The Constitution, under Article 112, refers to the Budget in India as the ‘annual financial statement’. In other words, the term ‘budget’ has nowhere been used in the Constitution.
The budget is a statement of the estimated receipts and expenditure of the Government of India in a financial year, which begins on 1 April and ends on 31 March of the following year.
The receipts and disbursements are shown under three parts in which Government Accounts are kept viz., (i) The Consolidated Fund of India, (ii) The Contingency Fund of India and (iii) The Public Account of India.
Previously, the Government of India had two budgets, namely, the Railway Budget and the General Budget. While the former consisted of the estimates of receipts and expenditures of only the Ministry of Railways, the latter consists of the estimates of receipts and expenditure of all the ministries of the Government of India (except railways). The Railway Budget was separated from the General Budget in 1921 on the recommendations of the Acworth Committee.
Since 2017 Budget, two types of budgetary reforms were undertaken:
- Merger of the Railway Budget with the Union budget of India.
- Size of the Railway Budget has shrunken.
- Over the years the spending of other ministries such as defence, road transport, highways, petroleum and natural gas had overtaken the spending of Indian Railways.
- As noted by NITI Aayog, Railway Budget was used as a political tool with decisions on new trains, routes, fare hikes were getting influenced because of political considerations.
- Advancing the date of the Union Budget in the Parliament.
- To facilitate implementing Budget proposals by April 1 and thus do away with the need of Vote on Account.
- The government expenditure is found to be modest in Q1, April-June of each year, since budgetary allocations are delayed and is compensated in Q4 (March Rush). Advancing the budget will facilitate uniform government spending.
Union Budget 2019-20
Finance minister presented the Union Budget in the Parliament. This being the election year, it was an interim budget and not a full-fledged budget. The next government that will be elected after the general election will present the full Budget. Through the interim Budget, Parliament passes a vote-on-account that allows the government to meet the expenses of the administration until the new Parliament considers and passes the Budget for the whole year. The vote-on-account is usually for a four-month period.
Note: An Interim Budget is not the same as a ‘Vote on Account’. While a ‘Vote on Account’ deals only with the expenditure side of the government’s budget, an Interim Budget is a complete set of accounts, including both expenditure and receipts.
The Budget 2019-20 can be analyzed under following heads:
- Key Government Schemes
- Important terms, phrases and legislations.
- Major Highlights of the Budget.
Important Government Schemes
Agriculture and Primary Sector
- PM-KISAN:Pradhan Mantri KIsan SAmman Nidhi
- To provide an assured income support to the small and marginal farmers (families, having cultivable land up to 2 hectares)
- Direct income support at the rate of Rs 6,000 per year through Direct Benefit Transfer, in three equal instalments of Rs 2,000 each.
- This programme will be funded by Government of India.
- Around 12 crore small and marginal farmer families are expected to benefit.
- The programme is made effective retrospectively from 1st December 2018 and the first instalment for the period up to 31st March 2019 would be paid during this year itself.
- Outlay of Rs 75,000 crore for the FY 2019-20 and Rs 20,000 crore in the Revised Estimates of FY 2018-19.
- Soil Health Card Scheme
- A farm will get the soil card once in every 3 years.
- Soil Health Card issued to farmers carry crop-wise recommendations of nutrients and fertilizers required for the individual farms.
- It will contain the status of his soil with respect to 12 parameters, namely N,P,K (Macro-nutrients); S (Secondary nutrients); Zn, Fe, Cu, Mn, Bo (Micro – nutrients); and pH, EC, OC (Physical parameters).
- Centrally sponsored scheme to promote scientific agricultural practice.
- The scheme assumes importance due to the imbalanced application of fertilisers in India. Recommended NPK ratio for soils in India is 4:2:1 but in states like Punjab the ratio is 30:8:1.
- Kisan Credit Card
- Motive of this credit scheme is to enable farmers in having quick and timely access to affordable short term credit. (Thus, reduce farmers’ dependency on informal credit.)
- Insurance coverage for Kisan Credit Cardholders. Also, the loans disbursed for notified crops are covered under Crop Insurance Scheme (against loss of crops due to pest attacks, natural calamities etc.)
- In the last budget, KCC was extended to fisheries and animal husbandry farmers to help them meet their working capital needs. This year, government extended 2% interest subvention and 3% further subvention for timely payment.
- Ministry of Finance
- Rashtriya Gokul Mission
- India with 199 million cattle has 14.5% of the world cattle population. Of this, 83% i.e. 166 million are indigenous. But, most of them are poor quality breed.
- Enhance milk production through conservation and devilment of indigenous breeds of cattle in a focused and scientific manner(breed improvement, distribute disease free high genetic merit bulls for natural service etc).
- Gokul Gram will be established that will act as dependable Centres for development of Indigenous Breeds.
- Project under National Programme for Bovine Breeding and Dairy Development.
- Budget has proposed setting up of “Rashtriya Kamdhenu Aayog” to upscale sustainable genetic up-gradation of cow resources and to enhance production and productivity of cows.
Poor And Backward Areas
- Saubhagya Yojna
- Pradhan Mantri Sahaj Bijli Har Ghar Yojana (Saubhagya) under the ministry of Power (Rural Electrification Corporation Limited (REC), under the Ministry of Power is the nodal agency).
