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Budget

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Budget


Introduction –

  • It is a statement of estimated receipts and expenditure of the government of India for the following financial year – 1st April to 31st March

The word ‘Budget’ is derived from the French word ‘bougette’ meaning a little bag to carry money or a small purse. This probably may be due to the fact that the entire wealth of one person could be carried in the little bag – a briefcase, these days!

So what is the Budget?

A budget is an annual statement of estimated revenue and expenditure in upcoming fiscal year. (Psst… Fiscal year lasts from April 1st to March 31st.)

 

Financial Year/Terms –

  • Starts from 1st April and Ends Up on 31st March

Union Budget –

A. Revenue Account –

1. Revenue Receipt – i. Tax Receipt – What government gets from direct and indirect tax .
ii. Non Tax Receipt – What government gets from interests , fees , fines royalty dividends of PSUs , grants .

2. Revenue Expenditure – i. Development Expenses – On repairs of existing assets
ii. Non Development Expenses – On law and order defence , salaries subsidies .

B. Capital Account – 

i. Capital Receipts – Loan and borrowings , proceed from disinvestment sale of government assets , recovery of loans .
ii. Capital Expenditure – Repayment of loans , loans given to state government & UTs , expense on creation of Infrastructure

  • Total Receipt = Revenue Receipts + Capital Receipts
  • Total Expense = Revenue Expense + Capital Expense

Some Important Types of Budget –

1. Zero Based Budgeting – Here a department / Ministry prepares its budget every year on the assumption that they was no budget in the past . Hence each item in the budget is allocated on the merits rather than with reference to the allocation made in the previous years . The concept was advocated by Peter Fieri and was put in Practice by Jimmy Carter of USA

2. Outcome Budgeting – 

It is a system of performance budgeting by Ministries handling development programmes . It Comprises scheme /project –wise outlays for all central ministries department and organisations . It was first made in 2005 -06

3. Gender Budgeting – 

Its objective is to mainstream gender perspective in all sectoral policies and programmes , in-order to create enabling environment for gender justice and empowerment of women . First introduced in Australia in 1984 . Gender Budgeting was first introduced in India 2005 -2006

Deficit –

  • Budget Deficit = Total Expense – Total Receipt
  • Revenue Deficit = Revenue Expense – Revenue Receipt
  • Fiscal Deficit = Total Expense – Revenue Receipt + Non –debt creating Capital Receipt
  • Primary Deficit = Fiscal Deficit – Interest Payments
[This Deficit projects current state of account of the government by excluding interest payments as these payments are on past loans ]
  • Monetised Deficit – Net Addition of RBI credit to the government in the total borrowings of the government .
[ It shows how much government has borrowed from the RBI and as a result fresh currency due to which there was been monetization of the economy ]

Smart Facts –

  • J According to Chakrawarty Committee , 1985 Budget Deficit is mis-lending and recommended the projection of Fiscal Deficit . Since 1997 Budget Deficit is not being Projected .

 

TRIVIA: It is Article 112 of the Indian Constitution that lays down the meaning of the Union Budget of India.

The budget has several objectives such as:

  1. Reducing inequalities of income and wealth
    In Simple Terms: Making sure that there isn’t extreme poverty in the country and that the rich don’t get extra benefits because they are rich. The gap between the rich and the poor is reduced through taxation of the rich and subsidies to the poor.

 

  1. Reallocation of resources between government and private sector
    In Simple Terms: The government is responsible for proper and managed distribution of resources. The private sector cannot cater to all the needs of the people of the country. So the government must decide where and how much to divide its collected funds. How much goes to the public sector, how much to the development of private sector?

 

  1. Attaining economic stability
    In Simple Terms: Making sure India is economically independent and is protected from the shocks of international and domestic economic problems. The government must protect the economy from the risks of inflation and depression. During depression, the government reduces rates of taxation and borrowing, while increasing public expenditure. During inflation, the government increases the rate of tax and borrowing while reducing public expenditure.

 

  1. Managing public enterprises
    In Simple Terms: Allocating funds to public arms of the government and public sectors companies to make sure they function properly and provide the goods/services that they were created for.

 

  1. Achieving economic growth
    In Simple Terms: Making the country’s economy grows, both overall and in each state and region. Also to make India stand out in the global economy to achieve better standard of living for the citizens of the country.

