Government Receipts: 1. Revenue Receipt 2. Capital Receipt Revenue Receipt are those which do not create public liabilities and also which are not attained through selling of public assets. It is of 2 types of tax revenue (i) Tax Revenue and (ii) Non Tax Revenue. It is of two types (i) Direct Tax); and (ii) Indirect Tax. Direct Tax: Corporate Tax For those corporate units whose annual turnover is upto 250 crore, would be 25% corporate tax instead of 30%. In last budget, turnover limit was 50 crore. Minimum Alternate Tax: It is imposed on small corporate houses, if a corporate house is gaining profit list not revealing it to the government. Then MAT will be imposed on it. During 2015 some FIIs, accused the government that despite having exemption in MAT, they are facing retrospective tax (tax from back date). Capital Gains Tax: It is imposed on the gains obtained through selling and purchase of capital. It is mostly imposed on capital gains from equity. We do not impose capital gains tax on transactions through Mauritius, so many motions show. Their offices in Mauritius to avoid capital gain tax. It is called as round tripping. Government has imposed 10% LTCG for the equities beyond 1 lakh rupees. (beyond one year holding). Security Transaction Tax: It is on selling or purchasing of securities. Tobin tax is imposed on transactions in foreign currency. Escheat: It is imposed on those properties which do not have legal heir or legal heir is minor. When minor obtains the 18 years age, than property is BUDGET handed over to them and amount would be collected. Special Assessment: This is the amount changed by the government local residents for developmental activities done in some area. Indirect Tax Entry tax was a tax imposed on the entry in the states. Octori: onto entry into municipal body. In Maharashtra, instead of Octori, there is local body tax. Highlights of 2015-16 Budget: Public Debt Management Agency: It will manage government of India s internal and external borrowings. Government decided to implement it from October, 2017, but due to GST government did not implement it. PDMA was suggested by FSLRC, headed by B.N. Shri Krishna. In 2015, RBI postponed it for two years. EXPENDITURE Revenue Expenditure: those expenditures, which do not create public assets and also do not reduce public liabilities. E.g. interest payment, wages and salaries, pension, grants, subsidies. Capital Expenditure: they create public asset and reduce public liabilities. E.g: construction of metro, bridges, repayment of loans. During 1987-88, government of India divided public expenditure into two parts: 1. Plan Expenditure (related to five year plan) 2. Non-Plan Expenditure Plan expenses consisted of central plan expenditure and planning assistance to states and UTs, like Loans, giants. Areas of the Plan expenditure were social sector, industry, minerals, transport, energy and others. Non-Plan expenditure was for payment of interest, salary and pension, defence, giants and subsidies. On the recommendation of various committees like Rangrajan Committee on classification of public expenditure, Bimal Jalan Committee on F-9, MAIN ROAD, KATWARIA SARAI, NEW DELHI-16 PH. 011-41661163, MOB: 9711713852, 9873987698 1
efficiency in public expenditure and 19 th Finance Commission, the present government scrapped this classification and at present it is monitored by NITI AAYOG in association with Finance Ministry. DEFICITS 1. Revenue Deficit: revenue expenditure revenue receipt. 2. Budget deficit: total expenditure total receipt 3. Fiscal deficit: total expenditure total receipts Total Expenditure = Revenue + Capital Total Receipts = Revenue + Capital except borrowing 4. Primary deficit: Fiscal deficit Interest payments 5. Effective revenue deficit: Revenue deficit grants given to states Primary deficit shows us the direction of the economy. Effective Revenue Deficit was introduced in 2012 after the amendment of FRBM Act, 2002. According to 14 th Finance Commission, this concept of effective revenue deficit should be scrapped and government should put more emphasis on tackling revenue deficit. Fiscal Deficit: It was introduced on 1 st April 1997 to bring transparency and accountability into the budget making process on the recommendation of Shubhomoy Chakravarty Committee. 1. Before its introduction, budget deficit was given prime importance which was not transparent. 2. Budget deficit is also called as monetised deficit. It is called monetised because if BD is more than zero then the deficit valued currency would be brought back into economy through two methods. (i). Through borrowing from RBI. (ii). By reduction of cash balances of GoI with RBI. According to some economists, this monetising deficit can be good for the developing economy like India because this act which is technically called as deficit financing may put economy into crisis, which is popularly called as too much money chasing too few goods. At present government is following the zero budget deficit policy, which can be considered as a progressive policy. In 1 st April, 1997, adhoc treasury bills concept was replaced by ways and money bill. Under this there is an agreement between government and RBI, that the automatic monetisation agreement is no more functional. In the adhoc T-Bill system if general people fail to purchase this Bill, then in order to finance budget deficit, RBI will have to purchase it. PSBR (Public Sector Borrowing Requirements): It is an addition of fiscal deficit of central government + state government + independent borrowing by PSUs. It shows complete public sector deficit. According to Tarapore Committee on capital account convertibility, PSBR should be used at the place of fiscal deficit. Why Fiscal Deficit (FD) is not considered good? It reduces the resources availability with government. It also denies economic welfare of future generation. Eg: during 2015 IMF instructed Germany, France and Greece to go for austerity measures, although they have high unemployment rate. Due to expansionary fiscal policy, the domestic rate of interest may increase which may result in the crowing out of small investors from the market, because at this higher rate of interest, they cannot afford to stay in the market. High fiscal deficit may lead to crowding out of the economy. F-9, MAIN ROAD, KATWARIA SARAI, NEW DELHI-16 PH. 011-41661163, MOB: 9711713852, 9873987698 2
