Budget 2012 13

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Budget 2012 13

  1. 1. BUDGET2012-13Dr. V B Tayde
  2. 2. Budget – A financial statement of ensuing year.•An instrument for growth, stability, equity• Submitted by Finance Minister on last day of February• Most herculean task• Resembles household meeting all endsAnatomy of BudgetBudget processes, stages, components• Prebudget rituals, preparation, presentation, discussion, voting implementationPre-budget rituals• Issue of budget circular in September to stakeholders by dept of economic affairs• Pre – budget meetings with ministries, to find their demands• Discussion with interest groups (like rep of business, unions, NGOs, economists)• After pre budget consultation final meeting with PM before budget is frozen
  3. 3. Preparation (people behind the Budget)• The Finance Minister (Pranab Mukherjee)• Chief Economic Adviser (Kaushik Basu)• Finance Secretary (R S Gujral)• Secretary, Dept of Expenditure (Sumit Bose)• Secretary, Dept of Eco. Affairs (R. Gopalan)• Chairman, Central Board of Direct Taxation (Laxman Das)• Chairman, Central Board Excise and Customs (S K Goal)• A team of officers of said depts. massive work of think tank, unceasing and herculean endure of 6 monthsPresentation• Presentation by FM in LokSabha at 11.00 am (formerly 5.00pm)• No discussion on budget on B day• After 2-3 days discussion, debate in parliament• Vote is sought in house
  4. 4. Types of Budgets• Balanced budget : Govt revenue = Govt expenditure• Surplus budget : Govt revenue > Govt expenditure Healthy sign. But mostly theoretical notion• Deficit Budget :Govt revenue < Govt expenditure Used as tool to curb depression Govt raises funds from tax and non tax revenue source for deficit managementDeficit Budget a known precedent• Classical era (18th,19th centuries) of balanced budget• “The best govt is one that spends the least”• The concept of police state• Paradigm shift with Wagners law a move from police state to welfare state• Reasons for growth of public expenditure• Defense, growth of population in towns and cities, recessions, democratic institutions, inflation, welfare of strategic section etc• Resultant outcome – deficit,
  5. 5. Numerous types of deficitsBudgetary deficit• Difference between all receipts and expenditure of govt both on revenue and capital a/c• Govt expend – both revenue and capital a/c > govt receipts both revenue and capital a/c• To bridge gap external/internal borrowings• Budgetary deficit is deficit finance in India• Deficit finance directly adds to price hike• Revenue deficit• Difference between Revenue expenditure and revenue receipts• Revenue deficit = reve expend > reve receipts interest payments subsidies – food, fertilizer, fuel, expanse on health, edu etc• Revenue receipts – receipts from tax (direct/indirect) and non tax (interest obtained on loan given by govt, fees, fines, profit from PSUs etc)• Ideally revenue deficit is zero• Revenue deficit corrected by funds sought from capital a/c
  6. 6. Fiscal deficit Always a talk of fiscal experts, imp concept used internationally, treated as a norm of health of economies• Because it is comprehensive measures of budgetary imbalance especially govt indebtedness• fiscal deficit = budgetary deficit + govt borrowings• When govt receipts fall short to total govt expenditure , govt borrows from public , foreign sources• Thus fiscal deficit is excess of total expenditure over total non borrowed receipts• Financing fiscal deficit (5.9% of GDP in 2011-12) big issue• Target for 2011-12 was 4.6%• Fiscal Responsibilities and Budget Management Act 2003 provision reduced 3 % fiscal deficit and zero revenue deficit to by 2008-09• Global fin crisis plagued world economy
  7. 7. Primary DeficitPrimary deficit = fiscal deficit interest payment of govt• It indicates real position of govt finances as excludes interest liabilities Monetized deficit• A sum of net increase in holding of treasury bills of RBI and its contribution to market borrowings of govt• It is increase in net RBI credit to govt.Budget has three components• Consolidated fund• Contingency fund• Public account1. Consolidated fund - consolidated fund constitutes revenues raised by tax & non tax sources, small savings, loans etc• All expenses ( except those met through contingency fund met through CF• Hence most important of all govt funds• No withdrawal without parliament approval