Basic Budget Concepts for Beginners

There are three important concepts in relation to Budget

  1. Receipts
  2. Expenditures
  3. Deficits

Receipts

Receipts refer to revenues collected by the government through various means. There are two kinds of Receipts:

  1. Revenue Receipts
  2. Capital Receipts

 

Capital Receipts are those receipts which create a liability or cause reduction in government assets.

Let us now explore various sources of Capital Receipts:

  1. Recovery of Loans
    This reduces assets of government and hence must be classified as Capital Receipt. It should be remembered that a loan given is an asset in the book of accounts. And recovery of loans reduces this asset class. 
  1. Borrowings
    Funds raised by government from borrowing are treated as capital receipts as these create liability for government. Amount borrowed is a liability since one has to repay the borrowing.
  1. Disinvestment Receipts
    Funds raised by disinvestment are also capital receipts as these reduce assets of government. Disinvestment of public sector enterprise clearly reduces government ownership of these enterprises and thus reduces assets of government.

 

Revenue Receipts are those receipts (revenues) of government which do not create a liability or cause reduction in government assets. Examples of Revenue receipts are:

  1. Tax Revenues
    Taxes are compulsory payments imposed by government on people. There are two kinds of taxes – direct tax and indirect tax.
    1. Direct Tax is when the burden of tax and liability of tax falls on the same person. Examples of direct taxes are Income Tax, Corporation Tax, Wealth Tax and Gift Tax. You pay these personally.
    2. In case the tax burden can be passed on to another person that kind of tax is called Indirect Tax – for instance – excise duty, custom duty, service tax, sales tax. These kinds of taxes are passed on by a person/organisation to another person/organisation i.e. you pay these taxes but recover them from the actual consumer.
  1. Non-Tax Revenue
    These refer to those kinds of revenues other than taxes. Examples include: Profits and Dividends of Public Enterprises, Interest over loans granted, External Aid Received, Fees and Fines, etc.

Expenditures

Budget expenditure refers to estimated expenditures incurred by the government under different heads in a year. Just as there is classification in Receipts as revenue receipts and capital receipts, similarly budget expenditures are also classified as:

  1. Capital Expenditures
  2. Revenue Expenditures

Let us look at both of these types of expenditures one by one.

  1. Capital Expenditure refers to those expenditures which result in creation of asset or reduction in liability. Examples of Capital Expenditure include expenses on creation of roads, bridges, buildings etc. Clearly a road, a bridge or a building is an asset.
  1. Revenue Expenditures do not create assets and do not reduce liability. Examples include salaries, interest payments, pensions, subsidies etc. Capital expenditures can also be understood as developmental and revenue expenditures as non developmental.

NOTE: A capital expenditure can be distinguished from a revenue expenditure in that capital expenditures are a one-time expenditure, whereas revenue expenditures are recurring expenditures.


Deficits

Finally let us try to understand various kinds of deficits. A budget is said to be balanced when receipts equal expenditures.

Balanced Budget: Receipts = Expenditures

A budget is said to be in surplus when receipts are in excess of expenditures.

Surplus Budget: Receipts > Expenditures

A budget is said to be in deficit when receipts are short of expenditures.

Deficit Budget: Receipts < Expenditures

There are various kinds of deficits.

Revenue Deficit refers to excess of revenue expenditures over revenue receipts.

Revenue Deficit = Revenue Expenditures – Revenue Receipts

Capital Deficit on other hand refers to excess of capital expenditures over capital receipts

Capital Deficit = Capital Expenditures – Capital Receipts

Fiscal Deficit refers to excess of total expenditures over total receipt, excluding borrowings.

Fiscal Deficit = (Total Expenditures) – (Total Receipt – Borrowings)

Finally Primary Deficit means Fiscal deficit reduced by interest payments.

Primary Deficit = Fiscal Deficit – Interest Payments

 

The 2017 Union Budget, presented by Finance Minister Arun Jaitley on 01st February 2017, was broadly focused on 10 issues farming sector, rural population, youth, poor and health care for the underprivileged, infrastructure, financial sector for stronger institutions, speedy accountability, public services, prudent fiscal management and tax administration for the honest.

Following are the highlights of his speech on various issues:

Demonetisation

1. Demonetisation is expected to have a transient impact on the economy.
2. It will have a great impact on the economy and lives of people .
3. Demonetisation is a bold and decisive measure that will lead to higher GDP growth.
4. The effects of demonetisation will not spillover to the next fiscal.

