The Budget Lingo : Revenue budget Revenue budget deals with
items of a non capital nature. Revenue receipts are divided into
tax and non-tax revenue. Tax revenues include income tax, corporate
tax, excise, customs and other duties Non-tax revenue, includes
interest on loans and dividends on investments like PSUs, fees, and
other receipts for government services. Revenue expenditure is the
payment incurred for the normal day-to-day running of government
departments. Revenue expenditure also includes servicing interest
on government borrowings, subsidies, etc. Usually, expenditures
that do not create assets, and grants given to state governments
and other parties are revenue expenditures. 2
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The Budget lingo : Capital budget Capital receipts are :
government loans raised from the public, government borrowings from
the Reserve Bank and treasury bills, loans received from foreign
bodies and governments, divestment of equity holding in public
sector enterprises, funds mobilised by small savings, provident
funds, and special deposits. Capital payments are : capital
expenditure on acquisition of assets like land, buildings,
machinery, and equipment, investments in shares, loans and advances
granted by the central government to state and union territory
governments, government companies, corporations and other parties.
3
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Budget Lingo : Non Plan Expenditure This is generally of a non
value adding type. 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. 4
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The Budget at a glance Rs crores2009-102010-112011-12 Revenue
receipts572,811783,833789,892 Capital receipts451,676433,743467,837
Total receipts1024,4871216,5761257,729 Non plan
expenditure721,096821,552816,182 Plan
expenditure303,391395,024441,547 Total
expenditure1024,4871216,5761257,729 Revenue
deficit338,998269,844307,270 Fiscal deficit418,482400,998412,817
Primary deficit205,389160,241144,831 5
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Break up of revenues/expenses Where rupee comes fromPaiseWhere
rupee goesPaise Borrowings27Central plan22 Corporation
tax24Interest18 Union excise11States share of taxes17 Income
tax11Defence11 Customs10Other non plan exp11 Non tax
revenue8Subsidies9 Service tax6Plan assistance to states7 Non debt
capital receipts3Non plan assistance to states5 Total100Total100
6
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A graphical view of how the rupee comes and goes 7
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Plan Expenditure 8
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Major non plan expenditure items (Rs
crores)2009-102010-112011-12 Interest213,093240,757267,986
Subsidies141,351164,153143,570
Salaries/pensions152,739150,828160,710 9
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Composition of Revenue expenditure 10
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Interest expenditure 11
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Subsidies 12
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Subsidies 13
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Tax Collection 14
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Sources of Tax revenue 15
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Tax revenue as % total tax revenue, GDP 16
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Deficit as % of GDP 2009-102010-112011-12 Revenue deficit5.23.4
Fiscal deficit6.45.14.6 Primary deficit3.12.01.6 17
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Fiscal deficit trends 18
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Structural and cyclical components of Deficit 19
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Governments market borrowings 20
Slide 21
Budget highlights (1) Direct Taxes Code (DTC) proposed to be
effective from April 1, 2012. Areas of divergence with States on
proposed Goods and Services Tax (GST) have been narrowed. To
facilitate roll out of GST, Constitution Amendment Bill may be
introduced soon. However, many worry that things may not move so
fast. 21
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Budget highlights (2) Government to move towards direct
transfer of cash subsidy to people living BPL in a phased manner
for better delivery of kerosene, LPG and fertilisers. Aadhar will
play a crucial role here. From 1st October, 2011 ten lakh Aadhaar
numbers will be generated per day. 22
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Budget highlights (3) Rs 40,000 crore to be raised through
disinvestment in 2011- 12. Rs 2,14,000 crore allotted for
infrastructure in 2011-12. This is an increase of 23.3 per cent
over 2010-11. This also amounts to 48.5 per cent of total plan
allocation. Allocation for social sector in 2011-12 (Rs 1,60,887
crore) increased by 17 per cent over current year. It amounts to
36.4 per cent of total plan allocation. 23
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Budget highlights (4) Total expenditure proposed at Rs
12,57,729 crore. Increase of 18.3 per cent in total Plan
allocation. Increase of 10.9 per cent in the Non-plan expenditure.
