Effect of Union Budget 2014 on the Economy of Our Nation

Union budget was recently put forth by the finance minister Arun Jaitley. Read and find out how it will affect our economy.

Created On: Jul 17, 2014 10:20 IST

The Union Budget 2014-15 has been recently announced by the New Finance Minister Mr. Arun Jaitely under the newly formed Modi Government of BJP. The presented budget has brought significant changes and reforms in the plan and execution of the financial happenings that are about to occur in this year with several features.

An Overview of the Union Budget-2014

1. Fiscal Deficit: Retains the previous fiscal deficit of 4.1% of the GDP for year 2014-15 as well and looking to reduce it down to 3.6% of the GDP by the year 2015-16.

2. Growth: The growth for the nation has been aimed to 7-8% till the coming 3-4 years.

3. Taxation: Extension of a 5% withholding tax on corporate bonds till June 2017 and 10 year Tax holidays for Power generation companies.

4. Revenues & Expenditure: The total expenditure has been estimated to be of 17.95 Trillion Rupees during the year 2014-15. The revenue deficit has been viewed at 2.9% of the GDP in 2014-15. No major changes to direct tax rates. Proposals of planned money reserves to be expended on warehousing capacities, private capital for start-up companies, national and state highways, rural housing schemes.

5. Foreign Direct Investment: FDI in Defense sector has been subsequently increased from 26% to 49%. And same is the case with FDI in Insurance sector.

6. Agriculture: Proposed growth achievement of 4% annually. Farm credit target set at Rs 8 Trillion for the year 2014-15. A long term Rural credit fund worth Rs 50 Billion has also been proposed.

7. Subsidies: Food and Petroleum subsidies are planned to be made more targeted. Rural Job Guarantee scheme will be keenly focused on Asset creation.

Besides, other major decisions have been made evident in this year’s budget including various plans and budget allocation plans for:

1) Bank capitalization
2) Rural development
3) Real estate
4) Smart cities
5) Minorities like SC, ST etc.
6) Women and child development
7) Drinking water and sanitation
8) Education
9) Sports and Youth
10) Science and Technology
11) Culture and Tourism
12) Infrastructures
13) Industries
14) Food Security
15) Urban Development
16) Housing

Due to the new Budget presented, there has been a great revolution in the society and the effect will be majorly seen on the Economy of India. The major effects of the Union Budget 2014-15 on the India Economy would be:

• Indian economy has been estimated to grow in the range of 5.5 % to 5.9 % in the year 2014-15.

• The total expenditure estimated for the Financial Year 2014-15 has remained unchanged at 14% of GDP which may imply a complete absence of Fiscal Stimulus towards the growth. There are very few chances of going beyond a nominal growth rate of even 12%.

• Without a proper Growth stimulation, tax buoyancy will not improve and so fiscal deficit will remain high thereby darkening the overall growth and progress.

• FDI in defense sector has been increased from 26% to 49% in 2014 which would certainly bring huge changes in the defense and employment opportunities to many people.

• High interest rates clearly indicates higher cost of capital for industries, profitability will reduce thereby adversely affecting the stock exchange prices.

• Increase in the Indirect Taxes would decrease the demands of the commodities thereby lowering the profit margins of the companies thereby declining the growth and production.

There are certain favourable points and a few unfavourable points poised in this year’s budget plan that has been focused more into a slow but steady growth propaganda by the newly formed Government, but on the contrary the Government must also keep into consideration the fact that the common people must not suffer while her progressive plans and incoming budget as it would lead to an underestimation of the overall thought out plans by the Government.

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