Budget 2014 reactions

  • Deepak Kapoor, Chairman

    • A pragmatic, well-balanced Budget that brings in positivity
    • A Budget with a head and heart; inclusive and embraces the needs of the economically and socially marginalised as well as the physically challenged
    • Sectors such as manufacturing, agriculture, education, healthcare to get the required thrust
    • Enabling the framework for REIT/InvITs, including clarity on taxation, to enable flow of investment in real estate and infrastructure, as major boost to investor sentiment
    • Government accountable on all fronts as it sets out timebound goals for itself

    The FM has attempted to comprehensively cover the needs of the country within inherent limitations. The world will be watching closely as the expectations are translated to action.

  • Smita Jha, Leader, Entertainment and Media 
    We welcome the announcements made in Union Budget 2014 in the E&M sector especially those relating to budgetary allocations for the sports sector and the National Centre for Excellence for animation, gaming and visual effects.

    The sports sector in India is much in need of transformation. Budgetary allocations towards upgrading sports infrastructure, training, nurturing best talent and setting up a sports university are steps in the right direction though the funds allocated are significantly less than what are needed. However, we welcome the recognition from the government that this sector requires significant investment.

  • Shinjini Kumar, Leader, Banking and Capital Markets
    Banking related actions have dominated policy discussion in the last few years. The low levels of allocations in the current Budget indicates the desire to now move that agenda. To that extent, directionally, it is a change for the better. Raising capital from domestic markets, however, sceptically viewed from the liquidity or opportunity perspective, actually sets the right tone. There will be better price discovery and better run banks will be able to command better valuations. If some banks still do not get their act together and flounder, they will pave the way for consolidation rather than being sustained on indirect public funding.

    Also, the commentary exceeding the agriculture lending target of 8 lakh crore INR, in the absence of any changes on the policy front like definition of what constitutes agri lending, improvement in agriculture market conditions and forward linked businesses is ambitious at best and wishful at worst.

  • Alok Saraf, Executive Director, Private and Entrepreneurial practice 
    The Modi government has just served a healthy chai to SMEs and start-ups. An investment allowance of 15% for the SME investing more than 25 crore INR in plant and machinery will be a boost as against the earlier investment threshold of 100 crore INR to claim the said allowance. A corpus fund of 10,000 crore INR and simplified bankruptcy rules may improve risk-taking capabilities along with providing an easy exit opportunity. All in all, the initiatives coupled with sector-specific indirect tax benefits are sure to encourage entrepreneurs.

  • Gautam Mehra, Leader, Asset Management 
    The Budget proposals for the domestic asset management industry represent a mixed bag. The changes to the period of holding for units in debt funds and the increase in the long-term capital gains tax rate may dampen the flow into such schemes. Further, the outflow towards tax on dividends distribution by mutual funds is set to increase given the manner in which it needs to be computed now.

    However, amidst the above changes, the industry may now have the ability to manage offshore funds from India in certain situations given the changes proposed to the taxation of offshore funds. This may be the single most positive factor for the industry that seeks to change the status quo.

  • Ranen Banerjee, Executive Director, Public Sector and Governance practice 
    The FM’s speech hammered in the fact that fiscal consolidation is required at all costs and targeted a fiscal deficit of 4.1% in 2014-15 with a promise to bring it down to 3% over the next two years. It is a daunting task given lower revenue buoyancy with the economy yet to fully recover from the growth slowdown. Additionally, there is an upward pressure on subsidy due to the ongoing geo-political situation specifically the crisis in the Middle East. The silver lining is the high growth in services as per recent data that will have a positive impact on revenues.

  • Sanjay Tolia, Leader, Transfer Pricing, Price Waterhouse & Co 
    The expansion of the APA team to expedite the disposal of APA applications and the introduction of a range concept will go a long way to reduce litigation. The icing on the cake is the rollback of APA to the preceding four years which will avoid litigation yet to start. The rollback provisions could have a persuasive effect on pending litigation too! Overall, a great recipe for improving the investment climate in India!

  • Ajay Kakra, Associate Director, Agriculture and Natural Resources 
    The budget has touched upon some critical areas such as agricultural infrastructure, capacity development and farm lending, which are essential for agricultural development. The allocation for warehousing capacity development are in the right direction. However, there is a long way to go for meeting the infrastructure gap in agricultural sector. Tax exemption on cotton ginning mills will be helpful for the Indian cotton industry.

  • Smita Jha, Leader, Entertainment and Media 
    We welcome the FM's comments on promoting FDI and expect that it will translate into 100% FDI being allowed in sectors of the media industry such as television broadcasting, cable and DTH, the proposal for which is already pending with the government. Expediting the FDI increase will help provide the much-needed stimuli to the third and fourth phases of digitisation. We also believe the reductions in customs duty on LCD and LEC of sub-19 panels will also indirectly provide a fillip to the national digitisation agenda.

    Budgetary allocations for promoting community radio are also welcome, though the sector policies need re-visiting to ensure the viability of these stations on a long-term basis.

