13

th
July 2014



Union Budget 2014-2015


Analysis presented by:-




Equit-I Team:-
Devang Jain
Gyanesh Phulambrikar
Manjot Singh Bedi
Nirmal M.S
Trina Chowdhury
Email Id: - equiti@iimidr.ac.in
Facebook:-Equit-I IIM Indore






1
1 Union Budget 2014-2015
Contents
Key Initiatives and Their Impact .................................................................................................................... 2
Budget Reactions From Industry Leaders ..................................................................................................... 4
Budget 2014-15 Highlights ............................................................................................................................ 5
Budget Estimates ...................................................................................................................................... 5
Administrative Initiatives .......................................................................................................................... 5
Economic Initiatives .................................................................................................................................. 5
FDI ......................................................................................................................................................... 5
Real Estate and Infrastructure ............................................................................................................. 5
Industry ................................................................................................................................................. 6
MSME Sector ......................................................................................................................................... 6
Textiles .................................................................................................................................................. 6
Agriculture ............................................................................................................................................ 7
Information Technology and Broadcasting ........................................................................................... 7
Culture and tourism ............................................................................................................................. 7
Education .............................................................................................................................................. 7
Financial Sector ......................................................................................................................................... 8
Capital Market....................................................................................................................................... 8
Banking and PSUs ................................................................................................................................. 8
Defence and Internal Security .................................................................................................................. 8
Social Sector .............................................................................................................................................. 8
Taxation..................................................................................................................................................... 8
Direct Tax Proposals .............................................................................................................................. 8
Indirect Tax Proposals ........................................................................................................................... 9
Service Tax Proposals ............................................................................................................................ 9












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2 Union Budget 2014-2015
Key Initiatives and Their Impact
Rs 7,060 crore provided for developing 100 Smart Cities

Impact: The concept of smart city is influenced by the idea of developing satellite towns of major cities as well
as other smaller cities which would be running on technology to provide better electricity and water supply,
improve sanitation and recycling, proper traffic and transport management systems. Unless new cities are
developed to accommodate the burgeoning number of people, the existing cities would soon become
unlivable. Creating 100 smart cities was one of the poll promises made by the BJP

Proposed tax incentives for two new investment instruments REITs and InvITs

Impact: Real estate investment trusts (REITs) will help cash-strapped property developers access cheaper
funds and give local investors the chance to invest in real estate without some of the attendant risks. These
will provide succor to several liquidity starved real estate companies that currently have a high level of debt on
their books. REITs will get pass-through entity status and other incentives and will not have to pay corporate
tax. Infrastructure Investment Trusts (InvITs), is a modified REIT-type structure for infrastructure projects
which would have a similar tax efficient pass through status

Excise duty exemptions for raw materials for solar and wind power projects
Impact: Developing renewable energy will also help reduce dependence on coal, which is in short supply
domestically, requiring imports of the mineral to fuel most of Indias power plants.

FD Relaxation in Real Estate and increase in FDI limit from 26% to 49% in Defence and Insurance

Impact: Opening up of FDI in Real Estate will bring in opportunities for cheaper capital for smaller projects;
improve quality and delivery of low cost and affordable housing projects. Currently a large number of projects
do not fulfill the minimum threshold conditions and thus only big projects are able to attract attention from
foreign private equity funds

Greater foreign investments in the defence sector will help boost domestic manufacturing and create jobs
while cutting India's dependence on import of military equipment. According to Shashwat Sharma, Partner,
KPMG, Hike in FDI in Insurance should provide impetus for spurring growth of the insurance industry and
enable foreign players to bring in capital required for growing distribution, product suite and strengthening
the risk framework. This move may enable existing players to expand their reach in Tier II and Tier III cities

Setting up of Rs 10,000 crore venture capital fund for MSME and review of definition of MSME
will be reviewed to provide for a higher capital ceiling

Impact: VC Fund will act as a catalyst to private capital by providing quasi-equity, soft loan, and other risk
capital for start-up companies and will encourage more risk capital and equity-based fund flow to
entrepreneurs. Quantum of allocated funds may not be adequate to meet the needs of India's growing base of
first generation entrepreneurs. The success of such a fund will largely depend on implementation








