1. BUDGET
2012-13
Dr. V B Tayde

2. Budget – A financial statement of ensuing year.
•An instrument for growth, stability, equity
• Submitted by Finance Minister on last day of February
• Most herculean task
• Resembles household meeting all ends
Anatomy of Budget
Budget processes, stages, components
• Prebudget rituals, preparation, presentation, discussion, voting implementation
Pre-budget rituals
• Issue of budget circular in September to stakeholders by dept of economic affairs
• Pre – budget meetings with ministries, to find their demands
• Discussion with interest groups (like rep of business, unions, NGOs, economists)
• After pre budget consultation final meeting with PM before budget is frozen

3. Preparation (people behind the Budget)
• The Finance Minister (Pranab Mukherjee)
• Chief Economic Adviser (Kaushik Basu)
• Finance Secretary (R S Gujral)
• Secretary, Dept of Expenditure (Sumit Bose)
• Secretary, Dept of Eco. Affairs (R. Gopalan)
• Chairman, Central Board of Direct Taxation (Laxman Das)
• Chairman, Central Board Excise and Customs (S K Goal)
• A team of officers of said depts. massive work of think tank, unceasing and
herculean endure of 6 months
Presentation
• Presentation by FM in LokSabha at 11.00 am (formerly 5.00pm)
• No discussion on budget on B day
• After 2-3 days discussion, debate in parliament
• Vote is sought in house

4. Types of Budgets
• Balanced budget : Govt revenue = Govt expenditure
• Surplus budget : Govt revenue > Govt expenditure
Healthy sign. But mostly theoretical notion
• Deficit Budget :Govt revenue < Govt expenditure
Used as tool to curb depression
Govt raises funds from tax and non tax revenue source for deficit management
Deficit Budget a known precedent
• Classical era (18th,19th centuries) of balanced budget
• “The best govt is one that spends the least”
• The concept of police state
• Paradigm shift with Wagner's law a move from police state to welfare state
• Reasons for growth of public expenditure
• Defense, growth of population in towns and cities, recessions, democratic
institutions, inflation, welfare of strategic section etc
• Resultant outcome – deficit,

5. Numerous types of deficits
Budgetary deficit
• Difference between all receipts and expenditure of govt both on revenue and
capital a/c
• Govt expend – both revenue and capital a/c > govt receipts both revenue and
capital a/c
• To bridge gap external/internal borrowings
• Budgetary deficit is deficit finance in India
• Deficit finance directly adds to price hike
• Revenue deficit
• Difference between Revenue expenditure and revenue receipts
• Revenue deficit = reve expend > reve receipts interest payments subsidies – food,
fertilizer, fuel, expanse on health, edu etc
• Revenue receipts – receipts from tax (direct/indirect) and non tax (interest
obtained on loan given by govt, fees, fines, profit from PSUs etc)
• Ideally revenue deficit is zero
• Revenue deficit corrected by funds sought from capital a/c

6. Fiscal deficit
Always a talk of fiscal experts, imp concept used internationally, treated as a norm
of health of economies
• Because it is comprehensive measures of budgetary imbalance especially govt
indebtedness
• fiscal deficit = budgetary deficit + govt borrowings
• When govt receipts fall short to total govt expenditure , govt borrows from public ,
foreign sources
• Thus fiscal deficit is excess of total expenditure over total non borrowed receipts
• Financing fiscal deficit (5.9% of GDP in 2011-12) big issue
• Target for 2011-12 was 4.6%
• Fiscal Responsibilities and Budget Management Act 2003 provision reduced 3 %
fiscal deficit and zero revenue deficit to by 2008-09
• Global fin crisis plagued world economy

7. Primary Deficit
Primary deficit = fiscal deficit interest payment of govt
• It indicates real position of govt finances as excludes interest liabilities
Monetized deficit
• A sum of net increase in holding of treasury bills of RBI and its contribution to
market borrowings of govt
• It is increase in net RBI credit to govt.
Budget has three components
• Consolidated fund
• Contingency fund
• Public account
1. Consolidated fund - consolidated fund constitutes revenues raised by tax & non
tax sources, small savings, loans etc
• All expenses ( except those met through contingency fund met through CF
• Hence most important of all govt funds
• No withdrawal without parliament approval

