Government Budgets

Government Budgets

[op-ed snap] An independent fiscal watchdog for Parliamentop-ed snap


From UPSC perspective, the following things are important :

Prelims level : Parliamentary Budget Offices

Mains level : Utility of such PBO for Indian parliamentarians

Monitoring money flow

  • When most people arrive at the ballot box, they vote with their gut.
  • But getting there requires absorbing and shaping months and years of conversations, long-held opinions and ideally, hard facts and evidence.
  • What is then important for our electorate and the representatives we vote for is that they have an independent, non-partisan source for these hard facts and evidence.
  • This is particularly important for our Parliament, which controls where and how money flows into our government and our country.

Need for expertise

  • The money flow needs to be not based on political allegiance or expediency, but on its expertise in budgetary, fiscal and economic matters.
  • Regardless of a majority or minority government, this body serves parliamentarians equally and without prejudice.
  • Even in a majority government, besides few expertises from the civil service, most parliamentarians do not benefit from timely access to good quality analysis on economic, fiscal or financial matters.

The Parliamentary Budget Offices

  • The body exists in many countries around the world, going by many names but most commonly as Parliamentary Budget Offices (PBOs).
  • These bodies help shape the debate and discourse around the state of the nation’s finances and the fiscal implications of significant proposals.
  • The work done by PBOs naturally ends up in the public sphere; when they do, they help drive smarter, more focused debate in the media and with our electorate.

Learning from examples: Defence costing

  • Take an example: the Rafale deal. Part of the controversy resulted from uncertainty regarding the true lifecycle costs of the aircraft bought.
  • In 2011, the Canadian PBO released a cost estimate for purchase of F-35 jets. This estimate far exceeded the one presented by defense analyst.
  • Defence costing, typically the purview of the Defence Ministry, was a completely new area of analysis, information and research that parliamentarians could now access to hold the government to account.

What PBOs provide

  • Besides costing policies and programmes, PBOs provide significant and sometimes the sole source of information on fiscal and economic projections.
  • The role of such an office does not always mean challenging the government; it is often the case that economic and fiscal projections of a PBO and the Ministry of Finance are similar.
  • This is unsurprising as data sources and economic methodologies for such projections are well established and uniform.
  • However, without the existence of another data point, generated by an independent, non-partisan office, it is difficult for parliamentarians to ensure that these projections and estimates continue to be reliable enough for them to make decisions on.
  • When these projections come into question, the Cabinet can tap the civil service for further research and analysis.
  • Most parliamentarians do not have this luxury and may have to rely on poor quality third-party data and analysis, done without relevant expertise. This is a situation that must be avoided.

Co-existing with the AG

  • A question — and a reasonable one — that often arises is the necessity of such an office when we already have an auditor general.
  • However, this misunderstands the role the auditor general performs, which is to provide retrospective audits and analysis of the financial accounts and performance of government operations.
  • These audits are often focused on the day-to-day goings on of government, and often hone in on the performance of the civil service.
  • A PBO provides prospective, forward-looking economic and fiscal projections, as well as policy costings.
  • This distinguishes it from an auditor general, which provides useful information, but only after the fact.

Global examples

  • Internationally, similar offices have been established across the world, with the most prominent being the Congressional Budget Office in the US which provides impartial advice to both upper and lower houses of the legislature.
  • Offices in the Netherlands, Korea, Australia and the UK have also been established for varying lengths of time. PBOs are also making an appearance in emerging economies in Sub-Saharan Africa and Southeast Asia.
  • In some countries, including Australia and most recently, Canada, PBOs have been playing the unique role of costing electoral platforms during an election campaign.
  • In this period, PBOs provide independent cost estimates of electoral platform measures to political parties.

India needs such office

  • A PBO, or a similar independent fiscal institution, will not solve all these problems but is a relatively cost-efficient way to arrive at a solution.
  • As the process toward the Union Budget 2020 has already kicked off, it would be prudent for parliamentarians to examine the case for a PBO more deeply.
  • The amount of information parliamentarians need to scrutinise in Budget documents has exponentially increased and a PBO would assist parliamentarians in this process of scrutiny.
  • Legislatures across the world have witnessed an increasingly stronger executive try to wrest away its rightful power of the purse.
  • A PBO would help resuscitate these powers that have fallen into disuse.

Way forward

  • What distinguishes India’s democracy, besides its diversity of views and opinions, is its ability to evolve and remain dynamic.
  • What is gravely in danger is evidence-based discussion around important policies that affect the trajectory of our Republic, discussions which can quickly blur the line between fact and fiction.
  • This is why India’s Parliament and government need to work quickly and energetically to establish such an office; it is in everyone’s interests to do so.
Government Budgets

[op-ed snap] Allocations are keyop-ed snap


From UPSC perspective, the following things are important :

Prelims level : Nothing much

Mains level : What are the priority areas in economy now

The budget must focus on the priority areas for the budget allocations. It is expected to provide funds and an assurance that the allocations would be rule-based.

  1. Rural distress needs to be allocated to funds.
    1. Drinking water
    2. Improving the efficiency of existing irrigation systems
    3. Rural finance — including temporary waiver of loan repayments — 
  2. Job creation
    1. It will depend on the revival of industrial production, continuing growth of exports and an agricultural revival. 
    2. Most policies have a lag of around four to six months.
    3. In the short run, the money will be needed for the MGNREGA. 
    4. The budget should concretely raise public investment to revive private investment to reverse the declining growth rate in every quarter.
  3. Fiscal Deficit
    1. The fiscal deficit is a real issue and leads to pressures on the bank rate and exchange rates. 
    2. The need is to raise resources by taxation and not cutting consumption by the government and non-government sectors. 
  4. Banking sector
    1. The cleanup of the banking and NBFC sectors should be immediate and it needs funds.
    2. Though these are outside the budget, they determine the fiscal deficit.
  5. Raise government investment at the central, state and parastatal level.
  6. The economy is suffering from a decline in investment ratios. This is reflected in the declining growth rate, which is below the potential of 8%. 
  7. The last round of the NSS data shows that girl child dropped out of school more than earlier. If she goes to college, marries late, the first child comes later the real demographic dividend starts.

Case study and way ahead

  1. Gujarat’s experience shows that a high manufacturing physical output growth rate reduces the workforce dependent on agriculture.
  2. The allocation for Self Help Groups with a trust fund is a clear solution.
Government Budgets

[op-ed snap] Borrow abroad and profitop-ed snap


From UPSC perspective, the following things are important :

Prelims level : Government Debt and its composition

Mains level : Public debt and related issues


The government is planning to issue 10 year bonds denominated in foreign currency.

Why it is a good idea

  1. Such borrowing would be cheaper because dollar or yen interest rates are lower than rupee interest rates.
  2. Our debt to GDP ratio is not very high, the exchange rate is stable, and foreign exchange reserves are high. So foreign borrowing, if its long term, is not a problem.
  3. If foreign bond issuance was accompanied by a move towards greater capital account convertibility then it may be worth pursuing.
  4. A country pays a country premium for borrowing in dollars; currently, the US 10-year bond is trading at 2%. A complex set of factors determine the country’s premium, but the magnitude of reserves and foreign currency debt are important attributes. India has less debt denominated in foreign currency, close to 5%. Thus, we should be able to borrow at a somewhat lower premium than 150 bp, possibly 130bp.
  5. Indian inflation has moved structurally downward over the last three years.
  6. It will also help to significantly lower the real repo rate to respectable levels. 

Problems with these bonds

  1. Usually, the lower dollar interest rate is offset in the long run by higher principal repayments as the rupee depreciates against the dollar.
  2. Loss of sovereignty and may lead to currency depreciation

No country has grown at “trend” rates with a real repo rate of around 3.4%, not even 2.4% or 2%. Issuing bonds now is an idea whose time has come.

Government Budgets

Fiscal Performance Index by CIIDOMRPriority 1


From UPSC perspective, the following things are important :

Prelims level : CII, FPI

Mains level : FRBM

  • Confederation of Indian Industry (CII) has come out with a ‘Fiscal Performance Index’ to assess quality of budgets presented by the Centre and state governments.

Fiscal Performance Index (FPI)

  • The composite FPI developed by CII is an innovative tool using multiple indicators to examine quality of Budgets at the Central and State levels.
  • The index has been constructed using UNDP’s Human Development Index methodology which comprises six components for holistic assessment of the quality of government budgets.

Why need such an index?

  • A single criterion such as the ‘fiscal deficit to GDP ratio’ does not tell us anything about the quality of the Budget.
  • Hence, the Government should use multiple indicators to measure the quality of Budgets at the Central and the State levels rather than a single indicator.

