Analysis of union budget 2014 15

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Transcript of Analysis of union budget 2014 15

Page 1: Analysis of union budget 2014 15
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Analysis of Union Budget 2014-15

By

Laxmi N. TirlapurI Ph.D

Major AdvisorDr N. R. Mamle Desai

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Sequence of presentation

Introduction

Terms and concepts used

Current economic situation

Analysis of union budget 2014-15

Future vision

Conclusion

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Budget- It is a document containing a preliminary approved

plan of public revenue and public expenditure.

Union Budget: A union budget is the most

comprehensive report of the government finances in

which revenues from all sources and out lays to all

activities are consolidated.

Union budget 2014-15 was presented by finance minister P.

Chidambaram on 17th February

The first budget was presented on

November 26, 1947 by India's first

Finance Minister Sri R.K.

Shanmugham Chetty.

Introduction

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Terms and concepts used• Plan Expenditure- Plan expenditure refers to government expenditure,

which is meant for financing the programmes/schemes formulated under the

ongoing/ previous five year Plan.

• Non-Plan Expenditure- It includes some of the important types of

government expenditure, eg: interest payments, pension, defence

expenditure, spending on law and order, spending on legislature, subsidies.

• Fiscal Deficit - It is the gap between the government’s total Expenditure

(including loans net of repayments) and its Total Receipts (excluding new

debt to be taken). Thus Fiscal Deficit for a year indicates the borrowing to be

made by the government that year.

• Revenue Deficit- The gap between Total Revenue Expenditure of the

Government and its Total Revenue Receipts.

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• Excise Duties:- It is a type of tax levied on those goods, which

are manufactured in the country and are meant for domestic

consumption. It is paid by the manufacturer, but he passes this

burden on to the consumers.

• CENVAT credit- Manufacturers may offset duty paid on

materials used in the manufacturing process by using that duty

as a credit against excise tax through a process known as Central

Value Added Tax Credit (CENVAT Credit).

• Countervailing duties (CVD): are meant to level the playing

field between domestic producers of a product and foreign

producers of the same product who can afford to sell it at a lower

price because of the subsidy they receive from their government.

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• Foreign exchange reserve: A foreign currency held by central banks and

other major financial institutions as a means to pay off international

debt obligations, or to influence their domestic exchange rate.

• Current Account Deficit: A measurement of a country’s trade in which

the value of goods and services it imports exceeds the value of goods and

services it exports.

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Current Economic Situation

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World economic growth

2012 and 2013 were years of turbulence. The challenges that we face are common to all emerging economies. Only a handful of countries were able to keep their head above the water, and among them was India. It is 11th largest economy.

2011

20122013

Global risks•Fiscal crisis •Structurally high unemployment or underemployment •Income disparity•Governance failure•Food crisis •Political and social instability.

Factors responsible for stability of Indian economy1.Stable exchange rate2.Fiscal deficit3.Reducing current account deficit4.Moderation in inflation5.Increasing export

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Current account deficit

$88 billion- 2013-14

$ 45 billion – 2016-17

Fiscal deficit

4.6% - 2013-14

4.1% - 2014 jan

Deficit and inflation

Revenue deficit

3.3 % 2013-14

3% - 2014-15 jan

Foreign exchange reserves by the end of the financial year 2013-14 was $

15 billion .

Inflation -2013

WPI inflation was 7.3%

Core inflation was 4.2 %.

Inflation -2014 jan

WPI inflation was 5.05%

Core inflation was 3 %.

Although food inflation has declined sharply from a high of 13.6 percent in

2012 to 6.2 percent in 2013, it is still the main worry.

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Agriculture

Year Food grain production (In

million tonne)

% change

2006-07 217.3

2007-08 230.78 6

2008-09 234.47 7

2009-10 218.11 0.3

2010-11 244.49 12

2011-12 259.32 19

2012-13 255.36 17

2013-14 263 21

Agriculture Export

USD 41 billion-2012-13

USD 45 billion-2013-14

Agricultural GDP growth9th 5 year plan -2.5%10th 5 year plan -2.4%11th 5 year plan- 3.6 GDP( 4% T) In 2013-14 – 4.6%

National Food Security Bill

• Finance minister set aside Rs. 10,000 crore.

