economicsurvey2014_15

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emySINCE 1993 Indias Premier Banking / SSC InstituteSINCE 1993 Indias Premier Banking / SSC Institute

Economic Survey 2014-15Finance Minister Arun Jaitley tabled the Economic

Survey 2014-15 in Lok Sabha on 27 Feb. The survey wasprepared by the finance ministrys chief economic adviserArvind Subramanian on the state of Asias third-largesteconomy and released ahead of the federal budgetannouncement for 2015-16 fiscal year that begins on Apr 1.

Economic Outlook, Prospects, and PolicyChallenges India has reached a sweet spot rare in the history of

nations in which it could be launched on a double-digit medium-term growth trajectory which would allowthe country to attain the fundamental objectives ofwiping every tear from every eye.

The macro-economy has been rendered more stable,reforms have been launched, deceleration in growth hasended, and the economy appears to be recovering.

In 2015-16, the real GDP growth at market prices isestimated to be about 0.61.1 percentage points highervis-a-vis 2014-15.

Using the new estimate for 2014-15 as the base, growthat market prices is expected at 8.1-8.5 per centin 2015-16.

The budget should continue the process of fiscalconsolidation. Overall revenue-to-GDP ratio for 2014 asestimated at 19.5 per cent by the IMF, needs to movetoward levels in comparator countries estimated at 25per cent for emerging Asian economies and 29 per centfor the emerging market countries in the G-20.

To provide legal certainty and confidence to investors,the ordinances on coal, insurance, and land need to betranslated into legislation.

The constitutional amendment bill to implement the goodsand services tax (GST) needs to be enshrined inlegislation.

The govt and the RBI need to conclude the monetarypolicy framework agreement to consolidate the recentgains in inflation control and codify into an institutionalarrangement.

Reforms of labour and land laws and reducing the costsof doing business will need to be a joint endeavour ofthe states and the Centre.

The economy is likely to over-perform on the RBIsinflation target by about 0.5-1.0 per cent, opening upthe space for further monetary policy easing.

The outlook is favourable for the current account andits financing. However, there are risks from a shift in USmonetary policy and turmoil in the Eurozone.

Successful implementation of the far-reaching changesfor sharing of revenues between the Centre and the Statesas recommended by the Fourteenth Finance Commissionwill advance the cause of cooperative federalism.

The time is ripe for a more broad-based response to thechallenges in agriculture and to ensure that agriculturegrows at about 4 per cent on a sustained basis.

To ensure fiscal credibility, and consistency with themedium-term goals, the upcoming budget should initiatethe process of expenditure control to reduce both thefiscal and revenue deficits.

Cash-based transfers based on the JAM number trinity Jan Dhan, Aadhaar, Mobile offer excitingpossibilities to effectively target public resources tothose who need it most.

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SINCE 1993 Indias Premier Banking / SSC Institute

Private investment must remain the main engine of long-run growth. But in the short to medium term, publicinvestment, especially by the railways, will have to playa catalytic role.

Banking is hobbled by policy, which creates doublefinancial repression, and by structural factors, whichimpede competition. The solution lies in the 4 Ds ofderegulation (addressing the statutory liquidity ratio andpriority sector lending), differentiation (within the publicsector banks in relation to recapitalisation, shrinkingbalance sheets and ownership), diversification (of sourceof funding within and outside banking), and disinterring(by improving exit mechanisms).

The Prime Ministers Skill India objective should beaccorded high priority along with, and indeed in order torealise, Make in India.

India has taken a number of green actions. It can make apositive contribution to the forthcoming Parisnegotiations on climate change.

Improving the status and treatment of women is a majordevelopment challenge. Family planning targets and theprovision of incentives are leading to an undesirablefocus on female sterilisation. Family planning programmeshould align with reproductive health rights of women.

Fiscal Framework India must meet its medium-term fiscal deficit target of

3 per cent of GDP. This will provide the fiscal space toinsure against future shocks.

India must also reverse the trajectory of recent yearsand move towards the golden rule of eliminating therevenue deficit and ensuring that, over the cycle,borrowing is only for capital formation.

The way to achieve this objective should be based onfirm control over expenditures, most notably byeliminating leakages in subsidies and social expenditures.

Wiping every tear from every eye: the JAMNumber Trinity Solution Price subsidies are often regressive as a rich household

benefits more than a poor household. Leakages in subsidies are large and can be reduced

without compromising household welfare. Cash transfers can augment the effectiveness of existing

anti-poverty programmes. The JAM Number Trinity Jan Dhan Yojana, Aadhaar

and Mobile numbers allows the state to offer this

support to poor households in a targeted and lessdistortive way.

Two alternative financial delivery mechanisms aresuggested: (i) Mobile Money with over 900 mn cellphone users, it offers tremendous opportunities to directAadhaar based transfers; (ii) Post Offices the largePostal Network in India can seamlessly fit into theAadhaar-linked benefits-transfer architecture.

The Investment Climate: Stalled Projects, DebtOverhang and the Equity Puzzle The stalling rate of projects has been increasing at an

alarmingly high rate in the last five years, and rate ismuch higher in the private sector.

The good news is that the rate of stalling seems to haveplateaued in the last three quarters.

The stock of stalled projects has come down to about 7per cent of the GDP at the end of the third quarter of2014-15 from 8.3 per cent the previous year.

The stalling of projects is severely affecting the balancesheets of the corporate sector and public sector banks,which in turn is constraining future private investment.

Despite high rates of stalling, and weak balance sheets,the equity market seems to be performing quite well.

Expectation that the private sector will drive investmentneeds to be moderated. In this light, public investment mayneed to step in to recreate an environment to crowd inprivate sector investment in the short term.

Efforts must be made to revitalise the public-privatepartnership model of investment, albeit in a differentmanner.

Credit, Structure and Double FinancialRepression: A Diagnosis of the Banking Sector The Indian banking system is affected by what might be

called double financial repression. Financial repression on the asset side of the balance

sheet is created by the statutory liquidity ratio (SLR)requirement that forces banks to hold govt securities,and priority sector lending (PSL).

Financial repression on the liability side has arisen fromhigh inflation since 2007, leading to negative real interestrates, and a sharp reduction in households financialsavings.

There appears to be a lack of competition, reflected inthe private sector banks inability to increase their


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emySINCE 1993 Indias Premier Banking / SSC Institutepresence. Even within the public sector banks there issufficient variation in performance. The four key policy recommendations are the 4Ds -deregulate, differentiate, diversify and disinter.

Putting Public Investment on Track: The RailRoute to Higher Growth The decline in public as well as private corporate

investment has been associated with the growth declinein recent years.

The two biggest challenges facing increased publicinvestment in India are financial resources andimplementation capacity.

The present govt can now do for the neglected railwayssector what the previous NDA govt did for rural roads.

This impetus has the potential to crowd in greater privateinvestment and do so without jeopardising Indias publicdebt dynamics.

Greater public investment in the railways would boostaggregate growth and the competitiveness of Indianmanufacturing substantially.

In the long run, the railways must be commercially viable.

What to Make in India? Manufacturing orServices? It is registered manufacturing, not manufacturing in

general, which has the potential for structuraltransformation. It is characterised by unconditionaldomestic convergence.

States and firms within India are converging to the Indianfrontier but that could mean little unless they are alsoconverging to the international manufacturing frontier.

The talk on the transformational potential ofmanufacturing in India must focus on unskilled registeredmanufacturing.

Sustaining a skill-intensive pattern would require a greaterfocus on education and skills development.

A National Market for Agricultural Commodities:Some Issues and the Way Forward The provisions of the Model Agricultural Produce

Market Committee Act do not go far enough to create a

national or even state-level common market foragricultural commodities.

The 2014 budget recognises the need for setting up anational market and states that the Central Govt will workclosely with the state govts to reorient their respectiveAPMC Acts to provide for the establishment of privatemarket yards/private markets.

More steps may have to be taken and incremental movesmay need to be considered to get the states on board.For example, first it may be possible to get all the statesto drop fruits and vegetables from the APMC scheduleof regulated commodities, followed by cereals, pulse andoil seeds, and then all remaining commodities.

State govts should also be specifically persuaded toprovide policy support for setting up infrastructure,making available land etc for alternative or special marketsin private sector.

From Carbon Subsidy to Carbon Tax: IndiasGreen Actions The recent steep decline in international oil prices is

seen by many as an opportunity to rationalise the energyprices by getting rid of the distorting subsidies whilstshifting taxes towards carbon use.

India has cut subsidies and increased taxes on fossilfuels turning a carbon subsidy regime into one of carbontaxation.

The move to substantial carbon taxation combined withIndias ambitious solar power programme suggests thatIndia can make substantial contributions to theforthcoming Paris negotiations on climate change.

The Fourteenth Finance Commission (FFC):Implications for Fiscal Federalism in India The FFC has radically enhanced the share of the states

in the Central divisible pool from the current 32 per centto 42 per cent.

The FFC has also proposed a new horizontal formulafor the distribution of the states share in divisible poolamong the states.

The recommendations will move the country towardsgreater fiscal federalism, conferring more fiscal autonomyon the states.

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Eco Survey 2014-15 at a glance

Taking into consideration the change of base year bythe Central Statistics Office (CSO) of the NationalAccounts series from 2004-05 to 2011-12, the EconomicSurvey states that growth at market prices for 2015-16is expected to be 8.1-to 8.5 per cent.

