pre budget finally

8/2/2019 Pre Budget Finally

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Pre-Budget Discussion


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Revenue Receipts

Capital Receipts

Expenditure

Deficit

Reasons for Indias Fiscal Deficit

Agenda of the Discussion


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Income for

Government

CapitalReceipts

Revenuereceipts


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B

It consist of taxes on Income and

Goods & Services.

75% of income earned by Indian

Govt comes from taxes.

Govt levies 2 kinds of taxes: Direct

taxes & Indirect Taxes

Tax Revenues

Primarily Consists of Interest receipts

from

States

Dividends

Profits earned by state companies

Non TaxRevenues

Revenue Receipts


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Revenue Receipts Indian Scenario

1. Corporate tax contributesthe maximum in govt

coffers, but this is highly

vulnerable to economic

cycles.

2. Over all direct tax

contribution is 50-60%.

3. Share of services sector in

Indias GDP is over 60% but

its contribution to taxrevenue is only 9%.


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If Govt expenses are

higher than the

income, then to make

good the deficit the

government has to

resort to borrow.

It is an activity where

by government

offloads its stake in a

PSU to the investors.

Small savings schemes

have a crucial role in

public finance.

Eg: Post office Savings

A/c, NSC, PPF ,MIS

etc.

Capital Receipts

Capital Receipts refers to inflows to the government, that are not regular in

nature. Eg: Borrowings, Repayments or proceeds from sale of asset.

Borrowings DisinvestmentSmall Saving

Schemes


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Capital Receipts Indian Scenario

1. Borrowings: In the recent years Borrowings constitute 80% of Capital

Receipts.

2. Disinvestment: Disinvestment is an activity totally dependent on the

market sentiments. For the year 2011-2012 the governments target of

disinvestment was 40,000 crores, but only 1145 crores has been

realized due to market conditions.

3. Small Savings: Capital receipts via small savings are also dependent on

alternative investment options like FDs, Equity etc where a consumer

ideally chases higher returns. So higher the interest rates in alternative

schemes more will be the flow of funds from Small Saving schemes.

4. Failure of the government to raise funds via disinvestment & Small

saving schemes has increased its market borrowings.

Trivia: In the year 2010 , the government had its biggest windfall gains in form

of 3G auction. The govt got 67,715 Crores from it, which was used by the govt to

reduce its borrowings and cut the Budget Deficit.


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Expenditure

Government spends for two purpose: Managing day to day activities (Revenue

Expenditure) OR creating Income Generating Assets (Capital Expenditure)

A part of govt spending is known as Planned Expenditure (as per 5 Year Plan),

all other expenditure done is non-plan expenditure.

Non Plan Expenditure

Salaries

Pension

Defense

Interest payment

Subsidies

Salaries & Pensions

are pre-committed

expenses and hence

it is difficult to scale

them down.

Defense

Expenditure is

stable @ 10% of

Expenditure


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Expenditure Indian Scenario

1. About 87% of Govt spending is in form of revenue expenditure, the

remaining 13% is capital expenditure.

2. Interest payments: They are directly proportionate to the government

borrowings. About 26% of government expenses are towards interest

payments.

3. Subsidies: Of the Subsidies total:

Food 36.9% Fertilizers 33.5%

Petroleum 23.4% , they share a direct relation with actual

price of commodities.

4. Apart from this, budgets do not show liabilities like Oil Bonds, Fertilizer

bonds that are issued by Govt to arrest cash outflow. In reality such bonds

just postpone the impact of subsidy on future years.

Trivia: The mechanism for oil bonds was devised in 2005-06. Bonds being in the nature of deferred payment,

help the government keep the bloating oil subsidy bill off its budget. For compensating the losses of OMCs from

2009-10, the government shifted from a system of bonds to cash. The transition from bonds to cash impacted

the governments fiscal deficit, but helped the oil marketers as it improved their liquidity


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Deficit

Revenue Deficit =

Revenue ExpenditureRevenue receipts.

A revenue Deficit will

mean that govts Tax

and non tax revenues

are not enough tocover the current

running expenses.

Total Expenditure

All receipts exceptinflows from

borrowings.

Indicates the flow from

tax, non tax,

disinvestments etc arenot enough to cover

total expenditure.

Fiscal DeficitInterest Payments.

Measures the current

fiscal position by

excluding the impact of

debt taken in earlier

period.

Revenue

Deficit

Fiscal

Deficit

Primary

Deficit


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DeficitIndian Scenario

Revenue Deficit: Since 198081 Indias revenue a/c has been in deficitevery year.

Fiscal Deficit: Deficit in 2010 11 was 5.1% of GDP. In 2011-12, the deficit

may overshoot the targeted 4.6% and is estimated to be around 5.9% of

GDP.

Reason being slow growth depressed direct tax collections and inability of

the government to meet its non-tax revenue targets because of difficulty

with asset sales.


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DeficitIndian Scenario


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Reasons For Indias Fiscal Deficit

FRBM (Fiscal Responsibility & Budget Management Act)

The rational of FRBM, was that Tax & Non-Tax Revenues will be used to

cover current expenditure & capital expenditure will be met by moderate

borrowing.

As per the target, Revenue Deficit had to be nil in 5 Years, beginning 2004-05.

Fiscal Deficit to be reduced to 3% of GDP by 2008-09.

Impact of Adopting FRBM: Impact can be gauged from 2003 04 to 2007-

08:

GDP grew @ Avg 8.8%Corporate IT increased

Overall expenditure grew @ slower rate.

Revenue Deficit Declined to 1.1% & Fiscal Deficit declined to 2.5% of GDP by

2007-08.


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Halted Progress:

The budget of 2008-09 overturned this fiscal progress :

Farm Loan Waiver (60,000 70,000 Crore)

Outlay on NREGAPay Hike (Sixth Pay Commission)

Two externalities also impacted the budget:

Steep Rise in commodity & Oil price 2008-09 (140$/Bbl)

Fiscal Stimulus package was announced to counter the impact of

global financial crisis of 2008.T

hese factors led to relaxation of FRBM deficit for 2008-09 & 2009-10.

Reasons For Indias Fiscal Deficit

FRBM (Fiscal Responsibility & Budget Management Act)


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What to Expect From the Budget

Populist Reformist


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Political Scenario

No budget gets completed without having a political angel attached to it.In the recent concluded polls, Congress party has been defeated in 3 states out of

four, leaving very little room for it to push ahead with reforms.
http://www.dailypioneer.com/columnists/item/51198-congress-gets-a-drubbing.html


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DTC - 2012

The Direct Taxes Code (DTC) is said to replace the existing Indian Income Tax

Act, 1961.[1] If approved, the DTC shall come into force on the April 1, 2012,and shall be applicable for income earned during the financial year 2012-13.


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DTC2012 - Highlights

Deduction & Exemption

Wealth Tax

Tax Rates


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The basic genesis of FSB was based on the following:

Per-capita cereal production had declined

Income levels of the poor had been stagnant

FSB calls for reviewing the food security issue not only in terms of

production of cereals but also in terms of improving the Nutritional

Outcome for the poor


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Food Security Bill


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Thank You

pre budget finally

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