•For distribution of subsidized food grains distribution to 67% of the population

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Investment

• In 2011-12 savings rate was 31.3 % Investment rate-35.5%

In 2012-13 savings rate was 30.1 % Investment rate-34.8%

It was because of the reason that projects were not achieving

Commercial Operation Date (COD) and there were too many obstacles

on the path of implementation.

Government took the bold step to set up the Cabinet Committee on

Investment and the Project Monitoring Group.

Because of this committee, by the end of January, 2014, the way was

cleared for completing 296 projects with an estimated project cost

of Rs. 660,000 crore.

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Foreign trade

Year Trade deficit(US $ billion)

Indian merchandise export(US $ billion)

2012-13 18.98 300 (-1.8%)

2013-14 9.91 326 (+ 6.3%)

Our aim must be robust growth in both exports and imports, with trade in balance over a period of time.

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Manufacturing

• The deceleration in investment in manufacturing is particularly worrying.

• The National Manufacturing Policy has set the goal of increasing the share of

manufacturing in GDP to 25 percent and to create 100 million jobs over a

decade.

• Eight National Investment and Manufacturing Zones (NIMZ) have been

announced along the Delhi-Mumbai Industrial Corridor and nine projects have

been approved by the DMIC Trust.• Three more corridors connecting are under different stages of preparatory work.

Chennai and Bengaluru, Bengaluru and Mumbai, Amritsar and Kolkata

• Additional capacities are being installed in major manufacturing industries such

as steel, cement, refinery, power and electronics.

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Infrastructure

• In last financial year, big push to infrastructure and capacity addition in infrastructure

industries.

In 2012 to December 2013

• 29,350 MW of power capacity

• 3,928 Km of national highways

• 39,144 Km of rural roads under PMGSY

• 3,343 Km of new railway track, and

• Besides, 19 oil and gas blocks were given out for exploration and 7 new airports are

under construction.

• Facility of Infrastructure Debt Funds to take-out finance for infrastructure projects

and ease the pressure on the banking system.

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Trend in GDP growth In Q1 of FY11- 7.5 % reduce to 4.4 % in Q1 of FY13.

Growth in Q2 of FY13 has been placed at 4.8 %

Growth in Q3 and Q4 of FY13 was 5.2 %.

Growth for the whole year FY13 was 4.9%.

By this we can assert that the economy is more stable today than what it was two years ago.

• The fiscal deficit is declining,

• The current account deficit has been contained,

• Inflation has moderated,

• The quarterly growth rate is on the rise, the exchange rate is stable,

• Exports have increased, and hundreds of projects have been unblocked.

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Overview and analysis of the

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Budget at a glance

Three kinds of figures in a Budget

The ministries are required to provide three different kinds of figures relating

to their expenditures and receipts during this process of budget preparation.

These are: Budget Estimates, Revised Estimates and Actuals.

Union budget for 2014-15 consists of

• Budget estimates for 2014-15,

•Revised estimates for 2013-14 and

•Actuals of 2012-13.

2011-12(A)

2012-13(BE)

2012-13(RE)

2012-13(A) 2013-14(BE)

2013-14(RE)

2014-15(BE)

Revenue receipts

751437 935685 871828 877613 10,56,331 1029252(17)

11,67,131(32)

Capital Receipts

552928 555241 558998 532754 6,08,967 561182(5)

5,96,083(11)

Total receipts 1304365 1490925 1430825 1410367 16,65,297 1590434(12)

17,63,214(25)

Non-plan expenditure

891990 969900 1001638 996742 11,09,975 1114902(11)

12,07,892(21)

Plan expenditure

412375 521025 429187 413625 5,55,322 475532(14)

5,55,322(34)

Total expenditure

1304365 1490925 1430825 1410367 16,65,297 1590434(12)

1,763,214(25)

