Budget in Parliament

The Constitution refers to the budget as the ‘annual financial statement’. In other words, the term ‘budget’ has nowhere been used in the Constitution. It is the popular name for the ‘annual financial statement’ that has been dealt with in Article 112 of the Constitution.

The budget is a statement of the estimated receipts and expenditure of the Government of India in a financial year, which begins on 1 April and ends on 31 March of the following year.

In addition to the estimates of receipts and expenditure, the budget contains certain other elements. Overall, the budget contains the following:1.Estimates of revenue and capital receipts;2.Ways and means to raise the revenue;3.Estimates of expenditure;4.Details of the actual receipts and expenditure of the closing financial year and the reasons for any

deficit or surplus in that year; and5.Economic and financial policy of the coming year, that is, taxation proposals, prospects of

revenue, spending programme and introduction of new schemes/projects. The Government of India has two budgets, namely, the Railway Budget and the General Budget.

While the former consists of the estimates of receipts and expenditures of only the Ministry of Railways, the latter consists of the estimates of receipts and expenditure of all the ministries of the Government of India (except the railways).

The Railway Budget was separated from the General Budget in 1921 on the recommendations of the Acworth Committee. The reasons or objectives of this separation are as follows:1.To introduce flexibility in railway finance.2.To facilitate a business approach to the railway policy.3.To secure stability of the general revenues by providing an assured annual contribution from

railway revenues.4.To enable the railways to keep their profits for their own development (after paying a fixed annual

contribution to the general revenues).

Constitutional Provisions

The Constitution of India contains the following provisions with regard to the enactment of budget:

1. The President shall in respect of every financial year cause to be laid before both the Houses of Parliament a statement of estimated receipts and expenditure of the Government of India for that year.

2. No demand for a grant shall be made except on the recommendation of the President.3. No money shall be withdrawn from the Consolidated Fund of India except under appropriation

made by law.4. No money bill imposing tax shall be introduced in the Parliament except on the recommendation of

the President, and such a bill shall not be introduced in the Rajya Sabha.5. No tax shall be levied or collected except by authority of law.6. Parliament can reduce or abolish a tax but cannot increase it.

7. The Constitution has also defined the relative roles or position of both the Houses of Parliament with regard to the enactment of the budget in the following way:(a) A money bill or finance bill dealing with taxation cannot be introduced in the Rajya Sabha—it

must be introduced only in the Lok Sabha.(b) The Rajya Sabha has no power to vote on the demand for grants; it is the exclusive privilege of

the Lok Sabha.(c) The Rajya Sabha should return the Money bill (or Finance bill) to the Lok Sabha within fourteen

days. The Lok Sabha can either accept or reject the recommendations made by Rajya Sabha in this regard.

8. The estimates of expenditure embodied in the budget shall show separately the expenditure charged on the Consolidated Fund of India and the expenditure made from the Consolidated Fund of India.

9. The budget shall distinguish expenditure on revenue account from other expenditure.

Charged Expenditure

The budget consists of two types of expenditure—the expenditure ‘charged’ upon the Consolidated Fund of India and the expenditure ‘made’ from the Consolidated Fund of India.

The charged expenditure is non-votable by the Parliament, that is, it can only be discussed by the Parliament, while the other type has to be voted by the Parliament.

The list of the charged expenditure is as follows:1.Emoluments and allowances of the President and other expenditure relating to his office.2.Salaries and allowances of the Chairman and the Deputy Chairman of the Rajya Sabha and the

Speaker and the Deputy Speaker of the Lok Sabha.3.Salaries, allowances and pensions of the judges of the Supreme Court.4.Pensions of the judges of high courts.5.Salary, allowances and pension of the Comptroller and Auditor General of India.6.Salaries, allowances and pension of the chairman and members of the Union Public Service

Commission.7.Administrative expenses of the Supreme Court, the office of the Comptroller and Auditor General

of India and the Union Public Service Commission including the salaries, allowances and pensions of the persons serving in these offices.

8. The debt charges for which the Government of India is liable, including interest, sinking fund charges and redemption charges and other expenditure relating to the raising of loans and the service and redemption of debt.

9.Any sum required to satisfy any judgement, decree or award of any court or arbitral tribunal.10. Any other expenditure declared by the Parliament to be so charged.

'Sinking Fund' A means of repaying funds that were borrowed through a bond issue. The issuer makes periodic

payments to a trustee who retires part of the issue by purchasing the bonds in the open market.Stages in Enactment

The budget goes through the following six stages in the Parliament:

1. Presentation of budget.2. General discussion.3. Scrutiny by departmental committees.4. Voting on demands for grants.5. Passing of appropriation bill.6. Passing of finance bill.

Presentation of Budget

The budget is presented in two parts—Railway Budget and General Budget. Both are governed by the same procedure.

The introduction of Railway Budget precedes that of the General Budget. While the former is presented to the Lok Sabha by the railway minister in the third week of February, the latter is presented to the Lok Sabha by the finance minister on the last working day of February.

The Finance Minister presents the General Budget with a speech known as the ‘budget speech’. At the end of the speech in the Lok Sabha, the budget is laid before the Rajya Sabha, which can only discuss it and has no power to vote on the demands for grants.

General Discussion

The general discussion on budget begins a few days after its presentation. It takes place in both the Houses of Parliament and lasts usually for three to four days.

During this stage, the Lok Sabha can discuss the budget as a whole or on any question of principle involved therein but no cut motion can be moved nor can the budget be submitted to the vote of the House. The finance minister has a general right of reply at the end of the discussion.

Scrutiny by Departmental Committees

After the general discussion on the budget is over, the Houses are adjourned for about three to four weeks. During this gap period, the 24 departmental standing committees of Parliament examine and discuss in detail the demands for grants of the concerned ministers and prepare reports on them. These reports are submitted to both the Houses of Parliament for consideration.

The standing committee system established is 1993 (and expanded in 2004) makes parliamentary financial control over ministries much more detailed, close, in-depth and comprehensive.

