2014 CGS 5 - 53be220fe36a4

Target 2014 Current General Studies-5
www.gktoday.in February 11 to February 22, 2014
Fundamentals of Public Finance and Interim Budget 2014

On February 17, Union Finance Minister P. Chidambaram presented the interim budget for 2014-15 in the Lok Sabha. The following pages revisit the fundamentals
of public finance and look into the salient features of the interim budget.
Article 112 of the Indian Constitution, says that every year the President of India shall cause to be laid before
both the houses of the parliament the Annual Financial Statement. This is popularly known as Budget. cause
to be laid here means that the person through whom President acts, is Finance Minister of the country, who is
known as the custodian of the nations Finances.
The Votable and Non-Votable Expenditures
The budget shows the estimated receipts and expenditure of the coming Financial Year. After the budget is
presented to the house, the government needs approval of the Parliament to draw even one rupee from the
Consolidated Fund of India. This approval comes by voting, which means that the Budget proposals must be
passed by the Parliament. However, there are some charges which essentially have to be paid by the
Government and for those charges no voting takes place. Thus, the expenditure embodied in the Budget
Documents is of two types:
The sums required for charged expenditures. These are non-votable.
The sums required for other expenditures as mentioned in the Budget Documents. These are votable.
Charged Expenditures or Non Votable Charges
Model Question 1.
Consider the following statements:
1. The salaries of both the high court and Supreme Court judges are charged from Consolidated Fund of India
2. The charged expenditure on consolidated fund of India cannot be voted or discussed in the house
Which among the above statements is / are correct?
Answer: 1 Member Name: Anand Mohan Member's Email address: dubledoreslair@gmail.com 61.8.129.229
Non-votable charges are called Charged Expenditures and no voting takes place for the amount involved in
these expenditures for their withdrawal from Consolidated Fund of India. This means that they have to be paid
in any case, whether the budget is passed or not even passed. The charged expenditures are:
Salary and Allowances of the President, Speaker / Deputy speaker of Lok Sabha, Chairman/ Deputy
chairman of Rajya Sabha, Salaries and Allowances of Supreme Court judges, Pensions of Supreme
Court as well as High Court Judges, Salaries and Allowances of CAG, Lok Pal and other such offices.
Debt charges of Government of India.
The above expenditures cannot be voted because; these payments are deemed to be guaranteed by the state.
However, we note here that though voting does not take place on such charges, discussion can take place in any
house of the parliament. The demand for grant for these charges is also made on recommendation of the
president. (Article 113)
Votable Expenditures
The Votable part is actual Budget. The expenditures in the Budget are in the forms of Demand for Grants.
There Budget also presents ways and means how the government would be recovering the expenditures.
Generally, the demands for Grants of each and every ministry are made separately in the Budget documents
and each demand for grant has the provisions under its different heads.
Budget Discussions
On a day subsequent to the presentation of the Budget, the House takes up the General Discussion of the
Budget which is called the first stage followed by second stage i.e. discussion and voting on Demands for Grants.
1 Both the statements are incorrect. The salaries of high court judges are charged from Consolidated Funds of States while their
pension comes from Consolidated Fund of India.
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During the General Discussion on the Budget, the House is at liberty to discuss the Budget as a whole or any
question of principle. The scope of discussion at this stage is confined to the general examination of the Budget
i.e. the proper distribution of the items of expenditure according to the importance of a particular subject or
service, the policy of taxation as is expressed in the Budget and the speech of the Finance Minister.
Standing Committee Reports:
After the General Discussion on Budget in both the Houses is over and Vote on Account is passed, the House is
adjourned for a specified period. The Demands for Grants of each Ministry/Department will be examined by the
concerned Standing Committee having jurisdiction over it during the said recess period. The Committee gives
separate report for each Ministry. The Demands for Grants are discussed / considered in the House in the light
of the reports of the Standing Committee. The reports of the Standing Committees which are of persuasive value
are nevertheless treated as considered advice given by the Committee.
The detailed discussions are followed by Guillotine. Guillotine refers to closure imposed on the debate. On the
last of the allotted days at the appointed time, the Speaker puts every question necessary to dispose of all the
outstanding matters in connection with the Demands for Grants. The Guillotine concludes the discussion on
Demands for Grants.
Types of Cut Motions
Model Question 2.
1. Cut motion represents disapproval of the Budget Provisions
2. Cut motion if passed, is equivalent to no-confidence motion
Answer: 2
After the discussions are over, the members get an opportunity to move cut motions to reduce the amount of
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demand. The members from particular parties or coalitions may bring their own cut motions. The members
generally give notice of the Cut Motions for the reduction of the votable heads of expenditure of the Demands
for Grants immediately after the Finance Minister or the Railway Minister as the case may be, has presented the
Budget in the House.
Every Cut Motion to a demand for Grant represents disapproval of some aspect or other of the Budget or the
economic policy of the Government.
Accordingly Cut Motion is of three kinds:
Policy Cut: This type of cut motion aims that the amount of the demand be reduced to Re. 1. It
represents the complete disapproval of policy underlying the Demand. This is because the motion aims
to reduce the demand for grant to Re. 1 only, which almost finishes the demand for grant of a ministry.
Economy Cut: This type of cut motion aims that the amount of demand be reduced to certain other
amount and it represents that the demand for grants should be altered.
Token Cut: This Cut Motion aims that the amount of the Demand be reduced by ` 100 in order to
ventilate a specific grievance, which is within the sphere of responsibility of the Government of India.
Actually, Token cut is symbolic and is humiliating for the Government. To be precise, all cut motions are
humiliating for the ruling party or coalition. The Cut motions provide the members maximum opportunity to
examine every part of the budget and criticize the Government.
Implications of Cut Motions
The Cut Motions are mostly defeated due to Number strength of the ruling party or coalition. As the cut motion
is a veto power given to the member of the Lok Sabha to oppose a demand in the financial bill discussed by the
2 Both statements are correct.
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government, it is seen as an effective tool to test the strength of the government. If a cut motion is adopted by
the House and the government does not have the numbers, it is obliged to resign. The cut motion can be
admitted to the house only if it is related to only one demand and not many. No cut motion can be moved on
charged expenditures. The cut motions are important because they facilitate the constructive discussion on each
demand and uphold the principle of democratic government, by giving the members power to veto the
demands.
Appropriation Act and Finance Act
Appropriation Act
Constitution says that no money shall be withdrawn from the consolidated fund of India except under the
appropriation made by law. Thus, the Appropriation Bill authorises the amount which can be drawn out of the
Consolidated Fund of India for meeting the expenditures. This bill is required to be passed for votable as well as
non-votable expenditures. Kindly note that once the Lok Sabha has passed the Appropriation Bill, no
amendments in its amounts can be proposed in either house of Parliament. Once the bill gets President's
assent, it becomes Appropriation Act. The Appropriation Act authorises the government to withdraw funds from
Consolidated Fund of India.
Finance Act
The Constitution (Article 265) says that no tax shall be levied or collected except by authority of law. Consequently, a
Finance Bill dealing with such law is introduced to authorize the government to raise funds through taxation.
This bill must become an act within 75 days of introduction.
Difference between Appropriation and Finance Bills / Acts
While Appropriation act legalizes the expenditure side of the budget, Finance act legalizes the income
side (Taxes) of budget.
While no amendments can be moved or passed in case of appropriation bill, amendments seeking to
reject or reduce a tax can be moved in the case of finance bill.
Vote on Account and Interim Budget
Vote on Account
Model Question 3.
With reference to the Vote on Account, which among the following statements is / are correct?
1. The Vote on Account can be presented by only a caretaker government
2. Vote on Account has provisions of only expenditure side of budget
3. Vote on Account can be valid only for 2 months
4. No appropriation bill is passed for Vote on Account
Answer: 3
The Appropriation Bill and Finance Bill are presented in the month of February, and they take their own time to
become act. In order to keep the Government functioning, the House is asked to vote usually two months
funds i.e. approximately 1/6th of the total estimated expenditure under various grants. This is called Vote on
Account. Vote on Account is passed after general discussion on the Budget. Usually it is treated as a formal
matter and is passed without discussion. Vote on account is as per provisions of Article 116 of the Constitution.
This makes clear that Vote on Account __:
I Can be passed on occasions when government needs some money on its disposal to keep running the
administration till appropriation act is passed.
I Related to only taking money out of Consolidated Fund of India and thus limited to expenditure side
3 Only 2 is a correct statement. Rest all are incorrect.
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th
I Normally related to expenditures of 2 months only that is equivalent to 1/6 of the total budget; but
that is NOT a rule. In 2004-05, the NDA Government sought for a Vote on Account for Four Months. In
fact, during election year or when it is anticipated that the main demands and appropriation bill will
take longer time than two months; the vote-an-account may be for a period extending two months.
Typically this period does not exceed six months, as that is the maximum gap possible between two
sittings of the Parliament.
I Not related to Taxation matters or revenue side of budget
I Can be passed by all governments whether incumbent or regular or caretaker, however, Vote On
Account becomes of special importance when the elections are underway and a caretaker government
is in place.
Interim Budget
While a vote-on-account deals only with the expenditure side of the government's budget, interim budget is a
complete set of accounts, including both expenditure and receipts. When a government presents Vote on
Account as a part of its Budget exercise; two appropriation bills viz. Appropriation (Vote on Account) Bill and
Appropriation Bill of that year are passed. For example, the current (outgoing) Lok Sabha has passed
Appropriation (Vote On Account) Bill, 2014 authorising the government for withdrawal of Rs 20,30,334 crore
from the Consolidated Fund of India for expenses during the first four months of the new financial year 2014-15.
Interim Budgets also can be presented by all governments whether incumbent or regular or caretaker, however,
Interim Budget becomes of special importance when the elections are underway and a caretaker government is
in place. It can also be presented when a new Government has recently sworn in.
Revenue Budget
We can divide the Union Budget in two parts viz. Revenue Budget (or Current Budget) and Capital Budget.
I Revenue Budget deals with revenue receipts and revenue expenditure
I Capital Budget deals with capital receipts and capital expenditures
Model Question 4.
With reference to the Budget of India, consider the following statements:
1. Revenue receipts of the government represent income without accompanied liability
2. Revenue expenditure of the government represent consumption without accompanied asset
4
Revenue Receipts
Any such income of the government which does not increase its liability is revenue. This implies that if
