Introduction:
AA governmentA budgetA is a legal papers that is frequently passed by theA legislative assembly and approved by theA main executive-or president. It is presented each twelvemonth on the last on the job twenty-four hours of February. It is presented by Finance Minister of India in parliament. It outlines all the Economic planning of the Government of India for the following twelvemonth.
First brotherhood budget of India was presented on Nov, 26, 1947. It comes into consequence on April1st ( The start of India ‘s fiscal twelvemonth )
Basic component of budget involves Revenues and Expenses
Grosss
Taxs
Non-Taxes
Expenses
Government ingestion ( ex: Spending on current goods and services )
Government investing outgo ( antique: Infrastructure or research )
Transfer payment ( ex: unemployment or retirement payments )
State degree Budget: Each province authorities maintains its ain budget which was besides presented by the province ‘s curate of finance and supervised by cardinal authorities.
Railwaies and Postal Department have separate budget
Fig 1.1 Structure of Government
Devising OF BUDGET:
BUDGET CIRCULAR
The Budget Circular is issued with the intent of supplying counsel to Ministries/Departments in bordering their Revised Estimates for the current twelvemonth and the Budget Estimates for the resulting fiscal twelvemonth, for farther rendering to the Budget Division. This round gives elaborate instructions on the readying of estimations of assorted types of grosss and outgo, including the formats and statements in which the estimations are required to be furnished. The
Budget Circular besides outlines the procedures that are to be followed with mention to assorted gauging demands and the scheduled day of the months by which the information in the prescribed formats are required to be made available to Budget Division
PROCEDURE/STAGES
Fig 2.1
Estimates OF RECEIPTS
Gross RECEIPTS
Estimates of Central revenue enhancements and responsibilities administered by the Central Board of Direct Taxes ( CBDT ) and Central Board of Excise and Customs ( CBEC ) as besides the estimations of Ce aggregation as levied by Government from clip to clip are required.
The revenue enhancement rates determinations and growing premises are chiefly the footing for doing Direct revenue enhancement estimations to be furnished individually by CBEC and CBDT to Budget Division as per the prescribed timelines.
These estimations are made available to the Budget Division in the needed format through the Tax Research Unit ( TRU ) on the CBEC side and Tax Policy Legislation ( TPL ) Division of CBDT.
For the intent of fixing grosss, gross grosss are divided into the four classs
Taxs, responsibilities and grosss in relation to Union districts without legislative assembly
Interest grosss in regard of loans and progresss sanctioned by Ministries/ Departments to State and Union district Governments, foreign Governments, public sector endeavors and others including Government retainers, involvement charged to working disbursals of departmental commercial projects, etc.
Gross grosss estimations are adjustable under Major Head ‘1605 – External Grant Assistance ‘ and ‘1606-Aid.
All other Revenue grosss including, excepting the Ce collected by the Central Board of Excise and Customs and Central Board of Direct Taxes.
Estimates OF Interest Gross
Interest Receipts estimations are required to be prepared in the undermentioned groups.
Interest grosss from State and Union Territory Governments
Interest grosss from foreign authoritiess
Interest grosss from public sector fiscal establishments
Interest grosss from industrial and commercial endeavors, both in the public and private sectors
Interest grosss from statutory organic structures ( municipalities, port trusts )
Interest grosss from departmental commercial project ;
Interest grosss from other borrowers ( excepting Government retainers ) like labour boards, concerted societies, educational establishments, etc.
Interest on progresss to Government retainers
Other involvement grosss e.g. premium on loans floated, involvement on Cash Balance Investment History
Capital RECEIPTS
The estimations of Capital grosss will include grosss by manner of loan refunds, disinvestment of equity retentions in Public Sector Enterprises, issue of bonus portions by the PSEs in favour of Cardinal Government, and net grosss under Public Account minutess.
Estimate OF EXPENDITURE
Outgo estimations are required to be furnished to Budget Division in phases. The estimations are finalized after Secretary ( Expenditure ) has held treatments with the Financial Advisers of the Ministries/Departments. These treatments are scheduled to get down around terminal of October/November.
It is necessary to reexamine the existing Expenditure Budget in the first case, to prioritise the activities and strategies, both on the Plan and Non-Plan side and place those activities and strategies, which can be eliminated or reduced in size or merged with any other strategy. Departments should guarantee that all strategies that have been discontinued, do non happen reference in Revised Estimates of the current twelvemonth. Similarly schemes that are non to go on beyond the current twelvemonth should non be included for Budget Estimates of resulting twelvemonth. A reference of the strategies discontinued or merged should be made in the notes below the Statement of Budget Estimates. Under the standing instructions of this Ministry, no proviso should usually be made in the Budget without completion of pre-Budget examination of a project/scheme.
