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B.A (Programme) Semester - III

Skill Enhancement Course (SEC)

Economics

Understanding Economic Survey and Union Budget

Reading Material

(compiled from various web-resources for limited circulation among students of B.A

(Programme) at School of Open Learning)

Unit 1: Concepts

Unit 2: Analysis of Current and Past policy emphasis

Unit 3: The Union Budget

Unit 4: Trends in Revenue and Expenditure, Tax Reforms, Other Suggestions

(Extracted from Economic Survey-2020-21)

Budget at a Glance, Revenue Budget and Expenditure Budget 2021-22 of Government

of India also attached for reference.

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Unit 1

Concepts

Fiscal Policy, Areas of Government Spending in India

(https://www.financialexpress.com/what-is/fiscal-policy-meaning/1771755/)

Fiscal policy in India

Fiscal Policy is about policies related to taxation, public expenditure and public borrowing

framed and implemented by the government.

Fiscal policy in India is the guiding force that helps the government decide how much money

it should spend to support the economic activity, and how much revenue it must earn from the

system, to keep the wheels of the economy running smoothly. In recent times, the importance

of fiscal policy has been increasing to achieve economic growth swiftly, both in India and

across the world. Attaining rapid economic growth is one of the key goals of fiscal policy

formulated by the Government of India. Fiscal policy, along with monetary policy, plays a

crucial role in managing a country’s economy.

Through the fiscal policy, the government of a country controls the flow of tax revenues and

public expenditure to navigate the economy. If the government receives more revenue than it

spends, it runs a surplus, while if it spends more than the tax and non-tax receipts, it runs a

deficit. To meet additional expenditures, the government needs to borrow domestically or from

overseas. Alternatively, the government may also choose to draw upon its foreign exchange

reserves or print additional money.

For example, during an economic downturn, the government may decide to open up its coffers

to spend more on building projects, welfare schemes, providing business incentives, etc. The

aim is to help make more of productive money available to the people, free up some cash with

the people so that they can spend it elsewhere and encourage businesses to make investments.

At the same time, the government may also decide to tax businesses and people a little less,

thereby earning lesser revenue itself.

Main objectives of Fiscal Policy in India:

• Economic growth: Fiscal policy helps maintain the economy’s growth rate so that

certain economic goals can be achieved.

• Price stability: It controls the price level of the country so that when the inflation

is too high, prices can be regulated.

• Full employment: It aims to achieve full employment, or near full employment, as

a tool to recover from low economic activity.

What is the difference between fiscal policy and monetary policy?

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The government uses both monetary and fiscal policy to meet the county’s economic

objectives. The central bank of a country mainly administers monetary policy. In India, the

Monetary Policy is under the Reserve Bank of India or RBI. Monetary policy majorly deals

with money, currency, and interest rates. On the other hand, under the fiscal policy, the

government deals with taxation and spending by the Centre.

Importance of Fiscal Policy in India:

• In a country like India, fiscal policy plays a key role in elevating the rate of capital

formation both in the public and private sectors.

• Through taxation, the fiscal policy helps mobilise considerable amount of

resources for financing its numerous projects.

• Fiscal policy also helps in providing stimulus to elevate the savings rate.

Types of fiscal policy

There are two types of fiscal policy: Expansionary and Contractionary Fiscal Policies.

Expansionary fiscal policy: This policy is designed to boost the economy. It is mostly used in

times of high unemployment and recession. It leads to the government lowering taxes and

spending more, or one of the two. The aim is to stimulate the economy and ensure consumers'

purchasing power does not weaken.

Contractionary fiscal policy: As the term suggests, this policy is designed to slow economic

growth in case of high inflation. The contractionary fiscal policy raises taxes and cuts spending.

Areas of Government Spending

In order to carry on their functions, govern­ments must obtain the services of labour and other

factor units and (except in a completely socialist economy) acquire goods produced by private

business firms.

Public expenditure consists of expenditure by the central govern­ment and state governments,

local authority (such as municipalities and public corpora­tions), with central government

accounting for the major portion of such expenditure. Thus the central government is required

to maintain good roads, bridges, defence activities, canals and harbours, to protect trade, to

maintain the coinage and to provide social security, education and religious instruction.

Categories of Government Expen­ditures:

Government expenditures can be classified into several categories. First, some outlays are for

direct government purchases of goods and services. Purchases of goods and services include

government expenditures on the ser­vices of individuals, such as those in the armed forces, and

on goods, such as food, medicine schools, hospitals, highways, and motor cars. Many of the

purchases the govern­ment makes are for goods and services that are provided for all members

of the society — including those who have not paid for then use.

When a good or service is provided for everyone and no one can be excluded from its use, it is

termed a public good. Flood control and national defence systems are examples of public

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goods. When government provides a good or service that could be sold in a private market,

such as education or fire protection, it is providing a quasi-public good. The provision of public

and quasi-public goods is a widely recognised function of the government.

A second category of government expen­diture is transfer payments, which are payments from

the government for which nothing is received in return. Social security benefits, compensation

to unemployed people, benefits to senior citizens and pensions to retired govern­ment

employees and freedom fighters are all examples of transfer payment programmes.

Interest paid on borrowed funds is another type of government expenditure. At times,

government units finance some of their acti­vities through borrowing, and the interest on those

borrowed funds is an expense that the government unit must meet.

The government may also incur expenses for running or contri­buting to the operation of

various public enterprises such as toll roads, airports, and hospitals, or for providing

intergovernmental grants. These grants are given primarily by the Central Government to State

and Local Governments.

The main heads of Central Government’s revenue expenditure are:

(i) Defence Services,

(ii) Development Services,

(iii) Administrative Services,

(iv) Debt Services, and

(v) Assistance to States.

Defence Services:

They account for nearly 20% of the total revenue expenditure of the Central Government in

India.

General Services:

The expenditure on civil administrative services as also on tax collec­tion, police, pensions,

etc. come under this heading.

Social and Development Services:

Expen­diture on social and development services are now the most important head of Central

Government’s revenue expenditure and fall into the following two broad groups of services:

(a) Social and Community services, which seek to improve and build-up the human capital and

social infrastructure of the country; and

(b) Economic Services, which are directed toward the development and strengthening of the

economic infrastructure and other economic activities in the country.

Interest Payments:

India has been raising more and more loans — both internal and foreign — for the execution

of its development plans. So it has to pay interest on borrowed funds.

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Revenue Expenditure of the Government

Those expenditures of the government that do not lead to the creation of fixed assets are called

revenue expenditures. The government spends money under various accounting heads, such as

paying interest on loans, salaries and pensions, subsidies, spends on different ministries and

departments, etc. Grants made to state governments and other parties are also treated as revenue

expenditures, even though these might be used for the creation of fixed assets.

Modern governments collect huge sums of money. Expenditure of these large amounts has

become an extremely complex task. Apart from spending on salaries and pensions, the

government also spends on the construction of schools, colleges, hospitals, roads, bridges,

railways, airports and seaports. It also incurs expenses on securing the country from internal

and external enemies.

Capital Expenditure of the Government

Capital expenditure is the money spent by the government on the development of machinery,

equipment, building, health facilities, education, etc. It also includes the expenditure incurred

on acquiring fixed assets like land and investment by the government that gives profits or

dividend in future.

Understanding capital expenditure

Capital spending is associated with investment or development spending, where expenditure

has benefits extending years into the future. Capital expenditure includes money spent on the

following:

Acquiring fixed and intangible assets

Upgrading an existing asset

Repairing an existing asset

Repayment of loan

Why is capital expenditure important?

Capital expenditure, which leads to the creation of assets are long-term in nature and allow the

economy to generate revenue for many years by adding or improving production facilities and

boosting operational efficiency. It also increases labour participation, takes stock of the

economy and raises its capacity to produce more in future.

Along with the creation of assets, repayment of loan is also capital expenditure, as it reduces

liability.

However, the government has to be cautious with the expenditure. In the financial year 2019-

20, capital expenditure was 14.2 per cent of Budget Estimates. The government had to cut

public spending sharply towards the end of the financial year in order that the deficit target

could be met. Total expenditure fell by 0.3 percentage points in 2018-19 over 2017-18. This

includes a 0.4 percentage point slash in revenue expenditure and 0.1 percentage point hike in

capital expenditure.

How is capital expenditure different from revenue expenditure?

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Unlike capital expenditure, which creates assets for the future, revenue expenditure is one that

neither creates assets nor reduces any liability of the government. Salaries of employees,

interest payment on past debt, subsidies, pension, etc, fall under the category of revenue

expenditure. It is recurring in nature.

(source: https://www.business-standard.com/about/what-is-capital-expenditure)

Q. Classify the following as capital and revenue expenditure?

1. Loans to States & Union Territories

2. Loans to Public Enterprises

3. Loans to Foreign Governments

4. Acquisition of valuables

5. Pensions

6. Wages to Government employees

7. Subsidies

8. Interest Payments

Ans: Q1 to 4 – capital expenditure, Q5 to 8 – revenue expenditure

Plan vs Non-plan Expenditure

(a) Plan Expenditure:

Any expenditure that is incurred on programmes which are detailed under the current (Five

Year) Plan of the centre or centre’s advances to state for their plans is called plan expenditure.

Provision of such expenditure in the budget is called Plan Expenditure.

Expressed alternatively, “plan expenditure is that public expenditure which represents current

development and investment outlays (expenditure) that arise due to proposals in the current

plan.” Such expenditure is incurred on financing the Central plan relating to different sectors

of the economy.

Items of plan expenditure are:

(i) expenditure on electricity generation, (ii) irrigation and rural developments, (iii)

construction of roads, bridges, canals and (iv) science, technology, environment, etc. It includes

both revenue expenditure and capital expenditure. Again, the assistance given by the Central

Government for the plans of States and Union Territories (UTs) is also a part of plan

expenditure. Plan expenditure is further sub-classified into Revenue Expenditure and Capital

Expenditure which along with their components are shown in the preceding chart.

(b) Non-Plan Expenditure:

This refers to the estimated expenditure provided in the budget for spending during the year on

routine functioning of the government. Non- Plan expenditure is all expenditure other than plan

expenditure of the govt. Such expenditure is a must for every country, planning or no planning.

For instance, no government can escape from its basic function of protecting the lives and

properties of the people and protecting the country from foreign invasions. For this, the

government has to spend on police, Judiciary, military, etc. Similarly, the government has to

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incur expenditure on normal running of government departments and on providing economic

and social services.

(https://www.economicsdiscussion.net/government/plan-and-non-plan-expenditure-of-indian-

government-micro-economics/767)

The Government of India had announced in 2016, that the classification of plan expenditure

and non-plan expenditure will be abolished.

The plan and non-plan classification was removed from 2017-18.

Henceforth the expenditures of the Government will be reclassified as Capital and Revenue

spending.

Reasons for Switching to Capital and Revenue Spending Classification

The primary reason behind the Government’s decision in 2016 to switch the classification of

Government expenditures was the recommendation given by the C Rangarajan Committee in

2011 to remove the distinction between Plan and Non-Plan expenditure.

The plan to drop the old classification of Government expenditure was taken after the Planning

Commission was dismantled.

Earlier, the decision on Plan expenditure was taken after Government discussions with the

Planning Commission.

In the earlier system of expenditure classification, more importance was laid on planned

expenditure.

In the newly adopted system of classification, emphasis will be on the expenditures of the

Government.

The new classification of Capital and Revenue Spendings will create a clear and effective link

between the Government’s earnings, spending, and outcomes.

Receipts of the Government: Revenue and Capital Receipts

What are receipts?

A receipt is a written cognizance or acknowledgement that something of value has been

transferred from one party to another. In addition to the receipts customers normally receive

from vendors and service providers, receipts are also given in business-to-business entities, as

well as stock market transactions. However, receipts are classified into 2 types:

Revenue receipts

Capital receipts

Revenue Receipts: Tax and Non-tax Revenues

Revenue receipts are those receipts that do not lead to a claim on the government. They

are hence termed non-redeemable. They are classified into tax and non-tax revenues. Tax

revenues, a vital component of revenue receipts, have for long term been bifurcated into direct

taxes (personal income tax) and enterprises (corporation tax) and indirect taxes like customs

duties (taxes imposed on commodities imported into and exported out of India), excise taxes

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(duties levied on commodities manufactured within the nation) and service tax. Other direct

taxes such as gift tax, wealth tax and estate duty (now eradicated) have never brought a large

amount of revenue and hence, are known as ‘paper taxes’.

Direct Tax and Indirect Tax

Direct taxes are paid in entirety by a taxpayer directly to the government. It is also defined as

the tax where the liability as well as the burden to pay it resides on the same individual. Direct

taxes are collected by the central government as well as state governments according to the

type of tax levied.

An indirect tax is collected by one entity in the supply chain (usually a producer or retailer)

and paid to the government, but it is passed on to the consumer as part of the purchase price of

a good or service. The consumer is ultimately paying the tax by paying more for the product.

Major types of direct tax include:

Income Tax: Levied on and paid by the same person according to tax brackets as defined by

the income tax department.

Corporate Tax: Paid by companies and corporations on their profits.

Wealth Tax: Levied on the value of property that a person holds.

Estate Duty: Paid by an individual in case of inheritance.

Gift Tax: An individual receiving the taxable gift pays tax to the government.

Fringe Benefit Tax: Paid by an employer that provides fringe benefits to employees, and is

collected by the state government.

Indirect tax, as mentioned above, include those taxes where the liability to pay the tax lies on

a person who then shifts the tax burden to another individual.

Some types of indirect taxes are:

Excise Duty: Payable by the manufacturer who shifts the tax burden to retailers and

wholesalers.

Sales Tax: Paid by a shopkeeper or retailer, who then shifts the tax burden to customers by

charging sales tax on goods and services.

Custom Duty: Import duties levied on goods from outside the country, ultimately paid for by

consumers and retailers.

Entertainment Tax: Liability is on the cinema owners, who transfer the burden to cinemagoers.

Service Tax: Charged on services rendered to consumers, such as food bill in a restaurant.

Recently the central government has rationalised indirect tax system by introducing Goods and

Services Tax (GST).

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Direct Taxes Indirect Taxes

It is levied on income and activities

conducted. It is levied on product or services.

The burden of tax cannot be shifted in case of

direct tax. The burden of tax shifted for indirect taxes.

It is paid directly by person concerned.

It is paid by one person but he recovers the same

from another person i.e. person who actually

bear the tax ultimate consumer.

It is paid after the income reaches in the

hands of the taxpayer

It is paid before goods/service reaches the

taxpayer.

Tax collection is difficult. Tax collection is relatively easier.

Example Income tax, wealth tax etc.

Example GST, excise duty custom duty sale tax

service tax

GST – The Game Changer (source: http://www.gstcouncil.gov.in/about-gst)

The genesis of the introduction of GST in the country was laid down in the historic Budget

Speech of 28th February 2006, wherein the then Finance Minister laid down 1st April, 2010 as

the date for the introduction of GST in the country. Thereafter, there has been a constant

endeavor for the introduction of the GST in the country whose culmination has been the

introduction of the Constitution (122nd Amendment) Bill in December, 2014.

