By: Punam Sharma
Union Budget (Interim) – 2014-15
The focus of the interim budget like last year was the “fiscal deficit target” and all other fiscal adjustments were made to achieve the same. It was a somber event and lacked big bang announcement either on the social or infrastructure framework of India. The only form of demand booster was the cut in excise duties (applicable till June 2014) on capital goods and consumer durables sectors from 12% to 10%, for auto sector from 12% to 8% and for SUVs from 30% to 24%. The budget provided nothing incremental to tweak our assumption of the operating matrix of the corporate sector in India. …. With elections around the corner and uncertainly around the political mandate this is the best the current political establishment could deliver
Annexure -1- Fiscal Aggregates
|2013-2014||2014-2015||Change over RE|
|Recoveries of Loans||10654||10802||10527||-2.5%|
|Borrowing and other liabilities||542499||524539||528631||0.8%|
|On Revenue Account||992908||1027689||1107781||7.8%|
|On Capital Account||117067||87214||100111||14.8%|
|On Revenue Account||443260||371851||442273||18.9%|
|On Capital Account||112062||103681||113049||9.0%|
|Revenue deficit/ Fiscal deficit||70.02%||70.59%||72.44%|
|Tax / GDP (%)||7.77%||7.39%||7.68%|
Explanation to Annexure – I
The government estimated the fiscal deficit to narrow to 4.1% of GDP in FY15 and the FY14 fiscal deficit will be much lower at 4.6% of GDP (vs. budget estimate (BE) of 4.8% of GDP). The current as well as future target of fiscal deficit is predicated on optimistic assumption both around the revenue and the expenditure front.
A) Revenue assumptions –
a. The overall “Tax revenue” growth is assumed at 18% for the coming year. Income tax is expected to growth 27% and Service tax at 31%. There is an assumption that contribution from service tax to the overall tax kitty will go up
i. Our take is that In a environment where all is not well with the macro assuming tax buoyancy seems to be a stretch
ii. Larger contribution from services once again looks challenging as discretionary spends take a hit in this environment and in light of the fact that no changes were made either to the tax rate or the service tax net.
b. Other Capital Receipts growth at 120% includes revenue from divestment (government stake in PSU and Non PSU)
i. Asset market recovery to be able to consummate the divestment target looks challenging.
B) Expenditure assumptions –
a. Planned expenditure – Expected to grow 17% on a revised low base
b. Non Plan expenditure – Expected to grow 8%. The characteristics of this set of line items remain the same – under provision for various heads of subsidies and a modest increase despite the additional burden of nearly 1% of subsidies which get rolled over from FY 14 to FY 15.
In conclusion a short span interim budget made the right noises around fiscal consolidation provided some temporary sops by way of excise duty cuts, enhanced limits for agriculture credit and maintained status quo on all other schemes. The Budget in no way did anything to facilitate either a pick up in the investment cycle or meaningfully alter the consumer spending pattern and it was not supposed to do so too. With elections just a few months away, in all likelihood, this statement of revenue and expenditure may get meaningfully altered and hence the key to watch is the forthcoming election which will provide the roadmap for growth and investment trend going forward….
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