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INDIA : FINANCE
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Thursday, 24 May 2012 03:20

 

INDIA : FINANCE

The Ministry of Finance handles economic and financial issues affecting the country and regulates expenditure of the Government including transfer of resources to the states. It has 10 Departments as explained below:

(i) Economic Affairs,

(ii) Expenditure,

(iii) Revenue, and

(iv) Disinvestment

The main divisions of the Department of Economic Affairs are viz.

(i) Finance Division

(ii) Budget Division including Fiscal Responsibility and Budget Management (FRBM)

(iii) Capital Market

(iv) Bilateral Co-operation and Administration

(v) Multilateral Institutions

(vi) Multilateral Relations and Administration

(vii) Controller of Aid, Accounts and Audit

(viii) Economic Division

(ix) Directorate of Currency.

Twelfth Finance Commission: The Twelfth Finance Commission (constituted on 1st Nov., 2002) by the President to give recommendations on specified aspects of Centre – State fiscal relations during 2005-10. The Commission submitted its Report covering all aspects of its mandate on 17 December, 2004.

Recommendations the Twelfth Finance Commission

(a) Restructuring Public Finances:

Centre and States to improve the combined tax GDP ratio to 17.6 per cent by 2009-10.

Combined debt – GDP ratio, with external debt measured at historical exchange rates, to be brought down to 75 per cent by 2009-10.

Fiscal deficit to GDP targets for the Centre and States to be fixed at 3 per cent.

Revenue deficit of the Centre and States to be brought down to zero by 2008-09.

Interest payments relative to revenue receipts to be brought down to 28 per cent and 15 per cent in the case of the Centre and States, respectively.

States to follow a recruitment policy in a manner so that the total salary bill, relative to revenue expenditure, net of interest payments, does not exceed 35 per cent.

(b) Sharing of Union Tax Revenues:

The share of States in the net proceeds of shareable Central taxes fixed at 30.5 per cent, treating additional excise duties in lieu of sales tax as part of the general pool of Central taxes. Shares of States to come down to 29.5 per cent, when States are allowed to levy sales tax on sugar, textiles and tobacco.

In case of any legislation enacted in respect of service tax, after the notification of the eighty eighth amendment to the Constitution, revenue accruing to a State should not be less than the share that should accrue to it, had the entire service tax proceeds been part of the shareable pool.

(c) Local bodies:

A grant of Rs. 20,000 crores for the Panchayati Raj institutions and Rs. 5,000 crore for urban local bodies to be given to States for the period 2005-10.

Priority to be given to expenditure on operation and maintenance (O&M) costs of water supply and sanitation, while utilizing the grants for the Panchayats. At least 50 per cent of the grants recommended for urban local bodies to be earmarked for the scheme of solid waste management through public-private partnership.

(d) Calamity Relief:

The scheme of Calamity Relief Fund (CRF) to continue in its present form with contributions from the Centre and States in the ratio of 75:25. The size of the Fund worked out at Rs. 21,333 crore for the period 2005-10.

The outgo from the Fund to be replenished by way of collection of National Calamity Contingent Duty and levy of special surcharges.

(e) Grants-in-aid to States:

The present system of Central assistance for State Plans, comprising grant and loan components, to be done away with, the Centre should continue itself to extending plan grants and leaving into States to decide their borrowings.

Non-plan revenue deficit grant of Rs. 56,856 crore recommended to 15 States for the period 2005-10. Grants amounting to Rs. 10,172 crore recommended for the education sector for seven States. Grants to education and health sectors are additionalities over and above the normal expenditure to be incurred by States.

A grant of Rs. 15,000 crore recommended for roads and bridges, which is in addition to the normal expenditure of States.

Grants recommended for maintenance of public buildings, forests, heritage conservation and specific needs of States are Rs. 500 crore, Rs. 1,000, Rs. 625 crore and Rs. 7,100 crore, respectively.

(f) Fiscal Reform facility:

With the recommended scheme of debt relief in place, fiscal reform facility not to continue over the period 2005-10.

(g) Debit Relief and Corrective Measures:

Central loans to States contracted till March, 2004 and outstanding on March 31, 2005 amounting to Rs. 1,28,795 crore to be consolidated and rescheduled for fresh term of 20 years, and an interest rate  of 7.5 per cent to be charged on them. This is subject to enactment of fiscal responsibility legislation by a State.

A debt write-off scheme linked to reduction of revenue deficit of State to be introduced. Under this scheme, repayments due from 2005-06 to 2009-10 on Central loans contracted up to March 31, 2004 will be eligible for write-off.

Central Government not to act as an intermediary for future lending of States, except in the case of weak States, which are unable to raise funds from the market.

External assistance to be transferred to states on the same terms and conditions as attached to such assistance by external funding agencies.

Annual Budget is an estimate of expected receipts and expenditure of the Union for the ensuing financial year which is laid before the Parliament and also known as ‘Annual Financial Statement’. It covers entire transactions of Central Government during the preceding year as well as ensuing year or the ‘Budget Year’ as it is known. All withdrawals of money from the Consolidated Fund are thereafter authorized by an Appropriation Act passed by the Parliament every year.

Public Debt is comprised of borrowings inside the country like market loans, compensations and other bonds, treasury bills issued to finance State Governments etc. – “other liabilities’ include outstanding against the various small saving schemes, provident funds, securities issued to Industrial Development Bank of India, Unit Trust of India and nationalized banks, deposits under the special deposit schemes, reserve funds and deposits.

In 1770, the first bank of India, Bank of Hindustan, was established in Calcutta by Alexander Company. After that, three presidency banks were established as Bank of Calcutta (1806), Bank of Bombay (1840) and Bank of Madras (1843).

The first bank of limited liability, Oudh Commercial Bank, was established in1881 under Indian management whereas, in 1894, Punjab National Bank was established. The Banking Companies Act came into existence in February, 1949, followed by subsequent amendment to read as Banking Regulation Act, 1949 due to banking crisis during 1913-1917 and failure of 588 banks in various States during the decade ended 1949 and to provide the legal framework for regulation of banking system by RBI.

The largest bank – Imperial Bank of India – was established in 1955 and restructured as State Bank of India, followed by formation of its 7 Associate Banks in 1959. An ordinance was issued on 19th Jul 1969 with the aim to bring commercial banks into the mainstream of economic development and taking ownership and control of 14 major banks. Six commercial banks were nationalized on 15th April, 1980.

On 14th Aug., 1991, Committee on the Financial System (Chairman: M. Narsimaham) was formed to examine all aspects relating to the structure, organization, functions and procedures of the financial systems on the basis of recommendations of a comprehensive reform was introduced in 1992-93. Again in Dec., 1997, a committee (Chairman: M. Narasimham), was formed to review the record of implementation of financials system reforms recommended in 1991 which submitted its report to the Government in April 1998 to revise guidelines for entry of new banks in private sector were issued on 3rd January, 2001 after guidelines in 1993 under which RBI scrutinized application and gave approval to two entities on 7th Fe., 2002. Kotak Mahindra Bank Ltd., was granted banking licence on 6th February, 2003 which started its operations from 22nd March, 2003 and subsequently was included in the Second Schedule of the Reserve Bank of India Act, 1934 w.e.f. 12th April, 2003. Licence was granted to “Yes Bank Ltd.” (another approved bank) on 24th May, 2004 which started its operations from 16th August, 2004 and was included in the second Schedule of the RBI Act, 1934 on 21st August, 2004.

The Reserve Bank of India  (RBI), established on1st April, 1935, under the Reserve Bank of India Act, 1934 and nationalized on 1st January, 1949. It acts as banker to the central as well state government as per the agreement with them. For the issuance of currency in India other than 1 rupee coin and subsidiary coins, it has the sole authority while as the agent of Indian government. It also manages distribution of one-rupee coin as well as small coins issued by the Government. The Reserve Bank also handles the borrowing programme of the Central and State Government.

There are 218 scheduled commercial banks (including foreign banks), as comprising 161 public sector banks of which 133 are Regional Rural Banks  (RRBs) which accounts for 75.2% of the deposits of all scheduled commercial banks, 19 nationalized banks, 8 banks in SBI group and IDBI Ltd.

SWARNAJAYANTI GRAM SWAROZGAR YOJANA (SGSY)

The scheme (funded on 75:25 basis by centre and state government) was launched w.e.f. 1st April, 1999 by the Union Ministry of Rural Development (after combining Training for Rural Youth For Self Employment (TRYSEM), Development of Women and Children in Rural Areas (DWCRA), Supply of Improved Toolkits to Rural Artisans (SITRA), Ganga Kalyan Yojana (GKY) and Million Wells Schemes (MWS) and is implemented by DRDAs through panchayat samiti. The scheme aims at establishment of micro enterprises in the rural areas with the objective to bring every assisted family above the poverty line in three years by providing them income (should not be less than Rs. 20000 p.m., net repayments to the Bank, at least in the 3rd year) generating assets through a mix of bank credit and government subsidy.

