Government Budgeting

The Union Budget of India is the annual financial statement as per Article 112 of the Constitution of India. The budget, which is presented by means of the Finance bill and the Appropriation bill, has to be passed by both the Houses before it can come into effect from April 1, the start of India’s financial year.

Recent Developments

For Farmers

  • Pradhan Mantri Kisan Samman Nidhi (PM-KISAN) direct income support scheme for farmers was released which will provide Rs. 6,000 per year to farmers having cultivable land up to 2 hectares.
  • Rs. 12.56 crore likely to be benefitted and Rs. 75,000 crore has been allocated for the FY19-20; Rs. 20,000 crore for direct benefit transfer will be budgeted within the revised estimates of 2018-19.

For Unorganized Workers

  • Pradhan Mantri Shram Yogi Maandhaan pension scheme for young workers in the unorganized sector was introduced where Rs. 3,000 will be provided as assured monthly pension from the age of 60 on an affordable monthly amount during their working age.
  • Rs. 15,000 will be the monthly income limit for the workers to join the scheme. And, Rs. 500 crore has been allocated for the scheme: the monthly amount will vary from Rs.55 to Rs.100-depending upon the worker’s age.

For Taxpayers

  • While the Tax Slabs have been left untouched, Section 87A of the IT Act has been amended to increase the rebate ceiling from Rs. 3.5 lakh to Rs. 5 lakh.
  • Individuals with annual income of Rs. 5 lakh or less need not pay income tax. Around 3 crore taxpayers may be benefitted from this (Rs. 18,500 crore is the total tax benefit for taxpayers).
  • Those having gross income up to Rs. 6.50 lakhs may not pay tax if they make investments in provident funds, specified savings, insurance, etc.

For Home-owners

  • The tax on notional rent for a 2nd home has been now removed for making homes available under affordable housing, the benefits under Section-80IBA of the Income Tax Act are being extended for 1 more year, i.e. to housing projects approved till 31st March, 2020.
  • The benefit of rollover of capital gains under Section 54 of the Income Tax Act will be increased from investment in 1 residential house to 2 residential houses for a taxpayer having capital up to Rs. 2 crore.

For Corporate Sector

  • Real estate developers can hold unsold inventory for 2 years from the date of project completion without paying tax on notional rent.
  • Stamp duty to be levied on 1 instrument relating to 1 transaction and will be collected at the stock exchange.
  • Renewables to become a major source of energy supply in the next decade.

Union Budget 2019-20

The Interim Budget 2019-20 was presented by the Union Minister for Finance, Corporate Affairs, Railways & Coal, Shri Piyush Goyal in Lok Sabha on 01st February, 2019.

Key Highlights

1. Farmers

  • Outlay for Rashtriya Gokul mission increased to Rs. 750 crore.
  • Rashtriya Kamdhenu Aayog to be setup for sustainable genetic up-gradation of the Cow resources.
  • New separate “Department of Fisheries” for welfare of 1.5 crore fishermen.
  • Around 2% interest subvention to Farmers for Animal husbandry and Fisheries activities; additional 3% in case of timely repayment.
  • Interest subvention of 2% during disaster will now be provided for the entire period of reschedulement of loan.

2. Health

  • 22nd AIIMS to be setup in Rewari, Haryana.

3. MGNREGA

  • Rs. 60, 000 crore allocation for MGNREGA in Budget Estimate (BE) 2019-20.

4. Direct Tax proposals

  • •The Standard Deduction to be raised to Rs. 50,000 from Rs. 40,000 and the TDS threshold to be raised from Rs. 10,000 to Rs. 40,000 on interest earned on bank/post office deposits.
  • •The Housing and Real Estate Sector to receive a boost:
    • TDS threshold for deduction of tax on rent to be increased from Rs. 1,80,000 to Rs. 2,40,000.
    • Benefit of rollover of capital gains increased from investment in one residential house to two residential houses for capital gains up to Rs. 2 crore.
    • Tax benefits for affordable housing extended till 31st March, 2020 under Section 80-IBA of Income Tax Act.
    • Tax exemption period on notional rent, on unsold inventories, extended from 1 year to 2 years.

