DR.

RAM MANOHAR LOHIA NATIONAL LAW UNIVERSITY

Economics

Project on Government Budget and its Concepts

Submitted to: Submitted by:

Assistant Professor B.A. LLB.(1st Year)
Section B
Roll no-134

Acknowledgement

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For successful completion of any work or project we need number of hands and ideas and
when this is done it is very important to pay credit to them. So here I would like to express
my sincere gratitude to a number people who played an important role in shaping this project
and making it what it is now. Starting from my parents, for making me available with all the
facilities required; my teacher Dr. Mitali Tiwari for guiding on how the project is to be done
and my friends who were a constant support throughout the process.

Table of Contents

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Content Page No.

1- Introduction............................................................................................................04
1.1- Objective.........................................................................................................04
1.2- Research Question..........................................................................................04
1.3- Research Methodology...................................................................................04
2- Government Budget...............................................................................................05
2.1- Meaning..........................................................................................................05
3- Types of Budget....................................................................................................05
3.1- Union Budget.................................................................................................05
3.2- State Budget...................................................................................................06
3.3- Plan Budget....................................................................................................06
3.4- Performance Budget.......................................................................................06
3.5- Supplementary Budget...................................................................................06
3.6- Zero-based Budget.........................................................................................06
4- Components of Government Budget....................................................................07
4.1- Revenue Budget.............................................................................................07
4.2- Capital Budget................................................................................................07
5- Classification of Budget Receipts- Components of Government Revenue...........08
5.1- Revenue Receipts............................................................................................08
5.2- Capital Receipts .............................................................................................09
6- Balanced Budget Versus Deficit or Surplus Budget..............................................10
7- Types of Budget Deficit.........................................................................................10
7.1- Revenue Deficit..............................................................................................11
7.2- Fiscal Deficit..................................................................................................11
7.3- Primary Deficit...............................................................................................12
8- Highlights of Budget 2016-17...............................................................................13
9- References.............................................................................................................23

Introduction

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A government budget is a government document presenting the government's
proposed revenues and spending for a financial year that is often passed by the legislature,
approved by the chief executive or president and presented by the Finance Minister to the
nation. The budget is also known as the Annual Financial Statement of the country. This
document estimates the anticipated government revenues and government expenditures for
the ensuing (current) financial year. For example, only certain types of revenue may be
imposed and collected. Property tax is frequently the basis for municipal and county
revenues, while sales tax and/or income tax are the basis for state revenues, and income
tax and corporate tax are the basis for national revenues.

The government budget balance is further differentiated by closely related terms such
as primary balance and structural balance (also known as cyclically-adjusted balance) of the
general government. The primary budget balance equals the government budget balance
before interest payments. The structural budget balances attempts to adjust for the impacts of
the real GDP changes in the national economy.

Objectives
1- To study about the government budget and its procedure.
2- To study different types of budgets.
3- To study how the deficit and surplus problems in a budget are tackled.

Research Questions
1- What are the concepts related to government budget?
2- Detailed study of the current budget.

Research Methodology
The researcher has relied on ‘Doctrinal Methodology’ i.e., the method of my analysis is
descriptive and analytical. While researching on the topic, various book and internet sources
have been consulted. For thorough study of project topic, all possible means and reasons have
been used.

Government Budget

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Meaning
Government in every country is required to undertake various economic, social and other
activities. It also likes to pursue various policies to achieve certain objectives like economic
development, reduction of inequalities of income and wealth, etc. The government has to
incur expenditure in performing these activities and in pursuing its policies. For instance, the
government has to incur expenditure in maintaining law and order and in undertaking various
developmental activities. As such, the government has to raise necessary revenue to finance
these expenditures. It raises its revenue through various sources like taxes and public
borrowings. Accordingly, the government has to draw a financial plan corresponding to
various activities it wants to undertake during the coming year. Such a financial plan is
known as budget of the government. Thus, the budget of the government is an annual
financial statement describing in detail the estimated receipts and proposed expenditures and
disbursements of the government under various heads for the financial or fiscal year (1st April
to 31st March). It is a description of the fiscal policies-taxation and public expenditure
policies-of the government and the financial plan corresponding to these policies.

While the budget gives the estimates for the coming financial year, it also gives the actual
financial accounts for the previous year and the revised estimates of the current year. For
instance, the budget of 2012-13 gives not only the budget estimates for the year 2012-13, but
it also gives the actual financial accounts for the year 2010-11 and revised estimates for the
year 2011-12.

As in other democratic countries, government budget is a constitutional obligation in India.

Under Article 112 of the Constitution, a statement of estimated receipts and expenditures of
the Central Government has to be prepared for every financial year/fiscal year and has to be
placed before the parliament. This annual financial statement is entitled Budget of the
Government. The budget is presented in the Lok Sabha on such a day as the President of
India may direct. However, by convention, the budget is presented on the last working day of
February. Simultaneously, a copy of the budget is laid on the table of the Rajya Sabha.
Besides giving estimates for the coming year, the presentation of the budget offers an
opportunity to the government to review its financial and economic policies and programmes.
The budget is discussed in both the Houses of Parliament and voting on the demand for
grants is taken.

Types of Budget in India

1- Union Budget- the budget in India is divided on the basis of different layers of the
government like central government, state government and local governments. Each
layer government prepares passes and implements its own budget.