SWARNA JAYANTI SHAHRI ROZGAR YOJANA

The scheme (funded on 75:25 basis by centre and state government) is operating from 1st December 1997 in all urban and semi-urban towns where beneficiaries are identified by local bodies through house-to-house survey.

PRIME MINISTER’S ROZGAR YOJANA (PMRY)

Launched on 2nd October, 1993 and initially was operating in urban areas followed by extending its implementation throughout the country from 1st April, 1994 with the aim to provide self-employment opportunities to educated unemployed youth in the age group of 18 to 35 years. In North – Eastern states the eligible age group is from 18 – 40.There is a 10 years relaxation for SC/ST, ex-servicemen / physically handicapped and women, in the upper age limit.

Regional Rural Banks were formed to take banking services to rural areas with no banking facility with the aim to provide institutional credit to the weaker sections of the society called ‘target groups’ as well to support productive activities by rural savings. For consolidation of RRBs, the Government of India started the process of amalgamation, in September 2005, due to which 134 RRBs are consolidated in to new 42 RRBs till 31st Aug., 06 sponsored by 18 banks in 16 states.

Small Industries Development Bank of India is operating from 2nd April, 1990 with the aim to promote, finance and development small scale industries in the country and is engaged in doing so through institutions like state financial corporation, commercial banks, etc.

Export-Import Bank of India (EXIM) was established in 1982 with the aim to finance, facilities and promotes foreign trade in India.

National Housing Bank is operating from July, 1988 as wholly-owned subsidiary of RBI, is the apex institution of housing finance in India with the aim to regulate and supervise Housing Finance Companies (HFCs). Golden Jubilee Rural Housing Finance Scheme being implemented through Scheduled Banks, HFCs and Co-operative Sector Institutions and monitored by NHB.

INDIAN BANKS

As on 30th June, 2006, eighteen Indian banks twelve from the public sector and six from the private sector had operations overseas, which had their presence in 47 countries with a network of 111 branches (including offshore units), 6 joint ventures, 18 subsidiaries and 34 representative offices. Bank of Baroda had highest concentration, with 39 branches, 7 subsidiaries, one joint venture bank and 3 representative offices in 20 countries, followed by State Bank of India with 30 branches, five subsidiaries, three joint venture banks and seven representative offices in 29 countries and Bank of India with 20 branches, one subsidiary, two joint venture banks and three representative offices in 14 countries.

INTERNATIONAL MONETARY FUND

Established on Dec., 1945 and started to operate in March, 1947 with headquarter at Washington D.C.  The IMF conducted Article IV consultations for the review of economic status of the member countries normally once in a year as a part of its mandate for international surveillance under the Article of Agreement, which is known as Article IV consultation, and it holds in two phases generally. During this exercise the IMF mission holds discussions with RBI as well with ministries / departments of Central Government and then in a meeting of IMF executive Board reports are discussed and conclusions are made at Washington D.C.

INDIA AND THE INTERNATIONAL MONETARY FUND (IMF)

India is a founder member and Finance Minister is the ex-officio Governor and Governor, RBI is India’s Alternate Governor on the Board of Governors of the IMF. India is represented at the IMF by an Executive Director who also represents Bangladesh, Sri Lanka and Bhutan. India has share holding of 1.91 per cent. However, based on voting share, India (together with its constituency countries viz., Bangladesh, Bhutan and Sri Lanka) is ranked 22nd in the list of 24 constituency.

Financial Transaction Plan (FTP): India participates in the FTP of the IMF from 2002. By participation of FTP, India is allowing IMF to encash its rupee holdings as part of its quota contribution, for hard currency which is then lent to other member countries who are debtors to the IMF.

India-IMF Institute: In July, 2004, India and IMF joint training programme at the National Institute of Bank Management, Pune was established. The Training Programme will provide policy oriented training in economics and related operational fields to Indian officials and officials of countries in South Asia and East Africa. The first training programme was held during July, 2006. The RBI is the nodal body to coordinate the training programme with the IMF.

ASIAN DEVELOPMENT BANK

India as a founder member established ADB in Partnership with other 62 member countries in 1966 with its headquarters at Manila, Philippines with the aim to promote economic and social progress of its developing countries in the Asia and the Pacific region. India started borrowing from ADB’s Ordinary Capital Resources (OCR) in 1986. India holds the position of Executive Director on the Board of Directors of the Bank – its Constituency comprises India, Bangladesh, Bhutan, Lao PDR and Tajikistan. The Finance Minister is India’s Governor on the Board of Governors of Asian Development Bank and Secretary (EA) in the Alternate Governor.

FOREIGN INVESTMENT PROMOTION BOARD

FIBP, reconstituted on 18th February, 2003 and transferred to the Department of Economic Affairs. It is the Secretariat for executing the policy of the Government on Foreign Direct Investment and notify government decisions on proposals received in the prescribed time limit of 30 days.

FOREIGN DIRECT INVESTMENT

As per the policy, FDI up to 100 per cent is allowed, under the automatic route, which does not require prior approval either by the Government of India or the Reserve Bank of India (RBI) but Investors must notify and file necessary document with the concerned Regional Office of RBI within 30 days of receipt of inward remittances land within the 30 days of issue of shares to foreign investors respectively where as under the Government approval route, applications for FDI proposals, other than NRI’s, and proposals for FDI in ‘Single Brand’ product retailing, are received in the Department of Economic Affairs, M/o Finance. Proposals for FDI in ‘Single Brand’ product retailing by the NRI’s are received in the Department of Industrial Policy and Promotion, M/o Commerce and Industry.

Foreign Investments in equity capital of an Indian Company under the Portfolio Investment Scheme are not within the ambit of FDI policy and are governed by separate regulations of RBI / Securities and Exchange Board of India (SEBI).

CURRENTLY, FDI IS PROHIBITED FOR THE FOLLOWING SECTORS:

(i) Retail trading (except Single Brand Product Retailing),

(ii) Atomic energy,

(iii) Lottery business,

(iv) Gambling and Betting

All Activities / Sectors would require period Government approval for FDI in the following circumstances:

(i) Where provisions of Press Note (2005 Series) are traced;

(ii) Where more than 24 per cent foreign equity is proposed to be inducted for manufacturing of items reserved for            the Small Scale Sector.

INVESTMENT COMMISSION

Formed in December, 2004 with broad authority to engage, discuss with and invite domestic and foreign business to invest in India. The Commission’s report of February, 2006 titled “Investment Strategy of India” tells that for sustaining growth at over 8 per cent per annum will require an increase in investment levels from approximately 28 per cent of GDP to about 32 per cent of GDP. Which needs cumulative investment of about $ 1.5 trillion in the next five years.

The Commission studied 25 key sectors spanning Infrastructure, Manufacturing, Services, Natural Resources and the Knowledge Economy. They represent a significant part of the economy and would require an aggregate investment of US$ 525 US$ 550 billion over the next 5 years.

