Budget 2015: Reforms on FM’s radar

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Finance Minister Arun Jaitley will on February 28 present his first full-year Budget, seeking to put Asia’s third-largest economy on a path of 7-8 percent growth over the next two years.

The 2015/16 Budget is billed as a “make-or-break” event for Prime Minister Narendra Modi’s eight-month-old government. For now, investors are giving him the benefit of the doubt, lifting the BSE Sensex by more than 5 percent in the current year to date.

Here are some of the reforms investors and economists expect from the Budget:

FISCAL CONSOLIDATION

Jaitley is expected to stick to the fiscal consolidation path unveiled by the last government in 2012, with the deficit target for 2015/16 and 2016/17 at 3.6 per cent and 3.0 per cent of gross domestic product, respectively.

SUBSIDY REFORMS

Investors hope the budget will follow up the recent scrapping of price caps on diesel with similar reforms for other subsidised fuels. Jaitley is also expected to initiate steps to trim spending on food and fertiliser subsidies.

WELFARE REFORMS

The budget is expected to streamline flagship welfare schemes like the National Rural Employment Guarantee Act (NREGA), the largest public works programme in the world.

The scheme provides jobs for 50 million households and is credited for dramatically reducing distress sales of land in years of drought. But it is also a heavy burden on taxpayers and riddled with corruption.

HIGHER CAPITAL SPENDING

Investors are looking out for shifts from current to capital expenditure. In a report to parliament in December, the finance ministry called for higher public investment to offset weak corporate spending. The ministry reckons India needs to invest USD 800 billion to clock 7 per cent growth a year.

MANUFACTURING BOOST

The 2015/16 Budget is expected to give a big push to Modi’s ‘Make in India’ campaign, with tax breaks and other incentives for several sectors. The campaign is a centrepiece of the Indian leader`s plan to create jobs and rejuvenate the under-performing economy.

GOODS AND SERVICES TAX

Jaitley has promised to implement a nationwide Goods and Services Tax (GST) from April 1, 2016. He introduced a bill in parliament in December to rationalise state and central indirect taxes into a harmonised sales tax.

However, its passage depends on whether he can honour his promise to compensate states for potential revenue losses. The budget is expected to detail the promised compensation package.

BANKING REFORMS

Jaitley is expected to offer a road map to improve the health of ailing public sector banks, which have been hobbled by bad loans and corporate governance issues.

At a one-of-a-kind huddle with the government last month, state-run banks had suggested setting up a holding company to manage them and suggested reducing state ownership to below 51 per cent.