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3 Union Budget 2014-2015
Personal tax sops: Exemption under Income tax, Investment under 80C and PPF raised

Impact: This will benefit all individuals and also achieve the twin objectives of encouraging the households to
make long-term savings, and also increase overall savings rate which has fallen considerably over the last five
years

Investment allowance of 15% to manufacturing companies, 10 year tax holiday to generation,
distribution and transmission of power,

Impact: The investment allowance for companies will boost investment in indigenous industry and help
overcome cheap, low-cost imported products. Extension of the 10-year tax holiday to 2017 should encourage
new investments especially in private sector, across all segments of generation, transmission, and distribution

Introduction of uniform KYC norms and inter-usability of the KYC records across the entire financial
sector and one single operating demat account

Impact: This will encourage consumers to participate in Indian capital markets. The single demat account will
make life of consumers easier as they can track all investments through a single window
Rise in long term capital gain tax rate on debt oriented mutual funds from 10.3% to 20.6% and the
capital gain is applicable if the units of Debt Funds are kept for more than 3 years

Impact: - Investors will have to pay longterm capital gain tax after three years at the rate of 20% with
indexation. (10% with indexation is removed). So, debt mutual funds including FMPs with the time horizon or
maturity period below three years become unattractive especially for investors who have investment horizon
between 1 to 3 years. This has also reduced tax arbitrage between fixed deposit and debt mutual funds

Banks permitted to raise long-term funds for infrastructure lending with minimal regulatory
restrictions such as CRR, SLR and priority sector lending

Impact: - Proposed bonds for infrastructure sector will help banks to manage the asset-liability mismatch.
Moreover, minimum regulatory pre-emption on such bonds will reduce their cost (by up to 120 bps)














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4 Union Budget 2014-2015
Budget Reactions From Industry Leaders

After the excitement of the election and Narendra Modi's very large victory, and the associated rally in
Indian markets since, for me personally, the budget was a slight disappointment. While emphasising a
commitment to budget restraint especially for future years, as well as announcing some steps for
boosting FDI in a couple of sectors, there was no real "wow" factor from what I could see
Jim ONeil,
Former Chairman,
Goldman Sachs Asset Management

Arun Jaitley's budget for 2014-15 has pulled out a balancing act and clearly spells out a vision that the new
government will be committed to push the growth pedal by encouraging investment in the economy in the coming
years. A clear commitment to rein in the fiscal deficit in line with the FRBM Act in a calibrated fashion,
implementing the long pending GST framework within FY14-15 and liberalizing FDI restrictions in key sectors
happened to be the most distinguishing elements of this year's budget at a macro level.
Sunil Bharti Mittal,
Chairman, Bharti Enterprises

Budget 2014 has been a good start in addressing the structural issues. In the presentation of the new
government's first Budget, I was encouraged by the tone of the administration, particularly towards fostering a
strong investment climate that will attract FDI, streamlining a complex tax regime, particularly by pushing through
a solution for the goods and services tax and a focus on fiscal prudence
Tony Fernandes,
Chairman, Air Asia

Budget 2014 clears air on taxation and pushes infrastructure and manufacturing sectors. The new government's
maiden Budget is sober and responsible. There are no pretensions of big bang reforms. It is firmly anchored to the
reality of a weak fiscal position. Yet, it also accords due emphasis to stoking growth, particularly in the
infrastructure and manufacturing sectors
Kumar Mangalam Birla,
Chairman, Aditya Birla Group

Bonds to give long-term loans to infra would be cost effective because additional cost of SLR/CRR wont apply in
this case. According to her this is very logical because if you will raise very long-term bonds, they should not have a
requirement of liquidity reserves. This would just ensure that the banks can go out there and fund projects without
taking asset liability mismatches in their own books
Chanda Kochhar,
MD & Chairman, ICICI Bank

While the Budget announced by Finance Minister Arun Jaitley will be useful in increasing investments and hence
growth, some aspects of it will need a reduction in minimum alternate tax (MAT) for proper execution
Adi Godrej,
Chairman, Godrej Group





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5 Union Budget 2014-2015
Budget 2014-15 Highlights
Budget Estimates