FRBM (Fiscal Responsibility and Budget Management) Act: It was implemented in July, 2004 1. There should be annual reduction in revenue deficit by 0.5% and it should be zero by end of 2008-2009. 2. Fiscal deficit should be reduced annually be 0.3% and it should be brought to 3% by end of 2008-09. Question 1: For the country like India, fiscal consolidation cannot be a better option, in the light of this statement write your views? 3. It prohibits the government to borrow from the RBI, from 1 st Jan, 2006, government decided that it will not ask RBI to part currencies finance its expenditure. 4. A cap on the level of guarantees and total liability of government. FRBM act was amended as part of finance bill in 2012 and two concepts were introduced: 1. Effective Revenue deficit. 2. Medium term expenditure framework state which set forth a three your rolling target for expenditure indicators. It helps to allocate resources for prioritised schemes and weeding out other that outlift their utility. It emphasise on the fiscal consolidation. It means strengthening government finances, it results in reduction in the level of fiscal deficit to the desired level. It helps to cut wasteful expenditure which can enable government to spend more on infra and social structure. Tax reforms, disinvestment, better targeting of subsidies are hallmarks of fiscal consolidation. Fiscal Consolidation include following reforms 1. Revenue reforms which include tax reforms 2. Expenditure side reforms i.e. cutting out wasteful expenditure. 3. Allocation of resources in priority sector. According to Laffer curve, if there would be more Fiscal consolidation in the economy and government would resort to more increment in tax size, that may lead to decline in tax revenue collection, may encourage tax avoidance which will further defeat the basic purpose of fiscal consolidation. It may also result in fiscal drag. Fiscal Drag: it is a situation where inflation pushes the income into higher tax brackets, the result is increase in income taxes, but no increase in real purchasing power of the people, this is problem which occurs during the high period of inflation. Government gains due to high tax collection, but the economy suffers, as growth is dragged down due to less demand. In high growth and high inflation economies, fiscal drag acts as an automatic stabilizes, as it acts naturally to keep demand side stable. F-9, MAIN ROAD, KATWARIA SARAI, NEW DELHI-16 PH. 011-41661163, MOB: 9711713852, 9873987698 3
Value Added Tax (VAT): VAT was implemented on the production and selling process and finally the value addition on these processes, it was different from turnover tax. Turnover tax is imposed on the entire value of the product, but VAT is imposed only on the value addition on price, but not on the total price. Under the Vat their was ITC (input tax credit). It means if the producer of seller had paid taxes on input, then that would be credited back to him. Merits of VAT: 1. There is no cascading effect under VAT i.e. carry forward of taxes not happen. 2. After implementation of VAT, there is no tax on tax concept. 3. It would reduce the input inflation because of ITC provision. 4. Tax evasion is quite difficult under it because through cross-checking the tax evader can be caught. 5. In problems associated with VAT: (a) There is high accounting cost for small traders. (b) There is need of efficient administrators to implement VAT properly. Despite having two tier structure (CENVAT at central level and SLVAT at state level) so many additional taxes which was quite high on the consumers. On the recommendation of L.K. Jha committee in 1986, VAT was introduced in India in 1986 with the name MODVAT, although committee suggested MANVAT (manufacturing VAT). In the year 2000-01, MODVAT was amended and at the place of three rates 8%, 10%, 24% one rate 16% was implemented, which was called as CENVAT, it is a modernised form of central excise duty. In April, 2005, ITC was included in all the states sales taxes, which is called as SLVAT. So before the introduction of GST, VAT had dual structure i.e. CENVAT and SLVAT. Demerits of VAT It is due to less synchronisation between the central and state government authorities, CENVAT was still associated with cascading effects. Despite having dual structure still some indirect taxes were out of the ambit of VAT like excise duty, entertainment tax, luxury tax, central sales tax. Direct Tax Code (DTC): It was recommended into 2010 and the then Finance Minister in 2012, even issued notification to implement it, but only a part of it had been implemented, but not the entire DTC. DTC Bill 2010 seeks to consolidate, aid related to all kinds of receipts and also to all direct taxes like income tax, dividend distribution tax, wealth tax, corporate tax, security transaction tax etc. to establish an efficient taxation system which will facilitate voluntary compliance and help to increase the tax GDP ratio. Salient Features: 1. Consolidation and integration of all direct tax laws, it will replace both the Income Tax Act, 1961 and Wealth Tax Act, 1951 with the single legislation. 2. It proposes a corporate tax rate of 30% (already accepted), from 250 crore turnover it is 25%. 3. Taxation of Non-profit organisations at the rate of 15%, after a basic exemption limit of 12 lakh, donations to these NPOs will be eligible for tax deductions in the hands of donors. 4. Some new provisions with regards to international taxation has also been added:- (a) Advance pricing agreements for international transactions. (b) Transactions of assets held abroad under wealth tax. (c) Branch profile tax on foreign companies, to be levied. General Anti-Avoidance Rules (GAAAR): GAAR aims to target tax evaders, party by stopping Indian companies and investors from routing investment through connectives and other tax F-9, MAIN ROAD, KATWARIA SARAI, NEW DELHI-16 PH. 011-41661163, MOB: 9711713852, 9873987698 4