IMPORTANT COMMITTEES

1. Hanumant Rao Committee: Fertilisers (Constituted on 28 January, 1997, Submitted Report on April 3, 1998).

2. Mahajan Committee: Sugar Industry (Constituted in March, 1997, Submitted Report on April 15, 1998).

3. R.V. Gupta Committee: Agriculture Credit (Constituted in December, 1997, Submitted Report on April 21, 1998).

4. Narsimham Committee (Second): Banking Reforms (Constituted in 1997, Submitted Report on April 15, 1998).

5. Khan Working Group: Development Finance Institutions (Constituted by RBI, Submitted Report on April 24,     1998).

6. Chandrate Committee: Delisting in Share Market (Constituted by SEBI in February, 1997).

7. U.K. Sharma Committee: NABARDs role in RRB (Constituted in January, 1998, Submitted Report on April 27, 1998).

8. Ajit Kumar Committee: Army Pay Scales (Constituted in December 1997, Submitted Report in April, 1998).

9. C.V. Bhave Committee: Company Information (Constituted by SEBI, Submitted Report on October 27, 1998).

10. N.N. Vohra Committee: Relations of Politicians with Criminals (Constituted on September 8, 1997).

11. Bimal Julka Committee: Working Conditions ATCOS (Constituted on September, 1997).

12. Dhanuka Committee: Simplification of Transfer Rules in Securities Market (Constituted by SEBI).

13. C. Babu Rajeev Committee: Reforming Ship Act, 1908 and Ship Trust Act, 1963.

14. S.L. Kapoor Committee: Credit & Flow Problems of SSIS (Constituted by RBI in December, 1997).

15. Dave Committee (2000): Pension Scheme for Unorganized Sector.

16. Mahajan Committee (March, 1997): Sugar Industry.

17. Mashelkar Committee (January, 2002): Auto Fuel Policy.

18. S.N. Verma Committee (1999): Restructuring the Commercial Banks

19. Y.B. Reddy Committee (Oct. 2001): Review of Income Tax Rebates.

20. Bhurelal Committee: Increase in Motor Vehicle Tax.

21. Satpa Rishi Committee (July, 2002): Development of Domestic Tea Industry.

22. Abhijit Sen Committee (July, 2002): Long Term Food Policy.

23. Kelkar Committee: Tax Structure Reforms.

24. J.J. Irani Committee: Company Law Reforms.

25. Parekh  Committee: Infrastructure Financing.

INSURANCE DIVISION

Life Insurance Corporation of India

LIC established in 1956 has its central office in Mumbai with seven Zonal Offices at Mumbai, Kolkata, Delhi, Chennai, Hyderabad, Kanpur and Bhopal. An overseas subsidiary, Life Insurance Corporation (International) E.C. Bahrain (established in 1989). Joint ventures, Ken-India Assurance Company Limited, Nairobi, a registered joint venture in collaboration with Vishal Group Limited, Life Insurance Corporation (Nepal) Limited, Kathmandu, Nepal local industrial Group, LIC (Lanka) Ltd., the latest joint venture subsidiary with M/s Bartleet & Company Ltd., in Sri Lanka on 1st March, 2003. As off-shore company LIC (Mauritius) off-shore Limited was registered to tap the African Insurance market.

Social Security Group Insurance Scheme

SSF, formed in 1988-89, with the aim to provide social security through Group Insurance Scheme, to the weaker and vulnerable sections of the society and is administered by LIC. People belonging to 24 occupational groups / areas have been covered under this scheme. The scheme along with Rural group life insurance scheme has been replaced by Janshree Bima Yojana from August, 2000. But the renewal of the groups covered earlier is permitted.

Janashree Bima Yojana

Launched on 10th August, 2000, to provide an insurance cover of Rs. 20,000 with the premium 200 per member on natural death. On death / total permanent disability due to accident, the benefit is Rs. 50,000 increased to Rs. 75,000 w.e.f. 15th August, 2006. On partial permanent disability due to accident, the benefit is Rs. 25,000 increased to  Rs. 37,500 w.e.f. 15th August, 2006. 50 per cent premium will be met out of Social Security Fund. The balance premium is to be borne by the member and / or Nodal Agency.

Krishi Sharmaik Samajik Suraksha Yojana

Started in 1st July, 2001 for the agricultural workers, to provide life insurance protection, periodical lump sum survival benefit and pension to those who were between the age of 18 – 50 years. Gram Panchayat was to act as nodal agency and with the help of NGO/SHG or any other agency, would identify the agricultural workers. Sale of new policies discontinued from December, 2003. No new lives are to be added even under existing schemes at the time of renewal.

Shiksha Sahayog Yojana

Launched on 31st December, 2001, with the aim to provide scholarships (Rs. 300 per qtr per child for max. 4 years and max 2 children of the member covered under Janshree Bima Yojna) to students of parents living below or marginally above poverty line and who are covered under Janshree Bima Yojana and are studying in 9th to 12th standard (including ITI courses). No premium is charged.

General Insurance Corporation of India

It was approved as the “Indian Reinsurer” on 3rd Nov. 2000 and started its full fledged operation on the 1st April, 2003 with the aim to optimise the retention within the country and developing adequate reinsurance capacity.

Public Sector General Insurers’ Association of India

National Insurance Company Ltd., New India Assurance Company Ltd., Oriental Insurance Company Ltd., and United India Insurance Company Ltd., formed an association known as ‘GIPSA’ with headquarters in Delhi after detaching from, GIC in 2000.

Agriculture Insurance Company of India Limited

Established on 20th December, 2002 under the Companies Act, 1956 with the capital participation from General Insurance Corporation of India, members of GIPSA and NABARD for agri related insurance.

National Agricultural Insurance Scheme: Launched from Rabi 1999-2000 season after replacing comprehensive crop insurance scheme by India government in association with GIC.

Farm Income Insurance Scheme: Launched on pilot basis in Rabi 2003-04 initially for wheat and paddy with an extension in Kharif 2004 with the aim to provide income protection to farmers.

Rainfall Insurance “Varsha Bima”: Launched during 2004 south-west monsoon period is provided for five different options depending requirements of farming community as

(i) seasonal rainfall insurance based on aggregate rainfall from June to September

(i) sowing failure insurance based on rainfall between 15th June and 15th August,

(ii) rainfall distribution insurance with weight assigned to different weeks between June and September,

(iii) agronomic index constructed on the basis of water requirements of crops at different pheno-phases,

(iv) catastrophe option, covering extremely adverse deviation of 50 per cent and above in rainfall during the season.

Universal Health Insurance Scheme (UHIS): The scheme provides for reimbursement of medical expenses up to Rs. 30,000 towards hospitalization floated rural and social sectors; and licensing of agents, corporate agents, brokers, and third party administrators.

Disinvestment

From 1991-92 to 1999-2000, Government disinvested its equity in Central Public Sector Enterprises (CPSEs) through sale of minority shares in small lots while from 1999-2000 to 2003-04, disinvestment is done through strategic sale like sale of a large block of share alongwith management control to a strategic partner identified through competitive bidding. After 2004-2005, disinvestment realizations have been done through sale of small portions of equity.

The total proceeds from disinvestment between 1991-1992 and 31st May, 2008 amounting to Rs. 53,423.03 crore, consisting of the following:

Item

Amount Realised

Per cent

(Rs. Crore)

Receipts through sale of minority shareholdings in CPSEs

35,358.01

66.18

Receipts through sale of majority shareholding of one CPSE to another CPSE

1,317.23

2.47

Receipts through Strategic sale

6,344.35

11.88

Receipts from other related transactions

4,005.17

7.50

Receipts from sale of residual shareholding disinvested CPSEs/companies

6,398.27

11.98

Total

53,423.03

100

Constitution of National Investment Fund: “National Investment Fund” (NIF) was constituted on 1st April, 2005 into which the returns from disinvestment of Government equity in CPSEs would be kept. It would be maintained outside the Consolidated Fund of India and 75 per cent of the annual return will be used to finance selected social sector schemes, whereas rest 25 per cent used to meet the capital investment requirements of profitable and revivable CPSEs that yield adequate returns, in order to enlarge their capital base to finance expansion / diversification.

Capital Market Division

The Capital Market Division is responsible for formulating policies related to protection of the interest of investors in securities and promotion of the development of and the regulation of the securities markets. For the same it Administers the Securities Contracts (Regulation) Act, 1956, Securities and Exchange Board of India Act, 1992 and the Depositories Act, 1996.

External Commercial Borrowings

ECBs refer to commercial loans, in the form of bank loans, buyers’ credit, suppliers’ credit, securitized instruments (e.g., floating rate notes and fixed rate bonds) availed from non-resident lenders with a minimum average maturity of 3 years. The ECBs are approved within an overall annual ceiling, consistent with prudent debt management, keeping in view the balance of payments position and the level of foreign exchange reserves of the country. Government announced amendments to the ECB policy on 3rd June, 2005 and in January, 2006.

Pension Reforms

On 23rd August, 2003, the Government decided to introduce a new restructured defined contribution pension system called New Pension System (NPS) for new entrants to Central Government service, except to Armed Forces, in the first stage, replacing the existing defined benefit system. It was operationalised from 1st January, 2004 through a notification dated 22nd December, 2003. An interim Pension Fund Regulatory and Development Authority (PFRDA) was constituted through a Government resolution dated 10th October, 2003 as a precursor to a statuary regulator and became operational from 1st January, 2004. Till the architecture is fully in place, the Central Pension Accounting Office (CPAO) under the Controller General of Accounts, Department of Expenditure is acting as the interim Central Recordkeeping Agency (CRA). Contributions are currently being credited into the public account earing a return equal to the GPF rate. A Bill providing for a regulatory framework for the pension sector under the Pension Fund Regulatory and Development Authority was introduced in Parliament on 21st March, 2005 and was referred to the Standing Committee on Finance. The Committee presented their report in Parliament on 26th July, 2005. The recommendations of the Committee have been examined and a proposal for amending the PFRDA Bill, 2005, based on the recommendations of the Committee is under the Government’s consideration. The Bill proposes that the main mandate of PFRDA is to regulate the NPS, as amended from time to time by the Central Government. Pension Schemes already covered under the Employees Provident Fund & Miscellaneous Provisions Act, 1952 and other enactments would be specifically excluded from the architecture of the NPS including the Central Recordkeeping Agency (CRA) and pension funds. Further, the Bill provides that PFRDA will frame investment guidelines for pension funds. There are provisions empowering PFRDA to impose stringent penalties for any violation of the law and to create a special fund, to be used for educating and protecting the interests of subscribers to schemes of pension funds.

