Introduction to Central Government Budget 2014-15:
The Union Budget, 2014-15 was presented in the Parliament on 10th July, 2014 by the Union Finance Minister Mr. Arun Jaitley of BJP let NDA Government with utmost sincerity, expertise, restraint and patience. After coming to power, the Finance Minister took 45 days to prepare his first budget which was less time for a Finance Minister to address all issues.
However, as a Finance Minister, he was duty bound to usher in a policy regime that will result in the desired macro-economic outcome to higher growth, lower inflation, sustained level of external sector balance and a prudent policy stance. Thus the present budget is the most comprehensive action plan in this direction.
As stated in the budget, the steps included in it are only the beginning of a journey towards a sustained growth of 7-8 per cent or above within the next 3 to 4 years along with macro-economic stabilization that includes lower level of inflation, lesser fiscal deficit and a manageable current account deficit. Thus, in this budget, efforts are being put for fiscal consolidation, economic growth and inclusive growth.
The Finance Minister continues the process of economic reforms but at a slower pace and also with some modifications and adjustment of existing structure while he has introduced a mixture of bold and soft measures in order to meet the desired needs of the economy. Thus considering the economic and political circumstances, the Finance Minister has presented a pragmatic budget with its aim to attain long term growth.
Accordingly, the present budget is a balanced one and outlines specific measures to bring back the economy on higher growth trajectory.
The current budget is prepared against the backdrop of a sagging economy with high inflation, large fiscal deficit and weak public finance, sluggish revenue position, high global creide oil prices, weak monsoon and the burden of high expectations from all corners. Thus the current budget has fund some important challenges.
The first challenge is to strengthen the current growth rate of GDP from 6.8 per cent in 2013-14 to 7.4 per cent in 2014-15; the second challenge is to control the level of inflation to a moderate level; the third challenge is to attain fiscal consolidation by attaining and maintaining fiscal discipline; the fourth challenge is to reduce the Current Account Deficit (CAD) in the balance of payments account, and the fifth challenge is to increase production of both agricultural and industrial sector.
Over View of the Economy:
While giving an’ overview of the economy, the budget rightly mentioned about the economic situation prevailing in the economy. The GDP growth rate in India was estimated by CSO at 4.8 per cent in 2012-13 followed by 6.8 per cent in 2013-14.
The country was facing a revenue shortage. Thus the tax to GDP ratio must be improved and the non-tax revenue be increased. The country was facing a high fiscal deficit ranging from 5.7 per cent of GDP in 2011-12 to 4.8 per cent in 2012-13 and 4.5 per cent in 2012-13.
The needs to be reduced gradually. Considering the problem of high Current Account Deficit (CAD) fund by the country to the extent of 4.7 per cent of GDP in 2012-13 but reduced to 1.7 per cent in 2013-14, the country must be watchful of the CAD. At this moment, Iraq crisis is leaving an impact on oil prices and the situation in the middle-east continues to be volatile. Monsoon this year appears more unpredictable.
While inflation has remained at elevated levels relative to what is perceived as acceptable, there has been a gradual moderation in WPI recently, from a high level of 7.35 per cent in 2012-13 to 5.98 per cent in 2013-14. Thus the situation is not out of danger. The problem of black money and corruption is also quits acute in India.
Faced with their adversities, we need to undertake some bold steps in order to enhance economic activity and spur growth in the economy. These steps are only the beginning of our effort to revive the growth spirit of the Indian economy.
Thus the major thrust areas of the budget includes-fiscal consolidation, infrastructure development, growth orientation to agricultural and industrial sectors, opening up of sectors to FDI gradually and social sector promotion and development through educations skill formation and healthcare.
Highlights of the Budget, 2014-15:
The following are the highlights of the Union Budget, 2014-15:
1. Income tax exemption limit for those below 60 years of age raised from Rs 2 lakh to Rs 2.5 lakh and for senior citizens it is raised from Rs 2.5 lakh to Rs 3 lakh.