Components of FPI

  1. Quality of revenue expenditure: measured by the share of revenue expenditure other than interest payments, subsidies, pensions and defence in GDP
  2. Quality of capital expenditure: measured by share of capital expenditure (other than defence) in GDP
  3. Quality of revenue: ratio of net tax revenue to GDP (own tax revenue in case of States)
  4. Degree of fiscal prudence I: fiscal deficit to GDP
  5. Degree of fiscal prudence II: revenue deficit to GDP and
  6. Debt index: Change in debt and guarantees to GDP

Other measures of FPI

  • As per the new index, expenditure on infrastructure, education, healthcare and other social sectors can be considered beneficial for economic growth.
  • At the same time, tax revenues are sustainable sources of revenue for the government as compared to one-time income sources.
Government Budgets

[op-ed snap] Realising grand objectivesMains Onlyop-ed snap


From UPSC perspective, the following things are important :

Prelims level : Nothing Much

Mains level : Issues which need immediate attention for India's safety and growth.


While the broad directions of India’s foreign relations — with the neighbourhood, Afghanistan, the U.S., China, Indo-Pacific, Russia, and Europe — have been set over the past several years, the main factors inhibiting India’s performance are ultimately domestic in nature. Three stand out.

1. Trade

  • The first is trade.
  • It often surprises people that India’s trade-to-GDP ratio is higher than China’s or the U.S.’s. India’s market, and access to it, remains a valuable lever with other countries.
  • But much of India’s commerce involves raw materials and low value-added goods, and is still insufficiently integrated into global supply chains.
  • With global trade stagnant and the World Trade Organization at a standstill, the only way for India to seize a larger share of exports is through well-negotiated preferential trade agreements.
  • India’s past record in this department has been poor, leaving some sectors exposed to dumping and others unnecessarily cloistered.
  • A smarter trade agenda will not only create jobs and drive reforms at home, it could become a potent strategic tool in international affairs.

2. Defence

  • The second concerns defence.
  • India has the world’s fifth largest defence budget but is also the world’s second largest arms importer.
  • Not only does this compromise national security, it means that India cannot offer an alternative as a defence supplier to countries in its region.
  • Defence indigenisation will require financing for defence capital expenditure; assessments of costs, technology transfer capabilities, and export potential early in the procurement process; and fair competition between the Indian private and public sectors.

3. Overseas Project Implementation

  • The third concerns overseas project implementation.
  • India’s outgoing aid budget has been relatively flat, reflecting a scepticism of grant aid from India’s own experience as a recipient.
  • Instead, it has now started to explore other financing options. Indian overseas credit has increased significantly, with over $24 billion extended primarily to South Asia, Southeast Asia, and Africa.
  • But building on several recent steps will significantly increase the country’s delivery and regional credibility.
  • These include better project planning, more attractive and competitive financing terms, more reliable disbursal of funds, and enhanced coordination and communication with the private sector for implementation.


Many regional policy challenges would be addressed with these three major fixes. None will be easy as they will require tackling vested interests. While the first Modi government made its strategic objectives known and set out a clear direction, key policy interventions in these three areas will now be necessary for India to realise its grander objectives.

Government Budgets

[op-ed snap] Redactive pricing audit and the CAG’s dutiesMains Onlyop-ed snap


From UPSC perspective, the following things are important :

Prelims level : CAG

Mains level : Redactive Pricing approach in CAG's Report harm transparency in democratic institutions.


The Supreme Court’s observations in connection with the Rafale fighter aircraft deal by citing the Comptroller and Auditor General of India’s (CAG’s) report on redacted pricing, and subsequent media reports and the controversy over “stolen files” brought back into the spotlight the role of the supreme audit institution of India.

Questions surrounding the report

  • What is redactive pricing?
  • Does the constitutional mandate provide redactive pricing to be included in the CAG’s audit reports submitted to the President to be placed before Parliament?
  • Do any supreme audit institutions (SAIs) such as the National Audit Office, the Government Accountability Office or Commonwealth countries follow redactive pricing in audit reports?


Redaction is the selection or adaption by ‘obscuring or removing sensitive information’ from a document prior to publication.

Duties of CAG

  • The CAG is mandated to audit all receipts and expenditures of the three-tier governments in India and report to the legislature judiciously, independently, objectively in compliance with applicable laws, rules and regulations, without fear and favour.
  • He conducts financial compliance and performance audits and submits his reports to the legislature to help people’s representatives in enforcing legislative oversight and public accountability of the executive.
  • Legislative committees such as the Public Accounts Committee and Committee on Public Undertakings examine the CAG’s selected reports.

Explanations regarding redactive Pricing

  • In the preface of the audit report, the CAG stated that redactive pricing was unprecedented but had to be accepted due to the Ministry’s insistence citing security concerns.
  • Consequently, the full commercial details were withheld and the figures on the procurement deal were blackened.

Not Transparent measure

  • It was unprecedented that an audit report submitted by the CAG to the President under Article 151 of the Constitution suppressed relevant information.
  • Whether the Ministry’s insistence citing security concerns could have been accepted by the CAG can be examined only by the Supreme Court in the light of the constitutional provisions on the CAG’s duties and parliamentary privileges and prerogatives.
  • Redactive pricing is nowhere used in SAI audit reports.
  • It does not seem to have been used in a government audit by any SAI of any country.
  • Redactive pricing in the ‘Performance Audit Report of the Comptroller and Auditor General of India on Capital Acquisition in Indian Air Force (Union Government – Defence Services, Air Force, Report No. 3 of 2019)’ suppresses more than it reveals.
  • For example, in the Rafale deal, Parliament, its committees, the media and other stakeholders of the CAG’s reports cannot obtain complete, accurate and reliable information due to redactive pricing.
  • The reduction in the original requirement, to 36 aircraft, a waiver of the earlier decision to involve Hindustan Aeronautics Limited, observations of the Indian Negotiating Team, cost escalation due to inclusion of bank guarantee and performance guarantee were not compared properly to arrive at the audit conclusion.

Pricing is Pivotal to procurement

  • Pricing is an integral part of the procurement decision-making process of any equipment, product, goods or service.
  • Therefore, price integrity and comparative competitiveness are at the heart of any procurement decision.

Way Forward

  • Given the dynamics of international competition in competitive products and pricing in today’s modern market scenario, pricing, delivery and post-delivery service and other conditions are essentially covered in an SAI audit.
  • It is a complex audit, demanding exceptional insight, expertise, knowledge and skills.
  • Seek expertise – In case the CAG’s office lacks expertise to conduct a performance audit, expertise can be sought from the pool of resources or credible organisations to be coopted in the audit team.
  • No resorting to redactive Pricing – Pricing decisions must be subjected to detailed analysis, without resorting to redactive pricing.
  • The privilege of Parliament – Parliament is constitutionally privileged to know what the executive had done and how and under what conditions a procurement was decided. The CAG’s audit is expected to highlight value for money in purchase decisions.


A performance audit is done to establish whether the procurement activity was executed keeping in mind economy, efficiency, effectiveness, ethics and equity. Only a thorough pricing audit can bring out the credibility and integrity of a purchase decision, thereby achieving an SAI’s constitutionally mandated responsibilities.

Government Budgets

[op-ed snap] Managing the stimulusop-ed snap


Mains Paper 2: Economic Development| Indian Economy and issues relating to planning, mobilization of resources, growth, development and employment. Government Budgeting.

From UPSC perspective, the following things are important:

Prelims level: Basic knowledge of the highlights of the budget 2019.

Mains level: The news-card analyses the income transfer scheme introduced in budget 2019 and its impact over the economy, in a brief manner.


  • According to Budget 2019, the decline in fiscal deficit ratios has stalled and at nearly 6 per cent, India continues to have one of the highest general government (states plus Centre) deficits globally.

Crowding out, leaving more for the private sector

  • A measure of “crowding out” is government borrowing from bond markets as a share of incremental deposits in the banking system.
  • This ratio is now down to 33 per cent as the net bond issuance budgeted for the next financial year is unchanged from levels seen eight years back, a period in which the economy has grown substantially.
  • That is, the government’s excess spending, funded through borrowings, is now appropriating a smaller part of the financial savings and leaving more for the private sector.

Not all a rosy picture

  • In the current financial year, extra-budgetary spending was Rs 1.4 trillion higher than what had been budgeted.
  • Ninety per cent of that amount was from the Food Corporation of India.
  • While higher inventory holding likely explains a large part of this Rs 1.2 trillion increase, one wonders if some unfunded food subsidy may have contributed too.
  • Governments also have this tendency to give aggressive tax collection targets that make the deficit appear low, but then later in the year are forced to make course corrections.

Are the tax targets for the next year too aggressive?