8. 2) Contingency fund
• As per name contingency, unforeseen (urgent) expenditure
• Such expenditure is meet from it
• Amt Rs 500 crores earmarked for it
• In possession of president
• No withdrawal without parliament approval
• Amt taken from consolidated fund
3) Public a/c
• An account where in govt is simply a banker
• PPF, GPF, NSS, NSE block public money
• Such funds are used by govt
• Returned to people after maturity
• No permission of parliament
• All such govt funds receipts used for various heads of expenses
Two tier classification
1. Revenue receipts and expenditure
2. Capital receipts and expenditure

9. Revenue receipts/expenditure
• Revenue account – receipts/expenses do not create any asset
• On receipt side tax/non tax revenue
• On expenditure side – expenses on subsidies defense, salaries etc
Capital receipts/payments
capital receipts creating assets go to capital account
• For instance sale of shares (disinvestment) in public sector companies. Interest
received on loans on small savings etc
Capital expenditure
• Long term expenditure
• Expenditure on public dams developmental projects, interest paid on govt loans
Budget 2012-13
• Budget always poses challenges
• Challenges before the budget 2012-13
• Global meltdown especially fall of European union and its impact
• High domestic inflation 6.5pc
• Dealing growth rate since last 4 yrs tangenting to 6.9%

10. • High unemployment 10.8pc
• Defiant poverty 37.5pc wide Tendulkar committee
• Current set back to congress in election
• Commencement of XII plan on April 1,2012
• Herculean Endeavour to sectors -
Satisfy all business, agriculture, professionals self employed, employees, aam admi.
• Pareto optima – at least one is better off and none worse off poses constraints.
• Seasoned finance ministers Endeavour to play his ball
• Economic survey on 15.3.2012
• ‘Kahi khushi kahi gam ‘
Finance Bill
• Finance bill 2012-13 entails tax proposals

11. Personal income tax rates (in %)
Income (In Rs) Existing New
Upto 1.8L Nil Nil
1.8 L – 2L 10 Nil
2L – 5L 10 10
5L- 8L 20 20
8L-10L 30 20
Above 10L 30 30
• Standing committee on exemption limit Rs 3L
• Some stand committee members Rs 5L
• Salaried class disappointed on two grounds
• Expectation of hike in exemption limit remained an illusion
• Additional deduction Rs 20,000 for infra bond removed
• Corporate income tax rates same

12. Indirect Taxes
• FM became cruel to be kind
• FMs give and take game “I must be cruel to became kind’ quoting hamlet, FM said
in Parliament
• Kindness – Hike in tax exemption limit by Rs 20,000 to give relief to assesses
• Cruelty: Rise in service tax and excise duty money to finance three Fs of subsidy –
food, fuel, fertilizer could led to inflation
• Hike in service tax and excise for 10% to 12% costly
• Most goods services shall be costly
• Oil shock $ 115 per barrel a burden
• Periodical petrol/diesel price hike on going phenomenon.

13. • The railway minister played his role in passenger fare hike
• 9 yrs old fare hike at one stroke
• Common masses miles away from 4 wheeler, could afford to ride on multi-wheeler
• Such ride for poor now miserable
• 9 yrs old hike should have been divided over 3 budgets
• Resultant inflation shall hard- hit commuters
Likely Expensive’s List
Phones, hoteling, TV, freeze, car, aviation, electronics, cigar, gutka, pan masala,
gold, imported vehicles, etc
Most shall plague rich and “Aam Aadmi” and will add to inflation

14. Moderate Income Tax Rates
Moderate Income Tax Rates (Personal and corporate) sound feature
• Since past decade ceiling tax rates up to 30-40%
• In 1972-74 tax rate was 97.5%
• It increased propensity to evade tax leading to reduced tax collection
• High tax rates affect ability and desire to work adversely
• It affects savings, investment, capital formation and economic growth adversely
• Laffer’s curve empirically evidenced inelasticity of high taxation
• With high tax rates, tax proceeds don’t enhance proportionately
Tax – An effective tool of change
• Tax/ Pubic expenditure need be taken as potent tools of diverging economic
resources
• Thus tax on cigarettes, bidis, tobacco products to discourage their consumptions is
welcome step
• AP Learners said “ The aim of tax is not to earn money but to leave less in hands of
people”
• Also to divert resources according to needs
• Taxing conspicuous consumption is called for
• Taxing cigarettes, alcohol, gambling diverts consumers away from the same
• Prohibition is Directive Principle in Indian Constitution

