Millennium Post

Experiment with people power

Experiment with people power
Finance Minister Arun Jaitley has followed Nike’s most inspiring line for the sports world, Just Do It, as the guiding spirit behind his and the NDA II’s first national budget. Arithmetically, the size of the Modi government’s expenditure budget in the first year is Rs 17,95,000 crore. The government budget is all about the annual government expenditure and allocations. Revenue is raised to meet the expenditure target. The revenue gap or deficit, then, met with borrowings, domestic or overseas. Jaitley has promised fiscal prudence and to try to live within the means, cutting on borrowings and also subsidies. For instance, the petroleum sector subsidies are to be compressed by Rs 20,000 crore and the government spending on MNREGA, the UPA’s pet rural employment generation programme, may be much less as it will be specifically linked to agriculture related activities.  The government will not treat social sector spending as ‘doles’. It will be linked to tangible asset creation. ‘We can’t leave a legacy of debt for our future generations,’ the finance minister said and left a major portion of the task to grow the economy to the corporate sector and entrepreneurs, local and foreign. The government has opened up the economy, wide.

More than opening up the insurance and financial sector to FDI up to 49 per cent, it is the FDI invitation to the real estate development sector that will bring about a big spurt in foreign fund flow in the capital and employment intensive urban housing and infrastructure. In fact, a substantial portion of funds for the Prime Minister’s dream 100-smart city creation project may come from foreign investors. China has already shown a big interest in India’s real estate development after it was denied by the UPA government contracts in a sea port development in Southern India for security reasons. Although the budget has practically nullified the possibility of pursuing retro-tax claims on foreign companies involved in acquisition (M&A) of corporate assets in India, pending report by a new committee to review the matter, it is in favour of a realistic approach to recover part of the Rs 4,00,000-crore-plus tax claims held up in litigations. Surprisingly, the budget is almost silent on black money recovery. The government’s non-intrusive, non-adversarial policy towards tax recovery may, on the contrary, encourage habitual tax evasion by the rich.

During the post-budget briefing, Finance Secretary Arvind Mayaram agreed that the government banked a lot on domestic and foreign private investment to grow the economy although the state-owned companies have a combined annual capital expenditure (capex) plan of well over Rs 2,00,000 crore. The budget held the government’s commitment to providing 24X7 power supply to all homes without setting a deadline for implementation. The 2014-2015 budget has outlined several measures, direct and indirect, intended to boost power generation and distribution. The decision to convert annual extension of ‘tax holiday’ into a 10-year tax holiday to undertakings taking up generation, distribution and transmission of power, by 31 March 2017, denotes the government’s resolve to provide policy stability to power sector investors. Chances are the government, which has taken an integrated approach towards availability of raw materials such as coal and natural gas, quality and pricing, equipment supplies, funding, technology, transmission and distribution, will take further steps that will address the cost concern of consumers – industrial and domestic. Power is a very important industrial input and a key driver of economic growth. Shortage of coal, falling domestic production of natural gas, rising cost of imported coal and gas, low capacity utilisation of power plants, huge transmission losses on top of them, high financing costs, poor financial health of most state power corporations, persistent large outstanding from institutional and municipal consumers and less industry-friendly government tax regime are among the hindrances that are hindering the easy availability of power at affordable rates.

The budget may not have been able to address the historical problems affecting the healthy growth of the power sector in its entirety, but it makes a positive effort to minimise some of those problems to delineate a realistic growth agenda that is comprehensive, pro-industry and pro-consumer. The non-conventional energy, especially solar, wind power and compressed bio-gas plants, is charged up with indirect tax concessions in basic customs duty on import of raw materials and components. Rs 400 crore has been allocated for big solar power projects in Rajasthan, Tamil Nadu and Ladakh. The scope of additional tax concessions for the infrastructure sector investment will benefit the power sector as well. The industry is in constant dialogue with the government on issues related to direct and indirect taxes, raw materials availability, cost and quality and how to cut down transmission losses – about 27 per cent – that are eating up a lot of electricity and adding to the cost to the consumer. The 12th plan power generation target is set at 88,537 MW. Of this, 38,583 MW capacity had been installed at the end of April, 2014. The individual targets achieved by the centre, states and private sector during the period were 30.5 per cent, 47.2 per cent and 49.7 per cent, respectively.
 For a change, the budget has shown a strong bias towards the development of India’s long neglected Himalayan states in the north and north-east and Jammu & Kashmir, including Ladakh. A number of projects have been announced and funds provided for them in the budget, including a sports university in Manipur, which produced the world champion woman boxer, Mary Kom, a special 24X7 TV channel, a Rs 100-crore organic farming activity. On the whole, the budget has been very positive and has almost everything for every section of the society.

Bulls are back to Dalal Street post Budget speech. The Sensex is up 444.86 points or 1.75 per cent at 25889.67 and the Nifty is up 135.50 points or 1.79 per cent at 7720.50. About 1689 shares have advanced, 987 shares declined, and 82 shares are unchanged. Finance Minister Arun Jaitley’s maiden Budget is aiming for a 19.7 per cent growth in tax collections in FY15, compared to a 21 per cent growth projected in the interim Budget presented in February. Some experts feel this target could still be ambitious considering that the economy is not out of the woods yet. Non-plan expenditure for the year has been estimated at Rs 12.2 lakh crore and plan expenditure at Rs 17.9 lakh crore, both very much in line with the estimates in the interim Budget. Market was hoping for some specific announcements on subsidy rationalization, and may have a reason to feel disappointed. The Finance Minister did not say much beyond overhauling the subsidy structure. On the positive side, the subsidy estimate of Rs 2.51 lakh crore for this fiscal is not much different from what was estimated in the interim Budget.
Nantoo Banerjee

Nantoo Banerjee

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