Voting on Demands for Grants

In the light of the reports of the departmental standing committees, the Lok Sabha takes up voting of demands for grants. The demands are presented ministrywise. A demand becomes a grant after it has been duly voted.

Two points should be noted in this context. One, the voting of demands for grants is the exclusive privilege of the Lok Sabha, that is, the Rajya Sabha has no power of voting the demands.

Second, the voting is confined to the votable part of the budget—the expenditure charged on the Consolidated Fund of India is not submitted to the vote (it can only be discussed).

While the General Budget has a total of 109 demands (103 for civil expenditure and 6 for defence expenditure), the Railway Budget has 32 demands. Each demand is voted separately by the Lok Sabha. During this stage, the members of Parliament can discuss the details of the budget. They can also move motions to reduce any demand for grant. Such motions are called as ‘cut motion’, which are of three kinds:

(a) Policy Cut Motion It represents the disapproval of the policy underlying the demand. It states that the amount of the demand be reduced to Re 1. The members can also advocate an alternative policy.

(b) Economy Cut Motion It represents the economy that can be affected in the proposed expenditure. It states that the amount of the demand be reduced by a specified amount (which may be either a lumpsum reduction in the demand or ommission or reduction of an item in the demand).

(c) Token Cut Motion It ventilates a specific grievance that is within the sphere of responsibility of the Government of India. It states that the amount of the demand be reduced by Rs 100.

A cut motion, to be admissible, must satisfy the following conditions:

(i) It should relate to one demand only.(ii) It should be clearly expressed and should not contain arguments or defamatory

statements.(iii) It should be confined to one specific matter.(iv) It should not make suggestions for the amendment or repeal of existing laws.(v) It should not refer to a matter that is not primarily the concern of Union government.(vi) It should not relate to the expenditure charged on the Consolidated Fund of India.(vii) It should not relate to a matter that is under adjudication by a court.(viii) It should not raise a question of privilege.(ix) It should not revive discussion on a matter on which a decision has been taken in the

same session.(x) It should not relate to a trivial matter.

The significance of a cut motion lies in: (a) facilitating the initiation of concentrated discussion on a specific demand for grant; and (b) upholding the principle of responsible government by probing the activities of the

government. However, the cut motion do not have much utility in practice. They are only moved and discussed in

the House but not passed as the government enjoys majority support. Their passage by the Lok Sabha amounts to the expressions of want of parliamentary confidence in the government and may lead to its resignation.

In total, 26 days are allotted for the voting of demands. On the last day the Speaker puts all the remaining demands to vote and disposes them whether they have been discussed by the members or not. This is known as ‘guillotine’.

Passing of Appropriation Bill

The Constitution states that ‘no money shall be withdrawn from the Consolidated Fund of India except under appropriation made by law’. Accordingly, an appropriation bill is introduced to provide for the appropriation, out of the Consolidated Fund of India, all money required to meet:(a) The grants voted by the Lok Sabha.(b) The expenditure charged on the Consolidated Fund of India.

No such amendment can be proposed to the appropriation bill in either house of the Parliament that will have the effect of varying the amount or altering the destination of any grant voted, or of varying the amount of any expenditure charged on the Consolidated Fund of India.

The Appropriation Bill becomes the Appropriation Act after it is assented to by the President. This act authorises (or legalises) the payments from the Consolidated Fund of India. This means that the government cannot withdraw money from the Consolidated Fund of India till the enactment of the appropriation bill. This takes time and usually goes on till the end of April. But the government needs money to carry on its normal activities after 31 March (the end of the financial year). To overcome this functional difficulty, the Constitution has authorised the Lok Sabha to make any grant in advance in respect to the estimated expenditure for a part of the financial year, pending the completion of the voting of the demands for grants and the enactment of the appropriation bill. This provision is known as the ‘vote on account’. It is passed (or granted) after the general discussion on budget is over. It is generally granted for two months for an amount equivalent to one-sixth of the total estimation.

Passing of Finance Bill

The Finance Bill is introduced to give effect to the financial proposals of the Government of India for the following year. It is subjected to all the conditions applicable to a Money Bill. Unlike the Appropriation Bill, the amendments (seeking to reject or reduce a tax) can be moved in the case of finance bill.

According to the Provisional Collection of Taxes Act of 1931, the Finance Bill must be enacted (i.e., passed by the Parliament and assented to by the president) within 75 days.

The Finance Act legalises the income side of the budget and completes the process of the enactment of the budget.

Other Grants

In addition to the budget that contains the ordinary estimates of income and expenditure for one financial year, various other grants are made by the Parliament under extraordinary or special circumstances:

Supplementary Grant It is granted when the amount authorised by the Parliament through the appropriation act for a particular service for the current financial year is found to be insufficient for that year.

Additional Grant It is granted when a need has arisen during the current financial year for additional expenditure upon some new service not contempleted in the budget for that year.

Excess Grant It is granted when money has been spent on any service during a financial year in excess of the amount granted for that service in the budget for that year. It is voted by the Lok Sabha after the financial year. Before the demands for excess grants are submitted to the Lok Sabha for voting, they must be approved by the Public Accounts Committee of Parliament.

Vote of Credit It is granted for meeting an unexpected demand upon the resources of India, when on account of the magnitude or the indefinite character of the service, the demand cannot be stated with the details ordinarily given in a budget. Hence, it is like a blank cheque given to the Executive by the Lok Sabha.

Exceptional Grant It is granted for a special purpose and forms no part of the current service of any financial year.

Token Grant It is granted when funds to meet the proposed expenditure on a new service can be made available by reappropriation. A demand for the grant of a token sum (of Re 1) is submitted to the vote of the Lok Sabha and if assented, funds are made available. Reappropriation involves transfer of funds from one head to another. It does not involve any additional expenditure.

Supplementary, additional, excess and exceptional grants and vote of credit (first five grants) are regulated by the same procedure which is applicable in the case of a regular budget.