Budget Division, Ministry of Finance issues instructions on the demand for the single Ministry/Department to set in topographic point effectual mechanism for realistically measuring their demand of financess in a manner that would guard off the happening of indefensible resignation of nest eggs at a ulterior day of the month.
Plan PROVISIONS FOR NORTH ESTERN REGION AND SIKKIM
All the Ministries/Departments are has to pass 10 % of the Gross Budget Support from their Cardinal Plan for the benefit of North Eastern Region & A ; Sikkim.
Sanction OF ESTIMATES
The gauging governments frontward the budget proposals to their ain departmental caputs for consideration and onward transmittal to the ministries administratively concerned.
These ministries perform examination of the estimations, make alterations where it is necessary, and transmit these revised estimations to the Financial Adviser for farther scrutiny and processing.
The countenance of estimations is done in conformity with the commissariats under Rule 49 of the GFR ( grant for demand ) which states that,
( 1 ) The estimations of grosss and outgo of each Ministry / Department will be scrutinized in the Budget Division of the Ministry of Finance. Finance Secretary or Secretary ( Expenditure ) may keep meetings with Secretaries or Financial Advisers of Administrative Ministries or Departments to discourse the entirety of the demands of financess for assorted plans and strategies, along with grosss of the Ministries or Departments.
( 2 ) The estimations ab initio submitted by the Departments may undergo some alterations as a consequence of examination in the Budget Division, Ministry of Finance and deliberations in the pre-budget meetings between the Finance Secretary or Secretary ( outgo ) and the Secretary or Financial Adviser of the Department concerned. The concluding estimations arrived at on the footing of examination and pre-budget meetings will be accepted by the Budget Division, Ministry of Finance and incorporated in the Budget paperss.
Submission OF ESTIMATES FOR PRE BUDGET DISCUSSION
The estimations will be scrutinized by the administrative units of the Ministry/Department and forwarded to the Financial Adviser for farther scrutiny and processing. The estimations eventually recommended by the Financial Adviser will be summarized in the signifier of Statement of Budget Estimates ( proposed ) and 18 transcripts thereof forwarded to the Budget Division of the Ministry of Finance.
PRE-BUDGET MEETINGS
The revised estimations for the current twelvemonth are nevertheless prepared before the budget estimations of the resulting twelvemonth as the Supplementary Demands are based on the revised estimations of outgo for the current twelvemonth, which have to be obtained before the terminal of the current fiscal twelvemonth.
The figures of the revised estimations are finalized in the pre-budget meetings with Secretary ( Expenditure ) along with the Non Plan Budget Estimates, for the resulting twelvemonth.
STATEMENT OF BUDGET ESTIMATES ( FINAL )
When pre-Budget meetings over, and the sanctioned ceilings for outgo, as finalized in these meetings, are communicated including ceilings for Plan and Non-Plan outgo the Financial Advisers are required to fix the Statement of Budget Estimates ( Final ) .
IMPLICATION OF BUDGET:
BUDGET CONCEPTS AND IMPLICATION
GOVERNMENT EXPENDITURE
The authorities outgo represents the purchase of goods and services by the cardinal, province and local authoritiess. This outgo can be classified into different groups.
ECONOMIC CLASSIFICATION
This categorization is based upon how the outgo is done.
Current expenditureA is repeating disbursement or, in other words, passing on points that are consumed and merely last a limited period of clip. They are points that are used up in the procedure of supplying a good or service. Current outgo includes rewards and wages and outgo on consumables – letter paper etc.
This can be farther classified as Consumption Expenditure which include wages, purchase of goods and service for current usage bespeaking the value of the available supplies of goods and factors drawn into the authorities ‘s current usage and Current Transfer Payments which include involvement payments, grants to province and local authoritiess, Non net income administrations ; subsidies and pensions.
Transportation payments do non affect direct demand on goods and services ; they are of the nature of mere transportations intended to add to incomes of others. Current outgo is unproductive as in it does non supply any return on investing.
Capital formation includes two constituents:
Gross fixed capital formation
Addition in work shops
Fixed capital formation includes investing in edifices, public work, equipments and other fixed assets. Addition in work shops includes the net addition ( or lessening ) in shops needed for building work and stock lists of departmental commercial projects and administrative sections. Direct outgo are those investings which the cardinal authorities makes straight and Indirect outgo are those investings which it makes through province and local authoritiess by supplying them loan. Capital outgo is productive in nature.