- Aims to provide last mile electricity connectivity to all rural and urban households.
- Identification of beneficiaries through SECC: free electricity connection for people with deprivation and others will be charged 500 Rs.
- The beneficiary household will get five LED lights, one DC fan, one DC power plug. It also includes the Repair and Maintenance (R&M) for 5 years.
- Remote and inaccessible areas to be electrified with Solar Photovoltaic (SPV) based standalone systems.
- Aspirational Districts Programme
- To quickly and effectively transform some of the most underdeveloped districts of the country (115 districts across 28 states).
- Broad strategy of the programme include convergence (of central and state schemes), collaboration (of central, state level ‘Prabhari’ officers & district collectors), and competition among districts.
- Progress to be measured on 49 indicators across 5 core dimensions : health and nutrition, education, financial inclusion, agriculture and water resources, skill development and basic infrastructure.
- Launched by NITI Aayog and example of cooperative federalism.
- Ujjwala Yojana
- To provide 8 Crore free LPG connections to women from BPL households by 2020.
- Implemented by the Ministry of Petroleum and Natural Gas.
- SECC (Socio Economic and Caste Census) data will be used to confirm eligibility.
- Expected outcomes: boost ‘Make in India’ campaign (manufacturers of cylinders, gas stoves, regulators, and gas hose), Job creation and prevent premature deaths of rural women due to respiratory illness.
- LPG Panchayat is an interactive communication platform aimed at educating rural LPG users about proper safety precautions to be taken while using LPG.
- UJALA Yojna
- Ujala replaced the Bachat Lamp Yojana (offered CFL at the cost of incandescent bulb)
- LED bulbs are provided to domestic consumers with a target to replace 77 crore incandescent bulbs with LED bulbs.
- The scheme is being implemented by Energy Efficiency Services Limited (EESL), a joint venture of PSUs under the Union Ministry of Power.
- Main objectives: Promote efficient lighting, enhance awareness on using efficient equipment, reduce electricity bills and help preserve environment.
- Swachh Bharat Mission
- Launched in October 2014 with an aim to achieve Open Defecation Free (ODF) by 2019.
- Has two sub-missions:
- Swachh Bharat Mission (Gramin) – Ministry of Drinking Water and Sanitation)
- Swachh Bharat Mission (Urban) – Ministries of Urban Development.
- IEC (Information, Education and Communication) Component: Focus on Behaviour Change to promote sustainable sanitation practices.
- The mission is considered as a success. There is unprecedented increase in toilet coverage, and the resultant health and financial gains.
- Sanitation coverage in rural India increased from 38 per cent in 2014 to over 98 per cent in 2019
- 5 crore toilets have been constructed in rural India since the Mission began.
- Usage of toilets as per a recent survey by World Bank, is also above 90 per cent.
- More than 5.45 lakh villages and over 450 districts have been declared Open Defecation Free (ODF).
- Villages declared ODF are verified within three months of a declaration by block and district officials.
- Pradhan Mantri Gram Sadak Yojana
- To provide all-weather road connectivity to the eligible habitations in the rural areas with a population of:
- 500 persons and above in plain areas.
- 250 persons and above in Hilly Areas, the Desert Areas, the Tribal areas and selected Tribal and Backward Districts.
- 80 lakh habitations out of a total of 17.84 lakh habitations have already been connected with pucca roads
- 75 paise per litre has been earmarked for this scheme out of cess levied on high speed diesel.
- The Union Ministry of Rural Development is nodal authority and is a 100% centrally sponsored scheme.
- Pradhan Mantri Awas Yojana
- With the objective of providing Housing For All by 2022, the government has launched Pradhan Mantri Awas Yojana. It has 2 components:
- Pradhan Mantri Awas Yojana (Grameen) – (MRD)
- Pradhan Mantri Awas Yojana (Urban) – (MoHUPA)
- Provide a pucca house, with basic amenities, to all households by 2022.
- Immediate objective is to cover 1.00 crore households by 2019. (achieved)
- Assistance of Rs. 1.20 lakh in plain and Rs 1.30 lakh in hilly states and difficult areas along with provision for loan upto Rs. 70000.
- Assistance to be shared by Centre and States in 60:40 or 90:10 ratio.
- Beneficiary identification through SECC 2011.
- Housing for all in 4041 statutory towns through:
- In-situ Rehabilitation of existing slum dwellers using land as a resource through private participation
- Credit Linked Subsidy (CLSS)
- Affordable Housing in Partnership with public or private sector
- Subsidy for Beneficiary-led individual house construction/enhancement.
- Funding in the ratio of 75:25 and 90:10.
- The houses will be allocated preferably in the name of Women in the family.
Schemes for the unorganized sector
- 42 crore workers (85% of the workforce)
- Contribution of 50% to India’s
- Includes occupations like street vendors, rickshaw pullers, construction workers, rag pickers, agricultural workers, beedi workers, handloom, leather.
- Pradhan Mantri Jeevan Jyoti Bima Yojana
- of Finance
- Aims to extend life insurance cover (Rs. 2 Lakh) to people both in case of natural deaths or accidents.
- Minimum annual premium of 330.
- Administered through LIC and other Indian private Life Insurance companies.
- Rural India: 86% of the population is not insured,
- Urban India: 82% uninsured.
