Budget 2015-16

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This is a presentation on Union Budget 2015-16 for the students at the instance of the Hindu and Hindu Business Line on the 3rd March 15 and at Siva Sivani institute on the 5th March where 500 students from six B-Schools interacted.

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Slide 1:

UNION BUDGET 2015-2016 At the siva sivani Institute of Management A VIEW FROM AN ECONOMIST’S WINDOW DR. B. YERRAM RAJU 5th February 2015

Know the Budget:

Know the Budget The Economy – Survey 2014-15 Budget – Macro Economic picture Budget Aims Key Takeaways Sectoral Allocations Analysis Comment: Long on Vision and short on Action 05/03/2015 yerramr@gmail.com 2 Pancha Sutra of Modi Government: Digital India Make in India Skill India Clean India Smart Cities

The Economy Window:

The Economy Window 05/03/2015 yerramr@gmail.com 3

Survey Attributes Growth To 4 factors :

Survey Attributes Growth To 4 factors 05/03/2015 yerramr@gmail.com 4

Economic Survey Recommends::

Economic Survey Recommends: 05/03/2015 yerramr@gmail.com 5 India is still a part of world’s fastest growing economies

Allocations in 2015-16 (%):

Allocations in 2015-16 (%) Sectors Percentage Allocation Agriculture & Agro Industries 2 Rural Development excluding MNREGS 0.5 Irrigation & flood control 0.1 Energy 28.9 Industry & Mines 7.5 Transport 23.4 05/03/2015 yerramr@gmail.com 6 Sectors Percentage Allocation Communications 2.1 Science, Technology & Environment 3.3 Economic Services 3.5 Social Sevices 14.0 General Services 4.6

Key Takeaways:

Key Takeaways

Key Shortcomings:

Key Shortcomings

Budget Aims:

Budget Aims 05/03/2015 yerramr@gmail.com 9

Farm Sector :

Farm Sector “ Paramparagat Krishi Vikas Yojana” Pradhanmantri Gram Sinchai Yojana Per drop – More Crop – Micro irrigation gets a slice of allocation -  Rs. 5,300 crore to support Micro Irrigation Programme. Setting up National Agri Market Federation But Accelerated Irrigation Benefit Scheme axed. Unrelated to Budget : ·          Rs. 25,000 crore for Rural Infrastructure Development Bank. ·  Farmers credit - target of 8.5 lakh crore.   05/03/2015 yerramr@gmail.com 10

Infrastructure:

Infrastructure 05/03/2015 yerramr@gmail.com 11 Rs. 500 crores for Ultra Mega Solar Power Projects in Rajasthan, Gujarat, TN, AP and Laddakh . Rs.400 crores for solar power driven agricultural pump sets and water pumping stations . Rs.100 crore for developing 1 MW Solar Parks on banks of canals . Green Energy Corridor Project to facilitate evacuation of renewable energy across the country. Continuity in budget allocations in this directions seen in 2015-16 . · Rs. 70,000 crores to Infrastructure sector. · Tax-free bonds for projects in rail road and irrigation ·  PPP model for infrastructure development to be revitalised and govt. to bear majority of the risk. ·    Atal Innovation Mission to be established to draw on expertise of entrepreneurs, and researchers to foster scientific innovations; allocation of Rs. 150 crore. ·    Govt. proposes to set up 5 ultra mega power projects, each of 4000MW.   . Renewable energy target for 2022: 100K MW in solar; 60K MW in wind; 10K MW in biomass and 5K MW in small hydro  

Financial Sector:

Financial Sector Mudra Bank announced for start ups, - A game changer Priority sector redefined to include agro industry and agribusiness with credit up to Rs.10cr Priority Sector Lending Certificates will be introduced Comprehensive Regulatory Mechanism through a separate institutional and legal facilitation to improve ease of doing business. Amendment to FEMA Act in consultation with RBI for effective capital control policy Indian Financial Code will be shortly introduced Gold Monetisation Scheme; Sovereign Gold Bond, as an alternative to purchasing metal gold. Developing Indian Gold Coin with Ashoka Pillar in the center . 05/03/2015 yerramr@gmail.com 12

Financial Sector:

Financial Sector Atal Pension Yojana, to provide a defined pension, depending on the contribution, and its period with matching 50% contribution from the government. Pradhan Mantri Suraksha Bhima Yojana to cover accidental death risk of 2 lakh for a premium of 12 / yr. Pending Insurance Laws Amendment Bill to be enacted soon The regulatory gap under the Prize Chits and Money Circulation Scheme (Banking) Act, 1978 will be bridged. Kisan Vikas Patra (KVP) reintroduced. Special small savings instrument to cater to the requirements of educating and marriage of the Girl Child introduced. National Savings Certificate with insurance cover to provide additional benefits for small savers In the PPF Scheme, annual ceiling will be enhanced to Rs.1.5 lakh p.a. from Rs.1 lakh . 05/03/2015 yerramr@gmail.com 13

Financial Sector :

Financial Sector International Finance Center in Gujarat Bank Investment Company to fund capitalization of PSBs and Bank Board Bureau( P.J. Nayak committee) Commodity Regulator to be merged with SEBI by amending the SEBI Act. Public Debt Management Agency (PDMA) to bring India’s external and domestic debt under one roof.

Comments:

Comments Progressive, futuristic and dynamic budget Orientation on employment, enterprise and education Infrastructure and manufacturing get boost Health sector allocations do not match the requirements Investment oriented – FDIs, a big hope MSMEs: States’ role ignored – DICs to be converted into facilitation centers. Legal Commitments on Andhra Pradesh and Telangana and Parliament Assurances of 2014 set aside Monitoring not emphasized 05/03/2015 yerramr@gmail.com 15

Slide 16:

Thank you http://yerrambehara.blogspot.com

Education:

Education School Education Primary schools to cover 5km radius : 80000 Prmiary schools will be up graded to upper primary and middle schools Higher Education AIIMS in Jammu and Kashmir, Punjab, Tamil Nadu, Himachal Pradesh, Bihar and Assam. ·    IIT in Karnataka; Indian School of Mines in Dhanbad to be upgraded to IIT. ·    PG institute of Horticulture in Amritsar. ·    Kerala to have University of Disability Studies ·    Centre of film production, animation and gaming to come up in Arunachal Pradesh. ·    IIM for Jammu and Kashmir and Andhra Pradesh.   Information Technology Pan India programme “Digital India” to with an outlay of ` 500 crore launched in 14-15 but the progress and further initiative in 15-16 in the same direction announced with broadband connectivity to all the village panchayats. Programme for promoting “Good Governance” to be launched .A sum of ` 100 crore provided. No status Report but further initiatives to take the Digital India forward. 05/03/2015 yerramr@gmail.com 17

Status of Administrative Reforms (2014-15-Budget ):

Status of Administrative Reforms (2014-15-Budget ) Retrospective legislation keeping in mind the impact of each such measure on the economy and the overall investment climate. ‰ A stable and predictable taxation regime. - still to be seen ‰ Legislative and administrative changes to sort out pending tax demands of more than Rs.4 lakh crore under dispute and litigation. DISTRIBUTION RESOLUTION MECHANISM INTRODUCED 15-16  Resident tax payers enabled to obtain on advance ruling in respect of their income-tax liability above a defined threshold. ‰ Measures for strengthening the Authority for Advance Rulings.  ‰ Income-tax Settlement Commission scope to be enlarged.  National Academy for Customs & Excise at Hindupur in Andhra Pradesh.  Yet to be established 05/03/2015 yerramr@gmail.com 18

Status of Administrative Reforms (2014-15-Budget ):

New Urea Policy to be formulated. Not yet done Introduction of GST to be given thrust. (increasing VAT to 14% from 12.36% and promise held for introduction in April 2016) High level committee to interact with trade & industry on regular basis to ascertain areas requiring clarity in tax laws is to be set up. Convergence with International Financial Reporting Standard (IFRS) by Adoption of the new Indian Accounting Standards (2nd AS) by Indian Companies. Setting up of Expenditure Management Commission to look into expenditure reforms. - set up but recommendations not announced yet. The subsidy regime to be made more targeted for full protection to the marginalized, poor and SC/ST. Status of Administrative Reforms (2014-15-Budget )