15. Negative Taxation
• Tax a tool to reduce inequalities
• In USA negative income tax to bring egalitarian society
Green Budget – Budget for agriculture
• Pranavda’s prioritization of agriculture – a big leap forward
• Agriculture contribution to GDP – 14%
• It absorbs 58% people in employment, It feeds 1.2 billion people, wide range of
cattle and crops
• Hence more crucial than rest of the sectors
• Unfortunately agriculture is gamble in hands of monsoon
• Fluctuating growth in agriculture 2007-08 - 5.8% , 2008-09 – 0.01%, 2009-10 – 1%,
2010-11 - 7%, 2011-12 – 2.5%
Provisions
• Total outlay for agriculture & cooperative department
2011-12 – Rs 17123 crore
2012-13 Rs 20208 crore
• Total planned outlay for Rashtriya Krishi Vikas Yojna
2011-12 – Rs 7860 crore
2012-13 Rs 9217 crore

16. Second Green Revolution in Eastern India
• High productivity in paddy
• Allocation 2011-12 – Rs 400 crore, 2012-13 – Rs 1000 crore
• Storage facilities, freezing facilities
Creation of various Agricultural Missions
• National Food Security Mission covering paddy, wheat, pulses
• National Mission on Agriculture including Micro-irrigation as action plan for climate
change
• National Mission on Agriculture Extension and Technology – to adopt new farm
technology and raise agriculture products
• National Mission for Protein Supplement
• Hence suitable allocation for dairy (with world bank assistance Rs 2242 crore)
poultry, piggery, goat rearing, etc

17. Farm Credit
• Allocation in 2011-12 – Rs 475000 crore
• Allocation in 2012-13 – Rs 575000 crore
• Crop loan with 7% rat of interest
• For regular payer 3%
• NABARD refinance allocation Rs 1000 crore
• Kisan Credit Card as ATM
• Agriculture Research allocation Rs 200 crore
• Food Processing sector growth 8% for last 5 years
New centrally planned scheme – National Mission on Food Processing
• Creation of 2 million tons of storage capacity. Lot is done, lot needs to be done
• Food inflation revisit in March 2012 after zero food inflation in Jan 2012
• Availability of quality farm input at fair price to control food inflation
• Increase in farm productivity in various crops

18. Fiscal Consolidation Mirrored in Budget
“I made it a determined attempt to come back to the path of fiscal consolidation in
the budget for 2012-13 by pegging the fiscal deficit at 5.1% of GDP’ Mr Pranab
Mukherjee said in his budget speech
Amendment in Fiscal Responsibilities & Management Act 2003
• Govt. to reduce fiscal and revenue deficit
• Eliminate effective revenue deficit by March 31st,2015
• Generate adequate effective revenue surplus
• Periodic review of FRBM Act by Controller Audit General (CAG)
• CAG review to be laid down in Parliament
• Fiscal deficit in 2011-12 5.9% of GDP against 4.6%
• High fiscal deficit due to global melt down
• High deficit due to soaring subsidies on crude oil price $ 115 per barrel increased
to $ 125 in 2011-12
• FMs plan to reduce fiscal deficit to 5.1% in 2012-13, 4.5% for 2013-14

19. Fiscal deficit as percentage of GDP
Year Budget 2012-13 13th Finance Com
2011-12 5.9 4.8
2012-13 5.1 4.2
2013-14 4.5 3.0
2014-15 3.9 3.0
• Big challenge to get 5.1% fiscal deficit in 2012-13 from 5.9% of 2011-12
• Subsidy reduction on 3F (Fuel, Fertilizer, Food) is a big challenge
• FM declaration for 2012- 13 subsidies 2% of GDP
• Over next 3 yrs 1.75% of GDP
• After passing of Food Security Bill in parliament, subsidies will multiply due to
subsidized prices of Rs 3,2,1 for rice, wheat, bajra for poor

20. Debt Management important component of fiscal consolidation
Radcliffe committee (1959) said “the debt is not, that is to say, to be regarded as
residual among quantities of economic policy. Thus debt management can be
regarded neither as something to be, as it were, left to the last and adjusted to all
other policy decisions “
• FM prediction debt to GDP to decline to 45.5% in 2012-13
• In 2011 it was 62.43
• Indian still in comfort zone with 45.5 % ratio
• In Greece, Japan, USA debt to GDP ratio is massive
• It exceed 200 pc in Japan
Social sector provision
• Bharat Nirman , Flagship Program, SC/ST Sub plans, Preferential purchases (4%)
of the product of Dalit Entrepreneurs, National Skills Development Program
• Plethora of social sector promotion programs
• PM’s emphasis on transparency and sincere implementation