Fiscal deficit target set at 4.1% and revenue target set at 2.9% of the 2014/15 GDP.
Fiscal deficit target for 2015/16 seen at 3.6% and for 2016/17 seen at 3% of GDP.
Finance Minister aims at a sustained growth of 7-8% in next 3-4 years.
Non-plan Expenditure of Rs 12,19,892 crore with additional provision for fertilizer subsidy and Capital
expenditure for Armed forces
Rs 5, 75,000 crore plan expenditure increase of 26.9 per cent over actuals of 2013-14.
Gross Tax receipts of Rs 13,64,524 crore estimated
Administrative Initiatives

Convergence with International Financial Reporting Standard (IFRS) by Adoption of the new Indian
Accounting Standards (2nd AS) by Indian Companies.
The contours for Goods and Services Taxation to be finalized this fiscal. The government of India is looking
into DTC proposal.
Committed to provide a stable and predictable taxation regime that would be investor friendly and spur
growth. All fresh cases arising out of the retrospective amendments of 2012 in respect of indirect
transfers and coming to the notice of the Assessing Officers will be scrutinized by a High Level Committee
to be constituted by the CBDT before any action is initiated
Economic Initiatives
FDI
The composite cap of foreign investment in defence manufacturing and insurance sector to be raised to
49 per cent with full Indian management and control through the FIPB route.
Requirement of the built up area and capital conditions for FDI to be reduced from 50,000 square meters
to 20,000 square meters and from USD 10 million to USD 5 million with a three year post completion lock
in for the development of smart cities.
Projects which commit at least 30% of the total project cost for low cost affordable housing will be
exempted from minimum built up area and capitalization requirements, with a 3 year lock-in
Foreign owned manufacturing units allowed to sell their products through retail including e commerce.
Real Estate and Infrastructure
A sum of Rs 7,060 crore is provided in the current fiscal for the project
of developing 100 Smart Cities as satellite towns of larger cities and
by modernizing the existing mid-sized cities
Will provide the necessary tax changes to introduce real estate
investment trusts (REITS) and infrastructure investment trusts (INVITS)
to reduce the pressure on the banking system while also making
available fresh equity
Proposes Rs 4,000 crore for low cost affordable housing through
National Housing Bank (NHB) and extending tax incentives for housing
loans by increasing the deduction limit on account of interest on loan
in respect of self occupied house property from Rs 1.5 lakh to Rs 2 lakh




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6 Union Budget 2014-2015
Increase in allocations for 2014-15 to Rs 8,000 crore for National Housing Bank (NHB) to support Rural
Housing
Shyama Prasad Mukherji Rurban Mission for integrated project based infrastructure in the rural areas
Rs 500 crore for Deen Dayal Upadhyaya Gram Jyoti Yojana for feeder separation to augment power
supply to the rural areas
Rs 14,389 crore provided for Pradhan Mantri Gram Sadak
Yojna (PMGSY).
Slum development to be included in the list of Corporate
Social Responsibility (CSR) activities
SEZs will be developed in Kandla and JNPT.
Scheme for development of new airports in Tier I and Tier II
Cities to be launched
Rs 100 crore for metro projects in Lucknow and Ahmedabad
Rs 2,250 crore for the development and modernization of the border infrastructure
Rs 1,000 crore to enhance rail connectivity in the Northeast
An investment of an amount of Rs 37,880 crores in NHAI and State Roads is proposed which includes Rs
3000 crores for the North East
Rs 500 crores provided for Ultra Mega Solar Power Projects in Rajasthan, Gujarat, Tamil Nadu, Andhra
Pradesh and Ladakh
Industry
Rs 100 crore provided for setting up a National Industrial
Corridor Authority.
Master planning of 3 new smart cities in the Chennai-
Bengaluru Industrial Corridor region, viz., Ponneri in Tamil
Nadu, Krishnapatnam in Andhra Pradesh and Tumkur in
Karnataka to be completed.
Amritsar Kolkata Industrial master planning to be
completed expeditiously.
MSME Sector
Fund of Funds with a corpus of Rs 10,000 crore for providing equity through venture capital funds, quasi
equity, soft loans and other risk capital specially to encourage new startups by youth.
Corpus of Rs 200 crore to be set up to establish Technology Centre Network.
Definition of MSME to be reviewed to provide for a higher capital ceiling.
A nationwide District level Incubation and Accelerator Programme to be taken up for incubation of new
ideas and necessary support for accelerating entrepreneurship
Textiles
Sum of Rs 500 crore for developing a Textile mega-cluster at Varanasi and six more at Bareilly, Lucknow,
Surat, Kutch, Bhagalpur and Mysore.
Rs 50 crore is provided to set up a Trade Facilitation Centre and a Crafts Museum to develop and promote
handloom products and carry forward the rich tradition of handlooms of Varanasi.
Rs 20 crore to set up a Hastkala Academy for the preservation and revival of the handloom/handicraft
sector in PPP mode in Delhi and Rs 50 crore to start a Pashmina Promotion Programme (P-3) and
development of other crafts of Jammu & Kashmir







