FISCAL POLICIES IN INDIA SINCE 2005

FISCAL POLICIES SINCE 2005

PRESENTED BY:

PRAGYA HALOIUPASA BORAH

AKLANTA MADHAV KALITA

MEANING AND DEFINITION

To generate revenue and to incur expenditure, the government frames a policy called budgetary policy or fiscal policy. So, the fiscal policy is concerned with government expenditure and government revenue.

A policy under which government uses its expenditure and revenue program to produce desirable effects and avoid undesirable effects in the national income, production and employment. - Arthur Smith.

Objectives of Fiscal Policy

The following are the objectives of fiscal policy: 1. To maintain and achieve full employment.2. To stabilise the price level.3. To stabilise the growth rate of the economy.4. To maintain equilibrium in the balance of payments.5. To promote the economic development of underdeveloped countries.

- THE MINISTRY OF FINANCE FORMULATES FISCAL POLICIES IN INDIA

Tools of Fiscal Policy • Revenue

• Expenditure • Debt • Deficit

FISCAL RESPONSIBILITY AND BUDGET MANAGEMENT ACT 2003(FRBM)

The FRBM act effective from July,2004 mandates the government to eliminate revenue deficit by March 2009, and reduce fiscal deficit to 3% of

GDP by March 2009. the act provides for greater transparency in operations, quarterly review for fiscal situations and regulating borrowing from the RBI.

The act made it mandatory for the Finance minister to make an annual statement to Parliament on the fiscal situation besides explaining any

deviation in meeting the fiscal obligations.

HIGHLIGHTS OF 2005-06•Income upto Rs 1,00,000 per annum exempted from tax

•Fiscal deficit pegged at Rs 1,51,144 crore or 4.3 per cent of GDP during 2005-06

•Domestic companies to pay 30% corporate income tax and 10% surchargeNo change in the tax regime for foreign companies

•Customs duty on specified capital goods and all inputs for manufacture of IT Agreement bound items to be removed

•Plan expenditure is estimated at Rs 1,72,500 crore for 2005-06Non-plan expenditure at Rs 370.85 crore for next fiscal.

HIGHLIGHTS 2006-07

•North Eastern Region (NER): Allocation of Rs. 4,870 crore under flagship programme in addition to 10% of the plan budget for each ministry. Total allocation for NER comes to Rs. 12,041 crore.

•The rates remain same on personal income tax and corporate income tax. Further, no new taxes have been imposed.

•Reduction of import duty on all man-made fibres and yarns, and raw materials like DMT, PTA and MEG to 10% from 15% .

•Increase in excise duty on cigarettes by 5%.

•Service tax rate increased to 12% from 10%.

HIGHLIGHTS OF 2007-08

• Tax free bonds to be issued by state-owned urban local bodies.

• Five year tax holiday for two, three, four star hotels and convention centres with a seating capacity of 3,000 in NCT of Delhi, Gurgaon, Ghaziabad, Faridabad and Gautam

• Indian investors to be allowed investment in overseas capital markets through mutual funds. Mutual funds to set up Infrastructure Fund schemes.

• Fiscal deficit for 2007-08 pegged at 3.3 per cent of GDP at Rs.1,50,948 crore. Revenue deficit at Rs.72,478 crore which will be 1.5 per cent.

• Import duty of 15 specified machinery to be reduced from 7.5 per cent to five per cent.

• Small-scale industries excise duty exemption raised from Rs one crore to Rs 1.5 crore.

Highlights of Fiscal Policy 2008-09:• Saving rate and investment rate estimated to be 35.6 per cent and 36.3 per cent,

respectively, by the end of 2007-08; between April- December 2007-2008. FDI amounted to US$ 12.7 billion and FII to US$ 18 billion.

