurance penetration and density reflects the level of development of
insurance sector in a country. Despite several measures, the insurance penetration of
India is staggering at a very low level (3.90% in 2012-13), compared to other countries
like US 7.5%, UK 11.5% and South Africa 15.4%. However, the Indian insurance industry
faces a number of difficulties like capital raising, tight regulations etc. However, in the
Budget 2015-16, Government has taken a number measures to increase insurance
penetration in the country, especially in the health insurance segments. In line with
Pradhan Mantri Jan Dhan Yojana (PMJDY), the Finance Minister launched Pradhan Mantri
Suraksha Bima Yojana (PMSBY) that will cover accidental death risk of Rs 2 lakh for a
premium of just Rs 12 per year i.e. Re 1 per month. As per estimates, around 63 million
people have been driven into poverty due to the high cost of healthcare. In addition to
that, around 73% of the country's population live in rural areas and 26.1% is below
poverty level.
Similarly, Social Security Scheme that was announced is the Pradhan Mantri Jeevan Jyoti
Bima Yojana (PMJJBY) which covers both natural and accidental death risk of Rs 2 lakhs.
The premium will be Rs 330 per year, or less than one rupee per day, for the age group
18-50. Interestingly, all the contributions will be transferred from their Jan Dhan accounts
directly. So, this move will give an additional boost to the banking industry in India.
INSURANCE & PENSION REFORMS
UNION BUDGET 2015-16
15
Health Insurance
In line with our expectations, Finance Minister has raised the deduction limit under
section 80D to Rs 25000 from Rs 15000. Increased tax sops are aimed at helping tax
payers to buy enhanced covers for themselves. Senior citizens above 80 years of age with
no health insurance cover are allowed a deduction of Rs 30,000 towards expenses
incurred for health care. Deduction available under Section 80DDB for senior citizen has
been hiked up to Rs 80,000 from extant Rs 60000. The deduction now stands at Rs
80,000 or actual whichever is lower. This move will encourage people to take health
insurance given the fact that penetration of health insurance is quite low in India
compared to emerging economies. Health insurance penetration in India is only around
5% overall with about 13-15% in urban areas.
Pension Fund Reforms
In line with the PMJDY, Government has also proposed to work towards creating a
universal social security system for all Indians, especially the poor and the under-
privileged. In this context, Government has announced the Atal Pension Yojana (APY),
which will be a defined benefit pension, depending on the contribution, and its period. To
encourage people to join this scheme, the Government will contribute 50% of the
beneficiaries premium limited to Rs 1,000 each year, for five years, in the new accounts
opened before 31st
December, 2015.
Additionally, to promote savings, Government has raised the tax incentive limit for
investment in pension fund by Rs 50,000 under 80CCD, taking it to Rs 1.5 lakh. The limit
on deduction on account of contribution to a Pension Fund and the New Pension Scheme
(NPS) is proposed to be increased from Rs 1 lakh to Rs 1.5 lakh.
In addition to that, workers covered under EPFO may soon have an option to choose
between Employees Provident Fund (EPF) scheme and NPS and also between health
insurance products of Employees State Insurance Corporation's (ESIC) and Health
Insurance product, recognized by the Insurance Regulatory Development Authority. It is
also proposed that for workers getting wages below a certain threshold, contribution to
EPF will be optional. This is a welcome move as now employees get options of investing in
debt and equity. EPF invests in debt only while NPS in debt and equity both. At present,
over five crore workers are covered under EPFO and two crores under ESIC.
The announcement of creating a refinance agency MUDRA bank with an initial corpus of
Rs 20,000 crore to provide credit facilities to SC/ST businesses is a welcome move as it
will help around 62% of 5.77 crore small business units that are owned by SC/ST. This will
result in a lower rate for MSME borrowers and hence increase in credit demand.
The announcement of establishment of an electronic Trade Receivables Discounting
System (TReDS) for financing of trade receivables of MSMEs, from corporate and other
buyers, through multiple financiers will improve liquidity in the MSME sector significantly
and helps the sector in managing working capital cycle effectively.
MSME
UNION BUDGET 2015-16
16
The Finance Minister has announced four concrete measure regarding monetization of
gold. These include: one, a Gold Monetisation Scheme, which will replace both the
present Gold Deposit and Gold Metal Loan Schemes; two a Sovereign Gold Bond which will
be an alternative to purchasing metal gold; three developing Indian Gold Coin, which will
carry the Ashok Chakra on its face and four buying of Gold using Debit cards/ Rupay
cards.
The first proposal is a monetization measure which will recycle the existing stock of gold
and will unlock the value in gold for productive purposes. Since, existing Schemes may be
amended or replaced and the ensuing business risk of this policy announcement can be
assessed only when exact contours of the proposals are known.
