A comparative analysis of Fiscal Policies in the past(post 1990s) and last five years(2011-12 to 2016-17).

1. FI$CAL ₹EFORMS
Presenting by-
Trisha Sinha Roy(8629)
Sanchari Mohanta(8631)

2. What is a Reform?
By Reform we mean making any change to the current
condition for the soul purpose of improvement or in
Economic terms-to get ‘better off’

3. “Fiscal policy deals with the
taxation and expenditure
decisions of the government.
These include, tax policy,
expenditure policy,
investment or disinvestment
strategies and debt or
surplus management.”
- Kaushik Basu ( Former Chief
Economic Adviser )

4. • Fisc : A French word means ‘Treasure of
Government’
• Fiscal policy refers to the overall effect of the
budget outcome on economic activity
• The idea of using fiscal policy to combat recessions
was introduced by John Maynard Keynes in the
1930s
• Fiscal Policy = Revenue + Expenditure Policy by the
Government of India
• Related to ‘Development Policy’ of the Nation
Fiscal Policy

5. What is the need of Fiscal
Policy?

6. Where Monetary Meets Fiscal Policy

8. Three Possible Budgetary Positions
A Neutral position applies when the budget outcome has
neutral effect on the level of economic activity where the
govt. spending is fully funded by the revenue collected
from the tax. Where, G = T
An Expansionary position is when there is a higher
budget deficit where the govt. spending is higher than
the revenue collected from the tax. Where, G > T
An Contractionary position is when there is a lower
budget deficit where the govt. spending is lower than the
revenue collected from the tax. Where, G < T
G-Govt. Spending
T-Tax Revenue

9. Methods of Funding
This expenditure can be funded in a number of
different ways:
 Taxation Revenue
 Seigniorage
 Borrowing money
 Consumption of fiscal reserves
 Sale of fixed assets (e.g., land)

10. Types of Fiscal Policies
Discretionary policy Automatic stabilisation

11. 1991- BOP Crisis
• Gulf crisis of 1990--- increase in oil import bill
• Exports were down significantly due to breakdown of Soviet
Union
• Deterioration in the Exchange Rate of Rupee
• Growing deficit on capital account
Actions Taken
• Acquisition of Foreign Currency
• Devaluation of Indian Rupee
• Encouragement to Inflow of Funds from Abroad
• Compression of Imports
Source: https://www.quora.com

12. Few Noteworthy Fiscal Reforms
• 1934:Customs Duty
• 1944:Excise Duty
• 1953:Taxation Enquiry Commission
• 1957-58:Wealth Tax, Expenditure Tax, Gift Tax
• 1960-70 : Marginal Income Tax Rates
• 1960-80 :Tax Revenue to GDP Ratio Improved from 6.3 % to
16.1 %
• 1993-94: Reduction of the difference between the interest
rate on market borrowings & other internal liabilities
• 1994-95: Inclusion of loans in conversion of maturing
treasury bills & zero coupon bonds
Source: shodhganga.inflibnet.ac.in

13. Few Noteworthy Fiscal Reforms
•2005:Introduction of Fringe Benefit Tax
•2008-09: 2% reduction in Central Excise Duties
Reduction of general CENVAT rate to 14%
•2009-10: Service Tax cut to 12%
Abolition of Fringe Benefit Tax
Source: shodhganga.inflibnet.ac.in

14. Tax Reforms
• Expansion of Tax Base and not Tax Rates
• Imposition of User Charges on all Non-Merit
goods
• Imposition of Tax on Services
• Widespread and bold programme on
Disinvestment

15. • Reducing the corporate tax rate
• Rationalization of capital gains tax and dividend tax and
excise duties
• Progressive reduction in the peak rate of customs duty
on non-agricultural products
• Value Added Tax (VAT)
• Total tax revenues of the centre were 9.7 % of GDP in
1990-91 which declined to only 8.8 % in 2000-01
• As a part of the subsequent direct tax reforms, the
personal income tax brackets were reduced to three with
rates of 20, 30 and 40 percent in 1992-93
Post 1991 Tax Reforms