Government borrows from IMF, it cannot be its revenue. However, if government gets a grant from World Bank,
it will be revenue (because it does not increase liability as grants are not repaid). The most important source of
revenue receipts is obviously taxation. Taxation includes direct and indirect taxes. There are some other non-tax
revenues such as profit earned by government companies, interest earned on money which government has
lent to borrowers (internal as well as borrowers / Dollars as well as Rupees), money earned by government via
stamp printing and sales etc, money earned by government via its business activities such as providing banking
services, insurance, fees, penalties, fines. Finally, all the grants which Union Government gets from foreign
sources is also revenue receipt. For state government, the grants come from central government.
4 Both are correct statements.
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Revenue Expenditure
All that expenditure which does not create any productive asset is called revenue expenditure. One example is
salary and pension of the government employees. It does not create an asset and it is needed for running the
administration so its revenue expenditure. Other examples are as follows:
I Interest paid by government on loans
I Subsidies of all kind
I Defence expenditures except where defence instruments are procured / manufactured.
I Postal expenditures, internet charges
I Money spent on maintenance of law and order.
I Money spent on public health, education, poverty alleviation, scholarships.
I Grants given by the Government of India to states and other countries
In summary, revenue expenditure represents consumption and not generation of assets.
Revenue Deficit & Revenue Surplus
The term Revenue deficit and fiscal deficit are being used in the Government of India Budget since the fiscal year
1997-98.
B If total revenue receipts > total revenue expenditures, its revenue surplus.
B If total revenue receipts < total revenue expenditures, its revenue deficit
Which is good? Revenue deficit or Revenue Surplus?
Model Question 5.
How can Government of India can raise its revenue receipts?
1. By increasing Tax Rates
2. By getting more grants from abroad
3. By Increasing Tax-GDP Ratio
4. By increasing debt-GDP Ratio
5. By increasing its economic services
6. By making PSUs more profitable
7. By raising tax exemption limits
Choose the correct options:
Answer: 5
Neither large revenue surplus nor large revenue deficit is good for a welfare government. Since, the Revenue
deficit does not add into the production of productive assets, it is considered dangerous to have a large revenue
deficit. However to some extent, revenue surplus is good because it would give the government some
opportunity to use some of the surplus in those activities which might create some productive assets. But too
much surplus is not appreciated because it may have its other impacts on the economy. The major source of
revenue receipt is tax. We can easily understand that too much revenue surplus means too high taxation and it
would not be judicious to burden the public with large taxes. Further, large taxes would result in Tax evasion,
corruption and problem of black money. So, the aim of the governments is to have a judicious tax structure, so
that the balance is near Zero.
What is Indias Revenue Budget?
Kindly look at the below table:
2012-2013 Actual 2013-2014 Budget 2013-2014 Revised 2014-2015 Budget
Total Revenue Receipts 877613 1056331 1029252 1167131
Total Revenue Expenditure 1243509 1436169 1399540 1550054
Revenue Deficit 365896 379838 370288 382923
Revenue Deficit as % of GDP -3.6 -3.3 -3.3 -3
5 All except 4 & 7 would be correct choices in this question.
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The above table makes it clear that our revenue deficit is 3.3% of GDP and in the interim Budget, government
proposes to bring it to 3.0% of GDP level.
How can government increase revenue receipts?
B Since the grants are generally fixed, the most common way to increase revenue receipt is to raise
taxation. Raising taxation also implies increasing Tax-GDP Ratio and this would include:
o Raising tax rates i.e. direct and / or indirect
o Lowering tax exception slabs
o Impose new taxes, cess or surcharges
B Improving profitability of PSU companies.
B Increasing government business.
How can government curb the revenue deficit?
Model Question 6.
Which among the following would be advisable to curb the revenue deficit?
1. Cutting expenditures on subsidy
2. Cutting social expenditures
3. Imposing import controls
Choose the correct option from the codes given below:
Answer: 6
The government can curb the revenue deficit either by increasing revenue receipts or by decreasing revenue
expenditure. Revenue expenditure can but reduced by a cut in social expenditures and subsidies. Since both
ways have their own economic and political ramifications, government could never achieve what it was
supposed to achieve as perMember
the Name:
FRBM act. The FRBM act had mandated the government to eliminate revenue
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deficit by March 2008 (it was later shifted to March 2009). It has never been achieved. The act also mandates the
government to place the three separate documents along with Budget documents viz. Macro-Economic
Framework Statement, Medium-Term Fiscal Policy Statement and Fiscal Policy Strategy Statement. These
statements every time reiterate the government vow to achieve FRBM targets.
Effective Revenue Deficit
The definition of the revenue expenditure is that it must not create any productive asset. However, this creates a
problem in accounts. There are several grants which the Union Government gives to the state / UTs and some of
which do create some assets, which are not owned by union government but by state government. For example,
under the MGNREGA programme, some capital assets such as roads, ponds etc. are created, thus the grants for
such expenditure will not strictly fall in the revenue expenditure.
So, to do away with such anomaly, the government introduced the Effective Revenue Deficit concept from Union
Budget 2010-11. From 2012-13 onwards the Effective Revenue Deficit is being brought in as a fiscal parameter.
Definition and logic behind Effective Revenue Deficit
Effective Revenue Deficit is the difference between revenue deficit and grants for creation of capital assets.In other
words, the Effective Revenue Deficit excludes those revenue expenditures which were done in the form of grants
for creation of capital assets aka GoCA. Such grants include the grants given under:
Pradhan Mantri Gram Sadak Yojana
Accelerated Irrigation Benefit Programme
Jawaharlal Nehru National Urban Renewal Mission
MGNREGA etc. , etc.
61&2
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The logic is clear; these expenses despite being shown in the accounts as Revenue Expenditures, are involved
with asset creation and cannot be considered completely 'unproductive'.
Indias Effective Revenue Deficit?
According to the Interim Budget 2014-15 documents, the Effective revenue deficit is 2.2 % of the GDP and the
government projects it to be 1.8% of GDP in fiscal year 2014-15.
Effective Revenue Deficit
2012-2013 2013-2014 2013-2014 2014-2015
Effective Revenue Deficit 250383 205182 249005 236342
As % of GDP -2.5 -1.8 -2.2 -1.8
Data in middle row: In Crores of Rupees.
Capital Budget
Capital Budget of the Government of India which is also known as Capital account consists of the receipts and
expenditures of the Capital by the Government.
Model Question 7.
Under which among the following headings, the proceeds of government bonds come in the budget ?
[A]Capital outlay
[B]Current expenditure
[C]Capital receipts
[D]Revenue expenditure
Answer: 7
Capital Receipts
Any receipt that creates liability on the government is capital receipt. In other words, all the non-revenue receipts
are known as Capital Receipts. The capital receipts are under following major heads:
Loan Recovery Member Name: Anand Mohan Member's Email address: dubledoreslair@gmail.com 61.8.129.229
Government of India gives loan to state and union territories, public sector companies and other parties within
India and abroad, including foreign governments. When they give loan, it is a Capital Expenditure. When the
same loan is recovered back, that is Capital Receipt.
B Here, you must note that interest earned on such loans by the government will be a revenue receipt,
because its an earning without creating any liability.
Borrowings by the Government
Government is the biggest borrower in the country. It borrows from the market sources; it borrows from inside
as well as outside the country. All these borrowings are called capital receipts.
B Here we again note that interest paid on such borrowings is placed under Revenue expenditures.
Other Receipts
The other receipts include the money in the PPF, Postal deposits, other small deposit schemes, sale of the
Government bonds. All of them are a kind of loan which the Government needs to pay back with expenditures of
interest on them.
Capital Expenditures
Any expenditure of the government which increases the capital assets of the government is capital expenditure.
The major heads under capital expenditure are as follows:
B Loan given by Government of India to other parties
B Loan which government had borrowed in past but now has repaid.
B Expenditure on Planned development of Union and States. Here we note that planned development
results in creation of assets.
7 Capital Receipts
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B Expenditure on Defence Equipments and Modernization of the army. Here, we note that expenditure
on armed forces whether revenue or capital is always Non-plan expenditure.
B Any other payment against any liability of the government.
Capital Surplus and Capital Deficit
In Public Finance or Economy, The term Capital surplus or Deficit is not used. We can hear or read about Capital
crunch in newspapers, which generally refers to the expenditures needed by the Government for Capital
Expenditures.
Model Question 8.
Identify the following transactions and assign them revenue or capital receipt or expenditure in Indias budget documents.
1. Government of India borrowed money from World Bank on low interest
2. Government of India borrowed money from market by issuing bonds
3. World Bank gives grant to Government of India
4. Government of India gives grant to state under PMGSY
5. Government of India gives loan to Bhutan
6. Government of India gives grant to Bhutan
7. Government of India repaid the world bank loan
8. Government of India paid interest to world bank
9. Government of India receives annual interest on amount lent to Bhutan
10. Government of India pays back Indias Loan
11. Government of Indias expenditure on Food subsidy
12. Government of India pays for import of oil from middle east
13. Government of India imports ultra modern defense equipments.
Answer: 8
Answer of Model Question 8
1. Government of India borrowed money from World Bank on low interest Capital Receipt
2. Government of India borrowed money from market by issuing bonds Capital Receipt
3. World Bank gives grant to Government ofAnand
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Revenue Receipt61.8.129.229
4. Government of India gives grant to state under PMGSY Revenue Expenditure for Creation of Asset (GoCA)
5. Government of India gives loan to Bhutan Capital Expenditure
6. Government of India gives grant to Bhutan Revenue Expenditure
7. Government of India repaid the world bank loan Capital Expenditure
8. Government of India paid interest to world bank Revenue Expenditure
9. Government of India receives annual interest on amount lent to Bhutan Revenue receipt
10. Government of Bhutan pays back Indias Loan Capital Receipt
11. Government of Indias expenditure on Food subsidy Revenue Expenditure
12. Government of India pays for import of oil from middle east Revenue expenditure
13. Government of India imports ultra modern defense equipments. Capital Expenditure
Kindly note that Budget documents show money obtained from spectrum sale as other receipts.
Model Question 9.
Consider the following:
1. Corporation Tax
2. Grants Received from a foreign country
3. Loans from International Fund
4. Interest free loans from IDA
Which among the above are the Revenue Receipts of the Government?
Answer: 9
Various Deficits in Budget
Fiscal deficit
The Revenue Receipts + Capital Receipts make the Total Receipts of the Government. The Revenue expenditures
+ the Capital Expenditures make the Total Expenditure of the Government. When the Balance of the Total
Receipts and Total Expenditures is negative the budget is a deficit budget. The precise definition of the Fiscal
Deficit in Indias Budget is as follows:
B Fiscal Deficit = Total Expenditure (Revenue Receipts + Recoveries of Loans + Other Receipts)
8 Read the table below the question.