haven countries for sole purpose of avoiding tax. It was scheduled to come from 1 st April, 2013 but has been deferred. Recommendation of Shome Committee 1. Defer implementation till 2016-17. 2. GAAR to be applicable to cases where the main purpose is tax avoidance instead of earlier one of the main purposes. 3. GAAR could be applicable only if the monetary there should of tax benefit is Rs. 3 crore or more. 4. Allow corporate to approach the authority for advance ruling for tax guidance. 5. Approving panel to consist of: (i). Chairman (retired HC judge) (ii). Two members from outside government. (iii). Two members who are chief Commissioner of income tax or one CC and one Commissioner. Modified GAAR announced by Government: Approving panel will now have: (i). Chairman (retired HC judge) (ii). One member from IRS, not less than the rank of Chief Commissioner. (iii). One member from outside government. GOODS AND SERVICE TAX (GST) It is a king of VAT imposed on Goods and Services. ITC is one of the most important features of it under which taxes on input are returned back. Single Consumer do not have any relation with inputs so they do not get any ITC. So in this process, producer is almost tax free, while the consumer has to pay the tax. It is different from turnover tax like sales tax, excise duty but it is like turnover tax for consumers. Benefits of GST: 1. It eliminates cascading effect 2. It also eliminates tax on taxes. 3. Due to cross-checking, tax evasion can also be stopped. 4. Practically, prices reduced under GST. 5. Manufacturing becomes more competitive. 6. Export becomes competitive, because there is no GST on exportable items but they are liable to get the ITC. Features: 1. Consumption based 2. Destination based (collected by consumer state) 3. Dual structure (CGST and SGST) It is notable that central and state governments get equal share in GST collection, but ITC is paid from their own separate accounts. Despite having VAT why India needed GST? Before GST, central government was giving ITC on excise duty which was call as CENVAT while state government was giving ITC on sales tax, which was called SLVAT. One of the highest demerit of this system was that there was no co-ordination between centre and state, so there was unprecedented impact of taxation on the people, in terms of cascading effect. Apart from this various indirect taxes at the state and central level were out of the VAT system like additional excise duty, entry tax, Octroi, luxury tax etc. F-9, MAIN ROAD, KATWARIA SARAI, NEW DELHI-16 PH. 011-41661163, MOB: 9711713852, 9873987698 5
According to IMF, a proper GST includes all kind of indirect taxes, according to IMF research if their of GST, 10% paccrest of the poor people get only 4 dollar out of 100 dollar. Why GST was Controversial? It was controversial because of RNR, state governments were demanding that this should be 27%, although at that time central government was telling that it should be 20$ although later on government announced for different rates of GST. According to Goldman Sachs, 1% inter-state compensation may increase headline inflation. According to G. Sampath, GST has more economic explanation, but it is less related to social issues. Due to destination based, it was being opposed by manufacturing states. There were compensation related issues also, but later on central government announced that for next 5 years, it will give 100% compensation critical appraisal. It is more complex due to dualistic nature. There can be cascading impact due to 1% inter-state transaction. Some items have been kept out of GST which can categorise GST into VAT kind of structure. There is no clarity on real estate, which is suffering from slowdown. GST has not paid attention on inflation according to NCAER, after the implementation of GST, the GDP would increase between 0.9% - 1.7%, but there is no appropriate logic behind this.(ficci recommended agricultural tax to compensate for GST loses) 14 th Finance Commission: In India, there are two kinds of imbalances between the centre and the states. 1st vertical imbalance 2 nd Horizontal imbalance Under vertical imbalance, it is said that central government has more fiscal power with the comparison of states and it has more revenue earning sources than states. In the horizontal imbalance, we always witness that different states have different revenue earning sources. So there is difference in revenue collection also. It is the task of the finance commission to remove their imbalances, in this context, it fixes the shares of state revenue in the entire tax collection from the states by the centre, along with it also recommends grants-in-aid to the states. FFC and Vertical imbalance: To remove this imbalance, FFC recommended that 42% of the entire tax collection from the states would be given to them instead of 32% earlier. The FFC, there was a recommendation also that due to this 42% of tax revenue transfer to states, there should not be any fiscal distress to the centres, but FFC recommended that grants-in-aid should be reduced and also some of the CSS should be stopped. And, allocated fund should be unconditional, united and formula based. FFC and horizontal balance: To remove it FFC suggested following formula. Indicators Weight Population (1971) 17.5% Demographic Change 10% (b/w 1971 2011) Income distance 50% (from average of their top PCI states) Area 15% Forest Cover 7.5% It was recommended, that the state which has large population in 1971, that state would get more share. Demographic change indicator was used for first time, under it those states were given more allocation, whose demographic change is more between 1971-2011. It was also recommended that more allocation would be done on basis of area of state. FFC also suggested that at the place of FRBM, debt ceiling and fiscal responsibility legislation should be brought. Commission also suggested that the concept of effective revenue deficit should be abolished. F-9, MAIN ROAD, KATWARIA SARAI, NEW DELHI-16 PH. 011-41661163, MOB: 9711713852, 9873987698 6