  • They appear to be somewhat stretched but achievable.
  • The economic growth estimate of 11.5 per cent, taking the GDP to Rs 210 trillion, may be slightly optimistic, given how weak inflation has been in the past several months, even if the government’s consumption stimulus shores up activity levels.
  • Budgeted growth in direct tax collections at 15 per cent appears high, but is lower than what has been achieved over the past two years and thus more credible, given the significant widening of the tax base, and some recovery in corporate earnings.

Estimated growth for GST

  • The 18 per cent estimated growth for GST collections seems to assume an improvement in compliance.
  • According to the government, GST collections thus far have been nearly completely voluntary.
  • There has been very little enforcement and follow-up.
  • Post elections, the government may re-start the move towards e-way bill or invoice-matching, and also permit tax officials to question the accuracy of the self-assessments made by entities.

Income transfer scheme for farmers

  • The highlight of the budget was the Rs 750 billion income transfer scheme for farmers.
  • Even though this was widely anticipated, this is a policy innovation whose impact is hard to model.
  • Most income transfer schemes so far have been experiments on small sets of people in particular villages or townships.
  • The impact of a scheme with 117 million farmland owners is likely to be significantly different.


  • How will the recipients use these transfers?
  • Will some microfinance companies create loan products where these payments become the instalments, and the recipient gets Rs 25,000 upfront instead of Rs 2,000 thrice a year?
  • Will these funds be used to repay existing loans from money lenders?
  • Will these funds be used to buy Rs 500 of better food every month, send the kids to a private school, invest in sowing the next crop, or used to buy a bicycle?
  • Will they save all or part of it?
  • Each of these choices will very likely be made by some individuals, but the collective impact would depend on how many chose to do what.

Will the income transfer scheme for farmers be inflationary?

  • Theoretically, a sudden rise in demand where supply takes time to respond should create inflation.
  • If for argument’s sake, everyone used these funds to send children to private schools, there could be a shortage of schools and teachers and the price of schooling would rise.
  • But this risk is low: At about a third of a per cent point of GDP, this is small.
  • The diffused nature of this transfer (a small sum to a large number of people), makes it unlikely to cause a demand surge for any particular good or service.
  • Rs 6,000 per year may mean a 30 per cent addition to some households’ income, and 5 per cent to others: This would show up in how they spend these funds as well.
  • If this had been structured as a monthly income scheme, with double the transfer per recipient for half as many beneficiaries, the impact on inflation may have been higher.

Scheme would boost food demand and growth

  • Such a scheme would have most likely boosted food demand: This is nearly 60 per cent of the consumption basket of the target population.
  • If you have ever asked how a country with one of the lowest milk consumption per capita can have an oversupply of milk for several years, the answer is that milk at current prices is unaffordable to many.
  • If the demand for milk, meat, fruits and vegetables, that is, more expensive calories, was boosted, the stalled channel of income transfer from the rich to the poor, which is food prices, would have restarted.
  • This stimulus should boost growth, which has been fading rapidly in the last several months.


  • An income transfer scheme was somewhat inevitable, and such a scheme will likely continue for many years.
  • After a certain stage of economic development, it becomes difficult for average per-capita agricultural incomes to keep pace with the rest of the economy, as land productivity becomes a limiting factor.
  • Moving workers away from agriculture is the only sustainable solution: In the interim, such schemes can provide temporary relief.
  • But given how little we understand about its potential impact, policy-makers need to be agile in making design changes to maximise the gains without having damaging side-effects.
Government Budgets

[op-ed snap] Socio-economic issues focus area of Budget 2019op-ed snapPriority 1


Mains Paper 2: Economic Development| Government Budgeting.

From UPSC perspective, the following things are important:

Prelims level: Basic knowledge of Budget 2019.

Mains level: The news-card analyses the major focus areas of Budget 2019, in a brief manner.


  • Budget 2019 seems to be a budget for the masses as the government has announced several relief measures for farmers, informal workers and other marginalized communities.

Farmers’ and informal workers’ benefit programmes

  • To relieve farmer distress the budget unveiled the Pradhan Mantri Kisan Samman Nidhi, an assured income support programme, for 120 million small and marginalized farmers with an outlay of ₹75,000 crore per year.
  • This is a good move, however, with an annual relief of only ₹6,000 per year, it may not make any meaningful impact.
  • The extension of 2% interest subvention to animal husbandry and fisheries farmers, using Kisan Credit Card for loan, will be beneficial.
  • Similarly, the extension of 2% interest subvention for the full loan term to farmers seeking loan rescheduling on account of natural calamities, will ease pressure faced by them.
  • In case of timely repayment, they will get an additional 3% incentive for the entire period of reschedulement of loans.

Unorganized sector

  • The Pradhan Mantri Shram Yogi Maandhan pension scheme for unorganized sector workers with an income of up to ₹15,000 is a welcome move, as it will offer them a monthly pension of ₹3,000 with a nominal per month payout.
  • This is a good initiative, as it will bring 100 million such workers and labourers under a social security net, and will also be the first step towards generating formal data on the kind of jobs being created in this sector.

Social schemes

  • The allocation for the welfare of Scheduled Castes and Scheduled Tribes has been substantially increased, which will help in improving the condition of these marginalized communities.
  • The allocation of ₹60,000 crore for Mahatma Gandhi National Rural Employment Guarantee Act for the economically weaker sections of society will also bring some relief.


  • In the area of education, the budget allocation for the National Education Mission has gone up.
  • The government has announced approximately 200,000 extra seats in educational institutions to ensure availability for various reserved classes.
  • This should help in creating equitable educational opportunities.
  • Similarly, the additional allocation for the Integrated Child Development Scheme will provide better preschool education and primary healthcare, as well as improve nutrition in young children and their mothers.

Focus on women

  • The allocation of ₹1,330 crore for the Mission for Protection and Empowerment for Women is timely and will help in creating a safe and secure environment for women.
  • It is encouraging to note that over 70% of the beneficiaries of the Pradhan Mantri Mudra Yojana are women, who are engaged in creating their own businesses.
  • Under the Pradhan Mantri Ujjwala Yojana, 60 million liquefied petroleum gas connections have been provided to rural women, thus improving their quality of life.


  • The allocation of ₹19,000 crore for the Pradhan Mantri Gram Sadak Yojana will improve rural connectivity.
  • While the government claims that India is the fastest highway developer in the world with 27km of highways built each day, road infrastructure in urban cities needs immediate attention.
  • The use of inland waterways for freight movement is a good beginning and, with adequate allocation, it could provide an effective alternative to the surface transport system in the country.

Digital India push

  • This area have certainly seen some progress.
  • The government’s plans to create 100,000 digital villages over the next five years will give impetus to the Digital India programme.
  • The announcement of a national programme on artificial intelligence, which is based on NITI Aayog’s research work over the past one year, is a welcome move.
  • Such an initiative will go a long way in addressing the skills gap in this area.


  • However, the biggest disappointment has been the absence of any meaningful incentive given to the healthcare sector to enable the government’s agenda of making healthcare affordable and accessible.
  • The government should have looked at goods and services tax exemption on cancer and diabetes drugs, which would have benefited millions of patients.


  • Therefore, though socio-economic issues has been the major focus area of Budget 2019, the absence of any incentive for healthcare sector has been a major disappointment.
Government Budgets

Explained: Interim BudgetPriority 1


Mains Paper 3: Economy | Mobilization of resources

From UPSC perspective, the following things are important:

Prelims level: Interim Budget

Mains level:  Difference between normal and interim budget


  • Union finance ministry is all set to discuss its interim budget ahead of the general elections.

Lets have a look over what is:

Interim Budget

  1. The budget for the year approved by Parliament gives the government spending rights only till the end of the financial year ending March 31.
  2. If for any reason the government is not able to present a full budget before the financial year ends, it will need parliamentary authority for incurring expenditure in the new fiscal year until a full Budget is presented.
  3. Through the interim Budget, Parliament passes a vote-on-account that allows the government to meet the expenses of the administration until the new Parliament considers and passes the Budget for the whole year.

Vote on Account

  1. Through the interim Budget, Parliament passes a vote-on-account that allows the government to meet the expenses of the administration until the new Parliament is elected.
  2. It is a grant in advance to enable the government to carry on until the voting of demands for grants and the passing of the Appropriation Bill and Finance Bill.
  3. This enables the government to fund its expenses for a short period of time or until a full-budget is passed.
  4. Normally, the Vote on Account is taken for two months only.
  5. The sum of the grant would be equivalent to one sixth of the estimated expenditure for the entire year under various demands for grants.
  6. As a convention, a vote-on-account is treated as a formal matter and passed by Lok Sabha without discussion.