Why GST? Need for Rationalisation of Indirect Tax System

A common refrain in the popular discussions is what is the need for the introduction of GST?

To answer that question, it is important to understand the present indirect tax structure in our

country. Presently the Central Government levies tax on manufacture (Central Excise duty),

provision of services (Service Tax), interstate sale of goods (CST levied by the Centre but

collected and appropriated by the States) and the State Governments levy tax on retail sales

(VAT), entry of goods in the State (Entry Tax), Luxury Tax, Purchase Tax, etc. It is clearly

visible that there are multiplicities of taxes which are being levied on the same supply chain.

There is cascading of taxes, as taxes levied by the Central Government are not available as

setoff against the taxes being levied by the State governments. Even certain taxes levied by

State Governments are not allowed as set off for payment of other taxes being levied by them.

Further, a variety of VAT laws in the country with disparate tax rates and dissimilar tax

practices, divides the country into separate economic spheres. Creation of tariff and non- tariff

barriers such as Octroi, entry Tax, Check posts etc. hinder the free flow of trade throughout the

country. Besides that, the large number of taxes creates high compliance cost for the taxpayers

in the form of number of returns, payments etc.

What is GST?

All the taxes mentioned earlier are proposed to be subsumed in a single tax called the Goods

and Services Tax (GST) which will be levied on supply of goods or services or both at each

stage of supply chain starting from manufacture or import and till the last retail level. So,

basically any tax that is presently being levied by the Central or State Government on the supply

of goods or services is going to be converged into GST.

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GST is proposed to be a dual levy where the Central Government will levy and collect Central

GST (CGST) and the State will levy and collect State GST (SGST) on intra-state supply of

goods or services. The Centre will also levy and collect Integrated GST (IGST) on inter-state

supply of goods or services. Thus, GST is a unifier that is going to integrate various taxes being

levied by the Centre and the State at present and provide a platform for forging an economic

union of the country.

3.2 This tax reform will lead to creation of a single national market, common tax base and

common tax laws for the Centre and States. Another very significant feature of GST will be

that input tax credit will be available at every stage of supply for the tax paid at the earlier stage

of supply. This feature would mitigate cascading or double taxation in a major way. This tax

reform will be supported by extensive use of Information Technology [through Goods and

Services Tax Network (GSTN)], which will lead to greater transparency in tax burden,

accountability of the tax administrations of the Centre and the States and also improve

compliance levels at reduced cost of compliance for taxpayers. Studies indicate that

introduction of GST would instantly spur economic growth and can potentially lead to

additional GDP growth in the range of 1% to 2%.

Advantages of GST

Advantages for the government:

Will help to create a unified common national market for India, giving a boost to foreign

investment and “Make in India” campaign; Will mitigate cascading of taxes as Input Tax

Credit will be available across goods and services at every stage of supply; Harmonization of

laws, procedures and rates of tax between Centre and States and across States; Improved

environment for compliance as all returns are to be filed online, input credits to be verified

online, encouraging more paper trail of transactions at each level of supply chain; Similar

uniform SGST and IGST rates will reduce the incentive for evasion by eliminating rate

arbitrage between neighbouring States and that between intra and inter-state sales; Common

procedures for registration of taxpayers, refund of taxes, uniform formats of tax return,

common tax base, common system of classification of goods and services will lend greater

certainty to taxation system; Greater use of IT will reduce human interface between the

taxpayer and the tax administration, which will go a long way in reducing corruption; It will

boost export and manufacturing activity, generate more employment and thus increase GDP

with gainful employment leading to substantive economic growth; Ultimately it will help in

poverty eradication by generating more employment and more financial resources.

Advantages to Trade and Industry:

Simpler tax regime with fewer exemptions; Increased ease of doing business; Reduction in

multiplicity of taxes that are at present governing our indirect tax system leading to

simplification and uniformity; Elimination of double taxation on certain sectors like works

contract, software, hospitality sector; Will mitigate cascading of taxes as Input Tax Credit will

be available across goods and services at every stage of supply; Reduction in compliance costs

- No multiple record keeping for a variety of taxes - so lesser investment of resources and

manpower in maintaining records; More efficient neutralization of taxes especially for exports

thereby making our products more competitive in the international market and give boost to

Indian Exports; Simplified and automated procedures for various processes such as

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registration, returns, refunds, tax payments, etc; Average tax burden on supply of goods or

services is expected to come down which would lead to more consumption, which in turn

means more production thereby helping in the growth of the industries manufacturing in India.

Advantages to Consumers:

Final price of goods is expected to be transparent due to seamless flow of input tax credit

between the manufacturer, retailer and service supplier; Reduction in prices of commodities

and goods in long run due to reduction in cascading impact of taxation; Relatively large

segment of small retailers will be either exempted from tax or will suffer very low tax rates

under a compounding scheme - purchases from such entities will cost less for the consumers;

Poverty eradication by generating more employment and more financial resources.

Advantages to States:

Expansion of the tax base as they will be able to tax the entire supply chain from manufacturing

to retail; Power to tax services, which was hitherto with the Central Government only, will

boost revenue and give States access to the fastest growing sector of the economy; GST being

destination based consumption tax will favour consuming States; Improve the overall

investment climate in the country which will naturally benefit the development in the States;

Largely uniform SGST and IGST rates will reduce the incentive for evasion by eliminating rate

arbitrage between neighbouring States and that between intra and inter-state sales; Improved

Compliance levels of the tax payers will contribute greatly in improving the revenue collection

of the States.

Capital Receipts

The government also gets money in terms of loans or from the sale of its assets. Loans must be

given back to the agencies from which they have borrowed. Hence, they establish liability. Sale

of government assets, such as sale of shares in Public Sector Undertakings (PSUs) which is

known as Public Sector Undertakings disinvestment, minimize the total amount of financial

assets of the government. Likewise, when government sells an asset, then it is understood that

in future its earnings from that asset, will vanish. Hence, these receipts can be debt establishing

or non-debt establishing. All the receipts of the government which establish liability or

minimize financial assets are known as capital receipts. When government take loans it will

mean that in future these loans will have to be given back and interest will have to be financed

on these loans.

Understanding capital receipts

Capital receipts are loans taken by the government from the public, borrowings from foreign

countries and institutes, and borrowings from the RBI. Recovery of loans given by the Centre

to states and others is also included in capital receipts. In the balance sheet, capital receipts are

mentioned in the liabilities section. The capital receipt has a nature of non-recurrence.

All capital receipts are tax-free, unless there is a proviso to tax it. Capital receipts can be both

non-debt and debt receipts

Non-debt capital receipts

Non-debt receipts are those which do not incur any future repayment burden for the

government. Almost 75 per cent of the total budget receipts are non-debt receipts.

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Examples of non-debt capital receipts: Recovery of loans and advances, disinvestment, issue

of bonus shares, etc

Debt capital receipts

Debt Receipts have to be repaid by the government. Around 25 per cent of government

expenditure is financed through borrowing. A reduction in debt receipt (or borrowing) can be

a big leap for the economy's financial health. Most of the capital receipts of the government

are debt receipts

Examples of debt capital receipts: Market loans, issuance of special securities to public-sector

banks, issue of securities, short-term borrowings, treasury bills, securities against small

savings, state provident funds, relief bonds, saving bonds, gold bonds, external debt, etc, are

all example of debt capital receipts.

The main difference between revenue receipts and capital receipts is that in the case of revenue

receipts, government is under no future obligation to return the amount, i.e., they are non-

redeemable. But In case of capital receipts which are borrowings, government is under

obligation to return the amount along with Interest.

Meaning of Budget

A budget is an estimation of revenue and expenses over a specified future period of time and

is utilized by governments, businesses, and individuals. A budget is basically a financial plan

for a defined period, normally a year that is known to greatly enhance the success of any

financial undertaking.

Revenue Receipts and Revenue Expenditures make Revenue Budget where-

as Capital Receipts and Capital Expenditures make Capital Budget. On the

other hand, Revenue and Capital Receipts together make the Receipt Budget

whereas Revenue and Capital expenditure make the Expenditure Budget of

the government.

Estimates presented in the Budget

Budget Estimates: Amount of money allocated in the Budget to any Ministry or scheme for the

coming financial year is called Budget Estimate.

Revised Estimates: Revised Estimates are mid-year review of possible expenditure, taking into

account the rest of expenditure, New Services and New instrument of Services etc. Revised

Estimates are not voted by the Parliament, and hence by itself do not provide any authority for

expenditure. Any additional projections made in the Revised Estimates need to be authorized

for expenditure through the Parliament's approval or by Re-appropriation order. The Revised

Estimate indicates what are the deviation from the BE, which was presented a year ago.

Actual Estimate

The actuals are the numbers that represent the real amount extended by the government to the

sector concerned. This is based on the completed data available after the year with respect to

taxation, expenditure and borrowings of the government.

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Types of Deficits in the Budget Statement

Deficit exists when receipt is less than expenditure. There can be different types of deficit in a

budget depending upon the types of receipts and expenditure we take into consideration.

Accordingly, there are three concepts of deficit, namely

• Revenue deficit

• Effective Revenue Deficit

• Fiscal deficit and

• Primary deficit

Although budget deficit and revenue deficit are old ones but fiscal deficit and primary deficit

are of recent origin.

Budgetary deficit is the excess of total expenditure (both revenue and capital) over total receipts

(both revenue and capital).

1. Revenue deficit = Total revenue expenditure – Total revenue receipts.

2. Effective Revenue Deficit = Revenue Receipts – Grants in Aid for Creation of Capital

Assets

3. Fiscal deficit = Total expenditure – Total receipts excluding borrowings.

4. Primary deficit = Fiscal deficit - Interest payments.

See the document Budget at a Glance for the Year 2021-22 released by the Ministry of

Finance, Government of India to know the various types of estimates and deficits,

Impact of Fiscal Deficit on the Economy

Economists and policy analysts disagree about the impact of fiscal deficits on the economy.

Some, such as Nobel laureate Paul Krugman, suggest that the government does not spend

enough money and that the sluggish recovery from the Great Recession of 2007 to 2009 was

attributable to the reluctance of Congress to run larger deficits to boost aggregate

demand.2 Others argue that budget deficits crowd out private borrowing, manipulate capital

structures and interest rates, decrease net exports, and lead to either higher taxes, higher

inflation or both.

Until the early 20th century, most economists and government advisers favored balanced

budgets or budget surpluses. The Keynesian revolution and the rise of demand-driven

macroeconomics made it politically feasible for governments to spend more than they brought

in. Governments could borrow money and increase spending as part of a targeted fiscal policy.

Keynes rejected the idea that the economy would return to a natural state of equilibrium.

Instead, he argued that once an economic downturn sets in, for whatever reason, the fear and

gloom that it engenders among businesses and investors will tend to become self-fulfilling and

can lead to a sustained period of depressed economic activity and unemployment. In response

to this, Keynes advocated a countercyclical fiscal policy in which, during periods of economic

woe, the government should undertake deficit spending to make up for the decline in

investment and boost consumer spending in order to stabilize aggregate demand

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Impact in the Shorter-Term

Even though the long-term macroeconomic impact of fiscal deficits is subject to debate, there

is far less debate about certain immediate, short-term consequences. However, these

consequences depend on the nature of the deficit.

If the deficit arises because the government has engaged in extra spending projects—for

example, infrastructure spending or grants to businesses—then those sectors chosen to receive

the money receive a short-term boost in operations and profitability. If the deficit arises because

receipts to the government have fallen, either through tax cuts or a decline in business activity,

then no such stimulus takes place. Whether stimulus spending is desirable is also a subject of

debate, but there can be no doubt that certain sectors benefit from it in the short run.

WHAT IS ZERO-BASED BUDGET

As the name suggests, zero-based Budget refers to planning and preparing the Budget from

scratch or ‘zero base’. It is different from a traditional Budget that is based on previous Budgets.

The process of zero-based budgeting involves review and justification of each and every

ministry’s expenditure in order to receive funding at the beginning of each financial year.

In zero-based Budget, no balances are carried forward, or there are no pre-committed

expenses. Simply put, it is a procedure for preparing a Budget with zero prior bases. This

concept emphasises identification of a task and funding of costs irrespective of the current

structure of expenditure.

Zero-based Budget is built around what is needed for the upcoming period, regardless of

whether each Budget is higher or lower than the previous one.

Under zero-based Budget, all budgeting begins from a ‘zero base’ every year; that is, expenses

must be justified afresh each year, no matter what was spent in the year before. While

traditional budgeting calls for incremental increases over the previous year and tends to

perpetuate waste, this form of budgeting puts pressure on spenders to justify expenses each

time, and reduce costs.

Here is an example of how zero-based budgeting works.

Suppose crores of rupees are allotted to MPs every year under a government scheme. Only a

fraction of that is spent and they are allowed to be carried forward. In zero-based budgeting,

this money would not be allotted to those who did not spend; the money will be spent where it

is needed more or used more effectively. Much bigger gains will mount up when hundreds of

crores will have to be justified across departments.

Zero-based budgeting identifies alternative and efficient methods of utilising limited

resources.

ZBB was rejected by policy experts owing to the process being an impractical budget-making

decision. However, after the global financial crisis of 2008, ZBB came back into the focus for

its emphasis on judicious spending during the Budget formation.

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Steps of zero-based budgeting

Businesses can develop or modify their own unique approaches to ZBB, and the following five

steps can provide a baseline for implementation.

• Start. Begin at ground zero. Create a new annual budget from scratch without using last

year’s actuals as a baseline.

• Evaluate. Evaluate every cost area. Eliminate and reduce unnecessary activities or

services.

• Justify. Account for all components of the budget. Identify areas that are cost-effective,

relevant, and that drive cost savings.

• Streamline. Determine what activities should be performed and how. Automate and

standardize processes where possible.

• Execute. Roll out comprehensive planning and execution processes. Communicate

clear plans, roles and responsibilities.

Zero-Based Budgeting vs. Traditional Budgeting

All businesses use budgets to keep track of spending and improve ways to minimize costs and

maximize profit. Budget planning for the current/next year is usually based on budgets from

previous years. In fact, traditional budgeting begins with the previous year’s budget and usually

implements incremental percentage increases or decreases to meet new goals. These

percentages usually range anywhere from 1% to 10%.

Sometimes, budgets can get out of control, or in some years, may show significantly higher or

lower costs, depending on the overall market outlook and other external factors. In such

scenarios, it does not make sense to look at last year’s budget because significant changes in

the company’s situation have taken place. The entire budget needs to be redone from scratch –

hence, a zero-based budget.

In a zero-based budget, the company analyzes every expense/aspect of the business one by one.

This is referred to as starting from a “zero base.” While zero-based budgeting examines all

expenses, traditional budgeting only examines proposed new expenses.

Advantages of Zero-based Budgeting

The final output is well justified and is aligned with the company’s overall business strategy or

business plan.