Funds

The Constitution of India provides for the following three kinds of funds for the Central government:

1. Consolidated Fund of India (Article 266)2. Public Account of India (Article 266)3. Contingency Fund of India (Article 267)

Consolidated Fund of India

It is a fund to which all receipts are credited and all payments are debited. In other words, (a) all revenues received by the Government of India; (b) all loans raised by the Government by the issue of treasury bills, loans or ways and means of

advances; and (c) all money received by the government in repayment of loans forms the Consolidated Fund of

India. All the legally authorised payments on behalf of the Government of India are made out of this fund.

No money out of this fund can be appropriated (issued or drawn) except in accordance with a parliamentary law.

Public Account of India

All other public money (other than those which are credited to the Consolidated Fund of India) received by or on behalf of the Government of India shall be credited to the Public Account of India.

This includes provident fund deposits, judicial deposits, savings bank deposits, departmental deposits, remittances and so on. This account is operated by executive action, that is, the payments from this account can by made without parliamentary appropriation. Such payments are mostly in the nature of banking transactions.

Contingency Fund of India

The Constitution authorised the Parliament to establish a ‘Contingency Fund of India’, into which amounts determined by law are paid from time to time. Accordingly, the Parliament enacted the Contingency Fund Of India Act in 1950.

This fund is placed at the disposal of the president, and he can make advances out of it to meet unforeseen expenditure pending its authorisation by the Parliament. The fund is held by the finance secretary on behalf of the president. Like the public account of India, it is also operated by executive action.

Budget 15-16Comments on the Budget

The Indian economy decelerated from an 8.4 per cent growth rate in GDP in 2003-04 to 4.8 per cent in 2013-14. The UPA’s decade of economic decline has been wrongly attributed to the global economic meltdown

This budget is aimed at achieving growth and fiscal consolidation in a sustainable environment. Budget crafted keeping in mind long term gains [Budget 15-16 is different from the budgets post

1997 Budget (P.Chidambaram budget)] The Budget strives to attain a balance in the government’s agenda to maintain fiscal discipline and

simultaneously bolster growth It plans to achieve its goals through increasing the tax base and planned capital expenditure, while

digitising subsidy transfers Infrastructure and manufacturing are the two sectors, where it emphasises its attention on. Additional fiscal space is being used to fund infrastructure investment. Having a pre-existing

regulatory mechanism for approvals, infrastructure bonds and a comprehensive bankruptcy code are steps in the right direction.

Revitalising the PPP model, with the sovereign bearing a major part of the risk would lead to a much needed rebalancing and crowding in of the private sector.

Establishment of a National Investment & Infrastructure Fund for Rs. 20,000 crore will assist in funding infrastructure projects

A proposal to set up five new Ultra Mega Power Projects, each of 4000 MW in the plug-and-play mode is welcoming

Clarity on the implementation of the GST in 2016, staggered reduction of corporate tax, deferring GAAR by two years and increasing defence expenditure is a welcome move for the Make in India initiative

Tweaking the customs duty on raw material augurs well in revamping the inverted duty structure. The intent towards avoidance of retrospective taxation is commendable. Setting up a Public Debt Management Agency (PDMA) will bring both India’s external borrowings and

domestic debt under one roof. This will lead to the debt market being at par with the equity market thereby leading to deepening of the Indian Bond market.

A proposal to overhaul capital gains taxes paves the way for the listing of Real Estate Investment Trusts (REITs).

An autonomous Bank Board Bureau would help in overhauling the governance structure of public sector banks.

Gold monetisation and investment in the National Pension Scheme is a move towards creating an alternate financial asset class that would channelise public savings towards asset creation.

A comprehensive Bill for curbing black money and incentivising digital transfer of funds would encourage the inflow of liquidity into the real economy.

Abolishing wealth tax and taxing the super-rich attempts is a prudent move to reduce inequality. The Rs 20,000 crore National Investment and Infrastructure Fund (NIIF), the proposal to float tax-

free infrastructure bonds and the various other steps for boosting infrastructure are welcome ones indeed.

The proposal to launch a National Skills Mission to enhance employability is another extremely welcome step

Overall, the budget ensures a path towards sustainable growth

Targets and expectations

Estimated GDP growth for 2014-15 is 7.4%. Growth in 2015-16 is expected to be between 8 to 8.5%. Fiscal deficit of 3% in 3 years. Thus, for the next three years, targets are: 3.9%, for 2015-16; 3.5%

for 2016-17; and, 3.0% for 2017-18. Inflation targeting 6%

Energy sector

India cannot grow at double-digit pace without adequate power to drive its industries Aim: To reach a power capacity of 1,25,000 MW by 2022 with major emphasis on clean energy

Positives

Proposal to set up five UMPPs (Ultra Mega Power Projects) The conclusion of the coal auction process is sure to add to the positive sentiment. 35 per cent of India’s generation capacity is privately-owned

Negatives

The increase in the clean fuel cess from Rs.100 to Rs. 200 per tonne 6.30 per cent hike in the freight rates for coal the budget is silent on several other structural issues dogging the sector involving power evacuation

and distribution.

Financial sector

The three notable aspects are the 1. focus on innovation, 2. steps towards structural strengthening, and 3. move to develop various segments of the financial sector.

Other key highlights include 1. steps to channelise savings from physical assets to financial ones, 2. enhance financial inclusion, and 3. remove constraints for foreign investors.

MUDRA Bank

Budget laid a clear emphasis on enhancing innovation in the financial sector. Proposal to set-up Micro Units Development and Refinance Agency (MUDRA Bank) will

enable microfinance institutions to lend to individual-run micro-enterprises.

On the Innovation front

Clarity and rationalisation of taxation rules for Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs) will pave the way for these new vehicles to be introduced during the year.

This will benefit real estate players having lease-generating commercial assets and infrastructure developers with operating projects.