2. Exemption limit for investment in financial instruments under 80C raised to Rs 1.5 lakh from Rs 1.0 lakh.
3. Deduction limit on interest on loan for self-occupied house raised to Rs 2 lakh from Rs 1.5 lakh.
4. Excise duty on cigarettes raised from 11 per cent to 72 per cent.
5. Excise duty on food-ware reduced from 12 per cent to 6 per cent.
6. Net effect of change in direct tax proposals is a revenue loss of Rs 22,200 crore.
7. Tax proposals on indirect tax would yield Rs 7,525 crore.
8. Free baggage allowance increased from Rs 35,000 to be 45,000.
9. Long term capital gain tax for mutual funds doubled to 20 per cent and lock-in period is 3 years.
10. Total expenditure in 2014-15 is estimated at Rs 17,97,892 crore; plan expenditure is estimate at Rs 12,19,892 crore.
11. Government expects Rs 9.77 lakh crore, revenue from taxes.
12. Government Committed to achieve fiscal deficit of 4.1 per cent of GDP in 2014-15 and 3.6 per cent in 2015-16.
13. Budget will lay down steps aimed at 7 to 8 per cent growth in next few years.
14. Negative list for service tax reduced.
15. Five IIMs to be opened in HP, Punjab, Bihar, Odisha and Rajasthan.
16. Five more UTs in Jammu, Chhattisgarh, Goa, Andhra Pradesh and Kerala.
17. Four more AIIMs like institutions to come up in AP, West Bengal, Vidarbha in Maharashtra and Poorvanchal in UP.
18. FDI limit to be liked at 49 per cent in defence and insurance.
19. Disinvestment target fixed at Rs 58,425 crore.
20. Gross borrowing is pegged at Rs 6 lakh crore.
21. Contours of GST to be finalised this fiscal; Government to look into DTC proposal.
22. Budget sets aside Rs 11,200 crore for PSU Banks capitalisation.
23. Government is in favour of consolidation of PSU banks.
24. Budget allocated Rs 7,060 crore for setting up 100 smart cities.
25. A project on the river Ganga called ‘Jal Marg Vikas’ for inland water ways between Allahabad and Haldia is proposed and Rs 4,200 crore set aside in the budget for the purpose.
26. Budget allocated Rs 3,600 crore for drinking water scheme.
27. Budget allocated Rs 4,000 crore for National Housing Bank.
28. Target of constructing 8,500 km of national highways in current fiscal.
29. Budget allocated Rs 14,389 crore for rural roads.
30. Budget allocated Rs 8,000 crore to improve rural housing.
31. Second Green Revolution in to be launched with focus on protein revolution.
32. Sustainable growth of 4 per cent in agriculture is to be achieved.
33. A corpus of Rs 5,000 crore is created for long term loan to farmers.
34. Expenditure Management Commission is to be set up which will look into food and fertilizer subsidies.
Budget-at-a Glance, 2014-15:
In order to get a clear idea about the necessary budgetary provisions, Table 17.19 shows budget estimates of Union Budget, 2014-15 in summary form along with revised estimates for the year 2013-14.
Table 17.19 reveals data relating to 2014-15 Union Budget in a summary form along with revised estimates of the Union Budget, 2013-14. The revised estimate of both total expenditure and total receipts of 2013-14 budget were estimated at Rs 15,90,434 crore.
The revised estimate of revenue receipts and revenue expenditure in 2013-14 budget were estimated at Rs 10,29,252 crore and Rs 13,99,540 crore respectively showing a revenue deficit of Rs 3,70,288 crore. The revised estimate of fiscal deficit in 2013-14 was Rs 5,24,539 crore which as per cent of GDP stood at 4.6 per cent.
It would how be better to look into the budget estimates (BE) for the year 2014-15. The budget estimates (BE) of total expenditure in 2014-15 is estimated at Rs 17,94,892 crore. Total revenue receipts is estimated at Rs 11,89,763 crore and total capital receipts is estimated at Rs 6,05,129 crore in 2014-15.
Total revenue expenditure is estimated at Rs 15,68,111 crore in 2014-15. Thus it shows the revenue deficit of Rs 3,78,348 crore in 2014- 15 as compared to Thai of Rs 3,70,288 crore (RE) in 2013-14.
Total fiscal deficit is estimated at Rs 5,31,177 crore in 2014-15 which as per cent of GDP is estimated at 4.1 per cent as compared to that of 4.6 per cent of GDP in 2013-14 (RE). The total expenditure in 2014-15 is estimated at Rs 17,94,892 crore (BE) out of which total non-plan expenditure is estimated at Rs 12,19,892 crore and total plan expenditure is estimated at Rs 5,75,000 crore (BE) in 2014-15.
