17Jul

Budget 2014 – A Look At The Good And Bad Points Of The Budget By MODI Government

Here is an overview on the points of budget presented by the FM Jaitley, whether it is best or worst for the future of the economy of the country as well as for the uplift of the citizens. First start with the good ones which are followed by the bad one.

GOOD FOR US
Economy – The Budget announced could lead the economy back to the expected growth levels of 7-8% in the next three to four years. The government also aiming to strengthen the macro-economy with shortening degree of inflation, narrow fiscal deficit and a controllable current account deficit.

Fiscal Deficit – The government is going to retain the target of fiscal deficit target set in the interim budget as 4.1% of the Gross Domestic Product (GDP). GDP is the magnifier of the economy. The budget presented this year also set the targets for next financial years at 3.6% in 2015-16 and 2016-17 at 3% of the GDP. This is the indication of the wider view and futuristic approach of the government on fiscal consolidation.

Sanitation – The government supporting the ‘Swatchh Bharat Abhiyan’ scheme to cover every household with sanitation in the country (specially villages) by 2019. Year 2019 is the 150th birth anniversary year of Mahatma Gandhi.

Smarter Cities – PM Narendra Modi envisions creation of 100 smart cities as satellite towns in our country. For this purpose, the minister allocated Rs 7,060 crore in the Budget. This is a good news for infrastructure and real estate sector.

Irrigation – To improve access to irrigation, the minister has proposed to set aside a sum of Rs 1,000 crore under the scheme ‘Pradhan Mantri Krishi Sinchayee Yojana’.

Indirect Tax – The government implies taxes on industries for production of goods and services. It also charges an amount for import of goods. The government has reduced basic custom duties on certain items which are used as raw materials to encourage investment and domestic production. This tax cost is usually passed onto consumers. As a result, a change in indirect tax often leads to a rise or fall in retail prices of goods to end-consumers.

Demat Account – The finance minister announced a good news for the investors that they can now operate all their financial products through a single operating demat account. This might be possible through, Know Your Customer (KYC) norms which will be uniform all across the financial sector. This means, now one can access the fixed deposits and other investments through single demat account.
PSU banks – A committee of RBI had recommended that the government give greater autonomy to PSU banks to help in the improvement of their profitability. The government has consider this point and given its in principle nod.

Senior Citizen Pension – During its last term in office, the NDA government had introduced the Varishtha Pension Bima Yojana (VPBY) as a pension scheme for senior citizens. Under which a total number of 3.16 lakh annuitants are being benefitted and the corpus amounts to Rs 6,095 crore. The government proposed to revive the scheme for a limited period from 15 August, 2014 to 14 August, 2015 for the benefit of citizens aged 60 years and above. FM also proposed to set up a committee to try and use the large amounts lying in unclaimed PPF, Post Office and savings accounts for senior citizens.

Real estate – The sector is the biggest beneficiary of this year’s union budget. The finance minister proposed to increase foreign direct investment in real estate, especially in the area of low-cost housing.

Housing – In a bid to ease tax burden on the common man, the Budget also increased tax exemption on the interest payments on home loans by Rs 50,000 to Rs 2 lakh per annum. This could help fuel demand for real estate companies as well as home loans from banks.

Airports – A scheme for development of new airports in Tier I and Tier II cities will be launched for implementation through Airport Authority of India or PPPs to increase air connectivity.

Personal Tax – Finance Minister increased the minimum taxable income to Rs 2.5 lakh from Rs 2 lakh earlier. The same threshold for senior citizens has also been hiked by Rs 50,000 to Rs 3 lakh from Rs 2.5 lakh earlier.

Tax-exempt Investments – Their is certain tax exempted under the Section 80C of the Income Tax Act, so one can lower the taxable income by Rs 1 lakh by investing in financial instruments like insurance and mutual funds. This limit has been increased to Rs 1.5 lakh from Rs 1 lakh earlier. Thus, one can save more on the taxes.

