Flow of Presentation

Budget Basics Components of Budget Sources of Revenue Fiscal Highlights Plan & Non Planned Expenditure Major Issues Tax Collection Positives & Negatives of Budget Doubt Session

WHAT IS BUDGET?

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

Budget Concept

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.

The planning cycle

Comparison of actual results to budget variance

Budgets Performance

Budgets are the mechanism by which management control of an organization becomes possible.

Revise

Plan Action Results

Remedy

Union Budget

Revenue Deficit = Revenue Receipts – Revenue Expenditure

Budget Deficit = Total Receipts – Total Expenditure

Fiscal Deficit = (Total Receipts – Borrowings) – Total Expenditure

Primary Deficit = Fiscal Deficit – Interest Payments

Components of Budget

Direct

Taxes

Dividend Distributi

on Tax

IncomeTax

Wealth

TaxFringeBenefit

Tax

Securities

TransactionTax

BankingCash

TransactionTax

Commodities

Transaction Tax

Direct Taxes

Dividend Distribution

Tax

IncomeTax

WealthTax

FringeBenefit

Tax

SecuritiesTransaction

Tax

BankingCash

TransactionTax

Commodities Transaction

Tax

Revenue Budget

Revenue Receipts ↓ i. Tax Revenue  ii. Non-Tax Revenue 1. Fees

2. Fines and penalties3. Profits from public sector enterprises4. Gifts and grants5. Special assessment duty

Revenue Budget

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 Budget

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 Budget

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.

Sources of tax revenue

Composition of revenue expenditure

Outstanding liabilities of govt

What is fiscal deficit??

When a government's total expenditures exceed the revenue that it generates (excluding money from borrowings).

Budget of last year at a glance

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.

HIGHLIGHTS OF UNION BUDGET 2011-12:

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.

Planned expenditure

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 expenditure

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. 

Major issues

Economic growth Control inflation Fiscal consolidation

Control inflation

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 .

Economic growth

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. 

Fiscal consolidation

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.

Food and security bill

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.

Various options government has

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.

Buy back

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.

Resource crunch Gloomy growth prospects and the government's

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. 

Indirect tax collection

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 And Negatives Of Budget 2011-2012

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.

Positives And Negatives Of Budget 2011-2012

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 gainers

Gain (%) Reason

ITC 8.13% Much expected increase in excise duty on tobacco and tobacco products not announced.

IDFC 5.18% Impetus to infrastructure.

Reliance Capital

4.66% Banking licenses to private sector.

M&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.

Vote of the market

Top 5 NIFTY losers Loss (%) Reason

Sesa 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.

Vote of the market

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. 300,000 despite inflation being around 10%? While additional interest subvention is welcome, however, if the farmer delays loan repayment even by 1 day (after six months grace period), he has to pay double interest, ie 14%. In Budget speech, FM endorsed that soil fertility has decreased through the use of chemical fertilizers. He proposed steps to increase organic agriculture in the country. But in the same speech, he talked about giving subsidy to chemical fertilizers and exemption from tax for any investment in chemical fertilizer sector. In India, more than 60% farmland irrigated by rain water. Sufficient steps have not been taken to ameliorate the situation. One funny but good argument given by a Kisan – While a car loan is cheaper than a tractor loan…… he has nothing to do with the car on his farm.

Questions remain unanswered

Mildly positive for Agriculture but negative for Kisan.