Revenue deficit 394348 350424 391245 365896 3,79,838 370288 3,82,923

% of GDP -3.6 -3.3 -3.0

Fiscal deficit 515990 513590 520925 490597 5,42,499 524539 5,28,631

% of GDP -4.9 -4.6 -4.1

Primary deficit 242840 193831 204251 177428 1,71,814 144473 1,01,620

(In crore of Rupees)

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Growth in government receipts (%)

2013-14 (RE)over 2013-14

(BE)

2014-15(BE) over2013-14

(RE)

Revenue receipts

-2.6 13.4

Tax revenue -6.2 19.0

Corporate tax

-6.2 14.6

Income tax -2.4 26.8

Customs duty

-6.5 15.0

Excise duty 1.7 11.7

Service tax -8.4 30.7

Non tax revenue

12.1 -6.5

Expenditure of government (%)

2013-14 (RE) over

2013-14(BE)

2014-15 (BE) over 2013-14

(RE)

Non plan expenditure

0.4 8.3

Revenue account 3.5 7.8

Capital account -25.5 14.8

Plan expenditure -14.4 16.8

On revenue account

-16.1 18.9

On capital account -7.5 9.0

Total capital expenditure

-16.7 11.7

Total revenue expenditure

-2.6 10.8

Total expenditure -4.5 10.9

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2009-10(A) 2010-11(A)

2011-12(A) 2012-13(BE) 2012-13 (RE)

2013-14 (BE)

Total Union Budget 10,24,487 11,97,328 13,04,365 14,90,925 14,30,825 16,65,297

Defence 1,80,018(17.57)

1,94,605(16.25)

2,13,673(16.38)

2,38,205(15.98)

2,23,003(15.59)

2,53,345(15.21)

Rural Development 56,637(5.53)

72109(6.02)

66689(5.11)

76430(5.13)

55052(3.85)

80250(4.82)

Human Resource Development

38429(3.75)

51904(4.34)

60146(4.61)

74056(4.97)

66819(4.67)

79451(4.77)

Health and Family Welfare

20996(2.05)

24449(2.04)

27,198(2.09)

34,488(2.31)

29,272(2.05)

37,330(2.24)

Agriculture 12,059(1.18)

17,059(1.42)

14,936(1.15)

18,714(1.26)

16,272(1.14)

19,818(1.19)

Drinking Water and Sanitation

9200(0.90)

10569(0.88)

9,997(0.77)

14,005(0.94)

13,005(0.91)

15,265(0.92)

Women and Child Development

8,555(0.84)

10,688(0.89)

15,671(1.2)

18,584(1.25)

17,263(1.21)

20,440(1.23)

Social Justice and Empowerment

2530(0.25)

4244(0.35)

5029(0.39)

6008(0.4)

5105(0.36)

6725(0.4)

Housing and Urban PovertyAlleviation

571(0.06)

828(0.07)

957(0.07)

1163(0.08)

957(0.07)

1468(0.09)

New and Renewable Energy

550(0.05)

986(0.08)

1196(0.09)

1397(0.09)

1163(0.08)

1533(0.09)

Examining the Priorities for different sectors in the Union Budget

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Allocations for select Ministries as a percentage of the TotalUnion Budget from 2009-10 to 2013-14

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Overview of the interim union budget 2014-15

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AgricultureIn this budget Rs. 800,000 crore is provided for agricultural.

In the Budget 2014-15 there is exemption of service tax for loading,

unloading, packing and storage or warehousing of Rice.

Interest subvention scheme was introduced in 2006-07. There is a

2 % - subvention

3 % - Incentive for prompt payment,

Thus reducing the effective rate of interest on farm loans to 4 %.