FUNCTIONAL Categorization
This categorization is based on where the outgo is made and therefore is classified into Social Services, Economic Services, General Services and unallocable services. The categorization is illustrated in the undermentioned tabular array.
Social Services: It concerned with the proviso of basic societal comfortss to the community.
Economic Servicess: Economic services include all such outgos as to advance, straight or indirectly, productive activity within the economic system.
General Services: It chiefly covers defense mechanism & A ; civil outgos. They are incurred for the proviso of the basic administrative construction of the state.
Unallocable Servicess: These are certain types of outgo which can non be related to specific intents and so hold been grouped under this class “ unallocable ” .
GOVERNMENT RECEIPTS
Government grosss can be classified into two classs.
Gross grosss
Capital grosss
Gross Receipts include all short-term/current net incomes of authoritiess.
It is classified under two classs viz. Tax gross and Non-tax gross.
Tax grosss are farther divided into Direct revenue enhancement which chiefly includes corporate revenue enhancement and income revenue enhancement ; and Indirect revenue enhancement which chiefly comprises imposts responsibility, excise responsibilities, service revenue enhancement, VAT, province excise, stomp responsibility etc. User charges on public services involvement grosss ; dividends and net incomes from PSUs, grants etc come under non revenue enhancement gross.
Capital ReceiptsA includes market loans, external loans, little nest eggs, Government Provident Funds, accumulations to variousA sedimentation histories, depreciation and modesty fundsA of assorted sections like railroads. Centre enjoys about broad borrowing power whereas provinces have assorted limitations.
Tax
Taxs in India are divided into cardinal and province revenue enhancements. Taxes for which all-India uniformity in rates is desirable to ease industry/trade are under the horizon of the centre while location-specific revenue enhancements and revenue enhancements related to local ingestion are with the provinces.
The Centre and provinces have no coincident powers of revenue enhancement.
Taxs on income other than agricultural income, corporate income revenue enhancement, strike responsibility on industries ( excepting alcoholic spiritss etc. , ) and imposts responsibility are major revenue enhancement caputs under cardinal revenue enhancements
Taxs on the sale or purchase of goods ( i.e. , gross revenues tax/VAT ) , motor vehicle revenue enhancement, electricity responsibility, land gross, excise on alcoholic spiritss, opium, hemp and other narcotics, cast responsibility, and enrollment fees come under province revenue enhancements
BUDGETARY IMBALANCES
The excess originating out of the surplus of current gross over outgo on ingestion and current transportation payment denotes the economy of the authorities disposal and together with nest eggs of the commercial projects constitutes the economy of the Government available for capital formation. This excess is called Budget Surplus.
On the other manus shortage originating out of the surplus of current outgo on ingestion and current transportation payment over current gross denotes the Revenue shortage of the authorities disposal. Hence,
Gross Deficit = Revenue Expenditure – Gross Grosss
IMPLICATIONS OF REVENUE DEFICIT
Gross shortage leads to authorities adoption and the authorities has to pay involvement for the borrowed money. The involvement money can be generated by bring forthing extra gross, cut downing the current outgo and utilizing the nest eggs to refund debt or utilizing borrowed money for productive intent so that it can give returns. Use of borrowed financess towards creative activity of capital assets can assist bring forthing grosss in two ways.
First, productive assets lead to greater growing, which in bend generates more revenue enhancement grosss
Second, user charges on the freshly created assets can bring forth non-tax grosss.
If the capital creative activity utilizing borrowed money is non possible it leads to farther debt and the authorities falls into a debt trap. The gravitation of this state of affairs is measured by the financial shortage.
Fiscal Deficit = Total Expenditure – ( Revenue Receipts + Non Debt capital Receipts )
IMPLICATIONS OF FISCAL DEFICIT
Increased revenue enhancements or decreased benefits are two ways to cut down outgos, but neither option is conclusive and can be hard to implement. Fiscal shortage can hold the undermentioned reverberations on the economic system.
Fiscal shortage implies lower revenue enhancements and increased disbursement. This disbursement will increase the aggregative demand which may ensue in higher existent GDP and this will take to rising prices.
Crowding OUT Consequence:
Herding out consequence takes topographic point due to the expansionary financial policy. An addition in authorities purchases and lessening in revenue enhancement would increase the authorities shortage. This besides lead the aggregative demand to switch to the right.