Total revenue receipts in 2014-15 is estimated Rs 11,89,763 crore (BE) out of which total tax revenue (net to centre) is estimated at Rs 9,77,258 crore and total non-tax revenue is estimated at Rs 2,12,505 crore. Moreover, total effective revenue deficit (i.e. difference between revenue expenditure and grants for creation of capital assets) is estimated at Rs 2,10,244 crore in 2014-15 (BE) which is estimated at 1.6 per cent of GDP.
A Critical Analysis of 2014-15 Budget and its Evaluation:
The budget for the year 2014-15 is a serious exercise towards fiscal consolidation, and growth and can also be termed as a balanced attempt. The maiden budget of the Finance Minister Jaitley has also been hailed as pragmatic and balanced exercise.
The budget kept the tax regime more or less stable. However, two small changes in direct taxes, with the personal exemption limit for all income tax payers being raised slightly and greater incentives being provided to savers. Similarly, there are only some minor changes in indirect taxes.
Keeping the pre-poll promises of NDA, the budget has allocated a good amount of fund for promoting infrastructure and envisages a broad vision for infrastructure development. Thus the budget has allocated a large amount to road construction and a smaller amount to ports. Rural power infrastructure also gets additional funding and larger allocation was made in rural warehousing to make supply chain more efficient.
Other initiatives include setting up of an agri-infrastructure fund, two agri-research institutes in Jharkhand and Assam, Metro rail services in Ahmedabad and Lucknow, selective express ways parallel to industrial corridors, ultra modern super critical power projects, improvement of sea ports and development of new airports, rationalisation of coal linkages provision, provision of Rs 1,000 for rail connectivity in Northeast, Provision of Rs 1,000 crore for Pradhan Mantri Krishi Sinchai.
Yojana for improving irrigation facility, allocation of Rs 14,389 crore provided for Pradhan Mantri Gram Sadak Yojana, National Housing Banking Programme with an allocation of Rs 8,000 crore and setting up of an Infrastructure Investment Trust to finance infrastructure project. Moreover, the budget proposed to build up 100 smart cities and provides for Rs 7,060 crore to start with.
Another important focus of the budget is health care and development of educational infrastructure.
The Government also hiked Foreign Direct Investment (FDI) provision in the areas like insurance and defence equipment.
Allocation MGNREGA is enhanced and it is aligned with agriculture; liberal farm credit provided to landless farmers through NABARD.
Budgetary allocation of Rs 10,000 crore for reviving Special Economic Zones (SEZ) to promote industry is to create venture capital fund for the development of MSMEs. Budgetary provision to promote “Skill India” for providing training and skill in support of job suckers is also a notable steps.
For the development of North East, the budget allocated Rs 43,000 crore for developing National Highways and for removing regional isolation from the rest of the country. Besides steps taken to focus on agricultural research and organic farming and starting a sports university in Manipur are quite a encouraging.
Gray Areas of the Budget:
There are, however, some dark areas in the budget which need to be pointed out distinctively.
Firstly, the budget will bring disappointment to the people because it is devoid of any bold or big ideas.
Secondly, the absence of detail explanation on many items is another negative area of the budget.
Thirdly, the budget failed to provide any roadmap about the nature of government’s fiscal policies during the next five years.
Fourthly, the budget once again failed to contain the non-plan expenditure which shows an increase of 9.4 per cent over the previous year.
Fifthly, the budget has failed to contain the revenue deficit which remains still high at 2.9 per cent of GDP.
Sixthly, steps taken to reduce fiscal deficit from 4.6 per cent in 2013-14 to 4.1 per cent in 2014-15 and then gradually to 3.0 per cent in 2017-18 may prove to be over ambitions under the present fiscal condition.
Seventhly, the budget has once again shows the Finance Minister’s inability to substantially out subsidies and other governmental expenditure.
Eighthly, funds allocated in the budget under different heads is not supported by concrete plan of action.
Although the Finance Minister within his time constraint tried to make a serious exercise but his budget could have gained much more weight if he could address more elaborately some important issues like subsidy culture, retrospective taxation, disinvestment PSU shares, reform of the Public Distribution System, labour law reforms etc.
Thus, under the present circumstances, the budget can be termed as pragmatic and balanced. Thus whatever compromises that have been made in this budget are not worse and policy implications of such exercise would likely to be fruitful in near future.