16. Post 1991 Tax Reforms
• Tax concessions were also given to non-residents to
encourage flow of foreign exchange remittances
• Lowering the maximum marginal rate on personal
income tax
• Widening of the tax base by including :
o Introduction of presumptive taxes
o Adoption of a set of six (one-by-six) economic criteria
for identification of potential tax payers in urban areas
o Taxation of services

17. Our Economy At A Glance in 2016
• The growth in the GDP at constant market prices
in 2015-16 is estimated at 7.6%
• Lower inflation rates(3.78% as of August 2015)
• Lower Current Account Deficit($300 million, in
the second quarter of 2016 )
• Robust foreign exchange reserves
(US$367.169 billion for the week ended August 19,
2016)
• The government aims to restrict fiscal deficit to
Rs.5.33 Lakh Cr. or 3.5% of the GDP
Source: Economic Survey of India (Union Budget Document 2016-17)

18. Macroeconomic Policy in 2015-16
The policy aimed at –
• Promoting growth
• Revival & Stability in macroeconomic environment
The reforms initiated in 2014-15 included measures taken towards
• De-bottlenecking the economy
• Removing structural constraints
• Promoting industry and enterprise
• Enhancing foreign investment inflows
• A host of attendant measures were also taken to improve the ease
of doing business, improve programme delivery performance
through expansion of direct benefit transfers coverage and
deepening the financial inclusion initiatives
Source: Economic Survey of India (Union Budget Document 2016-17)

19. Revenue Receipts
• Revenue Receipts= Tax Revenue + Non-Tax
Revenue
• Neither creates a liability nor reduces nor reduces
any assets
• Tax Revenue: Tax Revenue forms part of the
Receipt Budget, which in turn is a part of the
Annual Financial Statement of the Union Budget
• Non-Tax Revenue: Non-Tax Revenue is the
recurring income earned by the government from
sources other than taxes

20. Capital Receipts
• Capital Receipts = Recoveries of Loans + Other
Receipts + Borrowings and other liabilities
• It is the amount received from the sale of
assets, shares and debentures

21. CHANGE IN ESTIMATED REVENUE AND CAPITAL RECEIPTS
(in Crores of Rupees)
0
500000
1000000
1500000
2000000
2500000
2012-13 2013-14 2014-15 2015-16 2016-17
REVENUE RECEIPTS
CAPITAL RECEIPTS
TOTAL RECEOPTS
Source: Economic Survey of India

22. Types of Taxes
Direct Taxes
• Income tax
• Wealth tax
• Corporation tax
Indirect Taxes
• Service tax
• Excise Duty
• VAT
• Customs duty
• GST

23. Government Expenditure
• Plan Expenditure-This is essentially the budget
support to the Central Plan and the Central
assistance to State and Union Territory plans. Like
all budget heads, this is also split into revenue
and capital components.
• Non-Plan Expenditure-This is largely the revenue
expenditure of the government, although it also
includes capital expenditure. It covers all
expenditure not included in the Plan Expenditure.

24. Fiscal Deficit Over Last Five Years
0
1
2
3
4
5
6
7
2011-12 2012-13 2013-14 2014-15
Source: Economic Survey of India

25. The FRBMA
The Fiscal Responsibility & Budget
Management Act (2003) was enacted by the
Parliament of India to institutionalize financial
discipline, reduce India’s Fiscal Deficit,
improve Macroeconomic Management &
overall Management of the Public Funds by
moving towards a Balanced Budget

26. Objectives of FRBMA
• Ensure inter-generational equity
• Long term Macroeconomic Stability
• Complementing the RBI’s Monetary Policy

27. Kelkar Committee Report
• Released on 28 December 2015 by The Union Ministry of
Finance
• Revisiting and Revitalising Public Private Partnership (PPP)
Model
• Nine-member committee was headed by former Finance
Secretary Vijay Kelkar
• Was constituted on 26 May 2015
• To improve capacity building in Government for their
effective implementation
• Recognized the PPP Model in infrastructure as a valuable
instrument to speed up infrastructure development in India
• Needs to focus more on service delivery instead of fiscal
benefits alone

28. Significance of the Committee
• Speeding up of the PPP model is urgently
required for India to grow rapidly and generate a
demographic dividend for itself and also to tap
into the large pool of pension and institutional
funds from aging populations in the developed
countries
• India’s success in deploying PPPs as an
important instrument for creating infrastructure
will depend on a change in attitude of all
authorities dealing with PPPs-public agencies,
government departments supervising and
auditing and legislative institutions

