Dubai: India’s federal budget for 2015-16 unveiled this morning by finance minster Arun Jaitley has used fiscal space gained from the overall improvement in the economy and decline in oil to invest in the infrastructure sector.

According to budget estimates India’s fiscal deficit is projected to narrow to 3.9 per cent of gross domestic product (GDP) this financial year starting April 1. The deficit is expected to be 3.5 per cent in 2017 and 3 per cent 2018.

“With the economy improving, the pressure for accelerated fiscal consolidation too has decreased. The additional fiscal space will go towards funding infrastructure investment,” Jaitley said presenting the budget in the parliament.

“This is no secret that the major slippage in the last decades is on the infrastructure front,” Jaitley said. “Our infrastructure does not match our growth ambitions.”

Previous governments have cut spending on infrastructure to narrow the fiscal deficit. Subsidies accounted for 15 per cent of total spending in the current year’s budget.

“The Finance Minister has done a fine balancing act between expenditure on infrastructure growth and additional revenue generation to push the reform agenda,” said Navin Kapoor, Secretary General, Indian Business and Professional Council, Dubai.

To make the subsidies more efficient and targeted the Finance Minister announced yesterday that all subsidies will be made direct cash transfers through the banking channel.

“Modi Government’s first full year budget for the fiscal 2015-16 reflects the India road map Prime Minister Narendra Modi has been evoking ever since he came to power. While there are significant steps in the direction of economic growth priorities like the boost in infrastructure spending and phasing out of sick public sector units, the budget largely seems to aim at paving the way for India growth without losing sight of welfare priorities,” said Y. Sudhir Kumar Shetty, President, UAE Exchange.

Projected GDP growth

Jaitley said the government is committed to eliminating waste in subsidies without reducing the levels. Marking the 75th anniversary of India’s independence in 2022, the budget pledges to provide more homes across the country in both rural and urban areas.

While the GDP is projected to grow in excess of 8 per cent during the current financial year, the Finance Minister said double digit GDP growth is within reach for India. “With current GDP growing at 8-8.5 per cent year on year the targeting of double digit growth is fairly realistic and will spur all sectors of the economy to investment led growth,” said Adeeb Ahamed, CEO, LuLu International Exchange.

Key announcements in the budget included five mega power projects of 4,000 megawatts (MW), increased spending in to boost growth, creation of a social security net to cover all Indians and implementation of a uniform countrywide goods and services tax (GST) by April 2016.

Jaitley said the government has completed a monetary policy framework agreement with the Reserve Bank of India (RBI) that would contain inflation at 6 per cent opening room for rate cut. The Finance Minister also said the government would amend the RBI Act to establish a monetary policy committee without giving further details.

While the budget lacked major announcements on personal income tax, it said the maximum corporate tax will be reduced from the current 30 per cent to 25 per cent this year. The government has delayed implementation of the General Anti-Avoidance Rules (GAAR) until April 2017. The rules, first proposed in 2012, seek to prevent companies from routing transactions through other countries to avoid tax.

The Finance Minister said the government plans tougher punishments including jail terms of up to 10 years for those who hide undeclared cash outside the country and for the banks and advisers who help them, as it tries to bring back illicit billions stashed abroad. Evading tax on foreign assets will carry a jail sentence of up to 10 years, under the government’s proposed changes, while failing to disclose assets adequately will be punishable by up to 7 years.