National Institute of Financial Management

Established 1993 under the Ministry of Finance, Department of Expenditure as a society, registered under Societies Registration Act, 1860 to impart Professional training to directly recruited Group “A” Probationers of various Finance and Accounts Services.

Staff Inspection Unit

The Staff Inspection Unit (SIU) was formed in 1964 with the objective of securing economy in the staffing of Government Organizations consistent with administrative efficiency and evolving performance standards and work norms.

Controller General of Accounts (CGA)

According to Article 150 of the Constitution of India the accounts of the Union and the States shall be kept in such form as the President may on the advice of Comptroller and Auditor General of India prescribe. This function of the President has been allocated to the Controller General of Accounts in terms of Article 77(3) of Constitution of India. The Controller General of Accounts (CGA) is the principle advisor to the Government of India on accounting matter and is responsible for establishing and maintaining a sound and efficient accounting and financial reporting system.

Principles and Form of Accounts: The CGA prescribes general principles and form of accounts of government relating to Union as well as State Governments and frames rules and manuals relating thereto.

Budgetary Control, Payments, Receipts Collection and Accounting: The CGA, through Chief Controller / Controller of Accounts and their Pay and Accounts Offices, carries out the budget control, payments, receipts collection and accounting functions of the Union.

Financial Reporting: The CGA provides regular feedback to the Finance Minister and other line Ministries on the status of Government finances.

Technical Advice on Accounting Matters: The CGA provides advice to all Ministries / Departments and State Governments on various accounting matters.

Disbursement of pension: The CGA is also responsible for disbursement and accounting of pension payments to Government employees retiring from all civil ministries.

Internal Audit: The Internal Audit function is carried out with the help of Internal Audit units in every Ministry, supervised by the respective Controller of Accounts; the inspection Wing of CGA also provides guidance to the Controller of Accounts on this subject.

Capital Restructuring and Disinvestment of PSUs: The Controller General of Accounts is responsible for evaluating and processing the proposals relating to the capital restructuring of various public sector undertakings (PSUs) of the Union Government and its submission to the Ministry of Finance.

Human Resource Development: The CGA manages the cadre of the Indian Civil Accounts Service (ICAS), and the entire accounts personnel deployed in civil ministries and is responsible for the entire gamut of personnel management including their recruitment, transfers, promotions, training, and capacity building both within the county as well as abroad, and periodical reviews of cadre strength and distribution.

Training: The Institute of Government Accounts and Finance (INGAF) has been setup in the year 1992 under the CGA to meet the training needs of the Civil Accounts Personnel.

Parliamentary Financial Control: Monitoring Cell in office of CGA is entrusted with monitoring the progress of submission by Ministries of remedial / corrective Action Plan Taken Notes on recommendations of Public Accounts Committee (PAC), as contained in their reports from time to time.

Central Plan Schemes Monitoring System: The Plan Accounting & Public Finance Scheme also  known as Central Plan Schemes Monitoring System is being implemented by Controller General of Accounts w.e.f. 01-04-2008 to establish a comprehensive decision support system and Management Information System in respect of Plan Scheme.

Central Sales Tax (CST)

The Central Sales Tax is levied by the central government by virtue of Entry 92A of the union list but by the state it is leviable by virtue of Article 269 under the provisions of the Central Sales Tax Act, 1956 on the sale of goods of the course of inter-State trade or commerce. It is an accepted fact that the CST, being an origin-based tax, is inconsistent with VAT (which is a destination based tax). As well as CST is a cascading-type taxed since it is not re-batable against VAT. Hence, it is agreed that CST should be phased out. In fact, after extensive consultations between the Centre and the States, the roadmap for phasing out the CST by 31-03-2010 (i.e. , before the date appointed for introduction of GST) has been finalized and the process of phasing out of the CST has been started with reduction in CST from 4% to 3% w.e.f. 01-04-2007 and further from 3% to 2% w.e.f. 1st June, 2008.

State Level Value Added Tax (Vat)

Introduction of State VAT is the most significant tax reform measure at State level. The State VAT has replaced the earlier Sales Tax systems of the States. VAT, being a ‘tax on sale or purchase of goods within a State’ is a State Subject by virtue of Entry 54 of List II (State List) of the Seventh Schedule of the Constitution of India. The Government of India has constituted an Empowered Committee of State Finance Ministers (EC) to deliberate upon and decide all issues concerning Sales Tax Reforms / State VAT. The State VAT has been introduced by all the States / UTs except Uttar Pradesh.

Since Sales Tax / VAT is a State subject, the Central Government has been playing the role of a facilitator for successful implementation of VAT.

Goods and Services Tax (GST)

Goods and Services Tax (GST) means taxation of goods and services in an integrated manner not separately. The line of demarcation between goods and services is getting blurred, which has made separate taxation of goods and services untenable. Integrated Goods and Services Tax (GST), based on VAT principles, has evolved as the most modern and efficient form of indirect taxation and the same has been adopted by a large number of countries (including Federal countries) around the world. The Central Government has set 01-04-2010 as the target date for introduction of GST.

DIRECTORATE OF ENFORCEMENT

The Directorate of Enforcement is mainly concerned with the Enforcement of the provisions of the Foreign Exchange Management Act (FEMA), 1999, beside the implementation of Prevention of Money Laundering Act (PMLA), 2002, w.e.f. 1.7.2005. The Directorate is also responsible for adjudication of the Foreign Exchange Regulation Act, 1973 (FERA) cases (repealed Act) and follow-up of prosecutions filed under the erstwhile FERA.

The market regulator, the Securities and Exchange Board of India (SEBI) became a statutory body in 1992. Through an amendment in 1999, SEBI was empowered to regulate collective investment schemes and plantation schemes.

PAN has been made the sole identification number for all transactions in securities market.

SEBI has made it compulsory for companies coming out with IPOs of equity shares to get their IPOs graded by at least one credit rating agency registered with SEBI from May 1, 2007.

FM had announced in the Budget Speech 2010-11, the creation of a Financial Stability and Development Council (FSDC) to strengthen and institutionalize the mechanism for maintaining financial stability and monitor macro prudential supervision of the economy including functioning of large financial conglomerates and address inter-regulatory coordination issues, without prejudice to the autonomy of regulators.

In the budget (2010-11) speech the creation of a Financial Sector Legislative Reforms Commission (FSLRC) was announced. It was highlighted that most of our legislations governing the financial sector are very old. Large number of amendments to these Acts made at different points of time has also increased ambiguity and complexity. The FSLRC is going to be entrusted with the task of rewriting and cleaning up the financial sector laws to bring them in line with the requirement of the sector.

India has been borrowing from the World Bank through International Bank for Reconstruction and Development (IBRD) and International Development Association (IDA) for various development projects in the areas of poverty reduction infrastructure, rural development, etc.  IDA funds are one of the most concessional external loans for Government of India and are used largely in social sector projects that contribute to the achievement of Millennium Development Goals.

Banking Ombudsman Scheme is in operation since 1995. The scheme works under the control and supervision of Reserve Bank of India (RBI). Banking Ombudsman is an independent body with legal powers to settle disputes quickly and inexpensively.

The National Bank for Agriculture and Rural Development (NABARD) came into existence on 12th July, 1982. NABARD was established for providing credit for promotion of agriculture, small-scale industries, cottage and village industries, handicrafts and other allied economic activities in rural areas with a view to promoting integrated rural development and securing prosperity of rural areas.

India has signed Customs Mutual Assistance Agreement, memorandum of understanding with various countries to promote sharing of intelligence and provide investigative assistance to curb duty evasion.

Use of National Import Database (NIDB) helps in detecting under-valuation of imported goods, which has been reported to be the oft-used route for Customs commercial frauds.

Intelligence Support System (ISS) providers for development of intelligence and for analyzing macro level inputs into macro level workable intelligence. This system has resulted in detection of commercial fraud and evasion of customs duty.

ECONOMIC SURVEY 2010-11

Economic Survey 2011-12: Quick Summary

Economic Survey is an annual commentary on the state of the economy of India which is put together by Finance Ministry of India. It is a document which presents economic development during the course of the year.