The second proposal, Sovereign Gold Bonds is creating a near substitute for physical gold
by issuing gold denominated/indexed sovereign bonds. One can infer that Bonds will
carry a fixed rate of interest, and also be redeemable in cash in terms of the face value of
gold. Banks can be the designated agencies once the scheme becomes operational.
Government may even recognize these bonds an eligible collateral for loans. However,
taxation related issue for these bonds have not been clarified.
The third measure, minting Indian Gold Coin carrying Ashok Chakra is a measure very
similar to American Eagle Bullion Coins issued by the United States Government. Similar
coins are also issued by Perth Mint of the Government of Western Australia. But the focus
is to recycle the domestic gold such as scrap gold. This will provide investors with a
convenient and cost-effective way to add a small amount of physical metal to their
portfolio.
The fourth measure is proposed with an intention to curb black money. Since gold
provides not only a safe means of holding illegal gains, but also makes such holdings
highly profitable when the onshore price of gold differs substantially from offshore price.
This is a welcome measure.
Otherwise, the proposed introduction of a gold deposit scheme is a big positive and
conservative estimates show even at a 30% strike rate, the monetary value of gold
deposits mobilized may be as much as Rs 3 lakh crore.
Estimated stock of gold (Tonnes)
Eligible stock for monetization @ 23%
Percent of monetization 0.1 0.2 0.3
Gold mobilised (Tonnes) 460 920 1380
Dollar value of gold monetised (Billion) 17.9 35.9 53.8
Source: SBI Research
Conservative Estimates of Gold Monetization
20000
4600
The budget looks to simplify the FDI regime by doing away with the distinction between
different types of foreign investments. Portfolio and foreign direct investments will now
have to comply with FDI norms on same footing. Sectors under 100% automatic route
would not be affected. Also, there are few sectors where FDI and FII cap is not clearly
MONETISATION OF GOLD
ROADMAP FOR FDI AND FII COMPOSITE CAPS
UNION BUDGET 2015-16
17
mentioned. The composite caps would aid foreign investments into the country. An
estimated FDI of $21 billion was reported in the April-Jan period exhibiting a 27% growth.
The removal of ambiguity on application of sectoral caps, conditionalities and approval
requirements in different sectors is intended to pave the way in keeping with the
momentum in FDI.
Finance Minister indicated GST as one of the game changing reforms and announced that
GST will put in place a state-of-the-art indirect tax system by 1st April, 2016. To facilitate
smooth transition to GST, Service tax plus education cess is proposed to be increased
from 12.36% to 14%. Earlier the 14th
Finance Commission (FC) also increased the share of
States in Union taxes to 42% (from the current level of 32%). The one year moratorium will
help a smooth implementation of GST as there are several challenges and many
unresolved issues.
Regarding the compensation to the States, FC has a view that given the scale of reform
and the apprehensions of revenue uncertainty raised by the States, the revenue
compensation, should be for five years. It is suggested that 100% compensation be paid
to the States in the first, second and third years, 75% compensation in the fourth year and
50% compensation in the fifth and final year. FC also recommends creation of an
autonomous and independent GST Compensation Fund through legislative actions in a
manner that it gives reasonable comfort to States, while limiting the period of operation
appropriately. As a first decisive step, in Budget FY14, Rs 9,000 crore was provided
towards the first instalment of balance of CST compensation. In the current Budget the
compensation has not been talked about.
FC has a view that Union may have to initially bear an additional fiscal burden arising due
to the GST compensation and this fiscal burden should be treated as an investment which
is certain to yield substantial gains to the nation in the medium and long run.
The implementation of GST would be critical for the economy as this will streamline the
tax administration and result in higher revenue collection both for the Centre and the
States. In our estimates, implementation of GST would lead to a 1% to 1.5% increase in
GDP growth.
GST: WAIT FOR ONE MORE YEAR
UNION BUDGET 2015-16
18
Some critical steps Status Remarks
Introduction of Value Added Tax throughout the
country
a Done successfully
Reduction in the Central Sales Tax (CST) rate as part of
a complete phase out of the tax
a Done successfully from 4% to 2%
Complete phasing out of CST r Proposed to be subsumed in GST
Introduction of the Service Tax by the Centre, and a
substantial expansion of its base over the years
a Done successfully
Rationalization of the CENVAT rates by reducing their
multiplicity
aReplacing many of the specific rates by ad
valorem rates based on the maximum retail
price (MRP) of the products
Drafting of model legislation for the Centre and State
GST in concert with States
r Under progress
Working formula for revenue sharing and whether
compensation to be given to States
rMost contentious issue. Partly resolved.