• A risk capital fund being created in the Small Industries and Development Bank of India (SIDBI); Credit Guarantee Trust with SIDBI had extended guarantees to 89,129 units for an amount of Rs.2,479 crore as on January 31, 2008; SIDBI to reduce the guarantee fee from 1.5 per cent to 1 per cent and the annual service fee from 0.75 per cent to 0.5 per cent for loans up to Rs.5 lakhs.

• Relief given to exporters in three tranches amounting to over Rs.8,000 crore; Interest cost of sterilization through market stabilization bonds (MSS), which is in a sense, subsidy to the export sector, estimated at Rs.8,351 crore for the year 2007-08.

• Revenue receipts of Central Government for 2008-09 projected at Rs.602, 935 crore and revenue expenditure at Rs.658,119 crore; Revenue deficit for 2008-09 estimated at Rs.55,184 crore, which amounts to 1.0 per cent of GDP; Fiscal deficit for 2008-09 estimated at Rs.133,287 crore which is 2.5 per cent of GDP; elimination of Revenue Deficit may need one more year; because of the conscious shift in expenditure in favour of health, education and the social sector.

• Threshold limit of exemption from personal income tax in the case of all assesses increased to Rs.150,000. The slabs and rates of tax are :

Up to Rs.150,000: NIL; Rs.150,001 to Rs.300,000: 10 per cent; Rs.300,001 to Rs.500,000: 20 per cent ; Rs.500,001 and above: 30 per cent

Highlights of Fiscal Policy 2009-10:• Allocation to National Highways Authority of India (NHAI) for the National

Highway Development Programme (NHDP) increased by 23 per cent over B.E. 2008-09 in B.E. 2009-10 and allocation for Railways increased from Rs.10,800 crore to Rs.15,800 cr.

• Outlays to be stepped up from Rs.2,112 crore in Interim Budget to Rs.3,472 crore in regular Budget 2009-10 for Commonwealth Games to be held ibn 2010.

• Budget Estimates provide for a total expenditure of Rs.10,20,838 crore consisting of Rs.6,95,689 crore under Non-plan and Rs.3,25,149 crore under Plan registering an increase of 37 per cent in Non-plan expenditure and 34 per cent in Plan expenditure over B.E. 2008-09.

• Exemption limit in personal income tax raised by Rs.15,000 from Rs.2.25 lakh to Rs.2.40 lakh for senior citizens; by Rs.10,000 from Rs.1.80 lakh to Rs.1.90 lakh for women tax payers; and by Rs.10,000 from Rs.1.50 lakh to Rs.1.60 lakh for all other categories of individual taxpayers.

• Customs duty of 5% to be imposed on Set Top Box for television broadcasting.• Customs duty on LCD Panels for manufacture of LCD televisions to be reduced

from 10% to 5%.

Highlights of Fiscal Policy 2010-11:

• Ownership has been broad based in Oil India Limited, NHPC, NTPC and Rural Electrification Corporation while the process is on for National Mineral Development Corporation and Satluj Jal Vidyut Nigam. This will raise about Rs 25,000 crore during the current year.

• Rs.16,500 crore provided to ensure that the Public Sector Banks are able to attain a minimum 8 per cent Tier-I capital by March 31, 2011.

• Government has introduced the Companies Bill, 2009 in the Parliament to replace the existing Companies Act, 1956, which will address issues related to regulation in corporate sector in the context of the changing business environment.

• The net tax revenue to the Centre as well as the expenditure provisions in 2010-11 have been estimated with reference to the recommendations of the Thirteenth Finance Commission.

• The total expenditure proposed in the Budget Estimates is Rs. 11,08,749 crore, which is an increase of 8.6 per cent over last year.

• Income tax slabs for individual taxpayers to be as follows: Income upto Rs 1.6 lakh Nil; Income above Rs 1.6 lakh and upto Rs. 5 lakh 10 per cent; Income above Rs.5 lakh and upto Rs. 8 lakh 20 per cent; Income above Rs. 8 lakh 30 per cent

HIGHLIGHTS OF 2011-12

• Fiscal deficit seen at 5.1 percent of GDP in 2010-11

• Personal income tax exemption limit raised to Rs 180,000 from Rs 160,000 for individual tax payers

• For senior citizens, the qualifying age reduced to 60 years and exemption limit raised to Rs 2.50 lakh.

