X

Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2018 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.


Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
Budget 2014-15: As good as it gets - Outside View by S.S. TARAPORE

Helping You Build Wealth With Honest Research
Since 1996. Try Now

  • MyStocks

MEMBER'S LOGINX

     
Login Failure
   
     
   
     
 
 
 
(Please do not use this option on a public machine)
 
     
 
 
 
  Sign Up | Forgot Password?  

Budget 2014-15: As good as it gets
Jul 14, 2014

The Regular Budget for 2014-15 was presented on July 14, 2014, after more than a quarter of the financial year was over. Given the circumstances, the budget is as good as it gets.

Realistic estimates

While the budget for 2014-15 provides for an increase in revenue receipts of 15.6 per cent, the total expenditure is estimated to show an increase of only 12.9 per cent, despite increased spending allocations for a whole host of items which have strong social objectives.

For 2014-15, the fiscal deficit is estimated at 4.1 per cent of GDP. This is to be commended, as the Interim Budget by the previous government also estimated the fiscal deficit at 4.1 per cent of GDP, but there were throw-forwards of expenditure from the previous year and some receipts of the current year were accelerated into the previous year. The nominal income growth for 2014-15 is projected at 13.4 per cent, which points to an inflation rate of around 8 per cent and a real growth of 5.5 per cent.

As against an estimate of a fiscal deficit of Rs 5,31,177 crore, the debt servicing obligation (repayment and interest) amounts to Rs 6,43,301 crore. In other words, if there were debt servicing, there would be no fiscal deficit.

It is commendable that there are no wild aspirations for a double digit growth and there is a cautious projection of a growth rate of 7-8 per cent to be attained in the next 3-4 years, which it wants to achieve with a lower inflation rate, a lower fiscal deficit and a manageable balance of payments current account deficit.

Rather than taking a stance of nonchalance that borrowing can be easily met by further borrowing, as some well-known economic pundits advocate, the government has been responsible and taken the stance that fiscal prudence is of paramount importance, as there are considerations of inter-generational equity. As Jaitley correctly points out, we cannot leave behind a legacy of debt for our future generations. This statesmanlike pronouncement is the clearest presentation we have had from a finance minister on increasing government debt and Jaitley needs to be lauded for his stance.

Expenditure management commission

Rather than strong ad hoc measures such as drastic reduction in subsidies followed by rollbacks, the finance minister has decided to set up an Expenditure Management Commission, which will inter alia also recommend a comprehensive and enduring programme of reduction in subsidies. The Expenditure Management Commission will have a larger remit and locate areas where expenditures can be curtailed without loss of welfare, which would then enable the government to facilitate such expenditures which meet imperative social needs. The Commission would be undertaking ongoing work and should be able to make some recommendations which could be implemented in the current year itself.

Smart cities and housing

The Budget concretises the initiative mooted by the Prime Minister to plan the building of a hundred new cities around the present large cities and thereby prevent crowding in existing cities. While an initial allocation of Rs 7,060 crore has been made in the present budget, a lot more would be required as the proposal gathers momentum.

Again, the budget undertakes a commitment to ensure pucca housing with sanitation and electricity for all by 2019. This is indeed a very ambitious scheme, but once the momentum gets going, the target should be substantially, but perhaps not wholly, met. Moreover, this activity would give a fillip to ancillary industries.

The budget has raised the funds allocated to the National Housing Bank for rural housing. Again, interest paid on housing loan which was exempt from income up to Rs 1.5 lakh has been raised to Rs 2 lakh. All these initiatives in the housing sector could step up activity in other sectors producing inputs for housing.

Foreign Direct Investment

The Budget provides a major thrust for FDI, which is more stable than Foreign Institutional Investment. FDI in defence and insurance has been raised from 26 per cent to 49 per cent. Furthermore, the restrictions on FDI in housing have been liberalised. All these measures would increase the inflow of FDI and make overall capital inflows more stable.