  • Bimal Tanna, Leader, Industrial Products 
    Liberalisation of conditions for claiming investment allowance in new plant and machinery is as per our expectations. Extending reduced taxation rate on foreign dividends should encourage foreign inflows. However, disallowance of CSR expenditure as not being expenditure incurred for business purpose, is not a welcome move. Investments announced for infrastructure projects such as ports, roadways, creation of smart cities should act as a demand driver for the capital goods and building material sector. The government’s intention of undertaking steps to revive investor interest in SEZs and facilitating introduction of GST, is reassuring.

  • Anish Sanghvi, Executive Director, Tax - Financial Services


    An enabling tax passthrough structure for REITs/InvITs formed as business trusts (BTs) has been proposed to encourage investors, having stabilised yield expectation, to invest in REITs/InvITs. While a passthrough structure to facilitate one-layer taxation is a welcome change, no relief has been granted on the DDT leviable on the SPVs (holding real estate assets) distributing dividends to REIT/InvIT. This could potentially be a big dent in BT economics, since SPVs are unlikely to be levered substantially and would therefore need to distribute dividends rather than pay interest.

    Real estate and infra developers will be encouraged to sponsor BTs, since the transfer of SPV shares to BTs in consideration of BT units will be deferred till they eventually sell the BT units.

    Construction development activity

    In the endeavour of developing 100 smart cities, FDI norms for construction projects have been relaxed. Requirements of minimum development area have been reduced to 20,000 sq metres and the minimum capitalisation requirements for wholly owned subsidiaries have been reduced to 5 million USD. Additionally, projects with at least 30% cost allocated to low-cost affordable housing projects should not be subjected to the limitations of capitalisation, minimum area requirement.


    On the personal income tax front, an increase in interest deduction on a housing loan for a self occupied house from 1,50,000 to 2,00,000 INR, though a welcome change, is below expectations. In the last few years, given the inflation, real estate prices have increased multi-fold. An increase in deduction of 50,000 INR may be inadequate without a significant impact on the buyer.

  • Suresh Swamy, Executive Director, Tax and Regulatory Services
    Though India is seen as an attractive destination for investment, documentation has always created investment hurdles. The proposal to introduce uniform KYC norms and the interusability of KYC records across the entire financial sector will encourage foreign investment. Moreover, the clarification that income arising to FII/FPI from transactions in the securities market will be treated as capital gains will be helpful. Characterisation of income of FII/FPI will no longer be an issue. Fund managers may now be able to relocate to India without creating additional tax risk for the funds they manage. This may also lead to increase in economic activity in India and thereby aid revenue and tax collections.

  • Neel Ratan, Leader, Management Consulting
    The initial allocation of 7,200 crore INR for new cities is welcome. The real need of the hour is to maintain living standards with ever-increasing urbanisation through greenfield smart cities. I hope the integrated e-platform announced in the Budget can help break the silos created by different departments. This has the potential to be a gamechanger for improving citizen services.

  • Shyamal Mukherjee, Tax Leader 
    The fiscal and revenue targets are well within range given the tight situation and have encouraged the manufacturing and infrastructure sectors both by providing fiscal incentives as well as by allocating resources for improvement in infrastructure and its financing.

  • Ketan Dalal, Senior Tax Partner
    There was widespread expectation regarding neutralisation of the retrospective amendment regarding indirect transfer. While that has not happened, there has been a clear acknowledgment that retrospective taxation will not be resorted to in the future. In so far as past pending litigation on these aspects is concerned, existing matters in litigation will presumably continue, including those under arbitration. If new cases come up, they will be referred to a high-level committee, the composition and decision-making framework of which are still unclear. There seem to have been constraints in neutralisation of the amendment, but some middle path will evolve.

  • Dhiraj Mathur, Leader, Aerospace and Defence 
    The FM today opted for a restrained approach to limit FDI in defence manufacturing to 49% without control from the existing cap of 26%. Ultimately, this does not make any material change and may not be enough incentive for foreign firms to bring in investments and proprietary technology. However, on a more positive note, allowing investment by FIIs is a pragmatic step which will remove uncertainty and provide added flexibility and opportunities for raising finances to listed Indian companies. Increasing the defence capital budget by 5,000 crore INR is encouraging, considering the number of contracts pending with the Ministry of Defence.

  • Sujay Shetty, Leader, Pharma and Life Sciences
    Interesting initiatives were announced in the Budget across capacity and infrastructure building. Chief among them is the hike in the insurance investment limit to 49%. This will help patients as well as the pharma industry. Free drugs and diagnostics for all sounds potentially promising for patients. We will have to see more details on this.

  • Dharmesh Panchal, Executive Director, Indirect tax 
    A major step towards certainty in tax legislation has been taken by extending advance ruling to resident assessees and by providing a forum to address industry issues. The FM has promised action during the year to resolve various issues for the advent of GST. The Budget has also taken steps to address the inverted duty structure for specified sectors, the rationalisation of duty rates, review of negative list and exemptions for services. The Budget reiterates the government’s commitment to tax reforms and clarity in tax legislation.

