Every year on February 28, the Union Finance Minister (FM) releases budget for India which covers the milestones achieved, targets missed and the goals and ambitions for the next financial year. In May 2014, BhartiyaJanata Party (BJP) won the General Election after promising to bring economy back on the track of high growth and development. However, more than nine months have been passed since then but we are yet to witness the signs of growth revival on the ground.
India still ranks among the bottom countries on the ease of doing businesses. Some positive indicators like falling prices and petrol diesel are due to the international factors over which India has no control. Therefore, in the Budget 2015-16, which would be the first full-fledged budget of BJP government is expected to usher next era of reforms to re-ignite the process of growth.
Some important measure which government is expected to announce in the forthcoming budget are as under –
- In a survey conducted by the Associated Chambers of Commerce and Industry of India (ASSOCHAM), around 92% of the respondents asked the government to increase the tax exemption limit from current INR2.5 lakhs to INR 3.0 lakhs. With this, more disposable income would be left in the hands of common man and woman thus giving a push to the aggregate demand. While the inflation has become negative, there are several essential items of household consumption which witnessed annual inflation between 8-12%. Rising prices of essential commodities too make it necessary for the government to increase the individual tax exemption limit.
- India is the world’s largest gold importing country. In the last few years, when other investment alternatives were not giving desired returns due to the slow growth, people resorted to investment in gold as a safe haven thereby increasing the gold imports and thus further widening the trade deficit. In order to curb the gold import, government had to impose the import duty on gold. Now when the growth is back on its track and demand for gold imports has reduced, government may reduce the import duty on gold.
- On the fiscal front, government is unable to meet the fiscal deficit targets for the last few years on the account of global slowdown and increased social spending. In Budget 2015-16, government is expected to contain the fiscal deficit within 4.0% by rationalising the subsidies. The FM is expected to make the subsidies better targeted towards absolute poor. A slew of expenditure reforms are also expected to curtail the fiscal deficit.
- Apart from curtailing subsidies and curtailing expenditure, another important step is to generate revenue to bridge the fiscal deficit. For that matter, government may announce sale of stakes and disinvestment targets to fill its coffers.
- Minimum Alternate Tax (MAT) has been increased from 7.5% to 18.5% in previous budgets which negate the tax incentives and exemptions. The corporate world is asking for reduction in this tax and government is expected to respond positively in this regard. In line with the 'Make in India' initiative taken by the Current Government, the manufacturing sector needs backing in the form of tax concession. As the government is trying to boost the manufacturing, some incentives and tax concessions for the business start-ups too are expected. The new comprehensive tax reforms are expected to boost revenue, increase tax-GDP ratio and make it easier to do business in India. Adopting policies in the same line as the Singapore tax regulations will definitely benefit the start-up industry on a large scale.
- In the field of skill development, several measures are expected to be announced as current education system in the country is not dovetailed to the industry needs. It is necessary to answers the woes of unemployment in India. The skill development programmes would transfer the workforce from overburdened agriculture towards industry and thus augment the income of the target population. Therefore increased budget allocation for vocational training and skill development is expected.
- On the Balance of Payment (BoP) account, trade deficit increased manifold over the last few years. The new budget would try to arrest the widening gap by announcing measures for export promotion through ‘Make in India’ drive. Though the falling global crude prices are also helping in bridging the gap but it is not a permanent solution.
- In the social sector, the Union government may reduce its contribution to many centrally sponsored schemes (CSS) by 25-30% in the upcoming budget while giving states more freedom to design them, significantly altering the earlier paradigm of centrally dictated social welfare. The planned change follows the YV Reddy-led 14th Finance Commission's recommendation on higher fund transfers to states.