Union budget is the budget prepared by the central government for the country as a
whole. This budget is presented in two parts, namely, railway budget and the main
budget. Railway budget shows the details of the estimated receipts and proposed
expenditures and disbursements by the Railway Ministry with regard to the Indian

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 Railways only. The main budget shows the financial plan for the entire economy
describing in detail the estimated receipts and proposed expenditures for the economy
as a whole. However, the totals of the receipts and expenditures of the Railways are
incorporated in the budget statement of the Government of India.
2- State Budget- In India, we have the federal system of government with the Union
Government for the whole country and the State Governments for the different parts
of the country. Therefore, every statement in India prepares its own budget. State
budget is the budget of the Delhi Government, Budget of Government of Tamil Nadu,
etc.
Similarly, the local bodies, such as municipal corporations, municipal committees and
municipal boards, also prepares their own budgets.
3- Plan Budget- The Plan Budget is a document which shows the budgetary provisions
for important projects, programmes and schemes included in the central plan of the
country. This document gives the details of the budgetary support for the central plan
by the sectors of the development. It shows the central assistance for states and union
territories plans as well. It also gives the detailed break-up of the proposed outlays on
various government services- economic, social, community and general services-
along with various physical targets.
4- Performance Budget- Since 1975-76, all the central ministries and departments
dealing with development activities prepare performance budgets, which are
circulated to members of Parliament. These performance budgets present the main
projects, programmes and activities of the government in the light of the specific
objectives and an assessment of the previous year’s budgets and achievements. They
explain the scope and objectives of the schemes, their estimated cost, physical targets,
achievements, sources of funds and their utilisation, returns on capital, details of
installed and utilised capacity of various public sector undertakings.
The performance budget provides a link between financial allocations and the
physical achievements by the concerned spending agency. It also serves as an
instrument of administrative and financial control in the implementation of the
various development programmes.
5- Supplementary Budget- Budget estimates of the coming year are based on future
forecasts with regard to revenue and expenditure. It is not always possible to foresee
and provide for all emergencies such as war or natural calamities or political
instability, which may necessitate extra expenditure. In these circumstances, the
government may find it necessary to present in the Parliament a supplementary budget
to deal with such eventualities.
6- Zero-based Budget- In the traditional budget, there is an attempt to justify only
increase in the expenditure over the previous year. Budgetary expenditure and what
has been already spent is automatically sanctioned. No reference is made to the
previous level of expenditure. By contrast, zero-based budget is defined as the
budgetary process which requires each ministry/department to justify its entire budget
request in detail. It is a system of budget in which all government expenditures must
be justified for each new period. In this method of budgeting, the functioning of evry
ministry/department is reviewed comprehensively and all expenditures are approved

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 rather than increase in the expenditure only. Total budgetary requirements of each
department are discussed and justified in complete detail. Budget is then built around
what is needed for the upcoming period, whether the budget is higher or lower than
the previous budget.
Thus, under zero-based budgeting, no base or initial expenditure level is presumed for
any activity. Zero-based budget means that the past is cut off. The present is regarded
as a clean slate and all departments have to start from scratch or afresh.
A zero-based budget ensures that such schemes and projects have become redundant
are scrapped, and better and more suitable projects are undertaken. Therefore, a zero-
based budget is cost-effective. It is, however, a time consuming process as it takes
much longer time to prepare the budget than the traditional budget. The Ministry of
Finance and Planning Commission of India had elaborate discussion on the zero-
based budget a couple of years back and both agreed that this is an ideal approach for
formulating the budget for a large country like India.

Components of the Government Budget

The Constitution of the country demands that the budget must distinguish expenditure on
revenue account from the expenditure on capital account. Revenue account covers those
items which are of recurring nature while capital account covers those items which are of the
nature of creating or reducing the capital assets. Accordingly, budget is necessarily presented
in two parts, (1) Revenue Budget and (2) Capital Budget.

1- Revenue Budget- Revenue budget shows revenue receipts of the government and the
expenditures met from these revenues receipts. Thus, revenue budget consists of: (a)
revenue receipts and (b) revenue expenditure.
Revenue receipts of the government are all those receipts which are non-redeemable.
They create no liabilities (i.e., or involve no repayment obligations) or involve no sale
of assets. Revenue receipts comprise tax revenue like income tax, excise duties, and
non-tax revenues like interest receipts and profits of public sector enterprises.
Revenue expenditures relate to expenditures incurred by the government on day-to-
day normal functioning of the government and interest payment on government debts.
These expenditures neither create any physical or financial assets nor reduce any
liability of the government. The items of revenue expenditure are expenditures
incurred on law and order, defence, interest payments, subsidies, etc.
2- Capital Budget- Capital budget comprises capital receipts and capital expenditure of
the government. It shows capital requirements of the government and financing of
these expenditures. It is an account of changes in the assets and liabilities of the
government.
Capital receipts are the receipts of the government which create liabilities or reduce
assets of the government. The main components of such receipts are borrowing of all
the kinds, and repayments of loans and advances to the central government by the
state governments and public sector enterprises, disinvestment proceeds from the sale
of public enterprises, etc.
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 Capital expenditures are those expenditures of the government which lead to certain
creation of physical and financial assets or reduction of financial liabilities. Such
expenditures are incurred on creation of physical and financial assets like land,
buildings, machinery, equipments, and shares and in granting loans advances to the
state governments and public sector enterprises, etc.

Classification of Budget Receipts-Components of Government Revenue

The central government raises its revenue in the budget through (a) revenue receipts and (b)
capital receipts.

Revenue Receipts- Revenue receipts of the government are shown in the revenue budget.
These are the receipts which do not create any liability or which do not reduce assets of the
government. Revenue receipts are divided into two heads, namely, receipts from tax revenue
and receipts from non tax revenue.