Encourages more collaboration throughout the company

Improves performance and operating efficiency by challenging assumptions and examining

expenditures

By avoiding traditional budgeting percentage increases, there is a significantly better chance

of making cost reductions.

Disadvantages of Zero-based Budgeting

Implementing a zero-based budget requires qualified personnel and specialized training, which

can be time-consuming and costly.

May harm the company’s overall culture or brand image

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May be cost-prohibitive (because of time, research, and analysis required) for companies with

minimal available funding

It is substantially more complex and tedious to start from a zero base. Traditional budgeting is

much simpler, faster, and easier to implement.

Zero-based budgeting in India

In India, the ZBB was adopted by the department of science and technology in 1983. In 1986,

the Indian government implemented ZBB as a system for determining Expenditure Budget.

The government made it compulsory for all ministries to review their activities and

programmes and prepare their expenditure estimations based on the concept of ZBB. In the

seventh Five-Year Plan, the ZBB system was promoted. However, not much progress could

take place later. (https://www.business-standard.com/about/what-is-zero-based-budget)

Gender Budgeting

What is Gender Budgeting (GB)?

GB is concerned with gender sensitive formulation of legislation, programmes and schemes;

allocation of resources; implementation and execution; audit and impact assessment of

programmes and schemes; and follow-up corrective action to address gender disparities.

A powerful tool for achieving gender mainstreaming so as to ensure that benefits of

development reach women as much as men.

Does not seek to create a separate budget but seeks affirmative action to address specific needs

of women.

Monitors expenditure and public service delivery from a gender perspective.

Entails dissection of the Government budgets to establish its gender differential impacts and to

ensure that gender commitments are translated in to budgetary commitments.

The Five-Step Framework for Gender Budgeting

Step 1: An analysis of the situation for women and men and girls and boys (and the different

sub-groups) in a given sector.

Step 2: An assessment of the extent to which the sector’s policy addresses the gender issues

and gaps described in the first step.

Step 3: An assessment of the adequacy of budget allocations to implement the gender-sensitive

policies and programmes identified in step 2.

Step 4: Monitoring whether the money was spent as planned, what was delivered and to whom.

Step 5: An assessment of the impact of the policy/ programme/scheme and the extent to which

the situation described in step 1 has changed.

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Rationale Behind Gender Budgeting

According to the 2011 census, women account for 48 per cent of the total population of the

country.

Women face disparities in access to and control over services and resources.

Bulk of the public expenditure and policy concerns are in ‘‘gender neutral sectors”.

Implications on women in the above sectors are not recognised or identified.

Gender responsive budgets policies can contribute to achieving the objectives of gender

equality, human development and economic efficiency.

Gender Budgeting in India

Gender Budget Statement (GBS) was first introduced in the Indian Budget in 2005-06. This

GB Statement comprises two parts–

Part A reflects Women Specific Schemes, i.e. those which have 100% allocation for women.

Part B reflects Pro Women Schemes, i.e. those where at least 30% of the allocation is for

women.

India’s gender budgeting efforts stand out globally because they have not only influenced

expenditure but also revenue policies (like differential rates for men and women in property

tax rates and reconsideration of income tax structure) and have extended to state government

levels.

Gender budgeting efforts in India have encompassed four sequential phases: (i) knowledge

building and networking, (ii) institutionalizing the process, (iii) capacity building, and (iv)

enhancing accountability.

Gender budgeting in India is not confined to an accounting exercise. The gender budgeting

framework has helped the gender-neutral ministries to design new programs for women.

Gender Budgeting Cells (GBC) as an institutional mechanism have been mandated to be set up

in all Ministries/Departments.

GBCs conduct gender based impact analysis, beneficiary needs assessment and beneficiary

incidence analysis to identify scope for re-prioritization of public expenditure and improve

implementation etc.

Shortcomings

Not only has the magnitude of the gender budget as a proportion of the total expenditure of the

Union Budget decreased, the budgetary allocations for promoting gender equality and women’s

empowerment have also shown a decline.

There are only a few “big budget” women exclusive schemes of the Ministry of Women and

Child Development (MWCD) like the Nirbhaya Fund and the Beti Bachao Beti Padhao

campaign.

Lack of dedicated human resources to implement the interventions identified by the GBCs.

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Monitoring remains one of the weakest links in the GRB work with no designated mechanism

for monitoring it at the national level.

Assumptions behind reporting allocations under Part B of the GBS remain questionable.

Way Forward

An assessment of gender responsive budgeting in India reveals a mixed picture.

There are number of positive developments, such as changes in select planning and budgeting

processes and creation of gender budget cells.

However, restricted reach of GB and stagnant or even declining allocations for the gender

agenda are stumbling blocks.

The adoption of the GB should be accompanied by multifaceted and interrelated improvements

to budgets in general and the gender sensitivity of budgets.

There needs to be shift from mere "reporting" of gender allocations to “purposive planning”

with wider participation of women.

(https://www.drishtiias.com/to-the-points/Paper2/gender-budgeting)

Fiscal Devolution and Centre State Financial Relations

By fiscal devolution, we refer to the accompanying transfer of tax revenues collected at the

central level to state governments, provided as direct untied transfers rather than as tied

programmatic support. Decentralization is used as an umbrella term for all concepts when

discussing broader international lessons.

The Indian Constitution has elaborate provisions regarding the distribution of revenues

between the Union and the States.

Article 268 to 293 in Part XII deal with the financial relations. The financial relations between

the Union and the States can be studied under the following heads:

Taxes and duties levied by the Union, but collected and appropriated by the States: Stamp

duties and duties of excise on medical and toilet preparations are levied by the Government of

India, but collected and appropriated by the States, within which such duties are leviable,

except in the Union Territories, where they are collected by the Union Government (Art. 268).

The proceeds of these duties levied within any State are assigned to that State only and do not

form a part of Consolidated Fund of India.

Service tax levied by the Centre, but collected and appropriated by the Centre and the States:

Taxes on services are levied by the Centre, but their proceeds are collected and appropriated

by both the Centre and the States. Principles of their collection and appropriations are

formulated by the Parliament.

Taxes levied and collected by the Union, but assigned to the States within which they are

leviable (Art.269):

a) Succession duty in respect of property, other than agricultural land.

b) Estate duty in respect of property, other than agricultural land.

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c) Terminal taxes on goods or passengers carried by railways, sea or air.

d) Taxes on railway fares and freights taxes on transactions in Stock Exchanges.

Taxes levied and collected by the Union and distributed between the Union and the States

(Art.270): Certain taxes are levied as well as collected by the Union, but their proceeds are

divided between the Union and the States in a certain proportion in order to effect an equitable

distribution of the financial resources.

This category includes all the taxes and duties referred to in the Union List, except the three

categories mentioned above, any surcharge and any cess levied for specific purposes. The

manner of distribution of net proceeds of these taxes is prescribed by the President, on the

recommendation of the Finance Commission.

Surcharge on certain taxes (Art.271): The Parliament is, authorized to levy surcharge on the

taxes mentioned in the above two categories (Art.369 and Art.370) and the proceeds of such

surcharges go to the Centre exclusively and are not shareable.

Taxes levied and collected and retained by the states: These are the taxes enumerated in the

State List (20 in number) and belong to the States exclusively.

Grants-in-Aid: The Parliament may make grants-in-aid from the Consolidated Fund of India to

such States as are in need of assistance (Art.275), particularly for the promotion of welfare of

tribal areas, including special grant to Assam.

These are called statutory grants and made on the recommendation of the Finance Commission.

Apart from this, Art.282 provides for discretionary grants by the Centre and States both, for

any public purposes. The Centre makes such grants on the recommendation of the Planning

Commission (an extra-constitutional body).

Loans: The Union Government may provide loan to any State or give guarantees with respect

to loans raised by any State.

Previous sanction of the President (Art 274): No Bill or amendment can be introduced or moved

in either House of Parliament without the previous sanction of the President, if:

It imposes or varies any tax in which the States are interested; or

It varies the meaning of the expression “Agricultural Income” as defined in the Indian Income-

Tax Act; or

It affects the principles on which money are distributed to the States; or

It imposes a surcharge on the State taxes for the purpose of the Union.

According to Article 301, Freedom of Trade, Commerce and Intercourse throughout the

territory of India is guaranteed, but Parliament has the power to impose restrictions in public

interest.

Although taxes on income, other than agricultural income, are levied by the Union, yet the

State Legislatures can levy taxes on profession, trade, etc.

Distribution of non-tax revenues: Non-tax revenues from post and telegraph, railways, banking,

broadcasting, coinage and currency, central public sector enterprises and escheat (death of a

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person without heir) and lapse (termination of rights) go to the Centre, while State receives

non-tax revenues from irrigation, forests, fisheries, state public sector enterprises and escheat

and lapse (if property is situated in that state).

Provision has been made for the constitution of a Finance Commission to recommend to the

President certain measures for the distribution of financial resources between the Union and

the States (Art.280).

Under the situation of emergencies, these financial relations also undergo changes according

to the situation and the President can modify the constitutional distribution of revenues between

the Centre and the States. (https://www.civilsdaily.com/financial-relations-between-centre-

and-state-art-268-to-293/)

********

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Unit 2

Analysis of Current and Past Policy emphasis

In the development path of India, it first undertook the policy of closed trade. This was to give

a thrust to domestic industries and reduce dependence on foreign products and companies.

Thus, India followed what is called the import substitution strategy. Trade and interaction with

the outside world remained limited. This outlook continued till 1991 when India finally decided

to open its borders to free trade and liberalized its economy by allowing foreign companies to

enter the Indian economy.

Meaning of Import Substitution

Considering the difficulties in the balance of payments position in our country the Government

of India introduced various import restriction measures along with the policy of “import

substitution”. The term ‘Import Substitution’ means a policy of replacements or substitution of

imports by domestic production.

Here the substitution of imports by indigenously produced goods can serve the two definite

objectives of saving precious foreign exchange and achieving self-reliance. The policy of

import substitution in India has passed three phases.

In the first phase, this policy covered the area of domestic production of consumer goods; in

the second phase it replaced the import of intermediate and capital goods including imported

raw materials, components, spare parts, chemicals etc. and in the final phase at present we are

trying to shift from imported technology to indigenous technology.

Measures Adopted for Import Substitution:

The Government of India has adopted a number of measures for encouraging import

substitution in order to curtail the mounting import bill of our country. The devaluation of rupee

in 1966 was an indirect step in this direction.

The purchase policy of the supplies department of the Government has been oriented towards

import substitution and accordingly the imported purchases of the Government out of the total

purchase has declined from 41 per cent during the First Plan to 12 per cent only in 1968-69.

Again, the policy of import control and tariffs has been encouraging import substitution since

the inception of Third Plan. In recent years import duties on machineries, motor vehicle spare

parts, pharmaceutical chemicals etc. have been imposed.

Import Substituting Strategy of Industrialisation – A Report

After independence, India adopted the strategy of industrialization to achieve its objectives of

growth and development. In a backward country like India the potential of agriculture and

exports were limited at the time of independence and with its rich natural resources there was

a lot of potential for industrialization which also promises higher productivity as compared to

agriculture. So, it was high time to develop and promote domestic industry. Accordingly,

Indian government emphasized on the policy of import substitution, thus giving priority

to heavy industry. The idea of Import Substitution Industrialization (ISI) refers to a trade and

economic policy based on the premise that a developing country should attempt to substitute

products which it imports with locally produced substitutes. This involved government

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subsidies, high tariff barriers and/or artificially maintained domestic currencies, import quotas

etc. to protect local industries so that they can grow in a competition-free environment. Import

substitution can also be discussed as a policy strategy, e.g., as an attempt to utilize underused

capacities, reduce regional unemployment or protect infant industries. This form of economic

protectionism has helped other countries industrialize in the past, such as South Korea and

Taiwan.

Nehru followed the Russian model of a centralised planned economy as a precondition for

rapid industrialisation of a country. The Industries Development and Regulation Act (IDRA)

in 1951 laid the foundation for this administrative control on industrial capacity. But, over time,

the licensing requirements became increasingly stringent and were accompanied by a series of

procedures that required clearance by a number of government departments and ministries.

In order to pursue ISI, the Import Trade Control Order of 1955 subjected almost all imports to

quantitative restrictions in the form of import licenses. These were supplemented by tariffs at

rates that were among the highest in the developing world. Ownership of foreign companies in

case of joint ventures was not allowed beyond 49 per cent.

State intervention in the industrial development has been quite extensive in India. India opted

for State control over basic and key industries unlike many East Asian countries, which used

State intervention to build strong private sector industries. At different times, nationalised

industries included chemicals, electric power, steel, transportation, life insurance, portions of

the coal and textile industries and banking. To promote and control these industries the

government not only levied high tariffs and imposed import restrictions, but also subsidised

the nationalised firms, directed investment funds to them and controlled land use.

Administrative price mechanism was created to control and regulate prices through the

Essential Commodities Act of 1955 provided the legal framework for the government to extend

price controls that eventually included steel, cement, drugs, non-ferrous metals, chemicals,

fertilizers, coal, automobiles, tyres and tubes, cotton textiles, food-grains, bread, butter,

vegetable oils and other commodities. By late 1950s controls were pervasive, regulating

investment in industry, prices of many commodities, imports and exports and the flow of

foreign exchange.

The ISI strategy had a minor modification under Prime Minister Indira Gandhi during the

1970s. First, agriculture was given emphasis through State intervention by way of subsidies

with respect to HYV seeds, fertilisers, agricultural credit and rural electrification. This package

was known as Green Revolution which resulted in increase in food production and by the mid-

1970s India was able to become self-sufficient in food grains. The second shift was in respect

of further tightening of State control over important sectors of the economy, viz. 14 banks were

nationalized in 1969 followed by another 6 in 1980, trade was increasingly restricted, price

controls were imposed on a wide range of products and foreign investment was squeezed. In

1973, dealings in foreign exchange as well as foreign investment came to be regulated by the

Foreign Exchange and Regulation Act (FERA). The act virtually stopped the inflow of new

technology from abroad.

In short, the ISI strategy was adopted with the premise that free trade destroys competition and

manipulates prices by promoting collusion and monopolistic tendencies.

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State Control and Dominance of Public Sector

Import substitution strategy was complemented and supplemented by increasing state control

of economic activities through establishment of Public Sector which operated the basic and

heavy industries of the country. The Industrial Policies of 1948, 1956, 1977 and 1980 were

framed accordingly to support this move.

Industry Policy Resolution, 1948

Industrial Policy Resolution, 1948 (IPR, 1948) was first policy of independent India. Its main

focus was that the state must play an active role in the development of industries with

government stressing on the socialistic pattern of society. This policy remains in force for 8

years.