Working formula has been decided but
compensation need to be done
GST amendments to become law r
To be passed by the Parliament with a two-
thirds majority in both the Houses and
endorsed by at least half of the State
Assemblies in the country
GST network (GSTN) to be set up as a National
Information Utility
rGovernment missed the August 2012 deadline
to roll out GSTN and new date of roll out is
yet to be decided
Harmonization of Central Excise and Service Tax aA common simplified registration form and a
common return comprising of one page are
steps in this direction
Common tax code for Central Excise and Service Tax r Study team to examine the possibility
Concept of taxing services based on negative list a Introduced
Utilization of input tax credit aPermitted in number of services to reduce
cascading of taxes
Inclusion of Petroleum products and entry tax under
GST
rNo consensus as States want to keep these
items out of the GST, but industry is batting
for inclusion to ensure an effective GST
Status of GST
FM has addressed two major factors critical to agricultural production: soil and water. In
order to improve soil health, FM has proposed to support Agriculture Ministrys organic
farming scheme Paramparagat Krishi Vikas Yojana.
In this context, the Government can also launch a bi-annual Krishi Mahotsav
(synchronizing with Rabi and Kharif) in line with Gujarat Government where all
institutions are pulled under one platform to maximize farmer outreach. Additionally, the
Gujarat Government initiative on Soil Health Cards (soil data of 2 lakh farmers across
18,000 villages were initially collected for this purpose) and Scientists & Extensions
advising crop improvement qualitatively based on soil data and existing knowledge may
also be replicated.
The Pradhanmantri Gram Sinchai Yojana is aimed at irrigating the field of every farmer
and improving water use efficiently to provide Per Drop More Crop. FM has set a target
of Rs 8.5 lakh crore of agricultural credit during the year 2015-16.
The move towards a unified agricultural market will ensure that the farmers gets the
correct remuneration of their agricultural produce.
AGRICULTURE
UNION BUDGET 2015-16
19
The four important Budget proposals impacting the mutual fund industry are as follows:
a) An increase in surcharge of 2% from 10% to 12% on additional income-tax payable
by companies on distribution of dividends and buyback of shares, or by mutual
funds and securitization trusts on distribution of income. If companies want to
maintain their outgo, then shareholders will have to reckon with lower dividends.
The proposed increase in surcharge will reduce the return on long-term
investments of shareholders.
b) Tax neutrality on transfer of mutual fund scheme under the process of
consolidation of schemes of mutual funds as per SEBI Regulations,1996. Hence the
mutual fund industry is likely to witness more scheme mergers in the coming
weeks.
c) Service tax exemption withdrawn on the services provided by mutual fund agents
to an asset management company.
d) Modification in Permanent Establishment (PE) norms to the effect that mere
presence of a fund manager in India would not constitute PE of the offshore funds
resulting in adverse tax consequences. This would encourage fund managers
operating from offshore locations to relocate to India.
As suggested by the Financial Sector Legislative Reforms Commission (FSLRC), India
Financial Code (IFC) will be introduced in Parliament soon which will lay out clear
objectives for financial regulation. The code focuses on the formal process through which
the legislative, executive and judicial functions take place in financial regulators. Besides,
it provides clear objectives for financial regulation where government intervention is
required and the areas include consumer protection, systemic risk reduction, debt
management, capital controls and micro-prudential regulation.
FM announced of keeping aside Rs 1000 crore to help start-ups is a welcome news for the
aspiring entrepreneurs across the country. Earlier announcements of big funds like Rs
10,000 crore and Rs 5,000 crore for handholding start-ups with equity support never
took off. However, to start with Rs 1000 crore will be easy to set up operating structure
for utilising this fund which was not finalized last time. In the coming days, Government
should think of a structure which can satisfy various aspects like
equity support to the entrepreneur,
comfort to banks in financing,
repayment of the funds to Government to revolve it to other beneficiaries,
employment generation.
MUTUAL FUND
INDIA FINANCIAL CODE
FUND FOR START-UP
UNION BUDGET 2015-16
20
The Union Budget is particularly stringent on tackling the menace of black money. Black
money can be categorized into two groups - black money and red money. The former is
generally attributed to illicit money generated by normal economic activity by
circumventing the tax laws. The latter is exclusively attributed to money generated out of
crimes like narcotics smuggling, bribing and other nefarious activities. It appears that the
proposed measure are mostly dealing with black money and not red money. One way to
curb the flow of black money is to discourage transactions in cash. Now that a majority
of Indians has or can have, a RUPAY debit card the proposal to allow purchase of gold
using plastic money have already been mentioned.
Besides reducing the level of cash usage, it is now proposed that concealment of income
and assets and evasion of tax in relation to foreign assets will be prosecutable with
punishment of rigorous imprisonment up to 10 years. This offence will be made non-
compoundable; the offenders will not be permitted to approach the Settlement
Commission; and penalty for such concealment of income and assets at the rate of 300%
of tax shall be levied. Further, non-filing of return or filing of return with inadequate
disclosure of foreign assets will be liable for prosecution with punishment of rigorous
imprisonment up to 7 years.