  • The draft of the survey is prepared by Department of Economic Affairs and cleared by Chief economic Advisor and the secretary Economic Affairs.
  • The final version is vetted by Finance secretary and Finance Minister.

Economic survey is presented every year shortly before presenting the Union Budget of Govt. of India. Economic Survey 2011-12 was presented by finance minister Pranab Mukherjee in Parliament on March 15, 2012. Here is a quick summary for all aspirants of all examinations.

Important Figures:

  • India's Economic Growth

6.9 per cent in the Fiscal 2011-12

7.6 percent (plus or minus 0.25 percent) in 2012-13

8.6 percent in 2013-14.

  • Growth in Agriculture

2.5 % in Fiscal year 2011-12.

  • Share of Agriculture, allied activities in GDP

13.9 % in FY 12

  • Production of food grains

250.42 million tones (FY 12)

  • Food grains stocks

55.2 million tonnes

  • Growth in Service Industry

9.4 %, in FY 12 (and its share in GDP stands at 59%).

  • Industrial Growth

To be 4-5% in FY 13

  • Central spending on social services

18.5% in FY 12 (It was 13.4% FY 07)

  • Coverage of MGNREGA

5.49 Crore household (by 2011-12)

  • Gross capital formation in Q3 of FY 12 as a ratio of GDP

30% (it was 32% in FY 11)

  • Balance of Payments

USD 32.8 Billion in first half of FY 12 (It was USD 29.6 Billion in FY 11)

  • India's Forex Reserves

USD 293 Billion, it was USD 305 Billion in March 2011 & USD 279 Billion in March 2010

  • Inflation

Expected to moderate at 6.5-7% by March end

  • Employment in Industry

21.9% in 2009-10 (in comparison to 16.2% in 1999-2000). Growth mainly due to construction sector.

  • Growth in Basic goods and non-durables

6.1%

  • Gross Capital Formation in industry

48.3% of overall GCF moderated in FY 11

  • Decline in Manufacturing GCF growth rate

7% in FY 11 Vs 42% in FY 10

  • Share of services in GDP

56.3% in FY 12 (it was 55.1% in FY 11)

  • Share of Financial & non-financial services, IT, Telecom, Real Estate in Total FDI inflows

41.9 % (during April 2000-December 2011)

  • Growth in trade, hotels and restaurants

11.2%

  • Growth in FDI inflows in FY 12 (April-Dec)

36.8 % (stands at USD 9.3 billion)

  • Growth in India's Exports (April 2011 - Jan 2012)

23.5% (stands at USD 242.8 Billion)

  • Growth in India's Imports (April 2011 - Jan 2012)

29.4% (stands at USD 391.5 Billion)

  • India's Largest Trading Partner

United Arab Emirates (followed by China)

  • Growth in India's Service Exports

17.1 & in H1 of FY 12 (It was 38.4 % @ USD 132.9 Billion in FY 11)

  • Top performing Sectors in Export

Petroleum and oil products, gems and jewellery, engineering, cotton fabrics, electronics, readymade garments, drugs

  • Top performing Sectors in Import

POL (petroleum, oil and lubricant), gold and silver.

  • External Debt Stock

USD 326 Billion

  • Net capital flows

USD 41.1 billion

  • Share of Net Capital Flows in GDP

4.5% (in the H1 of FY 12)

  • External commercial borrowing

USD 10.6 billion (in H1 of FY 12)

  • Trade Deficit as part of GDP

More than 8%

  • Current Account Deficit as part of GDP

3% (these two figures hint imbalance that is growing)

  • Fall in Rupee against dollar

12.4 % (From 44.97 per USD in March 2011 to 51.34 per USD in January 2012)

  • Total Investment in SEZ

Rs. 2,49,630.80 crore (31 Dec. 2011)

  • Number of Approved SEZ

583 (out of them 380 notified)

  • Growth in Priority Sector Landing

19%

  • Share of Computerised banks among all banks

96%

  • Capital infused in public sector banks in 2012

Rs. 12,000 Crore

  • Growth in bank credit extended by Scheduled Commercial Banks

17%

Survey notes:

Survey is optimistic about the fiscal consolidation and says that fiscal consolidation is likely to get back on track from 2012-13, when savings and capital formation will also begin to improve.

High priority to Sustainable development and climate. Incorporates a new chapter this year.

Global economic environment turns adverse since September 2011 due to Euro-zone crisis.

Indian Economy slows down due to global as well as domestic factors.

Recovery is slow , reason for slow recovery is decline in overall investment rate.

Global economy seems to remain fragile.

G-20 should make more efforts for global financial stability.

India gets more closely integrated with the world economy

India's foreign trade performance remained key driver of growth.

Share of trade to GDP (of goods and services) in world tripled in 20 years (1990-2010).

Inflation expected to moderate.

Gap between WPI and CPI inflation narrows.

Consumption pattern main driver of food price inflation. Milk, eggs/meat/fish, gram & edible oils responsible.

Monetary market remained orderly. RBI addressed the liquidity concerns of markets

There are threats from asset price bubbles in real estate and stock markets

Oild prices threat inflationary pressures.

India has high level of food stocks , which shall help maintain overall price stability

Industrial growth less than recent past and far below potential.

Industrial sector expected to rebound during next financial year with inflation easing, moderation in commodities prices in international market and revival of manufacturing performance

Contraction in production in the mining sector, particularly in coal and natural gas segments, improvement in electicity.

Moderation in growth in other segments of IIP, Negative growth in capital goods and intermediates segment, Moderation in rate of growth of credit in infrastructure and manufacturing sectors.

Services sector proves saviour during global crisis and hero of Economic Growth. It has slight moderation though, due to the steep fall in growth of public administration and defence services reflecting fiscal consolidation.

India's Software service exports steady and face threat from Eurozone.

Negative growth in Coal, Natural Gas, Fertilizers, handling of Export Cargo at airports and number of cell phone connections

Low growth in steel.

Credit growth to infrastructure sector turned negative

There has been reduction in credit flow in power and telecom sectors.

Foreign funding to remain sluggish. Equity and currency markets remained under pressure.

Indian Banks have Robust fundamentals.

Banking may become a risky business, thanks to global integration.

Credit Disbursement to agro sector exceeded target by 19 %, 12.7 Million new farmers got farm credits.

Self Help Group- bank linkage programme gets thumping success.

Climate change, food security, water security, energy security and managing urbanization are main challenges.

Recommendations: Inflation & Monetary Policy:

Progressive deregulation of interest rates on savings accounts . Deregulation of interest rates on savings accounts to help raise financial savings and improve transmission of monetary policy.

Domestic financial markets, especially corporate bond markets need deepening.

There should be more efforts to attract dedicated infrastructure funds.

There should be renewed focus on supply side measures essential for price stability

There should be substantial Monetary policy challenge to rein-in inflation.

There is a need to examine linkages between policy rate changes and inflation.

There are threats from asset price bubbles in real estate and stock markets. To address them, RBI should further sharpen monetary policy.

Recommendations: Agriculture

Government should take measures for guiding farmers on fertilizers, insecticide, alternate cropping patterns, for price stability in food items.

There should be regular imports of agriculture commodities in smaller quantities for price control.

There should be special markets for special crops.

Mandi Governance needs to be improved; interstate trade in agro commodities should be promoted.

Perishable food items should be taken out of ambit of the APMC Act

Survey thumbs up the FDI in multi brand retain , says it will fill infrastructure gap during harvest period

Modern store facilities need to created for food grains.

There should be adequate investment in R&D in Agriculture.

Recommendations: Industry , Infrastructure & Exports

Business sentiments should be boosted. There should be encouragement to investments and identify and   wipe-out bottlenecks.

Land acquisition and infrastructure issued should be dealt on priority basis.

Real estate ownership of dwellings and business services segment are worrisome segments.

There should be further diversification of India's export basket.

The procedural delays and red tape should be addresses to facilitate trade.

Infrastructural bottlenecks need to be removed

There is a need to attract large scale investment into infrastructure, looking at investment requirement at USD 1 trillion during Twelfth Plan.

PPP has been a successful model, should be promoted in Infra segment.

Sustainable levels of external debt should be maintained.

Government should take innovative steps to bring corporate bond market at the centre stage.

Government should promote the infrastructure financing and financing of unorganized micro/small business sectors.

Recommendations: Climate Change

Low carbon growth should be central element of 12th Five Year plan.

India's per capita CO2 emissions much lower than those of developed countries, world needs more sensitivity from developed countries to carbon emissions.