1- Receipts from Tax Revenue- The most important source of revenue of the
government is taxes. A tax is a compulsory charge or payment imposed by the
government on individuals and corporations. The persons who are taxed have to pay
these taxes irrespective of any corresponding return of services and goods by the
government. The basic differences between taxes and other sources of public revenue
is the element of compulsion involved in taxes. The individual has no choice in the
matter of paying taxes. The central government in India imposes five main taxes,
namely, personal income tax, corporation tax, customs duties, union excise duties and
service tax.
(i)Taxes on income-Income tax is levied on the income of individuals as well as joint
Hindu family arising from various sources like salaries, income from house property,
income from business or profession, etc.
(ii)Corporation Tax- The corporation tax is the tax on the income (profits) of the
companies, both domestic and foreign companies, operating in India.
(iii)Customs Duties- Customs duties are taxes or duties imposed on commodities
imported into the country (import duties) or commodities exported from the country
(export duties).
(iv)Central(Union) Excise Duties- These duties are levied by the central government
on commodities produced within the country. These duties are confined mostly to
industrial products.
(v)Service Tax- Service tax is levied on services provided by the people, such as
services provided by hotels, telephone services, specialised banking and financial
services, port services, etc.

2- Receipts from Non-tax Revenue- Besides taxes, the central government gets revenue
from other sources which are collectively called non-tax revenue. The main sources of
non-tax revenue are as under:
(i) Interest Receipts- Central government gives loans to state government, union
territories and government departments like railways, public sector enterprises, etc.

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 Accordingly, it gets revenue in the form of interest income from these loans.
(ii) Dividends and Profits- Dividends and profits income of the government
comprises profits of public sector companies like BHEL, Air India, and profits of
financial institutions like nationalised banks and Life Insurance Corporation of
India.
(iii) Revenue from services provided by the Government- The government earns
income by providing various types of fiscal, social, economic services. It includes
profits from circulation of currency, receipts from commercial services of Doordarshan
receipts from animal husbandry, forest, transport and communication, tourisms, roads
and bridges. Revenue received from these services is of the nature of commercial
revenue because it is received by the government as prices for specific services or
goods supplied by it like railway services, posts and telegraph services and sale of
drugs, steel, watches, oil, etc. produced by the public enterprises.
(iv) Grants-in-Aid- Grants-in-aid and gifts are voluntary contributions made by
individuals, private organisations and foreign governments to the government for
specific purposes, such as relief fund or defence fund. It also includes grants-in-
aid in cash from foreign countries and international organisations like World Bank.

It is important to note that tax revenue is the main source of revenue receipts of the central
government in India, accounting for about 89% of the total public receipts of the government.

Capital Receipts- We have discussed so far revenue receipts of the central government,
which relate to ‘revenue budget’. When government raises funds either by incurring a
liability or by disposing of/reducing assets, it is called capital receipts. Capital receipts are
classified into the following heads:

1- Recovery of Loans and Advances- The receipts under this head relate to the
recoveries of loans and advances made by the central government to state and union
territories governments, foreign governments, public sector enterprises, financial
institutions, cooperative societies, private companies, etc. It is capital receipt because
it reduces the financial assets of the government.
2- Market Loans- Market loans are the loans rose from the public. These loans are
floated by the government in the money and capital markets.
3- Special Deposits- These relate to investment with the government by non-
government provident funds, gratuity funds, funds of LIC, etc.
4- Small Savings- Small savings consists of post office savings accounts, time deposits
and recurring deposits, National Savings Certificate, Indira Vikas Patra, etc.
5- Provident Funds- Receipts under this head relate to state provident funds and public
provident funds.
6- External Assistance- This category shows loans received from foreign countries and
international organisation such as World Bank, Asian Development Bank, etc.
7- Disinvestment Proceeds- Disinvestment means selling of the shares of the public
sector enterprises. Funds raised from disinvestment relate to funds obtained by selling
the shares of the public sector enterprises to the private sector.

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Balanced Budget Versus Deficit or Surplus Budget
As explained above, government receipts and expenditure are the two components of a
budget. In terms of the magnitudes of receipts and expenditures, we may think of (i)
balanced budget, (ii) deficit budget, and (iii) surplus budget.

(i) Balanced Budget- When the government receipts are equal to the government
expenditure, it is called balanced budget.
(ii) Deficit Budget- When the government expenditure exceeds government receipts,
the budget is said to be deficit budget.
(iii) Surplus Budget- When the government receipts are more than the government
expenditure, we call it a surplus budget.

Thus,
Balanced Budget → Receipts = Expenditure

Deficit Budget → Receipts < Expenditure

Surplus Budget → Receipts > Expenditure

There was a time when budget surplus was regarded as an index of a good budget.
However, in a modern economy, budget deficit has become the order of the day.

The nature of budget-surplus or deficit- has an important impact upon the level of
economic activity. A surplus budget implies that leakages from the circular flow of
income are more than the injections. This leads to contraction in the level of economic
activity. Consequently, the surplus budget reduces aggregate demand in the economy.
Therefore, it is advisable to have surplus budget to control inflation arising from excess
demand in the economy.

On the other hand, a deficit budget means that the injections into the circular flow of
income are more than the leakages. The effect of this will be to increase the aggregate
demand in the economy. This leads to expansion in the level of economic activity. As a
result this, level of income and employment will increase. The deficit budget is therefore
a good policy to tackle the problem of recession arising due to deficient demand.
However, balanced budget may be neutral in the sense that it leads to neither expansions
nor contractions in the level of economic activity.