91&2
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The below table shows that in the Fiscal deficit of India was 4.6% of the GDP as revised estimates of 2013-14.
2012-2013 2013-2014 2013-2014 2014-2015
Fiscal Deficit 490597 542499 524539 528631
-4.9 -4.8 -4.6 -4.1
Primary Deficit
The Revenue expenditures include the interest liabilities of the Government. If the interest liabilities are NOT
included from the revenue deficit, it is called primary Deficit.
Primary Deficit = Fiscal Deficit Interest Payments
A deficit budget shows that the government proposes to spend more in the coming year than its receipts. A
surplus Budget shows that Government will get more receipts and spend less. In a country like India which is
developing country, the needs for development force the government to always present a deficit budget. This
is because; the deficit budget symbolizes the concerns of the Government towards the development activities. In
India a surplus budget was NEVER presented.
What is Deficit Financing?
Model Question 10.
Which among the following is used by the Government as a last resort in Deficit Financing?
A. Borrowing from Foreign Sources
B. Borrowing from Domestic Sources
C. External Grants
D. Printing of Currency
Answer: 10
When the government proposes a deficit
Member Name: budget,
Anand Mohan Member'sitEmail
implies that total expenditures
address: dubledoreslair@gmail.com 61.8.129.229is going to be more than its
receipts. So, it adopts the policies and process which can sustain the burden of the deficit. The process of
supporting the budget deficit of the country is called Deficit Financing. There are several methods of Deficit
Financing such as External borrowing, External Aid, Internal Borrowing, Printing of new currency etc. Each of
these instruments have their own positive and negative aspects. For example, while the External Borrowing is
cheaper in long term and comes in foreign exchange; it can turn out to be very expensive if raised in the wrong
currency or due to currency fluctuations. Similarly, external grant comes as free, but in recent years, external
grant has been very low. Printing Currency is used by the Government as last resort in deficit financing. The
printing of currency has its own side effects such as increasing inflation and pressure on the Government for
upward revision of the wages. Further, printing currency does not meet the expenditures which are needed to
be met with foreign currency only.
Constitutional Basics on Taxes
Model Question 11.
1. Taxation in India is a subject of State List, Union List as well as Concurrent list
2. Union and the States have concurrent power of taxation on certain matters
Answer: 11
The government of Indias largest share of revenue receipts is from taxation. Taxation, as we known gets legal
backing via the finance act. The constitution has divided the taxes levied by central government and state
government separately. So, before we move ahead, we look back at fundamentals once again:
th
The constitution, via article 246 (7 schedule) has given exclusive power to Union government to levy taxes on
subjects of Union List. The major taxes under this segment include the Income tax (except income on
10 Printing of Currency
11 Both are correct.
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agriculture), Corporate tax, Custom Duties, Excise duties (except alcohol and narcotics), Estate duty, wealth tax,
tax on sale and purchase of newspapers and their advertisements, taxes on Railway Freight and interstate sale
and purchase of goods.
Similarly, the State governments have been empowered to levy taxes on some subjects which are exclusive to
them. These include land revenue, Sales Tax (Except newspapers and their advertisements), Taxes on
agricultural income, Estate duty on agri land, excise duty on alcohol and narcotics, tax on sale of electricity,
stamp duties, mineral duties (except those which are under parliamentary law), entertainment tax, lottery
gambling tax, other luxury taxes of such kind, taxes from shopkeepers / traders, state toll taxes and all
advertisement taxes excluding newspaper advertisements.
Both the Parliament and the state legislature can levy taxes on subjects enumerated in the Concurrent List.
Major items include taxes on motor vehicles and stamp duties on non-judicial stamps. Here a thumb rule works
as follows:
the property of the Union is exempted from State Taxation and the property of the states is exempted from the Union
Taxation. But the parliament of India can pass legislation for taxation by Union Government of any business activities /
trade of the state which are not the ordinary functions of the state.
The above discussion makes it clear that the union and state governments have almost clearly demarcated
powers of taxation. But in a country like ours, there are vertical and horizontal imbalances. The constitution has
made it sure that those taxes which have nation-wise base are collected by Union Government and those taxes
which have local base are collected by states. However, states resources are limited, which causes vertical
imbalance within the state. The different states have different resource base so there can be imbalance across
the states. Thus, constitution of India makes some provisions to tackle such imbalances. The constitution makes
provisions that:
B Some taxes which are though Union Levies; should be collected and used by the state only. Under
article 268, such taxes include Stamp duties on negotiable instruments (Bills of exchange, cheques, and
promissory notes), taxes on insurance policies, taxes on transfer of shares and excise duties on medical
preparations containing alcohol or other narcotics. Obviously none of these taxes collected by the
Union go into the consolidated fund of India.
B Some taxes, which are though collected by the centre; the centre is mandated to pass them in whole to
the states. Such taxes include levies on interstate trade of goods as per article 269.
B Whatever the Union Government collects, it has to be shared between centre and states. While sharing,
the recommendations of the Finance Commission are followed by Union Government. On the
recommendations of the 10th Finance Commission, the 80th amendment Bill was enacted which says
that states should get 29% of the total taxes collected by the Union. This principle is followed as
mandatory sharing of taxes between the Union and States. This provision has been made in article 270
and 272.
B Service tax was not in the constitution until 88th Amendment was passed. Via this amendment, article
268-A was added and also added a new entry in Union List viz. 92-C (taxes on services). Like Income tax
and Corporate tax, Service tax is levied by the centre but collected and appropriated by both the centre
and the states.
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B Not only this, to fill the gap of regional imbalance, article 275 provides for Statutory grants-in-aid of the
revenues of States. Such grants are given to needy states. Which state is needy is recommended by
Finance Commission but finally decided by parliament.
Interim Budget 2014-15: Tax Revenue of Government of India
From the adjacent table, it is clear
2012-2013 2013-2014 2013-2014 2014-2015
that what government estimated
Gross Tax Revenue 1036235 1235870 1158906 1379199
in 2013-14 budgets was not
Corporation Tax 356326 419520 393677 451005
achieved in terms of tax collection.
Taxes on Income 201487 247639 241691 306466
The government fell short of Rs.
Wealth Tax 846 950 950 950
76964 Crore. Despite this, the
Customs 165346 187308 175056 201314
finance ministry expects a total tax Union Excise Duties 176535 197554 179538 200585
collection of Rs. 1,379,199 crore in Service Tax 132601 180141 164927 215478
2014- 15, a growth of 19 per cent Taxes of Union Territories 3094 2758 3067 3401
over last years revised figures. Less - NCCD transferred to NCCF/ NDRF 4432 4800 4650 5050
When Chidambaram was asked if Less - States share 291547 346992 318230 387732
this is too ambitious, he reportedly Centre's Net Tax Revenue 740256 884078 836026 986417
said that targets are always set
high at the beginning of the year to encourage higher tax collections J. Tax collection in 2013-14 is Rs. 1158906
Crore and GDP advance estimates of 2013-2014 Rs. 11320463 crore. According to this, the Tax-GDP ratio stands
at 10.2 per cent. The highest shortfall is for corporation tax, followed by excise duty and service tax. For your
exam, the following notes suffice:
Direct Taxes
B Largest chunk of tax revenues of government of India comes from
Corporation Tax, followed by Income Tax, followed by Union Excise
duties, customs and thereafter service tax.
B The collection of service taxes is increasing over the last years.
B Indias Tax-GDP Ratio is 10.2%, which is lower than developed countries.
B The amount collected under Direct Taxes (Corporate/ Income/ wealth) is
larger than that under Indirect taxes.
B The minimum taxable income with reference to Income Tax is Rs.
200,000. It was Rs. 40,000 in 1995-96 budget. Last year, government had
introduced a surcharge for one year at 10% on the super-rich having
taxable income exceeding Rs 1 crore for fiscal year 2013-14. Taking this
into account, the maximum marginal tax rate at present stands at 33.99
%. Finance Bill 2014 has retained this surcharge for another year. This
implies that if a person earns 1 Crore rupee as taxable income, he has to
shelve out Rs. 33.99 Lakh as Income Tax.
B In our country, basic tax rate for domestic companies is 30% and for
foreign companies is 40%. A minimum alternate tax (MAT) is levied at 18.5 percent of the adjusted
profits of companies where the tax payable is less than 18.5 percent of their book profits. After
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including surcharges, the current effective corporate taxes are 33.9% for domestic companies and
43.26% for foreign companies.
The effective rate of dividend distribution tax remains at almost 17%. Large dividend tax-paying companies
include ONGC, Coal India, TCS, ITC, NTPC etc. India is ahead of many economies in terms of corporation tax.
Indirect Taxes
The Taxes on the good and services have been an important source of revenue for the Government of India.
This includes the custom duties which are imposed on the products that are imported and the products that are
exported. Since, the export duties reduce the competitiveness of the Indian products in the international
markets, the Government has abolished the export duties. The import duty has been quite productive for the
country, particularly when it is levied on high value imports such as iron and steel etc.
The custom duties were very important in the decades of 50s and 60s and later their place was taken by the
excise duties. The Central excise duties are levied by the Government on the products that that manufactured
within the country.
However, the commodities on which the State Government levies the duties are exempted from the central
excise duties.
The Service tax was imposed in India initially from 1994-95 on electricity services, telephone services, brokerage
etc. with every passing year, more and more services were brought into the ambit of the service tax. The first
year collection of the Service Tax in 1994-95 was Rs. 407 Crore, which rose to Rs. 2610
Crore in 2001-02.
Initially the indirect tax regime was too complicated and there was an ubiquitous
problem
Member Name: taxMohan
ofAnand on Member's
tax. Post liberalization,
Email address: there is61.8.129.229
dubledoreslair@gmail.com a lot of change in the Indirect tax
administration of the country and there was a dramatic change when the country
shifted to VAT regime in 2000s.
From 1990-91 to till date the custom duties have also fallen drastically as shown in the
figure in left, which shows the average custom collection on the products.
Interim Budget 2014-15: Non-Tax Revenue of Government of India
According to the Budget
Non-Tax Revenue 2012-2013 2013-2014 2013-2014 2014-2015
documents, Non-Tax revenue
Interest receipts 20763 17764 21018 19729
of the government which
Dividend and Profits 53761 73866 88188 77229
includes interest receipts,
External Grants 2311 1456 3135 2405
external grants, receipts of UTs
Other Non Tax Revenue 59405 78000 79788 80240
and other receipts, stands at
Receipts of Union Territories 1117 1166 1097 1111
1029252 Crore rupees in Total Non Tax Revenue 137357 172252 193226 180714
revised estimates of 2013-14. In Total Revenue Receipts (1a+2) 877613 1056331 1029252 1167131
the adjacent table, you can see
that the largest chunk among the Non-Tax revenues is of Other Non-tax
Revenues. Here, we make a note that one of the major non-tax revenue
sources is telecom spectrum auctions. The adjacent graphics (sourced
from BS) shows the trends of this other part vis--vis total non-tax
revenue part. The budget documents mention the spectrum auction
under the head 'Other Communication Services'. This head is mainly
related to one-time spectrum