India must adhere to medium-term fiscal deficit targetof 3 per cent of the countrys gross domestic product(GDP).

The decline in inflation by over 6 percentage pointssince late 2013 and also reduction of current accountdeficit from a peak of 6.7 per cent of GDP in the thirdquarter of 2012-13 to about one per cent in the comingfiscal year has made India an attractive investmentdestination well above most other countries.

The direct fiscal cost of all the subsidies is roughly`378,000 cr or 4.2 per cent of 2011-12 GDP.

41 per cent of PDS kerosene is lost as leakage and only46 per cent of the remaining 59 per cent is consumed bypoor.

The stock of stalled projects stands at about 7 per centof GDP.

Indian banking balance sheet is suffering from doublefinancial repression.

Govt will adhere to fiscal deficit target of 4.1 per cent ofGDP in 2014-15.

Consumer Price Index (CPI) inflation in 2015-16 is likelyto be in the range of 5-5.5 per cent.

IT and ITeS sector, including Business ProcessManagement (BPM), continues to be one of the largestemployers in the country.

The year witnessed hyper-growth in the technologystart-up and software product landscape with Indiaranking as the fourth largest start-up hub in the worldwith over 3,100 start-ups in the country.

Software products and services revenues for 2015-16are projected to grow at 1214 per cent.

Increase in growth on both foreign tourist arrivals at7.1 per cent and foreign exchange earnings at 6.6 percent in the year 2014.

Migration from traditional stores to modern retailcontinues, though the latter still accounts for only 8per cent of the total market.

With 100 per cent FDI permitted in the Film Sector, Indiais emerging as the new favourite of international studios.

Govt will discontinue support to eight centrally-sponsored schemes, bringing their number down to 58.

Food grain production for 2014-15 estimated at 257.07mn tonnes; to exceed that of last 5 years by 8.5 mntonnes.

Five key takeaways from the economic survey for 2014-15: Growth rate of over 8 per cent expected for the

coming year A double-digit economic growth trajectory is now a

possibility Such growth could help in wiping every tear from

every eye and realising aspiration of Indias youth Political mandate for reform and benign external

environment Scope for big-bang reforms


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emySINCE 1993 Indias Premier Banking / SSC Institute There are 1219 sections on the high-density network,

which can be roughly equated with tracks connectingthe metros.

A novel by Shubhada Gogate titled KhandalyachyaGhatasaathi is a fictionalised account of Indias firstrailway line being constructed crossing the Sahyadri.

Four goals for the next five years To deliver a sustained and measurable improvement in

customer experience. To make rail a safer means of travel. To expand capacity substantially and to modernise

infrastructure. Daily passenger carrying capacity will beincreased from 21 mn to 30 mn. Track length will increasefrom 1,14,000 km to 1,38,000 km, and annual freightcarrying capacity from 1 bn to 1.5 bn tonnes.

To make Bhartiya Rail financially self-sustainable.

Five drivers for execution strategy(a) Adopting a medium-term perspective: This Railway

Budget is part of a trilogy of documents White Paper,Budget 2015-16 and Vision 2030 document that chartout our vision for the future.

(b) Building partnerships: With States, with PSUs, withmultilateral and bilateral organisations and other govts,and with the private sector.

(c) Leveraging additional resources: An investment of ` 8.5lakh cr has been envisaged. Multilateral developmentbanks and pension funds will be tapped.

(d) Revamping management practices, systems, processes,and re-tooling of human resources: The operating ratiofor 2015-16 has been proposed at 88.5% as against atargeted operating ratio of 91.8% in 2014-15 and 93.6% in2013-14.

(e) Setting standards for governance and transparency

Eleven major thrust areas

A. Quality of life in journeys No increase in passenger fares. Rail tickets can now be booked 120 days in advance, as

against present 60 days.

Railway Budget 2015-16 New toilets will be built covering 650 additional stations

compared to 120 stations last year. Bio-toilets are beingfitted in coaches.

The quality of Indian Railways On-board HousekeepingService (OBHS), presently available in 500 pairs of trains,is being re-looked.

NIFT, Delhi approached for designing bed linen An all-India 24X7 helpline number, 138, to attend to the

problems of passengers on a real-time basis. A toll-free number, 182, has been dedicated for receiving

security-related complaints. Operation Five Minutes to ensure that unreserved

tickets can be purchased within five minutes. A Defence Travel System for elimination of Warrants to

make travel easier for soldiers. Hand-held terminals will now be provided to Travelling

Ticket Examiners (TTEs), which can be used forverification of passengers and downloading charts.

A centrally managed Railway Display Network to beintroduced in over 2,000 stations over 2 years.

So far, 1052 stations have been identified for upgradationof Passenger Amenities at Station under Adarsh stationscheme. It is proposed to include 200 more stations underthis scheme.

Capacity in identified trains will be augmented to runwith 26 coaches from the existing 24 coaches.

The National Institute of Design has been approachedto replace the present uncomfortable ladders used forclimbing upper berths with user-friendly ones.

A very modern train system called train sets will beintroduced. These are similar to bullet trains and can runon existing tracks without an engine to haul them.

The funds allotment for passenger amenities has beenincreased by 67%.

B. Station Redevelopment Satellite Railway terminals will be developed in major

cities for decongesting the city as well as providingservice to passengers residing in suburbs.

C. Capacity Augmentation While last-mile connectivity projects continue to be

accorded the highest priority, Govt intends to fast-trackthe sanctioned works on 7,000 km of double/third/fourth lines and commission 1200 km in 2015-16 at an

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investment of `8,686 cr. This budgetary allotment underCapital is 84% higher than 2014-15.

Govt also intends commissioning 800 km of gaugeconversion.

Additionally, 77 projects covering 9,400 km of doubling/tripling/quadrupling works have been sanctioned alongwith their electrification at a total cost of ` 96,182 cr.

Meghalaya has been brought on the Railway map ofIndia and direct connectivity to Delhi has been providedto Arunachal Pradesh. Further, the Barak Valley will bebrought on broad gauge by Mar 2015.

The rail connectivity between Jammu region and theKashmir valley through the Banihal tunnel provides all-weather connectivity with the rest of the country.Udhampur-Katra was a blessing for pilgrims.

As against a sanction of 462 route km in 2014-15, a lengthof 6,608 route km has been sanctioned for electrificationfor 2015-16.

Transport Logistics Corporation of India (TRANSLOC)will be set up to develop common user facilities withhandling and value-added services to provide end-to-end logistics solution at select Railway terminals throughPublic Private Partnerships.

A state-of-the-art Perishable Cargo Centre is undercompletion at the Azadpur Mandi with a scientific banana-ripening Centre.

The speed of 9 railway corridors will be increased fromthe existing 110 and 130 kmph to 160 and 200 kmph.

A policy of attaining speeds of 100 kmph for emptyfreight trains and 75 kmph for loaded trains

The loading density on all major freight-bearing routeswill be upgraded to 22.82 tonne axle loads.

D. Safety All pending recommendations made by High Level Safety

Review Committee headed by Dr Kakodkar will beexamined by Apr 2015.

RDSO has been asked to develop a suitable device withreliable power supply system based on theft-proofpanels/batteries in consultation with Indian SpaceResearch Organization, using geo-spatial technologyfor providing audio-visual warning to road users atunmanned level crossings.

A radio-based signal design project taken up with IITKanpur for warnings at unmanned level crossing.

In 2015-16, 970 road overbridges/underbridges (ROB/RUBs) and other safety-related works to eliminate 3,438level crossings at a total Railway expense of ` 6,581 cr.

E. Technology upgradation An innovation council called Kayakalp will be set up

for the purpose of business re-engineering andintroducing a spirit of innovation in Railways.

To mark the centenary celebrations of Banaras HinduUniversity, Govt proposes to set up Malaviya Chairfor Railway Technology at IIT (BHU), Varanasi. ThisChair will help in development of new materials to beused in all assets of Railways.

F. Partnerships for development Foreign Rail Technology Cooperation scheme will be

launched in order to achieve the higher quality servicefor our nation.

G.. Improvements to management processes and systems Obtaining Rail Transport Clearance abolished. EPC system of contracting all over Indian Railways. Vendor Interface Management System .

H. Resource mobilisation The size of the Plan Budget has gone up by 52% from

`65,798 cr in 2014-15 to ` 1,00,011 cr in 2015-16. Supportfrom the Central Govt constitutes 41.6% of the total PlanBudget and internal generation 17.8%.

A Financing Cell in the Railway Board, which wouldseek the benefit of advice from experts in this field.

Govt is launching a Coastal Connectivity Program.

I. Human Resources

J. Energy and sustainability The annual consumption of fuel by the Railways is just

about 7% of the annual fuel consumption by the roadsector. The energy consumption is about 75%-90%less and CO2 emission is about 80% less.

K. Transparency and governance initiatives

Financial Performance 2014-15 Passenger Earnings were budgeted to increase by

22.2%. This has been scaled down to 17.7% . There is a net reduction in Gross Traffic Receipts by

`917 cr in Revised Estimates (RE) compared to theBudget Estimates (BE) of ` 1,60,165 cr.

The budgeted Other Working Expenses (OWE) of`1,12,649 cr have been decreased in the RE 2014-15 to`1,08,970 cr, ie by ` 3,679 cr.


