Union Budget 2011-12

In the budget there will be a direct tax loss of Rs. 11,500 crores, and an indirect tax gain of Rs.
11,500 crores, so a net loss of Rs. 200 crores.

Specifically, the Revenue of the government has three components:

 Tax Revenue: This is the revenue raised from taxes like your income tax and corporate
tax.
 Non Tax Revenue: This is the revenue the government earns by things like dividends
from PSUs, royalty from selling petroleum, spectrum fees etc.
 Capital Receipts: Includes mostly borrowings

The majority of the revenues are generated through taxes, and here is how they’d look like in
absolute numbers. Total Tax Revenues are expected to be Rs. 9,32,439.88 crores, while Total
Non Tax Revenues are expected to be Rs. 1,25, 435.12 crores.

I say expected because that’s what the budget is really – it is an expectation of how much the
government will earn and spend in the coming year.

Now that you know how much taxes contribute to government’s coffers – can you guess how
much income tax contributes to the total tax collected?

Here is a pie chart that shows the breakup of various tax heads.

Tax Revenue Breakup Non Tax Revenue Breakup

Budget 2010-2011

Service Tax Taxes of Union Territories

9% 0%

Union Excise Duties Non-Tax Revenue of Union Territories

Interest receipts
18% Corporation Tax 1% 13%
40%

Customs Other Non-Tax Revenue

15% 52% Dividends and Profits
35%

Wealth Tax
0% Taxes on Income
17%

As you can see companies pay the largest share of taxes at 39%, and income tax contributes 18%
along with excise duties. The next highest is customs with 16%. What this shows is that income
tax paid by individuals is actually quite small when you compare it to the other ways the
government collects taxes.

This is probably because a very small percentage of the population pays income tax.

Here are the absolute numbers. 2011-12

Heads In Cr.
Corp Tax 359,990.00
Total Taxes on Income 172,026.00
Wealth Tax 635.00
Customs 151,700.00
Net Union Excise Duties 164,115.66
Total Service Tax 82,000.00
Total taxes on UT 1,973.22
Total Tax Revenue 932,439.88

2010-11
Corporation Tax 30133
1
Taxes on Income 12806
6
Wealth Tax 603

Customs 11500
0
Union ExciseDuties 13200
0
Service Tax 68000

Taxes of Union 1651

Territories
74665
 1

Next up is a look at all the heads of the indirect revenues, and here is how that pie chart looks
like.

So, the two biggest contributors are dividends and economic services. Dividends are of course
dividends from PSUs like MOIL, and that number will go down in the years to come as
disinvestment continues and government continues to reduce their holding in the PSUs. Of
course it could happen that some of the loss making PSUs start earning a profit, or that the profit
of the existing PSUs become much higher, but I wouldn’t count too much on that.

Economic Services are really dominated by two things – royalty on petroleum products, and
spectrum fee that has been generated from the telecom auctions.

So, if you really see the 12% non tax revenue that the government gets is higher this year
because of the spectrum auction.

Here are the absolute numbers.

Heads In Cr.
Interest Receipt 19,577.78
Total Dividends and
42,623.68
Profits
Total Fiscal Services 127.82
General Services 11,494.36
Total Social Services 2,353.90
Economic Services 45,915.27
Total Grants in Aid 2,172.96
Non Tax Revenue of UT 1,169.35
Total Non Tax Revenue 125,435.12

So, this is how the government “earned” money but like you and me our government has got a
credit card as well – that too an international one because it gets money from abroad as well.

The government gets Capital Receipts and this is part of the revenue as well. These are things
like short term borrowings, and external debt.

Expenditure:
There are two heads for spending:

Plan Expenditure: This is the good stuff in the sense that it’s the money spent on building
roads, irrigation systems etc.

Non Plan Expenditure: This is the money spent on defense, police, petroleum subsidy, postal
deficit, and basically all the stuff that needs to sustain the country.

The total non plan expenditure is way more than the plan expenditure, which means that we
spend a fairly large amount on sustaining ourselves, and the larger that amount is – the lesser
remains for spending on infrastructure building, and boosting growth.

Non Plan Expenditure Breakup

Defense is big as expected and the petroleum subsidy piece as well. For all those who complain
about the government not subsidizing enough – nothing comes for free, and what doesn’t go
directly from your pocket goes indirectly because the government has to borrow to pay for it.

Here’s what the absolute numbers look like.

Heads Expenses
Interest Payments and Debt
267,986.00
Servicing
Defence Services
164,415.00
Expenditure
Pensions 54,521.00
Interest Subsidies 6,868.00
Grants to State 65,466.00
Governments
Police 29,685.00
Capital Outlay (excluding
13,212.00
Defence)
Petroleum Subsidy 23,640.00
Agricultural Debt Waiver 6,000.00
Fertilizer Subsidy 49,998.00
Grants and Loans to Public
514.00
Enterprises
Postal Deficit 5,018.00
Other Non-plan Expenditure 128,859.00
Total (Non-Plan)
816,182.00
Expenditure

What is the fiscal deficit?

The fiscal deficit is projected to be 4.60% of GDP for next year. The GDP is estimated to be Rs.
89,80,860 cr. for next year, and based on that the fiscal deficit amounts to Rs. 4,13,119.56 crores.

This is roughly the sum of the Total Debt Receipts (Rs. 392,816.57 crores) and the Net Market
Stabilization Scheme (Rs. 20,000 crores).

If there isn’t enough disinvestment then the fiscal deficit will suffer, if there aren’t enough tax
collections then the fiscal deficit will suffer, even if the post office spends more the fiscal deficit
suffers! These are all projected numbers, and any project going wrong unfavorably will mean a
worse than predicted fiscal deficit.