BUDGET AND ITS IMPACT ON FISCAL DEFICIT AND

ECONOMY

5 Year Plan• Major bodies behind the making of 5 year plans i. Planning commission of Indiaii.National Planning counciliii.National Development Council and state planning

commissions

• Economy of India is based in part on planning through its 5 year plans

• Scope of its work

Planning Commission will 1. Make assessment of material, capital, human

resources

2. Plan for effective and balanced utilization of country’s resources

3. Prioritize, define stages and propose allocation of resources

4. Indicate factors tending to retards economic development

5. Nature of machinery

6. Appraise from time to time the progress of each stage and recommend adjustments

BUDGET• Annual financial report

• Finance minister seeks Parliament’s approval

• The formulation

• Budget presentation and passage

• The Budget papers

How is it prepared?1. Ministries indicate their requirements2. Preparation of draft3. Approval4. “Summary for the cabinet”5. FM presents budget in Lok Sabha6. Annual financial statement given to Rajya Sabha 7. Grants approved8. Appropriation bill, finance bill introduced in Lok

Sabha.9. Union budget approved

How is it passed?

2 stage process

1.General discussion

2.Considering of demands by standing committees

About Economic Survey• Finance Ministry

• Every year in the parliament

• Just before the UNION BUDGET

• Ministry's view - annual economic development of the country

• Flagship annual document of the Ministry of Finance, Government of India

• Reviews the developments in the Indian economy over the previous 12 months

• Summarizes the performance on major development programmes

• Highlights the policy initiatives of the government

• Prospects of the economy in the short to medium term.

• Document is presented to both houses of Parliament during the Budget Session.

• Chief Economic Adviser - Ministry of Finance - Raghuram G. Rajan

Overview of the following issues

• State of the Indian economy

• Challenges, policy responses, and medium-term outlook

• Fiscal policy and monetary management

• Financial intermediation and the role of markets

• External sector, balance of payments, and trade

• Agriculture, industrial development and services sector

• Energy, infrastructure, and communications

• Human development, climate change and public programmes

• India and the Global Economy

ECONOMIC SURVEY FOR

BUDGET 13-14

Survey sees economy picking up the pace…

Projected growth of GDP – 6.1-6.7%

...And this is how

Fiscal consolidation – lower inflation and current account deficit

RBI – in a position to cut interest rates

Monetary easing & reforms will drive investments

Ways to get there…Ease regulatory & bureaucratic impediments to

investments

Encourage spending shift from consumption to investments

Increase government savings by cutting wasteful subsidies

Incentivise financial savings through higher real returns

….But a few risks to recovery

Global economy does not recover as anticipated

Crude prices spike because of geopolitical risks

Risk tolerance of international investors declines

Fiscal Deficit

What is Fiscal deficit?

• Govt. Expenditure > Govt. Revenue

• Can be measured with or without including interest payment on debt

• “Deficits help countries climb out of economic recession.”- Economist John Maynard Keynes

• “Governments should avoid deficits in favour of a balanced budget policy.”- fiscal conservatives.

Why Fiscal deficit?

• To calculate the fiscal gap

• The fiscal gap can be interpreted as the percentage increase in revenues or reduction of expenditures necessary to balance spending and revenues in the long run

How to reduce Fiscal deficit?

• Poverty alleviation ensuring high levels of employment, rising productivity and real jobs.

• Thus providing the poor with real incomes.

• Also, cutting subsidies and spending the money instead on infrastructure investment.

• Can be a “game changer”

Mind the GAP

• Global rating agency warn India could lose its investment grade status

• To revive growth - allow greater FDI increased prices of diesel

• Planned spending on long-term development programs is also being deferred to next fiscal year

• Disinvestment : Stake sale in PSUs

• SMEs - Deferring investment plan & Shaky confidence of investors

• Measures or sheer assumptions ?

• A deficit of 5.3 percent of GDP would remain the widest spending gap among the BRICS group of major emerging nations

• India is prone to wide external deficits because it imports nearly 80 percent of its oil need

Food Bill Subsidy & ImpactsFood Bill Subsidy & Impacts

•Expected Subsidy was 1,30,000 crore as on 28th Feb,2013.

•Provision for Rs 90,000 crore under the Food Subsidy Bill.

•Food Subsidy was lowered from 85,000(BE) crore to 80,000 (RE) in 2012-1013

•This may rise up fuel prices, paid from people’s pocket

Deregulation of Oil Prices & Deregulation of Oil Prices & ImpactsImpacts• Partial deregulation of oil prices by hiking diesel prices

time to time and to recover Rs 9.60 per litre loss they incur on the fuel.

• Rs 94,000 crore diesel subsidies per annum.

• In the short term, we may expect a spike in inflation, however, in the long term, due to reduction of subsidy bills the fiscal deficit will be narrowed.

• The entire sector (oil and gas) would expect re-ratings and this will pay off well in the long run.

• The move will boost investor (FIIs) confidence and also influence markets and rating agencies.

FMCG Budget and FMCG Budget and impactimpact

• The Union Budget 2013 offered minor benefits to the FMCG

industry.

• However, its impact is likely to be offset by high fuel costs and

food inflation that has been hovering in double-digits.

• The income tax benefits have not been substantial to stem the

slowdown in the sales of discretionary goods.

• Therefore, going ahead we expect FMCG companies trying hard to

maintain their earnings momentum.