So far, Rs. 23,924 crore has been released under the scheme. This scheme

continue in 2014-15.FY 12 (A) FY 13 (RE) FY 14 (BE)

Subsidies 257,079 255,516 255,708

Fertilizers 65,613 67,972 (3%) 67,970 (3%)

Food 85,000 92,000 (8%) 115,000 (35 %)

Petroleum 96,880 85,480 (-12%) 63,427 (-35 %)

Subsidies(Rs. in crore)

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Rural development

Year Budget estimate(Rs. crore)

% change

2011-12 64,263

2012-13 50,187 -22

2013-14 74,478 48

Negligence of MGNREGA in the last 3 yearsBudget for MGNREGA has not kept up with inflation over the period

Housing and poverty alleviation

Scheme (2013-14) BE (Rs. Crore) RE (Rs. Crore)

Ministry of Housing and Poverty Alleviation

1,468 1,208 18 % decline

Rajiv Awas Yojana - - 38 % decline

Rs. 82,202 crore

Rs. 6,000 crore

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Health

• Rs. 2,60,000 crore

• For 1700 people there is one

docotor

• Every year 4,00,000 infants die

within 24 hours from birth.

Employment and poverty related scheme

• Rs. 3,71,000 crore

• 22 per cent of the population are

still below poverty (UNESCO)

• i.e. 27 crore population are below

poverty

Total Budget extended since last 20 years (1995-2014)

Ministry of Health and Family Welfare has requested that services

provided by cord blood banks are also healthcare services and should

be exempt from service tax. It is approved in the budget.

Relief from service tax

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Manufacturing

• The share of manufacturing has continue to hover at around 16% of

GDP for the last two decades.

• The government has set a target of taking the share of manufacturing

in GDP to 25 percent by 2022.

• To give immediate boost to manufacturing sector, the interim budget

has introduced the following changes:

• To stimulate growth in the capital goods and consumer non-durables

and electrical machineries, it has reduced the excise duty from 12% to

10%.

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Conti…

Small cars, motor cycles, scooters and commercial vehicles - from 12% to 8% SUVs - from 30% to 24% Large and mid-segment cars - from 27/24% to 24/20%

To give relief to the automobile industry which is registering

unprecedented negative growth, excise duty will be reduce for the

period up to 30.6.2014:

Excise duty Before After

Small cars 12% 8%

Mid size cars 24% 20%

Large cars 27% 24%

SUVS 30% 24%

Excise duty Before After

Buses 12% 8%

Trucks 12% 8%

Two wheelers 12% 8%

Three wheelers 12% 8%

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To encourage domestic production of soaps and oleo chemicals, the

customs duty structure on non-edible grade industrial oils and its fractions,

fatty acids and fatty alcohols at 7.5%.

To encourage domestic production of six specified road construction

machinery, the Finance Minister has withdrawn the exemption from CVD

on similar imported machinery.

To encourage indigenous production of security paper for printing

currency notes, the Interim Budget provides a concessional customs duty of

5% on capital goods imported by the Bank Note Paper Mill India Pvt. Ltd.

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• To encourage domestic production of mobile handsets (which has declined) and reduce the dependence on

imports (which have increased), excise duties for all categories of mobile handsets is reduced. The rates

will be 6 % with CENVAT credit or 1 % without CENVAT credit.

 

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• Four ultra mega solar power projects each with a capacity of over 500 MW in

2014-15.

• The IT modernisation project of the Department of Posts, with an outlay

of Rs. 4,909 crore, will be operational by 2015 in all 155,000 locations

• Central assistance to plans of States and Union Territories will rise substantially

from Rs. 136,254 crore in BE 2013-14 to Rs. 338,562 crore in 2014-15.

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The MSME sector is known for its immense contribution for promoting

employment intensive growth in the country.

Recognising the crucial role played by the MSME sector in promoting

inclusive growth, the Finance Minister has set aside an Initial contribution of

Rs. 100 crore to the corpus of ‘India Inclusive Innovation Fund’ under the

Ministry of MSME.

In order to promote entrepreneurship among the scheduled castes and to

provide concessional finance to them, IFCI will set up a Venture Capital Fund

for Scheduled Castes. Amount of Rs. 200 crore, which can be supplemented

this year

Promoting MSMEs

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Women and child

• Nirbhaya fund announced in last year’s budget into a permanent non-

lapsable fund of Rs.1000 crore. In 2014-15 budget again Rs. 1000 crore

has been allocated to this fund.