charges levied as per the
recommendations of TRAI, Auction
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of 1800 MHz and 900 MHz spectrum and receipts from 800 MHz spectrum. The amount of spectrum sales is
shown in the adjacent table (sourced from Budget docs). All you need to note here that despite it looks that
spectrum amount should be a capital receipt, it is shown as a non-tax revenue receipt in budget documents as
one time spectrum charges levied on telecom players. Other major non-tax revenue receipts include the
dividends paid out by the profit making companies. This year, government to exceeded the target by 12.17 per
cent at Rs 1,93,226 crore as per RE for 2013-14, mainly on the back of higher dividend payouts by public
enterprises and increased revenues from economic services. At the same time, we note that for the coming
fiscal, the government is targeting lesser amount.
Interim Budget 2014-15: Capital Receipts of Government of India
The table in the right shows the Capital Receipts 2012-2013 2013-2014 2013-2014 2014-2015
Capital Receipts of the A. Non-debt Receipts
Government. Capital receipts are Recoveries of loans and advances 16267 10654 10802 10527
those funds which are not part of Miscellaneous Capital Receipts 25890 55814 25841 56925
the operating activities of the Total 42157 66468 36643 67452
Government. Capital Receipts B. Debt Receipts
includes market loans, external Market Loans 467356 484000 468902 457321
loans, small savings, Government Short term borrowings 53350 19844 22678 34554
Provident Funds, Accretions to External Assistance (Net) 7201 10560 5440 5734
various Deposit Accounts, Securities issued against Small Savings 8626 5798 11605 8229
Depreciation and Reserve Funds of State Provident Fund (Net) 10920 10000 10000 12000
various departments like Railways. Other Receipts (Net) -6223 12297 -9086 10793
Total 541230 542499 509539 528631
The nature of the capital receipts is
so that most of them
(not all of them) Total Capital Receipts (A+B) 583387 608967 546183 596083
are debts and shown as liabilities

of the Governments balance sheet. The Capital receipts are of two types viz. Debt receipt and non-debt receipts.
The debt receipts are those which government needs to repay along with interest. Non-debt receipts are those
which come to the government by sale of some assets. Here are the notable observations for your
examinations:
Market Borrowings
From the above table, it is clear that market borrowings are the largest source of capital receipts of the
Government. Government of India is the largest borrower. Government raises its market loans by selling Dated
Government Securities by Auction since 1992-93. These auctions are conducted by the Reserve Bank of India, as
debt manager to the Central Government. These bonds are of either fixed interest rate (called Fixed Coupon
Securities) or of floating interest rate (called Floating Rate Bonds (FRB)).
Apart from these, Government also issues short term money market instruments viz. 364/182/91 days treasury
bills. These Treasury bills offer short-term investment opportunity to financial institutions, banks, etc. Finally,
government also issues Cash Management Bills, which are issued to meet the temporary cash flow mismatches
of the Government. The Cash Management Bills are issues only when Government needs a short term cash.
Thus, the maturities of the Cash Management Bills are always less than 91 days.
The above borrowings are from the market. Then, the government also borrows from common people like all of
us. This is discussed as follows:
Securities against Small Savings
At present, the active small saving schemes are as follows:
B Post Office Saving Account
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B Post office fixed deposits of 1, 2, 3 & 5 years