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emySINCE 1993 Indias Premier Banking / SSC Institute Appropriation to the Pension Fund has been increasedto `29,540 cr in RE from ` 28,865 cr (BE). Plan size for 2014-15 has increased from ` 65,445 cr in theBE to `65,798 cr in RE.

Budget Estimates 2015-16 Passenger earnings growth has been pegged at 16.7%

and earnings target has accordingly been budgeted at`50,175 cr.

The freight traffic is pegged at an all-time highincremental traffic of 85 mn tonnes. Goods earnings isaccordingly proposed at `1,21,423 cr. Other coachingand sundries are projected at ` 4,612 cr and ` 7,318 cr.

Freight rate hike, mostly on foodgrains and urea, to raise`4,000 cr.

Gross Traffic Receipts are estimated at `1,83,578 cr,which is a growth of 15.3%.

Plan Outlay 2015-16 Ministry of Finance has communicated a Gross

Budgetary Support of `40,000 cr for the Railwaysannual Plan. Besides, ` 1,645.60 cr has also been providedas Railways share of diesel cess from the Central RoadFund. Market borrowing under EBR is projected at`17,655 cr, an increase of about 46.5% (`5,609 cr) overRE 2014-15. Balance Plan outlay includes ` 17,793 cr fromInternal Resources and ` 5781 cr from PPP.

Railways proposes a Plan Outlay of `1,00,011 cr, anincrease of 52% over RE 2014-15.

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The actions have not been confined to the core or macro-economic areas alone. Action has been taken with regardto allocation of natural resources; financial inclusion;health and hygiene of the common man; girls and theireducation; employment for the youth; improved andnon-adversarial tax administration; effective delivery ofbenefits; investment and job creation; welfare of labour;agricultural productivity and increasing farm incomes;power; digital connectivity; skilling our youth; efficientand better work culture in Govt; ease of doing business;mainstreaming North Eastern States; and, reviving ourpride in the nation and culture.

Three achievements demonstrate the quality andconviction of the Govt. One is the success of the JanDhan Yojana. Financial inclusion has been talked aboutfor decades now. Who would have thought that in ashort period of 100 days, over 12.5 cr families couldhave been brought into the financial mainstream? Theother is coal auctions. Earlier, the States only got benefitsof royalty. Now, by the transparent auction process, thecoal-bearing States will be getting several lakh of croresof rupees which they can use for creation of long-awaitedcommunity assets and for welfare of their people.

The third is Swachh Bharat, which has transformed intoa movement to regenerate India. For example, 50 lakhtoilets have already been constructed in 2014-15. Govtwill indeed attain the target of building six cr toilets. But,Swachh Bharat is not only a programme of hygiene andcleanliness but, at a deeper level, a programme forpreventive health care, and building awareness.

We are now embarked on two more game-changingreforms. GST (Goods and Services Tax) and what theEconomic Survey has called the JAM Trinity Jan Dhan,Aadhar and Mobile to implement direct transfer ofbenefits. GST will put in place a state-of-the-art indirecttax system by 1 Apr, 2016. The JAM Trinity will allow usto transfer benefits in a leakage-proof, well-targeted andcashless manner.

One of the major achievements of this Govt has been toconquer inflation. This decline represents a structuralshift. Going forward, CPI inflation is expected to remainat close to 5% by the end of the year. This will allow forfurther easing of monetary policy.

To ensure that the victory over inflation isinstitutionalised and hence continues, a Monetary Policy

Union Budget 2015-16 The economic environment is far more positive than in

the recent past. When other economies are facing seriouschallenges, India is about to take off on a faster growthtrajectory once again. The International Monetary Fund(IMF) has downgraded its earlier forecast of globaleconomic growth by 0.3%, and the World TradeOrganization has revised its forecast of world tradegrowth from 5.3% to 4%. Forecasts for India, however,have either been upgraded, or remained the same, withoutdowngrades. The States have been embraced as equalpartners in the process of economic growth. States havebeen economically empowered more than ever beforeand every rupee of public expenditure, whetherundertaken by the Centre or the States, will contribute tothe betterment of peoples lives through job creation,poverty elimination and economic growth.

In the last nine months, the NDA Govt has undertakenseveral significant steps to energise the economy. Thecredibility of the Indian economy has been re-established.The world is predicting that it is Indias chance to fly.

Though the Union Budget is essentially a Statement ofAccount of public finances, it has historically become asignificant opportunity to indicate the direction and thepace of Indias economic policy. The proposals, therefore,lay out the roadmap for accelerating growth, enhancinginvestment and passing on the benefit of the growthprocess to the common man, woman, youth and child:those, whose quality of life needs to be improved.

In Nov 2012, CPI inflation stood at 11.2%, the currentaccount deficit by the first quarter of 2013-14 had reached4.6% of GDP, and normal foreign inflows until Mar 2014were $15 bn. There was a sentiment of doom and gloom,and the investor community had almost written Indiaoff.

The latest CPI inflation rate is 5.1%, and the wholesaleprice inflation is negative; the current account deficit forthis year is expected to be below 1.3% of GDP; basedon the new series, real GDP growth is expected toaccelerate to 7.4%, making India the fastest-growinglarge economy in the world; foreign inflows since Apr2014 have been about $55 bn, so that our foreignexchange reserves have increased to a record $340 bn;the rupee has become stronger by 6.4% against a broadbasket of currencies; and ours was the second-bestperforming stock market amongst the major economies.


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emySINCE 1993 Indias Premier Banking / SSC InstituteFramework Agreement has been concluded with the RBI.This Framework clearly states the objective of keepinginflation below 6%. Govt will move to amend the RBIAct this year, to provide for a Monetary PolicyCommittee.

The Central Statistics Office (CSO) has recently releaseda new series for GDP, which involves a number ofchanges relative to the old series. Based on the newseries, estimated GDP growth for 2014-15 is 7.4%. Growthin 2015-16 is expected to be 8 to 8.5%. Aiming for adouble-digit rate seems feasible very soon.

The year 2022 will be the Amrut Mahotsav, the 75th yearof Indias independence. The vision of what the PrimeMinister has called Team India, led by the States andguided by the Central Govt, should include:(i) A roof for each family in India. The call given for

Housing for all by 2022 would require Team Indiato complete 2 cr houses in urban areas and 4 crhouses in rural areas.

(ii) Each house in the country should have basicfacilities of 24-hour power supply, clean drinkingwater, a toilet, and be connected to a road.

(iii) At least one member from each family should haveaccess to the means for livelihood and, employmentor economic opportunity, to improve his or her lot.

(iv) Substantial reduction of poverty. All our schemesshould focus on and centre around the poor. Eachof us has to commit ourselves to this task ofeliminating absolute poverty.

(v) Electrification, by 2020, of the remaining 20,000villages in the country, including by off-grid solarpower generation.

(vi) Connecting each of the 1,78,000 unconnectedhabitations by all-weather roads. This will requirecompleting 1,00,000 km of roads currently underconstruction plus sanctioning and building another1,00,000 km of roads.

(vii) Good health is a necessity for both quality of life,and a persons productivity and ability to supporthis or her family. Providing medical services in eachvillage and city is absolutely essential.

(viii) Educating and skilling our youth to enable them toget employment. To ensure that there is a seniorsecondary school within 5 km reach of each child,we need to upgrade over 80,000 secondary schoolsand add or upgrade 75,000 junior/middle, to thesenior secondary level.

(ix) Increase in agricultural productivity and realisationof reasonable prices for agricultural production is

essential for the welfare of rural areas.(x) In terms of communication, the rural and urban

divide should no longer be acceptable to us. Wehave to ensure connectivity to all the villages withoutit.

(xi) Two-thirds of our population is below 35. To ensurethat our young get proper jobs, we have to aim tomake India the manufacturing hub of the world. TheSkill India and the Make in India programmes areaimed at doing this.

(xii) We also have to encourage and grow the spirit ofentrepreneurship in India and support new start-ups. Thus can our youth turn from being job-seekersto job-creators.

(xiii) The Eastern and North Eastern regions of ourcountry are lagging behind in development on manyfronts. We need to ensure that they are on par withthe rest of the country.

By the time of the 75th year of Indian independence,Amrut Mahotsav of our independence is reached, wehave to achieve all of the above.

Major Challenges Ahead There are five major challenges Govt has to reckon with.

Firstly, agricultural incomes are under stress. Oursecond challenge is increasing investment ininfrastructure. With private investment in infrastructurevia the public private partnership (PPP) model still weak,public investment needs to step in to catalyse investment.

Our third major challenge is that manufacturing hasdeclined from 18% to 17% of GDP as per new GDP data;and manufacturing exports have remained stagnant atabout 10% of GDP. The Make in India programme isaimed at meeting this challenge, thus creating jobs.

Fourth, we need to be mindful of the need for fiscaldiscipline in spite of rising demands for publicinvestment. In keeping with the true spirit of co-operativefederalism, we have devolved a 42% share of thedivisible pool of taxes to States. This is an unprecedentedincrease which would empower states with moreresources. The devolution to the States would be of theorder of `5.24 lakh cr in 2015-16 as against thedevolution of `3.38 lakh cr as per revised estimates of2014-15. Another `3.04 lakh cr would be transferred byway of grants and plan transfers. Thus, total transfer tothe States will be about 62% of the total tax receipts ofthe country.