- Ayushman Bharat: Pradhan Mantri Jan Arogya Yojana (2 Components)
National Health Protection Scheme
- To provide medical cover up to Rs5 lakh per year per household for secondary and tertiary health care.
- BPL families and workers in the unorganized sector.
- It subsumes the centrally sponsored schemes – Rashtriya Swasthya Bima Yojana (RSBY) and the Senior Citizen Health Insurance Scheme (SCHIS).
- Portable across the country
Health and wellness Centres
- To bring health care system closer to people.
- Centres will provide comprehensive health care, including for non-communicable diseases and maternal and child health services.
- Pradhan Mantri Matru Vandana Yojana
- A maternity benefit program by Min. of women and Child Development for pregnant and lactating women of 19 years of age or above for first two live births.
- Previously Indira Gandhi Matritva Sahyog Yojana (IGMSY).
- Conditional cash transfer of Rs. 5000 (early registration; six months of pregnancy; child birth is registered and the child has received the first cycle of vaccination).
- Funding Shared by Centre and States: 60:40 and 90:10
- New Pension Scheme (NPS)
- To provide retirement income to all the citizens on defined contribution basis.
- Intended beneficiary: All new employees of Central Government (after 1st January 2004); State Government employees; all citizens i.e., private employees and unorganized sector workers; NRIs with bank accounts in India.
- The subscriber get a unique Permanent Retirement Account Number (PRAN) (portable).
- Subscriber can exit from NPS after 10 years or 60 years of age.
- Enhancement of the mandatory contribution by the Central Government for its employees covered under NPS Tier-I from the existing 10% to 14%.
- Possible benefits: Pension reforms; inculcate the habit of saving; Retirement Security etc.
- Pradhan Mantri Shram-Yogi Maandhan
- A mega pension yojana for the unorganised sector workers with monthly income up to Rs 15,000.
- Assured monthly pension of Rs 3,000 from the age of 60 years on a small monthly contribution.
- Joining at the age of 29 years will have to contribute only Rs 100 per month and at 18 years, will have to contribute Rs 55 per month only.
- The Government will deposit equal matching share.
- Expected to benefit at least 10 crore workers in the next five years.
- Will be implemented from this financial year and allocated Rs. 500 crore.
- Pradhan Mantri Kaushal Vikas Yojana
- Under Ministry of Skill Development And Entrepreneurship.
- The beneficiaries are successfully trained, assessed, certified and awarded financially by the government.
- Individuals with prior learning experience or skills to be assessed and certified under Recognition of Prior Learning (RPL).
- Training and Assessment fees are completely paid by the Government.
- Is implemented through the NSDC and Model Skill Centres called Pradhan Mantri Kaushal Kendras (PMKKs) are being set up in districts.
- YUVA – A skill development initiative by Delhi Police in a tie up with NSDC and CII under PMKVY to connect with youth by upgrading their skills as per their competencies (street children & youth). (Community Police Initiative).
- Pradhan Mantri MUDRA Yojana
- Ministry of Finance.
- MUDRA loans are extended by banks, NBFCs, MFIs and other financial intermediaries.
- Objective is to refinance collateral-free loans given by the lenders to small borrowers (Banks and MFIs can draw refinance).
- 3 types of loans to be allotted by refinance agency are:
- Shishu: covering loans up to Rs. 50,000
- Kishor: covering loans above Rs. 50,000 and up to 5 lakhs
- Tarun: covering loans above Rs. 5 lakh and up to 10 lakhs
- The overdraft amount of 5000 sanctioned under PM Jan Dhan Yojana has been also classified as MUDRA loans.
Infrastructure and Connectivity
- UDAN Scheme
- Providing connectivity to un-served and under-served airports of the country through revival of existing air-strips and airports.
- Applicable on flights which cover between 200 km and 800 km with no lower limit set for hilly, remote, island and security sensitive regions.
- Each operator will provide UDAN Seats (subsidized) for which fares are capped at Rs 2,500 per one-hour flight.
- Benefits for operators: Viability Gap Funding (VGF), relaxation in landing charges, parking charges, relaxation on VAT etc.
- A Regional Connectivity Fund would be created to meet the viability gap funding requirements: 80% of by charging a levy of up to Rs. 8,500 on each departing flight of domestic airlines and the rest 20% will come from state governments.
- Expected benefits: development of regional aviation market, affordable flying, development of remote areas, enhanced trade and commerce and tourism expansion.
- Sagarmala programme
- The Union Ministry of Shipping is the nodal ministry.
- To promote port-led development in the country through harnessing India’s 7,500 km long coastline.
- Components of Sagarmala Programme:
- Port Modernization & New Port Development
- Port Connectivity Enhancement (to the hinterland)
- Port-linked Industrialization (developing proximate industrial clusters and CEZs).
- Coastal Community Development (skill development & livelihood generation).
- Implementing agencies: At apex level, a National Sagarmala Apex Committee (headed by shipping minister) and State Sagarmala committees at the state level (headed by the chief minister or the minister in charge of ports).
- Expected Benefits: Improved port connectivity; development of coastal communities; export competitiveness; reducing cost of transporting domestic cargo etc.
- Government e-Marketplace (GeM)
- Ministry of commerce and Industry.
- To facilitate procurement of goods and services by various Central and State Government Ministries, Departments, and Central & State PSUs through e-market place(Online Market platform).