The plan to set-up the National Investment and Infrastructure Fund (NIIF) for taking equity in infrastructure projects will catalyse the infrastructure investments.

With the approval for Gujarat International Finance Tec-City (GIFT), India will take baby steps towards developing as a global financial centre.

Finally, the planned Trade Receivables Discounting System (TReDS) will help SMEs to reduce their working capital cycle.

Once implemented, these innovations have a potential to significantly develop the Indian financial sector to support multiple stakeholders and industries.

On the Structural front

Finance Minister has announced reforms in the bankruptcy law, which will effectively address the non-performing assets challenge for banks in the long term.

Allowing large non-banking finance companies (NBFCs) to use the SARFAESI Act will significantly augment their recovery efforts.

The proposed merger of Securities and Exchange board of India (SEBI) and Forward Markets Commission (FMC) will ensure better regulatory supervision of financial markets that are becoming increasingly complex.

The establishment of a Bank Boards Bureau to select heads of government-owned PSU banks and drive their capital management strategies will also strengthen the sector.

Finally, path towards a Bank Holding Company over the medium term will enhance governance practices and allow better visibility of capital for public sector banks.

Another notable push has been given to the alternate asset management, insurance, pension, and asset management sectors.

Alternate Investment Funds have been made pass-through from an income tax perspective and foreign investment has also been allowed. This has the potential to significantly increase the flow of funds to real estate, start-ups and early stage companies and infrastructure projects through professionally managed specialised structure

Given the large investment needs, the bond markets and banking sector are expected to play a critical role in providing the necessary debt funding.

Similarly, a higher capital allocation for public sector banks would have prepared them well for growth, as well as to meet their current challenges.

Taxation Reforms

putting off the implementation of General Anti-Avoidance Rule (GAAR) by two more years GST withheld till 2016 The perennial problem of subsidies falls into this category (expenditure reform). Fiscal federalism received a boost with the Fourteenth Finance Commission awarding a larger share

of gross tax revenues to the States and the reduced space available to the Centre has been cited as one reason for going slow on fiscal consolidation.

The budget has promised to reduce corporation tax from 30 to 25 per cent over the next four years. Abolishment of wealth tax, similar to what the government did in 1986 in relation to estate duty, is a

welcome step. Replacement of this tax with a 2 per cent surcharge on the super-rich is a clever act of substituting a more effective way of recovering tax on the rich rather than tax on assets.

Participatory Notes

crony/crooked facilitator for black money-based portfolio investment. The Budget does not treat PNs as a time bomb and to seek to abolish this derivative, as the

Tarapore Committee had wanted (so it is still left the way it is. Instead seriouds measure will be taken to combat the menace of black money)

Factors that can positively impact growth

demographic dividend, 12 months a year of farm-friendly weather a highly competitive, skilled and semi-skilled labour force and low wage rates at the national level, the advantages of which have already been proved to the world

by the outsourcing phenomenon.

Infromal Sector

‘fund the unfunded’ 58 million micro and small businesses in the non-formal sector. This sector is unique to India. While in other countries the informal sector is largely illegal, in India,

it is non-formal because government policies have not reached it. These 58 million non-formal micro businesses generate millions of rural and semi-urban

entrepreneurs and provide 128 million jobs. Two-thirds of these units are operated by Scheduled Castes, Scheduled Tribes and Other Backward

Classes. Yet, this Kamadhenu of job creation gets only 4 per cent of its credit needs from banks. The sector now borrows at usurious rates of interest of 120 per cent and beyond. they have posted the fastest growth among all segments of the Indian economy. But economic

policymaking in India continued to ignore them

What has changed this time

In the last budget, the Modi government had announced a committee to structure a new financial architecture for this sector. The Reserve Bank of India reportedly opposed any new architecture.

But this Budget has gone ahead and announced a new financial architecture, the Micro Units Development Refinance Agency (MUDRA), for the non-formal sector with a corpus of Rs.20,000 crore and budgetary support of Rs.3,000 crore for credit guarantee.

MUDRA will come into existence by a separate law. This will fund the millions of entrepreneurs by an innovative financial architecture that will integrate

the existing private financiers of small businesses as last-mile lenders. It is a completely indigenous, India-centric and innovative solution for the most job-intensive, yet

totally credit-starved, segment of an economy unique to India. The MUDRA idea requires millions of private financial intermediaries, who are currently providing

finance to non-formal businesses, to be registered and integrated into the new architecture as the last mile delivery instrumentalities.

Monetisation of gold

monetisation of gold — creating and circulating money based on gold. Modern economists would dismiss gold as a wasteful item; as a “relic of barbarism.”

through the sovereign gold bonds proposed in the Budget, the government can generate a substantial gold stock as buffer stock, India can aggregate its demand for gold and use that power in the international market.

If it builds a decent buffer stock, it can play the global gold market which, barring China perhaps, no other country can, because only in India private gold consumption is as high as a fourth of the world’s.

Despite that, India has no gold refining and standardisation infrastructure. This new policy will help build this.

government would introduce gold deposit schemes in a bid to curb imports of the yellow metal, a key contributor to the current account deficit of India

Over 20,000 tonnes of gold lies idle with Indian households without being traded or monetised. India does not produce gold and imports 800-1,000 tonnes of it every year, hurting the trade balance.

Indians mainly prefer to hold their gold in the form of ornaments, and the Finance Minister wants these to be put into productive use.

Mr. Jaitley said he planned to offer a gold monetisation scheme and a sovereign gold bond as an alternative to buying metal gold. He did not offer a time frame for them.

The new scheme [gold monetisation] will allow the depositors of gold to earn interest in their metal accounts, and jewellers to obtain loans in their metal account. Banks/other dealers would also be able to monetise this gold

On gold bonds, he said it would carry a fixed rate of interest and be redeemable in cash in terms of the face value of gold at the time of redemption.