  8. 8. 2) Contingency fund• As per name contingency, unforeseen (urgent) expenditure• Such expenditure is meet from it• Amt Rs 500 crores earmarked for it• In possession of president• No withdrawal without parliament approval• Amt taken from consolidated fund3) Public a/c• An account where in govt is simply a banker• PPF, GPF, NSS, NSE block public money• Such funds are used by govt• Returned to people after maturity• No permission of parliament• All such govt funds receipts used for various heads of expensesTwo tier classification1. Revenue receipts and expenditure2. Capital receipts and expenditure
  9. 9. Revenue receipts/expenditure• Revenue account – receipts/expenses do not create any asset• On receipt side tax/non tax revenue• On expenditure side – expenses on subsidies defense, salaries etcCapital receipts/payments capital receipts creating assets go to capital account• For instance sale of shares (disinvestment) in public sector companies. Interest received on loans on small savings etcCapital expenditure• Long term expenditure• Expenditure on public dams developmental projects, interest paid on govt loansBudget 2012-13• Budget always poses challenges• Challenges before the budget 2012-13• Global meltdown especially fall of European union and its impact• High domestic inflation 6.5pc• Dealing growth rate since last 4 yrs tangenting to 6.9%
  10. 10. • High unemployment 10.8pc• Defiant poverty 37.5pc wide Tendulkar committee• Current set back to congress in election• Commencement of XII plan on April 1,2012• Herculean Endeavour to sectors -Satisfy all business, agriculture, professionals self employed, employees, aam admi.• Pareto optima – at least one is better off and none worse off poses constraints.• Seasoned finance ministers Endeavour to play his ball• Economic survey on 15.3.2012• ‘Kahi khushi kahi gam ‘Finance Bill• Finance bill 2012-13 entails tax proposals
  11. 11. Personal income tax rates (in %)Income (In Rs) Existing NewUpto 1.8L Nil Nil1.8 L – 2L 10 Nil2L – 5L 10 105L- 8L 20 208L-10L 30 20Above 10L 30 30• Standing committee on exemption limit Rs 3L• Some stand committee members Rs 5L• Salaried class disappointed on two grounds• Expectation of hike in exemption limit remained an illusion• Additional deduction Rs 20,000 for infra bond removed• Corporate income tax rates same
  12. 12. Indirect Taxes• FM became cruel to be kind• FMs give and take game “I must be cruel to became kind’ quoting hamlet, FM said in Parliament• Kindness – Hike in tax exemption limit by Rs 20,000 to give relief to assesses• Cruelty: Rise in service tax and excise duty money to finance three Fs of subsidy – food, fuel, fertilizer could led to inflation• Hike in service tax and excise for 10% to 12% costly• Most goods services shall be costly• Oil shock $ 115 per barrel a burden• Periodical petrol/diesel price hike on going phenomenon.
  13. 13. • The railway minister played his role in passenger fare hike• 9 yrs old fare hike at one stroke• Common masses miles away from 4 wheeler, could afford to ride on multi-wheeler• Such ride for poor now miserable• 9 yrs old hike should have been divided over 3 budgets• Resultant inflation shall hard- hit commutersLikely Expensive’s List Phones, hoteling, TV, freeze, car, aviation, electronics, cigar, gutka, pan masala, gold, imported vehicles, etcMost shall plague rich and “Aam Aadmi” and will add to inflation
  14. 14. Moderate Income Tax RatesModerate Income Tax Rates (Personal and corporate) sound feature• Since past decade ceiling tax rates up to 30-40%• In 1972-74 tax rate was 97.5%• It increased propensity to evade tax leading to reduced tax collection• High tax rates affect ability and desire to work adversely• It affects savings, investment, capital formation and economic growth adversely• Laffer’s curve empirically evidenced inelasticity of high taxation• With high tax rates, tax proceeds don’t enhance proportionatelyTax – An effective tool of change• Tax/ Pubic expenditure need be taken as potent tools of diverging economicresources• Thus tax on cigarettes, bidis, tobacco products to discourage their consumptions iswelcome step• AP Learners said “ The aim of tax is not to earn money but to leave less in hands ofpeople”• Also to divert resources according to needs• Taxing conspicuous consumption is called for• Taxing cigarettes, alcohol, gambling diverts consumers away from the same• Prohibition is Directive Principle in Indian Constitution