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7 Union Budget 2014-2015
Agriculture
An amount of Rs 100 crores set aside for Agri-tech
Infrastructure Fund
To mitigate the risk of price volatility, Rs 500 crore is
provided for establishing a Price Stabilization Fund
Setup of National Adaptation Fund for climate change
with an initial sum of Rs 100 crore
Allocation of Rs 5,000 crore provided for the Warehouse
Infrastructure Fund
To provide institutional finance to landless farmers, it is
proposed to provide finance to 5 lakh joint farming groups of Bhoomi Heen Kisan through NABARD.
Long Term Rural Credit Fund to set up for the purpose of providing refinance support to Cooperati ve
Banks and Regional Rural Banks with an initial corpus of` 5,000 crore
Corpus of Rural Infrastructure Development Fund (RIDF) raised by Rs 5000 crores to Rs 25000 crores.

Information Technology and Broadcasting
Pan India programme Digital India with an outlay of Rs 500 crore to be launched
Rs 100 crore allocated for 600 new and existing Community Radio Stations
Rs 100 crore is provided for Kisan TV, to disseminate real time information to the farmers on issues such
as new farming techniques, water conservation, organic farming etc

Culture and tourism
Electronic Travel Authorization (e-Visa) Facility to be introduced
in phased manner at 9 airports
Rs 500 crore provided for developing 5 tourist circuits around
specific themes
Sarnath-Gaya-Varanasi Buddhist circuit to be developed with
world class tourist amenities

Education
Five more IIMs to be opened in HP, Punjab, Bihar, Odisha and
Rajasthan.
Five more IITs in Jammu, Chattisgarh, Goa, Andhra Pradesh and
Kerala.
Four more AIIMS like institutions to come up in Andhra Pradesh,
West Bengal, Vidarbha in Maharashtra and Poorvanchal in Uttar
Pradesh
Four more AIIMS like institutions to come up in Andhra Pradesh,
West Bengal, Vidarbha in Maharashtra and Poorvanchal in Uttar
Pradesh






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8 Union Budget 2014-2015
Financial Sector
Capital Market
Introduction of uniform KYC norms and inter-usability of the KYC
records across the entire financial sector. Introduction of one single
operating demat account.
Uniform tax treatment for pension fund and mutual fund linked
retirement plan.
Banking and PSUs
Requirement to infuse Rs 2, 40,000 crore as equity by 2018 in PSU banks in line with Basel-III norms.
Capital of banks to be raised by increasing the shareholding of the people in a phased manner.
PSUs to invest over Rs 2.47 lakh crore this fiscal to create a virtuous investment cycle
Banks to be encouraged to extend long term loans to infrastructure sector with flexible structuring. Banks
to be permitted to raise long term funds for lending to infrastructure sector with minimum regulatory pre-
emption such as CRR, SLR and Priority Sector Lending (PSL)
Six new debt recovery tribunals to be set up to curb rising NPAs of the banks
Defence and Internal Security
Capital outlay for Defense increased by Rs 5000 crore
including a sum of Rs 1000 crore for accelerating the
development of the Railway system in the border areas.
Rs 100 crore is provided to set up a Technology Development
Fund for Defense.
Total amount kept aside for defense projects is Rs 6,200
Crores.
Total amount kept aside for internal security projects is Rs
6,440 Crores.
Social Sector
Mandatory wage ceiling of subscription to EPS (Employee Pension Scheme) raised from Rs 6,500 to Rs
15,000 and a provision of Rs 250 crore has been made in the budget
Minimum pension increased to Rs 1,000 per month. Initial provision of Rs 250 crore
Van Bandhu Kalyan Yojna launched with an initial allocation of Rs 100 crore
Beti Bachao, Beti Padhao Yojana to generate awareness and help in improving the efficiency of delivery of
welfare services meant for women.
Rs 150 crore allocated for increasing safety of women in large cities
Govt provides Rs 500 crore for rehabilitation of displaced Kashmiri migrants
Taxation
Direct Tax Proposals
Income tax exemption raised by Rs 50,000 to Rs 2.5 Lakh and
for senior citizen raised to 3 Lakh.
Exemption limit for investment in financial instruments under
80C raised to Rs 1.5 Lakh from Rs 1 Lakh
In the PPF Scheme, annual ceiling will be enhanced to Rs 1.5
lakh p.a. from Rs 1 lakh at present