Objectives of IPR, 1948

To establish social order where justice and equality of opportunity should be assured to all

Promote rapid rise in standard of living of people through exploitation of available resource of

the country

Accelerate production to meet the needs of growing population

Provide more and more opportunities of employment

The Industries (Development and Regulation) Act, 1951

IDR Act, 1951 was passed by parliament in Oct, 1991 to control and regulate industrial

development in the country. Its objectives were:

The regulation of industrial investment and production according to planned priorities and

targets

The protection of small entrepreneurs against the competition from larger industries

Prevention of monopoly and concentration of ownership industries

Balanced regional development with the view to reduce the disparity level of development of

different regions of the country

Provisions of the Act: The act laid down two provisions:

Restrictive provisions: Under this category, all the measures were designed to curb the unfair

practices adopted by industries

Registration and licensing of industrial undertakings

Enquiry of listed industries

Cancelation of registration license

Reformative provisions:

Direct regulation and control by government

Control on price, distribution and supply

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Constructive measures

Industry Policy Resolution, 1956

IPR, 1956 replaced the IPR, 1948. It stressed on:

Speeding up the pace of industrialization, particularly heavy industries

Expansion of public sector and growth of co-operative sector

State to take up the responsibility of setting up new industrial set up and development of

transport facitlities

Prevent private monopolies and concentration of economic process in hands of few number of

individuals

Industrial Licensing Policy of 1970

The government introduced the new industrial licensing policy in 1970 on recommendation of

Dutt Committee. Its main features were:

The policy defines a sector called heavy investment sector. It consisted of industries involving

investment of more than Rs 5 crore. All such industries were opened for private sector except

those reserved for public sector in IPR, 1956.

Industries involving investment between Rs 1 crore and 5 crore were included in middle sector.

Licensing policy was considerably liberalised and simplified for these industries

The setting up of Industries involving investment of less than Rs 1 crore does not require any

license.

Industrial Policy Statement, 1977

In December 1977, the Janata Government announced its New Industrial Policy through a

statement in the Parliament.

The main thrust of this policy was the effective promotion of cottage and small industries

widely dispersed in rural areas and small towns.

In this policy the small sector was classified into three groups—cottage and household sector,

tiny sector and small scale industries.

The 1977 Industrial Policy prescribed different areas for large scale industrial sector- Basic

industries,Capital goods industries, High technology industries and Other industries outside the

list of reserved items for the small scale sector.

The 1977 Industrial Policy restricted the scope of large business houses so that no unit of the

same business group acquired a dominant and monopolistic position in the market.

It put emphasis on reducing the occurrence of labour unrest. The Government encouraged the

worker’s participation in management from shop floor level to board level.

Criticism: The industrial Policy 1977, was subjected to serious criticism as there was an

absence of effective measures to curb the dominant position of large scale units and the policy

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did not envisage any socio­economic transformation of the economy for curbing the role of big

business houses and multinationals.

Industrial Policy of 1980 sought to promote the concept of economic federation, to raise the

efficiency of the public sector and to reverse the trend of industrial production of the past three

years and reaffirmed its faith in the Monopolies and Restrictive Trade Practices (MRTP) Act

and the Foreign Exchange Regulation Act (FERA).

Change in Strategy/Policy since 1991

The Indian government did not allow private initiatives beyond a point and regulated basic

business decision-making with respect to asset building and investment, capacity utilisation,

pricing etc. for all firms above a certain size. The result was not encouraging in the long run.

(i) The active trade barriers combined with a general disregard for private property rights

by the Indian Government created unfriendly environment for rest of the world. Foreign

companies avoided India for the last half century because of which India was only able to

attract $100 million (measured in current US $) in FDI as against over $11 billion for China

during the period 1950-90.

(ii) India’s trade balance kept deteriorating and its levels of external debt increased to very

high levels. The Gulf War worsened India’s balance of payments situation, and overall debt

condition. Some adverse domestic social and political developments led to the fall of

the Central Government in November 1990. All these shook international confidence in

India’s economic viability. The FDI inflow became negative and the country found it

increasingly difficult to borrow internationally. These events of the early 1990s combined with

accumulating effects of Import Substitution resulted in a 300% increase in India’s level of debt

stock between 1980 and 1990 and threatened to damage India’s financial health as the

subsequent debt service payments took up a significant chunk of the country’s yearly capital

flows only leaving negligible amount for infrastructure development and social needs.

Because of serious BOP problems and other issues discussed above India was forced to enter

into various agreements with the International Monetary Fund and other organizations that

included commitments to speed up trade liberalization, thus putting an end to Import

Substitution policies.

IMF provided a $10 billion dollar bailout loan to India which proved to be the deciding impetus

involved in the move towards more liberalized trade policies.

The IMF and World Bank put the following conditions before the Government of India under

which loans would be offered:

• Devaluation of rupee by 23%.

• New Industrial Policy allowing more foreign investments.

• Opening up more areas for private domestic and foreign investments.

• Part disinvestment of Government equity in profitable public sector enterprises.

• Sick public sector units to be closed down.

• Reforms of the financial sector by allowing in private banks.

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• Liberal import and export policy.

• Cuts in social sector spending to reduce fiscal deficit.

• Amendments to the existing laws and regulations to support reforms.

• Market-friendly approach and less government intervention.

• Liberalization of the banking system.

• Tax reforms leading to greater share of indirect taxes.

India agreed to bring about changes with the above-mentioned conditions and pronounced the

1991 Industrial Policy emphasizing three major objectives to achieve in subsequent years—

Liberalization, Privatization and Globalization (LPG).

New Industrial Policy of India, 1991

The new Industrial Policy was announced in July, 1991 in the midst of severe economic

instability in the country. The objective of the policy was to raise efficiency and accelerate

economic growth.

Features of New Industrial Policy

Strengthening of Private Sector

Abolition of licensing system for large number of industries

Greater role of private sector envisaged

Contraction in field of operations for public sector

Dismantling of controls

Dispersing Industries

Policy to shift industries away from big congested cities to rural and backward areas

Incentives were brought to attract industries to village and backward regions

Favoured agro-based industries near the farming areas

Limiting role of public sector

Policy pointed out the grey area which were not fit for PSUs and needs to be vacated by them

Liberalization of foreign investments

Foreign investment in the form of FDI allowed up to 50% with automatic approval

Foreign investment in export promotion activities

Foreign technology had been made easy by allowing automatic approvals for technology

related agreements

Promotion of Small Scale Industries (SSI)

It ensured adequate supply of credit these industries based on their needs

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To enable modernization and technical up gradation, the policy allows equity participation by

other non-SSI undertakings in SSI sector

Limited partnership was allowed to enhance the supply of risk capital to the SSI sector

It ensured the speedy payment towards the sale of products by SSI sector

Domestic Regulatory Reforms

Reduced the number of reserve industries

Security and Industries of strategic concern were reserved for public sector

Abolition of Industrial Licensing: It abolished industrial licensing system for all industries

except few such as security and strategic concerns, social concerns, related to safety and

manufacture of hazardous industries

Most Recent: With the world reeling under the problem of COVID19, Indian Prime Minister

Shri Narendra Modi has called for a “Atmanirbhar Bharat” (Self-reliant India). Atmanirbhar

Bharat Abhiyaan or Self-reliant India campaign is the vision of new India envisaged by the

Hon'ble Prime Minister Shri Narendra Modi. On 12 May 2020, our PM raised a clarion call to

the nation giving a kick start to the Atmanirbhar Bharat Abhiyaan (Self-reliant India campaign)

and announced the Special economic and comprehensive package of INR 20 lakh crores -

equivalent to 10% of India’s GDP – to fight COVID-19 pandemic in India.

The aim is to make the country and its citizens independent and self-reliant in all senses. He

further outlined five pillars of Aatma Nirbhar Bharat – Economy, Infrastructure, System,

Vibrant Demography and Demand. Finance Minister further announces Government Reforms

and Enablers across Seven Sectors under Aatmanirbhar Bharat Abhiyaan.

The government took several bold reforms such as Supply Chain Reforms for Agriculture,

Rational Tax Systems, Simple & Clear Laws, Capable Human Resource and Strong Financial

System.

The movement of Aatmanirbhar Bharat Abhiyaan has five pillars: Economy, Infrastructure,

Technology driven System, Demography and Demand.

******

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Unit 3

The Union Budget

I. Need for budget

In a parliamentary democracy like India, where the Constitution is the supreme document with

defined roles for the government to function effectively, it is imperative for the government to

work for the welfare of the state and its citizens.

The government holds manifold power in running a country – from law and order to protecting

the national security, enhancing the economic stability and fostering social reforms.

To discharge these functions effectively and upgrade the country’s economic and social

structure, the government requires adequate resources.

In India, the government cannot borrow, tax or spend money arbitrarily. A prudent planning

and budgeting is required to allocate the limited resources so that they can be employed

effectively and the economy can flourish. Besides, proper earning is a prerequisite to be able

to allocate resources in the best interest of the country. These factors make a properly planned

Union Budget necessary, besides, of the course, the fact that Article 112 of the Constitution of

India madates that the central government bring out an annual financial report.

Here are some key objectives that explain the need for a Union Budget:

• Reallocation of resources: One of the most important factors that makes a Union Budget

the need for a society is that it helps in reallocating resources for the government’s

profit maximisation to push public welfare.

• Reducing inequality in society: Economic inequality is inherent in any society. It is

through budgetary policies that the government tries to bridge the economic gap in the

society. For instance, higher tax income from the rich and more welfare schemes for

the poor help reduce social inequality in the society.

• Controlling prices: The Budget also absorbs economic fluctuations in the society. A

well-drafted Budget foresees and handles inflation and deflation, thus preventing an

economic stability in the country. Policies of surplus Budget during inflation and deficit

budget during deflation helps maintain stability of prices in the economy.

• Resource management: Budget manages the demand for public enterprises which

directly connects with public interest. The Union Budget also helps manage the

effective and efficient use of economic resources.

Source: https://www.business-standard.com/budget/article/union-budget-2018-19-of-india-

what-it-is-and-why-it-is-so-important-117122800447_1.html

II. Process of Budget Making in India

The department of economic affair under the Ministry of Finance is the nodal agency

responsible for producing the Union Budget. Budget is made through a consultative process

involving the finance ministry, the NITI Aayog, and the various spending ministries. According

to Article 112, The President of India is responsible of presenting Budget in the Lok Sabha.

However, Article 77 (3) says the union Finance Minister of India has been made responsible

by the President of India to prepare the annual financial statement and present it in Parliament.

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Budget formulation:

In the last week of August or the first fortnight of September every year, the Budget division

in the department of economic affairs issues a circular to all the Union ministries, state

ministries, Union Territories, autonomous bodies and defence bodies, for preparing the

estimates for the next year.

Once the ministries and departments give their demands, a consultation among the Union

ministries and the department of expenditure of the finance ministry takes place.

Concurrently, the department of revenue and the department of economic affairs of the finance

ministry hold meetings with stakeholders, farmers, economists, civil society groups and

businessmen to take their views. The revenue-earning ministries provide the estimate for their

revenue receipts of the current financial year (revised estimates) and next financial year

(Budget Estimates) to the finance ministry. The ministries are required to provide three

different kinds of figures related to their expenditure and receipt during the process of Budget

representation – Budget Estimates, Revised Estimates, and Actuals. In the final stage, the

Budget division consolidates all these figures to be presented in the Budget and prepares the

final Budget document.

The printing of Budget documents begins a week before the Budget presentation in Parliament.

Given the confidentiality of information, the employees involved in creating the Budget stay

back in North Block, where the finance ministry is situated, for the whole time until the Budget

presentation. At the end of this process, the finance minister takes the permission of the

President of India for presenting the Union Budget in Parliament.

BUDGET PRESENTATION IN PARLIAMENT

The Union Budget is presented in Parliament on a date that is fixed by the President. First, the

Finance Minister of India delivers the Budget speech in the Lok Sabha. The speech has two

parts – Part 1 comprises general economic affairs of the country and Part 2 relates to taxation

proposals.

The ‘annual financial statement’ is laid on the table of the Rajya Sabha, or the Upper House of

Parliament, after the finance minister concludes his speech in the Lok Sabha.

No discussion takes place on the day the Budget is presented. The Budget documents are made

available to the Members of Parliament, after the Finance Bill has been introduced in the Lok

Sabha.

HOW THE BUDGET IS PASSED

The general discussion on the Budget takes place a day after the Budget is presented in

Parliament. Budget debate is split into two parts:

General Discussion: It happens for days in the Lok Sabha. The finance minister participates in

the debate and in the end answers all the queries related to the Budget. After the general

discussion is over, the House is adjourned for a fixed period.

Detailed Discussion: During the fixed gap period, the related standing committees scrutinise

the different estimates of the proposed expenditure by the different ministries. After the

standing committees submit their report, the Lok Sabha votes on the demands for grants.

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The Rajya Sabha can only discuss these demands for grants but not vote. On the last day of the

discussion on demands for grants, the Speaker puts all the outstanding Demands of Grants to

the vote in the House. The demand for ‘Grants Appropriation Bill’ is put to vote in the Lok

Sabha. It gives power to the government to spend from the consolidated fund of India. This is

also required to be passed by both Houses of Parliament and receive assent of the President

within 75 days of its introduction. The Finance Bill is also introduced in the Lok Sabha after

the general Budget. The Finance Bill contains fresh taxation proposals and variations in the

existing duties. The Finance Bill is only taken into consideration only after the Appropriation

Bill is passed.

List of documents required in Parliament before budget speech:

Explanatory memorandum, explaining the nature of receipts and expenditure by the

government, during the current demand for grants (ministry-wise). Other documents required

are:

·Budget speech

·Budget at a glance

·Custom and central excise notification

·Receipt budget

·Expenditure budget

·Finance Bill

·Memorandum explaining the Finance Bill

·FRBM Act-related documents

·Macroeconomic framework statement

·Medium-term fiscal policy statement

·Fiscal policy strategy statement

·Statement of revenue foregone

·Implementation of Budget announcement

(Source: https://www.business-standard.com/budget/article/union-budget-2018-19-of-india-

what-it-is-and-why-it-is-so-important-117122800447_1.html)

Structure of Budget

The budget provides the receipts and expenditure government respectively under three different

estimates – actual estimates (relate to the previous years), budget estimates (relate to the

proposal for the current year) and revised estimates (relate to the expected changes that may be

made). The structure of the budget, thus, looks as given in the Table below:

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31

Table: Structure of the Budget

Description Actual

Estimates

Budget Estimates Revised Estimates

Revenue Receipts

• ----

• ----

Capital Receipts

• ----

• ----

Total Receipts

Revenue Expenditure

• ----

• ----

Capital Expenditure

• ----

• ----

Total Expenditure

Deficits

• Revenue Deficit

• Effective

Revenue Deficit

• Fiscal Deficit

• Primary Deficit

See the various Budget Documents of Government of India for the Year 2021-22.

III. Analysis of fiscal and revenue deficits

India’s fiscal deficit as percentage of GDP varied between less than 6 to less than 4 during the

decade of 2011-2020. See the graph below.

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The trend in revenue deficit as percentage of GDP during the period 2001-2020 is shown in the

graph below. Revenue deficit which is a major source of fiscal deficit varied between 4 – 3 per

cent of GDP during the decade 2011-2020.

