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Union Budget 2014-15 |
UNION BUDGET - 2014-15
Key Highlights |
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| Fiscal prudence: Targets a challenging fiscal deficit road map but tax revenue assumptions optimistic |
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GDP Growth: FY15 nominal growth projected at 13.4%
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Net tax revenue growth of 17% (could have a downside)
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Focus on increasing share of plan expenditure-Improves quality of fiscal deficit
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FY15 fiscal deficit target left unchanged at 4.1%
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Fiscal consolidation road map: fiscal deficit at 3.6% (FY16) and 3.0% (FY17)
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Food subsidy: INR 1,15,000 crore budgeted for in FY15 unchanged from Vote of Account
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Petroleum subsidy: Key driver for subsidy reduction; assumptions reasonable at current oil prices
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| Key risk: Higher oil prices and lower GDP growth can upset fiscal deficit calculations |
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| Capital formation: Focus on financing and incentivizing asset creation |
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Infrastructure Investment Trusts - with pass through benefits to be allowed. This would encourage monetization of existing assets and free up capital for new projects.
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Investment allowance - At the rate of 15 percent to manufacturing companies that invest more than INR 25cr per annum in plant and machinery during the period FY15-17
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Plans for 100 smart cities - Allocation of INR 70bn for such projects. Focus on satellite town adjacent to large cities
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Roads - 8500kms of road projects to be completed. Allocation of INR 378bn for NHAI.
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Ports - 16 new ports to be ordered through PPP route in FY15.
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Plans for 100 smart cities - Allocation of INR 70bn for such projects. Focus on satellite town adjacent to large cities
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Urban Metro - Planning for metro in all cities with more than 2mn population. Government would support through VGF (Viability Gap Funding)
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Warehousing - INR 5,000 crore to NABARD to finance construction for warehousing.
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| Infrastructure funding |
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Long term funding of infrastructure will attract minimum regulatory requirements (SLR/CRR)
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Regulatory aspects to be clarified by RBI Housing Finance Companies
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To allocate INR 12,000 crore towards low cost affordable housing through NHB
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| Taxation: Promises a stable tax policy; Promotes long-term savings; addresses tax arbitrage |
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GST: Hoping to reach a solution with states by the end of the year
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Removal of tax arbitrage between banks deposits and debt mutual funds
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Exemption limit under income tax for individuals raised by INR 50,000 to INR 250,000 for citizens under 60 years of age
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Exemption from income tax under section 80C increased from INR 100,000 to INR 150,000
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Tax benefit for home buyers: Deduction on interest paid on loans for self-occupied houses increased from INR 1.5Lakhs to INR 2 lakhs
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| Other announcements |
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FDI in insurance (composite cap) to be raised to 49% through FIPB route
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Awarding differentiated banking licenses
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Setting up 6 debt recovery tribunals
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Impact on Fixed Income Market: Fiscal deficit target of 4.1% is positive for G-sec yields. However, there is upside to this for two reasons - 1. Poor monsoon might hamper GDP growth and 2. 17% revenue growth is aggressive. However, overall budget is positive for medium term as it aims at pushing growth through investment channel and reducing fiscal target very aggressively. This budget also aims at increasing financial savings which would cool asset prices and thus would lead to low inflation. High GDP growth and low inflation if achieved are positive for interest rates.
Impact on Equity Market: New Government’s resolve to get the country back on growth path is commendable and will boost the economy and spur the earnings growth for the companies. Also the equity market sentiments in medium term will get a boost from governments resolve to encourage and attract Foreign Direct Investment (FDI) and Foreign Institutional Investors (FII) into the country. We believe that measures to increase financial savings by increasing the tax exemption limit under section 80C to INR 1.5 Lakh from INR 1.0 lakh will also enhance the flow into equity linked schemes in mutual fund and insurance products. These in our opinion are very positive steps and we remain optimistic on the Indian equity markets post budget.
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| Disclaimer: This document is for information and illustrative purposes only. Any advice, opinion, statement of expectation, forecast or recommendation mentioned herein shall not amount to any form of guarantee that we have determined or predicted future events or circumstances. |
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