• Service tax rate kept at 10 percent

• Total expenditure in 2011-12 seen at 12.58 trillion rupees

Highlights of Fiscal Policy 2012-13:• Rajiv Gandhi Equity Saving Scheme to allow for income tax deduction of

50 per cent to new retail investors, who invest upto Rs.50,000 directly in equities and whose annual income is below Rs.10 lakh to be introduced. The scheme will have a lock-in period of 3 years.

• Initiative of Bringing Green Revolution to Eastern India (BGREI) has resulted in increased production and productivity of paddy. Allocation for the scheme increased to `1,000 crore in 2012-13 from `400 crore in 2011-12.

• Gross Tax Receipts estimated at Rs.10,77,612 crore. • Net Tax to Centre estimated at Rs.7,71,071 crore. • Non-tax Revenue Receipts estimated at Rs.1,64,614 crore. • Non-debt Capital Receipts estimated at Rs.41,650 crore. • Exemption limit for the general category of individual taxpayers proposed

to be enhanced from `1,80,000 to `2,00,000 giving tax relief of `2,000.

Highlights of Fiscal Policy 2013-14:

• Allocation of Rs.160 crore to the corpus of Maulana Azad Education Foundation to raise its corpus to Rs.1,500 crore during 12th Plan period. •Credit Guarantee Fund to be created in the Small Farmers’Agri Business Corporation with an initial corpus of ` 100 crore.• Surcharge of 10 percent on persons (other than companies) whose taxable income exceed Rs.1 crore to augment revenues.• Increase surcharge from 5 to 10 percent on domestic companies whose taxable income exceed Rs.10 crore.• Out of nearly 17 lakh registered assesses under Service Tax only 7 lakhs file returns regularly. Need to motivate them to file returns and pay tax dues. A onetime scheme called ‘Voluntary Compliance Encouragement Scheme’ proposed to be introduced. Defaulter may avail of the scheme on condition that he files truthful declaration of Service Tax dues since 1st October 2007.

Highlights of fiscal policy 2014-15:

• Legislative and administrative changes to sort out pending tax demands more than 4 lakh crore under dispute and litigation.

• The composite cap of foreign investment to be raised to 49 per cent with full Indian management and control through the FIPB route.

• PSUs will invest through capital investment a total sum of Rs 2,47,941 crores in the current financial year.

• Total expenditure of Rs.17,94,892 crore estimated. Gross Tax receipts � �� �of Rs.13,64,524 crore estimated. Net to centre of Rs.9,77,258 crore estimated. ��

• Fiscal deficit of 4.1% of GDP and Revenue deficit of 2.9% estimated. ��• Personal Income-tax exemption limit raised by Rs.50,000/- that is,

from Rs.2 lakh to Rs.2.5 lakh in the case of individual taxpayers, below the age of 60 years. Exemption limit raised from Rs.2.5 lakh to Rs.3 lakh in the case of senior citizens.

HIGHLIGHTS OF 2015

• Fiscal deficit seen at 3.9 per cent of GDP in 2015/16

• To reduce custom duty on 22 items.

• Plans to set up national investment infrastructure fund

• Net market borrowing seen at Rs 4.56 trillion

• To abolish wealth tax

CHANGES IN GDP GROWTH RATE OVER LAST 10 YEARS

CHANGES IN FISCAL DEFICIT RATE OVER LAST 10 YEARS

Importance of Fiscal Policy

Government activities are enlarged. Tax- Revenue and Expenditure accounts for large proportion of GNP.

Government effects the Economic activities through gap between government receipts and borrowings.

It indicates the level of overall borrowings by the government.

It is the indicator of fiscal health of the economy.