Since nearly 70% of the black money and almost whole of red money is stashed abroad;
hence the proposal to amend the Prevention of Money-laundering Act, 2002 (PMLA) and
the Foreign Exchange Management Act, 1999 (FEMA) to recover the same. The offence of
concealment of income or evasion of tax in relation to a foreign asset will be made a
predicate offence under the PMLA. This provision would enable the enforcement agencies
to attach and confiscate unaccounted assets held abroad and launch prosecution against
persons indulging in laundering of black money. If any foreign exchange, foreign security
or any immovable property situated outside India is held in contravention of the
provisions of FEMA, then action may be taken for seizure and eventual confiscation of
assets of equivalent value situated in India.
To address domestic black money, a new and more comprehensive Benami Transactions
(Prohibition) Bill will be introduced in the current session of the Parliament. This law will
enable confiscation of benami property and provide for prosecution, thus blocking a
major avenue for generation and holding of black money in the form of benami property,
especially in real estate. Furthermore, the Finance Bill includes a proposal to amend the
Income-tax Act to prohibit acceptance or payment of an advance of Rs 20,000 or more in
cash for purchase of immovable property.
Central PSUs are sitting on huge surplus cash balances to the tune of Rs 2.50 lakh crore.
At the end of March 2014, 54 major listed central government enterprises (CPSUs) were
sitting on cash and equivalents worth Rs 2 lakh crore. However, this amount is almost
one fifth of the cumulative investment in fixed assets by these companies. PSUs
companies can expand their capacity by around a fifth if they use all their cash balances
which lies in bank deposits and earns interest. An investment push by PSUs will surely
help the investment cycle, given their size and position in the industrial value chain.
UTILISING CASH & BANK BALANCES OF PSUs
BLACK MONEY
UNION BUDGET 2015-16
21
In fact it seems imperative to consider the case for reviving public investment as one of
the key engines of growth going forward, not to replace private investment but to revive
and complement it. While private corporate investment surged in the boom phase, public
investment too grew by about 3% and just as corporate investment declined by 8%
between 2007-08 to 2013-14, so too has public investment by about 1.5%. Pro-cyclical
public investment during the downward phase has been driven in part by fiscal targets
which have resulted in large cuts toward the end of the fiscal year as the constraints of
fiscal consolidation have loomed large.
Capex blitz by companies in power and infra sector like Coal India, NMDC, ONGC, Indian
Oil, NTPC and Power Grid would trigger investment downstream by private firms and
overall lifting in India's investment cycle. Historically, in the past five years the combined
capital expenditure by PSUs expanded at a compound annual rate of 13.7%. In 2013-14
only, the PSUs together commissioned projects worth Rs 1.15 lakh crore.
Company
Cash &
equivalents
Leverage
Ratio
Coal India 54780.2 -0.4
ONGC 24480.1 0.3
NMDC 18657.2 -0.6
NTPC 17050.7 0.8
BHEL 12020 0.2
Oil India 11860.1 0
NHPC 6142.8 0.6
Nat Aluminium 5292.3 -0.4
Bharat Electron 4604.5 -0.6
Power Grid Corp 4417.5 2.5
All 54 PSUs 200229.9 0.7
PSU's Cash Balances (Rs crore) as on Dec'14
Surplus Cash Balances CPSEs (Rs lakh crore)
Source: SBI Research
Economic development heavily depends on the availability of sufficient infrastructure.
Available infrastructure in our country does not match our growth ambitions and this
issue is rightly addressed by the FM in the budget. There is an urgent requirement of
increasing public investment. The Budget has made provision for increased outlay on
roads and railways by Rs 14,031 crore and Rs10,050 crore, respectively. It is proposed to
raise the capex of the public sector units to Rs 3.2 lakh crore in FY15, Rs 80,844 crore
higher than the RE FY15. Increased capex probably make use of the huge cash balances
of the PSUs which stands at nearly Rs 2 lakh crore. All this will lead to an increased
investment of Rs 70,000 crore in the year 2015-16, over the year 2014-15.
INFRASTRUCTURE
UNION BUDGET 2015-16
22
The proposed National Investment and Infrastructure Fund (NIIF) with initial capital of Rs
20,000 crore would raise debt funds which will be invested as equity, in infrastructure
finance companies such as the IRFC and NHB. This would help the infrastructure finance
companies to leverage extra equity many fold. Additionally, tax free infrastructure bonds
for the projects in the rail, road and irrigation sectors is a correct step. This step was
successful in raising funds during the UPA II regime. Revisiting the PPP mode of
infrastructure development would attract more private capital and technology and
rebalance risk.