As per the IS-LM model the IS curve would switch rightward taking to an addition in the rate of involvement.
An addition in the involvement rates would diminish the investing. This is known as herding out.
A larger budget shortage means greater displacement in the IS curve ensuing in greater addition in involvement rates & A ; hence the herding out consequence would be big.
Subsidy
In India subsidies are an result of undue enlargement of Government activities in the proviso of goods and services that are non pure public goods. Subsidies result from the Government ‘s inability to retrieve its cost adequately in many of these activities. Subsidies can be classified as implicit and explicit.
Application of Budget-Union Budget 2011-12 Budget 2011-12 Impact: Sectors that lost/gained the most
Gross Deficit:
This twelvemonth gross shortage harmonizing to this twelvemonth budget comes out to be Rs. 307270 crores which is 3.4 % of the GDP.
Fig 3.1 gives the whole budget at a glimpse
Gross Deficit = Plan expenditure ( on gross history ) + Non program outgo ( on gross history ) – Gross Grosss
=363604 + 733558 – 789892
= 307270 crores
This is tantamount to 3.4 % of GDP
We can see that it is immense accomplishment from authorities to cut down gross shortage to this sum
Fig 3.1
Trend in Revenue Deficit:
Fig 3.2 shows the tendency in Revenue shortage from last few old ages
From this figure we can see that authorities is seeking to cut down gross shortage from last few old ages so that authorities can utilize that money in other plus creative activity activities.
Fiscal shortage:
This twelvemonth financial shortage harmonizing to this twelvemonth budget comes out to be Rs. 412817 crores which is tantamount to 4.6 % of GDP
Fig 3.3 shows the whole budget at a glimpse
Fiscal shortage = Total Expenditure -Revenue receipts – capital grosss ( recoveries of loans and other grosss )
=1257729 – 789892 – 15020 – 40000
= 412817 crores
This is tantamount to 4.6 % of GDP
Government is making truly good to command financial shortage to this sum
Fig 3.3
Tendencies in Fiscal shortage:
Fig 3.4 shows the tendency in financial shortage from the last few old ages
We can see from the fig 3.4 that the Indian authorities is seeking to diminish financial shortage from last few old ages so that it can pull foreign investors to put in state and efficaciously the competition degree and the economic system status of India can better.
Taxs:
Taxes ( Direct or Indirect ) comes under the class of Revenue grosss
Fig 3.5 Trends in Revenue Receipts from last few old ages
Fig 3.6 Trends in Revenue, Capital and Total grosss
This twelvemonth budget shows that 63.8 % of gross comes from gross grosss and 36.2 % of gross comes from capital grosss
The increasing tendency of entire grosss in the budget shows that authorities is be aftering to increase the revenue enhancement this twelvemonth and increase the gross degree which they can utilize for the plus creative activity activities.
This twelvemonth Government of India will roll up Rs. 932,440 crores through all sort of Taxes conditions direct or indirect.
Other grosss:
Fig 3.7
From fig 3.7 we can see that authorities is seeking to increase other grosss from last few old ages. This they can accomplish by cut downing the subsidies in other subsidies portion.
Government will follow its dis-investment docket, by which it will increase the gross which it will utilize in societal sectors and for making new assets.
Subsidies:
Subsidies come under the class of Non-Plan Outgo.
NBS ( Nutrient Based Subsidy ) will be increased this twelvemonth which will assist husbandmans for the handiness of fertilisers.
From this twelvemonth authorities of India besides plans to supply Direct hard currency transportation of hard currency subsidy to people who lives below the poorness line. It will done for the better bringing of kerosine, LPG and fertilisers.
Fig 3.8
Focus Area of Union Budget 2011-12
Main focal point country involved:
Education Sector
Health Sector
Agribusiness
Social Sector
Infrastructure
Education Sector:
Basic Concern of authorities was increasing the Basic Education degree and accomplishment in the immature pupils
Chief Focus: Universalising entree to secondary instruction, increasing the per centum of our bookmans in higher instruction and supplying skill preparation is necessary
The Scheme which they implemented includes:
Allotment of ` 52,057 crore, which is an addition of 24 per cent over the current twelvemonth
The bing operational norms of Sarva Shiksha Abhiyan have been revised to implement the right of kids to liberate and compulsory instruction which has come into force with consequence from April 1, 2010. For the twelvemonth 2011-12,
Allocate `21,000 crore which is 40 per cent higher than `15,000 crore allocated in the Budget for 2010-11.
