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Round table: Experts dissect Jaitley’s Budget 2015

Amid many hopes, the Narendra Modi government today delivered its first full Budget that experts said carried several ideas that would kickstart growth, drive investment and boost infrastructure even though according to many, it fell short of being called as a ‘big bang’ Budget.

To obtain a consummate view on the Budget and the announcements therein, CNBC-TV18’s Shereen Bhan spoke with a star panel of guests.

“For me, the Budget was about the plug-and-play model,” veteran investment banker Ashok Wadhwa of Ambit said, referring to Finance Minister Arun Jaitley’s announcement that the government would set up four ultra mega power plants using the model in which it would clear all prior permissions before handing it over to an interested party.

Beyond the plug-and-play model, which the government has indicated it is keen to expand beyond the four UMPPs, the government led a definite thrust on boosting India’s creaky infrastructure, increasing as much as Rs 70,000 crore in public investments.

“The outlay for roads is three times. The provision for railways is starkly higher,” former Infosys VP and Manipal Group chairman Mohandas Pai said. “Once there are improvements in the supply chain, we will see a tremendous improvement in productivity,” he added.

In order to be able to invest more into infrastructure, FM Jaitley had to compromise a bit on the fiscal deficit, outlining that the deficit for the next year would fall from 4.1 percent this year to 3.9 percent next, higher than the 3.6 percent estimated earlier.

But even as the FM has presented a credible fiscal consolidation roadmap, aiming to reduce it to 3 percent in three years, Goldman Sachs MD Tushar Poddar pointed out that the deficit picture combined for states and centre stood at a high 6 percent.

“Even if the deficit had been kept at 3.6 percent, India’s state plus central deficit combined would still have been higher than 70 percent of its peers,” ratings firm Moody’s Senior VP Atsi Sheth pointed out.

“However, the number is not that important. [What is important is] there is a roadmap. Policies that underpin the Budget [need to be seen],” she added.

The Budget strikes a pragmatic balance between deficit and growth, ICICI Bank MD and CEO Chanda Kochhar, observed. “Initial public investment is required to kickstart the investment cycle.”

If infrastructure was one theme, the second one was tax, where the Budget outlined several major changes.

“India has never had a more stable tax policy. The Budget clearly explained what the government thinks on tax policy,” Sudhir Kapadia, National Tax Leader, Ernst & Young, said.

Among the key decisions, the FM today announced reduction in the corporate tax rate from 30 percent currently to 25 percent over four years starting FY17, while at the same time phasing out the discretionary tax exemptions that are granted to various industries.

“Also, the 15 percent tax projections made in the Budget is realistic,” Kapadia said, adding that it would result in less pressure on tax officials who have in the past been accused of being too aggressive in order to achieve stiff targets.

“Absolutely, tax terrorism will end,” Pai, indicating to the slew of tax disputes that have arisen over the past few years, said.

But Goldman’s Tushar Poddar pointed out that the government still needs to widen its direct tax base and the Budget did not announce any robust steps to do that. India’s tax-collections-to-GDP ratio stands at an abysmal 17 percent, lower than Kenya and Namibia.

On the issue of black money, the FM’s decision to introduce strict laws to counter the menace of black money was criticized strongly by Congress spokesperson Anand Sharma, who said laws such as the PMLA and FEMA were enough to tackle the issue, and pointed to the fact a Supreme Court-monitored probe into black money was already under way on the basis of current laws, which needed to be enforced well.

Pai agreed with Sharma’s view and added that given the proposed laws draconian appearance, they could give rise to harassment.

But Ashok Wadhwa differed, saying the compliances that the proposed laws required, it would “take a very brave man” to evade taxes.

Finally, Supreme Court Senior Advocate Harish Salve said the government’s decision to devolve 62 percent of taxes to states was a game-changer. “It is a truly federal budget.”

But Congress’ Sharma pointed out that the 14th Finance Commission — whose devolution recommendation the NDA government accepted – was appointed by the UPA government.

He further pointed out that the Budget had slashed majorly from plan expenditure and the central assistance to states, and attacked the devolution claim by saying that the Swacch Bharat and clean energy cess would go to centre and not cess.

“It is an anti-poor Budget. Allocations for women, SC, ST and even on education have come down,” he said.


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