How does the interim budget differ from a regular budget?

  1. In an interim Budget, the vote-on-account seeks parliament’s nod for incurring expenditure for part of a fiscal year.
  2. However, the estimates are presented for the entire year, as is the case with the regular Budget.
  3. The incoming government has full freedom to change the estimates completely when the final Budget is presented.

Can the government levy new taxes and propose new policies?

  1. Constitutionally, the government can make tax changes in the interim budget.
  2. However, the 12 interim budgets since Independence have respected the fact that the government is a custodian for a few months and have refrained from announcing big-ticket changes or new schemes.


  1. The government cannot present a full budget because in such a short session, there’s no time to debate proposals in Parliament.
  2. Expenditure for new schemes will have to form part of the new budget, which can be approved only after April 1.
  3. The newly formed government cannot be burdened by the previous government’s budgetary allocations.
  4. While these are the technicalities, many look upon the vote on account as election rhetoric.
  5. Many look at it as a window where the government highlights its achievements ahead of elections.
Government Budgets

Explained: Off-Budget FinancingPriority 1


Mains Paper 3: Economy | Mobilization of resources

From UPSC perspective, the following things are important:

Prelims level: Fiscal deficit, Off-Budget financing, FRBM Act,

Mains level:  Deficit Financing Mechanisms


What’s the issue?

  1. The Comptroller and Auditor General (CAG) of India has pulled up the government for increased use of off-budget financing for schemes and subsidies in its Compliance of the Fiscal Responsibility and Budget Management (FRBM) Act report for FY17.
  2. This practice of off- budgeting masks the true extent of fiscal and revenue deficits.
  3. The CAG of India recommended that the government to institute a policy framework for off-budget financing, which, should include a disclosure about its rationale and objective to parliament.

Why in news?

  1. In terms of revenue spending, off-budget financing was used for covering the fertilizer bills through special banking arrangements; food subsidy bills of the Food Corporation of India through borrowings.
  2. And for implementation Accelerated Irrigation Benefits Programme, govt. borrowed from the NABARD under the Long Term Irrigation Fund.
  3. Such off-budget financing are not part of calculation of the fiscal indicators despite fiscal implications.

Explained: Off-Budget Financing

  1. This refers to expenditure that’s not funded through the budget.
  2. For example, the government sets up a special purpose vehicle (SPV) to construct a bridge.
  3. The SPV will likely borrow money to build the bridge on the strength of a government guarantee.
  4. If it’s not a toll bridge, the SPV will need government support to meet interest obligations.

Why is it Problematic?

  1. Even though the borrowing and spending is outside the budget, it has implications for the budget and for all practical reasons should be included in that document.
  2. Since it’s not, this doesn’t reflect on the fiscal deficit number as well.
  3. Governments across the world use this to escape budget controls.

Implications of Off-budget financing

  1. Off-budget financing by its nature isn’t taken into account when calculating fiscal indicators.
  2. But the cost is borne by the budget through some mechanism or the other.
  3. Such financing tends to hide the actual extent of government spending, borrowings and debt and increase the interest burden.
  4. In the above example, the borrowing by the SPV should ideally be included in the government’s debt.
  5. To the extent that this spending is backed by a government guarantee, it entails a fiscal risk.
  6. Hence, Parliamentary control on such spending is also reduced as its remains outside the budget.

CAG favors a Policy for Disclosure

  1. In order to address these issues, CAG said the government should consider putting in place a policy framework for off-budget financing.
  2. The framework should specify the rationale and objective of off-budget financing, quantum of off-budget financing and sources of fund, among others.
  3. CAG further said the government should also consider disclosing the details of off- budget borrowings through disclosure statements in Budget as well as in accounts.


Fiscal Responsibility and Budget Management (FRBM) Act

  1. The objective of the Act is to ensure inter-generational equity in fiscal management, long-run macroeconomic stability, better coordination between fiscal and monetary policy, and transparency in fiscal operation of the Government
  2. FRBM became an Act in 2003 which provides a legal-institutional framework for fiscal consolidation.
  3. The rule specifies reduction of fiscal deficit to 3% of the GDP by 2008-09 with annual reduction target of 0.3% of GDP per year by the Central government.
  4. Similarly, revenue deficit has to be reduced by 0.5% of the GDP per year with complete elimination to be achieved by 2008-09.
  5. It is the responsibility of the government to adhere to these targets. The Finance Minister has to explain the reasons and suggest corrective actions to be taken, in case of a breach.
  6. The Government can move away from the path of fiscal consolidation only in case of natural calamity, national security and other exceptional grounds which Central Government may specify.
  7. The Act prohibits borrowing by the government from the Reserve Bank of India, thereby, making monetary policy independent of fiscal policy.
Government Budgets

FCRA amendment in Finance Bill


Mains Paper 2: Polity | Salient features of the Representation of People’s Act

From UPSC perspective, the following things are important:

Prelims level: Foreign Contribution Regulation Act, Representation of the People Act

Mains level: Political funding and incidental corruption

Proposal to amend the repealed Foreign Contribution Regulation Act (FCRA), 1976

  1. The Union government has proposed to amend the repealed Foreign Contribution Regulation Act (FCRA), 1976, retrospectively
  2. The move will benefit the ruling Bharatiya Janata Party and the Congress held guilty by the Delhi High Court for receiving foreign funds from two subsidiaries of Vedanta, a U.K.-based company
  3. The amendment to FCRA provisions for foreign funding would come into effect from the 5th August, 1976, the date of commencement of the FCRA, 1976
  4. FCRA, 1976, was repealed and re-enacted as the FCRA, 2010

Foreign funding not allowed

  1. The Representation of the People Act and the FCRA bar political parties from receiving foreign funds
  2. In 2016, the government amended the FCRA through the Finance Bill route, allowing foreign-origin companies to finance non-governmental organisations
  3. This also cleared the way for donations to political parties by changing the definition of “foreign companies”
  4. The amendment, though done retrospectively, only made valid the foreign donations received after 2010


Foreign Contribution Regulation Act

  1. The Foreign Contribution (Regulation) Act, 2010 is an act of the Parliament of India to regulate the acceptance and utilisation of foreign contribution or foreign hospitality by certain individuals or associations or companies
  2. It prohibits acceptance and utilisation of foreign contribution or foreign hospitality for any activities detrimental to the national interest and for matters connected therewith or incidental thereto
  3. The central government has the power to prohibit any persons or organizations from accepting foreign contribution or hospitality if it is determined that such acceptance would likely “affect prejudicially”

(i) the sovereignty and integrity of India,

(ii) public interest,

(iii) freedom or fairness of election to any legislature,

(iv) friendly relations with any foreign State, or

(v) harmony between religious, racial, social, linguistic or regional groups, castes or communities

Government Budgets

[op-ed snap] Promise and delivery: on Union Budget 2018op-ed snap


Mains Paper 3: Economy | Government Budgeting

From UPSC perspective, the following things are important:

Prelims level: Fiscal deficit, MSP, APMC, National Health Protection Scheme, LTCG tax

Mains level: Important terms and provisions in budget


Balancing populism and fiscal prudence

  1. In its last Union budget for this term, government tried to strike a balance between fiscal prudence and populism
  2. Government has decided to ease off on fiscal consolidation as mandated by the FRBM Act
  3. The Budget has reported a fiscal deficit of 3.5% (of GDP) for FY18 and pegged it at a high 3.3% for next year

Root causes of distress

  1. Unremunerative farm incomes
  2. Unemployment
  3. Lack of social security nets and
  4. Squeeze on the middle-class taxpayer

Proposals for their resolution

  1. Unremunerative farm incomes
  • A ‘fool-proof’ mechanism has been mooted to avoid market prices falling below MSPs
  • Minimum support prices (MSPs) would cover all crops and assure farmers 1.5 times their production cost
  • Farmers’ markets will be set up to free small farmers from the tyranny of Agricultural Produce Market Committees (APMCs)

2. Unemployment

  • Government has promised of providing 70 lakh new employment to youth

3. Lack of social security nets

  • The National Health Protection Scheme, to provide a ₹5 lakh health cover to 10 crore households, is a much-needed social security intervention
  • It will benefit poor households that rely overwhelmingly on private healthcare

4. Squeeze on the middle-class taxpayer

  • Budget has been frugal in its giveaways to the middle class and the corporate sector
  • There is no increase in the basic exemption limit on income tax
  • The imposition of 10% long-term capital gains tax on profits from shares and equity mutual funds could dampen market sentiment in the near term

Way forward

  1. The Budget has a sense of direction that is difficult to find fault with
  2. It is to be hoped that as the revenue base improves and GST collections stabilise, future budgets can put the finishing touches on the welfare proposals
Government Budgets

