Budget Basics Components of Budget Sources of Revenue Fiscal Highlights Plan & Non Planned Expenditure Major Issues Tax Collection Positives & Negatives of Budget Doubt Session
old French word “bougette” meaning “purse”. planned expenses and revenues plan for saving and spending Purpose Of Making Budget Budget forecast the revenues and the expenses helps in control as it gives the actual position with respect to the forecast
Government has several policies to implement in the overall task of performing its functions to meet the objectives of social & economic growth. For implementing these policies, it has to spend huge amount of funds on defence, administration, and development, welfare projects & various other relief operations. It is therefore necessary to find out all possible sources of getting funds so that sufficient revenue can be generated to meet the mounting expenditure.
Budgets are the mechanism by which management control of anorganization becomes possible.Budgets Performance Plan Action ResultsRevise Remedy Comparison of actual results to budget variance
Dividend Distribution Tax Commodities Income Transaction Tax Tax Direct Indirect Banking Cash Taxes Wealth TaxesTransaction Tax Tax Centre State Local Securities Fringe Transaction Benefit Tax Tax Sales Customs Octroi Tax/VAT Profession Property Excise Tax Taxes Service Stamp User Tax Duty Charges
Revenue Receipts ↓ i. Tax Revenue ii. Non-Tax Revenue 1. Fees 2. Fines and penalties 3. Profits from public sector enterprises 4. Gifts and grants 5. Special assessment duty
Revenue Expenditure ↓1. Consumption of goods and services.2. Agricultural and industrial development, scientific research, education, health and social services.3. Defence and civil administration.4. Exports and external affairs.5. Grants given to State governments even if some of them may be used for creation of assets.6. Payment of interest on loans taken in the previous year.7. Subsidies.
Capital Receipts ↓1. Loans raised by the government from the public through the sale of bonds and securities. They are called market loans.2. Borrowings by government from RBI and other financial institutions through the sale of Treasury bills.3. Loans and aids received from foreign countries and other international Organisations like International Monetary Fund (IMF), World Bank, etc.4. Receipts from small saving schemes like the National saving scheme, Provident fund, etc.5. Recoveries of loans granted to state and union territory governments and other parties.
Capital Expenditure ↓ Any projected expenditure which is incurred for creating asset with a long life is capital expenditure. Thus, expenditure on land, machines, equipment, irrigation projects, oil exploration and expenditure by way of investment in long term physical or financial assets are capital expenditure.
What is fiscal deficit??When a governments total expenditures exceedthe revenue that it generates (excluding moneyfrom borrowings).
The biggest surprise in the budget has been the fiscal deficit target for FY12 set by the Government which is encouraging for global investors. Fiscal deficit is expected to come down to an impressive 4.6% of GDP in FY12 as compared to 5.1% in FY11. The rolling targets for fiscal deficit are placed at 4.1% for 2012-13, and 3.5% for 2013-14. The targets do look ambitious, but a roadmap to achieve these targets is still to be watch out.
FISCAL: The Gross Tax Receipts estimated at Rs. 9,32,440 cr in FY12. The Non Tax Revenue Receipts estimated at Rs. 1,25,435 cr. Total expenditure at Rs. 12,57,729cr in the 2010-11, an increase of 13.4% over last year. Plan and Non Plan expenditures in 2010-11 estimated at Rs. 4,41,547cr and Rs.8,16,182cr respectively.
There are two components of expenditure - plan and non-plan. Of these, plan expenditures are estimated after discussions between each of the ministries concerned and the Planning Commission. Plan expenditure forms a sizeable proportion of the total expenditure of the Central Government
Non-plan revenue expenditure is accounted for by interest payments, subsidies (mainly on food and fertilisers), wage and salary payments to government employees, grants to States and Union Territories governments, pensions, police, economic services in various sectors, other general services such as tax collection, social services, and grants to foreign governments. Non-plan capital expenditure mainly includes defence, loans to public enterprises, loans to States, Union Territories and foreign governments.
Economic growth Control inflation Fiscal consolidation
It is only after tightening monetary policy over the year to contain demand side inflationary pressures and removal of supply side constraints that govt. was able to contain the food inflation. Consumer price index for 2011 is 9.08%. food inflation was -3.36% during the 1st week of January .
In the third quarter of 2011 consumer spending grew at a weaker pace of 59.5 percent. Aggressive rate increases by the Reserve Bank of India over the past 20 months to cool inflation have crimped industrial expansion, a 5.1% contraction in October. Government spending rose 10.7 percent, almost steady compared to the prior quarter.
Govt. has estimated a fiscal deficit of Rs 4.12 lakh crore or 4.6% of GDP during 2011-12. fiscal deficit has risen to Rs 3.07 lakh crore, or 74 per cent of the Budget estimates, in the first seven months of 2011-12.
The food subsidy alone will cost the exchequer Rs 95,000 crore to start with. If one counts other parts of the Bill and associated set-up, etc, to get this moving through the existing channel of public distribution system, the Bill may touch an expenditure of anywhere between Rs 1,25,000 crore and Rs 1,50,000 crore. Three major issues need to be considered: the true financial requirement of the Bill, at least for next three years its operational rollout through the existing leaking and squeaking Food Security Complex of Procurement, Stocking and Distribution. what it does to the remaining food economy when state takes over literally half the marketed surplus of the main staples away from market.