The government will start work on developing an Indian gold coin, carrying the image of Ashok Chakra. “Such an Indian gold coin will help reduce the demand for coins minted outside India and help recycle the gold available in the country

Challenges

The only concern is that unless full tax immunity is granted to gold to be lodged in bonds, the entire stock of black gold may not enter monetisation.

The idea of gold monetisation also calls for a massive campaign to convince the millions of Indians possessing gold to look at gold bonds as equal to gold itself.

Insurance

A large proportion of India’s population is without insurance of any kind -- health, accidental or life. Worryingly, as our young population ages, it is also going to be pension-less

2011 Census, which showed that India’s southern States had already achieved replacement levels of fertility, and the country would need to start dealing with a growing proportion of elderly people in its population.

Mr. Jaitley announced three insurance schemes — Pradhan Mantri Suraksha Bima Yojna, which will cover accidental death risk of Rs. 2 lakh for a premium of Rs. 12 per year, Atal Pension Yojana, a contributory pension scheme, and the Pradhan Mantri Jeevan Jyoti Bima Yojana, to provide both natural and accidental death cover of Rs. 2 lakh with a premium of Rs. 330 per year, for the age group 18-50.

For the Atal Pension Yojana, the government will contribute 50 per cent of the beneficiaries’ premium up to Rs. 1,000 per year for five years in new Jan Dhan accounts opened before December 31, 2015.

The budget had additional offers for senior citizens. Mr. Jaitley proposed the creation of a Senior Citizen Welfare Fund which would appropriate unclaimed deposits in the Public Provident Fund and the Employee Provident Fund.

Criticism

criticised the government for failing to enact a comprehensive universal pension scheme the government has cut allocations to the National Social Assistance Programme, which provides

pensions to the elderly, widows and differently abled people, by Rs. 1,000 crore in the new budget. accident insurance for Rs.2 lakh at Rs.12 per annum; for life insurance at a premium of Rs.330 per

annum and lifelong pension on an annual premium of up to Rs.1,000, each to be contributed by the beneficiary and the government equally. This ambitious plan aims to reach crores of poor Indians.

The insurance and pension idea also needs mobilisation of crores of beneficiaries into the network.

Women Safety

Nirbhaya fund gets Rs. 1,000 crore

Middle class

In this Budget, the middle class has little to cheer about. Smile on their faces only after abolishing personal income tax. current minimum taxable limit

unchanged at Rs. 2.5 lakh The tax deduction limit for individuals, which provides deduction in respect of investment in saving

instruments such as Provident Fund, Equity Linked Savings Scheme, life insurance premium, housing loan repayment and National Savings Scheme, was left unchanged at Rs. 1.5 lakh

Salaried middle class

disappointment for the salaried middle-class individual with neither an increase in the minimum taxable limit nor reduction in personal tax rates

Instead it offered marginal benefits by increasing exemption limits for premium payments on health insurance and additional exemption for contribution towards the New Pension Scheme (NPS).

For an individual tax payer, what is new in terms of deductions is the increase in the health insurance premium to Rs. 25,000 from Rs.15,000 and increase in transport allowance to Rs. 19,200 a year from Rs. 9,600 a year. Also there is an additional exemption of Rs. 50,000 contribution towards the NPS.

Instead focussed on increasing the tax exemptions on premium payment towards health insurance and contribution towards pension, among others.

Senior Citizens

For senior citizens, the medical premium limit was increased to Rs. 30,000 from Rs. 20,000. For those above the age of 80 not covered under medical insurance, a deduction of up to Rs. 30,000

towards medical expenditure is allowed.

Black money

Rolling out a multipronged strategy to clamp down on the parallel economy proposed the introduction of two comprehensive Bills in the current Parliament session to tackle

black money — both on the domestic and international front. The government will soon introduce a Bill on black money to specifically deal with illicit money

stashed abroad and another, the Benami Transactions (Prohibition) Bill, to enable confiscation of benami property, particularly in real estate, and enable prosecution of offenders.

Under the proposed law on black money, concealment of income and assets and evasion of tax on foreign assets will be declared a non-compoundable offence, punishable with upto 10 years’ rigorous imprisonment and penalty at the rate of 300 per cent tax.

Offenders will no more have the option of approaching the Settlement Commission. Abettors, whether individuals, companies or financial institutions, will also be prosecuted and

penalised. The proposed law will make it mandatory for beneficial owners or beneficiaries of foreign assets of

any value to file returns. Assessees will be bound to quote the date of opening of foreign accounts.

No exemptions

Non-filing or inadequate disclosure will attract up to seven years’ imprisonment, whereas income/undisclosed income from undisclosed/disclosed assets abroad will be taxable at the maximum marginal rate. In such cases, no exemptions or deductions will be allowed.

Seizure clause

Under the proposed law, the government will also make concealment or tax evasion on foreign assets a predicate offence under the Prevention of Money Laundering Act (PMLA), enabling prosecution of offenders, besides attachment and confiscation of unaccounted assets situated abroad.

The definition of “proceeds of crime” under the Act is accordingly being amended to facilitate confiscation of assets in India equivalent to such a property, if it cannot be forfeited.

False declarations or documents in business transactions relating to Customs is also being made punishable under PMLA.

The government plans to amend the Foreign Exchange Management Act to enable seizure of domestic assets of a value equivalent to foreign exchange/security or immovable property located abroad, held in violation of the Act. Such violations will also attract up to five years’ punishment and penalty.

Curbs on advance

Besides, Income Tax Act provisions are being improved to prohibit acceptance or payment of an advance of Rs.20,000 or more in cash for purchase of immovable property, levying penalty of equal amount.

While quoting PAN will be made mandatory for purchase/sale exceeding value of Rs.1 lakh, third-party reporting entities will have to furnish details of foreign currency sales and cross-border transactions. The common practice of splitting of reportable transactions to evade detection will also be addressed.

Defence

Modest hike in outlay for Defence “one rank, one pension” (OROP) scheme found no mention in the Union Budget The methodology of calculating OROP is pending between the Services and the Defence Ministries With a major modernisation drive under way, the defence budget was increased by a modest Rs.