Personal income tax

The general income tax exemption limit has been raised by Rs 50,000.There is, in addition, an increase in the 80C exemption, from Rs 1 lakh to Rs 1.5 lakh; this will mean a reduction in revenue by Rs 15,500 crore. The 80C exemption is not suited for senior citizens as the life cycle of savings is that people accumulate savings in early years and decummulate them in later years. The better option would be to give a higher basic exemption for senior citizens and make them ineligible for the 80C exemption.

The budget makes a strong pitch for gender-monitoring, yet it has been insensitive to a higher basic exemption for women below the age of 60 years. In fact, there was such a higher basic exemption, but this was done away with a few years ago. The finance minister should give consideration to restoring this exemption when he replies to the budget debate.

Please Note: This article was first published in The Freepress Journal on July 11, 2014. Syndicated.

This column, Common Voice is authored by Savak Sohrab Tarapore. Mr. Tarapore, is an economist and he runs his own Multi-Language Syndicated Column. Mr. Tarapore's other column, which appears in The Hindu Business Line, is titled Maverick View.

Disclaimer:

The views mentioned above are of the author only. Data and charts, if used, in the article have been sourced from available information and have not been authenticated by any statutory authority. The author and Equitymaster do not claim it to be accurate nor accept any responsibility for the same. The views constitute only the opinions and do not constitute any guidelines or recommendation on any course of action to be followed by the reader. Please read the detailed Terms of Use of the web site.

Equitymaster requests your view! Post a comment on "Budget 2014-15: As good as it gets". Click here!

  

More Views on News

Two Meetings That Nailed the Idea of Owning Brilliant Smallcaps Without Buying Them (The 5 Minute Wrapup)

Mar 22, 2018

Certain blue chips hold the potential of delivering returns comparable to small-cap stocks. With these stocks, you can get the best of both worlds.

What They Forgot to Tell You About Sensex at One Lakh (Profit Hunter)

Nov 29, 2017

Stocks that could beat Sensex returns in the long term.

Is Your Bank Gambling With Your Money? These Banks Should be Declared Dangerous... (Profit Hunter)

Jul 17, 2018

Tanushree Banerjee bets you would not want to leave your money with these unsafe banks...

Your Rescue Plan from the Cave of Poor Quality Stocks (The 5 Minute Wrapup)

Jul 17, 2018

And there will be no getting trapped with Amtek, Vakrangee, or Manpasand like stocks.

2019 Lok Sabha Elections and the Perils of Populism (Vivek Kaul's Diary)

Jul 17, 2018

Evidence from around the world shows that populism can only lead to more populism and this is clearly not good news for the Indian economy.

More Views on News

Most Popular

The Real Truth About India's FDI, Beyond WhatsApp(Vivek Kaul's Diary)

Jul 4, 2018

The FDI numbers do not look very impressive once we adjust for repatriations as well as the overall growth in the economy.

How to Avoid a 90% Loss Suffered by This Super Investor(The 5 Minute Wrapup)

Jul 12, 2018

Blindly following super investors is a dangerous game to play. Here's how you can avoid such mistakes.

The Answer to Your Wealth Worries: Small Caps (Especially Now)(Profit Hunter)

Jul 10, 2018

If you're worried about the markets - you are on the wrong track. This is opportunity - put your wealth-building hat on, instead - Richa shows you how...

New Fund Offer - ICICI Prudential Pharma Healthcare and Diagnostics Fund - Should You Invest?(Outside View)

Jul 6, 2018

ICICI AMC launches an open -ended equity fund following Pharma, Healthcare, Diagnostic and allied theme.

When Disappointment Panda is Around. Buy Quality Stock like This!(Chart Of The Day)

Jul 6, 2018

Buy Companies that can fight all kinds of Pandas and Bears in the long run.

More

Small Investments
BIG Returns

Zero To Millions Guide 2018
Get our special report, Zero To Millions
(2018 Edition) Now!
We will never sell or rent your email id.
Please read our Terms

S&P BSE SENSEX


Jul 17, 2018 (Close)

MARKET STATS