Both fiscal and revenue deficits have remained matters of serious concern. High deficits in

India are attributable to meet the proposed expenditure on poverty alleviation and other welfare

schemes, boost demand in the economy etc. Currently in the year 2020-21 and 2021-22, during

the extraordinary times of COVID19 pandemic, it requires extraordinary policy responses. So,

against the backdrop of macroeconomic uncertainty in the time of the COVID-19 pandemic,

finance minister Nirmala Sitharaman has presented a “significant” fiscal deficit number –

which went upto 9.5% in FY21 – from a position of strength. Simultaneously, commencing a

fiscal consolidation path to execute an “excessive deficit procedure” in the Union Budget 2012-

22 to bring down the excess deficit of 9.5% of GDP in FY21 to 4.5% by FY26 is inevitable.

However, this narrative of “deficit is good” in the time of a pandemic is welcome.

The fiscal consolidation through expenditure compression rather than increased tax buoyancy

affects the quality of fiscal consolidation. From that perspective, allowing the fiscal deficit to

rise above the threshold level of 3% of GDP, without significant expenditure compression, is

welcome. However, the anatomy of the determinants of borrowings – decomposed by revenue

uncertainties, economic stimulus-related spending, the narrowing of denominator GDP,

lowering of rates of interest, etc. – would be interesting to understand with precision which

components have exactly contributed to the aggregate level of high deficits.

The cleaning up of deficit incurred from off-budget liabilities through public sector

undertakings is still a matter of concern. Such borrowings do not figure in the concept of fiscal

deficit. However, the Union Budget 2021-22 has not introduced the deficit termed as “Public

Sector Borrowing Requirement (PSBR)”, integrating the borrowings incurred through public

sector enterprises. The details of extra borrowings are kept in an Annexure in the Union Budget

document.

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The new fiscal rules

The new Fiscal Responsibility and Budget Management (Amendment) is tabled in the

parliament today. The existing fiscal rules have been amended to incorporate the revised

threshold of deficit to GDP. This is the third time the FRBM has been amended in India. As

per the second amendment, the “revenue balance” was eliminated and clauses about “revenue

balance” were incorporated in the Financial Bill to move away from the “golden (fiscal) rule”

of zero revenue deficits.

Table 1: Levels of Deficit given in the Budget 2021-22

Nature of Deficit

2019-20 2020-21 2020-21 2021-22

Actuals Budget

Estimates

Revised

Estimates

Budget

Estimates

Fiscal Deficit -4.6 -3.5 -9.5 -6.8

Revenue Deficit -3.3 -2.7 -7.5 -5.1

Effective Rev Def -2.4 -1.8 -6.3 -4.1

Primary Deficit -1.6 -0.4 -5.9 -3.1

Source: Government of India (2021), Union Budget 2021-22 documents

Though there was a debate regarding the choice of deficit – whether revenue deficit, fiscal

deficit or primary deficit was to be the “operational deficit parameter” in India, the Union

Budget 2021-22 reiterated that fiscal deficit is still the operational concept of deficit in India.

However, primary deficit is useful to understand the current fiscal stance without the legacy of

past interest payments (see Table 1).

The enhancement of “budget transparency” with regard to deficit numbers, presented in the

2021-22 Union Budget, is welcome. The Food Corporation of India’s borrowing from the

National Small Savings Funds will be stopped to bring in budget transparency. When FY21

fiscal deficit has reached 9.5%, the government envisions to borrow another Rs 80,000 crore

in the next two months. For FY22, the fiscal deficit is pegged at 6.8% of GDP. The gross

market borrowing will be Rs 12 lakh crore, which is 68.9% of total borrowings. The other

sources of financing like National Small Savings Fund constitutes around 26%.

‘Mini budgets’ in continuum for economic stimulus

In the Union Budget, creating fiscal space for continuous support to ongoing series of economic

stimulus packages was a matter of concern. In the regime of revenue uncertainties, the

ambitious asset monetisation programme announced in the Union Budget to generate revenue

proceeds need a supporting regulatory framework.

In the Union Budget 2021-22. the economic stimulus is announced not as a macroeconomic

stimulus to revive the demand by providing huge cash transfers or a universal basic income

(UBI). The concern was that if the people’s propensity to save is greater than spending in the

time of a pandemic, dropping “helicopter money” or a UBI in the hands of the people cannot

lead to required demand stimulation. The statistics shows that precautionary savings by the

private sector are on the rise during COVID-19. Instead of massive cash transfers, the Union

Budget has provided targeted economic stimulus, especially to capital infrastructure and the

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public health sector. The total size of the budget for FY21 has increased to Rs 34.50 lakh crore.

In FY22, total expenditure is pegged at Rs 35 lakh crore.

The emphasis on capital infrastructure spending for economic revival by increasing the capital

expenditure for FY2021-22 by 34.5% to Rs 5.5 lakh crore is welcome. The estimates of capital

expenditure for FY21 have been increased to Rs 4.39 lakh crore, as against the budgeted Rs

4.12 lakh crore. However, as percentage of GDP, the capital expenditure as share of GDP is

still below 2%. The financing details of the other capital infrastructure projects announced in

the budget through PPP models need further clarity.

The decision on intergovernmental fiscal transfers

The finance minister has announced a new centrally sponsored scheme (CSS) for enhancing

public health infrastructure – the PM Atmanirbhar Swasth Bharat Yojana – with an outlay of

Rs 64,180 crore over the next six years. This CSS will be in addition to the government’s

existing National Health Mission. The focus of a new CSS in the health sector will be on three

areas – preventive, curative and well-being.

However, the finance minister has also announced a plausible convergence of CSS, as

recommended by the Fifteenth Finance Commission report, which is tabled in the parliament

today. This move will shift the composition of intergovernmental fiscal transfers from

conditional grants to tax-transfer formula-based unconditional transfers (which is 41% of tax

pool as recommended by the Fifteenth Finance Commission). The unconditional transfers

provide flexibility to state governments to prioritise their spending, rather than designing “top

down” programmes. However, designing a new public health infrastructure-related CSS can

affect the fiscal autonomy of the states in dealing with the issues of the health sector, unless it

is judiciously rolled out within the contours of cooperative federalism.

Union Budget ‘nudging’ the calculus of consent

Finally, the emphasis on state-level public infrastructure investment in the Union Budget,

including the states like Kerala and West Bengal, invokes the calculus of voting behaviour.

Does democracy determine public expenditure decisions? The Union Budget 2021-22 can

answer this in the affirmative only in the forthcoming subnational elections.

(https://thewire.in/economy/budget-2021-india-high-fiscal-deficit)

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68 Economic Survey 2020-21 Volume 2

Figure 9: Trends in Deficits

1.5 1.4

2.4

1.8

0.4

1.6

0.4

4.13.9

3.5 3.5 3.4

4.6

3.5

0

1

2

3

4

5

0.0

0.5

1.0

1.5

2.0

2.5

2014-15 2015-16 2016-17 2017-18 2018-19 2019-20 PA 2020-21 BE

Perc

ent o

f GD

P

Perc

ent o

f GD

P

Effective RD PD FD (RHS)

Source: Union Budget Documents & CGABE: Budget Estimate, PA: Provisional ActualsFD: Fiscal Deficit; RD: Revenue Deficit; Primary Deficit

Table 5: Central Government’s Fiscal Parameters

2014-15 2015-16 2016-17 2017-18 2018-192019-20

PA2020-21

BE

(in ` Lakh crore; Figures in parenthesis are as a per cent of GDP)

Revenue Receipts 11.01 11.95 13.74 14.35 15.53 16.82 20.21 (8.8) (8.7) (8.9) (8.4) (8.2) (8.3) (9)Gross Tax Revenue 12.45 14.56 17.16 19.19 20.80 20.10 24.23 (10) (10.6) (11.2) (11.2) (11) (9.9) (10.8)Net tax revenue 9.04 9.44 11.01 12.42 13.17 13.56 16.36 (7.2) (6.9) (7.2) (7.3) (6.9) (6.7) (7.3)Non-tax revenue 1.98 2.51 2.73 1.93 2.36 3.26 3.85 (1.6) (1.8) (1.8) (1.1) (1.2) (1.6) (1.7)Non-debt capital receipts* 0.51 0.63 0.65 1.16 1.13 0.69 2.25 (0.4) (0.5) (0.4) (0.7) (0.6) (0.3) (1)Non-debt receipts 11.53 12.58 14.4 15.51 16.66 17.51 22.46 (9.2) (9.1) (9.4) (9.1) (8.8) (8.6) (10)Total Expenditure 16.64 17.91 19.75 21.42 23.15 26.86 30.42 (13.3) (13.0) (12.9) (12.5) (12.2) (13.2) (13.5)Revenue Expenditure 14.67 15.38 16.91 18.79 20.07 23.50 26.30 (11.8) (11.2) (11.0) (11.0) (10.6) (11.6) (11.7)Capital Expenditure 1.97 2.53 2.85 2.63 3.08 3.37 4.12 (1.6) (1.8) (1.9) (1.5) (1.6) (1.7) (1.8)Fiscal Deficit 5.11 5.33 5.36 5.91 6.49 9.36 7.96

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69Fiscal Developments

(4.1) (3.9) (3.5) (3.5) (3.4) (4.6) (3.5)Revenue Deficit 3.66 3.43 3.16 4.44 4.54 6.68 6.09 (2.9) (2.5) (2.1) (2.6) (2.4) (3.3) (2.7)Primary Deficit 1.08 0.91 0.55 0.62 0.67 3.25 0.88 (0.9) (0.7) (0.4) (0.4) (0.4) (1.6) (0.4)Memo Item GDP at Market Price 124.68 137.72 153.62 170.95 189.71 203.40 224.89

Source: Union Budget Documents & CGABE: Budget Estimate, PA: Provisional Actuals*includes disinvestment proceeds

Table 6: Growth rate of Central Government's Fiscal Indicators ( in percent)

ITEMS 2015-16 2016-17 2017-18 2018-19 2019-20 PA*

2020-21 BE^

Revenue Receipts 8.5 15.0 4.4 8.2 8.3 20.1Gross Tax Revenue 16.9 17.9 11.8 8.4 -3.4 20.6Net tax revenue 4.4 16.7 12.8 6.0 2.9 20.7Non-tax revenue 27.0 8.6 -29.4 22.3 38.4 18.0Non-debt capital receipts 22.3 3.8 77.0 -2.5 -39.2 227.8Total Non Debt Receipt 9.1 14.4 7.7 7.4 5.1 28.3 Total Expenditure 7.6 10.3 8.4 8.1 16.0 13.2 Revenue Expenditure 4.8 9.9 11.1 6.8 17.0 11.9Capital Expenditure 28.6 12.5 -7.5 16.9 9.4 22.4

Source: Union Budget Documents & CGABE: Budget Estimate, PA: Provisional Actuals* Rate of growth vis-à-vis 2018-19 Actual^ Rate of growth vis-à-vis 2019-20 PA#includes disinvestment proceeds

Trends in Receipts 2.26 Central government receipts can broadly be divided into Non-debt and debt receipts.The Non-debt receipts comprise of tax and Non-Tax revenue, and Non-debt Capital receipts like recovery of loans and disinvestment receipts. Debt receipts mostly comprise of market borrowings and other liabilities, which the government is obliged to repay in the future.

Tax Revenue 2.27 Budget 2020-21 estimated the Gross Tax Revenue (GTR) to be ` 24.23 lakh crore which is 10.8 per cent of GDP. This builds into growth of 12 per cent over the revised estimates (RE) of 2019-20 and 20.6 per cent over 2019-20 PA. The direct taxes, comprising mainly of corporate and personal income tax, constitute around 55 per cent of GTR. These were envisaged to grow at 12.7 per cent relative to 2019-20 RE and 27.2 per cent relative to 2019-20 PA. On the other hand, the indirect taxes were expected to grow at 11.1 per cent vis-à-vis 2019-20 RE and 15 per cent as against 2019-20 PA. The contribution of different taxes in GTR as envisaged in 2020-21 BE is shown in Figure 10.

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Figure 10: Composition of taxes in Gross Tax Revenue in 2020-21 BE

GTR

Source: Union Budget Documents & CGAGTR: Gross Tax Revenue, CIT: Corporation Tax, ToI: Taxes on Income other than Corporation Tax (includes STT), C: Customs, UED: Union Excise Duties, GST: Goods and Services Tax

2.28 The trends in major taxes in relation to GDP displayed in Figure 11 show that receipts from corporate and personal income tax have come down in 2019-20 PA compared to the trend of improvement observed over the previous years. This is due to the moderation in growth of the economy during 2019-20 and implementation of structural reforms like Corporate Tax rate cut. As against the 2020-21 BE of ` 16.36 lakh crore for Net Tax Revenue to the Centre, the actual realization up to November 2020 has been ` 6.88 lakh crore, which is 42.1 per cent of BE.

Figure 11: Taxes as a percent of GDP

3.2 3.3 3.5 2.7 3.0

2.4 2.5 2.52.4

2.8

1.5 0.8 0.60.5

0.6

2.51.5 1.2

1.21.2

2.6 3.1

2.93.1

0.0

2.0

4.0

6.0

8.0

10.0

12.0

2016-17 2017-18 2018-19 2019-20 PA 2020-21 BE

Per

cent

of G

DP GST

UED

Custom

ToI

CIT

Source: Union Budget Documents & CGABE: Budget Estimate, PA: Provisional Actual, CIT: Corporation Tax, ToI: Taxes on Income other than Corporation Tax (includes STT), UED: Union Excise Duties, GST : Goods and Services Tax

Non-Tax Revenue2.29 Non-Tax revenue comprises mainly of interest receipts on loans to States and Union Territories, dividends and profits from Public Sector Enterprises including surplus of Reserve Bank of India (RBI) transferred to Government of India, receipts from services provided by the Central Government and external grants. The Budget 2020-21 aimed to raise ` 3.85 lakh crore

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of Non-Tax revenue, 1.7 per cent of the GDP, 0.1 percentage points more than in 2019-20 PA. Nearly 40 per cent of the Non Tax revenue is envisaged to be raised from dividends and profits (refer to Table 7). As against the 2020-21 BE of ` 3.85 lakh crore for Non-Tax Revenue, the actual realization up to November 2020 has been 32.3 per cent of the BE.

Table 7: Trends in Non-tax Revenue of Central Government

2015-16 2016-17 2017-18 2018-19 2019-20 PA 2020-21 BE

(in ` Lakh crore)Interest receipts 0.25 0.16 0.14 0.12 0.12 0.11Dividends & Profits 1.12 1.23 0.91 1.13 1.86 1.55External Grants 0.02 0.01 0.04 0.01 0.00 0.01Others 1.12 1.32 0.84 1.07 1.28 2.15Non-tax Revenue 2.51 2.73 1.93 2.36 3.26 3.85

Source: Union Budget Documents & CGABE: Budget Estimate, PA: Provisional Actuals

Non-debt Capital receipts 2.30 Non-debt Capital receipts mainly consist of recovery of loans and advances, and disinvestment receipts. The contribution of Non-debt Capital receipts in the total pool of Non-debt receipts have declined from 6.8 per cent in 2018-19 to 3.9 per cent 2019-20 PA, primarily due to shortfall in disinvestment proceeds (Figure 12). The Non-debt Capital receipts have been pegged at 2.3 lakh crore that is 1 per cent of GDP in 2020-21 BE. The major component of Non-debt Capital receipts is disinvestment receipts that accrue to the government on sale of public sector enterprises owned by the government (including sale of strategic assets). Government envisaged to mobilize ` 2.1 lakh crore on account of disinvestment proceeds as per 2020-21 BE. As against the 2020-21 BE of ` 2.3 lakh crore for Non-debt Capital receipts to the Centre, the actual realization up to November 2020 has been ` 0.18 lakh crore.