To leverage huge land resources, it has been proposed to establish ports in public sector.
This would corporatize, and become companies under the Companies Act and attract
investment. Budget has proposed to set up 5 new Ultra Mega Power Projects, each of
4000 MWs in the plug-and-play mode. This is expected to unlock investments to the
extent of Rs 1 lakh crore. Similar plug-and-play projects in other infrastructure projects
such as roads, ports, rail lines, airports etc. are also expected to come.
The tax proposals of the Finance Minister is based on five key pillars; (i) measures to curb
black money; (ii) creation of job through revival of growth and investment and promotion
of domestic manufacturing through Make in India; (iii) minimum Government and
maximum governance to improve the ease of doing business; (iv) certain tax benefits to
individual taxpayers; and (v) improving the quality of life and public health through
Swachch Bharat initiatives. With the tax proposals, the direct tax proposals involve a
sacrifice of Rs 8,315 crore, while indirect tax proposal will yield a revenue of Rs 23,383
crore. Thus, the net impact of all tax proposals would be revenue gain of Rs 15,068
crore.
Direct Taxes
a) Corporation Tax: The Government has proposed a 5% reduction of the basic rate of
corporate tax to 25% from current 30% over the next four years, starting from the year
2015-16, accompanied by fewer exemptions. The basic rate of corporate tax in India
at 30% is higher than Asias average corporate tax rate of 21.91% in 2014, and a
global average of 23.64%. This will make our domestic industry more competitive,
which may promote a higher level of investment, higher growth and more jobs
opportunities in the economy.
While the details and fine print are yet to be deciphered, a broad outline of the
revenue forgone due to exemptions in central tax system, as per union budget 2012-
13 and union budget 2013-14, on a safer footing, one may assume the extent of
removal of certain deductions at 20% of revenue forgone of tax receipts in 2012-13.
The amount is expected to be around Rs 13500 crore and is likely to square off
against the decline in corporate tax proposed.
TAX PROPOSALS
UNION BUDGET 2015-16
23
2010-11 2011-12 2012-13
Deduction of export profits of units
located in SEZs (Sec 10A and 10AA)7,432 10,916 12,033
Accelerated Depreciation (Section 32) 33,243 34,320 37,831
Deductions of profit of undertaking
engaged in generation, transmission and
distribution of power (Section 80-IA)
7,581 8,301 9,151
Deductions of profit of undertaking
derived from production of mineral oil
and natural gas (Section 80-IB)
3,626 7,999 8,817
Total 51,882 61,536 67,832
Major Corporate Tax Exemptions in earlier years
Nature of Incentive
Revenue Forgone in Crore
On the revenue side, as per the budgeted estimate tax revenue (Corporate) stands at
Rs 4,70,628 crore for the FY 2015-16. Assuming 29% tax rate only for the next fiscal year
(reduction from 30% in a phased manner), the revenues are expected to decline by above
Rs.15000 crore for next fiscal.
b) Individual Tax: In the budget, there is no change in tax slabs or minimum taxable
limit for individual tax payers. However, it has increased exemption limits on health
insurance premium and transport allowance. Some of the highlights are as under:
As expected, limit in deduction on health insurance has been hiked from
Rs 15,000 to Rs 25,000 to encourage people to take health insurance. For senior
citizens the deduction would be Rs 30,000. Further, the Senior citizens above the
age of 80 years, who are not covered by health insurance, to be allowed deduction
of Rs 30,000 towards medical expenditures.
Contribution to pension fund and NPS has been hiked from Rs 1 lakh to Rs 1.50
lakh. Further, to provide for social safety net and pension to individuals, an
additional deduction of Rs 50,000 for contribution to new pension scheme under
Section 80CCD has been proposed.
Wealth tax has been abolished and has been replaced it with an additional 2%
surcharge on super rich individuals
Meanwhile, the transport allowance exemption has been hiked to Rs 1,600 per
month from Rs 800 per month.
UNION BUDGET 2015-16
24
The Union Budget has signalled a slight medium-term pain for longer term benefits for various industrial and
corporate sectors. The pain is in the overall attempts at augmenting the tax revenues by increase in the
corporate tax surcharge and the increase in service tax and excise duty rates. This pain though is sought to
be reduced by the Finance Ministers promise to lower the base corporate tax rates over the next five years
from the current 30% to 25%.
The budget provides for a National Investment and Infrastructure Fund and committed a creation of an e-BIZ
portal to act as one source for 14 regulatory permissions. Such a move can rekindle demand for a variety of
companies and associated ancillaries engaged in construction activities and building of infrastructure. Along
with this, the road and railway sector has been extended a budgetary support of ~Rs240bn, thereby
improving the awarding activity in the sector.