Credit Enhancement Fund to be launched by March

Image source


Mains Paper 3: Economy | Mobilization of resources

From UPSC perspective, the following things are important:

Prelims level: Credit Enhancement Fund, IIFCL

Mains level: Measures  being undertaken to ease flow of credit to infrastructure sector

Fund to raise credit rating

  1. The Credit Enhancement Fund, announced by the Finance Minister in the last Budget, is expected to be operational by the end of this fiscal
  2. The India Infrastructure Finance Company Ltd (IIFCL) anchored fund will help raise credit rating of bonds floated by infrastructure companies and facilitate investments from long-term investors

Easy access to institutional financing

  1. The government has been thinking about credit enhancement to ease the flow of institutional credit to infrastructure projects
  2. Raising the credit rating of these companies would help easier access to institutional financing

LIC not anchoring the fund

  1. In the 2016-17 Budget speech, FM had proposed that the LIC will set up a dedicated fund to provide credit enhancement to infrastructure projects
  2. LIC could not anchor the proposed company because of regulatory issues
Government Budgets

[op-ed snap] The state is writing cheques it can’t cashop-ed snap


Mains Paper 3: Economy | Mobilization of resources

From UPSC perspective, the following things are important:

Prelims level: CAG, Clean Ganga Fund, BRICS, Right to education (RTE), National Clean Energy and Environment Fund (NCEEF), Clean Energy Cess, Nirbhaya Fund, Beti Bachao, Beti Padhao

Mains level: Underutilisation of allocated funds by government departments and ways to reduce this tendency


Unutilized funds

  1. A Comptroller and Auditor General (CAG) report made public earlier this week points out that the approximately Rs2,500 crore in the Clean Ganga Fund remains unutilized
  2. This failure points to a long-running problem in Indian governance—the inability of Union ministries and state governments to cash the cheques the Centre writes

Inadequate allocation

  1. In the 2017-18 Union budget, education spending came to about 3.71% of gross domestic product (GDP), a considerably lower percentage than, say, peer nations in the BRICS (Brazil, Russia, India, China, South Africa) grouping
  2. Government healthcare spending, taking both the Centre and states into account, has hovered around the wholly inadequate 1.5% of GDP mark

Problem not merely inadequate government expenditure

  1. There is also a failure to absorb and deploy allocated resources at every level of government
  2. A CAG performance audit tabled in Parliament in July this year pointed out that despite persistent demands for more right to education (RTE) funds from the Centre, state governments have failed to spend over Rs87,000 crore of the allocated corpus over the past six years
  3. Similar patterns can be seen across budget heads
  4. The National Clean Energy and Environment Fund (NCEEF) has been the backstop for the Modi government’s strong push to renewable energy
  5. In April this year, the government diverted the Clean Energy Cess on coal production, meant to be funnelled to the NCEEF, to compensate states for revenue lost under the goods and services tax
  6. The corpuses for other once-prominent schemes like the Nirbhaya Fund and Beti Bachao, Beti Padhao remain largely untapped
  7. Programmes like the National Rural Health Mission and Integrated Child Development Services have often failed to use their allocated funds in recent years

Reasons for such failures

  1. State budgets have not always responded adequately to the increased devolution of funds starting from the 2015-16 Union budget
  2. There is often a substantial mismatch between fund allocation and outlay planning at various levels of implementation
  3. The fund release timetable for the fiscal year can be a problem as well

Way forward

  1. The reliance on cesses must stop. They are meant to be budgetary band-aids—temporary levies to address a pressing need
  2. Reducing the number of ministries is a must
  3. The Central and state governments must follow through with devolution of funds as well as planning and implementation at both the panchayat level and for city governments
  4. The time is ripe to implement ‘minimum government, maximum governance’
Government Budgets

CAG picks flaws in Centre’s accounting


Mains Paper 3: Economy | Growth

From UPSC perspective, the following things are important:

Prelims level: Comptroller and Auditor General of India, FRBM Act, fiscal deficit, revenue deficit, effective revenue deficit, revenue expenditure, capital expenditure

Mains level: Fiscal slippage and its effects on economy

FRBM audit shows FY16 fiscal deficit possibly understated

  1. The Comptroller and Auditor General of India (CAG) has highlighted several flaws in the Union government’s accounting procedures for the financial year 2015-16
  2. This could have led to an understatement of the fiscal deficit and revenue deficit for that year

Key issues raised in report

  1. The report highlighted the fact that the government had deferred payments amounting to more than ₹1.87 lakh crore in 2015-16, which would have also had an impact on its fiscal and revenue deficits for that year
  2. Though the accounts of the government are prepared on cash basis, yet the deferment of liabilities to subsequent year cyclically has a bearing on computation of fiscal indicators
  3. As a result of deficiency in estimating the expenditure on grants for creation of capital assets, the provision included in the Budget for grants for creation of capital assets was underestimated which has also impacted the correct estimation of effective revenue deficit
  4. The report added that due to the misclassification of revenue expenditure as capital expenditure and vice versa, the revenue deficit was understated by ₹1,583 crore during financial year 2015-16
  5. Amounts collected under levies and cesses were not transferred to the relevant funds, which led to an “understatement of revenue/fiscal deficit by an equivalent amount” during 2015-16

Issues with transparency

  1. The CAG also noted that there were several issues with the transparency of the government’s account statements
  2. Refunds of ₹1,29,482 crore were made from gross direct tax collections in FY2015-16 but no corresponding disclosure was available in the government accounts

Government failed to meet FRBM targets

  1. CAG pointed out that the government had failed to meet the FRBM targets for 2015-16 on both the fiscal deficit and the revenue deficit
  2. Government  had subsequently changed the targets and deadlines without making the relevant changes in the Act itself
  3. The annual reduction targets were not in accordance with the provisions of the FRBM Act/Rules
Government Budgets

[op-ed snap] The case for flexible fiscal targetingop-ed snap

Image source


Mains Paper 3: Economy | Government Budgeting

From UPSC perspective, the following things are important:

Prelims level: Fiscal deficit, fiscal consolidation, fiscal stimulus, FRBM Act, N.K. Singh Committee on FRBM,

Mains level: Changes required in framing fiscal policy


Growing concern regarding fiscal deficit target breach

  1. There is growing concern that India will miss the fiscal deficit target of 3.2% of the gross domestic product (GDP) set in the Union budget for the year to 31 March
  2. The Centre has been on a path of fiscal consolidation, narrowing its deficit from a high of 5.9% in FY12 to 3.5% of GDP in FY17
  3. The government’s revenue collection in the current year is falling short of target, leading to concerns on the fiscal front
  4. With GDP growth slipping, there is increasing clamor for fiscal stimulus to revive the economy

What does missing the fiscal deficit target really mean for the Indian economy?

  1. Higher fiscal deficit for an economy means increased government borrowing, which in turn implies higher interest burden
  2. India has a debt-to-GDP ratio of 68%, which is the highest among its emerging market peers
  3. Many of the developed economies like the US and Japan have much higher debt-to-GDP ratio (108% and 240%, respectively)
  4. However, their interest burden is much less as their governments are borrowing at much lower interest rates
  5. Most of India’s government debt is internal (from domestic market), implying less external vulnerability
  6. In India, the government’s interest payment to total expenditure is around 24%, while for Japan and the US it is much lower at 9.5% and 11.2%, respectively

What does higher interest payment lead to?

  1. Higher interest payment burden implies less headroom for developmental expenditure by the government
  2. Capital expenditure accounts for only 12-14% of India’s total expenditure, whereas a high of 24% of government’s total expenditure goes into interest payment obligation
  3. The other disadvantage of a high debt-to-GDP ratio is that it has an impact on the country’s credit ratings and investor sentiments

Whether our fiscal management should be counter-cyclical?

  1. This means that when economic growth is above potential, policymakers should reduce fiscal deficit
  2. Similarly, when economic growth is poor, fiscal deficit should be allowed to expand (within a ceiling) in order to support economic growth

Is fiscal slippage permissible?

  1. There should be some flexibility to increase fiscal deficit if the economic scenario warrants
  2. At the same time, it is very critical to ensure that the fiscal slippage, if any, is not due to unproductive expenditure on populist measures
  3. The Fiscal Responsibility and Budget Management (FRBM) Act enacted in 2003 led to an improvement in the fiscal deficit of Centre from 5.7% of GDP in FY03 to 2.5% of GDP in FY08
  4. However, there was a pause button on the FRBM Act post the global financial crisis
  5. Fiscal deficit shot up to 6% in FY09 and it was only in FY12 that a path to fiscal consolidation was recalibrated

The N.K. Singh Committee on FRBM

  1. It has recommended reducing the fiscal deficit-to-GDP ratio to 2.5% of GDP by 2022-23
  2. Even though the committee has said that using cyclically adjusted deficits may not be practical for India at this point of time, they have suggested flexibility in fiscal deficit targets in case of exogenous shocks
  3. These shocks include sharp drop in economic growth or structural reforms with fiscal implications
  4. The committee has emphasized the need for increased focus on debt sustainability and recommended reducing India’s debt-to-GDP to 60% by 2022-23 from the current level of 68%

What is needed right now?