Figure 12: Composition of Non-debt receipts of Central Government

75 76.5 80.1 79.1 77.4 72.8

20 19 12.4 14.2 18.617.1

5 4.5 7.5 6.8 3.9 10

0102030405060708090

100

2015-16 2016-17 2017-18 2018-19 2019-20 PA 2020-21 BE

Net Tax Rev Rec/ Total Non Debt Rec Non Tax Rev Rec/Total Non Debt Rec

Non Debt Cap Rec/Total Non Debt Rec

Source: Union Budget Documents & CGABE: Budget Estimate, PA: Provisional Actuals

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Trends in Expenditure2.31 On the expenditure front, Budget 2020-21 estimated total expenditure at ` 30.42 lakh crore, comprising revenue expenditure of ` 26.3 lakh crore and capital expenditure of ` 4.12 lakh crore, which work out to be 11.7 per cent and 1.7 per cent of GDP, respectively. As a percentage of GDP, the anticipated growth of total expenditure in 2020-21 BE over 2019-20 PA is 0.3 per cent of GDP with growth equivalent to 0.15 per cent of GDP each in both Revenue and capital expenditure.

2.32 Revenue Expenditure, which constitutes over 87 per cent of the total expenditure was envisaged to grow at 11.9 per cent in 2020-21 BE over 2019-20 PA. This is a modest growth rate relative to the 17 per cent growth of revenue expenditure in 2019-20 PA over 2018-19. Interest payments (26 per cent), Defence Revenue expenditure (9 per cent), Major Subsidies (10 per cent), Grants-in-aid to States/UTs (22 per cent) and Pension (8 per cent) are the major items of revenue Expenditure which together accounted for nearly 65% of the total expenditure, as per 2019-20 PA (Table 8). Several initiatives undertaken by the Ministry of Defence for utilization of defence expenditure and improving efficiency, promoting self-reliance, and encouraging private sector participation in the defence sector may be seen at Annex 3.

Table 8 : Major Items of Revenue Expenditure

Items2015-16 2016-17 2017-18 2018-19 2019-20

PA2020-21

BE(in ` Lakh crore)

Revenue Expenditure of which 15.38 16.91 18.79 20.07 23.50 26.30

(4.8) (9.9) (11.1) (6.8) (17.0) (11.9)a. Salaries (pay & allowances) 1.45 1.77 1.94 2.11 2.38 2.48

(7.9) (22.6) (9.2) (9.0) (12.7) (4.0)b. Pensions 0.97 1.31 1.46 1.60 1.84 2.12

(3.4) (35.8) (10.9) (9.9) (14.6) (15.3)c. Interest payment 4.42 4.81 5.29 5.83 6.11 7.08

(9.7) (8.8) (10.0) (10.2) (4.9) (15.9)d. Major subsidies 2.42 2.04 1.91 1.97 2.23 2.28

(-2.9) (-15.6) (-6.3) (2.9) (13.4) (2.1)e. Defence Services 1.46 1.65 1.86 1.96 2.08 2.09

(3.9) (13.3) (12.5) (5.1) (6.1) (0.9)Source: Union Budget Documents & CGABE: Budget Estimate, PA: Provisional ActualsNumbers in parenthesis are growth rates*The figure for Salaries (Pay & allowances) for 2019-20 is Revised Estimate (RE).

2.33 A significant proportion of revenue expenditure such as expenditure on salaries, pensions and interest payments is broadly committed in nature. Hence the focus of expenditure restructuring and management measures is targeted on the non-committed component such as

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73Fiscal Developments

subsidies. In 2016, approximately 66 Centrally Sponsored Schemes were rationalized into 28 Umbrella Schemes. The cycle of these Schemes was also made co-terminus with the Finance Commission cycle, to ensure more clarity on flow of resources available to both the Union and the State Governments over a Finance Commission cycle.

2.34 The expenditure on major subsidies which was pegged at 1.0 per cent of GDP in 2020-21 BE, accounted for a moderate growth of 2.1 per cent over 2019-20 PA. In 2019-20 PA, there was an increase of 13.9 per cent in the subsidy bill of the Government, as the food, fertilizer and petroleum subsidies grew by 7.3 per cent, 14.9 per cent and 34.5 per cent respectively, relative to 2018-19.

2.35 With a low tax to GDP ratio, Central Government faces the challenge of providing sufficient funds for investment and infrastructure expansion while staying within the bounds of fiscal prudence. Therefore, improving the composition and quality of expenditure assumes significance. Over the past few years, the quality of expenditure measured in terms of the share of capital expenditure in total expenditure has on an average sustained at a level (Figure 13). It is estimated to increase roughly by a percentage point in 2020-21 BE over 2019-20 PA which accounts for an expected growth of 22.4 per cent in capital expenditure over 2019-20 PA. The major sectors apart from defence services, that account for bulk of capital expenditure allocation in 2020-21 BE include industry and minerals, construction of roads and bridges, communication services, and space technology.

Figure 13: Trends in components of Total Expenditure

84

85

86

87

88

89

10

11

12

13

14

15

2013-14 2014-15 2015-16 2016-17 2017-18 2018-19 2019-20PA

2020-21BE

Percen

t

Percen

t

Capital Expenditure/Total Expenditure (%)

Revenue Expenditure/ Total Expenditure (%) (RHS)

Source: Union Budget Documents & CGABE: Budget Estimate, PA: Provisional Actuals

2.36 Apart from budgetary spending, Extra Budgetary Resources (EBR) have also been mobilized to finance infrastructure investment since 2016-17. EBRs are those financial liabilities that are raised by public sector undertakings for which repayment of entire principal and interest is done from the Central Government Budget. Government has raised EBRs of ` 1.35 lakh crore during the period from 2016-17 to 2019-20. It proposes to raise EBR of ` 49,500 crore in 2020-21 BE which is 0.22 per cent of GDP.

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Transfer to States

2.37 The Central Government has accepted the recommendations made by the Fifteenth Finance Commission (FC-XV) in its Report for financial year 2020-21, relating to the Post Devolution Revenue Deficit Grant, Grants to Local bodies and Disaster Management Grants for the financial year 2020-21. FC-XV recommended Grant-in-Aid amounting to 1.99 lakh crore for transfer to States during 2020-21 for Post Devolution Revenue Deficit Grant, Grants to Local bodies and Disaster Management Grants which is approximately 50% higher than recommended by the FC-XIV for the award year 2019-20 (Table 9).

2.38 Out of the corpus of ` 90,000 crore allocated as grant for local bodies in the year 2020-21, 32.5 per cent have been recommended for urban local bodies and the remaining for rural local bodies. Unlike that of the FC-XIV recommended grants, the local bodies grant during the year 2020-21 were also allocated to Fifth and Sixth Schedule Area as well as Mandal/Tehsil and District/Zila Panchayats in case of rural local bodies, and also allocated to fifty-nine Cantonment Boards in case of the urban local bodies. Moreover for the first time, Finance Commission grants were also allocated for the purpose of improving ambient air quality in million plus cities/ urban agglomerations.

Table 9: Component-wise grants recommended during FC-XIV (for year 2019-20 only) and FC-XV for the year 2020-21 (in ` crore)

S. No. Component

Amount allocated for the year 2019-20 (FC-XIV award period)

Amount allocated for the year 2020-21(FC-XV award period)

(1) (2) (3) (4)i Post-Devolution Revenue Deficit Grant 34,206 74,340ii Local Bodies Grant 87,352 90,000iii Disaster Management Grant (Union share) 12,120 34,574

Total 1,33,678 1,98,914Source: Department of Expenditure

2.39 Due to a decline in the Gross Tax Revenue collections during 2019-20, a moderation in the states’ share in Central taxes is seen in 2019-20 RE relative to 2018-19 (Table 10). The Budget 2020-21 envisaged a rebound in the total transfers to States from 5.7 per cent of GDP in 2019-20 RE to 6 per cent of GDP in 2020-21 BE.

Table 10: Transfers to States (in ` lakh crore)

Particulars 2015-16 2016-17 2017-18 2018-19 2019-20 RE 2020-21 BE

Devolution of States' share in Taxes 5.06 6.08 6.73 7.61 6.56 7.84

Finance Commission Grants 0.85 0.96 0.92 0.94 1.24 1.50CSS and Other Transfers 2.39 2.77 3.16 3.32 3.80 4.09Total transfers to States 8.29 9.81 10.81 11.87 11.60 13.43

Source: Union Budget DocumentsBE: Budget Estimates, RE: Revised Estimates Note: States includes all the States.

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63Fiscal Developments

between the income-tax authorities and the taxpayer can lead to an efficient, non-discretionary, unbiased single window system of assessment. In 2020, the scope of Faceless Assessment Scheme 2019 was broadened by bringing all the pending assessment cases across the country within the purview of the Scheme and declaring that any order passed outside the scheme shall be invalid. 2.20 The scheme establishes a National Faceless Assessment Centre (NFAC) in Delhi, headed by Principal Chief Commissioner of Income Tax, as the sole point of contact between the Department and the taxpayer. All notices or communications to and from the taxpayer, and internal communications related to assessment process within the Department are routed through the NFAC. To further facilitate and streamline the process of assessment there are various Regional Faceless Assessment Centers which are vested with the power to make assessments. A schematic diagram of Faceless Assessment procedure may be seen in figure 7.

Figure 7: Faceless Assessment Procedure

Source: Survey compilation based on inputs from Department of Revenue.Note: NFAC: National Faceless Assessment Centre, AU: Assessment unit, TU: Technical Unit, VU: Verification Unit, RU: Review Unit, DAO: Draft Assessment Order.

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64 Economic Survey 2020-21 Volume 2

Faceless Appeals Scheme 20202.21 Under Faceless Appeals Scheme, 2020, all Income Tax appeals will be finalised in a faceless manner under the faceless ecosystem with the exception of appeals relating to serious frauds, major tax evasion, sensitive & search matters, International tax and Black Money Act.

2.22 The Scheme establishes a National Faceless Appeal Centre (NFApC) as the apex body for conduct of e-appeal proceedings in a centralized manner. Under the NFApC are Regional Faceless Appeal Centers (RFAC) to facilitate the e-appeal proceedings. The Appeal Units, headed by one or more Commissioner (Appeals) and are placed under the RFAC. The NFApC will be the only point of contact between the taxpayer and the underlying Appeal Units; and Appeal Units and NeAC/Assessing Officer. All internal and external communication takes place electronically and the assessee or the Assessing Officer are not required to attend the proceedings personally or through an authorised representative. A schematic diagram of Faceless Appeals procedure may be seen in the figure below.

Figure 8: Faceless Appeal Procedure

Source: Survey compilation based on inputs from Department of Revenue.Note: NFApC: National Faceless Appeal Centre, NFAC: National Faceless Assessment Centre, APU: Appeal Unit, DAPO: Draft Appeal Order

Taxpayers’ Charter2.23 The third pillar of Honoring the Honest platform is the introduction of taxpayers’ charter.

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65Fiscal Developments

The taxpayer’s charter for India comprises of commitments by the Income Tax Deparment and obligations of the taxpayers. A detailed discussion on the taxpayers’ charter may be seen in Box 3.

Box 3: Introduction of Taxpayers’ Charter

Traditionally tax administrations paid limited attention to taxpayer service while performing the functions of regulator and enforcer of tax laws. However, due to an increased demand for better services to the tax payers, there has been a worldwide recognition of the rights of the tax payers, by publishing formal ‘taxpayers’ charters’ or including behaviour expected from officials in the revenue body’s ‘mission statement’. For instance, the concept of taxpayers’ Bill of Rights was first introduced in the US in 1988 and the Taxpayer Bill of Rights, which grouped the existing rights in the tax code into ten clearly defined fundamental rights and applied to all taxpayers, was adopted by the revenue authorities in 2014. Similarly, the Canadian taxpayers’ Bill of Rights defining 16 taxpayers’ rights, was adopted in May 2007 to increase the accountability of the Canada revenue Agency to taxpayers and to enhance the level of awareness among taxpayers about their rights and avenues of redress when dealing with revenue authorities. The UK government published its first charter concerned with taxpayer interactions with revenue authorities in 1986, and adopted the new publication ‘Your Charter’, which explicitly sets out rights and obligations of taxpayers in 2009 (subsequently refreshed in 2016).

The introduction of taxpayer charter by Government of India as a part of the ‘Honoring the Honest’ platform is, thus, an important step in this direction, as it emphasizes the importance of fair, courteous and reasonable treatment to taxpayer. The tax payer charter includes the following, as a part of Income Tax Department’s commitment:

1. Courteous, fair and reasonable treatment to taxpayers. 2. Treatment of taxpayers as honest unless the department has a reason to believe otherwise. 3. Fair and impartial appeal procedure and review mechanism. 4. Accurate and complete information for fulfilling tax compliance obligations under the law. 5. Timely decisions in every income tax proceeding (within the time prescribed under law). 6. Collection of the correct amount of tax due as per the law. 7. Respect for taxpayer’s privacy by following due process of law, and ensuring no more

intrusive than necessary in inquiry, examination, or enforcement action. 8. Maintaining confidentiality by not disclosing any information provided by taxpayer to the

department unless authorized by law. 9. Ensuring accountability for the actions of the tax authorities. 10. Provision to allow taxpayer to choose an authorized representative of his choice. 11. Provision for a mechanism to lodge complaint and ensure its prompt disposal thereof. 12. Fair and impartial system and resolving the tax issues in a time-bound manner 13. Publishing the service standards and report periodically by the Tax Department. 14. Reduced cost of compliance as the Department shall duly take into account the cost of

compliance when administering tax legislation.

The taxpayers’ obligations specified under the Charter are: 1. Taxpayer is expected to honestly disclose full information and fulfil his compliance obligations.

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66 Economic Survey 2020-21 Volume 2

2. Taxpayer is expected to be aware of his compliance obligations under tax law and seek help of department if needed.

3. Taxpayer is expected to keep accurate records required as per law. 4. Taxpayer is expected to know what information and submissions are made by his authorised

representative. 5. Taxpayer is expected to make submissions as per tax law in a timely manner. 6. Taxpayer is expected to pay amount due as per law in a timely manner.

Need for an independent Ombudsman – to ensure enforcement of taxpayers’ rights

In addition to explicitly recognizing the taxpayers’ rights, presence of a dedicated institution aimed to take up issues from taxpayers’ perspective helps in developing trust of the taxpayers in the system. This ensures that the taxpayers understand their rights and are treated fairly. Thus the next step may be to ensure enforcement of rights.