A revised Centrally Sponsored Scheme “ Vocationalisation of Secondary Education ” will be implemented from 2011-12 to better the employability of our young person.
Authorization flows from Education. While the Scheduled Castes and Scheduled Tribes had entree to post metric scholarships, there was so far a deficiency of pre matric scholarship strategy.
In 2011-12, present a scholarship strategy for destitute pupils belonging to the Scheduled Castes and Scheduled Tribes analyzing in categories 9th and 10th. It would profit about 40 hundred thousands Scheduled Caste and Scheduled Tribe pupils.
Health Sector:
Basic Concern of authorities was bad conditions of the hapless workers in unorganised sector
Chief Focus: Supplying proper wellness screen to hapless workers
The Scheme which they implemented includes:
The Rashtriya Swasthya Bima Yojana ( A basic wellness screen to hapless and fringy workers ) extended to MGNREGA donees, beedi workers and others.
In 2011-12, proposal is to farther widen this strategy to cover unorganised sector workers in risky excavation and associated industries like slate and slate pencil, dolomite, isinglass and asbestos etc
Agribusiness Sector:
Basic Concern of authorities was increasing nutrient monetary values that are denting the disposable incomeA
Chief Focus: Production and distribution constrictions for points such as fruits and veggies, milk, meat, domestic fowl and fish
The Scheme which they implemented includes:
Rashtriya Krishi Vikas Yojana
Entree to agriculture recognition
Attracting private investing in agribusiness and agro-processing activities
Social Sector:
Basic Concern of authorities was Health, Education, occupation and other Social Issues
Chief Focus: Planned allotments for Health and Education
The Scheme which they implemented includes:
Allotment for Bharat Nirman is proposed to be increased by Rs.10,000 crore over the current financial at Rs. 58000 chromium
Bharat Nirman
Pradhan mantra Gram Sadak Yojna
Accelerated Irrigation benefit programme
Indira Awas Yojna
Rajiv Gandhi Grameen Vidyutikaran YojnaA
Infrastructure Sector:
Basic Concern of authorities was Health bing Bad Infrastructure
Chief Focus: Increasing refinancing through Indian Infrastructure Financial Corporation ( IIFCL ) while concentrating on current national degree substructure projects.A
The Scheme which they implemented includes:
IIFCL is expected to accomplish a cumulative expense mark of Rs 20000cr by March 31, 2011 and Rs 25000cr by March 31, 2012
Allow revenue enhancement free bonds of Rs. 30000cr to hike substructure development in railroads, ports, lodging and main roads.
For 2011-12, an allotment of over ` 2,14,000 crore is being made for this sector, which is 23.3 per cent higher than current twelvemonth
Overall Impact of Union Budget 2011-12 on economic system:
Industry
Consequence
Main Reason
Infrastructure
+ve
Increase in passing on substructure ; Creating substructure debt fund ;
Decrease in Tax liability
STEEL Industries
+ve
Increase in passing on substructure
Banking Industry
+ve
Provide capital extract in PSB ; Raise the mark of recognition flow to husbandmans ;
Increasing banking licence to private participant and NBFCs
Fertilizers
Industry
+ve
Include capital investing in fertilizer production ; Active consideration of the
Urea under the extension of the NBS government
Car
Industry
+ve
Promotion of green engineering ; Encourage fabrication and merchandising of
alternate fuel-based vehicles ; Reduction of usage responsibility on natural steel
Fabrics
Impersonal
Provided Rs. 3,000 crore to NABARD ; Optional levy of responsibility on garment and
made-ups industry has been converted into compulsory responsibility of 10 %
Drug companies INDUSTRY
Impersonal
No proposals on cut downing excise responsibility, Tax vacation and leaden tax write-off for
disbursals
AVIATION INDUSTRY
-ve
Raising service revenue enhancement on it by Rs 50 and Rs 250 for domestic and international
journeys ; Proposal of fog prone equipment was non considered in the proposed
budget
Cordial reception
Industry
-ve
Increase in service revenue enhancement ; No capital investing in this sector
Information technologies INDUSTRY
-ve
Addition in revenue enhancements
OIL & A ; GAS INDUSTRY
-ve
Did n’t diminish import responsibility ; No concern for the lifting Crude Oil monetary values
Table: 3.1
From this tabular array 3.1, we can see that this twelvemonth authorities budget was good planned and focused on the overall benefit of all the sectors. The chief focal point of the authorities was to increase the Tax on those sectors which are already in better place and executing good, and increasing subsidies on those sectors which are under executing and requires authorities support to prolong in the economic system.