B Post Office RDs (Recurring Deposits)
B Post Office Monthly Income Account
B Senior Citizens Saving Scheme
B National Saving Certificates
B Public Provident Fund (PPF)
The money of all of these goes to National Small Savings Fund. This fund is a part of Public Account of India and
is active since 1.4.1999.All withdrawals are also taken out of this fund. What remains as balance in the fund is
invested in the Central and State Government Securities. How should be these invested and in which securities,
this is decided by the Government from time to time. At present, the term of Central and State Government
Securities is 10 years, 9.5 per cent interest rate.
Then finally, government issues savings bonds for people to invest in them. There are two kinds of Bonds viz.
Tax Saving and not Tax Saving. Obviously the interest rate in taxable bonds is higher.
Miscellaneous Capital Receipts
Another notable account in the above table is Miscellaneous Capital Receipts This indicates the money receipt
by disinvestment of the public sector companies. In RE 2013-14, Government estimated Rs. 40,000 crore as
amount of disinvestment on lieu of sale of Government Equity in Hindustan Copper, ITDC, MMTC, National
Fertilizer, Neyveli Lignite, State Trading Corporation Ltd, Power Grid Corporation of India Ltd, NHPC Ltd, Indian
Oil Corporation, Engineers India Ltd, BHEL, Hindustan Aeronautics Ltd. The money from this disinvestment goes
to National Investment Fund' (NIF). This fund is also maintained outside of the Consolidated Fund of India. The
Money from NIF will be withdrawn and used for Recapitalisation of Public Sector Banks and investment in Indian
Railways towards capital expenditure in 2014-15. Here, we also note that Government is planning to launch a
CPSE Exchange Traded Fund (CPSE ETF) to monetize the shareholding in those CPSEs.
Model Question 12.
Money received by the government on which among the following is deposited in the Consolidated Fund of India?
1. Money received as external grant
2. Money invested by public in National Saving Certificates
3. Money received on disinvestment of public sector companies
Choose the correct option from the codes given below:
Answer: 12
Interim Budget 2014-15: Non Plan Expenditure
All the expenditures that are incurred on the public exchequer of the country are kept in two categories viz. Plan
and Non Plan. The expenditures which are done by the Government of India in the name of Planning are Plan
expenditures. All other expenses are Non-plan expenditures. Generally (not always), the plan expenditure
produces some tangible assets related to economic development. This is not a rule, but this is one reason that
plan expenditures are also called Developmental expenditures. In fact till 1997-98, the budget used to show
development and non-development expenditures. Now they are called planned and non-planned expenditures
as per recommendations of Sukhmay Chakraborty Committee. The important heads among the expenditure parts
are enumerated below:
Non-Plan Revenue Expenditure:
This inter alia includes
Interest payments on the loans taken by Government of India
Expenditure incurred on Defence Services (except Defence Equipment which is a capital expenditure)
12 Only 1 .
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Subsidies
Grants to the states and UTs, including those from calamity fund
Pensions, Social services such as healthcare, education, social security etc.
Police
Economic services by the government such as Agriculture, Industry, Power, Science & Technology
Grants to foreign Governments
Non-Plan Capital Expenditure
This inter alia includes
Defence Equipments and modernization
Loans to Public sector companies
Loans to states and union territories
Here are important observations for your examination:
Indias Public Debt
One of the most important headings under the non plan revenue expenditures is Interest payments on the
loans taken by Government of India. The Budget 2014-15 makes a provision of payment of Rs. 4.27 Lakh Crore
as interest payment on public debt. This amount includes the internal debt / external debt and other liabilities.
Internal Debt
Model Question 13.
Consider the following
1. Market Borrowings
2. Treasury Bills Member Name: Anand Mohan Member's Email address: dubledoreslair@gmail.com 61.8.129.229
3. Special securities issued to RBI
Which among the above is / are components of Internal Debt?
Answer: 13
Internal debt means the debt borrowed from within the country. This comprises of market loans through dated
securities; treasury bills and special securities issued to National Small Savings Fund. Here, we can note that when
government borrows from the domestic sources, the increase in inflation is less in comparison to simply printing
the money and increased the more liquid forms of wealth (i.e., the money supply).
External Debt
External debt is owed to creditors outside the country. The outsider creditors can be
Foreign Governments
Financial Institutions
Foreign Corporate
Foreign Private Households
The external debt includes money owed to private commercial banks, other governments, or international
financial institutions such as the International Monetary Fund (IMF) and World Bank. There are several types of
external debts such as Multilateral, Bilateral, IMF loans, Trade Credit, Commercial Borrowings, NRI Deposits and
Rupee Debt or Rupee denominated debt which refers to that part of Indias external debt that is denominated in
Rupee.
Other Liabilities
Other interest bearing liabilities include Insurance and Pension funds, deposits of non-Government provident
funds, Reserve funds, Special securities issued to Oil marketing companies, Fertilizer companies, FCI and others.
13 1, 2 & 3
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Important Observations:
In Budget documents 2013-14, Government of India's total liability stood at Rs 56,51,784 crore. Out of
this, majority (more than 90%) is internal debt while remaining is external. This implies that Indian
government borrowing is mostly domestic and it owes a very small portion of its debt in foreign
currency. Thus, despite having a huge debt-GDP ratio, the Indian Economy is less affected by currency
depreciation and changes in global financial conditions. This is one reason, why Indian Economy
remained resilient during crises.
2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14
Total Liabilities 2538596 2837425 3159178 3529960 3938774 4503252 5039431 5651784
(Reported in Budget )
%age of GDP 59.1 56.9 56.1 54.5 50.5 50.2 50.3 49.7
External Debt at Current 201199 210086 264059 249306 278877 322897 332004 342564
Rates
%age of GDP 4.7 4.2 4.7 3.8 3.6 3.6 3.3 3
Data Rs. Crore
In the external debt of the government is either long term or short term. Around 3 quarters of the total
external debt is long term while remaining one quarter is short term. The long term debt is made of
Multilateral, Bilateral, IMF, Export
credit, Commercial borrowings, NRI
deposits and Rupee debt. Out of
them, largest share is of commercial
borrowings. This is shown in the
adjacent pie chart.
Implications of External Debt on Economy
Every country is needed to meet its current
and future external debt service obligations. If
these obligations are met in full, without
recourse to debt rescheduling or the accumulation of arrears and without compromising growth, then it would
be called external debt sustainability. If not , there would be a debt burden. There are several indicators of the
debt sustainability. These are as follows:
Debt to GDP ratio
Foreign debt to exports ratio
Government debt to current fiscal revenue ratio etc.
A failure or refusal of the government of a sovereign state to pay back its debt in full is called Sovereign Default.
Sovereign Default may be accompanied by a formal declaration of a government not to pay (repudiation) or only
partially pay its debts (due receivables), or the de facto cessation of due payments.
Interim Budget 2014-15: Plan Expenditure
The expenditures which are done by the Government of India in the name of Planning are Plan expenditures.
They were formally called Development expenditures. They are of divided into plan revenue and plan capital
expenditures.
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Plan revenue expenditure

This inter alia includes the expenditure incurred on central sector schemes and centrally sponsored schemes of
consumption nature.
Plan Capital expenditure:
This inter alia includes the expenditure incurred on central sector schemes and centrally sponsored schemes of
asset creating nature.
The above four types of expenditures are shown in below table:
Expenditure of the Governenmt in Budget 2014-15
Revenue Capital Total
1 TOTAL EXPENDITURE (2+3) 1550053.77 213160.19 1763213.96
2 Non Plan Expenditure 1107780.55 100111.41 1207891.96
3 Plan Expenditure 442273.22 113048.78 555322.00
4 Central Assistance for State & UT Plans 325631.92 12930.43 338562.35
5 BUDGET SUPPORT FOR CENTRAL PLAN (3-4) 116641.30 100118.35 216759.65

6 Resources of Public Enterprises ... 248173.94 248173.94
7 CENTRAL PLAN (5+6) 116641.30 348292.29 464933.59
I have not shown the budget and revised estimates of the previous year in the above table. From the above
table, we have to note that:
The amount government spends on the Non-plan expenditure is substantially higher than that spent
on plan expenditures.
The Plan expenditure includes various schemes and programmes in social sector come under the
Central Plan. In recent years, the government has been consistently cutting the plan expenditures. This
year, the plan expenditure has been slashed by Rs. 79,790 crore and the total plan expenditure stands
Rs. 5,55,532 crore for the current financial year (2013-14). The objective is to curb the fiscal deficit. This
is the consecutive year that Plan spend has been slashed to meet the fiscal deficit target. In 2012-13,
Plan spend had been reduced by Rs. 1,07,000 Crore.
This year, the central plan outlay stands at Rs. 464934 Crore (Highlighted in above table). This money is to be
spent on various sectors as given below:
2012-2013 2013-2014 2013-2014 2014-2015
Actuals Budget Estimates Revised Estimates Budget Estimates
Agriculture and Allied Activities 17030 18781 17557 9987
Rural Development and Rural Housing 44448 56438 50646 2902
Irrigation and Flood Control 439 1200 464 1444
Energy 132146 158287 178776 163434
Industry and Minerals 33202 48010 36167 38604
Transport including Rural Roads 90518 133488 109029 111031
Communications 6289 12380 9333 13020
Science Technology & Environment 12048 17587 13575 17420
General Economic Services 20218 31602 26878 24184
Social Services except rural housing 136436 193043 164393 75109
General Services 5702 9307 7316 7799
GRAND TOTAL 498476 680123 614134 464934
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All data in Rs. Crore

