Faced with the challenge of bringing a turnaround in the economy and bridging the fiscal deficit, the Modi Government has shifted the usual focus of the annual budget from the regular sole allocation-oriented approach to attracting both domestic and foreign investment for implementation of its novel schemes. As the global economy is showing signs of improvement and Asia and the emerging economies are becoming favoured destinations for foreign direct investments (FDIs), India hopes to become a larger beneficiary.  

The promise for developing 100 smart cities is one of the pet projects of Prime Minister Narendra Modi. The scheme aims to accommodate the burgeoning number of neo-middle class people intending to migrate to big cities and metros in search for better standards of living. These smart cities will be developed as satellite towns of larger cities and by modernising the existing small townships. The scheme for developing smart cities would generate employment and give a boost to the real estate industry.

Presenting the maiden Budget of the Modi Government, the Finance Minister Arun Jaitley said that the built-up area of the smart cities would be reduced from 50,000 sq metre to 20,000 sq metre and foreign direct investment (FDI) requirement from $10 million to $ 5 million. The project will have a three year post completion lock in period. The smart city projects that commit at least 30 per cent of the total cost for low cost affordable housing will be exempted from the minimum built-up area and capitalisation requirement. Moreover, the finance minister has provided a budgetary allocation of Rs 7,060 crore in the current fiscal.

The BJP in its election manifesto said “barring the multi-brand retail sector, FDI will be allowed in sectors wherever needed for job and asset creation, infrastructure and acquisition of niche technology and specialised expertise… The Foreign Investment Promotion Board (FIPB) functioning shall be made more efficient and investor-friendly.”

Picking up this thread, the finance minister clarified in his Budget speech that the government would “promote FDIs selectively in sectors where it helps the larger interests of the Indian economy. FDI in several sectors is an additionality of resource which helps in promoting domestic manufacture and job creation.”

FDI in the manufacturing sector that needs a push for job creation is through automatic route. The manufacturing units will be allowed to sell their products through retail including e-commerce platforms without further approvals.

The government has liberalised FDI for Defence manufacturing that need technological upgradation. FDI in this sector has been raised from 26 per cent to 49 per cent with full Indian management and control. The erstwhile UPA government had earlier specified FDI above 26 per cent would be subjected to case-by-case approval by the Cabinet Committee on Security.

Apart from inviting FDIs in select defence industries, the BJP in its election manifesto had assured it would encourage the domestic industry to have a larger share in design and production of military hardware and platforms for both domestic use and exports.

With a view to encourage private and public companies and SMEs in defence production, the Government plans to set up a Rs 100 crore Technology Development Fund. The government has already pruned the restricted list for participation through FDI, keeping the sensitive areas separate.

Insurance is another area where there was a controversy for further liberalising the FDI route. The budgetary proposals have sought to raise the FDI limit from 26 per cent to 49 per cent with full Indian management and control, through the FIPB route. However, an amendment to the existing Act will be needed to raise the FDI limit for this sector.

As part of the legislative initiatives under financial sector reforms, the government proposes to bridge the regulatory gap under the Prize Chits and Money Circulation Scheme (Banning) Act 1978 which would facilitate effective regulation of companies and entities which intend to dupe a large number of poor and vulnerable people in the country.

Noting the success of Real Estate Investment Trusts (REITS), the Government intends to mobilise resources from non-resident Indians (NRIs) and Overseas Indians for infrastructure development. Infrastructure Investment Trust would be set up for making funds available to the industry and attract long-term finance from foreign and domestic sources, including NRIs.

The Budget proposes development of new airports in tier-1 and tier-II with participation by the private sector. The government has also sought private sector capital in culture and tourism, particularly the development of Goa as a permanent venue for India International Film Festival. For conservation of the sacred Ganga, NRI Ganga Fund has been set up.

The Budget has schemes to attract the youth. A national multi-skill programme is slated to be launched to develop skills in the youth with an emphasis on employability and entrepreneur skills. It will provide training and support for traditional professions like welders, carpenters, cobblers, masons, blacksmiths, and weavers. Convergence of various schemes to attain this objective is also proposed.

The Budget has made allocations for several social sector schemes, both existing and new ones. The Government’s total expenditure estimates for the year 2014-15 stand at Rs 17,94,892 crore. To finance this expenditure, it is estimated that gross tax receipts will be Rs 13,64,524 crore. After devolving the share of states, the share of the central government will be Rs 9,77,258 crore. Non-tax revenues for the current financial year are estimated at Rs 2,12,505 crore and capital receipts other than borrowings will be Rs 73,952 crore.

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