  1. Currently, the private investment scenario in the economy is languishing
  2. Banks have been investing more than the mandatory requirement in government securities, reflecting the lack of better avenue for banks
  3. Hence a higher government borrowing will not in anyway crowd out private investment
  4. Higher government capital expenditure (capex) is badly required at this point to propel growth


Know more about government budgeting and various deficits here: Click2read

Government Budgets

FRBM panel report in December; may suggest new deficit goalposts

  1. A government appointed committee to devise a roadmap for fiscal consolidation is likely to submit its report by next month
  2. The NK Singh-led committee to review the FRBM roadmap was set up by the Finance Ministry in May
  3. The 5-member committee is likely to call for a new law to replace the Fiscal Responsibility and Budget Management Act, 2003
  4. It will also suggest new goalposts for the Centre and States’ fiscal deficits
Government Budgets

Union Budget to be presented around 1 February: Modi

  1. Source: PM Modi
  2. What: He confirmed that next year’s Union budget will be presented around 1 February
  3. Where: A PRAGATI (Pro-Active Governance and Timely Implementation) meeting
  4. The meeting was to review the work of projects and programmes of the government with state chief secretaries via video conferencing
  5. He asked the state governments to advance their budget schedule, too, so that they are aligned with the Union budget
  6. Last month, the Union cabinet decided to merge the railway budget with the Union budget
Government Budgets

Cabinet approves merger of Rail, General budgets

  1. Ending a 92-year-old tradition, the Union Cabinet decided to merge the Railway budget with the General budget
  2. Autonomy: The merger of budgets would not impact the functional autonomy of the railways, but help in enhancing capital expenditure
  3. The cabinet also agreed, in-principle, to advance the date of its presentation in Parliament from the usual February end
  4. The actual date for presentation of the General budget for 2017-18 will be decided by the Govt after taking into account the coming Assembly elections
  5. The Cabinet has also decided to do away with the Plan/ Non-Plan expenditure classification in Budget 2017-18 and replace with ‘capital and receipt’
Government Budgets

Special package announced for Andhra Pradesh

  1. Prime Minister made an announcement which, in practical terms, amounts to the treatment of residual Andhra Pradesh as a Special Category state
  2. The package is valid for five years- 2015 to 2020
  3. It revolves around various sections in the A.P. Reorganisation Act, the 14th Finance Commission report recommendations, oral commitment made by the then Prime Minister in February 2014 and the recommendations made by the Niti Ayog in 2015
  4. Centre would authorise the State to take charge of the construction while it would meet the financial needs
  5. CBDT would issue two specific notifications on tax concessions being extended to AP
Government Budgets

Overhauling the budgeting process- a reforms agenda

  1. Rail budget: The practice of presenting a separate Budget for the railways is to be scrapped from 2017
  2. Budget documents getting slimmer with indirect tax proposals finding almost no mention after excise duties, service tax and cesses are subsumed under the proposed GST regime
  3. Plan v/s Non-Plan: Abolition of the distinction, to be replaced with capital and revenue expenditure, is also on cards
  4. Time: Until 2000, the Budget was announced at 5 pm & the practice was inherited from the pre-Independence era, when the British Parliament would pass the Budget in the noon followed by India in the evening on the same day
  5. In 2001, the NDA Govt under Atal Bihari Vajpayee changed the ritual and the then finance minister, Yashwant Sinha, presented the Union Budget at 11 am
  6. New financial year: Govt has already set up a committee to examine its feasibility, replacing the existing April-March period
Government Budgets

Govt mulls presenting Budget by Jan-end

  1. Why? To complete the exercise before the beginning of the new financial year
  2. Impact: There would be no need for a Vote on Account and a full Budget can be approved in one stage before March 31
  3. Constitution: Does not mandate any specific date for presentation of the Budget
  4. Traditionally: The Union Budget has for decades been presented on the last working day of February and the two-stage process of parliamentary approval takes it to mid-May
  5. Stage 1: As the financial year begins on April 1, the Govt in March takes Parliament approval for Vote on Account for a sum of money sufficient to meet expenditure on various items for two to three months
  6. Stage 2: The Demands and Appropriation Bill, entailing full-year expenditure and tax changes, is then passed in April/ May
Government Budgets

New norms for clearing public-funded schemes

  1. News: The Finance Ministry has issued new norms for the appraisal and approval of public-funded schemes as well as to improve the delivery of goods and services to citizens
  2. Approval: No new scheme or sub-scheme can be initiated without the prior in-principle approval of the Department of Expenditure
  3. This will not apply to the announcements made in the Budget Speech for any given year
  4. Empower ministers to approve expenditure proposals of up to Rs 500 crore, up from the previous limit of Rs 150 crore
  5. Administrative Ministries should continuously endeavour to merge, restructure or drop existing schemes and sub-schemes that have become redundant or ineffective with the passage of time
Government Budgets

RBI Governor appointed by PMO on the recommendation of Finance Minister

  1. News: The RBI Governor is appointed by the Prime Minister’s Office (PMO) on the recommendation of the Union Finance Minister, the Centre informed Parliament
  2. While the Appointment Committee of Cabinet (ACC) guidelines for appointment of Deputy Governors are still the same, the composition of the search committee has been changed
  3. The RBI Act, 1934: Section 8(1)(a) provides that there shall be one Governor and not more than four Deputy Governors to be appointed by the central government on the central board of RBI
  4. Deputy Governors: Appointed on the basis of ACC-approved guidelines, which stipulate that the search committee constituted for the purpose will recommend the person to be appointed as a Deputy Governor
  5. Change: Now, a search committee, namely Financial Sector Regulatory Appointment Search Committee (FSRASC) has been constituted with the approval of ACC
  6. The committee will recommend names for appointment of Chairperson and Members of financial sector regulatory bodies, including those of the Governor and Deputy Governors
Government Budgets

More spending autonomy for Ministries

  1. News: The threshold of non-Plan project expenditure that can be approved by ministries has been raised from Rs 150 crore to Rs 500 crore
  2. The Finance Ministry’s nod will be needed for expenditure between Rs 500 crore and Rs 1,000 crore, beyond which Cabinet approval would be required
  3. Impact: Expected to expedite the appraisal and approval process in the central government ministries/ departments
Government Budgets

Tax receipts at Rs.14.6 lakh cr, exceeds estimates

  1. News: The govt collected Rs.14.6 lakh crore in taxes in financial year 2015-16, which is higher than the Budget Estimates and Revised Estimates for the year
  2. Reason: The bulk of the growth in total tax revenues was due to the increase in indirect tax collections
  3. Statistics: Indirect tax collections were 31.1% higher than in the previous financial year
  4. The total collection has exceeded the revised estimates and represents a growth of 17.6% compared to the last financial year
Government Budgets

Fertiliser subsidy bill set to shrink next year

  1. News: The next financial year will see the govt’s subsidy bill shrink by about Rs.10,000 crore
  2. Reason: Cut in nutrient-based subsidy rates and the lower price of gas, the key feedstock in urea production
  3. Impact: The reduction in the subsidy bill could help the govt narrow its fertiliser subsidy arrears of about Rs.35,000 crore, which had been carried forward since 2012
  4. Challenge: Achieving a balanced nutrient ratio still remains a far cry, because of price disparity between urea and phosphatic fertilisers
  5. Statistics: The fertiliser subsidy has been estimated at Rs.70,000 crore for 2016-17
Government Budgets

Even states are cutting capital expenditure

  1. News: Data on capital expenditure by the govts of 7 major states shows dramatic cut down in capex, just like the central govt
  2. These states include Tamil Nadu, Uttar Pradesh, Gujarat, Rajasthan, Kerala, Madhya Pradesh and Bihar, accounting for slightly over two-fifths of the country’s GDP
  3. Impact: The hope that states will revive capex is fast fading
  4. Statistics: The central govt in the Union budget for FY17 cut the capex growth to 4% compared with 21% in FY16
Government Budgets

