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A look at India’s last five annual budgets


The countdown has begun for the biggest business and economic event of the year – the release of India’s annual budget on February 28. Finance Minister ArunJaitley is under pressure to unveil reforms that will put the country’s economy on a path of 7-8 percent growth over the next two years.

With the BSE Sensex gaining nearly 30 percent in 2014 and about 6 percent so far this year, investors are eagerly awaiting reforms in the budget, which is being billed as a “make-or-break” event for the government of Prime Minister Narendra Modi.

Based on a new calculation method, India grew 7.5 percent year-on-year in the last quarter and is on track to expand 7.4 percent in the year through March 31, but experts say the revised growth numbers are at odds with evidence on the ground.

Here’s a look at budgets between 2010 and 2014 — the hits, the misses, and how they affected the common man.

2014

FINANCE MINISTER: ArunJaitley

KEY HIGHLIGHTS

  • Accepts fiscal deficit target of 4.1 percent of GDP for 2014/15 inherited from the previous government.
  • All pending cases of retrospective tax for indirect transfers to be examined by committee before action taken.
  • An 8 percent rise in spending announced.
  • Limit on foreign direct investment in defence and insurance sector raised from 26 percent to 49 percent.
    • Government to seek to raise $10.5 billion from asset sales.

RATING AGENCY REACTIONS

  • Fitch Ratings: Budget “constructive” for India’s sovereign rating. Unsure how the fiscal deficit target of 4.1 percent could be achieved without revenue increases or spending cuts.
  • Moody’s Investors Service: Lack of details on how to narrow the fiscal deficit made it challenging to assess the credit impact.
  • Standard & Poor’s Ratings Services: Budget adopted a “cautious” approach in tackling some of the economy’s structural weaknesses. No bearing on India’s sovereign rating.

MARKET REACTION ON BUDGET DAY

The Nifty ended 0.23 percent lower at 7,567.75. It had earlier fallen as much as 1.4 percent to its lowest in nearly 2-1/2 weeks. The Sensex closed 0.28 percent lower at 25,372.75.

2013

FINANCE MINISTER: P. Chidambaram

KEY HIGHLIGHTS

  • Plan to cut the fiscal deficit to 4.8 percent of gross domestic product (GDP) in FY14.
  • Total budget expenditure to rise by 16 percent in the 2013/14 fiscal year to 16.65 trillion rupees.
  • Proposal for a surcharge (for one year) of 10 percent on rich taxpayers with annual income of more than 10 million rupees a year.
  • Increase in surcharge to 10 percent on domestic companies with annual income of more than 100 million rupees.

RATING AGENCY REACTIONS

  • Standard & Poor’s: No impact on India’s sovereign credit ratings. Potential for the government to exceed its budgeted spending.
  • Fitch Ratings: Budget will not impact India’s sovereign ratings, although the country could find it challenging to meet its fiscal deficit target of 4.8 percent.

MARKET REACTION ON BUDGET DAY

  • The BSE Sensex fell 290.87 points (1.52 percent) to end at 18,861.54, hitting its lowest close since November 27, 2012.

2012

FINANCE MINISTER: Pranab Mukherjee

KEY HIGHLIGHTS

  • India projects a decline in fiscal deficit to 5.1 percent of GDP in 2012/13. GDP expected to grow at 7.6 percent.
  • Controversial proposal to retrospectively tax cross-border transactions in which the underlying assets are located in India. The move amounts to a push to get foreign companies that have invested millions in India to pay more taxes. Or in India’s words, it’s supposed to fight “counter aggressive tax avoidance schemes”.
  • Service tax rate raised to 12 percent from 10 percent, double basic customs duty on gold.
  • No change in corporate tax rates. Personal Taxation: minimum threshold of income not chargeable to tax increased to 200,000 rupees. The 30 percent tax slab applicable on income above 10,00,000 rupees.

RATING AGENCY REACTIONS

  • Moody’s Investors Service: Mildly negative for India’s credit rating. India’s budget lacks new solutions to address its fiscal constraints and is credit negative for the sovereign.
  • Standard & Poor’s: The budget was “mildly negative” for India’s credit rating, noting that the timing remained uncertain for long-awaited reforms.

MARKET REACTION ON BUDGET DAY

  • The BSE Sensex fell 210 points (1.2 percent) to close at 17,466 as the budget was seen as too modest for a corporate sector looking for more concessions. During trade, the index fell nearly 250 points.

2011

FINANCE MINISTER: Pranab Mukherjee

KEY HIGHLIGHTS

  • Social spending to rise by 17 percent in 2011/12, helping millions of Indians. Fiscal deficit seen at 4.6 percent of GDP in 2011/12.
  • Spending on infrastructure increased by 23 percent.
  • Service tax rate kept at 10 percent, but scope widened. Minimum Alternate Tax (MAT) raised to 18.5 percent from 18 percent.
  • Personal income tax exemption limit raised to 180,000 rupees. Surcharge on domestic companies reduced to 5 percent.

RATING AGENCY REACTIONS

  • Standard & Poor’s: India’s fiscal deficit target for 2011/12 may be bit difficult to attain given upside risks to oil subsidy and wage bill under the social employment programmes.

MARKET REACTION ON BUDGET DAY

  • The BSE Sensex ended up 0.69 percent at 17,823.40 points after rising as much as 3.4 percent after the budget was unveiled.

2010

FINANCE MINISTER: Pranab Mukherjee

KEY HIGHLIGHTS

  • India plans record levels of borrowing for 2010/11 and counts on big growth to help cut its fiscal deficit to 5.5 percent of GDP.
  • Excise duty raised on petrol, diesel by 1 rupee per litre. Excise duty cuts on cement, cement products and large cars partially rolled back.
  • Minimum alternate tax rate raised to 18 percent from 15 percent. Service tax rate kept unchanged at 10 percent.
  • Corporate tax rate unchanged. Personal income tax slabs widened.

RATING AGENCY REACTIONS

  • Standard & Poor’s:“We believe the steps announced could signal a turning point that reverses the recent deterioration in India’s fiscal position.”

MARKET REACTION ON BUDGET DAY

  • The BSE Sensex rose as much as 2.6 percent after the budget before paring gains. The index ended with gains of 175.35 points (1.08 percent) at 16,429.55.

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