The budget also provides for benefits to companies in the expansion mode by offering regional investment
sops for capex made in the states of Andhra and Telangana. We find the plug-and-play model for Ultra Mega
Power Projects an innovative mechanism to revive the stalled expenditure in this sector. This coupled with the
thrust on the renewable sector is a welcome step. Although, here again, a medium-term pain exists in the
form of increase in the clean energy cess on coal.
There have been specific expectations that still remain unmet and include things such as a uniform and
simplified excise duty on cement, reduction of MAT, reduction in export duty on iron ore and increase in
exemption for interest on housing loans for self-occupied houses. However, many of these expectations were
not attuned to fiscal challenges that they threw up for the Finance Minister and were therefore not
considered.
While the equity markets will have to contend with a cut in earnings forecast arising from the taxation
measures, they are expected to maintain a positive bias given the fiscal space having been negotiated well
enough to spur growth in future.
EXECUTIVE SUMMARY CORPORATE & INDUSTRY
UNION BUDGET 2015-16
25
EXPECTATIONS BUDGET PROPOSAL REMARK IMPACT
Not expected Increase in surcharge by 2% on total income and on DDT.
The increase in surcharge would lead to increase in tax outgo and DDT would increase to 17.304% from the earlier 16.995%.
Negative
Reduction in MAT rate No change in base rate surcharge increased by 2% for total income above Rs1cr.
The average tax rate for all companies would increase due to the increase in surcharge by 2%.
Negative
Revision in tax slabs Unmet NA Negative
Increase in the deduction limit u/s 80C to Rs2lakh from Rs1.5lakh
Unmet A contribution to Sukanya Samriddhi Account is eligible for deduction u/s80C.
Neutral
Not expected
Increase in deduction u/s 80D for individuals and HUF to Rs25,000 from Rs15,000 and for senior citizen to Rs30,000 from Rs20,000.
At peak rate the increase in deduction would reduce tax outgo by Rs3,000 and Rs6000 excluding and including senior citizen benefit.
Positive
Not expected
Increase in deduction u/s80DD and u/s80U to Rs75,000 from Rs50,000 for disability and Rs125,000 to Rs100,000 for severe disability.
At peak rate, the increase in deduction would reduce tax outgo by Rs7,500.
Positive
Not expected Additional deduction u/s 80CCD up to Rs50,000.
At peak rate, the increase in deduction would reduce the tax outgo by Rs15,000.
Positive
Not expected
Deduction of tax at the rate of 10% on pre-mature withdrawal from the Employee Provident Fund Scheme.
The introduction of TDS on pre-mature withdrawals (before continuous service of five years) would lead to a higher tax outgo.
Negative
Upwards revision of deduction limits u/s 24
Unmet
The increase in deduction limit of interest on home loan would have enabled increase in disposable income in the hands of tax payers and encouraged owning of house.
Neutral
Re-instate investment in Infrastructure Bonds u/s
80CCF of Rs20,000/-
Unmet
The re-introduction of u/s 80CCF would have encouraged investment in infrastructure. However, the Budget speech mentioned the issue of tax free bonds.
Neutral
CHANGES IN SURCHARGE
PARTICULARS OLD NEW
Individuals, HUF, AOP, BOI, artificial juridical persons, partnership firm, co-operative societies, local authorities with total income >Rs1cr 10% 12%
Domestic companies with total income of more than Rs1cr but less than Rs10cr 5% 7%
Domestic companies with total income of more than Rs10cr 10% 12%
Other than domestic companies with total income of more than Rs1cr but less than Rs10cr 2% 2%
Other than domestic companies with total income of more than Rs10cr 5% 5%
DIRECT TAX
UNION BUDGET 2015-16
26
The Budget 201516 did not bring any direct or spot benefits as expected. However, this has possibly passed the test on policy related announcements. These include timeline on GST implementation, schemes related to the Make in India campaign, and increasing agricultural credits. The overall impact on the sector in our opinion would be neutral in the short term but positive in the long term.
ITEM EXPECTATIONS BUDGET PROPOSAL REMARK IMPACT COMPANIES AFFECTED
Indirect taxes
Timeline on GST implementation
GST to be implemented from April 2016.
GST is expected to lead to a uniform tax structure, which could result in lower tax expenses benefiting automobile and auto component manufacturers.
Positive
All companies in the sector
Agricultural credit
Increase in agricultural credit
The government increased agri-related credit to Rs8500bn for F16 from Rs8000bn in the previous year.
In addition to agri credit, the government extended Rs250bn for agricultural infrastructure. This will benefit farm mechanization going forward.
