Modi Government?s Maiden Budget: Brief Summary

By Kashyap Arora

Edited by Michelle Cherian, Associate Editor, The Indian Economist

The maiden budget of the new BJP government presented forward by the finance minister, Mr. Arun Jaitely, sets the tone of the new government’s approach towards economic challenges. Mr. Jaitley has described this budget as a mere beginning of a journey, aiming towards an annual growth rate of 7-8%, within three years. This budget aims towards reviving growth, however not at the expense of higher borrowings.

The current budget lays emphasis on agriculture, infrastructure, manufacturing, real estate and power sectors, with more weightage towards rural India and social sectors. Initiatives towards revival of special economic zones (SEZs), development of smart cities, road and water infrastructure, promotion of small scale industries, boosting of the irrigation facilities for protection of farmers from an expected negative monsoon season and launching of tax reforms unifying India’s 29 states into a common market, have been undertaken.

There has been opening up of the defense and insurance sectors, to foreign investors, as can be seen from an increase in the FDI limit in these sectors from 26% to 49%. An increase in the FDI limit in the real estate sector has also been proposed, which will benefit hugely from the current budget. An amount of Rs. 7060 crore has been allotted to the infrastructure sector, which in turn is expected to create employment opportunities. The incentives proposed for savings will also help in boosting investment. Mr. Jaitley has retained the previous government’s expensive program of guaranteed jobs to rural workers, however, he has suggested a more strengthened oversight so as to make sure that the funds get utilized efficiently. In addition, he has justified the continuation of the expensive food and fuel subsidies, on the grounds that they will be targeted more efficiently.

The finance minister has also shown an interest in reducing the fiscal and revenue deficits, maintaining a target of 4.1% and 2.9% of GDP for the year 2014-15. He pointed towards the Current Account deficit, and has maintained that enhanced foreign direct investment (FDI) and remittances from Indians abroad can help mitigate its growth depressing influence. Additionally, the fiscal policy initiatives taken by the government are expected to supplement RBI’s policy initiatives in targeting the high inflation level. Special tax concessions have been provided to power and certain real estate financing companies, with provision of personal taxes relief to individuals, including senior citizens. Some of the important features of the budget, which deserve special attention, include the provision of financial support to displaced Kashmiri migrants, an increased amount for the One Rank One Pension provision (OROP) for retired defence personnel and complete investigation into the unaccounted black money.

There still have been some inadequacies in the budget, especially pertaining to lack of clarity on key issues such as reduction of subsidies, country’s restrictive labor laws, strategies for increasing the yield and reducing water use, policy direction to revive the manufacturing sector and various other stalled projects. However, the budget as a whole did appear to be an honest growth-oriented effort, and should be considered as futuristic and reasonable, especially in light of the limited options before the finance minister and given the fiscal condition in which the BJP government came to power.

An economist from University of Warwick, Kashyap is an avid reader, writer, and tactician with a real zeal for economics and finance. He has also professionally represented and worked for some of the most prestigious organizations such as Standard and Poor, and HDFC. It is his passion which drew him towards “The Indian Economist”, where he aims to study aspects of Indian economic and polity scenario from a different perspective and derive more involvement from his readers, thus, laying down the  foundation for a highly aware future generation.