Agriculture sector

1. Sowing farmers should feel secure against natural calamities.
2. A sum of Rs. 10 lakh crore is allocated as credit to farmers, with 60 days interest waiver.
3. NABARD fund will be increased to Rs. 40,000 crore.
4. Government will set up mini labs in Krishi Vigyan Kendras for soil testing.
5. A dedicated micro irrigation fund will be set up for NABARD with Rs 5,000 crore initial corpus.
6. Irrigation corpus increased from Rs 20,000 crore to Rs 40,000 crore.
7. Dairy processing infrastructure fund wlll be initially created with a corpus of Rs. 2000 crore.
8. Issuance of soil cards has gained momentum.
9. A model law on contract farming will be prepared and shared with the States.

Rural population

1. The government targets to bring 1 crore households out of poverty by 2019.
2. During 2017-18, five lakh farm ponds will be be taken up under the MGNREGA.
3. Over Rs 3 lakh crore will be spent for rural India. MGNREGA to double farmers’ income.
4. Will take steps to ensure participation of women in MGNREGA up to 55%.
5. Space technology will be used in a big way to ensure MGNREGA works.
6. The government proposes to complete 1 crore houses for those without homes.
7. Will allocate Rs. 19,000 crore for Pradhan Mantri Gram Sadak Yojana in 2017-18.
8. The country well on way to achieve 100% rural electrification by March 2018.
9. Swachh Bharat mission has made tremendous progress; sanitation coverage has gone up from 42% in Oct 13 to 60% now.

For youth

1. Will introduce a system of measuring annual learning outcomes and come out with an innovation fund for secondary education.
2. Focus will be on 3,479 educationally-backward blocks.
3. Colleges will be identified based on accreditation.
4. Skill India mission was launched to maximise potential. Will set up 100 India International centres across the country.
5. Courses on foreign languages will be introduced.
6. Will take steps to create 5000 PG seats per annum.

For the poor and health care

1. Rs. 500 crore allocated for Mahila Shakthi Kendras.
2. Under a nationwide scheme for pregnant women, Rs. 6000 will be transferred to each person.
3. A sum of Rs. 1,84,632  crore allocated for women and children.
4. Affordable housing will be given infrastructure status.
5. Owing to surplus liquidity, banks have started reducing lending rates for housing.
6. Elimination of tuberculosis by 2025 targeted.
7. Health sub centres, numbering 1.5 lakh, willl be transformed into health wellness centres.
8. Two AIIMS will be set up in Jharkhand and Gujarat.
9. Will undertake structural transformation of the regulator framework for medical education.
10. Allocation for Scheduled Castes  is Rs. 52,393  crore
11. Aadhaar-based smartcards will be issued to senior citizens to monitor health.

Infrastructure; Railways

1. A total allocation of Rs. 39,61,354 crore has been made.
2. Total allocation for Railways is Rs. 1,31,000 crore.
3. No service charge on tickets booked through IRCTC.
4. Raksha coach with a corpus of Rs. 1 lakh crore for five years (for passenger safety).
5. Unmanned level crossings will be eliminated by 2020.
6. 3,500 km of railway lines to be commissioned this year up from 2,800 km last year.
7. SMS-based ”clean my coach service” is put in place.
8. Coach mitra facility will be introduced to register all coach related complaints.
9. By 2019 all trains will have bio-toilets.
10. Five-hundred stations will be made differently-abled friendly.
11. Railways to partner with logistics players for front-end and back-end solutions for select commodities.
12. Railways will offer competitive ticket booking facility
13. Rs. 64,000 crore allocated for highways.
14. High speed Internet to be allocated to 1,50,000 gram panchayats
15. New Metro rail policy will be announced with new modes of financing

Energy Sector

1. A strategic policy for crude reserves will be set up
2. Rs. 1.26,000 cr for energy production-based investments received
3. Trade infra export scheme will be launched 2017-18.