Public-Provident Fund – PPF is one of the most common investment options used for tax-saving purposes. The government had earlier limited the annual tax-exempted amount to Rs 1 lakh. This has now been raised to Rs 1,50,000.

Tourism – To boost tourism in India, the facility of Electronic Travel Authorization (e-Visa) would be introduced in a phased manner at 9 airports in India where necessary infrastructure would be put in place within the next six months. The countries to which the Electronic Travel authorization facility would be extended would be identified in a phased manner. This would further facilitate the visa-on-arrival facility.

MSMEs – The micro, small and medium enterprises (MSMEs) sector found a mention in the budget. Highlighting the importance of the sector as the backbone of the economy, the finance minister proposed to appoint a committee with representatives from the Finance Ministry, Ministry of MSME and RBI to give concrete suggestions in 3 months on improving financing. He also proposed to establish a Rs 10,000 crore fund to act as a catalyst to attract private capital by way of providing equity, loans and other risk capital for start-up companies. Also, MSME will be reviewed to provide for a higher capital ceiling. This will help companies get funds easier.

Niche Banks – The finance ministry with RBI, creating a framework for licensing small banks and other differentiated banks. Differentiated banks serving niche interests, local area banks, payment banks etc. are contemplated to meet credit and remittance needs of small businesses, unorganized sector, low income households, farmers and migrant work force. This would help encourage financial inclusion.

Roads – The government aiming to construct 8,500 km of roads in the current financial year with the investment in National Highways Authority of India and State Roads of an amount of Rs 37,880 crores, which includes Rs 3,000 crores for the North Eastern region.

Others
Rs 14389 crore for Pradhan Mantri Gram Sadak Yojana
MNREGA–Wage employment would be provided with more productivity led projects.
5 New IITs and IIMs in India
Rs 100 crore provided to the National Sports Academies in major parts of India for track and field events as well as for Sports University in Manipur.
In insurance sector composite FDI cap raised to 49% from 26%
20 new industrial corridors to be set up
Encourage entrepreneurship- Easy exit, incubation and accelerator programme set up
New Solar power projects in Rajasthan and Ladakh.
Introduction of uniform KYC norms across financial sector
Exemption limit higher for senior citizens to Rs 300,000

BAD FOR US

Tax Revenue – There is an urgent need to generate more resources to fuel the economy,for this purpose, the government increased the tax-to-GDP ratio through an increase in tax revenue. Decline in fiscal deficit from 5.7% of GDP in 2011-12 to 4.8% in 2012-13, so the desired one could be achieved by implementing the Goods and Services Tax (GST), which could be finalized by this year.

GAAR – The market is disappointed that retrospective taxation through the General Anti-Avoidance Rules (GAAR) announcement in the 2012-13 Budget has not been scrapped altogether. The BJP too had criticized the rules. The finance minister merely tried to reassure investors by reinforcing the government’s goal of an investment-friendly regime.

Sardar Patel statue – The budget has allocated Rs 200 crore to help the Gujarat government install a statue of Sardar Vallabhai Patel. At a time when the government is facing a wide fiscal deficit and slow economy, this allocation could have been avoided.

Disinvestment – The finance minister has not uttered the word disinvestment in the speech. This is one source of non-tax revenue that could have helped the government pay for the expenditure. There are indications of a sale of government stake in PSU banks to help them raise capital. The budget also expects that capital revenue receipts other than borrowings will be Rs 73,952 crore. This could be from disinvestment. However, there is no clarity on this issue.

Subsidies – There was a lot of talk about a prudent fiscal policy and the need to undertake bold reforms. This led to expectations of a cut in subsidies to help narrow fiscal deficit – the amount government borrows to fund the gap between expenditure and revenue. The government will review food and fuel subsidies and a committee would be formed, the finance minister said. This means the government has essentially delayed a decision on subsidies. Although, non-Plan expenditure a major portion of which is subsidies has risen marginally in this budget. Additional amounts have been provided for fertilizer subsidy and capital expenditure of Armed Forces.

For more details check out our budget express!

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