- Transparent and efficient process of procurement with minimum human interface.
- It is being directly monitored by the PMO office.
- Recently, GeM 3.0 was announced: standardised and enriched catalogue management, powerful search engine, real time price comparison, user rating, advanced MIS and analytics.
- One Rank One Pension
- Aims to provide uniform pension to the Armed Forces personnel retiring in the same rank with the same length of service, regardless of their date of retirement. Personnel who voluntarily retire will not be covered under the OROP scheme
- Example: Officer ‘A’ who had been in service for 15 years from 1980 to 1995 and officer ‘B’ of the same rank and been in service for 15 years from 1995 to 2010 should get the same pension.
- Pension will be re-fixed for all pensioners retiring in the same rank and with the same length of service as the average of minimum and maximum pension in 2013. Those drawing pensions above the average will be protected. In future, the pension would be re-fixed every 5 years (to bridge the gap between the rate of pension of current and past pensioners).
- Previously, the pension depended on the last salary drawn (typically 50%).
- Under the Ministry of defense.
Important Terms, Phrases, institutions and legislations
- Fiscal Deficit and Fiscal Consolidation:
Fiscal Deficit is the difference between total revenue and total expenditure of the government is termed as fiscal deficit. It is an indication of the total borrowings needed by the government. While calculating the total revenue, borrowings are not included.
The fiscal deficit is financed by borrowings and with more and more borrowings the debt obligations increases, wasteful expenditure may lead to inflation. Thus, from the high of almost 6% seven years ago, the fiscal deficit has been brought down to 3.4% in 2018-19. And is pegged at 3.4% for 2019-20.
Fiscal Consolidation thus refers to the policies undertaken by Governments to reduce their deficits and accumulation of debt stock.
- Current account deficit
The current account deficit is a measurement of a country’s trade. Positive CAD means the value of the goods and services it imports exceeds the value of the goods and services it exports (Imports>Exports).
Rising CAD leads depreciation of the currency, due to depreciation the demand for country’s goods further declines, investors withdraw funds.
For the financial year 2018-19, the CAD is likely to be only 2.5% of GDP.
Other important terms: Revenue Deficit, Primary Deficit, Deficit Financing, monetized deficit.
- Cooperative Competitive Federalism
Cooperative Federalism is a concept of federalism in which national, state, and local governments interact cooperatively and collectively to solve common problems of people, rather than making policies separately.
Examples: Constitution of GST Council, Replication of success of one state to other state or at national level like Karnataka’s e-Mandi has been replicated as National Agriculture Market etc.
Opposite of Cooperative Federalism where different units of federation compete to achieve the goals. The PM has proposed Cooperative Competitive Federalism, wherein the units are cooperating with each other and there is also a healthy competition among these units.
- Foreign Direct Investment (FDI) and Foreign Institutional Investment (FII)
Both FDI and FII are the forms of investment made in a foreign country. For the following reasons, FDI is preferred more over FII.
|BASIS FOR COMPARISON||FDI||FII|
|Meaning||When a company situated in one country makes an investment in a company situated abroad, it is known as FDI.||FII is when foreign companies make investments in the stock market of a country.|
|Entry and Exit||Difficult||Easy|
|What it brings?||Long term capital||Long/Short term capital|
|Transfer of||Funds, resources, technology, strategies, know-how etc.||Funds only.|
|Economic Growth||Yes||May or may not|
|Target||Specific Company||No such target, investment flows into the financial market.|
|Control over a company||Yes||No|
- 1st and 2nd generation economic reforms
An important feature of India’s economic reforms (that began in late 1980s and early 1990s) is that it has emphasized on gradualism and evolutionary transition rather than rapid restructuring or “shock therapy”. These reforms can be classified into 1st and 2nd generation economic reforms.
First Generation Economic Reforms, are generally structural programmes: reduction of fiscal deficit, reduction of public expenditure, liberalization of trade and industry, reforms of taxation and creating conditions for flow of private foreign capital, investment and technology. But, in general these reforms were not directly affecting the large sections of the population.
But, as these reforms are successful, the economy needs more broad based and bold reforms with the objective to push economy on a higher growth trajectory, known as second generation reforms. These include reforms like labour reforms, Pension Reforms etc. These are such reforms which may face opposition from people, labour unions etc. thus introduced cautiously and carefully.
In India, 1st Generation Economic Reforms were introduced in late 1980s and early 1990s. And the reforms introduced in since 2000 are considered as 2nd generation reforms.
- Non-performing Assets and Stressed Assets
On a bank’s balance sheet, loans made to customers are listed as assets. The biggest risk to a bank is when customers who take out loans stop making their payments, causing the value of the loan assets to decline. Loans don’t go bad right away. After a certain number of days, the loan is classified as a nonperforming loan.
Thus, a Non-Performing Asset (NPA) is a loan or advance for which the principal or interest payment remained overdue for a period of 90 days. Banks in India are required to classify NPAs further into Substandard, Doubtful and Loss assets.
- Substandard assets: Assets which has remained NPA for a period less than or equal to 12 months.
- Doubtful assets:An asset would be classified as doubtful if it has remained in the substandard category for a period of 12 months.
- Loss assets: As per RBI, “Loss asset is considered uncollectible and of such little value that its continuance as a bankable asset is not warranted, although there may be some salvage or recovery value.”
