Archive for March 2015



Union Budget 2015-16 Highlights

Written by HARIKRISHNAN.T
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According to industry veterans and business stalwarts, Union budget for the financial year 2015-16 presented by the honorable finance Minister Mr. Arun Jaitley is a very good effort to reform and revive the economy at the same time sending a clear signal about the government’s stand towards achieving fiscal discipline.



The major takeaways of the union budget are listed below

GDP growth for the financial year 2015-16 is expected between 8 percent and 8.5 percent based on the new series.

Fiscal deficit for the financial year 2015-16 is expected at 3.9 percent of the GDP.

JAM Trinity – Jan Dhan, Aadhar and Mobile – to implement direct transfer of benefits.

Goods and Services Tax will be implemented from April 1st 2016.

Monetary policy committee will be setup to with the objective of keeping inflation below 6 percent by making amendments in the RBI act.

Housing for all by 2022 with basic facilities of 24-hour power supply, clean drinking water, a toilet, and road connectivity.

Connecting each of the 178000 unconnected habitations by all-weather roads.  This will require completing 100000 km of roads currently under construction plus sanctioning and building another 100000 km of road by 2022.

62% of the total tax receipts of the country will be transferred to the States thereby achieving true spirit of co-operative federalism.

Target of providing `8.5 lakh crore of credit for agriculture during the year 2015-16.

Micro Units Development Refinance Agency (MUDRA) Bank will be created with a corpus of 20000 crores which will refinance Micro-Finance Institutions.

Electronic Trade Receivables Discounting System will be established for the financing of trade receivables of MSMEs.

Increasing access of the people to the formal financial system with the help of post offices.

Social security to the citizens with the help of Pradhan Mantri Suraksha Bima Yojna, Atal Pension Yojana and Pradhan Mantri Jeevan Jyoti Bima Yojana

SETU (Self-Employment and Talent Utilisation) to support all aspects of start-up businesses.

Creation of a separate Ministry for skill development which is about to launch a massive program.

The Government also proposes to set up 5 new Ultra Mega Power Projects, each of 4000 MWs in the plug-and-play mode. 

Public Debt Management Agency (PDMA) will be set up with the intent of deepening of the Indian Bond market. PDMA will bring both India’s external borrowings and domestic debt under one roof.

FMC will be merged with SEBI thereby strengthening the regulation of commodity forward markets and reduce wild speculation.

Financial Redressal Agency that will be set up to address grievances against all financial service providers.

Gold monetization scheme to bring the yellow metal into the financial system thereby reducing the import.

In order to promote cash less transactions, steps will be taken to incentivize credit or debit card transactions, and dis incentivize cash transactions.

The National Optical Fibre Network Programme (NOFNP) of 7.5 lakh kms networking 2.5 lakh villages is being further speeded up by allowing willing States to undertake its execution, on reimbursement of cost as determined by Department of Telecommunications.

It is pretty much clear about the long term plans of the government from the above mentioned points.
Government wants to build basic infrastructure like roads and electricity so that it can reduce the supply side bottlenecks in the long run. At the same time fiscal discipline has to be followed. That is why FM put the fiscal deficit target of 3 percent in three years instead of two years so that he can fund the infrastructure projects using the additional capital.

Government has taken a very bold approach in handling subsides because they know that a large amount of subsidies is going into undeserved hands. Since subsidies are unproductive in nature, it is very much important that only the deserved people receive subsidy. The proposed JAM trinity has therefore a lot to do in this area at the same time it will help the government to deepen the financial inclusion plan.

Manufacturing is very crucial for every economy because of the number of employment opportunities it generates, formation of fixed capital etc. but the share of manufacturing in our GDP is meagre 17 percent. Promoting manufacturing is very important because we have to generate a lot of jobs in the coming years. Creation of the enabling infrastructure, creating desired skill sets to meet the demand etc. are also very important parameters in achieving the manufacturing growth. Big outlays for the creation of basic infrastructure, creation of a separate Ministry for skill development and other provisions for education will help to achieve that.

MSMEs and startups create a lot of employment opportunities. The proposed Micro Units Development Refinance Agency (MUDRA) Bank and SETU (Self-Employment and Talent Utilization) will help them in achieving tremendous growth at the same time it will promote more educated people to enter into entrepreneurial ventures.