Implementation of Direct Tax Code (DTC), Goods and Services Tax (GST) from 1 april,2012. While DTC will simplify, reduce exemptions, which will widen the tax base, and lower tax rates, introduction of GST will ensure unified tax rates across the country. structural reforms in the subsidy systems. government institutions, banks and companies including LIC will be allowed to buy government stake in Central Public Sector Enterprises (CPSEs) with the help of bulk sales.
Cash-rich PSUs like NTPC, BHEL, SAIL, ONGC and IOC will also be permitted to go for share buybacks. But, in no case would the government stake in any CPSEs be allowed to go below 51 per cent. Department of Divestment (DoD) officials are of the view shares would sell at a premium through this mode, as against discounted sales through the market route.
SEBI is likely to allow the promoters of companies to sell shares by auctioning securities through stock exchanges. This process will be quicker and more efficient than a full-fledged public offering of shares. The government has been able to garner Rs 1,144.55 crore (Rs 11.445 billion) this year from Divestment in Power Finance Corporation. The option of getting additional or special dividend from cash-rich CPSEs may also be considered this year for improving revenue realization from the government stake.
Gloomy growth prospects and the governments commitment to fiscal consolidation is likely to crimp resource availability for the next Five-year Plan. Aggregate resources for the Centre will decline from 14.01% of GDP in 2011-12 (BE) to 13.11% of GDP in 2016-17 . The working group has assumed better targeting of subsidies market-linked pricing of petroleum products and diesel will bring down non-plan expenditure from 9.09% of GDP during the base year of the 12th plan (2011-12) to 7.36% of GDP in the final year.
The North Block has instructed all departments and ministries to use resources judiciously. ministries should identify savings from within grants, including re-appropriation from low-priority items, to provide for items of high priority.But fiscal prudence cannot be at the cost of development.
Despite the economic slowdown, indirect tax collections have touched 72% of the budgeted Rs 3.97 lakh crore for the current fiscal. Direct tax collections, which have, after refunds, grown just over 7% in the first eight months of the fiscal. Industrial production growth slumping into negative in October and government cutting import duty on crude and petroleum products to cushion the impact of rising crude prices.
Excise duty, a tax levied at the factory gate and a leading indicator of production of goods, bounced back strongly in December indicating a revival in manufacturing growth after a 5.1% contraction in October. Overall indirect tax collections rose 16.1% in the first three quarters, against the year-ago period, just short of the 17.3% rise needed to meet the Rs 3.97 lakh crore target. Customs duty collections rose 4.1% to Rs 12,608 crore in December from Rs 12,109 crore in the same month a year ago.
Positives For automobile industry, budget is in neutral gear,i.e. there is no change,hence cars will be less expenisve. Senior citizens are benefited by the hike in exemption limit. Basic customs duty on agricultural machinery reduced to 4.5 per cent from 5 per cent. Government has cut many import duties to check inflation. Excise duty to be reduced from 10% to 5% on parts of specified machinery. Surcharge for companies cut to 5 per cent, from 7.5 per cent. Priority sector lending for housing raised from Rs.20 lakh to Rs.25 lakh.
Negatives Health Check-Ups in Private hospitals to become expensive. Both International Air Travel and Domestic Air Travel become expensive. Tax on life insurance service providers could be negative for insurance companies. Travel, Healthcare to become expensive due to increased service tax. Lack of FDI in retail, a disappointment. New service tax to hurt companies in hospitality. Hike in export duty on Iron Ore. Branded clothes may cost more. Rise in MAT from 18% to 18.5%.
Equity markets – were up by 3% mid day but ended with modest gains of about 0.5%. Top 5 NIFTY Gain Reason gainers (%)ITC 8.13% Much expected increase in excise duty on tobacco and tobacco products not announced.IDFC 5.18% Impetus to infrastructure.Reliance 4.66% Banking licenses to private sector.CapitalM&M 3.45% No roll back of excise stimulation. Fuel cell, hydrogen cell technology, hybrid vehicles granted concessions.Maruti Udyog 3.38% No roll back of excise stimulation.
Top 5 NIFTY losers Loss (%) ReasonSesa Goa -7.54% Increase in excise duty to 20%.Ambuja Cement -5.23% Rationalization in excise duty.Reliance Infrastructure -4.35% MAT on SEZ developers.Ranbaxy -3.23% No specific reason, as appears from the Budget Speech.Jaiprakash Associates -3.20% MAT on SEZ developers. Rationalization in excise duty on cement.
Why subsidy given to the sector is not in line with input cost? Why farm loan limit through Kisan credit card remains same, ie Rs. 300,000despite inflation being around 10%? While additional interest subvention is welcome, however, if the farmer delaysloan repayment even by 1 day (after six months grace period), he has to pay doubleinterest, ie 14%. In Budget speech, FM endorsed that soil fertility has decreased through the useof chemical fertilizers. He proposed steps to increase organic agriculture in thecountry. But in the same speech, he talked about giving subsidy to chemicalfertilizers and exemption from tax for any investment in chemical fertilizer sector. In India, more than 60% farmland irrigated by rain water. Sufficient steps havenot been taken to ameliorate the situation. One funny but good argument given by a Kisan – While a car loan is cheaperthan a tractor loan…… he has nothing to do with the car on his farm. Mildly positive for Agriculture but negative for Kisan.