But NPA alone doesn’t tell the whole story of bad asset quality of loans given by banks. Some of the loans are restructured by banks by giving a further opportunity to the borrower if they default. This opportunity is in the form of an extended time period for repayment and a reduced interest rate or such soft conditions. Hence a new classification is made in the form of stressed assets that comprises restructured loans and written off assets besides NPAs.
Stressed assets = NPAs + Restructured loans + Written off assets
NPAs as well as Stressed assets are thus powerful indicators of the health of the banking system. NPAs and stressed assets: Weaken the bank’s revenue stream, imperil a bank’s health and may finally lead to bank run also.
- Asset Quality Reviews
One of the challenegs in front of Indian Economy is the rising NPAs with the banking system. In this context, accurately estimating asset quality is an important responsibility of the RBI. The central bank has several ways to examine the status of asset quality of banks. The most used one is the Annual Financial Inspection (AFI) through which the RBI inspects the balance sheets of every banks annually.
But the rising level of NPAs tempted the RBI to come out with additional inspections on the balance sheets of the banks to check the genuine nature of bank assets. The RBI during 2015 has conducted inspection of selected banks’ balance sheets in random. The report from such inspection is termed as Asset Quality Review (AQR). Main feature of AQR is that it may not be periodic and rather it is random check.
RBI had a strong notion that some of the banks are underreporting their NPAs. Asset classification practices are not up to the mark and several banks have resorted to ever greening of accounts. Here, banks were postponing bad-loan classification while depicting accounts as performing. Thus, RBI went for AQRs.
- 4Rs approach to Banking reforms: Recognition, Resolution, Re-capitalisation and Reforms
The Economic Survey of 2014-15 first identified the Twin Balance Sheet Challenge afflicting the Indian economy. Briefly, the TBS challenge refers on the one hand to: over-indebtedness in the corporate sector (which makes them unable and unwilling to borrow, depressing the demand) and on the other hand to stressed bank balance sheets especially in the public sector banks (PSBs) (that make them unwilling and unable to supply credit to the corporate and household sectors).
To resolve the TBS challenge comprehensively would require 4 R’s Recognition, Recapitalisation, Resolution, and Reform.
- Banks must value their assets as far as possible close to true value (recognition) as the RBI has been emphasising;
- Once they do so, their capital position must be safeguarded via infusions of equity (recapitalisation) as the banks have been demanding;
- The underlying stressed assets in the corporate sector must be sold or rehabilitated (resolution) as the government has been desiring;
- And future incentives for the private sector and corporates must be set right (reform) to avoid a repetition of the problem, as everyone has been clamouring.
- Inflation, Deflation and disinflation
These are the terms that are related to direction and change of general price levels in an economy.
Inflation is a general increase in the price level. The prices of most products are increasing during periods of inflation. The forces of supply and demand and other factors determine the prices.
Deflation is a general decrease in the price level. During periods of deflation, the prices of most products are decreasing. Deflation is undesirable because it usually causes a significant decrease in overall spending (i.e., aggregate demand) in an economy and is most likely to occur when the economy is already stagnant. For example, deflation occurred in the United States during the Great Depression.
Disinflation occurs when the inflation rate decreases, but remains positive. For example, if the inflation rate changes from 6% in January to 5.5% in February to 5.2% in March, there is disinflation in the economy during the first quarter of the year (i.e., during January, February and March).
Stagflation is a condition of slow economic growth and relatively high unemployment, or economic stagnation, accompanied by rising prices, or inflation (inflation and a decline in GDP).
Reflation is a fiscal or monetary policy, designed to expand a country’s output and curb the effects of deflation. The term “reflation” is also used to describe the first phase of economic recovery after a period of contraction (inflation moving from negative to positive).
- WPI and CPI
To measure inflation in an economy, usually, Wholesale Price Index (WPI) and Consumer Price Index (CPI) are used. WPI helps in measuring the average change in prices received on bulk sale of goods (Wholesale level). On the other hand, CPI is one that computes the changes in the general price level of a class of consumer goods (retail level).
|BASIS FOR COMPARISON||WHOLESALE PRICE INDEX (WPI)||CONSUMER PRICE INDEX (CPI)|
|Meaning||Indicates the average change in prices of commodities at wholesale level.||Indicates the average change in the prices of commodities, at retail level.|
|Published by||Office of Economic Advisor||Central Statistics Office|
|Measurement of Inflation||First stage of transaction||Final stage of transaction|
|Covers||Goods only||Goods and Services|
|Focuses on||Prices of goods traded between business houses.||Prices of goods purchased by consumers.|
|The Weightage for Food||24%||46%|
- Direct and Indirect Taxes
Taxes come in many avatars – income tax, sales tax, corporate tax, service tax and so on. These taxes can be classified into: direct taxes and indirect taxes.
A direct tax is a tax that is levied as well as paid by the same entity. Income Tax levied on and paid by the same person according to tax brackets is the example of Direct Tax. Corporate Tax, Wealth Tax, Estate Duty, Gift Tax etc. are other examples of direct taxes.
Indirect tax is the opposite of the direct tax. An indirect tax is levied on one entity, such as a seller, and paid by another, such as the buyer. Excise Duty, payable by the manufacturer who shifts the tax burden to retailers and wholesalers is example of indirect tax. Sales Tax, Custom Duty, Entertainment Tax etc. are examples of indirect taxes.