Positive
M&M, Escorts, VST Tillers and Tractors
Indirect Taxes
We expected the government to maintain status quo on the recently rolled back excise duty since beginning of January 2015. Consequently, we did not anticipate any announcement related to change in rates
The basic excise duty rates have been raised from 12.0% to 12.5% while education cess has been reduced.
Excise duty on small cars and two wheeler rises from 12.36% to 12.5%. However it reduces for larger vehicles from 24.72% to 24%.
Neutral
M&M gains, while Maruti Suzuki, Hero MotoCorp, Bajaj Auto, TVS Motor etc lose
Increase in defence spends
Expected on the line of the Make in India campaign
The government increased the total defence-related expenditure of Rs2,467bn in F15, as against Rs2,223bn in the previous year.
The government intends to boost domestic manufacturing and achieve self sufficiency in defense.
Positive
Ashok Leyland, M&M and Tata Motors
Import duty on vehicles
Not expected
Increase in import duty on vehicles having a seating capacity of more than 10 seats
1. If imported as a completely knocked down (CKD) for assembling a complete vehicle with engine, gearbox and transmission mechanism not in a pre-assembled condition, it will attract a duty of 10%.
2. Any other form will attract a duty of 20%.
As imports gets costlier, this will support domestic CV manufacturers. However, we dont anticipate this to affect domestic CV majors in a big way.
Neutral Tata Motors
AUTO
UNION BUDGET 2015-16
27
Duty concessions and increase in allocation on electric and hybrid vehicles
Not expected
Concessional excise duty of 6 per cent on specified goods for use in electrically operated and hybrid vehicles has been extended up to 31st March, 2016. Further, the government allocated Rs0.75bn under the faster adoption and manufacturing of electric vehicles (FAME) scheme.
This will speed up R&D investments and promotion of electric and hybrid vehicles.
Neutral Bajaj Auto and M&M
Indirect tax Not expected
The basic customs duty on specified components used in the manufacture of specified CNC lathe machines and machining centres has been reduced to 2.5% from 7.5%.
This move to benefit auto component manufacturers.
Positive
Auto component manufacturers
Amendment in section 194C of IT act for TDS
Not expected
Non-deduction of tax shall only be applicable to the payment in transport charges in the business of the transport with not more than 10 goods carriage effective from 1st June, 2015.
Under the existing provision, all transporters will benefit from TDS.
Negative
All CV manufacturing companies
UNION BUDGET 2015-16
28
The Budget has been mildly positive for the sector. Capital infusion of Rs79.40bn in PSBs has been proposed vs. Rs112bn in F15 (Rs69.90bn has been infused so far) and Rs140bn in F14. Significant steps have been taken to bring NBFCs at par with banks in terms of regulatory differences between them. An introduction of composite caps for foreign Investments will be conducive for any particular type of investment. Access to the formal financial system has been proposed to be widened using all the available post-office units.
ITEM EXPECTATIONS BUDGET PROPOSAL REMARK IMPACT COMPANIES
AFFECTED
SARFAESI Act NBFCs to be considered for SARFAESI
NBFCs will be considered for the SARFAESI Act, a step towards bringing NBFCs in parity with banks in terms of regulations.
This move will speed up the recovery process.
Positive All NBFCs
Gold Monetization
Not expected
Introduce Gold Monetization scheme, which will replace Gold Deposit and Gold metal Loan scheme.
Scheme will allow depositors to earn interest in their metal account and jewelers to obtain loans in their metal account. Banks/other dealers will also be able to monetize gold.
Slight
Negative for Banks
Major south-based banks have gold loan exposure such as KVB (~21%), CUB (~15%), Federal (~14%) and SIB (~12%)
Agricultural Credit
Increasing mandatory lending target
Rs85bn of lending to be done in F16
Banks are expected to surpass the proposed target.
Neutral All banks
Bankruptcy Code
Address the recovery mechanism in the case of bad loans
Comprehensive Bankruptcy Code will be brought in over F16.
SICA and BIFR failed in achieving the proposed objectives. This will enable legal certainty and speed.
Positive All banks
Foreign Investment Caps
Not expected
Do away with the distinction between different types of foreign investment, especially between FPI and FDI.
Replace them with composite caps (74% in total). Particularly FII limit of 49% will be abolished.
Positive
Yes Banks and Axis Banks weight will increase in the index, as it will create space in overall foreign holding
Financial Inclusion
Access to formal financial system to a larger audience
Postal network of 1,54,000 units will be utilized to provide regular banking services.
Using the already available infrastructure will speed up the implementation.
Positive All Financials
TDS in case of Co-operative banks
Not expected
Remove the exemption of tax deduction from payment of interest on time deposits in case of all co-operative banks.
