Transcript Union Budget 2011

By A.V. Vedpuriswar
July 8, 2011
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
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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.
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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.
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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.
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The Budget at a glance
Rs crores
2009-10
2010-11
2011-12
Revenue receipts
572,811
783,833
789,892
Capital receipts
451,676
433,743
467,837
1024,487
1216,576
1257,729
Non plan expenditure
721,096
821,552
816,182
Plan expenditure
303,391
395,024
441,547
Total expenditure
1024,487
1216,576
1257,729
Revenue deficit
338,998
269,844
307,270
Fiscal deficit
418,482
400,998
412,817
Primary deficit
205,389
160,241
144,831
Total receipts
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Break up of revenues/expenses
Where rupee comes from
Paise
Where rupee goes
Paise
Borrowings
27 Central plan
22
Corporation tax
24 Interest
18
Union excise
11 States’ share of taxes
17
Income tax
11 Defence
11
Customs
10 Other non plan exp
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Non tax revenue
8 Subsidies
9
Service tax
6 Plan assistance to states
7
Non debt capital receipts
3 Non plan assistance to states
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Total
100 Total
100
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A graphical view of how the rupee
comes and goes
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Plan Expenditure
8
Major non plan expenditure items
(Rs crores)
Interest
Subsidies
Salaries/pensions
2009-10
213,093
141,351
152,739
2010-11
240,757
164,153
150,828
2011-12
267,986
143,570
160,710
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Composition of Revenue expenditure
10
Interest expenditure
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Subsidies
12
Tax Collection
14
Sources of Tax revenue
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Tax revenue as % total tax revenue,
GDP
16
Deficit as % of GDP
Revenue deficit
Fiscal deficit
Primary deficit
2009-10
5.2
6.4
3.1
2010-11
3.4
5.1
2.0
2011-12
3.4
4.6
1.6
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Fiscal deficit trends
18
Structural and cyclical components
of Deficit
19
Government’s market borrowings
20
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.
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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.
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Budget highlights (3)
 Rs 40,000 crore to be raised through disinvestment in 2011
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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.
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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 .
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Understanding the Direct Taxes
Code (1)
 DTC seeks to consolidate and amend the laws relating to
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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.
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Understanding the Direct Taxes
Code (2)
 Currently, the rates of tax for a particular year are stipulated
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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.
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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.
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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.
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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.
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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.
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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.
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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 government’s
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.
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