Types of Budget Deficit (Revenue, Fiscal and Primary Deficit)

In general, when the estimated receipts of the government fall short of proposed
expenditure, the budget is said to be in deficit. However, there can be different types of
deficit in a budget depending on the types of receipts and expenditures taken into
considerations. In this section, we will explain various measures of budgetary deficit as
used in India. Budgetary deficit in Indian budget has been used in various senses. The
main measures of budgetary deficit in India are: (1) Revenue Deficit, (2) Fiscal Deficit,
and (3) Primary Deficit.

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1. Revenue Deficit- The concept of revenue deficit is simple and straightforward. It
denotes the difference between revenue receipts and revenue expenditure. Thus,

Revenue Deficit=Revenue Expenditure – Revenue Receipts

Revenue deficit refers to the excess of revenue expenditure of the government over its
revenue receives. The revised budget estimates of the union budget for the year 2013-
14 estimated revenue and estimated expenditure at ₹10,29,252 crore and ₹13,99,540
crore respectively. Therefore, revenue deficit is ₹ 3,70,288 crore.
Implications-
(i) Revenue deficit indicates government’s current financial status. Revenue deficit
means dissaving on government account. It shows that government is spending more
than its current income. This implies that resources have to be borrowed from other
sectors of the economy to cover the excess expenditure of the government.
(ii) Higher borrowing put pressures on revenue expenditure in the form of interest
payments. This further adds to the problem of deficit. This may impose undue burden
on the future generation because they have bear the pinch of the interest burden.
(iii) Since borrowed funds are generally incurred to finance consumption expenditure
of the government, a high level of revenue deficit causes inflationary pressure in the
economy.
Prudent fiscal management demands that expenditure on revenue account remains less
than the revenue receipts so that there is surplus in the revenue budget. This will
enable the government to have surplus funds which can be used for productive
investment. However, in India, the deficit on revenue account is very high. It was
about 26% of total revenue expenditure in 2013-14. Moreover, the deficit on revenue
account has been growing from year to year till the recent years. As a proportion of
GDP, revenue deficit increased from 1.5% in 1980-81 to 2.5% in 2005-06 and to
5.2% in 2009-10. However, it decreased to 3.3% of GDP in 2013-14.
2. Fiscal Deficit- Fiscal deficit is the excess of the total expenditure of the government
over its revenue and capital receipts excluding borrowings. Thus,

Fiscal Deficit= Total Expenditure – Revenue Receipts – Capital Receipts

(Excluding Borrowings)

Fiscal deficit, therefore, is the measure of excess expenditure over what may be
termed government’s own income (revenue receipts + recovery of loans and other
receipts under capital receipts). Thus, in the revised budget estimates of India for the
year 2013-14, fiscal deficit amounted to ₹5,24,539 crore. As proportion of GDP,
fiscal deficit amounted to 5.2 % in 2012-13.
Fiscal deficit increased initially from 4% of GDP in 1996-97 to 6% of GDP in 2002-
03, but declined thereafter, to be at the level of 2.5% of GDP for the year 2007-08.
However, it increased to the level of 4.6% of GDP in 2013-14.
Implications-

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 (i) Fiscal deficit is the key indicator of budgetary deficit in India; it is a
comprehensive measure of fiscal imbalance in the economy. It measures the total
resource gap of the government. It indicates the extent to which the government is
living beyond its means. It shows the total borrowing requirements of the government
from all the resources- market loans from the financial institutions, public borrowings
under various small saving schemes, borrowings from the RBI and external
borrowings. A large fiscal deficit implies a large amount of borrowings.
(ii) Fiscal deficit has serious implications for the economy. Government has to borrow
to meet this deficit. This increase the future liability of the government in the form of
payment of interest and repayment of loans. Payment of interest increases revenue
expenditure. This may increase the revenue deficit. This may lead to more borrowings
and more interest payments. Therefore, the government is required to borrow more to
pay interest and repay old loans. This is what is known as ‘debt trap’. That is why it is
important to reduce the fiscal deficit for the smooth functioning of the economy.
(iii) High fiscal deficit generally leads to wasteful and unnecessary expenditure by the
government.
(iv) A large fiscal deficit may lead to inflationary pressure in the economy.

3. Primary Deficit- In recent years the Finance Ministry has introduced one more
concept of deficit known as ‘primary deficit’. It was introduced for the first time in the
budget of 1993-94. Primary deficit refers to the difference between fiscal deficit and
interest payments by the government on its borrowings. Thus,

Primary Deficit = Fiscal Deficit – Interest Payments

It is revised budget estimates for the year 2013-14, primary deficit was shown at the level
of ₹1,44,473 crore. As proportion of GDP, primary deficit amounted to 1.3% in 2013-14.

Primary deficit indicates the real position of the government finances as it excludes the
interest burden in respect of loans taken in the past. It shows how much the government is
borrowing to meet its expenses other than interest payments. It is a measure of fiscal
discipline of the government, i.e., the way the government is conducting its financial
affairs.

It is clear from above that the fiscal and revenue deficits increased substantially between
the years 2008 and 2012 because if the serious economic situations hitting the Indian
economy. The Indian economy was hit hard by the two global shocks, i.e., unprecedented
increase in the global commodity prices and the global financial crises. At the domestic
front, the government finances were affected on account of farm loan waiver and
implementation of the Sixth Pay Commission award. To overcome these problems, the
government pursued the policy of fiscal expansion characterised by both tax cuts and
expenditure hikes. As a result, fiscal and revenue deficits increased in 2011-12. However,
these deficits decreased in 2012-13 due to fiscal discipline.