In spite of the consequential reduced fiscal space for the

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Centre, the Govt has decided to continue supportingimportant national priorities such as agriculture,education, health, MGNREGA, and rural infrastructure,including roads. Programmes targeted for the poor andthe underprivileged will be continued.

With fiscal space not just reduced but squeezed, Govthas to meet the fifth challenge of maintaining fiscaldiscipline. Economic growth this year, at 11.5%, waslower in nominal terms by about 2%, due to lowerinflation. Consequently, tax buoyancy was alsosignificantly lower. Despite this, Govt will meet thechallenging fiscal deficit target of 4.1% of GDP.

Fiscal Roadmap Govt still remains firm on achieving the medium-term

target for fiscal deficit of 3% of GDP. But that journeyhas to take account of the need to increase publicinvestment. The total additional public investment overand above the RE is planned to be `1.25 lakh cr, out ofwhich `70,000 cr would be capital expenditure frombudgetary outlays. We also have to take into accountthe drastically reduced fiscal space; uncertainties thatimplementation of GST will create; and the likely burdenfrom the report of the 7th Pay Commission. Rushing into,or insisting on, a pre-set time-table for fiscal consolidationpro-cyclically would not be pro-growth. With theeconomy improving, the pressure for accelerated fiscalconsolidation too has decreased. In these circumstances,Govt will complete the journey to a fiscal deficit of 3% inthree years, rather than the two years envisagedpreviously. Thus, for the next three years, targets are:3.9% for 2015-16; 3.5% for 2016-17; and, 3.0% for 2017-18. The additional fiscal space will go towards fundinginfrastructure investment.

While there is a compositional shift, the aggregateenvelope for job creation, poverty elimination andbuilding infrastructure is not disturbed; in fact it goesup this year, and every subsequent year, in the sameproportion as the tax revenues of the Union, and theState Govts increase. From this national perspective ofpublic finances, not only is the path to fiscalconsolidation on track, aggregate annual capitalexpenditure of the Govts, as a whole, can be expected torise significantly, by more than 0.5% of GDP.

Good Governance Well-intentioned schemes introduced in the past, have

often been ill-targeted, riddled with leakages and delivered

with inefficiency. The same is true of subsidies. Subsidiesare needed for the poor and those less well off. What weneed is a well-targeted system of subsidy delivery. Weneed to cut subsidy leakages, not subsidies themselves.Govt is committed to the process of rationalisingsubsidies based on this approach.

The direct transfer of benefits, started mostly inscholarship schemes, will be further expanded with aview to increasing the number of beneficiaries from thepresent 1 cr to 10.3 cr. Similarly, ` 6,335 cr has so far beentransferred directly as LPG subsidy to 11.5 cr LPGconsumers. Persons who are better-off, such as those inthe top tax bracket, and those genuinely concerned forthe welfare of the poor, will give up their LPG subsidyvoluntarily.

Agriculture Govt has already taken major steps to address the two

major factors critical to agricultural production: soil andwater. An ambitious Soil Health Card Scheme has beenlaunched to improve soil fertility on a sustainable basis.In order to improve soil health, Govt also proposes tosupport Agriculture Ministrys organic farming scheme Paramparagat Krishi Vikas Yojana. ThePradhanmantri Gram Sinchai Yojana is aimed atirrigating the field of every farmer and improving wateruse efficiency to provide Per Drop More Crop. Govt isallocating `5,300 cr to support micro-irrigation,watershed development and the Pradhan Mantri KrishiSinchai Yojana.

To support the agriculture sector with the help of effectiveand hassle-free agriculture credit, with a special focuson small and marginal farmers, Govt proposes to allocate`25,000 cr in 2015-16 to the corpus of RuralInfrastructure Development Fund (RIDF) set up inNABARD; ` 15,000 cr for Long Term Rural Credit Fund;`45,000 cr for Short Term Cooperative Rural CreditRefinance Fund; and `15,000 cr for Short Term RRBRefinance Fund.

Farm credit underpins the efforts of our hardworkingfarmers. Govt has, therefore, set up an ambitious targetof `8.5 lakh cr of credit during the year 2015-16.

Govt is committed to supporting employment throughMGNREGA. An initial allocation of ` 34,699 cr has beenmade for the programme.

While the farmer is no longer in the clutches of the localtrader, his produce still does not command the bestnational price. To increase the incomes of farmers, it is


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emySINCE 1993 Indias Premier Banking / SSC Instituteimperative that we create a National agricultural market,which will have the incidental benefit of moderating pricerises. Govt intends this year to work with the States, inNITI, for the creation of a Unified National AgricultureMarket.

Funding the Unfunded Govt firmly believes that development has to generate

inclusive growth. While large corporate and businessentities have a role to play, this has to be complementedby informal sector enterprises which generate maximumemployment. There are some 5.77 cr small business units,mostly individual proprietorship, which run smallmanufacturing, trading or service businesses. 62% ofthese are owned by SC/ST/OBC. These bottom-of-the-pyramid, hard-working entrepreneurs find it difficult, ifnot impossible, to access formal systems of credit. Govt,therefore, proposes to create a Micro Units DevelopmentRefinance Agency (MUDRA) Bank, with a corpus of`20,000 cr, and credit guarantee corpus of `3,000 cr.MUDRA Bank will refinance Micro-Finance Institutionsthrough a Pradhan Mantri Mudra Yojana. In lending,priority will be given to SC/ST enterprises. Thesemeasures will greatly increase the confidence of young,educated or skilled workers who would now be able toaspire to become first-generation entrepreneurs; existingsmall businesses, too, will be able to expand theiractivities.

A significant part of the working capital requirement ofan MSME arises due to long receivables realisationcycles. Govt is in the process of establishing an electronicTrade Receivables Discounting System (TReDS)financing of trade receivables of MSMEs, from corporateand other buyers, through multiple financiers. Thisshould improve the liquidity in the MSME sectorsignificantly.

Bankruptcy law reform, which brings about legal certaintyand speed, has been identified as a key priority forimproving the ease of doing business. SICA (SickIndustrial Companies Act) and BIFR (Bureau forIndustrial and Financial Reconstruction) have failed inachieving these objectives. Govt will br ing acomprehensive Bankruptcy Code in fiscal 2015-16 thatwill meet global standards and provide necessary judicialcapacity.

The Govt is committed to increasing access of the peopleto the formal financial system. In this context, Govtproposes to utilise the vast Postal network with nearly

1,54,000 points of presence spread across the villagesof the country. The Postal Department will make itsproposed Payments Bank venture successful so that itcontributes further to the Pradhan Mantri Jan DhanYojana.

To bring parity in regulation of Non-Banking FinancialCompanies (NBFCs) with other financial institutions inmatters relating to recovery, it is proposed that NBFCsregistered with RBI and having asset size of ` 500 cr andabove will be considered for notifications as FinancialInstitution in terms of the SARFAESI Act, 2002.

From Jan Dhan to Jan Suraksha A large proportion of Indias population is without

insurance of any kind health, accidental or life.Worryingly, as our young population ages, it is alsogoing to be pension-less. Govt proposes to work towardscreating a universal social security system for all Indians,especially the poor and the under-privileged.

The soon-to-be-launched Pradhan Mantri SurakshaBima Yojna will cover accidental death risk of ` 2 lakh fora premium of just ` 12 per year. Similarly, Govt will alsolaunch the Atal Pension Yojana, which will provide adefined pension, depending on the contribution, and itsperiod. To encourage people to join this scheme, theGovt will contribute 50% of the beneficiaries premiumlimited to `1,000 each year, for five years, in the newaccounts opened before 31 Dec 2015.

The third Social Security Scheme will be the PradhanMantri Jeevan Jyoti Bima Yojana, which covers bothnatural and accidental death risk of ` 2 lakhs. The premiumwill be `330 per year, or less than one rupee per day, forthe age group 18-50.

There are unclaimed deposits of about `3,000 cr in thePPF, and approximately ` 6,000 cr in the EPF corpus. Govthas proposed the creation of a Senior Citizen WelfareFund, in the Finance Bill, for appropriation of theseamounts to a corpus which will be used to subsidise thepremiums of vulnerable groups such as old-agepensioners, BPL card-holders, small and marginal farmersand others. A detailed scheme would be issued in Mar.

Special regard needs to be paid to the population ofsenior citizens in the country, which is now approximately10.5 cr, out of which over 1 cr are above the age of 80years. 70% live in rural areas and a large number are inthe BPL category. A sizeable percentage of them alsosuffer from age-related disabilities. Ours is a society thatvenerates its elders. Govt, therefore, proposes a new

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scheme for providing Physical Aids and Assisted LivingDevices for senior citizens living below the poverty line.

In sum, these social security schemes reflect ourcommitment to utilise the Jan Dhan platform, to ensurethat no Indian citizen will have to worry about illness,accidents, or penury in old age. Govt also remainscommitted to the ongoing welfare schemes for the SCs,STs and Women. Despite serious constraints on Unionfinances, allocations made this year are as follows:SC `30,851 crST `19,980 crWomen `79,258 cr

An integrated education and livelihood scheme calledNai Manzil will be launched this year to enable MinorityYouth who do not have a formal school-leaving certificateto obtain one and find better employment. Further, toshowcase civilisation and culture of the Parsis, the Govtwill support, in2015-16, an exhibition, The EverlastingFlame. The allocation for the Ministry of MinorityAffairs is being protected. The BE for the year 2015-16 is`3,738 cr.