States should also be given a part of dismastment money. Government should compensate PSUs, which they occur due to implementation of Administered Price mechanism in the form of cash (although government issued oil bonds). Tax expenditure/revenue Foregone: It is also called as tax preference, it occurs when government given various discounts and also exempts various areas from taxes, it is the possible revenue loss because of these exemptions and discounts. According to one provision of FRBM, government should given an effective statement about that expenditure in Parliament, it is one of the main source of higher fiscal deficit in India. According to 2017-17 economic survey, tax expenditure is about 77% of Gross Tax Revenue (GTR), one of the main aim of the DTC is the reduction of tax expenditure. Note: cess is for specific purpose which comes under Article 270, which surcharge is generally tax on tax, it comes under Article 271. State government always opposed this cess and surcharge as revenue collected under it is not shared. According to Economic survey, they are 12.4% of GTR. Types of Budgets Line Item: It is the most popular way of budget presentation, under it new budget expenditures are set on the basis of past budget expenditures. Under it, the allocations are done on the basis of departments or ministries related to the proposed areas, it is easy to understand and also easy to prepare. One of the biggest demerits of this budget is that there is no proper categorisation of these sectors in budget e.g. if allocation is done to education ministry but not specified but how much on primary, secondary and higher education, there might be asymmetric distribution by the Ministry. Programme Budget: It is better than line item because categorisation of allocated fund is done under it which is called as programme and in terms of budget programme budget e.g. if there is allocation to rural development ministry then mini budgets would be formed for rural housing, rural employment, rural roads etc. One of the biggest demerits of this budget is that does not show the performance of these departments, which shows there in no fiscal accountability. Performance Budget: All the characters of programme budget are pact of performance budget, but it also shows financial account accountability which means performance of various departments on basis of fund allocation. Demerit: It does not show the quality of the work done. Note: Outcome budget was introduced in 2005-06 which was similar to performance budget. Although it had some difference, under it fund allocation was attached with objectives, one of the biggest merits was that fund allocation could be reduced even at the time of planning. Zero Based Budget: Under it expenditure and allocation of last year budgets are not considered. F-9, MAIN ROAD, KATWARIA SARAI, NEW DELHI-16 PH. 011-41661163, MOB: 9711713852, 9873987698 7
Union Budget 2018-19 Fiscal Expenditure and Taxation reforms: The total expenditure of Union Government proposed to be 21.75 lakh crore rupees while the projected fiscal deficit of financial year 2017-18 is 3.3% of the GDP: Taxation Expenditure: The growth of direct tax rate is significant till January, 2018 growth rate of 18.7% was recorded over 85 lakh new tax payers filed returns. Number of effective taxpayers increased from 6.47 lakh crore to 8.27 lakh crore. Excess revenue from personal income tax is Rs. 90,000 crore, no changes in personal income tax slabs. Unsurely, the personal income tax collection comes from salaried class, around 1.89 crore returns were filed in 20117 and Rs. 1.44 lakh crore was paid as taxes. 100% tax deduction to farmers/producer companies having Rs. 100 crore turnovers. Corporate tax will be reduced to 25% for companies having turnover of upto Rs. 250 crore. Long term capital gains tax of 10% will be levied for amount exceeding Rs. 1 lakh. There is standard deduction of Rs. 40,000 for transport and medical re-imbursements. Revenue cost of this reimbursements would be Rs. 8000 crore. Exemption of interest income for interest deposits in banks and post offices will be increased from 10,000 to 30,000 to senior citizens, it will be applicable on all deposits. All senior citizens will now be able to claim benefits of reduction of Rs. 50,000 for any medical expenditure and claim Rs. 1 lakh deduction for critical illness. Duties: Custom duties on mobiles and part of television will be increased to 20% from 15%. Custom duty on raw cashew will be reduced from 5% to 2.5%. Name of Central Board of Excise and Customs will be changed to the Central Board of Direct Taxes and Customs. Electronic Income Tax assessment will be rolled out across the country for greater efficiency and transparency. No more education cess on imported goods. Education cess will be replaced by social welfare surcharge of 10%. Infrastructure The budget 2018 had identified infra as one of the key drives of the economy. Accordingly FM announced following initiatives. Defence: Government is planning to develop connectivity infra in the border areas. 1. Construction on Rohtang Tunnel has been completed. 2. Construction on Zojila pass tunnel progressing well. 3. Government has also proposed to construct a tunnel under Sela pass. Smart Cities: 99 cities have been selected with outlay of 2.09 lakh crore under smart city programme. Government to preserve heritage cities through National Heritage Augmentation Yojana (NHAY). Under AMRUT programme, main focus to be on providing water supplies to cities. Road Construction: government to complete extension of national highways to about 9000 km under Bhartmala project. Rural roads will be constructed under Gram Sadak Yojana, for that government is considering to issue PMGSY bonds. Government had also approved Bharatmala project which aims to provide seamless connectivity in backward and border areas. 10 prominent tourist sites will be developed into iconic ones to boost tourism. Railways Rs 1.48 lakh crore have been allocated for the Indian Railways for the year 2018-19. 18,000 km of railway line will be doubled to eliminate capacity constraints. F-9, MAIN ROAD, KATWARIA SARAI, NEW DELHI-16 PH. 011-41661163, MOB: 9711713852, 9873987698 8