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Highlights of Budget 2016-17

Introduction

1- Growth of Economy accelerated to 7.6% in 2015-16.

2- India hailed as a ‘bright spot’ amidst a slowing global economy by IMF.
3- Robust growth achieved despite very unfavourable global conditions and two
consecutive years shortfall in monsoon by 13%.
4- Foreign exchange reserves touched highest ever level of about 350 billion US
dollars.
5- Despite increased devolution to States by 55% as a result of the 14th Finance
Commission award, plan expenditure increased at RE stage in 2015-16– in contrast to
earlier years.

Challenges in 2016-17

1- Risks of further global slowdown and turbulence.

2- Additional fiscal burden due to 7th Central Pay Commission recommendations and
OROP.

Road Map and Priorities

1- 'Transform India' to have a significant impact on economy and lives of people.

2- Government to focus on–
(i) Ensuring macro-economic stability and prudent fiscal management.
(ii) Boosting on domestic demand
(iii) Continuing with the pace of economic reforms and policy initiatives to change
the lives of our people for the better.
3- Focus on enhancing expenditure in priority areas of - farm and rural sector, social
sector, infrastructure sector employment generation and recapitalisation of the banks.
4- Focus on Vulnerable sections through:
(i) Pradhan Mantri Fasal Bima Yojana
(ii) New health insurance scheme to protect against hospitalisation expenditure
(iii) Facility of cooking gas connection for BPL families.
5- Continue with the ongoing reform programme and ensure passage of the Goods
and Service Tax bill and Insolvency and Bankruptcy law.
6- Undertake important reforms by:
(i) Giving a statutory backing to AADHAR platform to ensure benefits reach the
deserving.
(ii) Freeing the transport sector from constraints and restrictions
(iii) Incentivising gas discovery and exploration by providing calibrated marketing
freedom.
(iv) Enactment of a comprehensive law to deal with resolution of financial firms.

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(v) Provide legal framework for dispute resolution and re-negotiations in PPP projects
and public utility contracts.
(vi) Undertake important banking sector reforms and public listing of general
insurance companies undertake significant changes in FDI policy.

Agriculture and Farmers’ Welfare

1- Allocation for Agriculture and Farmers’ welfare is ₹35,984 crore.

2- ‘Pradhan Mantri Krishi Sinchai Yojana’ to be implemented in mission mode 28.5
lakh hectares will be brought under irrigation.
3- Implementation of 89 irrigation projects under AIBP, which are languishing for a
long time, will be fast tracked.
4- A dedicated Long Term Irrigation Fund will be created in NABARD with an initial
corpus of about ₹20,000 crore.
5- Programme for sustainable management of ground water resources with an
estimated cost of ₹6,000 crore will be implemented through multilateral funding.
6- 5 lakh farm ponds and dug wells in rain fed areas and 10 lakh compost pits for
production of organic manure will be taken up under MGNREGA.
7- Soil Health Card scheme will cover all 14 crore farm holdings by March 2017.
8- 2,000 model retail outlets of Fertilizer companies will be provided with soil and
seed testing facilities during the next three years.
9- Promote organic farming through ‘Parmparagat Krishi Vikas Yojana’ and 'Organic
Value Chain Development in North East Region'.
10- Unified Agricultural Marketing e Platform to provide a common e-market
platform for wholesale markets.
11- Allocation under Pradhan Mantri Gram Sadak Yojana increased to ₹19,000 crore.
Will connect remaining 65,000 eligible habitations by 2019.
12- To reduce the burden of loan repayment on farmers, a provision of ₹15,000 crore
has been made in the BE 2016-17 towards interest subvention.
13- Allocation under Prime Minister Fasal Bima Yojana ₹5,500 crore.
14- ₹850 crore for four dairying projects - ‘Pashudhan Sanjivani’, ‘Nakul Swasthya
Patra’, ‘E-Pashudhan Haat’ and National Genomic Centre for indigenous breeds
RURAL SECTOR.
15- Allocation for rural sector- ₹87,765 crore.
16- ₹2.87 lakh crore will be given as Grant in Aid to Gram Panchayats and
Municipalities as per the recommendations of the 14th Finance Commission.
17- Every block under drought and rural distress will be taken up as an intensive
Block under the Deen Dayal Antyodaya Mission.
18- A sum of ₹38,500 crore allocated for MGNREGS.
18- 300 Rurban Clusters will be developed under the Shyama Prasad Mukherjee
Rurban Mission.
20- 100% village electrification by 1st May, 2018.

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21- District Level Committees under Chairmanship of senior most Lok Sabha MP
from the district for monitoring and implementation of designated Central Sector and
Centrally Sponsored Schemes.
22- Priority allocation from Centrally Sponsored Schemes to be made to reward
villages that have become free from open defecation.
23- A new Digital Literacy Mission Scheme for rural India to cover around 6 crore
additional household within the next 3 years.
24- National Land Record Modernisation Programme has been revamped.
25- New scheme Rashtriya Gram Swaraj Abhiyan proposed with allocation of ₹655
crore.

Social Sector Including Health Care

1- Allocation for social sector including education and health care –₹1,51,581 crore.
2- ₹2,000 crore allocated for initial cost of providing LPG connections to BPL
families.
3- New health protection scheme will provide health cover up to one lakh per family.
For senior citizens an additional top-up package up to ₹30,000 will be provided.
4- 3,000 Stores under Prime Minister’s Jan Aushadhi Yojana will be opened during
2016-17.
5- ‘National Dialysis Services Programme’ to be started under National Health
Mission through PPP mode.
6- “Stand Up India Scheme” to facilitate at least two projects per bank branch. This
will benefit at least 2.5 lakh entrepreneurs.
7- National Scheduled Caste and Scheduled Tribe Hub to be set up in partnership with
industry associations.
8- Allocation of ₹100 crore each for celebrating the Birth Centenary of Pandit Deen
Dayal Upadhyay and the 350th Birth Anniversary of Guru Gobind Singh.