Economic Initiatives of 14-15 echoed in 15-16:

Economic Initiatives of 14-15 echoed in 15-16 Encourages FDI selectively in sectors The composite cap of foreign investment to be raised to 49% with full Indian management and control through the FIPB route The composite cap in the insurance sector to be increased up to 49% from 26% with full Indian management and control through the FIPB route Requirement of the built up area and capital conditions for FDI to be reduced from 50,000 sq.mtrs to 20,000 sq.mtrs and from USD 10 mn to USD 5 mn respectively for development of smart cities. E-commerce platforms for manufacturing units to sell in retail Smart Cities   A sum of 7060 crore is provided in the current fiscal for the project of developing “one hundred Smart Cities’  - Allocations don’t match aspirations even in this budget. Real Estate   Incentives for Real Estate Investment Trusts (REITS). Complete pass through for the purpose of taxation. Clarity is yet to emerge A modified REITS type structure for infrastructure projects as the Infrastructure Investment Trusts (INVITS). Yet to be active These two instruments to attract long term finance from foreign and domestic sources including the NRIs 05/03/2015 yerramr@gmail.com 20

Farm Sector - More discontinuity:

Farm Sector - More discontinuity 05/03/2015 yerramr@gmail.com 21 “ Agri -tech Infrastructure Fund” of Rs.100cr. Rs . 200 crore provided to open Agriculture Universities in AP and Rajasthan and Horticulture Universities in Telangana and Haryana. Two more Agricultural Research Institute of excellence in Assam and Jharkhand with an initial sum of Rs. 100 crore. Farmer Soil health Cards on mission mode with Rs.100cr and Mobile soil testing labs with Rs. 56cr additionally across the country. “National Adaptation Fund” of Rs.100cr to combat climate change. with an initial sum an amount of ` 100 crore will be set up. There is no continuity for this initiative in the budget ‰ Technology driven second green revolution with focus on higher productivity and including “Protein revolution” will be area of major focus. “Price Stabilization Fund” of Rs. 500cr -Farmers are yet to find any reprieve on this count. Central Government to work closely with the State Governments to re-orient their respective APMC Acts. Amount of Rs . 50,000 crore allocated for Short Term Cooperative Rural Credit . Sum of Rs . 200 crore for NABARD’s Producers Development and Upliftment Corpus (PRODUCE) for building 2,000 producers organizations over the next two years. No Report Card on these initiatives as well .

Farm Sector (contd):

Farm Sector (contd) Rs . 50 crores for the development of indigenous cattle breeds and an equal amount for starting a blue revolution in inland fisheries. Invigorate the warehousing sector and significantly improve post-harvest lending to farmers. Agriculture Credit Finance 5 lakh joint farming groups of “ Bhoomi Heen Kisan ” via NABARD – for landless farmers New Short term credit target is Rs.8.50lakh crores by 2015-16.   Corpus of Rural Infrastructure Development Fund (RIDF) to Rs.25,000cr These three targets do not flow from budget resources but from the Banks’ own resources. Rs.5,000 crore provided for the Warehouse Infrastructure Fund .  No Report Caard “Long Term Rural Credit Fund” to set up for the purpose of providing refinance support to Cooperative and Regional Rural Banks with an initial corpus of Rs . 50,000 crore. No evidence of this reaching cooperatives. 0 yerramr@gmail.com 22

MSME Sector:

MSME Sector Skill India to be launched with an emphasis on employability and entrepreneur skills. Fund of Funds with a corpus of Rs.10,000 crore for providing equity through venture capital funds, quasi equity, soft loans and other risk capital for new startups Corpus of Rs.200 crore to be set up to establish Technology Centre Network .   Rs . 50 crore is provided to set up a Trade Facilitation Centre and a Crafts Museum to develop and promote handloom products and carry forward the rich tradition of handlooms of Varanasi. Textile Mega Clusters : Rs. 500 crore at Varanasi , Bareilly, Lucknow , Surat , Kutch, Bhagalpur and Mysore. Rs. 20 crore to set up a Hastkala Academy for the preservation, revival, and documentation of the handloom/handicraft sector in PPP mode in Delhi. Rs.50 cr for starting a Pashmina Promotion Programme (P-3) and development of other crafts of Jammu & Kashmir. No Report Card on any of these initiatives. Budget announced that all the skill development programmes functioning in 32 corridors would be brought under 1 umbrella. 05/03/2015 yerramr@gmail.com 23