India’s current account deficit narrows to 1.3% of GDP

  1. News: India’s current account deficit narrowed to 1.3% of the GDP in the fiscal 3rd quarter, as compared to 1.5% in the last year
  2. Reason: Trade deficit during the Oct-Dec quarter narrowed to $34 billion from $38.6 billion during the same period in 2014-15
  3. Challenge: India’s merchandise exports have been declining continuously since Dec 2014 due to sluggish global demand and low commodity prices
  4. CAD: It shows the difference between domestic savings and domestic investment, and conveys the extent of this gap that needs to be bridged by foreign savings
Government Budgets

Small savings rates slashed, PPF rate cut to 8.1% from 8.7%

  1. Context: In Feb, Govt. decided to revise interest rates on small savings every quarter
  2. News: Govt. has reduced the interest rates payable on small savings including PPF and Kisan Vikas Patra
  3. Impact: The move will hit the common man the most, as they are the ones who invest in small savings schemes
Government Budgets

NPS can now be ‘technically’ tax-free, says pension regulator

  1. Context: Govt.’s bid to bring NPS on par with other pension products
  2. News: The retirement savings accumulated under the New Pension Scheme (NPS) can now be totally tax-free at the time of withdrawal under certain conditions
  3. Budget 2016: It made 40% of NPS accumulations tax-free
  4. How? Under NPS, 40% of corpus is mandatorily annuitised and that is tax free, and with budget announcement, 40% lumpsum withdrawal is also tax free. So, if anyone annuitise 60% of their balance, then it becomes totally tax-free
  5. Annuity: An annuity product allows investors to get a steady monthly income on their accumulated corpus
Government Budgets

Proposal to tax EPF withdrawn

  1. Context: Govt.’s move to tax EPF withdrawals saw a severe backlash, both in and outside Parliament
  2. News: Govt. has withdrawn the proposal of taxing 60% of EPF withdrawals
  3. Reason: Govt accepted the argument that employees should have the choice of where to invest the EPF withdrawals
  4. Objective: The proposal sought to encourage people to join pension scheme, as withdrawal from the the EPF was tax free, if invested in annuity
  5. Criticism: Taxing EPF withdrawal will reduce the retirement savings of the working class
Government Budgets

Special cell set up to gather data on subsidies of other nations

  1. News: The govt. has set up a special cell to compile information on subsidies given by other countries to their industry
  2. Background: In order to tackle slowdown in global trade, several countries have taken measures to protect their domestic industries from unfairly low-priced imports
  3. Objective: The information will help impose duty on subsidised imports and protect local industry
  4. It will also enable Indian industries to file applications before the govt seeking imposition of anti-subsidy duties on subsidised imports of items
  5. Subsidies: Under the WTO norms, it refers to financial contribution by the govt or state agencies resulting in advantages to those players availing it
Government Budgets

Budget 2016: A pro-poor push in hard times

  1. News: Budget for 2016-17 attempted to address the distress in the rural economy that has hit demand creation and new investments
  2. Context: nearly Rs. 2.75 lakh crore enhanced outlays for programmes in the social sector, farmer welfare and the rural sector
  3. Target: Finance Minister chose to stick to the fiscal consolidation road map and set a 3.5 per cent of GDP target for 2016-17
  4. Other reforms: in taxation, foreign direct investment, dispute resolution in PPP projects and banking
  5. LPG connections: for BPL families, variable pollution cess on new cars, 60% of EPF savings to be taxable
  6. Healthcare scheme: to protect the poor from high healthcare costs with a cover of Rs. 1 lakh and an additional cover of Rs. 30,000 for senior citizens
  7. Aadhaar Bill: to give legislative backing to the Aadhaar scheme for identifying residents on the basis of their biometrics
Government Budgets

Be cautious on new accounting system: CGA

  1. News: The Controller General of Accounts has cautioned the govt before adopting the accrual methods of accounting, due to the costs involved and only few of its departments can benefit
  2. Importance: Accrual accounting is a means to the reforms in public financial management
  3. How? It includes greater accountability and a greater need for operations of the govt to be on commercial lines
  4. Challenge: It will require considerable preparatory work and capacity building of accounting personnel
  5. Criticism: There are inadequacies in the way the budget heads of accounts are currently classified, which needs to be modernised
Government Budgets

Private finance vital for India to reach climate goals: Survey

  1. News: India will find it hard to meet its variety of obligations to tackle climate change without substantial help from private sector
  2. Context: Successful implementation of the Paris Agreement, SDGs goals and the ambitious targets set out in INDCs will require huge financial resources, cannot be met through budgetary sources alone
  3. Relevance: Leveraging private finance along with public finance, both international and national, will be critical
  4. Benefit: This could benefit from the renewed global focus on adopting and developing green technology
  5. UN’s SDGs: Lay the onus on countries to make significant progress on a wide range of goals including ending poverty and hunger and combating climate change
  6. Survey also notes: Mission on Climate Change and Health is being developed and a National Expert Group on Climate Change and Health has been constituted
Government Budgets

Rich feed off subsidies worth over Rs. 1 lakh crore: Economic Survey

  1. News: India’s rich feed off subsidies worth over Rs. 1 lakh crore a year that are meant for the poor
  2. Subsidies on: 6 commodities, 2 public utilities — the Railways and electricity — and 1 small savings scheme, the Public Provident Fund
  3. Context: Form of explicit subsidisation, which is surprisingly substantial in magnitude
  4. Relevance: Rich avail of an 88% subsidy on kerosene and 86 per cent subsidy on LPG
  5. Survey classification: Population on the basis of consumption data collected by National Sample Surveys.
  6. Poor refer to the bottom 30 per cent of the population and the rich the top 70 per cent
Government Budgets

Economic Survey estimates 7 to 7.5% growth rate for 2016-17

  1. News: The Survey projected a 7-7.5% GDP growth rate in the next fiscal which could accelerate to 8% in a couple of years
  2. The fiscal deficit target of 3.9% of GDP seems achievable, despite the challenges and lower than projected GDP growth rate during 2015-16
  3. Expectation: There are two factors that can boost domestic consumption- increased spending, if the 7th Pay Commission is implemented and return of normal monsoon
  4. Challenge: Indian economy is currently facing the twin balance sheet problem – the impaired financial positions of the PSBs and some corporate houses
Government Budgets

Economic Survey against raising income tax exemption limits

  1. Context: The Economic Survey 2015-16 tabled in Parliament
  2. Proposal: The survey suggests that the govt should refrain from raising exemption limits on income tax
  3. Reason: A natural growth in income will lead to increase in the number of taxpayers, provided exemption limits are not raised
  4. Proposal: It called for a review and phasing out of the tax exemption raj
  5. Reason: It often leads to redistribution toward the richer private sector
  6. Challenge: A cross-country comparison shows that India currently has the lowest number of taxpayers, nearly 85% of the economy still remains outside the tax net
Government Budgets

Economic Survey bats for GM crops

  1. Background: Currently, commercial cultivation of Bt cotton is allowed and there is a moratorium on Bt brinjal
  2. Proposal: The survey favoured the use of hybrid and GM seeds along with better MSP, irrigation and national market facilities to boost crop yields
  3. How? The regulatory process needs to be evolved in order to address safety concerns of GM crops
  4. Proposal: Incentivise raising of production of pulses and oilseeds
  5. Reason: The country is heavily dependent on imports for such crops
Government Budgets

Project Insight to fight black money

  1. Context: NDA govt’s fight against domestic black money
  2. Project: It is focused on extensive data mining and processing the details of country’s 22.94 crore PAN allottees, with the specific intention of monitoring fund flows across identities and accounts
  3. Aim: To generate an actionable audit trail of high value transactions by way of sequenced transaction history of an individual or entity, where a PAN number has been quoted, in any part of the country
  4. It will be implemented phase-wise during the 3-year period spanning 2016-18
  5. Nodal Agency: Income Tax Department
Government Budgets

Govt. may penalise higher PF savings

  1. News: The upcoming Budget may penalise voluntary investments of more than Rs.1.5 lakh parked in the Employees’ PF and General PF accounts
  2. Reason: To channelize savings to other alternatives such as the National Pension System
  3. The PFRDA currently has assets of Rs 1.10 lakh crore under its watch and reports to the Finance Ministry
  4. The Employees’ PF Organisation works under the Labour Ministry and has over Rs.10 lakh crore under its administrative control
  5. Experts: It is not a good idea as it would be unfair to deprive an investor of the income that got accumulated on his investments
  6. Criticism: The tax treatment for NPS investments are currently taxable at the time of retirement as opposed to EPF savings that are tax-free
Government Budgets

