The Finance minister in interim Budget of 2014-15, the last of UPA-II government managed to contain the twin deficit and provided more optimistic growth and deficit target for the next financial year. The FM has taken some initiatives in Indirect tax rate by tweaking excise duty in favour of some sectors like Automobile, FMCG and Capital goods. The steps taken by government are too small and we don’t expect that it would improve the economic activity. The FM has overlooked the problems of several other sectors and structural problems of revenue and expenditure fronts. We expect market will overlook the interim budget and will focus on next general elections.
- The Gross Domestic Product (GDP) for FY14 estimated at 4.9%. The FM expects Q3 & Q4 FY14 GDP growth to be at least 5.2%.
The Fiscal deficit has been curtailed down to 4.6% of GDP for FY14 (against target of 4.8%). The fiscal deficit has come down in FY14 mainly by cutting plan expenditure and higher than expected income from the auction of 2G spectrum. Fiscal Deficit target for FY15 is budgeted at 4.1% of GDP.
- The Current account deficit has contracted to $45 billion for FY14, which is considerably lower than $88 billion in FY13.
The Forex reserve has increased by $15 billion during FY14.
The total tax revenue is budgeted to grow at 19% YoY over Revised Estimate (RE) of FY14. This number looks ambitious, as government was able to achieve growth rate of 12% for FY14. Further, gross tax to GDP ratio has been budgeted at 10.7% as against revised estimate of 10.2% of GDP in FY14. However, indirect tax collection registered a single digit growth rate as per revised estimates of FY14 in comparison to budgeted target of close to 19%. This was largely anticipated given the slowdown that has been witnessed in manufacturing sector.
Non-Tax revenue includes interest receipts, dividends & profits and other receipts like proceeds from auction of telecom spectrum etc. Non-tax revenues are expected to drop by 6% in FY15 compared to revised estimate of FY14. This is because of the base effect since RE for FY14 recorded greater non revenue collections led by higher than budgeted collections under interest receipts and dividends and profits. The amount garnered through dividends and profits from PSUs during FY14 stood at INR 88,200 Crore, it is not expected to maintain their momentum in FY15 and have been budgeted lower at INR 77200 crore.
The Ministry has restructured plan expenditure aggressively to meet the deficit target, with the revised estimate for FY14 at INR 4.75 lakhs crore, sharply lower compared to INR 5.55 lakhs crore budgeted. For the next fiscal, the plan expenditure has been budgeted at the same level as the FY14 budget, which implies a growth of 17% over RE of the current fiscal. The non-plan expenditure has been pegged slightly higher at INR 12.08 lakhs crore for FY15. Hence the total budgeted expenditure for FY15 is seen at INR 17.62 lakhs crore.
The FM intends to limit the subsidy burden to ~2.3% of GDP in FY15 as against 2.5% seen in FY14. Food, fertilizer and fuel subsidy for FY15 is pegged at 2.46 lakh crore, slightly more than 2.45 lakh crore in 2013-14. We will also see the fuel subsidy roll over of INR 35000 crore to next fiscal year.
The Gross borrowing is expected to rise by 6% in FY15 to INR 5.97 lakhs crore amid heavy redemption pressure with government also conducting INR 50000 crore of debt switch. The net borrowing, at Rs 4.57 lakh crore, is in-fact lower by 3% from FY14RE.
- Excise duty cut on Automobiles: The FM provided the much needed help to automobile industry by reducing Excise duty by 4% to 6% across the segments. The reduction would be applicable till June 30, 2014 and would be reviewed subsequently. We expect reduce rate to continue for the entire period of FY15. The rate changes are as mention below:
- a) Excise duty cut from 12% to 8% on small cars, two wheelers and CVs.
b) Excise duty on SUV is lowered from 30% to 24% and it is lowered from 27/24% to 24/20% for large and mid segment cars.
Excise duty on mobile phones cut to 6% with CENVAT credit or 1% without CENVAT credit.
Customs duty on non-edible grade industrial oils, fatty acids, and fatty alcohol cut to 7.5%.
The government has reduced the excise duty on nuclear reactors and related appliances, electrical machinery & equipment parts, sound recorders and reproducers, television image and accessories of such articles from 12% to 10%.
Written By:Equity Research Desk
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