Fiscal Deficit brought down from 5.5 per cent in BE 2010-11 to 5.1
per cent of GDP in RE 2010-11, 4.6% in 2011-12, 3.5 per cent by
2013-14. Effective Revenue Deficit estimated at 2.3 per cent of GDP
for 2010-11 and 1.8 per cent for 2011-12. Central Government debt
estimated at 44.2 per cent of GDP for 2011-12. 24
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Understanding the Direct Taxes Code (1) DTC seeks to
consolidate and amend the laws relating to income-tax, dividend
distribution tax, and wealth tax. The aim is an efficient,
effective, and equitable direct tax system which will facilitate
voluntary compliance. DTC consolidates and integrates all direct
tax laws and replaces both the Income Tax Act 1961 and the Wealth
Tax Act 1957 with a single legislation. It simplifies the language
of the legislation. It indicates stability in direct tax rates.
25
Slide 26
Understanding the Direct Taxes Code (2) Currently, the rates of
tax for a particular year are stipulated in the Finance Act for
that relevant year. Under the Code, all rates of taxes are proposed
to be prescribed in Schedules to the Code. This will obviate the
need for an annual finance bill, if no change in the tax rate is
proposed. The Code proposes a corporate tax rate of 30 per cent
against the current effective rate of 33.2 per cent. It raises the
exemption limit as well as broadens the tax slabs for personal
income tax. 26
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Understanding the Direct Taxes Code (3) Deduction of up to Rs 1
lakh has been provided for investments in approved provident funds,
superannuation funds, and pension funds. Direct tax rates have been
moderated over the last decade and are in line with international
norms. A general anti-avoidance rule assists the tax administration
in deterring aggressive tax avoidance. Such general anti-avoidance
rules already form a part of the tax legislation in a number of
G-20 countries. 27
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Understanding the Direct Taxes Code (4) It is proposed to tax
non-profit organizations set up for charitable purposes on their
surplus (at the rate of 15 per cent), after allowing for
accumulation of a specified proportion for creation of assets or
for long-term projects, a further carry forward for receipts of the
last month of the year, and also after a basic exemption limit of
Rs 1 lakh. Donations to these non-profit organizations will be
eligible for tax deduction in the hands of the donor. 28
Slide 29
Understanding GST GST is an attempt to rationalise the indirect
tax structure. But the government faces resistance from states
which fear a dent in their financial autonomy if GST is
implemented. The introduction of GST needs an amendment to the
constitution to empower the centre to tax retail trade, give states
governments the power to tax services and for setting up a council
for resolving disputes. At present, the centre can tax services and
goods only at the factory gate. States can tax goods only at the
retail level and do not have the power to tax services. 29
Slide 30
Dealing with deficits (1) The expected disinvestment proceeds
of Rs. 40,000 crores in FY12 and proceeds from the revised fee
structure for additional 2G spectrum can provide some relief on the
fiscal deficit front. But relying on these one time sale of
national assets to manage our deficits may not be the right
approach. There is no clear intent to manage expenses to bring the
structural deficit under control. 30
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Dealing with deficits (2) The government must undertake genuine
reforms to curtail its bureaucracy spend and subsidy regime. Out of
the projected government expenditure in fiscal 2011 of about 11
lakh crore rupees, 40 percent went to pay government salaries, 22
percent to interest on debt and about 10 percent to subsidies. This
left a mere 30 % for the nation of which 16 % is alocated for
defence and 14 % for infrastructure. 31
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Government borrowing The public debt which is almost at 75 % of
GDP, with almost a third of the revenues required to service its
cost, severely limits the governments fiscal flexibility.
Government borrowing needs which could be about 435 lakh crore
rupees combined with upward pressure on interest rates have made it
difficult to push credit growth. Consistently negative real
interest rates have made deposits accumulation slower. In the long
run, this could affect our credit ratings making access to cheaper
global capital difficult. 32