Union Budget 2012-13 Highlights

Budget identifies five objectives relating to  growth recovery, private investment, supply bottlenecks, malnutrition and governance matters

GDP growth to be 7.6 per cent (+ 0.25 percent) during 2012-13

Amendment to the FRBM Act proposed  as part of Finance Bill.  New concepts of “Effective Revenue Deficit” and “Medium Term Expenditure Framework” introduced

Central subsidies to be kept under 2 per cent of GDP; to be further brought down to 1.75 per cent of GDP over the next 3 years.

Proposed: Mobile based fertilizer management system; LPG transparency portal; scaling up and rolling out of Aadhar enabled payment for government schemes in at least 50 districts.

Rs. 30,000 crore to be raised through disinvestment

Efforts to reach broadbased consensus on FDI in multi-brand retail

Rajiv Gandhi Equity Saving Scheme: to allow income tax deduction to retail investors on  investing in equities

Rs. 15,888 crore to be provided for capitalization of public sector banks and financial  institutions

A central  “Know Your Customer” depository to be developed

Swabhimaan: remaining habitations to be covered; to be extended to more habitations; ultra small branches to be set up in Swabhimaan habitations

Investment in 12th Plan in infrastructure to go uptoRs. 50,00,000 crore; half of this is expected from private sector

Tax Free Bonds of Rs. 60,000 crore to be allowed for financial infrastructure projects

Allocation of Road Transport and Highways Ministry enhanced by 14 per cent to Rs. 25,360 crore

Financial package of Rs. 3,884 crore for waiver of loans to handloom weavers and their cooperative societies; mega handloom clusters in Andhra, Jharkhand; weaver service centres in Mizoram, Nagaland and Jharkhand; powerloom mega cluster in Maharashtra; Rs. 500 crore pilot schemes for geo-textiles in North-   Eastern region

Rs. 5,000 crore India Opportunities Venture Fund to help small enterprises

Allocation to agriculture enhanced; RKVY gets Rs. 9,217 crore; BGREI gets Rs. 1,000 crore; Rs.2242 crore project to improve dairy productivity; Rs. 500 crore for coastal aquaculture

Various other agricultural activities merged into 5 missions

Target for agricultural credit raised to Rs. 5,75,000 crore

Interest subvention for short-term crop loans to farmers at 7 per cent interest continues; additional 3 per cent for prompt paying farmers

Rs. 200 crore for awards to incentivise agricultural research

Provisions under rural housing fund increased to Rs. 4,000 crore from Rs. 3,000 crore

Interest subvention of 1 percent on housing loans uptoRs. 15 lakh extended for one more year

AIBP allocation raised by 13 per cent to Rs. 14,242 crore

National Mission on Food Processing to be started in cooperation with State Governments

Scheduled Caste Sub Plan allocation increases by 18 per cent to Rs. 37,113 crore; Tribal Sub Plan by 17.6 per cent to Rs. 21,710 crore

Multi-sectoralprogramme to address maternal and child malnutrition in 200 high burden districts

58 per cent rise in allocation to ICDS, at Rs. 15,850 crore

Rural drinking water and sanitation gets 27 per cent rise in allocation to Rs. 14,000 crore; PMGSY gets 20 per cent rise to Rs. 24,000 crore

Projects covering length of 8800 km to be awarded under NHDP against 7,300 km during 2011-12

RTE-SSA gets Rs. 25,555 crore allocation, showing an increase of 21 per cent; 6000 schools to be set up at block level as model schools in the 12th Plan; Credit Guarantee Fund to be set up for better flow of credit to students

National Urban Health Mission is being launched

34 per cent increase in allocation to National Rural Livelihood Mission, to Rs. 3915 crore

Rs. 1000 crore allocated for National Skill Development Fund

Bharat Livelihood Foundation to be established to support livelihood interventions particularly in  tribal areas

Widow pension and disability pension raised from Rs. 200 to Rs. 300 per month

Grant on death of primary breadwinner of a BPL family in the age group 18-64 years doubled to Rs. 20,000

Defence services get Rs. 193407 crore; any further requirement to be met

4000 residential quarters to be constructed for Central Armed Police Forces

UID-Aadhar to get adequate funds for enrolment of 40 crore persons, in addition to the 20 crore persons already enrolled

White Paper on Black Money to be laid in the current session of Parliament

Tax proposals mark progress in the direction of movement towards DTC and GST

Income tax exemption limit raised from Rs.1,80,000 to Rs.2,00,000; upper limit of 20 per cent tax slab raised from Rs.8 lakh to Rs.10 lakh

Interest from savings bank accounts deductible upto Rs.10,000; deduction of upto Rs.5,000 for preventive health check-up

Senior citizens without business income exempt from advance tax

Investment linked deduction of capital expenditure enhanced for certain businesses; new sectors eligible for investment linked deduction

Turnover limit for compulsory tax audit for SMEs raised from Rs.60 lakh to Rs.1 crore

STT on cash delivery reduced by 20 per cent to 0.1%

General Anti Avoidance Rule being introduced to counter aggressive tax avoidance

A number of measures proposed to deter generation and use of unaccounted money

All services to attract service tax except those in the negative list

Central Excise and Service Tax being harmonized

Standard rate of excise duty raised from 10 per cent to 12 per cent; service tax rates raised from 10 per cent to 12 per cent; no change in peak customs duty of 10 per cent on non-agricultural goods

Relief in indirect taxes to sectors under stress; agriculture, infrastructure, mining, railways, roads, civil aviation, manufacturing, health and nutrition, and environment get duty relief

Certain cigarettes and bidis attract higher excise duty; large cars attract higher customs duty

Excise imposed on unbranded jewellery also; measures to minimize impact on small artisans  and goldsmiths; branded silver jewellery exempted from excise duty

Net gain of Rs.41,440 crore due to taxation proposals

Total expenditure budgeted at Rs. 14,90,925 crore; plan expenditure at Rs. 5,21,025 crore – 18 per cent higher than 2011-12 budget; non plan expenditure at Rs. 9,69,900 crore

Fiscal deficit targeted at 5.1 per cent of GDP, as against 5.9 per cent in revised estimates for 2011-12

Central Government debt at 45.5 per cent of GDP as compared to Thirteenth Finance Commission target of 50.5 per cent

Medium-term Expenditure Framework Statement to be  introduced; will set forth 3-year rolling target for expenditure indicators

 

Union Budget Summary

BUDGET IDENTIFIES FIVE OBJECTIVES RELATING TO  GROWTH, INVESTMENT, SUPPLY   BOTTLENECKS,

GOVERNANCE, AND REMOVING MALNUTRITION

AMENDMENT TO FRBM ACT INTRODUCED AS PART OF FINANCE BILL

CENTRAL SUBSIDIES TO BE KEPT UNDER 2 PER CENT OF GDP; TO BE FURTHER BROUGHT DOWN TO 1.75 PER CENT OF GDP OVER THE NEXT 3 YEARS

Rs. 30,000 CRORE TO BE RAISED THROUGH DISINVESTMENT

EFFORTS TO REACH BROADBASED CONSENSUS ON FDI IN MULTI-BRAND RETAIL

INVESTMENT IN 12TH PLAN IN INFRASTRUCTURE TO GO UPTO RS. 50,00,000 CRORE; HALF OF THIS IS EXPECTED FROM PRIVATE SECTOR

TARGET FOR AGRICULTURAL CREDIT RAISED TO RS. 5,75,000 CRORE

NATIONAL URBAN HEALTH MISSION IS BEING LAUNCHED

UID-AADHAR TO GET ADEQUATE FUNDS FOR ENROLMENT OF 40 CRORE PERSONS

A NUMBER OF MEASURES PROPOSED TO DETER GENERATION AND USE OF UNACCOUNTED MONEY

WHITE PAPER ON BLACK MONEY TO BE LAID IN CURRENT SESSION OF PARLIAMENT

TAX PROPOSALS MARK PROGRESS IN THE DIRECTION OF MOVEMENT TOWARDS DTC AND GST

INCOME TAX EXEMPTION LIMIT RAISED FROM RS.1,80,000 TO RS.2,00,000; UPPER LIMIT OF 20 PER CENT TAX SLAB RAISED FROM RS.8 LAKH TO RS.10 LAKH

GENERAL ANTI AVOIDANCE RULE BEING INTRODUCED TO COUNTER AGGRESSIVE TAX AVOIDANCE

STANDARD RATE OF EXCISE DUTY RAISED FROM 10 PER CENT TO 12 PER CENT; SERVICE TAX RATES RAISED FROM 10 PER CENT TO 12 PER CENT; NO CHANGE IN PEAK CUSTOMS DUTY OF 10 PER CENT ON NON-AGRICULTURAL GOODS

FISCAL DEFICIT TARGETED AT 5.1 PER CENT OF GDP, AS AGAINST 5.9 PER CENT IN REVISED ESTIMATES FOR 2011-12

CENTRAL GOVERNMENT DEBT AT 45.5 PER CENT OF GDP AS COMPARED TO THIRTEENTH FINANCE COMMISSION TARGET OF 50.5 PER CENT

The Union Budget 2012-13 presented by the Finance Minister ShriPranab Mukherjee in LokSabha today identifies five objectives to be addressed effectively in the ensuing fiscal year.   They include focus on domestic demand driven growth recovery; create conditions for  rapid revival of high growth in private investment;  address  supply bottlenecks  in agriculture, energy and transport sectors  particularly in coal, power, national highways , railways and civil aviation; intervene decisively  to address the problem of malnutrition  especially in the 200 high-burden districts and  expedite coordinated implementation of decisions being taken to improve delivery systems , governance, and transparency;  and address the problem of black money and corruption in public life.