Government would be laying special focus on safety, hence, special attention would be paid to the maintenance of track infra. There would also be an increase in the use of technology such as fog, train protection and warning system. Railway is planning to redevelop six separate major railway stations. All stations with more than 20,000 footfall will have escalates, all station will also be equipped with Wi-Fi. The Mumbai transport system will be expanded and augmented at a cost of Rs. 11,000 crore. Sub-urban network of 160 km is being planned for Bengaluru Metropolitans. The government had previously laid the foundation of high speed bullet Mumbai- Ahmadabad train, an institute would be set up in Vadodra in Gujarat to train the manpower or the high speed railway project. Airway The regional connectivity scheme UDAN would be connecting 56 under served airports and 36 under served helipads in the country. The operation had already started in 16 such airports. AAI has 124 airports presently and it would be expanding its airport capacity more than 5 times to almost 1 billion trips a year. The government would also be setting up a coalition for disaster resilient infra. Centre would be allocating Rs. 60 crore to kick start the initiative. Government has also announced 49% disinvestment in Air India through automatic route. Health Sector National Health Protection Scheme will be launched to cover 10 crore poor and vulnerable families, under this upto Rs. 5 lakh will be provided to each family per year in secondary and tertiary care institutions. This scheme will have Rs. 50 crore beneficiaries, so that government has proposed an expenditure of Rs. 6000 crore; which government will gather from LTLG, some other lesser. This scheme will generate laks of jobs particularly for women. Under NHPS, upto Rs 5 lakh will be provided. Tuberculosis claims more lives every year than any other disease. The government will provide Rs. 600 crore as nutritional support to all TB patients. 29 new government medical colleges will be set up by upgrading existing district hospitals in the country, Atleast, one medical college in will be there for 3 Parliamentary Constituencies. MSME Sector Mass formalisation of MSME sector is happening after demonetisation and GST. Online loan sanctioning facility will be refurnished to speed up the complete process by banks. Rs. 3 lakh crore is allocated as target for the MUDRA Yojana for the year 2018-19. Additional measures will taken to boost the growth of venture capital funds and angel investors. Institutional Trading Platform for starups to directly enlist in secondary market. Government will contribute 12% of wages of new employs for all the sectors. Women s contribution to the provident fund will be reduced to 8% form now onwards for the first three years of our employment with no reduction in employer s contribution. Government has allocated Rs. 7148 crore for the textile sector. Other Social Welfare Schemes 187 projects have been sanctioned under Namami Gange. Namami gange programme outlay has been increased with all round development programmes for villages and cities along the river Ganga. In previous year 4456 Ganga gram villages were declared open defecation free, this year government has identified 1156 districts more. 6 crore toilets have been built already and in next year, 2 crore toilets will be constructed under Swachh Bharat Mission. Financial Sector NITI AAYOG will establish a national programme to direct government effects in the area of AI towards national development. F-9, MAIN ROAD, KATWARIA SARAI, NEW DELHI-16 PH. 011-41661163, MOB: 9711713852, 9873987698 9
Government will explore use of block chain technology, pro-actively to boost digital economy. However, the government will not consider crypto currency as legal tender. Individual enterprises will enterprises will now will have their own unique IDs. System of toll payments by cash will be digitised. Government will be bringing out an industry friendly defence production policy this year. The Union Commerce Ministry will develop a National Logistics Portal as a single window programme to boost the logistics sector. Government had set the disinvestment target of Rs. 80,000 crore for the financial year 2018-19. Recapitalisation: Government of India will recapitalise PSBs to help them lend an additional Rs. 5 lakh crore. Union Trust of India, Oriental Insurance and National Insurance will be merged and then listed. Gold Monetisation Scheme will be re-worked with an aim to enable people to open hassle free gold deposit accounts. Union government will monetise selected CPSEs, using infra investment trusts. Salaries Emoluments will be revised for the President to Rs. 5 lakh, Rs 4 lakh for UP and Rs. 3.5 lakh/month for governor. Emoluments to MPs, will be revised with effect from 1 st April 2018, the law will provide automatic revision of emoluments of MPs after every 5 year, indeed to inflation. Education Arun Jaitley has also given importance to the education sector in 88 th budget of India in the following ways: 1. Government has allocated an amount worth Rs. 9975 crore for National Social Assistance Programme this year. 2. Budget 2018 proposals, to treat education holistically without segmentation from prenursery to class 12. 3. To improve the quality of teachers and education, the government would be initiating an integrated B.Ed programme for the teachers. 4. The government has amended the RTE Act to enable more than 13 lakh untrained teachers to get trained. 5. The government has also proposed to increase the digital intensity in education and move gradually from blackboard to digital board. Technology will also be used to upgrade the skills of teacher through the recently launched digital portal DIKSHA. To provide best quality education to tribal children in their our environment it has been decided that by the year 2022, every block with more than 50% ST population and atleast 20,000 tribunal persons will have an Eklavya Model Presidential School. Eklavya schools will be on par with Navodaya Vidyalayas and will have special facilities for preserving local act and culture besides providing training in sports and skill development. Government has also proposed to launch Revitalising Infrastructure and Systems in Education (RISE) with total investment of Rs. 1 lakh crore in next 4 years. With the help of HEFA (Higher Education Financial Agency) government will promote higher education, this will be suitably structured to gather funds. Government is also planning specialised railway university at Vadodra. Government has also proposed to set up two new full fledged schools of planning and architecture. Additionally 18 new SPAs, will be established in the IITs and NITs as autonomous schools. Lastly, government would launched PMRF (PM Research Fellowship) scheme: under this scheme the government would identify 1000 best B. Tech students each year from premier institutions and provide them facilities to do P.hd in IITs and IISCs with handsome fellowship. It is expected that there bright young follows will voluntarily commit, few hours every week for teaching in Higher Educational Institutions. F-9, MAIN ROAD, KATWARIA SARAI, NEW DELHI-16 PH. 011-41661163, MOB: 9711713852, 9873987698 10