Education, Skills and Job Creation

1- 62 new Navodaya Vidyalayas will be opened.

2- Sarva Shiksha Abhiyan to increasing focus on quality of education.
3- Regulatory architecture to be provided to ten public and ten private institutions to
emerge as world-class Teaching and Research Institutions.
4- Higher Education Financing Agency to be set-up with initial capital base of ₹1000
Crores.
5- Digital Depository for School Leaving Certificates, College Degrees, Academic
Awards and Mark sheets to be set-up.

Skill Development

1- Allocation for skill development-₹1804. Crore.

2- 1500 Multi Skill Training Institutes to be set-up.

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3- National Board for Skill Development Certification to be setup in partnership with
the industry and academia.
4- Entrepreneurship Education and Training through Massive Open Online Courses.

Job Creation

1- GoI will pay contribution of 8.33% for of all new employees enrolling in EPFO for
the first three years of their employment. Budget provision of ₹1000 crore for this
scheme.
2- Deduction under Section 80JJAA of the Income Tax Act will be available to all
assesses who are subject to statutory audit under the Act.
3- 100 Model Career Centres to operational by the end of 2016-17 under National
Career Service.
4- Model Shops and Establishments Bill to be circulated to States.

Infrastructure and Investment

1- Total investment in the road sector, including PMGSY allocation, would be

₹97,000 crore during 2016-17.
2- India’s highest ever kilometres of new highways were awarded in 2015. To
approve nearly 10,000 kms of National Highways in 2016-17.
3- Allocation of ₹55,000 crore in the Budget for Roads. Additional ₹15,000 crore to
be raised by NHAI through bonds.
4- Total outlay for infrastructure- ₹2,21,246 crore.
5- Amendments to be made in Motor Vehicles Act to open up the road transport
sector in the passenger segment.
6- Action plan for revival of unserved and underserved airports to be drawn up in
partnership with State Governments.
7- To provide calibrated marketing freedom in order to incentivise gas production
from deep-water, ultra deep-water and high pressure-high temperature areas.
8- Comprehensive plan, spanning next 15 to 20 years, to augment the investment in
nuclear power generation to be drawn up.
9- Steps to re-vitalise PPPs:
(i) Public Utility (Resolution of Disputes) Bill will be introduced during 2016-17.
(ii) Guidelines for renegotiation of PPP Concession Agreements will be issued.
(iii) New credit rating system for infrastructure projects to be introduced.
10- Reforms in FDI policy in the areas of Insurance and Pension, Asset
Reconstruction Companies, Stock Exchanges.
11- 100% FDI to be allowed through FIPB route in marketing of food products
produced and manufactured in India.
12- A new policy for management of Government investment in Public Sector
Enterprises, including disinvestment and strategic sale, approved.

Financial Sector Reforms

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1- A comprehensive Code on Resolution of Financial Firms to be introduced.
2- Statutory basis for a Monetary Policy framework and a Monetary Policy
Committee through the Finance Bill 2016.
3- A Financial Data Management Centre to be set up.
4- RBI to facilitate retail participation in Government securities.
5- New derivative products will be developed by SEBI in the Commodity Derivatives
market.
6- Amendments in the SARFAESI Act 2002 to enable the sponsor of an ARC to hold
up to 100% stake in the ARC and permit non institutional investors to invest in
Securitization Receipts.
7- Comprehensive Central Legislation to be bought to deal with the menace of illicit
deposit taking schemes.
8- Increasing members and benches of the Securities Appellate Tribunal.
9- Allocation of ₹25,000 crore towards recapitalisation of Public Sector Banks.
10- Target of amount sanctioned under Pradhan Mantri Mudra Yojana increased to
₹1,80,000 crore.
11- General Insurance Companies owned by the Government to be listed in the stock
exchanges.

Governance and Ease of Doing Business

1- A Task Force has been constituted for rationalisation of human resources in various
Ministries.
2- Comprehensive review and rationalisation of Autonomous Bodies.
3- Bill for Targeted Delivery of Financial and Other Subsidies, Benefits and Services
by using the Aadhar framework to be introduced.
4- Introduce DBT on pilot basis for fertilizer.
5- Automation facilities will be provided in 3 lakh fair price shops by March 2017.
6- Amendments in Companies Act to improve enabling environment for start-ups.
7- Price Stabilisation Fund with a corpus of ₹900 crore to help maintain stable prices
of Pulses.
8- “Ek Bharat Shreshtha Bharat” programme will be launched to link States and
Districts in an annual programme that connects people through exchanges in areas of
language, trade, culture, travel and tourism.

Fiscal Discipline

1- Fiscal deficit in RE 2015-16 and BE 2016-17 retained at3.9% and 3.5%.

2- Revenue Deficit target from 2.8% to 2.5% in RE 2015-16.
3- Total expenditure projected at ₹19.78 lakh crore.
4- Plan expenditure pegged at ₹5.50 lakh crore under Plan, increase of 15.3%.
5- Non-Plan expenditure kept a ₹14.28 lakh crores.