The above data, shows that the largest amount of budget estimates of 2014-15 has to be spent on Energy
followed by Transport, which is followed by social sectors. In the last years budget estimates, largest money was
budgeted to be spent on social sectors. This is
evident with the adjacent graphics. Till last year,
social sector got highest attention, but this year, it
gains scant attention. This cut is reflected in the
budgets of various social sector schemes. The
primary objective of all this it reduction of the
fiscal deficit to meet the requirements of the
FRBM Act. Further, the government has also
restructured the Centrally Sponsored Schemes (CSSs) from BE 2014-15. Accordingly, 126 CSSs have been
restructured in 66 schemes which include 17 flagship programmes. The major schemes and their outlays are as
follows:
MGNREGA: 34000 Crore
Ajeevika : 4000 Crore
Rural Housing / Indira Awas Yojana: 16000 Crore
PMGSY: 13000 Crore
National Social Assistance Programme: 10635 Crore
Drinking water and sanitation: 15260 Crore
Sarva Shiksha Abhiyan: 27635 Crore
Mid Day Meals: 13152 Crore
ICDS: 18691 Crore
JNNURM: 7062 Crore
Interim Budget 2014-15: Other Important Observations
Notes from Highlights Document
In 2013-14, India's fiscal deficit contained at 4.6% of GDP.
While preparing the budget, the government kept fiscal stability as top of agenda.
Food grain production estimated for the current year is 263 million tonnes compared to 255.36 million
tonnes in 2012-13. This was record production.
Farm exports to cross 45 billion dollars
Farm credits to exceed Rs. 7 Lakh Crore.
Farm growth 4.6%
Savings rate at 30.1 percent and investment rate of 34.8 percent in 2012-13.
Exports recovered sharply
Sluggish manufacturing sector due to deceleration in investment
Eight National Investment and Manufacturing Zones (NIMZ) along Delhi Mumbai Industrial Corridor
(DMIC) have been announced.
Three more Industrial Corridors connecting Chennai and Bengaluru, Bengaluru and Mumbai &
Amritsar and Kolkata are under different stages of preparatory works
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29, 350 MW of power capacity added in last year

3, 928 Kms of National Highways created
39, 144 Kms of Rural Roads created
3,343 Kms of New Railway track laid down
Ports capacity added by 217.5 milliion tonnes of capacity per annum
Seven new Air ports are under construction.
Infrastructure debt funds have been promoted
Rupee remained least affected by US Taper in comparision to emerging economies' currencies.
GDP growth estimated to be 4.9 percent in 2013-14.
The expenditure on Health & Family Welfare has rose five times to Rs. 36,322 crore from Rs. 7,248 ten
years ago
Major decisions of government include De-controlling sugar, gradual correction of diesel prices,
rationalization of railway fares
National Food Security Act was passed assuring food to 67 percent of the population/ households.
The new companies Act replaced a law of 1956 vintage.
The PFRDA Act was passed to establish a statutory regulator for the New Pension Scheme.
Centrally Sponsered Schemes were restructured into 66 Programs for greater Synergy.
Record Capital expenditure of Rs. 257,641 crores in 2013-14 by public sector enterprises.
About 50,000 MW of Thermal and Hydel Power capacity is under construction after receiving all
clearances and approvals. 78,000 MW of power capacity have been assured coal supply.
Liberalised FDI policy in tele-communication, pharmaceuticals, civil aviation, power trading exchange,
and multi brand retail to attract large investment.
Approval to establish 2 semi conductor wafer fab units.
Approval of IT modernization project of Department of Post.
Kudankulam Nuclear Power Plant Unit-I achieved criticality and is generating 180 Milliion Units of
power.
Fast breeder Reactor at Kalpakkam and 7 Nuclear Power Reactors under construction.
National Solar Mission to add 4 Ultra Mega Solar Power Projects each with the capacity of over 500 MW
in 2014-15.
Ministry of MSME will create the India Inclusive Innovation Fund to promote grass root innovations
with social returns to support enterprises in the MSME sector with an initial contribution of `100 crore
to the corpus of the fund.
A Venture Capital Fund to provide concessional finance to Scheduled Caste will be set up by IFCI with
an initial capital of Rs. 200 crore which can be supplemented every year.
Restructured ICDS, under implementation in 400 districts, will be rolled out in remaining districts from
1.4.2014.
Approval of A National Agro-Forestry Policy 2014
Mechanism for marketing minor Forest produce introduced
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New plan scheme for promotion of community radio.

New technologies such as JE vaccine, a diagnostic test for Thalassaemia and Magnivisualizer for
detection of Cervical cancer have been delivered to people
India successfully launched Mars Orbiter Mission.
India acquired capability in launch vehicle technology, cryogenics and navigation , meteorological and
communication satellites.
Nirbhaya Fund as a non lapsable grant of 1000 crore created. Rs. 1000 Crore granted again.
National Skill Certification and monitary reward schemes launched in August 2013
Under Aadhar, 57 crore Unique Numbers have been issued so far; Via Direct Benefic Transfer (DBT)
Scheme, a total of Rs. 628 crore has been transferred directly to the beneficiaries till 31st January 2014
Under Non-plan revenue expenditure, Government's food, fertilizer & fuel subsidy bill pegged at Rs.
246,472 crore
10% hike in defense allocation, One rank one pension for the Defence Forces accepted
A modernization Plan at a cost of Rs. 11,009 crore has been approved to strengthen the capacity of
Central Armed Police Forces and to provide them the state-of-art, equipment and technology
Government to infuse Rs. 11,300 crore Capital in Public Sector Banks.
Model Question 14.
The composition of taxation and government spending can affect which among the following?
1. Aggregate demand Member Name: Anand Mohan Member's Email address: dubledoreslair@gmail.com 61.8.129.229
2. Resource allocation
3. Distribution of Income
Choose the correct option:
Answer: 14
Model Question 15.

Which among the following statements in context with the Planned Expenditures is / are correct?
1. They are generally the routine administrative expenditures of the Government
2. They are generally routed through the central ministries to state governments
3. They are generally incurred in the name of Planning
Choose the correct option:
Answer: 15
Model Question 16.

Consider the following observations regarding taxation in India:
1. The share of Direct Taxes in total tax collection is more than that of indirect taxes
2. The share of corporation tax in total direct taxes is more than that of income tax
Which among the above observations is / are correct?
Answer: 16
Model Question 17.