Infrastructure The major slippage in the last decade has been on the

infrastructure front. Our infrastructure does not matchour growth ambitions. There is a pressing need toincrease public investment. Govt has, therefore, increasedoutlays on both the roads and the gross budgetarysupport to the railways, by `14,031 cr, and `10,050 crrespectively. The CAPEX of the public sector units isexpected to be ` 3,17,889 cr, an increase of approximately`80,844 cr over RE 2014-15. In fact, investment ininfrastructure will go up by ` 70,000 cr in the year 2015-16, over the year 2014-15 from the Centres Funds andresources of CPSEs.

Secondly, Govt intends to establish a NationalInvestment and Infrastructure Fund (NIIF), and findmonies to ensure an annual flow of ` 20,000 cr to it. Thiswill enable the Trust to raise debt, and in turn, invest asequity, in infrastructure finance companies such as theIRFC and NHB. The infrastructure finance companiescan then leverage this extra equity, many fold. Thirdly,Govt also intends to permit tax-free infrastructure bondsfor the projects in the rail, road and irrigation sectors.Fourth, the PPP mode of infrastructure development hasto be revisited, and revitalised. The major issue involvedis rebalancing of risk. In infrastructure projects, thesovereign will have to bear a major part of the riskwithout, of course, absorbing it entirely.

Fifth, Govt also intends to establish, in NITI, the AtalInnovation Mission (AIM). AIM will be an innovationpromotion platform involving academics, entrepreneurs,and researchers and draw upon national and internationalexperiences to foster a culture of innovation, R&D andscientific research in India. The platform will also promotea network of world-class innovation hubs and grandchallenges for India. Initially, a sum of `150 cr will beearmarked for this purpose.

India has a well regarded and world-class IT industrywith revenues of about US$ 150 bn, over US$ 100 bn ofexports, employing nearly 40 lakh people directly. Weare now seeing a growing interest in start-ups.Experimenting in cutting-edge technologies, creatingvalue out of ideas and initiatives and converting theminto scalable enterprises and businesses is at the core ofour strategy for engaging our youth and for inclusiveand sustainable growth of the country. Concerns suchas a more liberal system of raising global capital,incubation facilities in our Centres of Excellence, fundingfor seed capital and growth, and ease of Doing Businessetc need to be addressed to create lakh of jobs andhundreds of billions of dollars in value.

Govt is establishing a mechanism to be known as SETU(Self-Employment and Talent Utilisation). SETU will bea techno-financial, incubation and facilitation programmeto support all aspects of start-up businesses, and otherself-employment activities, particularly in technology-driven areas. Govt is setting aside `1,000 cr initially inNITI Aayog for this purpose.

Ports can be an attractive investment possibility for theprivate sector. Ports in the public sector need to bothattract such investment as well as leverage the hugeland resources lying unused with them. To enable us todo so, ports in public sector will be encouraged tocorporatise and become companies under the CompaniesAct.

Govt aims towards ease of doing in India. It has launchedthe e-Biz Portal, which integrates 14 regulatorypermissions at one source. Good States are embracingand joining this platform.

However, if we really want to create jobs, we have tomake India an investment destination which permits thestart of a business in accordance with publicly statedguidelines and criteria. Govt intends to appoint an ExpertCommittee for this purpose to examine the possibilityand prepare a draft legislation where the need for multipleprior permissions can be replaced with a pre-existingregulatory mechanism.


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emySINCE 1993 Indias Premier Banking / SSC Institute The Govt also proposes to set up five new Ultra MegaPower Projects, each of 4000 MW in the plug-and-playmode. All clearances and linkages will be in place beforethe project is awarded by a transparent auction system.This should unlock investments to the extent of ` 1 lakh

cr. The Govt would also consider similar plug-and-playprojects in other infrastructure projects such as roads,ports, rail lines, airports etc. The second unit ofKudankulam Nuclear Power Station will be commissionedin 2015-16.

Govt will endeavour to enhance allocations to MGNREGAby `5,000 cr; Integrated Child Development Scheme(ICDS) by ` 1,500 cr; Integrated Child Protection Scheme(ICPS) by ` 500 cr; and the Prdhan Mantri Krishi SinchaiYojana by `3,000 cr; and the initial inflow of `5,000 crinto the NIIF.

Financial Markets One vital factor in promoting investment in India,

including in the infrastructure sector, is the deepeningof the Indian Bond market. Govt will set up a Public DebtManagement Agency (PDMA) which will bring bothIndias external borrowings and domestic debt under oneroof.

Govt will merge the Forwards Markets Commission withSEBI to strengthen regulation of commodity forwardmarkets and reduce wild speculation.

Capital Account Controls is a policy, rather than aregulatory, matter. Govt, therefore, proposes to amend,through the Finance Bill, Section-6 of FEMA to clearlyprovide that control on capital flows as equity will beexercised by the Govt in consultation with the RBI.

A properly functioning capital market also requires properconsumer protection. Govt, therefore, proposes to createa Task Force to establish a sector-neutral FinancialRedressal Agency that will address grievances againstall financial service providers. Govt also received a largenumber of suggestions regarding the Indian FinancialCode (IFC), which are currently being reviewed by theJustice Srikrishna Committee.

Govt has a vision of putting in place a direct tax regimewhich is internationally competitive on rates, is withoutexemptions, incentivises savings, and does not realisetax from intermediaries.

With respect to the Employees Provident Fund (EPF),the employee needs to be provided two options. Firstly,the employee may opt for EPF or the New PensionScheme (NPS). Secondly, for employees below a certain

threshold of monthly income, contribution to EPF shouldbe optional, without affecting or reducing the employerscontribution. With respect to ESI, the employee shouldhave the option of choosing either ESI or a HealthInsurance product recognised by the InsuranceRegulatory Development Authority (IRDA).

Monetising Gold India is one of the largest consumers of gold in the world

and imports as much as 800-1000 tonnes of gold eachyear. Though stocks of gold in India are estimated to beover 20,000 tonnes, mostly this gold is neither traded,nor monetised. Govt proposes to:(i) Introduce a Gold Monetisation Scheme, which will

replace both the present Gold Deposit and GoldMetal Loan Schemes. The new scheme will allowthe depositors of gold to earn interest in their metalaccounts and the jewellers to obtain loans in theirmetal account. Banks/other dealers would also beable to monetise this gold.

(ii) Also develop an alternate financial asset, aSovereign Gold Bond, as an alternative topurchasing metal gold.

(iii) Commence work on developing an Indian Gold Coin,which will carry the Ashok Chakra on its face. Suchan Indian Gold Coin would help reduce the demandfor coins minted outside India and also help recyclethe gold available in the country.

One way to curb the flow of black money is to discouragetransactions in cash. Now that a majority of Indians hasor can have, a RUPAY debit card, Govt proposes tointroduce soon several measures that will incentivisecredit or debit card transactions, and disincentivise cashtransactions.

Investment Alternate Investment Funds Regulations have been

notified by SEBI. Such alternate investment fundsprovide another vehicle for facilitating domesticinvestments. Keeping in view the need to increaseinvestments from all sources, Govt proposes to alsoallow foreign investments in Alternate Investment Funds.

To further simplify the procedures for Indian Companiesto attract foreign investments, Govt proposes to do awaywith the distinction between different types of foreigninvestments, especially between foreign portfolioinvestments and foreign direct investments, and replace

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them with composite caps. The sectors which are alreadyon a 100% automatic route would not be affected.

The Act East policy of the Govt of India endeavours tocultivate extensive economic and strategic relations inSouth-East Asia. In order to catalyse investments fromthe Indian private sector in this region, a ProjectDevelopment Company will, through separate SpecialPurpose Vehicles (SPVs), set up manufacturing hubs inCMLV countries, namely, Cambodia, Myanmar, Laos andVietnam.

Safe India In order to support programmes for women security,

advocacy and awareness, Govt has decided to provideanother `1,000 cr to the Nirbhaya Fund.

Tourism India has 25 Cultural World Heritage Sites. But the

facilities are still deficient. Govt proposes to provideresources to start work for the following Heritage Sites:(i) Churches & Convents of Old Goa; (ii) Hampi,Karnataka; (iii) Elephanta Caves, Mumbai; (iv)Kumbalgarh and other Hill Forts of Rajasthan; (v) Raniki Vav, Patan, Gujarat; (vi) Leh Palace, Ladakh, J&K; (vii)Varanasi Temple town, UP; (viii) Jalianwala bagh,Amritsar, Punjab; and (ix) Qutub Shahi Tombs,Hyderabad, Telengana.

After the success of Visas on arrival issued to travellersof 43 countries, Govt proposes to increase the countriescovered to 150, in stages.

Green India Govt is launching a Scheme for Faster Adoption and

Manufacturing of Electric Vehicles (FAME). It isproposing an initial outlay of `75 cr for this Scheme in2015-16. The Ministry of New Renewable Energy hasrevised its target of renewable energy capacity to1,75,000 MW till 2022, comprising 100,000 MW Solar,60,000 MW Wind, 10,000 MW Biomass and 5000 MWSmall Hydro.

Malfeasance in public procurement can perhaps becontained by having a procurement law and aninstitutional structure consistent with the UNCITRALmodel.