24,000 crore over the previous year’s to Rs. 2,46,727 crore. This is 7.7 per cent over the budget estimates of 2013-14 and about 11 per cent over the revised

estimates of Rs. 2,22,370 crore. Of the allocation of Rs. 2,46,727 crore, revenue expenditure gets Rs. 1,52,139 crore and capital

expenditure Rs. 94,588 crore. However, committed liabilities within the capital budget are so high that it leaves little money for

new acquisitions.

Realty Sector

Budget fails to confer industry status to realty sector’ or the affordable housing segment and there are only few positives from the thrust on infrastructure, which could benefit the real estate

sector. The Finance Minister said the government proposed to build two crore houses in urban areas and

four crore houses in rural areas under the ‘Housing for all by 2022’ scheme. This could potentially boost the sector.

sadly the budget does not give any direction towards executing this With regard to Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (INViTs),

the Finance Minister said the treatment granted to the sponsor on offloading of units at the time of listing will be same as that granted if the shareholding of the special purpose vehicle (SPV) had been offloaded at the stage of direct listing. Further, rental income from real estate assets directly held by REITs are proposed to be allowed to pass through and taxed in the hands of the unit holders of the REIT.

Higher service tax from 12.36 to 14 per cent will increase the cost of housing. On the positive side, the withdrawal of wealth tax could boost investments by the middle-class and

some sections of high net-worth individuals. Lowering of corporate tax by 5 per cent in the next few years could attract investments.

Investment environment for corporates, foreign players

right noises to corporates and foreign investors, by assuring a stable tax regime and ease of doing business in India.

lower the corporate tax rate over the next four years to 25 per cent from 30 per cent. This will lead to higher level of investment, higher growth and more jobs. This process of reduction

has to be necessarily accompanied by rationalisation and removal of various kinds of tax exemptions and incentives for corporate taxpayers, which incidentally account for a large number of tax disputes

The budget also said the key tax reform in the form of goods and services tax (GST) would be rolled out from April 1, 2016

inverted duty structure by reducing basic customs duty on inputs, intermediates and reduction in Special Additional Duty to incentivise manufacturers.

Increase in service tax rate to 14 per cent and pruning of negative list as a precursor for GST, Cenvat credit time limit increased from 6 months to 1 year

In one of the key moves for offering clarity mainly to foreign investors, the budget deferred the implementation of the controversial General Anti-Avoidance Rules or (GAAR) until 2017.

gave an assurance of quick resolutions for pending tax disputes. He removed the distinction between direct and portfolio investors, a move which would encourage

foreign investors to take stakes in Indian firms. “There has also been an attempt to address the key issues of the investors like clarity on REITs and

non-applicability of minimum alternative tax on foreign portfolio investors. Reduction in tax rate on royalty payments to 10 per cent etc. will help boost business confidence The budget also raised the threshold for applicability of transfer pricing norms to Rs. 20 crore from

Rs. 5 crore. This will significantly reduce the compliance burden for a large number of taxpayers. This is a

welcome move and shows the intent of the government to reduce the pains of the honest taxpayer

Healthcare

Union Finance Minister Arun Jaitley’s announcement of new AIIMS-like institutions, tax sops for those who buy health insurance, and Rs. 33,150 crore allocation has given the health sector little to cheer.

Though the draft of the government’s new national health policy wants public health expenditure to increase to 2.5 per cent of the GDP, the allocation seems insufficient to meet the government’s ambitious universal health assurance mission that includes free diagnostics and drugs up to a certain quantum, besides improved services.

The medical community feels that opening of new All India Institutes of Medical Sciences in Jammu and Kashmir, Punjab, Tamil Nadu, Himachal Pradesh and Assam in itself holds little meaning, till the government provides quality doctors.

Mr. Jaitley’s push to health insurance has also received a mixed response. India has a sizeable population without insurance. The Minister himself admitted: “A large proportion of India’s population is without insurance of any kind — health, accidental or life.”

By encouraging private insurance, we are pushing the middle class towards private health care. This will also lead to a dual structure, in which there will be tax breaks for those who can afford insurance and poorly resourced public provisions for those who can’t pay

The plan to run a scheme for giving physical aids and assisted living devices to senior citizens, living below the poverty line, has met with public approval, though there are wide gaps in geriatric care

Senior citizens are always an ignored part of the budget, but this one seems to have addressed it partially through the reduction of health insurance premium. But what about senior citizens who do not have health insurance cover?

The decision not to increase import duty on medical devices and to bring down service tax on ambulance has also been welcomed.

100 per cent automatic FDI route in medical device industry. Didn’t make the ‘Buy India’ policy mandatory Ambulance services have been exempted from tax, and basic custom duty, and artificial hearts have

been taken off countervailing duty, a move that will help patients.

Infrastructure

weak corporate balance sheets, an impaired banking system, difficulty of exit, and the deficiencies of the public-private partnership model in infrastructure” held back private investments.

sought to set right India’s troubled infrastructure sector with increased public investments Our infrastructure does not match our growth ambitions. There is a pressing need to increase public

investment Rs. 70,000 crore more as investments in infrastructure A large chunk of the allocation will go toward roads and railways. Minister proposed measures such as simplified bankruptcy laws, a mechanism for easier regulatory

clearances, and revisiting of the public-private partnership model. A national investment and infrastructure fund was announced, with an annual flow of Rs. 20,000

crore. All these are measures to get the private sector serious about infrastructure again would use the space created by relaxing the fiscal deficit targets to fund infrastructure. (Fiscal

deficit, the excess of expenditure over revenues, will now be reduced slower than earlier proposed, freeing up more money).

Another source of funds will come about through the conversion of the excise duty on petrol and diesel of Rs. 4 a litre into road cess. This cess has been estimated to bring in Rs. 40,000 crore.