Schemes BE (Rs. crore)

RE (Rs. crore)

% change

Women and Child Development 20,440 18285.65 -10

Umbrella Scheme for Protection and Development of Women

288 77 -73

Training & Employment Programme 18 9 -50

Indira Gandhi Matritava Sahyog Yojana 450 270 -60

Total gender budget 97,134 85,495 -12

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Defence

• In BE 2013-14 - Rs. 2,03,672 crore

In 2014-15 - Rs. 2,24,000 crore

The allocation for defence has been enhanced by 10 percent.

• Government has accepted the principle of One Rank One Pension for the defence forces. This decision will be implemented prospectively from the financial year 2014-15.

• So the credit sum of Rs. 500 crore is transfer to the Defence Pension Account in the current financial year itself.

Central armed police forces

Rs. 11,009 crore has been approved to strengthen the capacity

of Central Armed Police Forces and to provide them state-of-

the-art equipment and technology.

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Rs 11,300 crore for strengthening the capital base of Public Sector Banks.

5,207 new branches have been opened against the target of 8,023branches and are near the goal of installing an ATM at

every branch.

Creation of a non–statutory Public Debt Management Agency(PDMA).

Yeomen service rendered by our banks in reaching Government's policies and programmes to the people. In this

budget Rs. 800,000 crore is provided for agricultural.Rs 6,000 crore - Rural Housing Funds.

Rs 2,000 crore Urban Housing Funds.

Loans to minorities is Rs 2,11,451 crore.

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Schemes (2013-14) Budget Estimate (Rs. crore )

Revised Estimate (Rs. crore )

Sarva Shiksha Abhiyan 27,258 26,608 (-2.4%)

Rashtriya Madhyamik Shiksha Abhiyan 3,983 3,123 (- 21.6%)

RastriyaUchha Shiksha Abiyan

4,000 240 (-40%)

2013-14 Allocation (% of GDP)

Reduction in expenditure(crore Rs.)

BE 0.7%

RE 0.66% 4000

Since from last 20 years (1995-2014) • 4,00,000 crore was spent in education. •Even than two third of the population are not getting basic education. •Total population who are not getting education after 18 years are 29 crores•37% - illiterate youths•45 lakh teaching posts are vacant

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• However some students who had borrowed before

31.3.2009, struggled to pay interest during the period

of study, and continued to service the loans

afterwards.

• Moratorium period for all education loans taken up

to 31.3.2009 and outstanding on 31.12.2013.

Government will take over the liability for

outstanding interest as on 31.12.2013, but the

borrower would have to pay interest for the period

after 1.1.2014.

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It is estimated that nearly 9 lakh student borrowers will benefit

to the tune of approximately Rs. 2,600 crore.

Central Scheme for Interest Subsidy (CSIS) in respect of

education loans disbursed after 1.4.2009 under which

Government took over the burden of interest for the duration of

the period of study and a little beyond.

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Fiscal consolidation: Achieve the target of fiscal deficit of 3 percent of GDP by 2016-17 and remain below that level always.

Current Account Deficit: CAD will be inevitable for some more years which can be financed only by foreign investment. Hence, there is no room for any aversion to foreign investment.

Price Stability and Growth: In a developing economy, a high growth target entails a moderate level of inflation. RBI must strike a balance between price stability and growth while formulating the monetary policy.

Financial Sector reforms To be completed as laid down by Financial Sector Legislative Reforms Commission.

Massive investment in infrastructure: To be mobilized through the Public Private Partnership.

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Conti…

6. Manufacturing sector to be the base of India’s development: All taxes, Central

and State that go into an exported product should be waived or rebated. There

should be a minimum tariff protection to incentivize domestic manufacturing.

7. Subsidies, which are absolutely necessary should be chosen and targeted only

to the absolutely deserving.

8. Urbanisation to be managed to make cities governable and livable.

9. Skill development must be given priority at par with secondary and university

education, sanitation and universal health care.

10. States to partner in development so as to enable the Centre to focus on

Defense, Railways, National Highways and Tele-communication.

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Conclusion

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Thank you