Agriculture 1. Government would be doubling farmer s income by 2022 on occasion of 75 th anniversary, with special emphasis on generating higher income for farmers. 2. Government emphasis will be on enhancing production with lesser cost and also to ensure higher income to their produce. 3. Government wants to assist farmers to earn 1.5 times the production cost and the MSP for Kharif crops has been set at 1.5 times the produce price. 4. Government would be working with the states to ensure that all farmers should get a fair price. 5. NIIT AAYOG would also be developing appropriate policies through which farmers would be able to get right prices for their product, more than 86% of farmers are small and marginal. To assist there farmers, government had decided to develop and upgrade existing 22,000 rural haats in Gramin Agriculture Markets (GrAMs). In these GrAMs physical infra will be strengthened using MGNREGA and after government schemes. The government would be setting up an agrimarket infra fund with a corpus of 2000 crore to support GrAMs. Organic farming will be encouraged and women SHGs will be encouraged to take up organic farming under National Rural Agriculture Programme. Allocation of Rs. 1400 crore for food processing, almost doubled from last year s budget which allocated Rs. 715 crore. Government plans to launch Operation Green with a corpus of Rs. 500 crore, it will promote FPOs, Agri-logistics, processing facilities and professional management. Indian Agricultural export will be liberalised and 42 mega food packs will be launched. Kisan Credit Cards will be provided to fisheries and animal husbandry farmers to help them meet their working capital needs. Small and marginal farmers will get more benefits. Government has set aside, Rs. 10,000 crore for fisheries and aquaculture and animal husbandry development fund. Government has also proposed to launched a restructured Bamboo Mission with a fund of Rs. 1290 crore to promote bamboo sector in a holistic manner. Agriculture credit target increased from 8.5 lakh to 11 lakh crore. Government is goind to introduce a special scheme to promote the state governments of Haryana, Punjab and Delhi to manage the livening of crop residue and reduce pollution. Further the groundwater irrigation scheme under Krishi Sinchai Yojana (Har Khet Ko Paani) will be taken up in 96 deprived irrigation districts where less than 30% of the land holdings gets assumed irrigation presently. Government has allocated Rs. 2600 crore for the same. In the year 2018-19, for the creation of livelihood and infra in rural areas, total amount to be spent by the Ministries will be Rs. 14.34 lakh crore, including extra budgetary and non-budgetary resources of Rs. 11.98 lakh crore. Overall the budgetary allocation will gave way to increase employment opportunities, laid to the development of Rs. 3.17 lakh new rural houses, Rs. 1.88 crore toilets and provide Rs. 1.75 crore new households electric connections besides boosting agricultural growth. F-9, MAIN ROAD, KATWARIA SARAI, NEW DELHI-16 PH. 011-41661163, MOB: 9711713852, 9873987698 11
Chapter : 1 ECONOMIC SURVEY (2017-18) State of the economy: an analytical overview, outlook for policy. Context: The chapter high lights developments in Indian economy, in the recent past and identifies priorities within macro-economic framework for short and medium term. The short term overview highlights key reforms undertaken in past years, while the medium term overview provides six priorities to be addressed in medium term to return to 8% growth rate. Chapter also tries to answer reasons for opposite behaviour of Indian economy vis-a-vis world economy and provides outlook for 2017-18 and 2018-19. Terminologies: Economic Trough: a trough is stage of economy s business cycle that marks the end of period of declining business activities and transition to expand. Recession + Deflation = Depression Price Earning Ration (P/E ratio): It is the ratio for valuing a company that measures its current share price relative to its pre share earnings. Twin Balance Sheet: the balance sheets of both PSBs and some corporate houses are in terrible shape and it has been seem as a major obstacle to investment and reviving growth. Sovereign Rating Upgrade: Moody s investor services upgraded India s sovereign ratings to Baa2 from its lowest investment grade Baa3, it would bring down the cost of overseas borrowing for Indian companies. Short Term Overview: The transformational GST was launched in July, 2017 at the same time decisive action was taken to tackle twin balance sheet challenge. On the 4Rs (recognition, resolution, recapitalisation, & reforms) would be taken care of properly then the better economic growth can be ensured. Recognition was advanced further while the major reforms were taken to address two other Rs, the new IBC has provided a resolution from work, that will help for corporate in cleaning of their balance sheets and also reducing their debts. And in other critical move, government announced a large recapitalisation package (about 1.2% of GDP) to strengthen the balance sheets of PSUs, as there twin reforms take hold firms should finally be able to resume spending and banks to lend especially to the critical and currently stressed sectors of infra and manufacturing. Macro economic development this year has been marked by swings in the first half, India s economy temporarily decoupled, decelerating as the rest of the world accelerated. The reason lay in the series of action and developments that affected the economy demonetisation, difficulties in the new GST, high and rising real interest rates, TBS, challenge and sharp falls in certain food prices that impacted agriculture income. In the second half of the year, the economy witnessed robust signs of revival, economic growth improved as the shocks began to fade, corrective