  • Smita Jha, Leader, Entertainment and Media 
    While some sections of the industry are not happy with the online and mobile advertising being included under service tax, we believe that the philosophy of pruning the negative list in order to promote GST in the industry, is in the right direction. Thus, inclusion of such services in taxation is a small price to pay in the short term.

    Announcement of the launch of Kisan TV and Aruna Prabha TV are also welcome in the context of their respective situations. We hope these channels are commercially viable and do not add a further burden to Prasar Bharati, which is already under severe financial pressure.

  • Kameswara Rao, Leader, Energy, Utilities and Mining

    The proposals for power sector will enhance energy security through renewable energy sources with large scale and distributed projects as well as transmission lines connecting green energy corridors to load centres.

    The proposals for feeder segregation and distributed solar generation will improve availability and quality of power supply in rural areas. The resources required for this, however, are far larger than budgeted, and this initial allocation should be used to attract domestic and multilateral funds.

    The proposal to channel coal supply to projects commissioned by financial year end is a positive step given limitations in increasing coal output in the short term. This should help existing generating thermal projects improve viability and add to power supply. Further, extension of the ten-year tax holiday to 2017 should encourage new investments especially private sector across all segments of generation, transmission and distribution. These two measures are very positive in improving short-term and long-term outlook of  the power sector.

  • Kameswara Rao, Leader, Energy, Utilities and Mining

    Solar power is a major beneficiary in all levels—manufacturing of solar photovoltaic panels, construction and project development. The cumulative impact of lower duties on inputs and higher demand from proposed distributed and larger projects could further lower panel prices, and thus cost of solar power delivered to consumers. This along with income tax benefits already available should make it more attractive for corporates considering deployment of solar power.

    The proposed allocation of 200 crore INR to Delhi for power reforms should be wisely used to enhance transmission redundancy, black-start capability and strengthen key institutions rather than squandering on consumption.

  • Ranen Banerjee, Executive Director, Public Sector and Governance
    It is good to see prioritisation of issues to be tackled by the government. Improvements in service quality vis-a-vis service standards in urban areas make strong politico-economic sense. Urban areas with better services will attract more economic activity and better water and waste management services will contribute to the political capital.

  • Rahul Garg, Leader, Direct Tax 
    The government seems to be committed to strengthen the investor confidence in the economy. The decision to not introduce any retrospective amendment and mechanism to issue clarification on grey areas will certainly go a long way in bringing clarity and certainty on such issues and reduce tax litigation. Setting up a high-level committee to review the cases arising on account of indirect transfer would protect the interest of the revenue authorities as well as investors if the guidelines are embedded in law providing the basis on which such transaction need to be examined. But we need to wait and watch the fate of pending cases. Extending the Advance Ruling route for resident tax payer is another welcome route and will surely reduce tax disputes. Transfer Pricing related proposals are welcome step.

  • Dr Rana Mehta, Leader, Healthcare
    The Budget has made provisions for enhancing both financial and physical access of healthcare for the country. In rural areas, telemedicine through broadband connectivity will increase the accessibility of qualified doctors and specialists. Increased FDI in health insurance to will help increase financial accessibility for a wider population.

    Opening of four additional AIIMS and 12 government medical colleges will ensure improvement in quality of medical education. This is a step towards covering the shortage of 1 million doctors in India. It will also enhance access to tertiary care for patients who need to travel from far-flung areas to reach AIIMS in Delhi.

    10% of India's population is over the age of 60; however, geriatric facilities as well expertise are lacking. The National Institutes on Aging could help develop this expertise. Given the paucity of medical research in India, the bio clusters could help the country on the path of new drug discovery.

  • Sandeep Ladda, Technology Leader
    The government has allowed the manufacturing sector to sell its products through retail including e-Commerce without any additional FDI approval. This means two things: First, the government is giving a big push to the manufacturing sector and encouraging foreign companies to set up manufacturing facilities in India (and of course those goods manufactured in those units can be retailed as well put up on sale through e-Commerce channels). Secondly, for players who are purely in the 'e-tailing space', the status quo remains.

  • Manish Agarwal, Leader, Capital Projects and Infrastructure, PwC India, on Railway Budget 2014-15

    Manish Agarwal, Leader, Capital Projects and Infrastructure
    Railway Budget 2014-15 is quite practical in focussing on completing ongoing projects, and enabling online tracking of project status. Focus on one bullet train initially, and up-gradation of existing infrastructure for higher speeds on other sectors, is a good balance between affordability and desire. The intention to develop a rational approach to tariff setting, and for determining stops of express trains, is welcome. Some thought seems to have been given on the need for different PPP models (user-charge based, annuities), as well as potential areas for leveraging PPP capability; however, given limited success on station-modernisation projects so far, the implementation roll out remains to be seen.