Recurring deposit to be included under the definition of time deposits too, and hence, this amendment would be made applicable in case of recurring deposits too
Positive
Level playing field for all the banks
BANKING and NBFCs
UNION BUDGET 2015-16
29
Corporate Tax
Not expected
Corporate Tax to be reduced to 25% from 30% but surcharge of 2% to be levied from 10% to 12%
Banks and NBFCs pay at the maximum tax rate as compare to other corporate.
Negative All Financials
Service Tax Not expected Increased from 12.36% to 14%
Shall come into effect after the enactment of the Finance Bill 2015.
Negative All Financials
Mudra Bank
Make Re-Finance available to some NBFCs similar to banks
Establishment of MUDRA bank to provide refinance to Micro-Finance Institutions
Corpus for the same would be Rs.200bn and guarantee corpus of Rs.30bn.
Positive All Microfinance Institutions
UNION BUDGET 2015-16
30
Overall objective of improving manufacturing base of the country, improved allocation for the infrastructure sector coupled with selective reduction of custom and excise duty are the key positives for the capital goods sector. Companies in the expansion mode are likely to be benefited through selective regional investment sops. In our view the Budget has been neutral to positive for the capital goods sector. BHEL, L&T, Blue Star and Sterlite Technology are our top-picks.
ITEM EXPECTATIONS BUDGET PROPOSAL REMARK IMPACT COMPANIES
AFFECTED
Indirect taxes
Not expected
The basic customs duty on HDPE (manufacture of telecommunication grade optical fibre cables) is being reduced from 7.5% to Nil.
Also, customs duty on Ethylene-Propylene-non-conjugated-Diene rubber (EPDM), water blocking tape and mica glass tape, used to manufacture insulated wires and cables is being reduced from 10% to 7.5%.
The reduction in customs duty for the given items would be beneficial for OFCs, wires and cables.
Positive
Positive for Sterlite Technologies and Havells India
Indirect taxes
Not expected
Basic customs duty on C- Block for compressors, Over Load Protector (OLP) and Positive thermal co-efficient and Crank Shaft for compressors (manufacture of Refrigerator compressors) is being reduced from 7.5% to 5%.
The reduction in customs duty for the given items would be positive refrigerator industry.
Positive Positive for Whirpool
Indirect taxes
Not expected
Excise duty on inputs used to manufacture LED drivers and MCPCB for LED lights, fixtures and lamps is being reduced from 12% to 6%, subject to actual user conditions.
The reduction in customs duty for the given items would be positive for the lighting industry.
Positive
Havells, Salzer, Crompton Greaves and Bajaj Electricals
Indirect taxes
Not expected
Increase the present rate of service tax plus education cess from 12.36% to a consolidated rate of 14%. An enabling provision is being made to empower the Central Government to impose a Swachh Bharat Cess on all or any taxable services at a rate of 2% of the value of such taxable services with the objective of financing and promoting Swachh Bharat initiatives.
This development is negative as the tax outgo for the companies increase for the services provided.
Negative
All Capital Goods companies
Indirect taxes
Not expected
The general rate of Central Excise Duty of 12.36%, including the cess, is being rounded off to 12.5%.
This development is marginally negative driven by rounding off the tax rate; the tax outgo for the companies increase for the goods they manufacture.
Negative All Capital Goods companies
Indirect taxes
Not expected
It is also proposed to levy a surcharge of 12% as against the current rate of 10% on additional income-tax payable by companies on distribution of dividends and buyback of shares, or by mutual funds and securitization trusts on distribution of income.
Increase in surcharge would result in a higher tax outgo for companies.
Negative All Capital Goods companies
CAPITAL GOODS
UNION BUDGET 2015-16
31
Budget Provisions
Not expected
With a view to give effect to the provisions of Section 94 of the Andhra Pradesh Reorganisation Act, 2014, it is proposed to provide an additional investment allowance (@15%) and additional depreciation (@15%) to new manufacturing units set-up during the period 01.04.2015 to 31.03.2020 in notified areas of Andhra Pradesh and Telangana.
This additional depreciation in the two states to invite additional investments going ahead in the two states that have been affected due to the bifurcation.
Positive
Blue Star is planning to set up a new plant in Nellore, Andhra Pradesh; this project would be positively benefited with this allowance provided
Indirect taxes
Not expected
At present, service tax is payable on 30% of the value of rail transport for goods and passengers, 25% of the value of goods transport by road provided by a goods transport agency and 40% for goods transport by vessels. The conditions also vary. A uniform abatement is now being prescribed for transport by rail, roads and vessels. Service Tax shall be payable on 30% of the value of such services, subject to a uniform condition of non-availment of CENVAT Credit on inputs, capital goods and input services.
The rationalization of service tax paid on value of rail transport for goods and passengers to 30% will reduce the service tax outgo transport of goods for Capital Goods companies.
Positive
All Capital Goods companies
Indirect Taxes
Alloca