actions were taken and the synchronous global economic recovery boosted exports. Further policy action improved the business climate action and India jumped 90 spots on the World Bank Ease of Doing Business ranking. While similar actions to liberalise FDI help in increasing flows by 20%. Question: Indian economy witnessed deceleration in growth initially and then revival happened. Do you think that Indian economy has enough strength to shed reverses and bounce back. Comment. Overview of Medium Term In medium term Indi has two macroeconomic vulnerabilities. Its fiscal and current account both of which land to deteriorate when oil prices rise. Overcoming the fiscal vulnerability requires breaking the inertia of tax GDP ratio. It is striking that the centre s tax to GDP ratio is no longer higher than it was in 1980s, despite average economic growth of 6.5%, the most rapid in India s history. GST will certainly help to increase this ratio, Addressing the current account vulnerability requires raising the trajectory of export growth. Here important lesson is the need for micro economic policy to support the development F-9, MAIN ROAD, KATWARIA SARAI, NEW DELHI-16 PH. 011-41661163, MOB: 9711713852, 9873987698 12
strategy. Reviving manufacturing and making the sector internationally competitive have been the true goals of make in India programme underpinned by a strategy of reducing the cost of doing business, as a result, the share of manufacturing in GDP has improved slightly, but export to GDP ratio is still a major cause of worry. Conclusion: GST council should pay attention on tax expenditure. Fiscal Outlook The fiscal deficit for the first 8 months of 2017-18 reached 112% of the total for the year, above the 89% norm (average of the last 5 year) largely because of a shortfall in non-tax revenue, reduced dividends from government enterprises. Which focus the government to advance the business cycle by a month, which can give considerable leeway to the spending agencies to plan in advance and start implementing early in the financial year. Headline inflation for the first time crossed the RBI, 4% target in November, posting a growth of 5.2% in December, 2017, because of the rising global oil prices, unseasonal increase in the price of foods and vegetables and the 7 th pay commission etc. The CAD also widened in 2017-18 and it was around 1.5-2% of the GDP for the whole year. Despite these developments, the overall external position remains solid because CAD is still less than 3% of the GDP, which is a vulnerable limit. Outlook for 2018-19 The acceleration of global growth should in principle provide a solid boost to export demand. Private investment seems poised to rebound as many other factors exerting a drag on growth over the past year finally cased off translating the potential resources into an actual investment rebound will depend on the resolution and recapitalisation process, if these process move ahead expeditiously, stressed firms will be put in the hands of stronger ownership allowing them to resume spending. Putting all these factors together, a pick p in growth to between 7 and 7.5 in 2018-19 can be forecasting, re-instating India as the world s fastest growing major economy. Chapter : 2 A new exciting bird s eye view of the Indian economy through the GST. Context: As an information repository, the GST embodies and heralds a radical alteration and enlargement in the understanding of the Indian economy. The GST is filed online and data collected from it give new insights about Indian economy, these insights shall help governments to form policies more appropriately. Terminologies Composite Scheme: Tax payers under this scheme pay a small tax 1%, 2% or 5% on their turnover and not eligible for ITC. The turnover limit for the composition scheme was changed from Rs. 1 crore to 1.2 crore in October, 2017 in GST Council meeting to Rs. 1.5 crore (in November, 2017). RNR (Revenue Neutral Rate): It is the tax rate that allows the government to receive the same amount of money despite changes in tax laws. Highlights: GST has increased the number of unique indirect tax payers by more than 50% from 6.4 million to 9.8 million. The profile of new flees is interesting, on their total turnover, B2C transactions account for only 17% of the total, the bulk of the transactions are B2B and exports which account for 30-34%. Maharashtra, Uttar Pradesh, Tamil Nadu and Gujarat are the states with the greatest member of GST registrants. Question: In the run-up to the GST, there was anxiety amongst the manufacturing states that the switch towards destination and consumption based tax would transfer the tax base towards consuming states. Has this happened? Answer is no, data of state wise GST share shows that top states are Maharashtra (16%), Tamil Nadu (10(, Karnataka (9%), Uttar Pradesh (7%) and Gujarat (6%). Analysis shows that, each states share in GST is almost perfectly co-related with its share in overall GSDP, so the broadest tax bases still seem to be in the largest producing states. F-9, MAIN ROAD, KATWARIA SARAI, NEW DELHI-16 PH. 011-41661163, MOB: 9711713852, 9873987698 13
Informality of the Indian Economy It is said that formal sector accounts for only 8% of the total employment and informal sector accounts for rest, meaning most of employment is concentrated in informal sector. The GST data throws up a new data that allows a better re-examination of the extent of formality/informality in the Indian economy in the following ways. When firms are providing some kind of social security to employees e.g. provident fund and second definition of formality is when the firms are the part of tax net, since new data of GST is available, one can define tax formality as firms having registered under the GST. Based on these definitions, the magnitude of formal sector firms, turnover, tax liability, tax paid, exports and payroll can be estimated. About 0.6% of the firms accounting for 38% of the total turnover, 87% of exports and 63% of GST liability are what might be called in the hardcore formal sector in the sense of making both the tax and social security net. At the other end, 87% of firms, representing 21% of total turnover, are purely informal outside both the tax and social security net. Formal, non-farm employment