Evolution of Union Budget

Evolution of Union Budget

INDIA’S FISCAL POLICY

• Emphasis on public sector expansion for economic growth and industrial development

• Fiscal policy focused on transfer private savings to cater to the growing consumption and

investment needs

• Reduction of income and wealth inequalities via taxes

Pre 1991 Budgets

•High administrative controls

• Licensing and quota system for private sector

Revenue Strategy

Direct and indirect taxes were focused on revenue from private sector

• 1950-51: Indirect taxes at 2.3% of GDP

• 1950-51: Direct taxes at 1.8% of GDP

Post 1991: Economic LiberalizationINDIA’S FISCAL POLICY

• India opened economy to foreign investment and trade

• Private sector was encouraged

• Quotas and licenses were abolished

Tax reform: Direct1992-93: Personal income tax brackets reduced to 3at of 20%, 30% and 40%

1993-94: Distinction between closely and widely held companies removed. Uniform `

corporate tax rate brought down to 40%

1996-97: Minimum Alternative Tax or MAT was introduced. MAT required a company

to pay a minimum of 30% of profits as tax

1997-98 :Personal income tax brackets reduced further to10%, 20%, and 30%. Uniform

corporate tax reduced to 35% with 10% tax on distributed dividends

2004-05: STT or Securities Transaction Tax was introduced

2005-06: Fringe benefit tax or FBT was brought in

Tax reform: Indirect 1994: 95: Service tax was introduced and its net kept expanding

1996-97: MODVAT was expanded to cover most commodities

1997-98: Peak custom duty rate was brought down to 40%

1999-2000: Eleven rates were merged into three with a few luxury items subject to

additional non-rebatable tax

2000-01: The three rates were merged in to a single rate and renamed as central VAT

or CENVAT. Three additional excise duties at 8%, 16%, 24%were kept.

2002-03: Peak customs duty cut to 30%

2004-05: Peak customs duty cut by 5% to 25%

2005-06: Peak customs duty saw a 10% cut from 25% to 15%

Tax Reform

POST 1991: EXPENDITURE STRATEGY• Focus on reducing subsidies and cutting down on non-capital expenditure.

• Composition of government expenditure takes time to have effect

• 2003: FRBMA was adopted.

• FRBM Act gave target for balancing current revenues and expenditures

• FRBM Act set overall limits to the fiscal deficit at 3% of GDP to be achieved in

phases

• FRBM Act enhanced budgetary transparency

• Fiscal prudence limiting public debt via higher revenue and controlled expenditure

has been institutionalized

• Expenditure reforms aim to target reduction of subsidies

Expenditure Strategy

Budget Simplified

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