Budget 2015: Some Preliminary Thoughts

The Finance Minister today announced
India’s Budget 2015-2016. The Budget documents, including his speech are
available here.

It is significant that this Budget
comes during a period of upturn in the economy after a few preceding years of
perceived gloom and doom, especially from the perspective of foreign investors.
Other features attributable to the current macroeconomic environment include
slowing inflation. As the Finance Minister notes in his Budget speech:

5. … In
November, 2012, CPI inflation, stood at 11.2%, the current account deficit by
the first quarter of 2013-14 had reached 4.6% of GDP, and normal foreign
inflows until March 2014 were $15 billion. …

6. We have come a
long way since then. The latest CPI inflation rate is 5.1%, and the wholesale
price inflation is negative; the current account deficit for this year is
expected to be below 1.3% of GDP; based on the new series, real GDP growth is
expected to accelerate to 7.4%, making India the fastest growing large economy
in the world; foreign inflows since April 2014 have been about $55 billion, so
that our foreign exchange reserves have increased to a record $340 billion; the
rupee has become stronger by 6.4% against a broad basket of currencies; and
ours was the second-best performing stock market amongst the major economies.

(On a related note, two pieces (here
and here)
in last week’s Economist magazine echo this trajectory make a strong case for
India’s economic prospects)

The Budget proposals are hence made
in the context of a rebound in the economic growth with great expectations and
prospects for the future. The proposals touch upon a number of areas, and the
key highlights are available here. While we hope
to deal with some of the more specific proposals relating to the subject matter
of this Blog in a series of subsequent posts, in this I set out some of the key
philosophical overtones and policy goals that are evident in the Budget.

From a corporate or business
perspective, one of the major focus areas of the Budget relates to the “ease of
doing business”. This is not surprising given that the policy paralysis in the
past has driven away foreign investors and has also set up hurdles for domestic
businesses and entrepreneurs. The Budget has a close eye on reversing this
trend. The Government has also undertaken measures in the past in this
direction, particularly with a view to enhancing India’s position in the World
Bank’s Doing Business rankings.

Related to this is the topic of
“Make in India” that finds a prominent place in the Budget. Several reforms
focus on enhancing manufacturing and other business activities in India. In
order to enable capital raising for Indian business (including in the small and
medium sector), there has been an effort in streamlining foreign investment
norms and also a push towards enhancing the utility of domestic funding
mechanisms such as alternative investment funds. The domestic push is also
evident in the emphasis on the infrastructure sector, which requires a major
fillip to support other sectors and enhance domestic industrial productivity.

Overall, there appears to be a lot
in the Budget to stimulate economic growth fuelled by further investments (both
domestic and foreign). Coupled with other reforms that have taken place
recently, including a revamp of the Companies Act, these are likely to have a
significant (and arguably positive) impact on the corporate sector in India.

We will address some of the more
specific topics emanating from the Budget in future posts.

[Update (March 1, 2015): The link to the Budget speech above does
not appear to carry the complete version (with some pages missing). For accessing
from an alternative location, please see here]

About the author

Umakanth Varottil

Umakanth Varottil is an Associate Professor at the Faculty of Law, National University of Singapore. He specializes in corporate law and governance, mergers and acquisitions and cross-border investments. Prior to his foray into academia, Umakanth was a partner at a pre-eminent law firm in India.

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