Following the announcement of India's budget by Prime Minister Modi's government on 28 February 2015, Laurence Lieberman and Adil Essajee of Taylor Wessing highlight some of the key points.

In the opening paragraphs of his speech to the Lok Sabha, Finance Minister, Arun Jaitley, stated: "The credibility of the Indian economy has been re-established. The world is predicting that it is India's chance to fly". The optimistic tone is understandable. According to the data cited by Mr Jaitley, the outlook for the Indian economy appears to be bright:

  • CPI inflation is currently at 5.1% (down from 11.2% in November 2012) and the wholesale price inflation is negative;
  • the current account deficit for 2015 is expected to be below 1.3% of GDP (down from 4.6% of GDP in the 1st quarter of 2013-2014);
  • GDP growth (based on the new GDP series introduced by the Modi Government) is expected to rise to 7.4%, which Mr Jaitley claims makes "India the fastest growing large economy in the world";
  • foreign inflows since April 2014 have been US$55 billion causing India's foreign exchange reserves to swell to US$340 billion;
  • the Rupee has become stronger by 6.4% when measured against a broad basket of currencies; and
  • the Indian economy, according to Mr Jaitley, has "the second-best performing stock market amongst major economies".

Mr Jaitley intends the proposals in his budget to "lay out the roadmap for accelerating growth, enhancing investment and passing on the benefit of the growth process" to the Indian public. Some of the key proposals include the following:

Legal reform:

  • Introducing a comprehensive bankruptcy code by the year 2015-16  that meets global standards in order to improve the ease of doing business.
  • Enacting comprehensive new laws on "black money" to deal with tax evasion, though the roll out of the General Anti-tax Avoidance Rules (GAAR) will be deferred by two years.


  • Increasing public investment in infrastructure by 70,000 Crore in the year 2015-2016 to ensure that India's infrastructure becomes aligned with its "growth ambitions".
  • Establishing a National Investment and Infrastructure Fund (NIIF) and permitting tax free infrastructure bonds for projects in rail, road and irrigation.
  • Developing five new Ultra Mega Power Projects each of 4,000 MWs.
  • Encouraging ports to incorporate as corporate entities to attract investment from the private sector.

Financial services:

  • Setting up a Public Debt Management Agency (PDMA) to develop the Indian bond market by bringing India's external borrowings and domestic debt "under one roof".
  • Creating a taskforce to establish a sector neutral Financial Redressal Agency to address grievances against all financial services providers.
  • Merging the Forwards Markets Commission with the Securities and Exchange Board of India to strengthen the regulation of commodity forward markets.

Foreign Investments:

  • Drafting legislation in order to replace the need for multiple prior permissions with a pre-existing regulatory mechanism to cut down the time spent by investors in getting multiple permissions.
  • Allowing foreign investment in Alternative Investment Funds and simplifying procedures for Indian companies to attract foreign investments by removing the distinction between different types of foreign investments (in particular, foreign portfolio investments and foreign direct investments) and replacing them with composite caps.
  • Proposal to modify the rules for offshore fund managers so that their presence in India does not lead to adverse tax liabilities.
  • Changing the CGT regime to encourage Real Estate Investment Trusts (REIT).
  • Proposal for tax "pass-through" in respect of Category-I and Category-II Alternative Investments Funds, so that tax is levied on the investors themselves and not the funds, in order to attract domestic and foreign capital.

Tax reforms:

  • Proposal to put in place a direct tax regime that is (a) internationally competitive on rates, (b) does away with various exemptions to improve administration and reduce the scope for tax litigation, (c) incentivises savings, and (d) does not realise tax from intermediaries.
  • Reducing the basic rate of corporate tax from 30% to 25% over the next four years to promote investment, higher growth and more jobs and allow the Indian economy to compete with other Asian economies.
  • Modernising the indirect taxes regime by putting in place a new Goods and Services Tax (GST) from 2016-2017 across India to improve transparency and encourage investments.
  • Abolishing the wealth tax and replacing it with an additional surcharge of 2% on the "super-rich" with a taxable income of over 1 Crore.

New initiatives:

  • Introducing a Gold Monetisation Scheme in recognition of the fact that India is one of the largest consumers of gold in the world and imports as much as 800 – 1000 tons of gold each year. Proposals include allowing (a) depositors of gold to earn interest in their metal accounts and jewellers to obtain loans in their metal accounts and (b) allow Banks and dealers to monetise their gold. In addition, plans to develop an alternative financial asset in the form of Sovereign Gold Bonds, which carry a fixed rate of interest and are redeemable by the holder of the bond.
  • Launching a scheme for the adoption and manufacturing of electric vehicles as part of a commitment to make the "development process as green as possible".

Social reforms:

  • creating a Micro Units Development Refinance Agency bank (MUDRA Bank) to encourage small enterprises.
  • Introducing a social security system to give the poor and elderly access to life insurance and a pension.

While it will take some time for the proposals to bed in and/or come to fruition, this budget is aimed at wealth creation and with one eye towards attracting foreign investment: the planned simplification of the tax regime and reduction in corporate tax is a sensible and welcome move; the crackdown on black money will improve India's perception as an economy committed to reducing non-compliance and corruption; reducing red-tape for obtaining permissions will help towards streamlining inward investment; and modifying the tax regime in respect of the "business connection" for offshore fund managers could result in an inflow of talented foreign investment managers and funds.