- National Disaster Relief Fund (NDRF)
National Disaster Response Fund is established under Disaster Management Act, 2005 (DM Act) as a fund managed by the Central Government for meeting the expenses for emergency response, relief and rehabilitation due to any threatening disaster situation or disaster.
NDRF is constituted to supplement the funds of the State Disaster Response Funds (SDRF) of the states to facilitate immediate relief in case of calamities of a severe nature.
As per July 2015 guidelines, in the event of a disaster of ‘a severe nature’, in which the funds needed for relief operations exceeded the balances in the SDRF account, additional assistance would be provided from the NDRF after following prescribed procedures.
The financial assistance from SDRF/NDRF is for providing immediate relief and is not compensation for loss/damage to properties /crops. In other words, NDRF amount can be spent only towards meeting the expenses for emergency response, relief and rehabilitation.
- Micro, Small and Medium Enterprises (MSME)
The Government of India has enacted the Micro, Small and Medium Enterprises Development (MSMED) Act, 2006 in terms of which the definition of micro, small and medium enterprises is as under:
- Enterprises in the manufacture Sector:
- Micro: investment in plant and machinery does not exceed Rs. 25 lakhs;
- Small: investment in plant and machinery is more than Rs. 25 lakhs but does not exceed Rs. 5 crores;
- Medium: investment in plant and machinery is more than Rs.5 crores but does not exceed Rs.10 crores.
- Enterprises in the Services Sector
- Micro: investment in equipment does not exceed Rs. 10 lakhs;
- Small: investment in equipment is more than Rs.10 lakhs but does not exceed Rs. 2 crores;
- Medium: investment in equipment is more than Rs. 2 crores but does not exceed Rs. 5 crores.
- Insurance penetration and Insurance Density
The measure of insurance penetration and density reflects the level of development of the insurance sector.
Insurance penetration is measured as the percentage of the insurance premium to GDP. It shows contribution of insurance industry to the GDP of the country.
Insurance density is calculated as the ratio of premium to the total population (per capita premium).
As per the Economic Survey 2018, insurance penetration in India is 3.49%. In comparison, some of the emerging economies in Asia such as Malaysia (4.77%), Thailand (5.42%) and China (4.77%) have a higher insurance penetration than India.
India’s insurance density is at $59.7 with life insurance density of $46.5 and general insurance density of $13.2. This compares to global average insurance density of $353 for life and $285.3 for non-life.
Due to this low penetration and density government has come up with various schemes and policies.
- Minimum Support Price, Procurement Price and Issue Price
Minimum Support Price is the price at which government purchases crops from the farmers, whatever may be the price for the crops in the market. Minimum Support Price is an important part of India’s agricultural price policy. The MSP helps to incentivize the framers and thus ensure adequate food grains production in the country.
The MSPs are announced by the Government of India at the beginning of the sowing season for certain crops on the basis of the recommendations of the Commission for Agricultural Costs and Prices (CACP). Support prices generally affect farmers’ decisions indirectly, regarding land allocation to crops, quantity of the crops to be produced etc.
Government’s agricultural policy has three important components- the MSP, Buffer Stocks and issue of food grains through the PDS. MSP helps to procure adequate food grains through FCI, state agencies and cooperatives. The PDS network through the policy of issue price delivers it to the weaker sections.
- Assure remunerative and relatively stable price environment for the farmers by inducing them to increase production and thereby augment the availability of food grains.
- Improve economic access of food to people.
- Evolve a production pattern which is in line with overall needs of the economy.
Procurement Price: Sometimes, the government procures at a higher price than the MSP. Here, the price will be referred as procurement price. The procurement price is announced soon after the harvest. Normally, the procurement price will be higher than the MSP, but lower than the market price. The price at which the procured and buffer stock food grains are provided through the PDS is called as issue price.
- 1st, 2nd and 3rd generation fuels
Biofuels are liquid or gaseous fuels primarily produced from biomass, and can be used to replace or can be used in addition to diesel, petrol or other fossil fuels. Crops used to make biofuels are generally either high in sugar (such as sugarcane, sugarbeet, and sweet sorghum), starch (such as maize and tapioca) or oils (such as soybean, rapeseed, coconut, sunflower).
Biofuels are generally classified into three categories. They are:
- First generation biofuels– Produced directly from food crops by abstracting the oils for use in biodiesel or producing bioethanol through fermentation. Crops such as wheat and sugar are the most widely used feedstock for bioethanol while oil seed rape has proved a very effective crop for use in biodiesel. However, first generation biofuels have a number of associated problems. There is much debate over their actually benefit in reducing greenhouse gases. Some biofuels can produce negative Net energy gains, releasing more carbon in their production than their feedstock’s capture in their growth. However, the most contentious issue with first generation biofuels is ‘fuel vs food’. As the majority of biofuels are produced directly from food crops the rise in demand for biofuels has led to an increase in the volumes of crops being diverted away from the global food market.
- Second generation biofuels– Second Generation biofuels have been developed to overcome the limitations of first generation biofuels. They are produced from non-food crops such as wood, organic waste, food crop waste and specific biomass crops, therefore eliminating the main problem with first generation biofuels. Second Generation biofuels are also aimed at being more cost competitive in relation to existing fossil fuels. Life cycle assessments of second-generation biofuels have also indicated that they will increase ‘net energy gains’.