Shri Pranab Mukherjee said that India’s GDP growth in 2012-13 is expected to be 7.6 per cent +/-0.25 per cent.  He said that in 2011-12, India’s GDP is estimated to grow at 6.9 per cent after having grown at the rate of  8.4 per cent in each of the  two preceding years.  He said though the global crisis  had affected India, it still remains among  the front runners in economic growth.  ShriMukherjee said the slowdown is primarily due to deceleration in industrial growth.  Stating that the headline inflation remained high for most part of the year, the Finance Minister expressed hope that it will moderate further in the next few months and remain stable thereafter.

Shri Mukherjee laid emphasis on striking a balance between fiscal consolidation and strengthening macroeconomic fundamentals.  He announced introduction of amendments to the Fiscal Responsibility and Budget Management Act, 2003 (FRBM Act) as part of the Finance Bill 2012.  He said that concept of “Effective Revenue Deficit” and “Medium Term Expenditure Framework” statement are two important features of Amendment to FRBM Act in the direction of expenditure reforms.  This statement shall set forth a three year rolling targets for expenditure indicators.

The Finance Minister called for a need to have a close look at the growth of revenue expenditure, particularly, on subsidies.  He announced that from 2012-13  while subsidies related to food and for administering the Food Security Act will be fully provided for,  all other subsidies would be funded to the extent that they can be borne by the economy without any adverse implications.  He said that the Government will endeavor to restrict the expenditure on central subsidies under 2 per cent of GDP in 2012-13and over the next three years, it would be further brought down to 1.75 per cent ofGDP.Shri Mukherjee said that based on recommendations of the Task Force headed by ShriNandanNilekani, a mobile-based Fertilizer Management System has been designed to provide end-to-end information on movement of fertilizers and subsidies which will be rolled out nation-wide during 2012.  He said that transfer of subsidy to the retailer and eventually to the farmers will be implemented in subsequent phases which will benefit 12 crore farmer families.

On the tax reforms, the Finance Minister said that the  Direct Taxes Code (DTC) Bill will be enacted at the earliest after expeditious examination of the report of the Parliamentary  Standing Committee.  He said drafting of  model  legislation for Centre and State Goods and Services Tax (GST) in concert with States is under progress.  He added that the GST network will be set up as a National Information Utility and will become operational by August 2012.

On the disinvestment policy, Shri Mukherjee said that the Central Public Sector Enterprises (CPSEs) are being given a level playing field vis-à-vis private sector with regard to practices like buy-backs and  listing at stock exchange.  Stating that while in 2011-12, the Government will raise about Rs.14,000crore  from disinvestment as against a target of  Rs.40,000 crore,  the Finance Minister proposed to raise  Rs.30,000 crore through disinvestment in  2012-13.  He said at least 51 per cent ownership and management of CPSEs will remain with the Government.

Calling for strengthening investment environment, Shri Mukherjee said that efforts are on to arrive at a broad-based consensus in respect of decision to allow FDI in multi-brand retail up to 51 per cent.  He proposed to introduce a new scheme  called Rajiv Gandhi Equity Savings Scheme  to allow for income tax deduction of 50 per cent to new retail investors who invest up to  Rs.50,000 directly in equities and whose annual income is below Rs.10 lakh.  The scheme will have a lock-in period of 3 years.  Regarding capital markets, the Finance Minister  proposed to allow Qualified Foreign Investors (QFIs) to access Indian Corporate Bond market.  He also  proposed simplifying  the process of Initial Public Offer  (IPO).

ShriPranab Mukherjee said that the Government is committed to protect the financial health of  Public Sector Banks and Financial Institutions.    He proposed to provide Rs. 15,888 crore for capitalization of Public Sector Banks, Regional Rural Banks and other financial institutions  including NABARD.  He added that a Central Know Your Customer (KYC) depositary will be developed in 2012-13 to avoid multiplicity  of registration and data upkeep.

The Finance Minister informed that out of 73,000 identified habitations that were to be covered under “Swabhimaan” campaign for providing banking facilities by March 2012, about 70,000 habitations have been covered while the rest are likely to be covered by March 31, 2012.    He added that as a next step Ultra Small Branches are being set up at these habitations.  In 2012-13,Swabhimaan campaign will be extended to more habitations.

Emphasizing on infrastructure and industrial development, Shri Mukherjee said that during the 12th Plan, infrastructure investment will go up to Rs.50 lakh crorewith  half of this expected from private sector.  Stating  that in 2011-12 tax free bonds for Rs.30,000 crore were announced for financing infrastructure projects, he proposed to double it to raise Rs.60,000 crore in 2012-13.  The Minister proposed to allow External Commercial Borrowings (ECB) to part finance Rupee debt of existing power projects.

The Finance Minister ShriPranab Mukherjee announced a  target of covering  8,800 km. under NHDP next year and increase in allocation of the Road Transport and Highways Ministry  by   14 per cent to Rs.25,360 crore in 2012-13.  He proposed to permit ECB for working capital requirements of the Airline Industry for a period of one year, subject to a total ceiling  of US dollar  1 billion to address the immediate financial concerns of the Civil Aviation Sector.   He added that a proposal  to allow foreign airlines to participate up to  49 per cent in the equity  of an air transport undertaking is under active consideration.

Expressing concern over shortage in housing sector, the Finance Minister proposed  various measures to address the shortage of housing for low income groups in major cities and towns including ECB for low cost housing projects and setting up of a Credit Guarantee Trust Fund.

Regarding textile sector, the Finance Minister announced setting up of two more mega clusters, one to cover Prakasam and Guntur districts in Andhra Pradesh and other for Godda and neighboring districts in Jharkhand in addition to 4 mega handloom clusters already operationalized.  He also proposed setting up of three Weavers Service Centres, one each in Mizoram, Nagaland and Jharkhand.  The Minister proposed  aRs. 500 crore pilot scheme in twelfth plan for promotion and application of Geo-textiles in the North East.   A powerloom Mega Cluster  will be set up in Ichalkaranji in Maharashtra.

The Finance Minister proposed to set up a Rs.5000 croreIndia  Opportunities Venture Fund with SIDBI to enhance availability of equity to Micro, Small and Medium Enterprises.

Stating that agriculture will continue to be a priority for Government,  Shri Mukherjee proposed  an increase  by 18 per cent to Rs. 20,208 crore in the total Plan Outlay for the Department of Agriculture and Cooperation in 2012-13.  He said that the outlay for RashtriyaKrishiVikasYojana (RKVY) is being increased to  Rs. 9217 crore in 2012-13.

Underlining importance of timely access to affordable credit for farmers, the Finance Minister proposed to raise the target for  agricultural credit to Rs.5,75,000 crore, which represents an increase of Rs. 1,00,000 crore over the target for the current year..   He said that a short term RRB Credit  Refinance Fund is being set up to enhance the capacity of Regional Rural Banks to disburse short term crop loans to the small and marginal farmers.  He added that Kisan Credit Card Scheme will be modified to make it a smart card which can be used at ATMs.

The Financed Minister said that in order to have a better out reach of the food processing sector, a new centrally sponsored scheme titled National Mission on Food Processing will be started in cooperation with the States in 2012-13.

The Finance Minister proposed an increase of 18 per cent to  Rs.37,113crore for Scheduled Castes Sub Plan and  an increase of 17.6 per cent to Rs.21,710 crore for Tribal Sub Plan during 2012-13.