India’s experience with Tax Ombudsman

• In India, the institution of Income Tax Om budsman was created in 2003 and Indirect Tax Ombudsman came to existence in 2011. The ombudsman was appointed at the regional offices by the Central Government from amongst the serving officers, to enquire into grievances/ complaints against the functioning of the tax authority.

• Since the functioning of Ombudsman was governed by the guidelines (Income Tax Ombudsman Guidelines 2010 and Indirect Tax Ombudsman Guidelines 2011), and there was no act of law empowering it with different functions, the institution of Ombudsman was ineffective and the decisions only advisory in nature. The Ombudsman could settle complaints either through agreements between the complainant and the tax department through conciliation and mediation or by passing an award, with a token compensation for loss suffered by the complainant not exceeding ` 5,000.

• The institutions of Ombudsman for direct and indirect taxes were, therefore, abolished in February 2019. The present tax grievance redressal system consists of grievance cells headed by department officials/ Aaykar Sewa Kendras (ASK), e-nivaran portal which is a separate and dedicated window for grievance redressal in the Income Tax Business Application, and CPGRAMS (Central Public Grievance Redress and Monitoring System).

Global experience with Independent tax Ombudsman

• The global experience suggests that countries with an independent tax Ombudsman have performed better on the tax administration front through better trust between taxpayers and tax authorities, and have exhibited a higher average Tax to GDP ratio and lower time taken to file taxes (OECD 2017). Dedicated bodies like the Ombudsman in Australia, Canada, UK, Brazil, South Africa and tax mediators in Belgium and France look into tax related complaints across many countries. These bodies are independent of the tax administration.

• For instance US have an independent organization within the IRS called the Taxpayer Advocate Service (TAS) to act as the guardian of taxpayers rights. It protects taxpayer rights and promotes

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Suggestions to improve revenue generation of the government

Besides tax reforms and effective tax administration, other suggestions for improving revenue

collections of the government can be given as follows:

Propose a scheme for religious institutions: Religious institutions like temples have huge

resources, donated by the public. These are meant for use by society. There has never been a

greater need for these resources to be used, than at the time of this pandemic. The government

should convince these institutions to donate to the PM CARES Fund and, in return, grant 100 per

cent tax deduction (against the 50 per cent now) for donations made, over the next, say, five years.

Launch an amnesty scheme: Amnesty schemes are frowned upon, as they create a moral hazard.

But these are very tough times, so perhaps morality can take a back seat to pragmatism. A ‘no

questions asked’ scheme by depositing, say, 25 per cent of the declared wealth, could fetch a

substantial amount. After all, despite automatic exchange of information, insignificant sums have

been brought back from the funds stashed away abroad. The amnesty scheme can be for any funds

lying domestically or overseas.

Offer tax-free NRI bonds: India had offered tax-free bonds to NRIs earlier but had made a mistake

in not stopping the NRIs from doing arbitrage (borrowing cheap abroad to invest in high-yield

tax-free bonds). Globally interest rates are low, sometimes negative, so a government guaranteed,

dollar-denominated bond, ought to attract investment.

Settle disputes like the one in the telecom sector: The Government’s claim of share of revenue

based on telcos AGR (adjusted gross revenue) of ₹1.3 lakh crore is based, according to telcos, on

a miscalculation, and is, with interest and penalties, hugely miscalculated. The Supreme Court has

agreed with the Government’s contention and is compelling telcos to pay. Telcos like Idea

Vodafone cannot pay it and will shut shop. This is against the interest of all. Consumers will be

deprived, call and data charges will shoot up, and banks will be stuck with NPAs. So the

Government must sit across the table, settle at a mutually acceptable figure/payment schedule,

raise resources to fight Covid, and move on. Similarly for other disputes.

Get State governments to be more pragmatic: State Governments will also need resources, and

will go to the Centre for help. They should be asked to do their part. For example, the Municipal

Corporation of Greater Mumbai has a ‘ready reckoner’ rate for assessing tax. These rates are

unrelated to reality. This has killed the sector. Review the rates; resolve pending issues such as

renewal of leases, in order to generate revenue. Do not use permissions/disputes/renewals for

personal gains when there is a huge national crisis.

Possible avenues through which Government can raise financial resources to support growth

enhancing measures, according to FICCI are:

Strengthening the non-tax revenue sources to avoid tax burden.

Accelerating planned disinvestment programs assigned for this year. Furthermore, the government

must vigorously carry out additional sales of non-core assets as well as strategic sale of PSUs to

meet the requisite financial resources.

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Financing of deficit by the RBI, even though the government has indicated that this route for

raising finances is not on the radar as of now. Alongside, tapping deeper into RBIs reserves could

be one area that the government might look into.

Issuance of long- term pandemic bonds in both the domestic and the international markets could

open up additional space for the government to borrow.

Raising funds from multilateral agencies and external private market borrowing but must keep this

option as a last resort unless the loan is financed in Indian Rupees.

Finally, given that large amounts of infrastructure spending is the need of the hour and a major

head that will require financing to aid growth, the government can set up development financial

institutions to fund long gestation infrastructure projects.

Effective Public Expenditure Management (PEM): Some Suggestions

There is a need for a holistic approach to remove the identified weaknesses at each stage of the

PEM cycle rather than tinkering with a few sub systems without linking them to the ultimate

objectives of an effective, responsive and accountable governance, as well as PEM. The major

tasks ahead are:

(a) Strengthen policy formulation system: Medium term policies for the major budget supported

programs should be formulated in advance before finalizing the budget proposals. Eleventh

Finance Commission has also recommended that the government may examine the feasibility of

introducing a multi-year budgeting process.

(b) Develop cost consciousness for each major activity/program: Activity-wise allocations in the

budget need to be examined in more details to avoid incremental budgeting and bringing in cost

consciousness. For the purpose, least cost options need to be explored in consultation with users,

beneficiaries and target groups of the budget allocations.

(c) Associate stakeholders, participants and beneficiaries with monitoring process. The system of

monitoring the implementation monitoring process. of programs is confined mainly to monitoring

of expenditure. Effectiveness of implementation can be increased if participants and beneficiaries

are associated with the monitoring process.

(d) Develop appropriate management systems for expenditure control. There has to be a multi-

disciplinary management approach towards control and internal audit of expenditure. The internal

audit system cannot be left to accounting personnel alone, as at present.

(e) Lay greater emphasis on program audit, efficiency audit and performance audit. The CAG

audit focuses mainly on financial performance audit. irregularities. The other aspects of efficient

use of resources, performance and value for money remain weak in the reports.

(f) Focus 3Es (Economy, Efficiency and Effectiveness) in evaluation studies. The system of

evaluation studies needs to be strengthened for its coverage, regularity and time bound schedules

along with a focus on 3Es.

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(g) Ensure timely feed- back for evaluation results to policy makers. Results of evaluation studies

should reach the policy formulation stage of budgetary process well in advance, to avoid

incremental budgeting despite poor outcomes of expenditure incurred earlier.

Apart from the above-mentioned major tasks, there would emerge several micro-level systemic

weaknesses which may need technical examination. A few suggestions made by the Eleventh

Finance Commission, in this context, deserve special attention. Review of all expenditure

classifications other than revenue and capital, doing away with the dichotomy between 'plan' and

'non-plan', avoiding the practice of providing a 'token' provision resulting in thin spread of

resources, etc. are some such tasks which can go a long way in improving the PEM systems.

Finally, as already mentioned, the tasks ahead and suggestions available need to be examined,

considered, and implemented in a comprehensive manner. Setting up of a high-powered reform

management body, to oversee implementation and deal with teething problems is included in the

list of suggested reform program in the World Bank study. The Expenditure Reforms Commission

set up in February 2000 could be assigned the task of considering and overseeing the

implementation of reforms in public expenditure management in a comprehensive manner.

(sources: https://www.thehindubusinessline.com/markets/some-thoughts-on-raising-government-

resources/article31315162.ece and https://www.jica.go.jp/jica-ri/IFIC_and_JBICI-Studies/jica-

ri/publication/archives/jbic/report/paper/pdf/rp11_e.pdf)

********

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1 Receipt Budget, 2021-2022

ABSTRACT OF RECEIPTS(In crores)

REVENUE RECEIPTS

1. Tax Revenue

Gross Tax Revenue 2010059.33 2423020.00 1900279.83 2217059.27

Corporation Tax 556875.55 681000.00 446000.00 547000.00

Taxes on Income 492653.71 638000.00 459000.00 561000.00

Wealth Tax 19.81 ... ... ...

Customs 109282.54 138000.00 112000.00 136000.00

Union Excise Duties 240614.52 267000.00 361000.00 335000.00

Service Tax 6029.11 1020.00 1400.00 1000.00

Goods and Services Tax (GST)# 598748.90 690500.00 515100.00 630000.00

Taxes of Union Territories 5835.19 7500.00 5779.83 7059.27

Less - NCCD transferred to the National Calamity

Contigency Fund/National Disaster Response Fund 2480.00 2930.00 5820.00 6100.00

Less - States’ share 650677.05 784180.87 549959.19 665562.74

Centre's Net Tax Revenue 1356902.28 1635909.13 1344500.64 1545396.53

2. Non-Tax Revenue

Interest receipts 12348.98 11042.04 14004.66 11541.17

Dividends and Profits 186132.54 155395.47 96543.54 103538.42

Other Non Tax Revenue 126913.44 216277.23 98023.70 125417.67

Receipts of Union Territories 1761.81 2302.56 2080.63 2530.64

Total Non Tax Revenue 327156.77 385017.30 210652.53 243027.90

I. Total Revenue Receipts 1684059.05 2020926.43 1555153.17 1788424.43

3. Capital Receipts

A. Non-debt Receipts

1. Recoveries of loans and advances 18316.15 14966.67 14497.00 13000.00

2. Miscellaneous Capital Receipts 50304.33 210000.00 32000.00 175000.00

Total 68620.48 224966.67 46497.00 188000.00

B. Debt Receipts

1. Market Loans (Net) 473967.88 540869.62 1048788.18 917707.72

2. Market Loans for Repayments (including POLIF) 236032.12 239130.38 231211.82 287792.28

3. Market Loans for Buyback 0.00 30000.00 0.00 0.00

4. Market Loans for Switching 164821.53 270000.00 160000.00 180000.00

5. Less Payments for Switching -164803.30 -270000.00 -160000.00 -180000.00

6. Market Loans (Gross) (1+2) * 710000.00 780000.00 1280000.00

7. Short Term/T-Bill Borrowings 150103.04 25000.00 225000.00 50000.00

8. External Loan (Net) 8682.32 4621.65 54522.23 1514.23

9. Securities issued against Small Savings (Net) 240000.00 240000.00 480573.89 391927.01

10. State Provident Fund (Net) 11635.33 18000.00 18000.00 20000.00

11. Other Receipts (Net)^ 44273.85 50848.54 39128.84 54280.18

12. Total Debt Receipts 933651.00 796337.00 1848655.00 1506812.00

II. Net Capital Receipts 997300.53 1074306.48 1912510.24 1623428.35

4. Draw-Down of Cash Balance 4970.35 -53002.81 -17358.14 71382.86

Total Receipts (I+II) 2681359.58 3095232.91 3467663.41 3411852.78

* This excludes a borrowing of 1,10,208 crore passed on to States as Loans on back to back basis in lieu of GST Compensation Cesses.

# Includes GST Compensation Cess.

^ includes receipts from reserve funds, deposits and advances, etc.

Actuals Budget Estimates Revised Estimates Budget Estimates2019-2020 2020-2021 2020-2021 2021-2022

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Expenditure Profile 2021-2022 1

STATEMENT 1

SUMMARY OF EXPENDITURE

(In ` crores)

MINISTRY/DEPARTMENT

Actuals 2019-2020 Budget Estimates 2020-2021 Revised Estimates 2020-2021 Budget Estimates 2021-2022

Revenue Capital Total Revenue Capital Total Revenue Capital Total Revenue Capital Total

1. Central Expenditure (2+3+4) 1722974.15 331386.43 2054360.58 1926707.51 402276.51 2328984.02 2264992.42 423905.33 2688897.75 2132609.02 539994.89 2672603.91

2. Establishment 563789.75 6453.85 570243.60 602276.49 7308.30 609584.79 592060.57 6611.22 598671.79 600756.99 8257.12 609014.11

3. Central Sector Schemes 446085.68 311005.45 757091.13 497024.69 334800.37 831825.06 870612.58 393077.23 1263689.81 607968.41 443735.00 1051703.41

4. Other Central Expenditure 713098.72 13927.13 727025.85 827406.33 60167.84 887574.17 802319.27 24216.88 826536.15 923883.62 88002.77 1011886.39

5. Transfers (6+7+8) 627630.18 4339.19 631969.37 703437.65 9808.42 713246.07 746149.85 15257.67 761407.52 796390.87 14240.85 810631.72

6. Centrally Sponsored Schemes 309522.78 29.90 309552.68 339838.77 55.76 339894.53 387834.08 65.72 387899.80 381235.45 69.10 381304.55

7. Finance Commission Transfers 123709.87 ... 123709.87 149924.80 ... 149924.80 182352.43 ... 182352.43 220843.00 ... 220843.00

8. Other Transfers 194397.53 4309.29 198706.82 213674.08 9752.66 223426.74 175963.34 15191.95 191155.29 194312.42 14171.75 208484.17

9. Total Expenditure through Budget (1+5) 2350604.33 335725.62 2686329.95 2630145.16 412084.93 3042230.09 3011142.27 439163.00 3450305.27 2928999.89 554235.74 3483235.63

10. Resources of Public Enterprises ... 641554.21 641554.21 ... 672663.38 672663.38 ... 645488.38 645488.38 ... 582831.13 582831.13

11. Total Expenditure through Budget and Resources of Public Enterprises (9+10)

2350604.33 977279.83 3327884.16 2630145.16 1084748.31 3714893.47 3011142.27 1084651.38 4095793.65 2928999.89 1137066.87 4066066.76

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¤ÉVÉ] BÉEÉ ºÉÉ®BUDGET AT A GLANCE

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2. ®ÉVÉBÉEÉä­ÉÉÒªÉ PÉÉ]ä BÉEÉä ®ÉVɺ´É BÉEÉÒ |ÉÉÉÎ{iɪÉÉÆ VÉàÉÉ MÉè®-jÉ@hÉ

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BÉEÉÒ |ÉÉÉÎ{iɪÉÉå BÉEÉÒ +É{ÉäFÉÉ ®ÉVɺ´É BÉäE JÉSÉÇ BÉEÉ +ÉÉÊvÉBÉE cÉäxÉÉ cè* |É£ÉÉ´ÉÉÒ

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|ÉÉlÉÉÊàÉBÉE PÉÉ]ä BÉEÉä ®ÉVÉBÉEÉä­ÉÉÒªÉ PÉÉ]ä (-) ¤ªÉÉVÉ BÉäE £ÉÖMÉiÉÉxÉ BÉäE °ô{É

àÉå àÉÉ{ÉÉ VÉÉiÉÉ cè*

3. ¤ÉVÉ], 2021-22 àÉå ¤ÉÖÉÊxɪÉÉnÉÒ ºÉÖÉÊ ÉvÉÉ+ÉÉå BÉäE ÉÊ ÉBÉEÉºÉ àÉå

ÉÊxÉ´Éä¶É BÉE® BÉäE +É{ÉxÉÉÒ +ÉlÉÇ ªÉ´ÉºlÉÉ BÉEÉä ¤ÉfÉxÉä BÉäE |ÉÉÊiÉ ºÉ®BÉEÉ® BÉEÉ

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2020-21 BÉEÉ 34.5 |ÉÉÊiɶÉiÉ (1,42,151 BÉE®Éä½ âó{ɪÉä) ¤É¸ÉäkÉ®ÉÒ

BÉE®BÉäE ºÉÆ{ÉÖ­] ÉÊBÉEªÉÉ MɪÉÉ cè*

4. ºÉƶÉÉäÉÊvÉiÉ +ÉxÉÖàÉÉxÉ 2020-21 àÉå BÉÖEãÉ 34,50,305 BÉE®Éä½

âó{ɪÉä BÉEÉ ´ªÉªÉ ®JÉÉ MɪÉÉ cè +ÉÉè® ªÉc +ÉxÉÆÉÊiÉàÉ ´ÉɺiÉÉÊ ÉBÉE (2019-

20) ºÉä 7,63,975 BÉE®Éä½ âó{ÉA +ÉÉÊvÉBÉE cè*

Budget at a Glance presents broad aggregates of

the budget for easy understanding. This document

shows receipts and expenditure as well as the Fiscal

Deficit (FD), Revenue Deficit (RD, Effective Revenue

Deficit (ERD) and the Primary Deficit (PD) of the

Government of India. It gives an illustrative account of

sources of receipts and their expenditure through

graphs and info-graphics. In addition, the document

contains the resources transfered to States and UTs

with legislature. The document also contain extracts of

allocations for programme and schemes and giving

insights on sources of deficit financing and composition

of important budgetary variables.