With reference to the public debt in India, consider the following statements:
1. The Internal Debt is substantially higher than the external debt
2. Maximum share of the external debt on India is of money borrowed from IMF and World Bank
Which among the above statement is / are correct?
Answer: 17
14 1, 2 & 3
15 Only 2 & 3
16 Both 1 & 2
17 Only 1 is correct.
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Micro-Notes
INS Vikrant
The vintage INS Vikrant was recently sold in a Gujarat ship breaking yard. INS Vikrant (R11) was commissioned as
the first aircraft carrier of the Indian Navy in 1961 and it played a crucial role in the 1971 India-Pakistan war. India
had purchased this aircraft carrier from UK in 1957 and it was decommissioned in January 1997 after an eminent
service.
Maruti 800 Production stopped
Maruti Suzuki India Ltd (MSIL) stopped the production of the famous Maruti 800 car. The car was launched in
India in early 1980s and at the time of its launch it cost around Rs. 50,000 and on the closure of production it
was priced at Rs. 2.35 lakh. The demand for Maruti 800 had decreased over the period of time as now people
are more inclined towards new models.
RBI to issue plastic notes of Rs. 10 denomination
One billion plastic notes of the denomination of Rs10 will be introduced in a field trail in five cities selected for
their geographical and climatic diversity. These cities are Kochi, Mysore, Jaipur, Shimla and Bhubaneswar.
Plastic notes were first introduced in Australia to protect against the duplicate currency. They are now also in use
in other countries including Singapore, Canada, New Zealand, Malaysia, Vietnam, Romania etc. Plastic notes have
an average life span of about five years (more than paper) and are difficult to duplicate. On an average, one out
of five paper notes in circulation which is over 20 % gets disposed of every year after getting soiled. Also,
currency notes made of plastic are cleaner than paper notes. According to TERI, polymer notes would be more
environment friendly than paper currency. Here we note that in India, National Investigation Agency (NIA) is the
nodal agency to deal with the problem of the counterfeit notes. Government has also formed a Terror Funding
and Fake Currency Cell in NIA to focus on investigations.
ERWIN Robot
ERWIN (Emotional Robot with Intelligent Network) is the worlds amiable robot which has been built by an Indian
student in UK. The robot is capable of expressing five basic emotions while interacting with a human.
India's Economic Growth pegged at 4.9%
According to the latest CSO data, the countrys economy is estimated to grow 4.9% in 2013-14 which is on the
lower side as it was expected but is slightly above 4.5% that was seen last year. The farm sector is estimated to
grow 4.6% in 2013-14 which is higher from the previous years 1.4% growth. The growth in the manufacturing
and mining sectors has been slowed down and this is the first time since 1991-92 that the manufacturing sector
has constricted. The services sector got a boost from the banking sector which is estimated to expand 11.2%
versus 10.9% last year.
Sikkim, the first state to attain over 100% sanitation
Sikkim has become the first state to attain more than 100% sanitation in rural and urban households, schools,
sanitary complexes and Anganwadi centres. All the 6,10,577 inhabitants in Sikkim have latrines with high
sanitation and hygiene standards.
IAF charged up for testing BrahMos Missile
After the Army and Navy, IAF is now gearing up to induct the BrahMos missile. The 290-km supersonic BrahMos
cruise missile will be tested by India from its most compelling fighter jet, the heavy duty Sukhoi-30MKI by the
end of this year in december. After simulation tests the missile has been cleared for flight. Work is now
underway at the HAL facility in Nasik to strengthen the Sukhoi fuselage to ensure the fighter can carry the heavy
missile. For the air-launched BrahMos 42 Sukhois have been earmarked for structural and software
modifications to carry the missiles. We note here that BrahMos, jointly produced by India and Russia, flies at
Mach 2.8 which is almost three times the speed of sound.
DRDO: Plans in Recent future
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Defence Research and Development Organization (DRDO) is planning an array of missiles and other innovative
projects this year to cut down its widespread reputation as a straggler in providing good weapons to the armed
forces. Some of them are as follows:
Spy and combat drones, cyber-security and directed-energy weapons to tests of the two-tier missile
shield.
The 5,000-km nuclear-capable Agni-V ballistic missile and Nirbhay cruise missile.
Sea trials of nuclear submarine INS Arihant,
The final operational clearances for Tejas fighter and Arjun Mark-II tank.
DRDO chief Avinash Chander gave an assurance that the Agni-V and INS Arihant, the countrys first
intercontinental ballistic missile and first SSBN nuclear-powered submarine armed with nuclear-tipped missiles
would be ready for induction by next year. Agni-V will allow the armed forces the vital operational flexibility to
swiftly transport and fire the missile from a top a launcher truck.
The K-15 missiles (nuclear-tipped with a 750-km strike range) are fully ready and will be tested from the
submarine this year
The the 6,000-tonne INS Arihant, whose 83 MW pressurized light-water reactor went critical last year.
The submarine is undergoing the power-raising (in the miniature nuclear reactor) phase which is
assured to be completed in a month or two.
The 4,000-km Agni-IV is now ready for induction after completing its three developmental trials, the
Agni-V will be tested in a canister-launch version later this year. DRDO is also working on a longer range
submarine launched ballistic missile called K-4 with a 3,500-km range which is expected to be tested for
the first time from a submerged pontoon next year.
Global temperature records now available on Google Earth
The Climatic Research Unit Temperature Version 4 (CRUTEM4) land-surface air temperature dataset is one of
the most widely used records of the climate system. The CRUTEM4 data can now be explored using Google
Earth. The Climate researchers at the University of East Anglia, UK have made the worlds temperature records,
dating back to 1850, available through Google Earth. So if someone wishes to know if it was a rainy or sunny day
when one was born then Google Earth can help.
Indias first monorail now open in Mumbai
Indias first and the most awaited Monorail was opened in Mumbai. The 8.8 km long line between Wadala and
Chembur was inaugurated by chief minister Prithviraj Chavan.
We note here that Mumbai's first mode of mass transport, the suburban railway network that is used by 75 lakh
people every day, was introduced in 1853. Bombay Electric Supply and Transport (BEST) introduced trams and
buses as alternative modes of mass transport in 1874 and 1926 respectively.
GAIL and Chubu to jointly buy liquid gas
GAIL, the largest state owned natural gas processing and Distribution Company headquartered in New Delhi and
Japans Chubu Electric Power Company are making joint efforts to buy liquid gas with a view of their combined
purchasing capacity to bring down the prices at which the liquid gas is charged. The agreement examines the
ways to alleviate the growing import costs in Asia as well as to keep smooth supplies to the region. The
agreement between the two countries would be for assistance in natural gas sector which includes liquid gas
sourcing, shipping and supply.
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7th Pay Commission set up by the government

A four member seventh central pay commission headed by former Supreme Court judge Justice Ashok Kumar
Mathur was set up by the government. Apart from increasing pay scales and DA hike, it will also review the
retirement age which currently is 60 years. There is demand to increase the retirement age to 62.
Visa on arrival facility to 180 countries extended by India
The government has taken two initiatives to attract the foreign tourist to India and the liberalization of the visa
system. First is to expand Visa on Arrival scheme and second is to Electronic travel authorization for all countries
including earlier eight prior reference countries like Pakistan, Iran, Sri Lanka and China.
Worlds first computer Colossus completes seven decades
British telephone engineer Tommy Flowers designed the worlds first electronic computer Colossus to decrypt
Adolf Hitlers secret messages during World War II turned 70. Colossus was built to speed up code breaking of
the complex Lorenz cipher used in communications between Hitler and his generals during World War II. It had
immensely shortened the war and saved many lives.
17% of bills cleared in less than 5 minutes by Lok Sabha
In recent times, PRS has come up with excellent analysis of the legislative activity in India. As per a recent report,
in the 15th Lok Sabha, 17% of bills (around 20 in number) were approved within five minutes of discussion. As
per the research, so far out of the 118 bills passed by Lok Sabha only 23% (around 27 in number) bills have been
passed in more than 3 hours of discussion. The research notes that earlier, while interpreting laws and
constitutional amendments the judiciary referred to parliamentary debates which were a mode to make out
what was Indias legislators intention when they were writing the laws. But in the current scenario the bills are
passed without debates, the judiciary is left with little to go on. As a result, the judiciarys actions may
increasingly be influenced Member
by the media
Name: discussion
Anand Mohan rather
Member's Email than the discussion
address: dubledoreslair@gmail.com of the elected representatives
61.8.129.229
thus the lack of parliamentary discussion on vital laws has undesirable results.
Government looking for compulsory license on Dasatinib
The government was looking for possibilities on issuing a compulsory licence on lifesaving anti-cancer drug
Dasatinib. If this happens, it may result in price coming down by over 90%. We note here that in 2012, Natcos
had sought approval to manufacture generic version of expensive cancer drug Nexavar, bringing down its price
by 97%.
India's largest FDI proposal by Vodafone cleared
UK based Vodafone got a Cabinet approval to buy minority shareholders for Rs 10,141 crore. This is the single
largest foreign investment in the countrys telecom sector as a result of which the Vodafone India will be the first
telecom operator to be fully owned by a foreign firm.
Kitchen Gardens under RKVY
Among others, one notable observation about the Rashtriya Krishi Vikas Yojana is that it also promotes Kitchen
gardens. The RKVY scheme, launched in 2007 to attain 4% growth in farm sector provides support to an array of
farming activities from nursery to marketing level. The horticulture department has initiated promotion of
encouraging people to set up terrace gardens where they can grow their herbs and vegetables.
Parameters for mercy petitions listed by the government
Home ministry has declared the major points for taking into account mercy petitions. The list included the long
delay in investigation/trial as well as age and mental paucity of the applicant as grounds on which mercy may be
justified. The government has considered a uniform and transparent procedure for dealing with mercy petitions.
With the number of different type of cases and circumstances certain major guidelines generally taken into
account in the ministry of home affairs and the mercy petition may be considered on the following grounds:
Personality of the accused (age, sex or mental deficiency) or circumstances of the case (such as
provocation).
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Difference of opinion in a bench of two judges, necessitating reference to the third judge of the high
court.
Cases in which appellate court has expressed its doubt as to reliability of the evidence but nevertheless
decided on conviction.
Cases where it is alleged that fresh evidence is obtainable, mainly with a view to seeing whether fresh
enquiry is justified
Consideration of evidence in fixation of responsibility in gang murder cases.
Long delay in investigation and trial, etc.
Where the high court has reversed on appeal an acquittal by a session judge or has on appeal
enhanced the sentence.
World Radio Day Observed on February 13
On February 13, 1946, the United Nations Radio was established and that is how this day is observed as World
Radio Day. We note here that it was in 1897 when Guglielmo Marconi obtained the first patent on radio sets.
Same year Charles Herrold also constructed the first operational radio station.
Radio became the support for ships and that too more during distress and the technology was developed in
World War I to communicate with troops on the battlefront. After the war even the civilians started using it
more. In our country, Bombay started its own Radio Club in 1923. The Presidency Club of Madras set up its own
radio facility in 1924. By 1926, the Indian Broadcasting Company (IBC) was formed when some enterprising
businessmen got together in Bombay. The IBC installed the first proper radio station in Bombay on July 23, 1927
and followed it up with another in Calcutta in august. The number of licensed radio owners was just 3,000. In
December 1932, the BBCs Empire Service was extended to India. By January 1936 Delhi got its radio station. The
Indian State Broadcasting Service (ISBS) was renamed All India Radio. Rabindranath Tagore renamed it as
Akashvani, After Independence AIR had only a handful of radio stations for the metros and princely states. There
were just two and a half lakh receiver sets. By 1961, the number of stations trebled and by 1981, nearly a
hundred centres catered to an estimated 90 million receivers.
Jade Rabbit lunar rover
Chinas distressed Jade Rabbit lunar rover died on the surface of the moon, thus giving a setback to China's
major ambitious space programme. Since January, the rover experienced a mechanical control abnormality and
has been unable to function since then. The rover could not be restored to full function.
Direct to Home (DTH) Scheme
After the Direct Benefits Transfer (DBT), new term among the various government schemes is the so called
Direct-to-Home (DTH) scheme. Via this scheme, the government aims to contain leakages and handover
pensions, work wages and other entitlements directly to beneficiaries across the country. As a pilot, the scheme
was started in Andhra Pradesh. The government says that this scheme will be implemented with the help of
micro-ATMs, modern technology and mobile connectivity. Under the DTH programme, women, disabled,
widows, elderly and students will not have to go to banks or post offices to get their entitlement but will be given
to them directly.
80:20 Scheme in Gold Imports
80:20 scheme for imports of gold states that 20 per cent of all the gold imported into the country would have to
be exported. The government under the 80:20 scheme had in August 14, 2013, allowed nominated agencies to
import gold on the condition that 20 per cent of the inward shipment will be exported.
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Mount Kelud Volcano

