Budget 2014: Reforms A Priority Or Populism
- Posted By Amritesh
- On September 14th, 2014
- Comments: no responses
The Budget 2014 was one of the most anticipated and hyped budget in the recent past. A new Government at the Centre backed by a strong mandate raised the hopes of the people belonging to different section of the society. It was also a very challenging task for the government as it had to tackle many issues upfront and also deliver on the expectation of the people. It had to check the continuous slide in the GDP over the past few Quarters as well as control the fiscal deficit. Plan and formulate strategies to bring reforms and growth to the forefront and at the same time reduce burden on the common people.
GDP Growth in Last Few Quarters
GDP YoY Growth | Reference | Actual | Previous | Forecast |
GDP Growth Rate | Q3 2013 | 4.8% | 4.4% | 4.32% |
GDP Growth Rate | Q4 2013 | 4.7% | 4.8% | 4.2% |
GDP Growth Rate | Q1 2014 | 4.6% | 4.7% | 4.79% |
GDP Growth Rate | Q2 2014 | 5.7% | 4.6% | 4.96% |
Let’s look at the few highlights of the Budget 2014 related to Reforms and addressing Populism needs:-
- Government proposes to increase the investment limit under 80C from existing `1lac to `1.5lac per annum.
- Tax Exemption limit for small and marginal, tax payers changed from `2.0 lacs to 2.5 lacs. For senior citizens the limit has been raised to `3.0 lacs from 2.5 lacs per annum.
- Public Provident Fund limit to be raised from `1.0 lac to 1.5 lacs.
- House Loan tax rebate to be raised from `1.5 lacs to `2.0 lacs.
- Government aims to provide all households with banking facilities in order to empower the weaker sections.
- FM announces FDI in defence up from 26% to 49% with Indian management and control.
- FDI in Insurance increased to 49%.
- Propose to provide Financial Assistance to 5 lac farmers through NABARD.
- Industrial Smart Cities to come up in 7 cities.
- National Industrial Corridor to be set up `1000 crore .
- National Highways Development and improved connectivity `37,800 crores have been set aside.
ANALYSIS OF THE BUDGET
I have highlighted few points addressed in the budget and considering the economic situation and need for reforms in the long run I believe the Budget 2014 is pretty balanced. Economy is expected to grow in the range of 5%-6% in the current fiscal year as compared to sub 5% in the previous two years. The Global Economy is showing signs of recovery which will augur well for our Domestic Economy as well. The Euro crisis also is showing signs of stability as of now. The Dollar to Rupee scenario has also consolidated over a period of time and I do expect cut in the fuel prices which in turn will also help to keep inflation under check. Moreover, with new avenues opening or limits being raised for FDI will result inflows of investment which will not only help economy but also lead to generation of more and more jobs for the younger generation.
Emphasis on Infrastructure development is also important for the development of the economy as well as society and we find allotment of funds for the same which is encouraging too.
Focus on Industrial Sectors specially Manufacturing and Services is also essential as it would lead to generation of jobs in the core sectors. Industrial growth contracted to less than 1% in the previous two years lead to slowing down or under utilization resources. Service Sector which emerged as the fastest growing sector in the last decade also showed signs of slowing down in the past two years. But 2014 does promise to bring growth and stability for all these sectors.
The 2014-15 does promise a lot for us as we now have a strong and stable government at the Centre. Economy is looking to revive itself backed by better domestic growth as well as improving Global Economy. Stock Markets are trading at an all time high and Gold Prices too are holding up. However Investors need to remain cautious as investing in this type of market could turn out to be risky as well. The Budget does focus on reforms and infrastructure development and also makes an honest attempt to cut down on the fiscal deficit. Budget also tries to appease the Common People by raising the Tax Slab and also providing relief on home loans and investments.
Thus overall the Budget seems to have something for everyone. But I did expect some major announcement on GST, Direct Tax Code and Transfer Pricing. But it is still early days we can hope for more reformist measures in the future. I also do feel going forward some hard and non populist decision might need to be taken in order to push the reforms.
I will discuss Tax Planning and Deductions in my upcoming posts.
www.amritfinaa.blogspot.com
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