Budget 2020

Budget 2015: Jaitley takes away more than he gives

Aarati Krishnan BL Research Bureau | Updated on January 24, 2018 Published on February 28, 2015

Arun Jaitley, Finance Minister (file photo). Save for piecemeal import duty hikes, the Budget hasn’t handed out too many sops to either exporters or domestic manufacturers.

Given the sky-high expectations in the run-up to this Budget, the market was setting itself up for disappointment if the FM didn’t announce big tax giveaways. Jaitley’s Budget has been markedly short on such giveaways. Therefore, it’s no surprise that the Sensex which was up by over 200 points when the speech began, was in the red by the time the speech concluded.

India Inc had two reasons to be disappointed with the budget.

One, with no increase in the basic exemption limits on personal income tax, the budget was short on a spending boost to consumers. Whatever new personal tax breaks the FM announced, he has appropriated towards investments in insurance plans, pensions or other virtuous causes. India Inc sorely needed such a demand boost given that its sales numbers flat-lined in the latest December quarter. The jury is still out on whether tentative hikes in MGNREGA allocations and sundry allocations to rural schemes can really boost rural spending, which is now in bad shape due to recent commodity price declines.

Two, sectors clamouring for exemptions from MAT, excise duty, STT and other sops have been left high and dry and excise duties have actually been raised. Save for piecemeal import duty hikes, the Budget hasn’t handed out too many sops to either exporters or domestic manufacturers.

Overall, despite all the announcements on taxes, this Budget appropriates far more from Indian taxpayers than it gives away. All the direct tax proposals that the FM has announced lead to giveaways of Rs 8,355 crore to taxpayers. But increases in indirect taxes are projected to bring in new revenues of Rs 23,383 crore. It’s quite clear from this who the winner is – the exchequer.

But there are some sections of India Inc who have won sizeable concessions in this frugal budget and they have reason to cheer.

For one, the promised phased reduction in corporate tax rates from 30 per cent to 25 per cent, starting from next year is a big giveaway and has the potential to lift profits for high tax incidence companies. These are mostly in sectors such as FMCGs, frontline IT, financials and so on. The reduction in taxes on royalty and technical fees from 25 to 10 per cent is likely to save tax outgo for a host of listed multinationals in sectors such as FMCG, pharma, engineering and autos, who pay hefty royalties to their parent.

Two, the promise to iron out contractual glitches in PPP projects and funding of infrastructure projects out of public sector balance sheets can kick-start the investment cycle. This may aid order flow for capital goods and engineering players.

Three, the financial sector has gotten a good deal in the Budget too, with the government promising and independent bank Board to make key hiring decisions at PSBs. This is a great signalling move as it is a precursor to PSBs winning greater autonomy from Government interference. NBFCs have also been granted the ability to launch recovery proceedings from borrowers under SARFAESI act, a long pending demand.

All this, taken with the postponement of GAAR and the confident tone of the budget on growth, may ensure that the stock market doesn’t dwell too much on its disappointments and soon gets back to business as usual.

Published on February 28, 2015
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