5. Fiscal Programme

  • Fiscal deficit pegged at 3.4% of GDP for 2019-20 (Target of 3% of fiscal deficit to be achieved by 2020-21).
  • Fiscal deficit brought down to 3.4% in 2018-19 Revised Estimate (RE) from almost 6% seven years ago.
  • Total expenditure increased by over 13% to Rs.27,84,200 crore in 2019-20 BE.
  • Capital Expenditure for 2019-20 BE estimated at Rs. 3,36,292 crore.
  • Centrally Sponsored Schemes (CSS) allocation increased to Rs. 3,27,679 crore in BE 2019-20.
  • National Education Mission allocation increased by about 20% to Rs. 38,572 crore in BE 2019-20.
  • Allocation for Integrated Child Development Scheme (ICDS) increased by over 18% to Rs. 27,584 crore in BE 2019-20.
  • A substantial increase is proposed in the allocation for welfare of the Scheduled Castes and Scheduled Tribes. The allocation ofRs. 56,619 croremade in BE of 2018-19 for Scheduled Caste, further increased to Rs.62,474 crore in RE is proposed to be enhanced to Rs.76,801 crore in BE for 2019-20, an increase of 35.6% over BE of 2018-19. For the Scheduled Tribes also, proposed allocation in 2019-20 BE is Rs.50,086 crore as against Rs.39,135 crore in BE 2018-19, an increase of 28%.
  • Government confident of achieving the disinvestment target of 80,000 crore and the focus is now on debt consolidation along with fiscal deficit consolidation programme.

6. Poor and Backward Classes

  • “First right on the resources of country are that of the poor”, as per Finance Minister in his speech.
  • Around 25% additional seats in educational institutions to meet the 10% reservation for the poor.
  • Targeted expenditure to bridge urban-rural divide & to improve quality of life in villages.
  • All willing households to be provided electricity connections by March, 2019.

7. North East

  • Allocation to be increased by 21% to Rs. 58,166 crore in 2019-20 BE over 2018-19 BE.
  • Arunachal Pradesh came on the air map recently.
  • Meghalaya, Tripura and Mizoram came on India’s rail map for the first time.
  • Container cargo movement through improved navigation capacity of the Brahmaputra.

8. Vulnerable sections

  • A new committee under NITI Aayog to identify all the remaining De-notified nomadic and semi-Nomadic tribes.
  • New Welfare development Board under Ministry of social justice and empowerment for development and welfare of De-notified nomadic and semi nomadic tribes.

9. Defence

  • Defence budget to cross Rs 3,00,000 crore for the first time ever (i.e.32.19% of the total Central Government Capital Expenditure).
  • The amount of Rs. 1,08,248.80 crore has been allocated for Capital expenditure, includes modernisation related expenditure.

10. Railways

  • Capital support of Rs.64,587 crore proposed in 2019-20 (BE) from the budget (Overall capital expenditure programme to be of Rs. 1,58,658 crore).
  • Operating Ratio expected to improve from 98.4% in 2017-18 to 96.2% in 2018-19 (RE) and to 95% in 2019- 20 (BE)

11. Entertainment Industry

  • Indian filmmakers to get access to Single window clearance as well for ease of shooting films.
  • Regulatory provisions to rely more on self-declaration.
  • To introduce anti-camcording provisions in the Cinematograph Act to control piracy.

12. MSME and Traders

  • Around 2% interest subvention on an incremental loan of Rs 1 crore for GST registered SMEs.
  • Atleast 3% of the 25% sourcing for the Government undertakings will be from women owned SMEs.
  • Renewed Focus on Internal trade; DIPP renamed to “Department for Promotion of Industries and Internal Trade”.

13. Digital Villages

  • The Government to make 1 lakh villages into Digital Villages over next five years.

14. Miscellaneous

  • New National Artificial Intelligence portal to support National Program on Artificial Intelligence.

Various Deficits

When a government spends more than it collects by way of revenue, it incurs a ‘budget deficit’. There are various measures that capture government deficit and they have their own implications for the economy.

Revenue Deficit

  • The Revenue Deficit refers to the excess of government’s revenue expenditure over revenue receipts.
  • It includes only such transactions that affect the current income and expenditure of the government.
  • When the government incurs a revenue deficit, it implies that the government is dissaving i.e. using up the savings of the other sectors of the economy to finance a part of its consumption expenditure.
  • This will lead to a build-up of stock of debt and interest liabilities and force the government, eventually, to cut expenditure. Since a major part of revenue expenditure is committed expenditure, it cannot be reduced. Often the government reduces productive capital expenditure or welfare expenditure. This situation leads towards lower growth and adverse welfare implications.

Fiscal Deficit

  • Fiscal Deficit is the difference between the government’s total expenditure and its total receipts excluding borrowing.
  • Non-debt creating capital receipts are those receipts which are not borrowings and, therefore, do not give rise to debt. E.g. recovery of loans and the proceeds from the sale of PSUs.
  • The fiscal deficit will have to be financed through borrowings. Thus, it indicates the total borrowing requirements of the government from all sources (from the financing side).
  • Gross fiscal deficit = Net borrowing at home + Borrowing from RBI + Borrowing from abroad.

Primary Deficit

  • Primary Deficit is simply the fiscal deficit minus the interest payments.
  • Net interest liabilities consist of interest payments minus interest receipts by the government on net domestic lending.

Revenue deficit = Total revenue expenditure – Total revenue receipts.

Fiscal deficit = Total expenditure – Total receipts excluding borrowings.

Primary deficit = Fiscal deficit-Interest payments.

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