FM inaugurates non-tax revenue e-portal

  1. Context: PMO’s target to switch at least 90% of all official transactions to paperless mode by the end of 2016
  2. Reason: One major way to curb black money is to discourage cash transactions in favour of electronic transactions
  3. News: Finance Minister launched a new e-platform for non-tax receipts
  4. Advantage: It will reduce a lot of the manual work and almost instantly enable the payment at the different categories
  5. Sources of Non-tax revenue: Dividends paid by PSUs, the Reserve Bank of India, etc
Government Budgets

Increase excise duty on oil, petroleum for more revenue

  1. Context: To accelerate India’s economic growth by increasing infrastructure spending in 2016-17 budget
  2. Where? Focus on low gestation projects like rural roads, canals, bridges which can result in immediate economic benefits
  3. Finances: Increasing its revenue by excise hikes on oil and petroleum products
  4. Bring revenue deficits under control through an effective tax implementation and collection system
  5. Impact: It can give the govt room to raise infrastructure-related spending
Government Budgets

Policy for capital goods introduced

  1. News: The government introduced a National Capital Goods Policy
  2. Purpose: To spur capital goods sector and the Make in India initiative. It aims to turn the country into a world class hub for capital goods
  3. Objective: To increase production of capital goods from Rs. 2.30 lakh crore in 2014-15 to Rs. 7.50 lakh crore in 2025
  4. To raise direct and indirect employment from the current 8.4 million to 30 million by 2025
  5. Key Elements: Availability of finance, raw material, innovation and technology, productivity, quality and environment-friendly manufacturing practices, increasing skill availability, promoting exports and creating domestic demand
Government Budgets

Fiscal management far better this year than earlier: CGA

  1. Context: Controller General of Accounts review of fiscal management in India
  2. The News: Expenditure by various departments was spread through out the year as opposed to the huge spending in last 2 quarters in previous years
  3. Criticism: Huge spending in last 2 quarters shows that it was wasteful expenditure; in order to exhaust the budget
  4. Challenge: Timely reporting of the consolidated picture of govt accounts is missing in India
  5. The present govt has ensured that funds are released right upfront, in the beginning
Government Budgets

Revenue target to be met, says Adhia

  1. Context: Centre expects to meet the target of Rs.14.49 lakh crore for revenue collection from taxes for the current financial year
  2. How? – The surplus in indirect taxes will be enough to make good the expected shortfall in direct tax collections
  3. Indirect Tax Collection: The govt expects to garner over Rs. 40,000 crore more than the target set for indirect tax collection
  4. This gives an indications of high level of economic activities taking place in the economy
  5. Direct Tax Collection:  The collection from direct taxes is up just 10.9% as compared to last year
Government Budgets

Jaitley asks States to raise infra outlay

  1. Finance Minister urged the States to boost spending on infrastructure creation and anti-poverty programmes
  2. Why – Govt. is under pressure to raise public investments to revive the economy
  3. How – By leveraging the increased devolution from the implementation of the 14th Finance Commission’s (FFC) recommendations
  4. State’s Demand –  To release the compensation for phasing out the central sales tax
  5. Do you know? – After FFC recommendations were implemented, the Centre’s share in 58 social development programmes was reduced
  6. This included the important schemes like Sarva Shiksha Abhiyan and the Integrated Child Development Services
Government Budgets

Govt. sets up Tax Policy Council headed by Finance Minister

  1. The Govt has created a Tax Policy Research Unit (TPRU) and Tax Policy Council to be chaired by the Union Finance Minister.
  2. The decision is based on the recommendation of the Tax Administration Reform Commission.
  3. Objective- To bring consistency, multidisciplinary inputs, and coherence in policy making.
  4. The TPRU will be a multi-disciplinary body with the objectives of carrying out studies on various topics of fiscal and tax policies.
  5. It will provide independent analysis, prepare and disseminate policy papers and background papers on various tax policy issues.
Government Budgets

India, U.S. clear 100 transfer pricing cases under MAP

The MAP programmes with other countries like Japan and UK are also progressing well with regular meetings and resolution of past disputes.

  1. One of the significant steps taken by CBDT to boost investment sentiments among MNCs is the landmark Framework Agreement signed with the Revenue Authorities of USA in January, 2015.
  2. This agreement was finalised under the Mutual Agreement Procedure (MAP) provision contained in the India-USA Double Taxation Avoidance Convention (DTAC).
  3. The agreement seeks to resolve about 200 past transfer pricing disputes between the two countries in the IT Services [ITS] and IT enabled Services [ITeS] segments.
  4. The success of the framework Agreement in short period of one year has led to the US Revenue Authorities opening up their bilateral APA programme to India.
Government Budgets

The progress of PMJDY- deposits cross $4.5 billion mark

  1. The PMJDY accounts have deposits of Rs 30,638.29 crore (about $4.5 billion).
  2. As many as 20.38 crore bank accounts were opened as on January 20, 2016.
  3. Accounts with ‘Zero Balance’ have actually shown a significant decline – from 76.81% in Sept 2015 to 32% in Dec.
  4. Also, 8.74 crore of the accounts were seeded with Aadhaar and 17.14 crore account holders were issued RuPay cards.
Government Budgets

Open multi-brand retail, e-commerce, education to more FDI: India Inc.

  1. Industry wants the govt. to further ease FDI norms, especially in sectors such as multi-brand retail, education and e-commerce.
  2. They also sought more liberalised norms for the insurance industry.
  3. They have raised concerns on the adverse impact of Free Trade Agreements on local manufacturing
  4. They also demanded support to boost manufacturing, exports and startups.
  5. On the education sector, it said 100% FDI should be allowed in all service companies ancillary to education
Government Budgets

Govt. must focus on demand creation: CII

  1. Industry wants govt. to focus on creation of demand in the Budget.
  2. Private sector is not investing because:
    • There is a lack of demand.
    • They have excess capacities due to past investments.
    • The lack of positive sentiments due to the failure to get GST going.
  3. This is reflected in reports that manufacturing is at a 2-year low now.
  4. If these are addressed, there will be definitely a big pick-up in the economy.
Government Budgets

Government to focus on access to social security for unorganised labour

The key challenges faced by Indian agriculture are the need to increase productivity by leveraging technology.

  1. To ensure access to health and social security benefits to three labour groups—organised, unorganised and those not employed or below poverty line.
  2. Need-based minimum wage is to be considered as essential part of social security.
  3. The trade unions recommended that contract or casual workers should not be deployed in jobs of a perennial nature.
  4. These workers should be paid the same wages and benefits as was being paid to regular workers doing the same work until they are regularised.
  5. In addition, the trade unions called for a control on spiralling prices and putting an end to government’s divestment in public sector companies.
Government Budgets

PMO seeks inputs from economists to stem slowdown, raise profitability

  1. PMO is seeking inputs from govt economists to reassess both the fiscal and monetary policy issues.
  2. There has been a slowdown in India’s nominal GDP growth with latest estimates from the Central Statistics Office.
  3. The Finance Ministry’s mid-year analysis has also put the slowdown into the spotlight.
  4. The mid-year analysis underscored the need for “carefully reassessing” both fiscal and monetary policy stances.
  5. The reason due to which the slowdown in the nominal GDP growth is more pronounced is the decline in the GDP deflator.
  6. The PMO’s move to gain insight into the state of the economy is expected to lead to corrective changes.
Government Budgets

Govt unveils medium-term debt strategy

  1. The govt. is planning to switch Rs 50,000 crore high cost debt into instruments of longer term maturity.
  2. The objective is to secure the govt’s funding at all times at low cost over the medium/long term while avoiding excessive risk.
  3. The MTDS is developed for the period 2015-16 to 2017-18 based on the outstanding govt market borrowing as on end March 2015.
  4. The borrowing cost in the domestic market is expected to be lower in 2015-16 due to reversal in the interest rate cycle.
Government Budgets

Govt. opacity leaves Rs. 8,000 cr expenditure unaccounted for

  1. The govt’s finances exhibit opacity in the way some of the funds have been spent.
  2. More than Rs 8,000 crore of expenditure have no accompanying explanation of how and where the money was spent.
  3. As per CAG report, there are 11 heads of govt. spending where more than 50% of the expenditure had no details.
  4. CAG has been highlighting this opacity to the govt. every year since 2008, but almost nothing has so far been done to address the issue.
Government Budgets

India well prepared to deal with US rate hike: Finance Ministry

India is well prepared to deal with the impact of the U.S. Federal Reserve interest rate hike and the end of uncertainties will actually help policy makers in emerging economies.

  1. The U.S. Federal Reserve last night hiked interest rates by 0.25 per cent.
  2. This is the first hike in about a decade, signalling a recovery in the US economy.
  3. End of uncertainty and accommodative outlook for future will help policy makers in emerging economies.
  4. Fed’s confidence on recovery is good news for India’s exports, especially for the IT sector.

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