Bankruptcy law reform

would be key to “improving the ease of doing business,” something the earlier Acts failed to do. The plan to make regulatory clearances easier involved creating a system with a pre-existing

regulatory mechanism. five new ultra mega power projects, each of 4,000-megawatt capacity. The Minister intends to allow tax-free infrastructure bonds for rail, road and irrigation projects. One

of the key proposals is to rework public private partnerships.

For the model to work, the Minister indicated the “sovereign will have to bear a major part of the risk without, of course, absorbing it entirely.”

Comprehensive ‘Bankruptcy Code’ proposed

In a bid to improve the ease of doing business environment in the country, Finance Minister Arun Jaitley on Saturday said the government will unveil a comprehensive Bankruptcy Code in the current fiscal.

“Bankruptcy law reform, that brings about legal certainty and speed, has been identified as a key priority for improving the ease of doing business,” he said in the Budget 2015-16 presented to Parliament.

“SICA [Sick Industrial Companies Act] and BIFR [Bureau for Industrial and Financial Reconstruction] have failed in achieving these objectives. We will bring a comprehensive Bankruptcy Code in fiscal 2015-16, that will meet global standards and provide necessary judicial capacity,” he said.

New money-sharing regime is in

No budgetry support

For eight schemes and programmes, the Union government has completely stopped its budgetary support

The government has decided to delink eight Centrally Sponsored Schemes (CSS), including National e-Governance Plan, Backward Regions Grant Funds, Modernisation of Police Forces and Rajiv Gandhi Panchayat Sashaktikaran Abhiyaan (RGPSA), from its support.

Greater share of the states

For an additional 24 schemes, States will now have to shoulder a greater burden as the Union government takes a step back.

These include flagship schemes, including the Swachh Bharat Abhiyaan, the National Health Mission, the Rashtriya Madhyamik Shiksha Abhiyaan, the Integrated Child Development Scheme, the National AIDS and STD Control Programme and the Rural Housing scheme.

Fully centre funded

Thirty-one schemes, including the Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS), the Mid Day Meal Scheme, the Sarva Shiksha Abhiyaan and scholarship schemes, will remain fully funded by the Central government.

Things that will costs more

Smoking and consumption of tobacco in other forms will be more expensive. Excise duty is being increased by 25 per cent on cigarettes of length not exceeding 65 mm and by 15 per cent on cigarettes of other lengths.

the increase in service tax will make a whole lot of services costlier, including air travel, eating out and paying bills.

Subsequently, eating out at restaurants, stay in hotels, air travel, cable and DTH services, services at beauty parlours, courier service, credit and debit card services, dry cleaning of clothes, stock brokering, asset management and insurance that require service of another party will become expensive. Plastic bags and sacks will become costlier as the tariff rate of excise duty has been hiked to 18 per cent from 12 per cent. Cement will become more expensive with excise duty being increased to Rs. 1,000 a tonne from Rs. 900 a tonne.

Aerated, flavoured drinks and packaged water will cost more as excise duty has gone up to 18 per cent from 12 per cent.

Things that will costs less

Products that will turn cheaper include leather footwear, locally made mobile phones, tablets, microwave ovens, peanut butter, packaged fruits, ambulance service and agarbattis.

To facilitate a smooth transition to the levy of tax on services by both the Centre and the States, it is proposed to increase the present rate of service tax, plus education cesses, from 12.36 per cent to a consolidated rate of 14 per cent

commonly used items by reducing duties. Leather footwear priced above Rs. 1,000 a pair will cost less as excise duty has gone down to 6 per cent from 12 per cent. Packaged fruits and vegetables will become cheaper as pre-cooling, ripening, retail packing and labelling have been exempted from service tax.

Excise duty on locally made mobile phones, LED/LCD panels, LED lights and LED Lamps has been cut.

Microwave ovens are likely to become cheaper as a key component, magnetron, has been exempted from basic customs duty as against 5 per cent earlier. Refrigerator prices could also come down.

Similarly, solar water heaters will be less expensive Agarbatti prices will come down as the item will now attract nil excise duty.” Visits to a museum, zoo, national park, wildlife sanctuary or tiger reserve will become cheaper with

Mr. Jaitley exempting such activities from service tax.

Clean energy sector

Though budget reiterated government’s ambitious capacity addition plans in renewable energy sector, it failed to talk about funds towards development of clean energy, feels the industry.

Besides seeking priority sector lending status, the industry was expecting government announcements with regard to access of low cost funds and various other avenues such as ECBs (external commercial borrowings). But no announcement was made on finance side.

The government has set an ambitious target of generating 175,000 MW of energy through renewable energy sources by 2022. In this, solar is expected to contribute 100,000 MW (current 3 GW to 100 GW), followed by wind (60,000 MW), biomass (10,000 MW) and small hydro (5000 MW). As of December 2014, India’s total renewable energy installed capacity stood at 33,792 MW.

Unlike rail and roads, tax free bonds have not been specifically proposed for renewable energy. However, the proposal to increase the clean energy Cess Rs. 100 to Rs. 200 will benefit the industry

as it would significantly boost the National Clean Energy Fund

Farming

Irrigation, organic farming take centre stage Pradhan Mantri Gram Sinchai Yojna aimed at ‘per drop more crop’ and Paramparagat Krishi Vikas

Yojna (organic farming) as the two most important progammes in the farm sector to enhance productivity and production.

He announced an allocation of Rs. 5,300 crore for micro-irrigation, watershed development and the “sinchai yojna’’ and Rs. 300 crore for organic farming with a request to state governments to “chip in’’ for both.

Prime Minister Narendra Modi had recently launched the Soil Health Card Scheme from Suratgarh in Rajasthan.

Recognising that agriculture incomes were under stress, Mr. Jaitley announced that a Unified National Agriculture Market would be set up to increase farmers’ incomes with an “incidental’’ advantage of moderating increase in prices which has been the bane of many a government. “While farmers are no longer in the clutches of traders, his produce does not command the best national price’’

Farm credit underpins the efforts of hardworking farmers. Raising the farm credit target by Rs. 50,000 crore to Rs. 8.5 lakh crore for 2015-16, which he expects banks to surpass.