from the social security perspective is estimated at about 71.5 crore or 31% of the non-agriculture workforce, including government non-farm employment. Similarly, the size o the formal sector defined here as being either in the social security or GST net (defined) is 13% of total firms in the private nonagricultural sector, but 93% of their total turnover. Question: Can we say that after the introduction of GST, the formal and informal sector got a new definition. In the light of the statements right your views. Chapter : 3 Savings and Investment Slowdown 1. Twin Balance Sheet 2. Lack of Automatic Stabilizer (monsoon) Context: India has witnessed history high of investments and savings in the year 2000, but it is now followed by gradual decline. Slowdown of investment and savings is still going on. In this regard some findings are made, one finding is that investment slowdown have an impact, but it has also been seen that savings slowdown has not affected substantially on growth. Another is that recoveries from investment slowdown, especially those associated with balance sheet difficulties tend to be slow. Notably, some degree of automatic bounce back is absent, so that deeper the slowdown the slower and shallower the recovery. Policy conclusion is urgent privatisation for revival of investment for lasting growth impact as the government has done with plans for resolution of bad debts and recapitalisation of PSB. Terms: Slowdown Episode: If there are two or more consecutive slowdown years. Gross Find Capital Formation (GFCF): refers to the net increase in physical assets (investmentdisposals, within the measurement period, it includes purchases of plants, machinery and equipment, construction of infra, homes, railways infra, private residential dwellings etc. and land improvement. Question: In this period of environmental changes, is it not necessary for the government to formulate some concrete policies for investment acceleration; which would work like automatic stabilize. Since, 2010 discussions of India s growth have centred on one simple question, how to achieve 8-10% growth. To solve this problem government has implemented many structural reforms in recent years, but neither saving nor investment has shown accelerated growth, ratio of GFCF to GDP climbed from 26.5% in 2003, reached a peak of 35.6% in 2007 and slide back to 26.4% in 2017. F-9, MAIN ROAD, KATWARIA SARAI, NEW DELHI-16 PH. 011-41661163, MOB: 9711713852, 9873987698 14
The ratio of domestic saving to GDP has registered a similar evolution, raising from 29% in 2003 to a peak of 38.3% in 2007, and then 29% in 2016. Such sharp savings in investment and savings rate have never occurred in India, nor does the other countries seem to have gone through such a large investment boom and bust. Sectors responsible for Saving-investment decline: It is because of slowness in private investment and household/government savings. Private investment accounts for 5% points out of 6.3% points overall investment decline over 2007-08 and 2015-16. The fall in savings by about 8% points over the same period, has been driven almost equally by a fall in household and public savings. The all in household swings has in turn been driven by a fall in physical savings, but party offset by an increase in the holding of financial assets which means shifting from currency and bank deposits towards market instruments. India type investment slowdown: India s investment slowdown is relatively moderate in magnitude. Furthermore, it has a specific nature in that it is a balance sheet related slowdown, in other words, many companies have had to curtail their investment because their finances are stressed as the investments they undertook during the boom have not generated enough revenues to allow them to service the debt that they have recurred. Question: How will the investment slowdown reverse, so that India can regain 8-10% growth? Hint: With the step up in public investment since 2015-16, and now given the constraints in public sector, there is need to policies to decisively resolve the TBS challenge. These steps will have to be followed up along with complementary measures like easing cost of doing business further and creating a clean transparent and stable tax and regulatory environment. In addition creating a conducive environment for SMFs to prosper and invest will help in revival of private investment. Focus of investment incentivising policies has to be on the big small alike. The animal spirit need to be conjured back. Chapter : 4 Fiscal Federalism and Accountability Context: In the present era we need fiscal accountability which will ensure a low and declining dependence of states (second tier) and panchayats on devolved resources and a high and rising share of direct taxes in total taxes. India s second and third tiers of government tend to underperform because of non-transparency. Whether this could lead to a low equilibrium of weak direct tax collection leading to inadequate service delivery provisions and accountability. Terminologies: Fiscal Federalism: It is defined as financial relations between emits of government in a federal government system. Low level Equilibrium Trap: It has been developed by R.R. Nelson for underdeveloped countries. It states that when per capita income increases above the minimum specific level, population tends to increase but when growth rate reaches an upper physical limit as the per capita income, the growth starts declining. Highlights: Taxation is not just a vehicle for raising state revenue, but it can also be critically important for economic and political development. There is a social contract between the citizens and the states. Question: Does this glue rely on taxation (direct tax in particular), does it seem so because of poor revenue collected from direct taxes. RLGs (Panchayats) collect less than 10% of their sources from their own revenues, while ULBs around 45%. States have not developed enough taxation powers to the panchayats e.g. the permissible taxes for panchayats include property and entertainment taxes but not land taxes or tolls on roads. The property taxes collected at the second and third tiers of government are: F-9, MAIN ROAD, KATWARIA SARAI, NEW DELHI-16 PH. 011-41661163, MOB: 9711713852, 9873987698 15