Union Budget 2014-15 presented by Finance Minister Arun Jaitley on July 10, the maiden budget of the Narendra Modi-led NDA government, was keenly awaited to see whether it would herald the coming of good days for the downbeat business sentiment.

The budget has by and large met expectations : it has steered clear of a major hike in tax rates as this could dampen the incipient recovery in the economy and has instead banked on the outcome of a rejuvenated business sentiment and gathering of economic pace during the year, to achieve fiscal consolidation.

The budget contains several business and investment friendly proposals, like infrastructure and real estate financing,PPP, FDI and smart cities. However, partly reflecting profit booking from pre-budget peaks, BSE Sensex ended the trading session nominally lower; the decline got steeper the following day.

The budget’s projections, particularly in revenue receipt, would depend critically on economic growth which in real terms is projected at 5.4-5.9 per cent, against 4.7 per cent for FY14. With southwest monsoon looking set to play spoilsport — cumulative rainfall till July 9 was assessed 43 per cent short of long-term average and IMD forecast 7 per cent rainfall deficit in early June for June-September rainfall season — the farm sector, hydropower as also the economy may underperform. This may put downward pressures on fiscal receipt on one hand and upward pressures on government disbursements on the other, to contain inflation, which together could lead to some slippage in fiscal deficit.

Budget numbers
Factoring an economic expansion of 13.4 per cent at current prices, the budget has projected 16.9 per cent increase in tax revenue after taking into account Rs. 14,675 crore loss (1 per cent of gross tax collection) due to tax cuts. FY14 had seen a much lower 12.7 per cent tax receipt rise resulting from 12.2 per cent economic growth.

Non-tax revenue growth has been projected at a moderate 10 per cent, against 41 per cent increase in FY14 on the back of hikes forked out in dividend payouts by PSUs. A massive Rs. 63,425 crore, nearly two-and-a-half times raised in FY14 is budgeted from PSU share sales. By the way, actual yield from PSU equity sale in 2013-14 was less than half of that budgeted for the year.

The growth in total expenditure would be maintained at 12.8-12.9 per cent. Underlying a change in quality of disbursements, capital expenditure including revenue account grants for capital asset creation, would rise by a higher 20 per cent, against 16.5 per cent in FY14 (14.4 per cent); revenue account disbursements would slow from 12 per cent to 11 per cent. The total expenditure is budgeted at Rs. 17.9 trillion: revenue expenditure Rs. 14 trillion and capital expenditure including Rs. 1.7 trillion of revenue account grants for capital assts, Rs. 3.9 trillion. At Rs. 5.31 trillion the fiscal deficit would be 4.1 per cent of GDP, against 4.6 per cent in FY14 and 4.8 per cent in previous two years.

Among the disbursements, defence, including defence capital outlay of Rs. 0.95 trillion, would claim Rs. 2.29 trillion (+12 per cent), subsidies Rs. 2.61 trillion (+2 per cent) and interest payment Rs. 4.27 trillion (+12 per cent), Central Plan allocation Rs. 2.37 trillion and Plan assistance to state plans Rs. 3.38 trillion.

Following restructuring of 126 centrally sponsored schemes and their transfer to state plans as Central Assistance from FY15, the states and UTs get 59 per cent plan budget allocation, more than twice their share in FY14. As a result of this restructuring that has shifted fund management to the states from the central ministries, the share of Central Plan in plan expenditure has gone down from 75 per cent in FY14 to 41 per cent in FY15.

Central Plan outlay has been assessed at Rs. 4.85 trillion for FY15, which includes resources of Central PSUs of Rs. 2.48 trillion and budget allocation of Rs. 2.37 trillion. Incidentally, resources of PSUs are projected lower, compared to Rs. 2.58 trillion in FY14 (RE).

Interim vs. Final Budget
The finance minister has said that in fixing 4.1 per cent fiscal deficit target for FY15, he has accepted the daunting challenge of sticking to this fiscal discipline indicator set in the Interim Budget presented last February by the UPA-II government even as there is little indication of a noticeable turnaround in the economy, excepting the business sentiment after the Modi government took over.

We may look at how Arun Jaitley has managed to incorporate the fiscal strategies of the Modi government in budget numbers, in just around 45 days of the new government taking over, even while sticking to the fiscal deficit norm. Here, we find that while tax receipt is budgeted Rs. 9,159 crore less due to tax concessions, perhaps, Jaitley expects to raise Rs. 29,132 crore more in aggregate non-debt receipt. Dividend and profit would be Rs. 13,000 crore more, “other non-tax revenue” Rs. 18,769 crore and PSU equity disinvestment Rs. 6,500 crore more. This would enable extra spending of Rs. 31,678 crore, leaving extra borrowing or fiscal deficit of Rs. 2,546 crore.

Significantly, in tune with the intended change in quality of expenditure, capital expenditure, including a larger portion in revenue grants for creation of capital assets, would rise Rs. 35,144 crore, even as revenue account disbursement would be Rs. 3,466 crore less (relative to Interim Budget provisions for the year).

2013-14 (BE)
2013-14 (RE)
2004-15 (BE)
Net Tax Revenue 629,765 741,877 884,078 836,026 977,258
Non-tax Revenue 121,672 137,355 172,252 193,226 212,505
Recovery of Loans 18,850 15,060 10,654 10,803 10,527
PSU Equity Disinvestment 18,088 25,890 55,814 25,841 63,425
Borrowings & Other Liabilities 515,990 490,190 542,490 524,539 531,177
Non-Plan Expenditure 891,990 996,747 1,109,975 1,114,902 1,219,892
Plan Expenditure 412,375 413,625 555,322 475,532 575,000
Budget Support for Central Plan 308,359 304,739 419,068 356,493 236,592
Central Assistance to States & UTs 104,016 108,886 136,254 119,039 338,408
Total Revenue Expenditure 1,145,785 1,243,514 1,436,169 1,399,540 1,568,111
Total Capital Expenditure 158,580 166,858 229,128 190,894 226,781
Total Expenditure (Plan,
Non-Plan/Rev, Cap
1,304,365 1,410,372 1,665,297 1,590,434 1,794,892
Revenue Deficit 394,348 364,282 379,838 370,287 378,348
Fiscal Deficit 515,990 490,190 542,499 524,539 531,177
Fiscal Deficit/GDP at
Market Prices (%)
5.7 4.8 4.8 4.6 4.1

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