Monetization of gold is also a very crucial step taken by the government. It will help to bring huge amount of yellow metal into the financial system thereby reducing the import. It is going to have a positive impact on our import bill.

Budget has provided a clear path towards achieving economic prosperity in the long run. But it all depends on how well these things are taken care off in the coming days. Let’s hope for the best.

 References
http://indiabudget.nic.in/budget.asp
http://indiabudget.nic.in/bspeecha.asp

Regards,
Hari


Views are personal. :)



Types of Government Receipts and Expenditures - A walkthrough

Written by HARIKRISHNAN.T
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We can hear a lot of terms like revenue receipts, capital receipts, plan expenditures and non-plan expenditures etc. in any budget. This article is for those who does not have any prior knowledge in this field (like meJ) to get a basic idea about these terms.

Any entity let it be individuals, corporates or government, will have various sources of income as well as various heads of expenditures.  For a government income can be generated from various sources at the same time expenditures can also be used for various purposes.



First let’s discuss about income part.

Income or receipts a government receives can be subdivided into 2 parts.
1.       Revenue receipts
2.       Capital receipts

What is revenue receipts? Revenue receipts is a particular type of government receipts which neither reduce assets nor create liabilities. Confused? Ok I will explain it with the help of an example. Consider the Tax revenues (Corporation Tax, Taxes on Income, Wealth Tax, Customs, Union Excise Duties, Service tax etc.) or the non-tax revenues (such as interest income or dividends and profits from various entities) a government receives. These revenues are not creating any additional liability for the government at the same time it is not reducing any assets also. So these types of government receipts are called revenue receipts. We can divide revenue receipts into mainly 2 categories. They are
  • Tax revenues (Corporation Tax, Taxes on Income, Wealth Tax, Customs, Union Excise Duties, Service Tax, and Taxes of Union Territories)
  • Non tax revenues (Interest receipts, Dividend and Profits, External Grants, Other Non-Tax Revenue, Receipts of Union Territories)


Next is capital receipts.

What is capital receipts? Just opposite of revenue receipts. It is a particular type of government receipt which either create liabilities or reduce assets.

How capital receipts will create liabilities for the government? Well usually government will borrow money from various sources such as pension funds, individuals, foreign institutions etc. These borrowings are creating liability for the government because government has to repay the principal at a later point of time at the same time it has to provide periodic interest also. So this is definitely going to create a liability for the government.

OK dude, I understood how capital receipts are creating liabilities for the government. But I'm little bit confused about the latter part ‘reducing assets’. Can you explain me on that?

Well, we have a lot of public sector undertakings in which government has very large stakes. So government can raise capital by divesting some of its stake. Thus it fetches money for government at the same time reduces the assets of government also.

So we can divide capital receipts into mainly two categories. They are

  • Non-debt receipts (it includes Miscellaneous Capital Receipts such as divestment thereby reducing the assets owned by government)
  • Debt receipts (it includes Market Loans, Short term borrowings, Securities issued against Small Savings etc. thereby creating liabilities for the government)
As of now we have discussed about income part. Now let’s focus on expenditures.

In the expenditure front we have
  • Plan expenditures
  • Non-plan expenditures
What is meant by plan expenditures? Plan expenditures are the expenditures those are productive in nature means it helps to increase the productive capacity of the economy. For example building roads, rails, infrastructure, factories etc.

Non plan expenditures include various heads such as interest payments on government debts, subsidies, social services, salaries and pension to government employees etc.

Also we have
  • Revenue expenditures
  • Capital expenditures

Revenue expenditure neither creates asset nor reduces liability of the government. This type of expenditure is incurred every year as a result it is recurring in nature. Revenue expenditures include interest payments on loans taken by the government, salaries, pension, subsidies etc.

Capital expenditure either creates asset or reduces liability of the government. Investment on infrastructure, communication, factories etc. are the part of capital expenditure because it creates asset for the government and repayment of loans taken by the government also is an example for capital expenditure because it reduces the liability of the government.

Hope this article help you to get a very basic understanding about the above mentioned terms. J

Comments/suggestions always welcome J

Regards,
Harikrishnan

Views are personal :)