On the other hand, disputes arising in public contractstake long to resolve, and the process is very costly too.Govt proposes to introduce a Public Contracts

(Resolution of Disputes) Bill to streamline theinstitutional arrangements for resolution of suchdisputes.

Skill India India is one of the youngest nations in the world with

more than 54% of the total population below 25 yearsof age. Today less than 5% of our potential workforcegets formal skill training to be employable and stayemployable.

Govt will soon be launching a National Skills Missionthrough the Skill Development and EntrepreneurshipMinistry. The Mission will consolidate skill initiativesspread across several Ministries and allow us tostandardise procedures and outcomes across the 31Sector Skill Councils.

With rural population still forming close to 70% of Indiaspopulation, enhancing the employability of rural youthis the key to unlocking Indias demographic dividend.With this in mind, Govt had launched the Deen DayalUpadhyay Gramin Kaushal Yojana. ` 1,500 cr has beenset apart for this scheme. Disbursement will be througha digital voucher directly into qualified students bankaccount.

This is the year when we will be entering the 100th birthanniversary of Shri Deen Dayal Upadhyay. A 100thBirthday Celebration Committee will be announced soon,and adequate resources provided for the celebration.

With a view to enabling all poor and middle-classstudents to pursue higher education of their choicewithout any constraint of funds, Govt proposes to setup a fully IT-based Student Financial Aid Authority toadminister and monitor Scholarship as well EducationalLoan Schemes, through the Pradhan Mantri VidyaLakshmi Karyakram.

In the fiscal year 2015-16, Govt proposes to set up AllIndia Institutes of Medical Sciences in J&K, Punjab,Tamil Nadu, Himachal Pradesh and Assam. Keeping inview the need to augment Medical Sciences in Bihar,Govt proposes to set up another AIIMS-like institution.Govt proposes to set up an IIT in Karnataka, andupgrade Indian School of Mines, Dhanbad into a full-fledged IIT. It proposes to set up a Post Graduate Instituteof Horticulture Research and Education in Amritsar. IIMswill be set up in J&K and Andhra Pradesh. In Kerala,Govt proposes to upgrade the existing National Instituteof Speech and Hearing to a University of DisabilityStudies and Rehabilitation. Govt proposes three new


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emySINCE 1993 Indias Premier Banking / SSC InstituteNational Institutes of Pharmaceutical Education andResearch in Maharashtra, Rajasthan, and Chattisgarh;and Institutes of Science and Education Research inNagaland and Odisha. Govt also proposes to set up aCentre for Film Production, Animation and Gaming in

Arunachal Pradesh and Apprenticeship TrainingInstitute for Women in Haryana and Uttarakhand.

In order to improve the Governance of Public Sectorbanks, the Govt intends to set up an autonomous BankBoard Bureau. The Bureau will search and select headsof Public Sector banks and help them in developingdifferentiated strategies and capital-raising plansthrough innovative financial methods and instruments.This would be an interim step towards establishing aholding and investment Company for Banks.

Digital India The National Optical Fibre Network Programme

(NOFNP) of 7.5 lakh km, networking 2.5 lakh villages, isbeing further speeded up by allowing willing States toundertake its execution, on reimbursement of cost asdetermined by Department of Telecommunications.Andhra Pradesh is the first State to have opted for thismanner of implementation.

Govt proposes to give similar special assistance to Biharand West Bengal as has been provided by the Govt ofIndia in the case of Govt of Andhra Pradesh. As regardsAndhra Pradesh and Telengana, the Govt is committedto comply with all the legal commitments made to theseStates at the time of reorganisation.

Others In spite of the large increase in devolution to states,

which implies reduced fiscal space for the Centre in thesame proportion, Govt is committed to the welfare of thepoor and the neo-middle class. Keeping this in mind,adequate provision is being made for the schemes forthe poor and the disadvantaged. Govt has allocated`68,968 cr to the education sector, including mid-daymeals, `33,152 cr to the health sector and ` 79,526 cr forrural development activities including MGNREGA,`22,407 cr for housing and urban development, ` 10,351cr for women and child development, ` 4,173 cr for WaterResources and Namami Gange. The significant sums thatwill be spent by the States on these programmes willensure a quantum leap in expenditures in these areas.

The AhmedabadDhaulera Investment Region in Gujaratand the ShendraBidkin Industrial Park near

Aurangabad, in Maharashtra are now in a position tostart work on basic infrastructure. In the current year,Govt has earmarked an initial sum of ` 1,200 cr. However,as the pace of expenditure picks up, Govt will providethem additional funds.

Govt has been both transparent and quick in makingdefence equipment-related purchase decisions, thuskeeping defence forces ready for any eventuality. Thisyear too, Govt has provided adequately for the needs ofthe armed forces. As against likely expenditure of thisyear of `2,22,370 cr, the budget allocation for 2015-16 is`2,46,727 cr.

GIFT in Gujarat was envisaged as International FinanceCentre that would actually become as good anInternational Finance Centre as Singapore or Dubai,which, incidentally, are largely manned by Indians. Theproposal has languished for years. The first phase ofGIFT will soon become a reality. Appropriate regulationswill be issued in Mar.

For the quick resolution of commercial disputes, the Govtproposes to set up exclusive commercial divisions invarious courts in India based on the recommendationsof the 253rd Report of the Law Commission. The Govtproposes to introduce a Bill in the parliament afterconsulting stakeholders in this regard.

Budget Estimates Non-plan expenditure estimates for the Financial Year

are estimated at `13,12,200 cr. Plan expenditure isestimated to be `4,65,277 cr, which is very near to theRE of 2014-15. Total expenditure has accordingly beenestimated at `17,77,477 cr.

Gross tax receipts are estimated to be `14,49,490 cr.Devolution to the States is estimated to be ` 5,23,958 cr.Share of Central Govt will be `9,19,842 cr. Non-taxrevenues for the next fiscal are estimated to be ` 2,21,733cr.

With the above estimates, fiscal deficit will be 3.9 percent of GDP and revenue deficit will be 2.8 per cent ofGDP.

Tax Proposals Govt has already introduced the Bill to amend the

Constitution of India for Goods and Services Tax (GST)in the last Session. GST is expected to play atransformative role in the way our economy functions. Itwill add buoyancy to our economy by developing acommon Indian market and reducing the cascading effect

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on the cost of goods and services. We are moving invarious fronts to implement GST from the next year.

The basic rate of Corporate Tax in India at 30% is higherthan the rates prevalent in the other major Asianeconomies, making our domestic industry uncompetitive.Moreover, the effective collection of Corporate Tax isabout 23%. We lose out on both counts, ie we areconsidered as having a high Corporate Tax regime butwe do not get that tax due to excessive exemptions. Aregime of exemptions has led to pressure groups,litigation and loss of revenue. It also gives room foravoidable discretion. Govt, therefore, proposes to reducethe rate of Corporate Tax from 30% to 25% over thenext 4 years. This will lead to higher level of investment,higher growth and more jobs. This process of reductionhas to be necessarily accompanied by rationalisationand removal of various kinds of tax exemptions andincentives for corporate taxpayers, which incidentallyaccount for a large number of tax disputes.

Phased reduction of corporate tax rate and phasedelimination of exemptions will start from the next financialyear. Exemptions to individual taxpayers will, however,continue since they facilitate savings which gettransferred to investment and economic growth.

While finalising tax proposals, Govt has adopted certainbroad themes, which include:A. Measures to curb black money;B. Job creation through revival of growth and

investment and promotion of domesticmanufacturing and Make in India;

C. Minimum govt and maximum governance to improvethe ease of doing business;

D. Benefits to middle-class taxpayers;E. Improving the quality of life and public health

through Swachh Bharat initiatives; andF. Stand-alone proposals to maximise benefits to the

economy. The first and foremost pillar of Govts tax proposals is to

effectively deal with the problem of black money. In the last nine months several measures have been

initiated in this direction. A major breakthrough wasachieved in Oct 2014 when a delegation from the RevenueDepartment visited Switzerland and the Swiss authoritiesagreed to (a) provide information in respect of casesindependently investigated by the Income-taxDepartment; (b) confirm genuineness of bank accountsand provide non-banking information; (c) provide suchinformation in a time-bound manner; and (d) commencetalks with India for Automatic Exchange of Information

between the two countries at the earliest. Investigationinto cases of undisclosed foreign assets has beenaccorded the highest priority, resulting in detection ofsubstantial amounts of unreported income. Forstrengthening collection of information from varioussources domestically, a new structure is being put inplace which includes electronic filing of statements byreporting entities. This will ensure seamless integrationof data and more effective enforcement.

Govt has taken a considered decision to enact acomprehensive new law on black money to specificallydeal with such money stashed away abroad. Some of thekey features of the proposed new law:(1) Concealment of income and assets and evasion of

tax in relation to foreign assets will be prosecutablewith punishment of rigorous imprisonment upto 10years. Further,l this offence will be made non-compoundable;l the offenders will not be permitted to approach

the Settlement Commission; andl penalty for such concealment of income and

assets at the rate of 300% of tax shall be levied.(2) Non-filing of return or filing of return with

inadequate disclosure of foreign assets will be liablefor prosecution with punishment of rigorousimprisonment up to 7 years.