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6- Special emphasis to sectors such as agriculture, irrigation, social sector including
health, women and child development, welfare of Scheduled Castes and Scheduled
Tribes, minorities, infrastructure.
7- Mobilisation of additional finances to the extent of ₹31,300 crore by NHAI, PFC,
REC, IREDA, NABARD and Inland Water Authority by raising bonds.
8- Plan / Non-Plan classification to be done away with from 2017-18.
9- Every new scheme sanctioned will have a sunset date and outcome review.
10- Rationalised and restructured more than 1500 Central Plan Schemes into about
300 Central Sector and 30 Centrally Sponsored Schemes.
11- Committee to review the implementation of the FRBM Act.

Relief to Small Tax Payers

1- Raise the ceiling of tax rebate under section 87A from 2000 to 5000 to lessen tax
burden on individuals with income upto ₹5 laks.
2- Increase the limit of deduction of rent paid under section 80GG from 24000 per
annum to 60000, to provide relief to those who live in rented houses.

Boost Employment and Growth

1- Increase the turnover limit under Presumptive taxation scheme under section 44AD
of the Income Tax Act to ₹2 crores to bring big relief to a large number of assesseesin
the MSME category.
2- Extend the presumptive taxation scheme with profit deemed to be 50%, to
professionals with gross receipts up to ₹50 lakh.
3- Phasing out deduction under Income Tax:
(i) Accelerated depreciation wherever provided in IT Act will be limited to maximum
40% from 1.4.2017.
(ii) Benefit of deductions for Research would be limited to 150% from 1.4.2017 and
100% from 1.4.2020.
(iii) Benefit of section 10AA to new SEZ units will be available to those units which
commence activity before 31.3.2020.
(iv) The weighted deduction under section 35CCD for skill development will continue
up to 1.4.2020.
4- Corporate Tax rate proposals:
(i) New manufacturing companies incorporated on or after 1.3.2016 to be given an
option to be taxed at 25% + surcharge and cess provided they do not claim profit
linked or investment linked deductions and do not avail of investment allowance and
accelerated depreciation.
(ii) Lower the corporate tax rate for the next financial year for relatively small
enterprises i.e companies with turnover not exceeding ₹5 crore (in the financial year
ending March 2015), to 29% plus surcharge and cess.
5- 100% deduction of profits for 3 out of 5 years for startups setup during April,2016
to March,2019. MAT will apply in such cases.

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6- 10% rate of tax on income from worldwide exploitation of patents developed and
registered in India by a resident.
7- Complete pass through of income-tax to securitization trusts including trusts of
ARCs. Securitisation trusts required to deduct tax at source.
8- Period for getting benefit of long term capital gain regime in case of unlisted
companies is proposed to be reduced from three to two years.
9- Non-banking financial companies shall be eligible for deduction to the extent of
5% of its income in respect of provision for bad and doubtful debts.
10- Determination of residency of foreign company on the basis of Place of Effective
Management (POEM) is proposed to be deferred by one year.
11- Commitment to implement General Anti Avoidance Rules (GAAR) from
1.4.2017.
12- Exemption of service tax on services provided under Deen Dayal Upadhyay
Grameen Kaushalya Yojana and services provided by Assessing Bodies empanelled
by Ministry of Skill Development & Entrepreneurship.
13- Exemption of Service tax on general insurance services provided under
‘Niramaya’ Health Insurance Scheme launched by National Trust for the Welfare of
Persons with Autism, Cerebral Palsy, Mental Retardation and Multiple Disability.
14- Basic custom and excise duty on refrigerated containers reduced to 5% and 6%.

Make In India

Changes in customs and excise duty rates on certain inputs to reduce costs and
improve competitiveness of domestic industry in sectors like Information technology
hardware, capital goods, defence production, textiles, mineral fuels & mineral oils,
chemicals & petrochemicals, paper, paperboard & newsprint, Maintenance repair and
overhauling [MRO] of aircrafts and ship repair.

Moving Towards a Pensioned Society

1- Withdrawal up to 40% of the corpus at the time of retirement to be tax exempt in

the case of National Pension Scheme (NPS). Annuity fund which goes to legal heir
will not be taxable.
2- In case of superannuation funds and recognized provident funds, including EPF,
the same norm of 40% of corpus to be tax free will apply in respect of corpus created
out of contributions made on or from 1.4.2016.
3- Limit for contribution of employer in recognized Provident and Superannuation
Fund of ₹1.5 lakh per annum for taking tax benefit. Exemption from service tax for
Annuity services provided by NPS and Services provided by EPFO to employees.
4- Reduce service tax on Single premium Annuity (Insurance) Policies from 3.5% to
1.4% of the premium paid in certain cases.

Promoting Affordable Housing

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1- 100% deduction for profits to an undertaking in housing project for flats upto30 sq.
metres in four metro cities and 60 sq. metres in other cities, approved during June
2016 to March 2019 and completed in three years. MAT to apply.
2- Deduction for additional interest of ₹50,000 per annum for loans up to ₹35 lakh
sanctioned in 2016-17 for first time home buyers, where house cost does not exceed
₹50 lakh.
3- Distribution made out of income of SPV to the REITs and INVITs having specified
shareholding will not be subjected to Dividend Distribution Tax, in respect of
dividend distributed after the specified date.
5- Exemption from service tax on construction of affordable houses up to 60 square
metres under any scheme of the Central or State Government including PPP Schemes.
6- Extend excise duty exemption, presently available to Concrete Mix manufactured
at site for use in construction work to Ready Mix Concrete.