Regarding food security, Shri Mukherjee said that National Food Security Bill 2011 is before Parliamentary Standing Committee.   He said a multi-sectoralprogramme to address maternal and child malnutrition in selected 200 high burdened districts is being rolled out during 2012-13.  He further  said that an allocation of Rs.15,850 crore has been made for ICDS scheme which is an increase of 58% and Rs.11,937 crore for  National Programme of Mid-Day Meals in schools for the year 2012-13.  He added that an allocation of Rs.750 crore is proposed for Rajiv Gandhi Scheme for Empowerment of Adolescent Girls, SABLA.

The allocation for rural drinking water and sanitation is proposed to be increased by over 27 per cent to Rs. 14,000 crore and for PradhanMantri Road SadakYojana by 20 per cent to Rs. 24,000 crore in 2012-13.  He proposed to enhance the allocation under Rural Infrastructure Development Fund to Rs. 20,000 crore with  Rs.5,000 crore exclusively earmarked for .creating warehousing facilities.

The Finance Minister proposed an  increase in  allocation by 21.7 per cent  for Right to Education – SarvaShikshaAbhiyan to Rs.25,555 crore and by 29 per cent  forRashtriyaMadhyamikShikshaAbhiyan to Rs. 3,124 crore,   He proposed to set up a Credit Guarantee Fund to ensure better flow of funds to students.

Regarding health sector  he proposed an increase in allocation for NRHM to Rs.20,822 crore in 2012-13.  He also said that National Urban Health Mission is being launched.

The Finance Minister said that Mahatma Gandhi National Rural Employment Guarantee Scheme has had a positive impact.  He proposed an allocation of Rs.3915 crore for National Rural Livelihood Mission (NRLM) which represents an increase  of 34 per cent. He proposed to provide Rs.200 crore to enlarge the corpus to Rs.300 crore of the Women’s SHG’s Development Fund.  He said the fund will also support the objectives of  Aajeevika i.e.  NRLM and will empower  women  SHGs to access bank credit. He also proposed to establish a Bharat Livelihoods Foundation of India through Aajeevika which will support and scale up civil society initiatives and interventions particularly in the tribal regions covering around 170 districts.

Allocation under National Social Assistance Programme (NSAP) is proposed to be raised by 37 per cent to Rs. 8447 crore.  Under the Indira Gandhi National Widow Pension Scheme andIndira Gandhi National Disability Pension Scheme for BPL beneficiaries, the monthly pension amount per person is being raised from Rs. 200 to Rs.300.

The Finance Minister announced a provision of Rs.1,93,407crore for Defence Services including Rs.79,579 crore for capital expenditure.  He said the allocation is based on present needs and any further requirement would be met.

Addressing Governance related issues, Shri Mukherjee said adequate funds are proposed to be allocated to complete enrolments of another 40 crore persons under UID Mission. Outlining the steps taken by the Government to address the issue of black money, the Minister proposed to lay a White Paper  on Black Money in the  current session of Parliament.

In the Budget Estimates for 2012-13, the Gross Tax Receipts are estimated at Rs.10, 77,612 crore which is an increase of 15.6 per cent over the Budget Estimates and 19.5 per cent over the revised estimates for 2011-12.  After devolution to States, the net tax to the Centre in 2012-13 is estimated at Rs. 7,71,071crore.  The Non Tax Revenue Receipts are estimated at Rs.1,64,614croreand Non-debt Capital Receipts  at Rs.41,650 crore.  The total expenditure for 2012-13 is budgeted  at Rs.14,90,925 crore.  Of this Rs.5,21,025crore is the Plan Expenditure while Rs.9,69,900 croreis budgeted as Non Plan Expenditure.

The tax proposals are guided by the need to move towards the Direct Tax Code(DTC) in the case of direct taxes and Goods & Services Tax (GST) in the case of indirect taxes.

Individual income upto Rs.2 lakh will be  free from income tax; income upto Rs.1.8 lakh was exempt in 2011-12.  Income above  Rs.5 lakh and upto Rs.10 lakh now carries tax at the rate of 20 per cent; the 20% tax slab was from Rs.5 lakh to Rs.8 lakh in 2011-12.  A deduction of upto Rs.10,000 is now available for interest from savings bank accounts. Within the existing limit for deduction allowed for health insurance, a deduction of upto  Rs.5000 is being allowed for preventive health check-up.  Senior citizens not having income from business will now not need to pay advance tax.

While no changes have been made in corporate taxes, the budget proposes a number of measures  to promote investment in specific sectors.  In order to provide low cost funds  to some stressed infrastructure sectors, withholding tax on interest payments on external borrowings (ECBs) is being reduced from 20 percent to 5 per cent for 3 years.  These sectors are - power, airlines, roads and bridges, ports and shipyards, affordable housing, fertilizer, and dam.

Investment linked deduction of capital expenditure in some businesses is proposed to be provided at 150 per cent as against the current rate of 100 per cent.  These sectors include cold chain facility, warehouses  forstoring food-grains, hospitals, fertilizers and affordable housing.   Bee keeping, container  freight and warehousing  for storage of sugar will now also be eligible for investment linked deduction.

The budget also proposes weighted deduction for R&D expenditure, agri-extension services and expenditure on skill development in the manufacturing sector.

For small and medium enterprises (SMEs) the turnover limit for compulsory tax audit of accounts as well as for presumptive taxation is proposed to be raised from Rs. 60 lakh to Rs. 1 crore. In order to augment funds for SMEs,  sale of residential property will be exempt from capital  gains tax, if the proceeds are used for purchase of plant and machinery, etc.

A General Anti-Avoidance Rule (GAAR) is being introduced in order to counter aggressive tax avoidance. Securities transaction tax (STT) is being reduced by 20 per cent on cash delivery transactions, from 0.125% to 0.1%.  Alternative Minimum Tax is proposed to be levied from all persons, other than companies, claiming profit linked deductions.

The Finance Minister has  proposed a series of measures to deter the generation and use of unaccounted money. In the case of assets held abroad, compulsory reporting is being introduced and assessment upto 16 years will now be allowed to be re-opened.  Tax will be collected at source on trading in coal, lignite and iron ore; purchase of bullion or jewellery above Rs. 2 lakh in cash; and transfer of immovable property (other than agricultural land) above a specified threshold.  Unexplained money, credits, investments, expenditures etc. will be taxed at the highest rate of 30 per cent irrespective of the slab of income.

The Finance Minister has made an effort to widen the service tax base, strengthen its enforcement and bring it as close as possible to the central excise. A common simplified registration form and a common return are being introduced for central excise and service tax.

All services will now attract service tax, except those in the negative list.  The negative list  has 17 heads and includes  specified services provided by the government or local authorities, and services in the fields of education, renting of residential dwellings, entertainment and amusement,   public transportation, agriculture and animal husbandry.  A number of other services including health care, and services provided by charities, independent journalist, sport persons, performing artists in folk and classical arts, etc are exempt from service tax.  Film industry also gets tax exemption on copyrights relating to recording of cinematographic films.

Service tax rate is being increased from 10 per cent to 12 per cent, with consequential change in rates for services that have individual tax rates. The standard rate of excise duty for non-petroleum goods is also being raised from 10 per cent to 12 per cent. No change is proposed in peak rate of customs duty of 10 per cent on non-agricultural goods.

The Budget offers relief to different sectors of economy, especially those under stress.  Import of equipment for fertilizer projects are being fully exempted from basic customs duty of 5 per cent for 3 years.  Basic customs duty is also being lowered for a number of equipment used in agriculture and related areas.

In the realm of infrastructure, customs relief is being given to power, coal and railways sectors.  While steam coal gets full customs duty exemption for 2 years (with the concessional counter-veiling duty of 1 per cent), natural gas, LNG and certain uranium fuel get full duty exemption this year.  Different levels of duty concessions are being provided to help mining, railways, roads, civil aviation, manufacturing, health and nutrition and environment.  So as to help modernization of the textile industry, a number of equipment are being fully exempted from basic customs duty, and lower customs duty is being proposed for some other items used by the textile industry.

Customs duty is being raised for gold bars and coins of certain categories, platinum and gold ore.  Customs duty  is to be imposed on coloured gem stones.  Excise duty on certain categories of cigarettes and bidis, pan masala and chewing tobacco is being increased.  Customs duty is being increased  on completely built large cars/ SUVs/ MUVs of value exceeding $40,000.

Silver jewellery will now be fully exempt from excise duty. Unbranded  precious metal jewellery will attract excise duty on the lines of branded jewellery. Operations are being simplified and measures taken to minimize impact of this provision on small artisans and goldsmiths.

While direct tax proposals in the Budget will result in a net revenue loss of Rs.4,500crore, indirect taxes will result in a net revenue gain of Rs. 45,940 crore.  Thus, the tax proposals will lead to a net gain of Rs. 41,440 crore.

Last Updated on Thursday, 24 May 2012 12:29
 

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