(3) Income in relation to any undisclosed foreign assetor undisclosed income from any foreign asset willbe taxable at the maximum marginal rate. Exemptionsor deductions which may otherwise be applicable insuch cases, shall not be allowed.

(4) Beneficial owner or beneficiary of foreign assetswill be mandatorily required to file return, even ifthere is no taxable income.

(5) Abettors of the above offences, whether individuals,entities, banks or financial institutions will be liablefor prosecution and penalty.

(6) Date of opening of foreign account would bemandatorily required to be specified by the assesseein the return of income.

(7) The offence of concealment of income or evasion oftax in relation to a foreign asset will be made apredicate offence under the Prevention of Money-laundering Act, 2002 (PMLA). This provisionwould enable the enforcement agencies to attachand confiscate unaccounted assets held abroad andlaunch prosecution against persons indulging inlaundering of black money.

(8) The definition of proceeds of crime under PMLA


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emySINCE 1993 Indias Premier Banking / SSC Instituteis being amended to enable attachment andconfiscation of equivalent asset in India where theasset located abroad cannot be forfeited.(9) The Foreign Exchange Management Act, 1999(FEMA) is also being amended to the effect that if

any foreign exchange, foreign security or anyimmovable property situated outside India is heldin contravention of the provisions of this Act, thenaction may be taken for seizure and eventualconfiscation of assets of equivalent value situatedin India. These contraventions are also being madeliable for levy of penalty and prosecution withpunishment of imprisonment up to five years.

A new and more comprehensive Benami Transactions(Prohibition) Bill will be introduced in the currentsession of the Parliament. This law will enableconfiscation of benami property and provide forprosecution, thus blocking a major avenue for generationand holding of black money in the form of benamiproperty, especially in real estate.

The Finance Bill includes a proposal to amend theIncome-tax Act to prohibit acceptance or payment of anadvance of `20,000 or more in cash for purchase ofimmovable property. Quoting of PAN is being mademandatory for any purchase or sale exceeding the valueof `1 lakh. The third party reporting entities would berequired to furnish information about foreign currencysales and cross-border transactions. Provision is alsobeing made to tackle splitting of reportable transactions.To improve enforcement, CBDT and CBEC will leveragetechnology and have access to information in eachothers database.

The second pillar of Govts taxation proposals this yearis job creation through revival of growth and investmentand promotion of domestic manufacturing and Make inIndia. Tax pass through is proposed to be allowed toboth Category-I and Category-II Alternative InvestmentFunds, so that tax is levied on the investors in theseFunds and not on the Funds per se. This will step up theability of these Funds to mobilise higher resources andmake higher investments.

A step was taken in the last Budget to encourage RealEstate Investment Trusts (REITs) and InfrastructureInvestment Trusts (InvITs) by providing partial passthrough to them. Govt proposes to rationalise the capitalgains regime for the sponsors exiting at the time of listingof the units of REITs and InvITs, subject to payment ofSecurities Transaction Tax (STT). The rental income ofREITs from their own assets will have pass-through

facility. The present taxation structure has an inbuilt incentive

for fund managers to operate from offshore locations.To encourage such offshore fund managers to relocateto India, Govt proposes to modify the PermanentEstablishment (PE) norms to the effect that merepresence of a fund manager in India would not constitutePE of the offshore funds resulting in adverse taxconsequences.

Implementation of the General Anti Avoidance Rule(GAAR) has been a matter of public debate. It hastherefore been decided to defer the applicability of GAARby two years. Further, it has also been decided that whenimplemented, GAAR would apply prospectively toinvestments made on or after 01.04.2017.

To facilitate technology inflow to small businesses atlow costs, Govt proposes to reduce the rate of incometax on royalty and fees for technical services from 25%to 10%.

To generate greater employment opportunities, it isproposed to extend the benefit of deduction foremployment of new regular workmen to all businessentities. The eligibility threshold of minimum 100 regularworkmen is being reduced to fifty.

In indirect taxes, Govt proposes to reduce the rates ofbasic customs duty on certain inputs, raw materials,intermediates and components (in all 22 items) so as tominimise the impact of duty inversion and reduce themanufacturing cost in several sectors. Some otherchanges address the problem of CENVAT creditaccumulation due to the levy of SAD. Govt proposes tofully exempt all goods, except populated printed circuitboards for use in manufacture of ITA-bound items fromSAD and reduce the SAD on imports of certain otherinputs and raw materials subject to actual user condition.

The total wealth tax collection in the country was ` 1,008cr in 2013-14. Should a tax which leads to high cost ofcollection and a low yield be continued or should it bereplaced with a low-cost and higher-yield tax? The richand wealthy must pay more tax than the less affluentones. Govt has therefore decided to abolish the wealthtax and replace it with an additional surcharge of 2%on the super-rich with a taxable income of over ` 1 cr.This will lead to tax simplification and enable theDepartment to focus more on ensuring tax complianceand widening the tax base. As against a tax sacrifice of`1,008 cr, through these measures the Department wouldbe collecting about `9,000 cr from the 2% additionalsurcharge.

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To reduce the associated hassles to smaller taxpayersand the compliance costs in domestic transfer pricing,Govt proposes to increase the threshold limit from ` 5 crto `20 cr.

In order to rationalise the MAT provisions for FIIs, profitscorresponding to their income from capital gains ontransactions in securities which are liable to tax at a lowerrate, shall not be subject to MAT.

As part of the movement towards GST, Govt proposesto subsume the Education Cess and the Secondary andHigher Education Cess in Central Excise duty. In effect,the general rate of Central Excise Duty of 12.36%,including the cesses, is being rounded off to 12.5%.Govt also proposes to revise the specific rates of CentralExcise duty in certain other commodities. However, inthe case of petrol and diesel, such specific rates arebeing revised only to the extent of subsuming thequantum of education cess presently levied on them,keeping the total incidence of excise duties unchanged.The ad valorem rates of excise duty lower than 12%and those higher than 12% with a few exceptions arenot being increased. Some changes are also being madeto excise levy on cigarettes and the compounded levyscheme applicable to pan masala, gutkha and certainother tobacco products.

The excise duty on footwear with leather uppers andhaving retail price of more than `1000 per pair is beingreduced to 6%.

To further facilitate the ease of doing business, onlinecentral excise and service tax registration will be done intwo working days. The assessees under these taxes willbe allowed to issue digitally signed invoices and maintainelectronic records. These measures will cut down lot ofpaper work and red tape. Time limit for taking CENVATcredit on inputs and input services is being increasedfrom six months to one year as a measure of businessfacilitation.

It is proposed to increase the present rate of service taxplus education cesses from 12.36% to a consolidatedrate of 14%.

Cleanliness of households and clean environment arevery important social causes. The fourth pillar of Govtstaxation proposals this year therefore relates to initiativesfor the Swachh Bharat Abhiyan. In direct tax proposals,Govt has proposed 100% deduction for contributions,other than by way of CSR contributions, to the SwachhBharat Kosh. A similar tax treatment is also proposed forthe Clean Ganga Fund.

Govt proposes to increase the Clean Energy Cess from

`100 to `200 per metric tonne of coal, etc to financeclean-environment initiatives. Excise duty on sacks andbags of polymers of ethylene other than for industrialuse is being increased from 12% to 15%. It is alsoproposed to have an enabling provision to levy SwachhBharat Cess at a rate of 2% or less on all or certain servicesif need arises. This Cess will be effective from a date tobe notified. Resources generated from this cess will beutilised for financing and promoting initiatives towardsSwachh Bharat.

It is also proposed to exempt services by common affluenttreatment plants from service tax. The concessions fromcustoms and excise duties currently available on specifiedparts for manufacture of electrically operated vehiclesand hybrid vehicles are being extended by one moreyear, ie up to 31.3.2016.

The fifth pillar of Govts taxation proposals this year isextension of benefits to middle-class tax payers. Theproposals in this regard are as follows: Increase in the limit of deduction in respect of health

insurance premium from `15,000 to ` 25,000. For senior citizens the limit will stand increased

to ` 30,000 from the existing ` 20,000. For very senior citizens of the age of 80 years or

more, who are not covered by health insurance,deduction of `30,000 towards expenditureincurred on their treatment will be allowed.

The deduction limit of `60,000 towards expenditureon account of specified diseases of serious natureis proposed to be enhanced to `80,000 in case ofvery senior citizens.

Additional deduction of `25,000 will be allowedfor differently abled persons under Section 80DDand Section 80U of the Income-tax Act.

The limit on deduction on account of contributionto a Pension Fund and the New Pension Scheme isproposed to be increased from ` 1 lakh to ` 1.5 lakh.

To provide social-safety net and the facility ofpension to individuals, an additional deduction of`50,000 is proposed to be provided for contributionto the New Pension Scheme under Section 80CCD.

Investments in Sukanya Samriddhi Scheme arealready eligible for deduction under Section 80C.All payments to the beneficiaries including interestpayment on deposit will also be fully exempt.

Transport allowance exemption is being increasedfrom `800 to `1,600 per month.

For the benefit of senior citizens, service taxexemption will be provided on Varishtha Bima Yojana.