At the same time to support the sector through effective and “hassle-free” agriculture credit with a special focus on small and marginal farmers, the Finance Minister allocated Rs. 25,000 crore to the corpus on small and marginal farmers.

However, funding for the UPA flagship programmes of Rashtriya Krishi Vikas Yojna has been reduced and the National Food Security Mission, Extension programme and crop insurance schemes have been ignored.

MGNREA

set aside Rs. 34,699 crore for the programme with the promise that Rs. 5,000 crore would be thrown in if additional resources are mobilised from tax buoyancy.

Domestic electronics

To promote domestic electronics manufacturing, the government removed 4 per cent special additional duty on PC parts but computer makers lamented absence of any incentive for export of ‘Made in India’ IT products.

Finance Minister Arun Jaitley proposed removal of 4 per cent special additional duty (SAD) on PC components and imposition of education cess on imported electronic products to spur domestic manufacturing.

I propose to fully exempt all goods, except populated printed circuit boards for use in manufacture of ITA bound items from SAD and reduce the SAD on imports of certain other inputs and raw materials subject to actual user condition

The government has proposed to impose basic customs duty at 10 per cent on specified telecom products that are outside the purview of the Information Technology Agreement (ITA).

introduction of the much awaited GST from next year, which is aimed at rejuvenating the industry, will mitigate cascading and double taxation in a major way and pave the way for a common national market, making manufacturing more competitive.

Ports

Ports to set sail on corporatisation Union Finance Minister Arun Jaitley has asked major ports to go in for corporatisation and become

companies under the Companies Act. Presenting the Union Budget, he said the private sector had shown that minor ports could be an

attractive investment. Ports in the public sector need to both attract such investment as well as leverage the huge land

resources lying unused with them. To enable us to do so, ports in public sector will be encouraged to corporatise, and become companies under the Companies Act

The Kamarajar Port is the first corporate port in the country.

School Education

Centre drops out of school education The allocation for the Department of School Education and Literacy in the Union Human Resource

Development Ministry has seen a drastic drop effective administration of school education essentially a job of the States The overall allocation for education sector, including higher education, is Rs. 68,968 crore.

Private equity industry

This has truly been a breakthrough budget for the private equity/venture capital industry. Tax pass-through for all category I and category II funds, and the ability to blend foreign capital in

AIFs, will provide significantly greater access to funds for Indian private equity/venture capital industry.

Two budget measures that will greatly accelerate the availability of debt capital to unlisted mid-sized companies are: (1) enabling NBFCs (mid-sized) with SARFAESI Act and (2) MSME refinancing mechanism through the MUDRA Bank.

These measure give greater protection to the lending NBFCs, and hence enhance their ability to lend particularly at the growth stages of companies.

The clarifications on permanent establishment regarding India-focused offshore fund managers in India is a good initial platform to enable offshore fund managers to operate from India.

Public Sector Banks

In order to improve the governance of Public Sector banks, the government intends to set up an autonomous Bank Board Bureau.

The Bureau will search and select heads of Public Sector banks and help them in developing differentiated strategies and capital raising plans through innovative financial methods and instruments.

This would be an interim step towards establishing a holding and investment company for banks. This is in line with recommendations made in the Nayak Committee wherein the government stake

in the banks be transferred to a separate bank investment company, which will be professionally managed and be able to raise resources.

The holding company concept has been successfully implemented elsewhere in the world. One good example described in the report is the UK Financial Investments

SARFAESI Act to cover NBFCs

The Budget proposal to treat non-banking financial companies (NBFCs) as financial institutions under the SARFAESI Act will be a big boost to the sector.

A long-standing demand of the industry, this will allow NBFCs to enjoy the benefits that presently apply only to banks.

To bring parity in regulation of NBFCs with other financial institutions in matters relates to recovery. It is proposed that NBFCs registered with RBI and having asset size of Rs.500 crore and above will be

considered for notifications as ‘financial institution’ in terms of the SARFAESI Act, 2002 NBFCs are not covered under the Securitisation and Reconstruction of Financial Assets and

Enforcement of Security Interest (SARFAESI) Act. Though the Reserve Bank of India has tightened the NPA recognition norms, it has not laid out clear

guidelines either on the recovery mechanism or the provisions for NBFCs to take action against defaulters under SARFAESI Act.

Most of the NBFCs are unable to recover bad debts. There have been lakhs of cases that are dragged to court every year by NBFCs. Hence, the working group of RBI, headed by Usha Thorat, had recommended that the Act be extended to cover the NBFCs also.

Thus, the budget announcement is a big boost to NBFCs. The measure will help strengthen the recovery capabilities of NBFCs. The Sarfaesi Act was enacted to facilitate banks and financial institutions to realise long-term assets, improve recovery by exercising powers to take possession of securities, and sell them in order to reduce NPAs.

It is a huge positive for NBFCs. This will enable lending with greater confidence as they can be assured of speedier recovery

Textile Industry

Textile industry disappointed

allocation for the Technology Upgradation Fund Scheme had been reduced to Rs.1,520 crore for 2015-16 from Rs.1,864 crore allocated for 2014-15.

Payments under the scheme were pending for the last three quarters and the provision had to be doubled to disburse the pending amount.

need to remove import duty and reduce Central Excise on man-made fibres. Indian man-made fibres were 23 per cent higher compared to international price and, therefore, the growth of the sector in the country was stagnant.

Time deposits to include recurring deposits too

The budget has proposed to amend the definition of ‘time deposits’ so as to include recurring deposits within its scope for the purpose of deduction of tax

However, the existing threshold limit of Rs. 10,000 for non-deduction of tax shall also be applicable in case of interest payment on recurring deposits to safeguard interests of small depositors.