MSME Sector Policy Initiatives:

MSME Sector Policy Initiatives Committee to study the flow of credit with mandate to submit report within 3months. Definition of SMEs to be modified to enable higher investments including FDIs Programme to facilitate forward and backward linkages with multiple value chain of manufacturing and service delivery to be put in place. Entrepreneur friendly legal bankruptcy framework will be developed for SMEs for easy exit. A nationwide “District level Incubation and Accelerator Programme” to be taken up for incubation of new ideas and necessary support for accelerating entrepreneurship. 9months have passed and the Committee’s Report still awaited. Electronic Trade Receivables Discounting System ( TReDS ) financing of trade receivables of MSMEs, from corporate and other buyers, through multiple financiers announced to improve liquidity among the MSMEs. NITI, the Atal Innovation Mission (AIM). AIM will be an Innovation Promotion Platform involving academics, entrepreneurs, and researchers and draw upon national and international experiences to foster a culture of innovation, R&D and scientific research in India. 05/03/2015 yerramr@gmail.com 24

What is a Budget?:

What is a Budget? It is an estimate of future revenues and expenditure over a specific period. Budgets are usually prepared on annual basis for governments – both Centre and State and annual and monthly basis for business enterprises. In other words, it is an Annual Statement of Income and Expenditure of the Government to be placed before the Parliament as Constitutional responsibility. 05/03/2015 yerramr@gmail.com 25

Budget Nomenclature:

Budget Nomenclature Annual Financial Statement: Government’s receipts and expenditure presented to the Parliament – Consolidated Fund; Contingency Fund; and Public Account Consolidated Fund: Summation of all revenues, money borrowed and receipts from loans it has given. All State expenditure is given from this fund Contingency Fund: Any urgent and unforeseen expenditure is met from this Fund and is at the disposal of the President of India. Public Account: It is a collection of deposits like the Public Provident Fund. Consolidated Fund is split into revenue and capital budgets. Revenue Budget consists of all revenue account; Capital budget or capital account includes non-revenue receipts and expenditure. Revenue Account: All receipts like taxes and expenditure like salaries, subsidies, interest payments that does not involve creation of any assets Capital account: Receipts from liquidating (selling) assets or shares of a public sector company and spending to create assets and lending to receive interest. 05/03/2015 yerramr@gmail.com 26

Expenditure:

Expenditure A Central Plan is the Government’s expenditure that includes a five-year road map. This is met both from budget and non-budgetary sources (State owned enterprises) Government’s support to the Central Plan is known as Budget support. Plan expenditure: It is the amount the centre sets aside to States and UTs split into revenue and capital components in addition to the budget support. Non-Plan expenditure: All those bills the government has to pay under the ‘revenue expenditure’: interest payments, subsidies, salaries, defense and pension. Most of the capital expenditure goes for Defense. 05/03/2015 yerramr@gmail.com 27

Deficits:

Deficits Fiscal Deficit: Living beyond the means – Non-borrowed receipts-(revenue receipts+ loan repayments+ miscellaneous capital receipts, primarily disinvestment proceeds) falling short of expenditure. The excess of total expenditure over total non-borrowed receipts is called fiscal deficit. Revenue Deficit: Ideally all revenue expenditure must be met from revenue receipts. Where it falls short, it has to raise a debt from the public. Primary Deficit: Fiscal Deficit-Interest payments on earlier borrowings. If this is growing it means that our fiscal strength is bad. Current Account Deficit: Deficit arising from balance of payments current assets FRBM Act 2003 specifies that revenue expenditure shall be met fully out of revenue receipts only. Any borrowing should be done only to meet capital expenditure. The Act also mandates 3% fiscal deficit after 2008-09 in order to maintain fiscal stability. The global financial crisis and our economy’s melt down has forced to abandon this fiscal discipline in 2008-09. Fiscal Deficit 5.5% - a fall from the estimated 6.7% of GDP. 05/03/2015 yerramr@gmail.com 28

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