  15. 15. Negative Taxation• Tax a tool to reduce inequalities• In USA negative income tax to bring egalitarian societyGreen Budget – Budget for agriculture• Pranavda’s prioritization of agriculture – a big leap forward• Agriculture contribution to GDP – 14%• It absorbs 58% people in employment, It feeds 1.2 billion people, wide range ofcattle and crops• Hence more crucial than rest of the sectors• Unfortunately agriculture is gamble in hands of monsoon• Fluctuating growth in agriculture 2007-08 - 5.8% , 2008-09 – 0.01%, 2009-10 – 1%,2010-11 - 7%, 2011-12 – 2.5%Provisions• Total outlay for agriculture & cooperative department 2011-12 – Rs 17123 crore 2012-13 Rs 20208 crore• Total planned outlay for Rashtriya Krishi Vikas Yojna 2011-12 – Rs 7860 crore 2012-13 Rs 9217 crore
  16. 16. Second Green Revolution in Eastern India• High productivity in paddy• Allocation 2011-12 – Rs 400 crore, 2012-13 – Rs 1000 crore• Storage facilities, freezing facilitiesCreation of various Agricultural Missions• National Food Security Mission covering paddy, wheat, pulses• National Mission on Agriculture including Micro-irrigation as action plan for climatechange• National Mission on Agriculture Extension and Technology – to adopt new farmtechnology and raise agriculture products• National Mission for Protein Supplement• Hence suitable allocation for dairy (with world bank assistance Rs 2242 crore)poultry, piggery, goat rearing, etc
  17. 17. Farm Credit• Allocation in 2011-12 – Rs 475000 crore• Allocation in 2012-13 – Rs 575000 crore• Crop loan with 7% rat of interest• For regular payer 3%• NABARD refinance allocation Rs 1000 crore• Kisan Credit Card as ATM• Agriculture Research allocation Rs 200 crore• Food Processing sector growth 8% for last 5 yearsNew centrally planned scheme – National Mission on Food Processing• Creation of 2 million tons of storage capacity. Lot is done, lot needs to be done• Food inflation revisit in March 2012 after zero food inflation in Jan 2012• Availability of quality farm input at fair price to control food inflation• Increase in farm productivity in various crops
  18. 18. Fiscal Consolidation Mirrored in Budget “I made it a determined attempt to come back to the path of fiscal consolidation in the budget for 2012-13 by pegging the fiscal deficit at 5.1% of GDP’ Mr Pranab Mukherjee said in his budget speechAmendment in Fiscal Responsibilities & Management Act 2003• Govt. to reduce fiscal and revenue deficit• Eliminate effective revenue deficit by March 31st,2015• Generate adequate effective revenue surplus• Periodic review of FRBM Act by Controller Audit General (CAG)• CAG review to be laid down in Parliament• Fiscal deficit in 2011-12 5.9% of GDP against 4.6%• High fiscal deficit due to global melt down• High deficit due to soaring subsidies on crude oil price $ 115 per barrel increased to $ 125 in 2011-12• FMs plan to reduce fiscal deficit to 5.1% in 2012-13, 4.5% for 2013-14
  19. 19. Fiscal deficit as percentage of GDP Year Budget 2012-13 13th Finance Com 2011-12 5.9 4.8 2012-13 5.1 4.2 2013-14 4.5 3.0 2014-15 3.9 3.0• Big challenge to get 5.1% fiscal deficit in 2012-13 from 5.9% of 2011-12• Subsidy reduction on 3F (Fuel, Fertilizer, Food) is a big challenge• FM declaration for 2012- 13 subsidies 2% of GDP• Over next 3 yrs 1.75% of GDP• After passing of Food Security Bill in parliament, subsidies will multiply due tosubsidized prices of Rs 3,2,1 for rice, wheat, bajra for poor
  20. 20. Debt Management important component of fiscal consolidation Radcliffe committee (1959) said “the debt is not, that is to say, to be regarded as residual among quantities of economic policy. Thus debt management can be regarded neither as something to be, as it were, left to the last and adjusted to all other policy decisions “• FM prediction debt to GDP to decline to 45.5% in 2012-13• In 2011 it was 62.43• Indian still in comfort zone with 45.5 % ratio• In Greece, Japan, USA debt to GDP ratio is massive• It exceed 200 pc in JapanSocial sector provision• Bharat Nirman , Flagship Program, SC/ST Sub plans, Preferential purchases (4%) of the product of Dalit Entrepreneurs, National Skills Development Program• Plethora of social sector promotion programs• PM’s emphasis on transparency and sincere implementation

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