Resources Mobilization For Agriculture, Rural Economy and Clean

Environment

1- Additional tax at the rate of 10% of gross amount of dividend will be payable by
the recipients receiving dividend in excess of ₹10 lakh per annum.
2- Surcharge to be raised from 12% to 15% on persons, other than companies, firms
and cooperative societies having income above ₹1 crore.
3- Tax to be deducted at source at the rate of 1 % on purchase of luxury cars
exceeding value of ten lakh and purchase of goods and services in cash exceeding two
lakh.
4- Securities Transaction tax in case of ‘Options’ is proposed to be increased from
.017% to .05%.
5- Equalization levy of 6% of gross amount for payment made to non residents
exceeding ₹1 lakh a year in case of B2B transactions.
6- Krishi Kalyan Cess, @ 0.5% on all taxable services, w.e.f. 1 June 2016. Proceeds
would be exclusively used for financing initiatives for improvement of agriculture and
welfare of farmers. Input tax credit of this cess will be available for payment of this
cess.
7- Infrastructure cess, of 1% on small petrol, LPG, CNG cars, 2.5% on diesel cars of
certain capacity and 4% on other higher engine capacity vehicles and SUVs. No credit
of this cess will be available nor credit of any other tax or duty be utilized for paying
this cess.
8- Excise duty of ‘1% without input tax credit or 12.5% with input tax credit’ on
articles of jewellery [excluding silver jewellery, other than studded with diamonds
and some other precious stones], with a higher exemption and eligibility limits of ₹6
crores and ₹12 crores respectively.
9- Excise on readymade garments with retail price of ₹1000 or more raised to 2%
without input tax credit or 12.5% with input tax credit.
10- ‘Clean Energy Cess’ levied on coal, lignite and peat renamed to ‘Clean
Environment Cess’ and rate increased from ₹200 per tonne to ₹400 per tonne.

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11- Excise duties on various tobacco products other than beedi raised by about 10 to
15%.
12- Assignment of right to use the spectrum and its transfers has been deducted as a
service leviable to service tax and not sale of intangible goods.

Providing Certainty in Taxation

1- Committed to providing a stable and predictable taxation regime and reduce black
money.
2- Domestic taxpayers can declare undisclosed income or such income represented in
the form of any asset by paying tax at 30%, and surcharge at 7.5% and penalty at
7.5%, which is a total of 45% of the undisclosed income. Declarants will have
immunity from prosecution.
3- Surcharge levied at 7.5% of undisclosed income will be called Krishi Kalyan
surcharge to be used for agriculture and rural economy.
4- New Dispute Resolution Scheme to be introduced. No penalty in respect of cases
with disputed tax up to ₹10 lakh. Cases with disputed tax exceeding ₹10 lakh to be
subjected to 25% of the minimum of the imposable penalty. Any pending appeal
against a penalty order can also be settled by paying 25% of the minimum of the
imposable penalty and tax interest on quantum addition.
5- High Level Committee chaired by Revenue Secretary to oversee fresh cases where
assessing officer applies the retrospective amendment.
6- One-time scheme of Dispute Resolution for ongoing cases under retrospective
amendment.
7- Penalty rates to be 50% of tax in case of underreporting of income and 200% of tax
where there is misreporting of facts.
8- Disallowance will be limited to 1% of the average monthly value of investments
yielding exempt income, but not exceeding the actual expenditure claimed under rule
8D of Section 14A of Income Tax Act.
9- Time limit of one year for disposing petitions of the tax payers seeking waiver of
interest and penalty.
10- Mandatory for the assessing officer to grant stay of demand once the assessed
pays 15% of the disputed demand, while the appeal is pending before Commissioner
of Income-tax (Appeals).
11- Monetary limit for deciding an appeal by a single member Bench of ITAT
enhanced from ₹15 lakhs to ₹50 lakhs.
12- 11 new benches of Customs, Excise and Service Tax Appellate Tribunal
(CESTAT).

Simplification and Rationalization of Taxes

1- 13 cesses, levied by various Ministries in which revenue collection is less than ₹50
crore in a year to be abolished.

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 2- For non-residents providing alternative documents to PAN card, higher TDS not to
apply.
3- Revision of return extended to Central Excise assesses.
4- Additional options to banking companies and financial institutions, including
NBFCs, for reversal of input tax credits with respect to non taxable services.
5- Customs Act to provide for deferred payment of customs duties for importers and
exporters with proven track record.
6- Customs Single Window Project to be implemented at major ports and airports
starting from beginning of next financial year.
7- Increase in free baggage allowance for international passengers. Filing of baggage
only for those carrying dutiable goods.

Technology for Accountability

1- Expansion in the scope of e-assessments to all assesses in 7 mega cities in the

coming years.
2- Interest at the rate of 9% p.a against normal rate of 6% p.a for delay in giving effect
to Appellate order beyond ninety days.
3- ‘e-Sahyog’ to be expanded to reduce compliance cost, especially for small
taxpayers.

References
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Books
1- Frank ISC Economics by D. K. Sethi and U. Andrews.

2- Modern Economics Theory by K. K. Dewett.

Web
1- http://www.economicsdiscussion.net/budget/government-of-india-budget-meaning-
elements-objectives-and-types/755

2- https://en.wikipedia.org/wiki/Government_budget_balance

3- http://kalyan-city.blogspot.com/2011/02/what-is-budget-components-of-government.html

4- http://indiabudget.nic.in/ub2016-17/bh/bh1.pdf

5- http://www.thehindu.com/business/budget/highlights-of-union-budget-
201617/article8295451.ece

6- http://www.yourarticlelibrary.com/economics/budgeting/fiscal-deficit-meaning-
implications-comparison-and-sources-of-financing-fiscal-deficit/30409/

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