- Third generation biofuels– It takes advantage of specially engineered energy crops such as algae as its energy source. The algae are cultured to act as a low-cost, high-energy and entirely renewable feedstock. It is predicted that algae will have the potential to produce more energy per acre than conventional crops. Algae can also be grown using land and water unsuitable for food production. A further benefit of algae based biofuels is that the fuel can be manufactured into a wide range of fuels such as diesel, petrol and jet fuel.
- Fourth Generation Biofuels: Four Generation Bio-fuels are aimed at not only producing sustainable energy but also a way of capturing and storing co2. Biomass materials, which have absorbed co2 while growing, are converted into fuel using the same processes as second generation
- This process differs from second and third generation production as at all stages of production the carbon dioxide is captured using processes such as oxy-fuel combustion. The carbon dioxide can then be geosequestered by storing it in old oil and gas fields or saline aquifers.
- Capital Goods
Capital goods are things that we use in the production of other goods and services. They are durable goods that is they last a long time. They do not wear out quickly. Capital goods are fixed assets such as machinery, equipment, buildings, vehicles, computers, etc.
Note: To produce goods we need three things: First, capital goods; second, land; and third, labor. We call these three components collectively as the primary factors of production.
- Tax Expenditure
Tax expenditures are revenue losses of the government as a result of certain exemptions given to certain industries and sectors. The aim of such exemptions is to promote social goals without incurring direct expenditures. Tax-expenditure more or less has the same impact as subsidies as a necessary evil.
If government didn’t give any tax exemptions, this deducted amount would have belonged to government itself. Though Tax Expenditure are not direct spending by government, the concept of tax expenditure is that, government is giving back money to achieve certain social goals, like strengthening housing sector or industrial sector. But in actual sense, Government is not collecting money to be re-distributed later, but gives away tax exemptions.
- e-way bill system under GST
E-Way Bill is the short form of Electronic Way Bill. It is a unique document/bill, which is electronically generated for the specific consignment/movement of goods from one place to another, either inter-state or intra-state and of value more than INR 50,000, required under the current GST regime. When e-Way Bill is generated, a unique e-Way Bill Number (EBN) is made available to the supplier, recipient and the transporter. The e-Way Bill replaces the Way Bill, which was a physical document and existed during the VAT regime for the movement of goods.
Advantage of E-way bill system:
- Less documentation: –All the exiting state-wise documentation required for movement of goods will never again be require.
- Reduction in logistic cost.
- E-way bill would reinforce proper invoicing and along these lines would reduce tax avoidance.
- Efficient transportation:It would make transportation efficient & speedy (due to No waiting time at check post, use of RFID technology etc.).
- Easy and quick generation of e way bill.
- Sustainable Growth
Sustainable development is development that meets the needs of the present without compromising the ability of future generations to meet their own needs. It contains within it two key concepts:
- the concept of ‘needs’, in particular the essential needs of the world’s poor, to which overriding priority should be given; and
- the idea of limitations imposed by the state of technology and social organization on the environment’s ability to meet present and future needs.
- Radio-Frequency Identification (RFID)
Radio-Frequency Identification (RFID) is the use of radio waves to read and capture information stored on a tag attached to an object. A tag can be read from up to several feet away and does not need to be within direct line-of-sight of the reader to be tracked.
A RFID system is made up of two parts: a tag or label and a reader. RFID tags or labels are embedded with a transmitter and a receiver. To read the information encoded on a tag, a two-way radio transmitter-receiver called an interrogator or reader emits a signal to the tag using an antenna. The tag responds with the information written in its memory bank. The interrogator will then transmit the read results to an RFID computer program.
Major Highlights of the Budget
State of the Indian Economy
- India is universally recognised as a bright spot of the global economy.
- From being the 11th largest economy in the world in 2013-14, India today is the 6th largest in the world.
- Inflation is a hidden and unfair tax on the poor and the middle class. The average inflation in the last 4 years is on lower side at to 4.6%.
- From the high of almost 6% seven years ago, the fiscal deficit has been brought down to 3.4% in 2018-19 RE. The current account deficit (CAD), is likely to be only 2.5% of GDP this year.
- In a step towards Cooperative Federalism, the central government has accepted the Finance Commission’s recommendations and increasing the share of the States from 32% to 42% in central taxes empowering the states financially (Not part of this budget).
- Due to macroeconomic stability and liberalisation of the FDI policy, India could attract massive amount of FDI during the last 5 years – as much as $239 billion.
- The Fiscal Programme for 2019-20: fiscal deficit of year 2019-20 at 3.4% of GDP and a target of 3% of fiscal deficit to be achieved by 2020-21.
- A number of measures have been implemented to ensure Clean Banking.
- The Insolvency and Bankruptcy Code has institutionalised a resolution-friendly mechanism, is helping in recovery of non-performing loans while preserving the underlying businesses and jobs. (An amount of close to ` 3 lakh crore has already been recovered in favour of banks and creditors.
- To restore the health of public sector banks, recapitalisation has been done with an investment of `2.6 lakh crore.
- Amalgamation of banks has also been done to reap the benefits of economies of scale, improved access to capital and to cover a larger geographical spread.