Recently, a massive 5,680 foot high volcano erupted in Inddonesia which sent a trail of ash up to 360 miles
across Indonesia's Java Island. Akin to other Indonesian volcanoes on Pacific Ring of Fire, Kelud is known for
large explosive eruptions throughout its history.
National Mission on High Performance Computing
While delivering his speech at 101st Indian Science Congress, PM has declared a National Mission on High
Performance Computing with an expenditure of Rs. 4,500 crore. Details of the mission are awaited.
Maritime Silk Road
China has recently proposed a "Maritime Silk Road" connecting the Pacific and Indian oceans. This seems to be a
part of its propaganda drive to convince the world about its peaceful rise.
We note here that Silk Road symbolises China's connectivity with the outside world. Connectivity is the focus of
China's current economic and trade strategy. China's economic vigour, its tremendous export capacities and
desire for natural resources has brought this proposal into limelight. So, while proposing this new route, China
uses the silk route memory to serve its interests, ambitions and image in several ways.
China says that the proposed Maritime Silk Road will build east-west relationships, with oil and gas pipelines
linking it to Kazakhstan and Turkmenistan. We note here that China is building north-south connections to
South East Asia, Myanmar and Pakistan. Through the latter two, it is building connectivity to the Bay of Bengal
and the Arabian Sea, partially resolving its Malacca dilemma. China is also trying to rope India into its
connectivity strategies through proposals such as the Bangadesh-China-India-Myanmar (BCIM) corridor linking
Yunnan with north-east. On the other India, India has also been promoting east-west connections through
Myanmar, Thailand and on to Vietnam, to balance China's north-south connections to South-East Asia.
Venture Capital Fund for Dalit Member
Entrepreneurs
Name: Anand Mohan Member's Email address: dubledoreslair@gmail.com 61.8.129.229
A venture capital fund dedicated to promote Dalit entrepreneurs has been registered by market regulator
Securities and Exchange Board of India (SEBI) thus making the way to support businesses owned by people from
the Scheduled Castes and Scheduled tribe. The Rs 200 crore fund will allow such entrepreneurs greater access to
credit to start ventures and demonstrate proof points to scale their businesses.
We note here that dalits own about 1,20,000 companies across the country including 7.7% of the registered 1.55
million micro, small and medium enterprises. Tamil Nadu had the most Dalit-owned firms, followed by Karnataka
and UP. In the beginning the proposal was to seek reservation in private-sector jobs, but the plan did not take
off because India Inc promised to voluntarily hire employees from the weaker classes.
Dua Layer
Dr. Harminder Singh Dua, an Indian doctor in Britain discovered an ultra-thin layer hidden deep in the human
cornea that can help treat Glaucoma which is the worlds second leading cause of blindness.
The Second Dhaka Art Summit
Dhaka recently hosted second Dhaka Art Summit from February 7 to 9, 2014. The event was funded by an
enterprising couple Rajiv and Nadia Samdani whose enduring interest in promoting South Asian Art led them to
create the Samdani Art Foundation, an entirely non-commercial event.
Supreme Court attains full strength of 31 judges
With appointment of two more judges in highest court of India, the Supreme Court has now full strength of 31
judges. Article 124 in the original Constitution had said that there shall be a supreme court consisting of a Chief
Justice and not more than 7 Judges until the parliament by law prescribes a larger number of the Judges. Thus,
Parliament by law can alter the number of Judges. By a parliament enactment the number was increased to 11
in 1960. It was raised to 14 in 1968, 18 in 1978 and 26 in 1986. After that it was raised to 26. In February 2009 the
strength of the Supreme Court was raised from 26 to 31. 31 means that can be the maximum number of the
Judges including the Chief Justice. It does not mean that at any time there should be 31 judges in place.
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First Agricultural University in Afghanistan

A new phase of Afghanistan and India relations began with the mutual inauguration of the Afghan National
Agricultural Science and Technology University. It was opened by Afghanistan President Hamid Karzai and Indian
Foreign Minister Salman Khurshid in southern Kandahar province of Afghanistan. The university has been
established with India's help.
Equal Opportunity Commission approved
On the basis of Justice Sachar Committee recommendations, the government has recently approved creation of
an Equal Opportunity Commission (EOC). This commission will check the discrimination of minority communities
in jobs and education. It will deal with the issues like denial of accommodation or buying rights to minorities in
housing societies. One of its objectives is to make sure that people from minority communities find adequate
representation in government employment or educational institutions.
We note here that Rajinder Sachar Committee was appointed in 2005 by UPA Government. This committee
revealed that the status of Indian Muslims is below the conditions of Scheduled Castes and Scheduled Tribes. It
also revealed that the overall percentage of Muslims in system of government in India is just 2.5% whereas
Muslims constitute above 14% of Indian population. To ensure equity and equality of opportunities to Indian
Muslims in residential, work and educational sector, the Committee had proposed multiple suggestions to be
adopted with suitable mechanisms.
Coal regulator without statutory backing approved
The Government has approved setting up of a coal regulator without any statutory backing as there was no
possibility of the Coal Regulatory Bill getting passed in parliament. This regulator is now to be set up through an
executive order and it will have only recommendatory powers.
India emerges worldwide as theMember
leading
Name:producer ofMember's
Anand Mohan fruits Email
andaddress:
vegetables
dubledoreslair@gmail.com 61.8.129.229
India has worldwide emerged as the largest producer of fruit and vegetables which includes fruits like Mango,
Banana and vegetables like Brinjal and Cabbage. The horticulture production grew by more than 8% during the
last decade. Total production in the sector for the year 2012-2013 is 269 million tonnes.
First real estate regulator comes up in Maharashtra
Maharashtra becomes the first state in the country to have a statutory real estate regulator as the the
Maharashtra Housing Regulation and Development Bill, 2012 has been recently passed by the state assembly.
The act is to extend to all new and under construction, commercial and retail projects that are yet to get
Occupation Certificate (OC). However, it gives some worry to builders because as per them, the regulator will
delay projects and increase the cost.
GHAVP
In January 2014, Prime Minister Manmohan Singh laid the foundation of 2,800 Megawatt Gorakhpur Haryana
Anu Vidyut Pariyojana (GHAVP) in Fatehabad district of Haryana. This will be first nuclear project in Haryana.
The project will have four units of 700 MWs each and it will be built at a cost of Rs. 23502 crore. The reactors
would be of Pressurised Heavy Water Reactors (PHWR) type, which will use natural uranium as fuel and heavy
water as both coolant and moderator. With this, number of reactor under Nuclear Power Corporation of India
Limited (NPCIL) goes to 21. NPCIL is the only firm responsible for constructing and operating India's commercial
nuclear power plants.
India, first country in Asia to get ITF silver certification
The All India Tennis Association (AITA) stated that India is the first country in Asia to get an ITF(International
Tennis Federation) silver certification for its coaches education system. The certification not only meant
confirmation of quality education of the coaches but it would also help India provide to the region for coaches
education at least expense.
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Rishang Keishing, an oldest parliamentarian retires

Rishang Keishing, 94 was Indias oldest parliamentarian till recently. He has now retired and decided not to
contest elections any more. He worked with great leaders like Jawahar Lal Nehru and he feels good having
worked with them and respects every one for all that he has learnt from them.
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Target 2014 Current General Studies-5

www.gktoday.in February 11 to February 22, 2014

Fundamentals of Public Finance and Interim Budget 2014

2 Both statements are correct.

3 Only 2 is a correct statement. Rest all are incorrect.

4 Both are correct statements.

5 All except 4 & 7 would be correct choices in this question.

8 Read the table below the question.

related to one-time spectrum

are debts and shown as liabilities

B Post office fixed deposits of 1, 2, 3 & 5 years

Plan revenue expenditure

1 TOTAL EXPENDITURE (2+3) 1550053.77 213160.19 1763213.96

2 Non Plan Expenditure 1107780.55 100111.41 1207891.96

3 Plan Expenditure 442273.22 113048.78 555322.00

4 Central Assistance for State & UT Plans 325631.92 12930.43 338562.35

5 BUDGET SUPPORT FOR CENTRAL PLAN (3-4) 116641.30 100118.35 216759.65

7 CENTRAL PLAN (5+6) 116641.30 348292.29 464933.59

All data in Rs. Crore

29, 350 MW of power capacity added in last year

New plan scheme for promotion of community radio.

Model Question 15.

Model Question 16.

Model Question 17.

7th Pay Commission set up by the government

Mount Kelud Volcano

First Agricultural University in Afghanistan

Rishang Keishing, an oldest parliamentarian retires

Member Name: Anand Mohan Member's Email address: dubledoreslair@gmail.com 61.8.129.229

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