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emySINCE 1993 Indias Premier Banking / SSC Institute After taking into account the tax concession given tomiddle-class tax payers in the last Budget and thisBudget, today an individual tax payer will get tax benefitof `4,44,200. There are several stand-alone proposals relating to

taxation. These include conversion of existing exciseduty on petrol and diesel to the extent of `4 per litreinto Road Cess to fund investment in roads and otherinfrastructure. An additional sum of `40,000 cr will bemade available through this measure for these sectors.In service tax, exemption is being extended to certainpre-cold storage services in relation to fruits andvegetables so as to incentivise value addition in thiscrucial sector. The Negative List under service tax isbeing slightly pruned and certain other exemptions arebeing withdrawn to widen the tax base.

Yoga is Indias well acknowledged gift to the world. It isproposed to include yoga within the ambit of charitablepurpose under Section 2(15) of the Income-tax Act.

Further, to mitigate the problem being faced by manygenuine charitable institutions, it is proposed to modifythe ceiling on receipts from activities in the nature oftrade, commerce or business to 20% of the total receiptsfrom the existing ceiling of ` 25 lakh. A national databaseof non-profit organisations is also being developed.

Most of the provisions of the Direct Tax Code (DTC)have already been included in the Income-tax Act. Amongthe very few aspects of DTC which were left out, Govthas addressed some of the issues in the present Budget.Further, the jurisprudence under the Income-tax Act iswell evolved. Considering all these aspects, there is nogreat merit in going ahead with the Direct Tax Code as itexists today.

Direct tax proposals would result in revenue loss of ` 8,315cr, whereas the proposals in indirect taxes are expectedto yield ` 23,383 cr. Thus, the net impact of all tax proposalswould be revenue gain of `15,068 cr.

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Taxationl Wealth tax abolished. To be replaced by surcharge of 2

per cent on income of `1 cr and above. Move to fetchgovt ` 9,000 cr against ` 1,008 cr currently mobilised underwealth tax.

l Rate of corporate tax to be reduced to 25 per cent from30 per cent over next four years.

l No change in tax slabs.l Total exemption of up to `4,44,200 can be achieved.l 100 per cent exemption for contribution to Swachch

Bharat, apart from CSR.l Service tax increased to 14 per cent from 12.36 per cent.l To implement Goods and Services Tax by Apr 2016.l To reduce custom duty on 22 items.l Basic custom duty on commercial vehicle doubled to 20

per cent.l Import tax on iron and steel increased to 15 per cent

from 10 per cent.l Excise duty raised on cigarettes by 25 per cent for

cigarettes of length not exceeding 65 mm; by 15 per centfor cigarettes of other lengths.

Agriculturel To support agricultural sector, allocation of `25,000 cr

proposed in 2015 to rural development fund.l `5,300 cr to support Micro Irrigation Programme.l Farmers credit target of `8.5 lakh cr.

Infrastructurel `70,000 cr to Infrastructure sector.l Tax-free bonds for projects in rail, road and irrigation.l PPP model for infrastructure development to be

revitalised and govt to bear majority of the risk.l `150 cr allocated for Research & Development.l Govt proposes to set up 5 ultra mega power projects,

each of 4000 MW.

Educationl AIIMS in Jammu and Kashmir, Punjab, Tamil Nadu,

Himachal Pradesh, Bihar and Assam.l IIT in Karnataka; Indian Institute of Mines in Dhanbad

to be upgraded to IIT.

l PG institute of Horticulture in Amritsar.l Kerala to have University of Disability Studiesl Centre of Film Production, Animation and Gaming to

come up in Arunachal Pradesh.l IIMs for Jammu and Kashmir and Andhra Pradesh.

Defencel `2,46,726 cr for Defence.l Focus on Make in India for quick manufacturing of

defence equipment.

Subsidiesl Food subsidy seen at `1.24 tn.l Fertiliser subsidy seen at ` 729.69 bn.l Fuel subsidy seen at `300 bn.

Welfare and other Schemesl 50,000 toilets constructed under Swachh Bharath

Abhiyan.l GST will be implemented by Apr 2016.l Housing for all by 2020.l Upgradation of 80,000 secondary schools.l Micro Units Development Refinance Agency (MUDRA)

Bank to refinance micro finance institutions.l Pradhan Mantra Suraksha Bima Yojana to cover

accidental death risk of `2 lakh for just `12 per yearpremium.

l Atal Pension Yojana for defined pension, govt tocontribute 50 per cent of the premium.

l Pradhan Mantri Jeevan Jyoti Bima Yojana to cover bothnatural and accidental death risk.

l Setu (self-employment and talent utilisation) mechanismto support start-up businesses.

l Another `1,000 cr for Nirbhaya Fund.l Nayi Manzil Scheme proposed for the youth of the

minorities.

Renewable Energyl `75 cr for electric-cars production.l Renewable energy target for 2022: 100K MW in solar;

60K MW in wind; 10K MW in biomass and 5K MW insmall hydro

Budget at a glance


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emySINCE 1993 Indias Premier Banking / SSC InstituteTourisml Develpoment schemes for churches and convents in oldGoa, Hampi, Elephanta caves, Forests of Rajasthan, LehPalace, Varanasi, Jallianwala Bagh and Qutb Shahi tombsat Hyderabad.

l Visa on arrival for 150 countries.

Bankingl Autonomous bank board bureau to determine PSU bank

heads.l To amend RBI Act this year for monetary policy

committee.l To incentivise credit/debit card transactions.l Govt to provide `79.4 bn capital infusion to state-run

banks.

Othersl Budget 2015-16 marks the beginning of co-operative

federalism and empowerment of the states.l Will bring a bankruptcy code in the year 2015-16 that will

meet global standards and provide for judicial capacity.l Fiscal Deficit targets: FY15-16 3.9 per cent, FY16-17 3.5

per cent, FY 17-18 3 per cent.l Disinvestment target set at `41,000 cr for 2015-16.l Exemption on health insurance premium hiked from

`15,000 to `25,000. For senior citizens it is hiked to`30,000.

l GAAR deferred by two years would apply prospectivelyfrom Apr 1, 2017.

l A new benami transaction bill to be introduced to tackledomestic black money; enforcement agencies empoweredto attach assets held abroad illegally; undisclosedincome to be taxed at maximum marginal rate; deductionsand exemptions for such income wont be allowed; 7years rigorous imprisonment for concealing foreignassets.

l Proposal to merge commodities regulator with SEBI.l `346.99 bn for rural employment guarantee scheme.l Raises threshold for application of transfer pricing rules

to `200 mn from current ` 50 mn.l Second unit of Kudankulam nuclear power station to be

commissioned.l Current account deficit below 1.3 per cent of GDP.

Other details for 2015-16l Revenue receipts ` 11,41,575 cr (Tax revenue ` 9,19,842

cr, Non-tax revenue ` 2,21,733 cr)l Capital receipts ` 6,35,902 crl Non-plan expenditure ` 13,12,200 crl Plan expenditure ` 4,65,277 crl Revenue deficit ` 3,94,472 cr (2.8 per cent of GDP)l Fiscal Deficit ` 5,55,649 cr (3.9 per cent of GDP)l Primary deficit ` 99,504 cr (0.7 per cent of GDP)

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The Budget is a statement of expected receipts andexpected expenditures of the government for the financialyear April 1 to March 31. It also includes government reporton its financial performance over the past one year. However,this part of the budget as a description of what hashappened is often overlooked. Importance is given largelyto the other part of the budget describing what is going tohappen in terms of the expected receipts and expendituresof the government in the year to come.

TYPES OF BUDGET

Balanced BudgetA balanced budget is that budget in which governmentreceipts are equal to government expenditure.Balanced Budget: Government Receipts = GovernmentExpenditureUnbalanced BudgetAn unbalanced budget is that budget in which receipts andexpenditures of the government are not equal. This may be:(a) Surplus BudgetThis is a budget in which government receipts are greaterthan government expenditures.Surplus Budget: Estimated Govt Receipts > Estimated GovtExpenditures(b) Deficit BudgetThis is a budget in which government expenditures aregreater than government receipts.Deficit Budget: Estimated Govt Expenditures > EstimatedGovt Receipts

TYPES OF DEFICIT

1. Budget DeficitBudget deficit refers to a situation when budget expenditures

Budgetof the government are greater than the budget receipts. Or,it is the excess of total expenditure (revenue expenditureand capital expenditure) over and above the total receipts(revenue receipts and capital receipts) of the government.

2. Revenue DeficitRevenue deficit is related to revenue expenditure andrevenue receipts of the government. This does not includeitems of capital receipts and capital expenditure. Thus,revenue deficit is the excess of revenue expenditure overrevenue receipts.

RD = RE- RR, when RE > RRHere,

RD = Revenue DeficitRE = Revenue ExpenditureRR = Revenue Receipts.

3. Fiscal DeficitFiscal deficit is estimated, accounting for both the revenueas well capital receipts and expenditures of the government.Fiscal deficit is the excess of total expenditure (revenue +capital) over total receipts (revenue + capital other thanborrowings). It is estimated as under:

Fiscal Deficit = Total or Budget Expenditure (revenueexpenditure + capital expenditure) - Total or BudgetReceipts other than borrowings (revenue receipts + capitalreceipts other than borrowings).

FD = BE - BR other than borrowings, when BE > BRother than borrowings.Here,

FD = Fiscal DeficitBE = Budget or Total ExpenditureBR = Budget or Total Receipts

Fiscal deficit is, in fact, equal to the total borrowings andother liabilities of the government.

For details read A Primer on Banking & Finance

economicsurvey2014_15

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