Understanding

Union Budget 2011-12

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Session Objectives
- Understand the jargon in Union Budget 2011-12 - Understand the state of Indian Economy - Understand key steps planned by the govt. It will NOT make you an expert in analysing and evaluating the budget!

Budget
It reviews past performance against plan
and

presents future plan of inflows and outflows for the nation.

Receipts & Expenditure

Final estimate/actual - last year Revised estimates vs. budget - current year Inflows & outflows next year - estimates / plans including new revenue streams Plan for growth with reduction in income disparity

Plan vs. Non-plan Expenditure

Plan - planned under 5-year plan - objective is economical development Non-plan - maintenance expenditure - linked to the size of the govt. - Defence, pension, police, salaries, subsidies

Is Budget over-hyped?

Budget 2011-12
Rs 000 Crores

Receipts
1. Tax Revenue 665* 2. Non-tax Revenue 125 3. Capital Receipts 55 4. Borrowings 412

Expenditure
5. Non-plan: Interest 6. Non-plan: Rev 7. Non-plan: Cap 8. Plan Rev 9. Plan Cap 268 466 82 363 78

Total

12,57

Total

12,57

Fiscal Deficit: 412 ( 4.6% ) Revenue Deficit ( 1+2-5-6-8 ): 307 ( 3.4% ) Primary Deficit (4-5): 144 (1.6%)
*share of centre ( total 933 )

Taxation
( in 000 Cr of rupees )

02-03 08-09 Direct Taxes Indirect Taxes Total Direct/ Total 96 154 250 38% 335 270 605 55%

09-10 10-11R 11-12 377 245 622 60% 446 339 786 57% 532 398 930 57%

Inflows Changing Composition

2001-02 Amount CUSTOMS EXCISE SERVICE CORPORATE PERSONAL OTHERS BORROWINGS TOTAL 43 75 4 39 34 70 151 416 % 10.3 18.0 1 9.6 8.2 16.8 36.3 2011-12B Amount 152 163 82 360 164 282 412 1615 % 9.4 10.0 5.1 22.3 10.1 10.1 25.5

Are we spending more productively?

Plan vs. Non-plan Expenditure ( excl. int. )

Plan 2002-03 2009-10 2010-11B 2010-11R 2011-12B
Rs 000 Cr

Non-plan 195 508 487 581 549

Total 309 811 860 976 990

Plan% 36.9 37.3 43.4 40.5 44.5

114 303 373 395 441

Outflows Changing Composition

2001-02 Amount INTEREST DEFENCE SUBSIDIES GRANTS PENSION OTHER NON-PLAN PLAN - REVENUE PLAN - CAPITAL 107 40 30 17 15 90 70 43 % 26.1 9.8 7.3 4.1 3.6 22.0 17.1 10.5 2011-12B Amount 268 95 144 66 55 188 363 78 % 21.3 7.5 11.4 5.2 4.4 15.0 28.9 6.2

Defence Expenditure
Do we spend more than required?
Defence expenditure of select countries ( USD Bln ) India 36 China 91 Canada 20 Pakistan 5 Brazil 27 South Korea - 28

Are these Projections Realistic?

Non-plan Expenditure
Rs 000 Cr 2009-10 2010-11 2010-11 2011-12 A B R B Social Services Economic Services General Services Subsidies 33 24 16 141 30 25 17 116 35 32 18 164 21 25 19 143

Subsidies Rs 000 Cr
ITEM FERTILISERS FOOD PETROLEUM OTHERS TOTAL 2010-11R 56 60 38 10 164 2011-12B 50 60 24 10 144

Indian Economy

Historical Perspective

40 32 28

Changing face of Economy

1991-92 2010-11

57.8%

28%

Share of Agri, Manufacturing and Services

Indian Economy
Key Macro-economic indicators Fiscal deficit 5.1 % Revenue deficit 3.4% Tax / GDP 10% Inflation 8-9% GDP Growth 8.6% ( 10-11 )

Tax / GDP Ratio

Indian Economy
Primary Sector Agriculture 1. Shrinking share in economy low growth in agri. production 2. Accounts for largest % of population most BPL families dependent on agriculture 3. Low agricultural productivity low per acre yield vs. developed countries 4. Low investment in the sector irrigation, crop protection, seeds, fertilizers, soil testing etc.

Indian Economy
5. Fragmented / small land-holding low scale economies 6. Low level of literacy / lack of knowledge relating to seeds / pesticides / farming practices 7. Lack of infrastructure cold chain / storage leading to wastage of perishable goods 8. Lack of credit facilities 9. Problem child of Indian economy

Secondary Sector Manufacturing

1. The sector has grown with Indian companies able to compete globally in most areas. 2. Lack of infrastructure power / roads are the major bottlenecks 3. High interest rates are another deterrent 4. Govt. is still active in a no. of sectors should government continue in these?

Services Sector
Minimal govt. investment / intervention growth backed by IT/ITES sectors Sector growth leveraging labour cost arbitrage Adverse impact of Budget - STP Ten-year tax holiday scheme has not been extended - Larger companies may get marginally affected but smaller companies margins will get squeezed

New Structural Initiatives

GST

- Goods and Services Tax

DTC Direct Tax Code UID - Aadhaar for direct payment of subsidies and financial inclusion

GST
A unified value-added tax that will almost eliminate tax-on-tax. Proposed to be implemented from April 2011. Now, likely in 2012 ( hopefully! ) Will result in a single tax on all goods and services.

DIRECT TAX CODE

Proposes reform in the Direct Tax calculation system. Proposed to be effective from April 2011. Now deferred to 2012. Aims at making tax calculations simpler by eliminating various exemptions

UID-Aadhaar
50-60% of the subsidies do not reach the intended beneficiaries Replace subsidy with cash - Bihar cycle case UID - smart card for financial transactions access to every person rural / agri credit access