- The Real Estate (Regulation and Development) Act, 2016 (RERA) and Benami Transaction (Prohibition) Act, 1988 are helping to bring transparency in the real estate sector.
- The Fugitive Economic Offenders Act, 2018 will help confiscate and dispose off the assets of economic offenders who escape the jurisdiction of the laws in India.
- Additionally, transparent auction of natural resources including coal and spectrum.
Poor and backward classes
- Government while maintaining the existing reservation for SC/ST/Other Backward Classes, have now ensured 10% reservation in educational institutions and Government services for poor.
- About 1,70,000 crores were spent in the year 2018-19 to implement Food Security Act and provide food grains at affordable prices to the poor.
- 60,000 crores are being allocated for MGNREGA in BE 2019-20 (highest till date).
- Under the Pradhan Mantri Gram Sadak Yojana, 15.80 lakh habitations out of a total of 17.84 lakh habitations have already been connected with pucca roads and work is going on to complete the rest very soon.
- Under Saubhagya Yojna: 99% households electrified, 143 crore LED bulbs have been distributed and resulted into a savings of approximately ` 50,000 crore per year in electricity bills of poor and middle class families.
Health Care Sector
- Government has launched the world’s largest healthcare programme, Ayushman Bharat, to provide medical treatment to nearly 50 crore people (close to 10 lakh patients have benefited).
- There are 21 AIIMS operating or being established in the country presently and 22nd AIIMS will be established in Haryana.
- The Aspirational Districts Programme is providing targeted development to the 115 most backward districts of the country.
Doubling Farmers’ income by 2022
- Efforts to remove the hardships of farmers includes providing them Soil Health Cards, quality seeds, irrigation scheme and Neem Coated Urea to remove shortage of fertilizers.
- In addition to Small and fragmented land holdings, there is decline in prices of agricultural commodities in the international market and fall in food inflation in India since 2017-18 which has reduced the returns from farming.
- To provide an assured income support to the small and marginal farmers, Government has launched “Pradhan Mantri KIsan SAmman Nidhi (PM-KISAN)”.
- India is the second largest fish producing nation in the world accounting for 6.3% of global production, registering an average annual growth of more than 7% in recent years. The sector provides livelihood to about 1.45 crore people at the primary level. To provide sustained and focused attention towards development of this sector: a separate Department of Fisheries, 2% interest subvention on loans and additional 3% interest subvention for timely payment and assistance under National Disaster Relief Fund (NDRF) for natural calamities.
Unorganised Sector Workers
- Unorganised sector includes workers working as street vendors, rickshaw pullers, construction workers, rag pickers, agricultural workers, beedi workers, handloom, leather and in numerous other similar occupations.
- There are about 42 crore workers in the unorganised sector contributing to 50% of India’s GDP.
- The New Pension Scheme (NPS) has been liberalized. In addition to health coverage under ‘Ayushman Bharat’ and life & disability coverage provided under ‘Pradhan Mantri Jeevan Jyoti Bima Yojana’ and ‘Pradhan Mantri Suraksha Bima Yojana’, Government has launched a mega pension yojana namely ‘Pradhan Mantri Shram-Yogi Maandhan’
Women’s development to women led development
- For securing the health of every home-maker in rural areas Government embarked upon a programme to deliver 8 crore free LPG connections under the Ujjwala Yojana. More than 6 crore connections have already been given.
- More than 70% of the beneficiaries of Pradhan Mantri MUDRA Yojana are women who are getting affordable and collateral-free loans to start their own businesses.
- Besides this, benefits of Maternity leave have been increased to 26 weeks and Pradhan Mantri Matru Vandana Yojana for pregnant women have provided financial support to women.
- India is amongst the most youthful nations in the world. By 2020, the median age in India will be just 28, compared to 37 in China and the US, 45 in Western Europe, and 49 in Japan.
- Through Pradhan Mantri Kaushal Vikas Yojana, over 1 crore youth are being trained to help them earn a livelihood.
- Under MUDRA Yojana 15.56 crore loans have been disbursed amounting to `7,23,000 crore to convert job seekers into job creators.
- Besides this, MUDRA, Start-up India and Stand-up India also target the youth population.
Government e-Marketplace (GeM), created by Government two years ago, has transformed public procurement by making it fully transparent, inclusive and efficient. MSMEs have an opportunity to sell their products through GeM.
Infrastructure development and connectivity
- Infrastructure is the backbone of any nation’s development and quality of life.
- Because of ‘UDAAN Scheme’, today the number of operational airports has crossed 100, domestic passenger traffic has doubled during the last five years.
- India is the fastest highway developer in the world with 27 kms of highways built each day.
- Eastern Peripheral Highway around Delhi and the Bogibeel rail-cumroad bridge in Assam and Arunachal Pradesh have been completed.
- Government has declared 111 waterways as national waterways, the flagship programme of Sagarmala aims Port Led Development.
- For ensuring safety of rail travel all Unmanned Level Crossings on broad gauge network have been eliminated.
- Individuals with income up to INR 5 lakhs will not have to pay any income tax. If they invest in provident funds and prescribed equities individuals with gross income up to INR 6.5 lakh will not need to pay any tax.
- The number of returns filed have also increased from 3.79 crore to 6.85 crore showing 80% growth in tax base in last 5 years.
The number of returns filed have also increased from 3.79 crore to 6.85 crore showing 80% growth in tax base.