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9 Union Budget 2014-2015
Investment allowance @15% to manufacturing companies that invests more than Rs 25 crore in any new
year in new plant and machinery.
10 year tax holiday extended to undertakings which begin generation, distribution and transmission of
power by 31.03.2017.
Long term capital gains taxation for mutual funds other than equity oriented funds doubled to 20 percent.
However the lock in period was increased to 3 years.
Income and dividend distribution tax to be levied on gross amount instead of amount paid net of taxes.
In case of non-deduction of tax on payments, 30% of such payments will be disallowed instead of 100%.
Withholding taxes on corporate bonds raised to 5% until June 30, 2017.
Net effect of direct tax proposals to result in revenue loss of Rs 22,200 Crore.
Indirect Tax Proposals
To encourage production of LCD and LED TVs below 19 inches in India, basic customs duty on LCD and LED
TV panels below 19 inches reduced from 10 percent to NIL.
To give an impetus to the stainless steel industry, increase in basic customs duty on imported flat-rolled
products of stainless steel from 5 percent to 7.5 percent.
Concessional basic customs duty of 5 percent extended to machinery and equipment required for setting
up of a project for solar energy production and compressed bio gas plants.
Basic customs duty increased to 5% on coal and coke
Basic custom duties on semi-processed, half cut and broken diamonds and coloured gem stones
rationalized at 2.5%.
Export duty on bauxite increased from 10 to 20%.
To incentivize expansion of processing capacity, reduction in excise duty on specified food processing and
packaging machinery from 10 percent to 6 percent
Reduction in the excise duty from 12 percent to 6 percent on footwear of retail price exceeding 500 per
pair but not exceeding 1,000 per pair.
Specific rates of excise duty increased on cigarettes in the range of 11 per cent to 72 per cent.
Excise duty increased from 12 percent to 16 percent on pan masala, from 50 percent to 55 percent on
unmanufactured tobacco and from 60 percent to 70 percent on gutkha and chewing tobacco.
Levy of an additional duty of excise at 5 percent on aerated waters containing added sugar.
To finance clean environment initiatives, clean energy cess increased from 50 per tonne to 100 per tonne
Tax proposals on the indirect taxes side are estimated to yield Rs 7,525 crore
Service Tax Proposals
Services by air-conditioned contract carriages and technical testing of newly developed drugs on human
participants brought under service tax.
Services provided by Indian tour operators to foreign tourists in relation to a tour wholly conducted
outside India to be taken out of the tax net and Cenvat credit for services of rent-a-cab and tour operators
to be allowed to promote tourism.
Service tax exempted on loading, unloading, storage, warehousing and transportation of cotton, whether
ginned or baled.
Services provided by the Employees State Insurance Corporation for the period prior to 1st July 2012
exempted, from service tax.
Exemption available for specified micro insurance schemes expanded to cover all life micro-insurance
schemes where the sum assured does not exceed 50, 000 per life insured
Indian Customs Single Window Project to facilitate trade, to be implemented.
24X7 customs clearance facility extended to 13 more airports in respect of all export goods and to 14
more sea ports in respect of specified import and export goods to facilitate cargo clearance