29. Key recommendations of the Committee
• The Government may take early action to amend the Prevention of
Corruption Act, 1988
• the need to further strengthen the three key pillars of PPP
frameworks namely Governance, Institutions and Capacity
• Independent regulators should be set up in different infrastructure sub
sectors to ensure harmonized performance by the regulators
• advised against adopting PPP structures for very small projects
• Unsolicited Proposals (“Swiss Challenge”) may be actively discouraged
• state owned entities SoEs/PSUs should not be allowed to bid for PPP
projects
• to notify comprehensive guidelines on the applicability and scope
of access to, under RTI and Art 12 of the Constitution, and auditing of
financial related matters in order to avoid any delays in public asset
provision
• Banks and financial institution should be encouraged to issue Deep
Discount Bonds or Zero Coupon Bonds (ZCB) to mobilise long term capital
at low cost

30. Existing Indirect Tax Structure
Entry Tax &
Octroi
Entertainment
Tax
Electricity
Duty
Luxury
Tax
VAT
State
Levies
Customs Duty
Central Sales Tax
Service Tax
Excise Duty
Central
Levies

32. Goods & Services Tax
To Trade To Consumers
Reduction in multiplicity of taxes Simpler Tax system
Mitigation of cascading/ double taxation Reduction in prices of goods & services
due to elimination of cascading of taxes
More efficient neutralization of taxes
especially for exports
Uniform prices throughout the country
Development of common national market Transparency in taxation system
Simpler tax regime:
•Fewer rates & exemptions
•Distinction between Goods & Services no
longer required
Increase in employment opportunities
Source: http://www.cbec.gov.in

33. • Can be a powerful tool for accelerating growth
• Total government expenditure as proportion of
GDP needs to be maintained, and raised at the
State level
• Adherence to fiscal legislation
• Fiscal empowerment
• The approach to Fiscal Federalism
33
Suggestions on Fiscal Policy

34. References
• http://www.economywatch.com/indianeconomy/fiscal-sector-
reforms.html
• https://www.google.co.in/webhp?sourceid=chrome-
instant&ion=1&espv=2&ie=UTF-8#q=fiscal+deficit+india+2016
• https://www.google.co.in/webhp?sourceid=chrome-
instant&ion=1&espv=2&ie=UTF-
8#q=foreign%20exchange%20reserves%20of%20india
• https://www.google.co.in/webhp?sourceid=chrome-
instant&ion=1&espv=2&ie=UTF-8#q=current+account+deficit+in+india
• https://www.google.co.in/webhp?sourceid=chrome-
instant&ion=1&espv=2&ie=UTF-8#q=inflation+rate+in+india
• http://www.economywatch.com/indianeconomy/fiscal-sector-
reforms.html
• http://indiabudget.nic.in/ub2016-17/frbm/frbm3.pdf
• http://economictimes.indiatimes.com/
• http://www.indianeconomy.net/splclassroom/223/what-is-fiscal-
responsibility-and-budget-management-frbm-act-what-are-the-
amendments-to-it/#sthash.TmeRgkXs.dpuf (FRBM)

35. References
• http://www.jagranjosh.com/current-affairs/report-of-vijay-kelkar-
committee-on-revisiting-revitalizing-ppp-model-released-1451371983-1
(Kelkar Committee Report)
• https://www.bankbazaar.com/tax/direct-tax.html (Direct Taxes)
• http://www.cbec.gov.in/resources//htdocs-cbec/deptt_offcr/gst-dgtps-
12092016.pdf (GST)
• https://www.google.co.in/webhp?sourceid=chrome-
instant&ion=1&espv=2&ie=UTF-8#q=discretionary%20fiscal%20policy
• https://www.google.co.in/webhp?sourceid=chrome-
instant&ion=1&espv=2&ie=UTF-8#q=automatic%20fiscal%20policy
• https://shodhganga.inflibnet.ac.in
• https://www.quora.com/What-exactly-happened-to-the-Indian-economy-
in-1991-in-laymans-terms (1991 Crisis)

36. Thank You