2. Fiscal Deficit is the difference between the Revenue

Receipts plus Non-Debt Capital Receipts (NDCR) and

the total expenditure. FD is reflective of the total

borrowing requirement of Government. Revenue Deficit

refers to the excess of revenue expenditure over

revenue receipts. Effective Revenue Deficit is the

difference between Revenue Deficit and Grants for

Creation of Capital Assets. Primary Deficit is measured

as Fiscal Deficit less interest payments.

3. Budget 2021-22 reflects firm commitment of the

Government to boost economic growth by investing in

infrastructure development. This is substantiated by

increase in capital expenditure by 34.5% (`1,42,151

crore) over BE 2020-21.

4. In RE 2020-21, the total expenditure has been

estimated at `34,50,305 crore and is more than

Provisional Actual (2019-20) by `7,63,975 crore.

54 / 58

(ii)

5. ®ÉVªÉÉå BÉäE {ÉÉºÉ {ÉcÖÆSÉxÉä ´ÉÉãÉÉ BÉÖEãÉ ºÉƺÉÉvÉxÉ, ÉÊVɺÉàÉå ®ÉVªÉÉå

BÉäE ¶ÉäªÉ® BÉEÉ +ÉÆiÉ®hÉ, +ÉxÉÖnÉxÉ/jÉ@hÉ +ÉÉè® BÉäÆEpÉÒªÉ |ÉɪÉÉäÉÊVÉiÉ ªÉÉäVÉxÉÉ+ÉÉå

BÉäE +ÉÆiÉMÉÇiÉ VÉÉ®ÉÒ ÉÊxÉÉÊvɪÉÉÆ £ÉÉÒ +ÉÉiÉÉÒ cé, ¤ÉVÉ] +ÉxÉÖàÉÉxÉ 2021-22 àÉå

13,88,502 BÉE®Éä½ âó{ɪÉä BÉEÉ cè VÉÉäÉÊBÉE ºÉƶÉÉäÉÊvÉiÉ +ÉxÉÖàÉÉxÉ 2020-

21 ºÉä 74,565 BÉE®Éä½ âó{ɪÉä +ÉÉÊvÉBÉE cè*

2019-20 BÉäE ´ÉɺiÉÉÊ ÉBÉE bÉ]É +ÉxÉÆÉÊiÉàÉ cé*

5. The total resources being transferred to the States

including the devolution of State’s share, Grants/ Loans

and releases under Centrally Sponsored Schemes etc

in BE 2021-22 is `13,88,502 crore, which shows an

increase of `74,565 crore over RE (2020-21).

Actuals for 2019-20 are provisional.

55 / 58

¤ÉVÉ] BÉEÉ ºÉÉ® Budget at a Glance

(` BÉE®Éä½) (In ` crore)

2019-2020 2020-2021 2020-2021 2021-2022´ÉɺiÉÉÊ ÉBÉE ¤ÉVÉ] ºÉƶÉÉäÉÊvÉiÉ ¤ÉVÉ]

+ÉxÉÖàÉÉxÉ +ÉxÉÖàÉÉxÉ +ÉxÉÖàÉÉxÉActuals Budget Revised Budget

Estimates Estimates Estimates

1. ®ÉVɺ´É |ÉÉÉÎ{iɪÉÉÆ2. BÉE® ®ÉVɺ´É

(BÉäÆEp BÉEÉä ÉÊxÉ´ÉãÉ )3. BÉE®-ÉÊ£ÉxxÉ ®ÉVɺ´É

4. {ÉÚÆVÉÉÒ |ÉÉÉÎ{iɪÉÉÆ 5. jÉ@hÉÉå BÉEÉÒ ´ÉºÉÚãÉÉÒ 6. +ÉxªÉ |ÉÉÉÎ{iɪÉÉÆ 7. =vÉÉ® +ÉÉè® +ÉxªÉ

näªÉiÉÉAÆ 1

8. BÉÖEãÉ |ÉÉÉÎ{iɪÉÉÆ (1¨4)

9. BÉÖEãÉ ´ªÉªÉ (10¨13) 10. ®ÉVɺ´É JÉÉiÉä {É®

ÉÊVɺÉàÉå ºÉä 11. ¤ªÉÉVÉ £ÉÖMÉiÉÉxÉ 12. {ÉÚÆVÉÉÒ {ÉÉÊ®ºÉÆ{ÉÉÊkɪÉÉå BÉäE ºÉßVÉxÉ

cäiÉÖ ºÉcɪÉiÉÉ +ÉxÉÖnÉxÉ 13. {ÉÚÆVÉÉÒ JÉÉiÉä {É®

14. ®ÉVɺ´É PÉÉ]É (10-1)

15. |É£ÉÉ´ÉÉÒ ®ÉVɺ´É PÉÉ]É(14-12)

16. ®ÉVÉBÉEÉäKÉÉÒªÉ PÉÉ]É[9-(1¨5¨6)]

17. |ÉÉlÉÉÊàÉBÉE PÉÉ]É (16-11)

1. Revenue Receipts 1684059 2020926 1555153 17884242. Tax Revenue

(Net to Centre) 1356902 1635909 1344501 15453963. Non Tax Revenue 327157 385017 210652 243028

4. Capital Receipts 1002271 1021304 1895152 16948125. Recovery of Loans 18316 14967 14497 130006. Other Receipts 50304 210000 32000 1750007. Borrowings and Other

Liabilities1 933651 796337 1848655 1506812

8. Total Receipts (1+4) 2686330 3042230 3450305 3483236

9. Total Expenditure (10+13) 2686330 3042230 3450305 348323610.On Revenue Account 2350604 2630145 3011142 2929000

of which11. Interest Payments 612070 708203 692900 80970112.Grants in Aid for creation 185641 206500 230376 219112

of capital assests13.On Capital Account 335726 412085 439163 554236

14. Revenue Deficit (10-1) 666545 609219 1455989 1140576(3.3) (2.7) (7.5) (5.1)

15. Effective Revenue Deficit 480904 402719 1225613 921464(14-12) (2.4) (1.8) (6.3) (4.1)

16. Fiscal Deficit 933651 796337 1848655 1506812[9-(1+5+6)] (4.6) (3.5) (9.5) (6.8)

17.Primary Deficit (16-11) 321581 88134 1155755 697111(1.6) (0.4) (5.9) (3.1)

1 <ºÉºÉä xÉMÉnÉÒ ¶ÉäKÉ àÉå +ÉÉc®hÉ uÉ®É BÉEàÉÉÒ ¶ÉÉÉÊàÉãÉ cè*ÉÊ]{{ÉhÉÉÒ :

(?) 2020-2021 BÉäE ºÉƶÉÉäÉÊvÉiÉ +ÉxÉÖàÉÉxÉ àÉå 19481975 BÉE®Éä½ BÉäE +ÉxÉÖàÉÉÉÊxÉiÉ ºÉPÉ= BÉEÉÒ iÉÖãÉxÉÉ àÉå 14.4± BÉEÉÒ ÉßÉÊr n® àÉÉxÉiÉä cÖA 2021-2022 BÉäE ¤ÉVÉ]+ÉxÉÖàÉÉxÉ àÉå ºÉPÉ= ¤É¸BÉE® `22287379 BÉE®Éä½ cÉäxÉä BÉEÉ {ÉÚ ÉÉÇxÉÖàÉÉxÉ cè

(??) <ºÉ nºiÉÉ´ÉäVÉ BÉEÉÒ {ÉßlÉBÉE -{ÉßlÉBÉE àÉnå {ÉÚhÉÉÈBÉExÉ BÉäE BÉEÉ®hÉ ºÉƣɴÉiÉ& VÉÉä½ ºÉä àÉäãÉ xÉ JÉÉAÆ(???) BÉEÉäK~BÉE àÉå ÉÊnªÉå MÉA +ÉÉÆBÉE½ä ºÉPÉ= BÉäE |ÉÉÊiɶÉiÉ BÉäE °ô{É àÉå cè

1 Includes drawdown of cash Balance.Notes:

(i) GDP for BE 2021-2022 has been projected at `22287379 crore assuming 14.4% growth over the estimated GDPof `19481975 crore for 2020-2021 (RE).

(ii) Individual items in this document may not sum up to the totals due to rounding off (iii) Figures in parenthesis are as a percentage of GDP

56 / 58

âó{ɪÉÉ BÉEcÉÆ ºÉä +ÉÉiÉÉ cè Rupee Comes From(¤ÉVÉ] Budget 2021-22)

(¤ÉVÉ] Budget 2020-21)

ÉÊ]{{ÉÉÊhɪÉÉÆ:-1. BÉÖEãÉ |ÉÉÉÎ{iɪÉÉå àÉå BÉE®Éå +ÉÉè® ¶ÉÖãBÉEÉå àÉå ®ÉVªÉÉå BÉEÉ ÉÊcººÉÉ ¶ÉÉÉÊàÉãÉ cè, ÉÊVÉxcå {ÉßK~ 1 {É® ºÉÉ®hÉÉÒ àÉå PÉ]É ÉÊnªÉÉ MɪÉÉ cè

2. +ÉÉÆBÉE½Éå BÉEÉä {ÉÚhÉÉÈÉÊBÉEiÉ ÉÊBÉEªÉÉ MɪÉÉ cè*

Notes:-1. Total receipts are inclusive of States' share of taxes and duties which have been netted in the table on page1.

2. Figures have been rounded.

2

20 {Éè. p.

18 {Éè. p.

17 {Éè. p.4 {Éè. p.7 {Éè. p.

18 {Éè. p.

10 {Éè. p.

6 {Éè. p.

=vÉÉ® +ÉÉè® +ÉxªÉ näªÉiÉÉAÆBorrowings & Other Liabilities

36 {Éè. p.

ÉÊxÉMÉàÉ-BÉE®Corporation-Tax

13 {Éè. p.

+ÉÉªÉ BÉE®Income-Tax

14 {Éè. p

ºÉÉÒàÉÉ-¶ÉÖãBÉECustoms 3 {Éè. p.

BÉäExpÉÒªÉ =i{ÉÉn-¶ÉÖãBÉEUnion Excise Duties

8 {Éè. p.

àÉÉãÉ +ÉÉè® ºÉä´ÉÉ BÉE®Goods and Service Tax

15 {Éè. p.

BÉE®-ÉÊ£ÉxxÉ ®ÉVɺ´ÉNon-Tax Revenue

6 {Éè. p.

jÉ@hÉ -ÉÊ£ÉxxÉ {ÉÚÆVÉÉÒ |ÉÉÉÎ{iɪÉÉÆNon-Debt Capital Receipts

5 {Éè. p.

57 / 58

âó{ɪÉÉ BÉEcÉÆ VÉÉiÉÉ cè Rupee Goes To(¤ÉVÉ] Budget 2021-22)

ÉÊ]{{ÉhÉÉÒ :-BÉÖEãÉ BªÉªÉ àÉå BÉE®Éå +ÉÉè® ¶ÉÖãBÉEÉå àÉå ®ÉVªÉÉå BÉEÉ ÉÊcººÉÉ ¶ÉÉÉÊàÉãÉ cè, ÉÊVÉxcå {ÉßK~ 1 {É® ºÉÉ®hÉÉÒ àÉå |ÉÉÉÎ{iɪÉÉå àÉå ºÉä PÉ]É ÉÊnªÉÉ MɪÉÉ cè*

Note:- Total expenditure is inclusive of the States' share of taxes and duties which have beennetted against receipts in the table on page 1.

3

BÉäExpÉÒªÉ |ÉɪÉÉäÉÊVÉiÉ ªÉÉäVÉxÉÉAÆCentrally Sponsored Scheme

9 {Éè. p. BÉEäxpÉÒªÉ FÉäjÉ BÉEÉÒ ªÉÉäVÉxÉÉ

Central Sector Scheme 13 {Éè. p.

¤ªÉÉVÉ +ÉnɪÉMÉÉÒInterest

Payments20 {Éè. p.

®FÉÉDefence8 {Éè. p.

+ÉÉÉÌlÉBÉE ºÉcɪÉiÉÉSubsidies

9 {Éè. p.

ÉÊ´ÉkÉ +ÉɪÉÉäMÉ +ÉÉè® +ÉxªÉ +ÉÆiÉ®hÉ

Finance Commission & Other Transfers

10 {Éè. p.

BÉE®Éå +ÉÉè® ¶ÉÖãBÉEÉå àÉå®ÉVªÉÉå BÉEÉ ÉÊcººÉÉ

States' share oftaxes & duties

16 {Éè. p.

{Éå¶ÉxÉPensions

5 {Éè. p.

+ÉxªÉ BªÉªÉOther Expenditure

10 {Éè. p.

(¤ÉVÉ] Budget 2020-21)

6 {Éè. p.

9 {Éè. p.

13 {Éè. p.

18 {Éè. p.

8 {Éè. p.10 {Éè. p.

20 {Éè. p.

6 {Éè. p.

10 {Éè. p.

58 / 58