Financial Sector

1. FDI policy reforms – more than 90% of FDI inflows are now automated.
2. Shares of Railway PSE like IRCTC would be listed on stock exchanges.
3. Bill on resolution of financial firms to be introduced in this session of parliament.
4. Decided to abolish FIPB in 2017-18.
5. Foreign Investment Promotion Board to be abolished.
6. Revised mechanism to ensure time bound listing of CPSEs
7. Computer emergency response team for financial sector to be formed.
8. Pradhan Mantri Mudra Yojana lending target at Rs 2.44 lakh crore for 2017-18
9. Digital India – Bhim app will unleash mobile phone revolution – two new schemes to promote the app.
10. Govt to introduce two new schemes to promote BHIM App – referral bonus for users and cash back for traders: FM.
11. Negotiable Instruments Act might be amended.
12. DBT to LPG consumers , Chandigarh is kerosene free, 84 govt schemes are on the DBT platform.
13. Head post office as the central office for rendering passport services
14. Easy online booking system for Army, defence personnel
15. For big-time offences – including economic offenders fleeing India, the govt. will introduce a legislative change or new law to confiscate the assets of these people within the country.

Fiscal Situation

1. Total expenditure – Rs. 21, 47,000 crore
2. Abolition on plan, non-plan expenditure, focus on capital expenditure ( Capital expenditure will be 25.4 per cent)
3. Rs. 3,000 crore under Dept of Economic Affairs for implementing Budget announcements.
4. Defence expenditure, excluding pension, at Rs 2,74,114  crore
5. Expenditure in science and technology —  Rs. 37,435 crore
6. Total resources transferred to States and UTs is Rs 4.11 lakh crore
7. Recommended 3% fiscal deficit for three years with deviation of 0.5% of GDP.
8. Revenue deficit – 1.9 %
9. Pegged fiscal deficit of 2017-18 at 3.2% of GDP and remain committed to achieving 3% in the next year.

On funding of political parties

1. Maximum amount of cash donation for political parties will be Rs 2,000 from any one source from Rs 20,000
2. Political parties will be entitled to receive donations by cheque or digital mode from donors.
3. Amendment is being proposed to RBI Act to enable issuance of electoral bonds that government will scheme. Donor can 4. purchase these bonds from banks or post office via cheque or digital transactions. They can be redeemed only by registered political parties.

Tax proposals

1. Proportion of direct tax to indirect tax is not optimal.
2. 1.95 crore individuals showed income between Rs 2.5 lakh to Rs 5 lakh.
3. Out of 76 lakh individual assessees declaring income more than Rs 5 lakh, 56 lakh are salaried.
4. Only 1.72 lakh people showed income of more than Rs 50 lakh a year.
5. Between Nov 8 to Dec 30: Deposits between Rs 2 lakh and Rs 80 lakh was made in 1.09 crore accounts.
6. Net tax revenue of 2013-14 was Rs 11.38 lakh crore.
7. Out of 76 lakh individual assessees declaring income more than Rs 5 lakh, 56 lakh are salaried.
8. 1.95 crore individuals showed income between Rs 2.5 lakh to Rs 5 lakh.
9. Rate of growth of advance tax in Personal I-T is 34.8% in last three quarters of this financial year.
10. Holding period for long term capital gain lowered to 2 years
11. Propose to have carry-forward of MAT for 15 years.
12. Capital gains tax to be exempted for persons holding land from which land was pooled for creation of state capital of Telangana.
13. Corporate tax: In order to make MSME companies more viable, propose to reduce tax for small companies of turnover of up to 16. Rs 50 crore to 25%. About 67 lakh companies fall in this category. 96% of companies to get this benefit.
14. Propose to reduce basic customs duty for LNG to 2.5% from 5%
15. SIT on black money suggested no cash transactions of more than Rs 3 lakh. Govt has accepted this proposal.
16. Income Tax Act to be amended.  No transaction above Rs 3 lakh to be permitted in cash.
17. Limit of cash donation by charitable trust reduced to Rs 2,000 from Rs 10,000.
18. Net revenue loss in direct tax could be Rs. 20,000 crore.
19. India’s tax to GDP ratio is not favourable.
20. Out of 13.14 lakh registered companies, only 5.97 lakh companies have filed returns for 2016-17.

Personal income tax

1. Existing rate of tax for individuals between Rs.  2.5- Rs 5 lakh reduced to 5% from 10%
2. All other categories of tax payers in subsequent brackets will get benefit of Rs 12,500.
3. Simple one page return for people with annual income of Rs. 5 lakh other than business income.
4. People filing I-T returns for the first time will not come under govt. scrutiny5.
5. 10% surcharge on individual income above Rs. 50 lakh and up to Rs 1 crore to make up for Rs 15,000 crore loss due to  cut in personal I-T rate. 15 surcharge on individual income above Rs. 1 crore to remain.

 

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