On 28 February 2015, the Modi government presented its first full year budget. While economic growth projections in the world for many countries have been revised downwards, it is expected that GDP growth in India will accelerate to between 8 and 8.5% in 2015-16.

The budget focuses on three key themes, all of which are intended to make the business environment in India more conducive to foreign investment. These key themes are: (1) spending on infrastructure, (2) tax reform and (3) improving the ease of doing business in India.

Below are some of the key highlights of the budget which may be of interest to foreign investors.


The finance minister relaxed his fiscal deficit-reduction plans by prioritising growth over fiscal consolidation. This has resulted in an extra 0.3% of total GDP available for government spending on infrastructure.

The government has recognised that public investment is required to kick-start private investment. Public investment in infrastructure will provide private companies confidence that the government also has ‘skin in the game’, and is therefore less likely to make amendments which have adverse consequences on their investment.

An approximate additional $AUD14 billion of spending on infrastructure for 2015-16 has been announced. The key sectors for the infrastructure expenditure include roads, ports, railways and power.

Furthermore, a National Investment and Infrastructure Fund, partly funded by the government will be established. The role of the fund will be to raise debt and invest in infrastructure finance companies.

Continued urbanisation in India will present significant opportunities for foreign investors.

Tax Reform

The government has recognised that a stable and transparent taxation policy and a non-adversarial tax administration system is required to encourage foreign investment. The budget proposes reforms which simplify the tax system, provide clear guidance on tax administration and attempts to bring certainty and transparency to the tax system.

Corporate tax

The corporate tax rate will be progressively reduced from 30% to 25% over four years (commencing 1 April 2016), which will make India’s corporate tax regime more competitive in the region.


The government proposes to implement a Goods and Services Tax (GST) by 1 April 2016.

It is expected that the GST will simplify the tax system by abolishing the multiple layers of indirect taxes which currently exist.


Under the General Anti-Avoidance Rules (GAAR), tax authorities can deny tax benefits of arrangements or transactions entered into primarily for the purposes of avoiding tax.

The government has now announced that the GAAR will only apply from 1 April 2017 and will not apply retrospectively (as was originally planned). This will come as a relief to foreign investors and will provide them time to reorganise their existing affairs to ensure that they are not in breach of the GAAR when they are introduced.


The government wants to encourage offshore fund managers to relocate and operate in India. The budget proposes to modify the law so that if certain conditions are satisfied, the mere presence of a fund manager in India would not result in any negative tax consequences for the offshore fund.

Ease of doing business

The government has focused on improving the ease of doing business in India by proposing to:

  • set up exclusive commercial divisions in the courts to help ensure the speedy resolution of commercial disputes;
  • introduce a Public Contracts (Resolution of Disputes) Bill to streamline the institutional arrangements for the resolution of such disputes;
  • appoint an expert committee to draft legislation to ensure that regulatory approval can be granted expeditiously;
  • maintain and update an e-business portal which integrates 11 regulatory permissions relating to doing business in India at one source (this portal is now active);
  • progressively expand the ‘visas on arrival’ scheme from 43 countries to 150 countries; and
  • remove distinctions between the different types of foreign investments (foreign portfolio investment (FPI) and foreign direct investment (FDI)). Currently the aggregate foreign investment permitted in a sector has separate caps for FPI and FDI. It is proposed that all types of foreign investment will be captured under a composite cap, which will provide Indian companies greater flexibility when seeking foreign investment and investors more clarity and certainty when investing.

Bankruptcy Code

The government has recognised that a comprehensive overhaul of the corporate insolvency laws is required to improve the ease of doing business and also to reduce the risks associated with doing business in India.

The government has proposed a new bankruptcy code to be introduced in 2015-16. The code is expected to align with insolvency laws in developed countries. It is hoped that the code will bring legal certainty and transparency for creditors, particularly the banks, who have significant amounts of non-performing assets on their books.


The budget is currently being debated in the Lok Sabha (Lower House). Yesterday, the Appropriation Bill was passed, completing the first phase of the budget process in the Lower House. Foreign investors will be closely following whether the government can pass the budget through the opposition-controlled Rajya Sabha (Upper House). The opposition has criticised the budget as being pro-corporate by focusing on foreign investment and reducing allocations for social welfare.

Concerns regarding the government’s ability to pass key reforms through the upper house have been somewhat alleviated since last week. On 12 March 2015, an important bill raising the foreign investment ceiling in Indian insurance companies from 26% to 49% (in certain circumstances) was passed by both houses. The bill also permits foreign reinsurance companies to set up branches in India.

If the budget proposals are implemented successfully, investors can hope for a more certain, stable and transparent tax regime and an improvement in the ease of doing business in India. This will help achieve the government’s goal of attracting foreign investment and accelerating economic growth.