Vishal Balanai(A05) Nooruddin H.

(A26) Vipul Jain(A27) Anuj Kant(A29) Bhagyashree Sathe(A48) Satvinder Singh(A54) Varun Verma(A63)

What is Fiscal Policy?
 Concerned with the raising of government revenue

and incurring of government expenditure  Three possible stances of fiscal policy are:
 A neutral stance of fiscal policy implies a balanced budget

where G = T (Government spending = Tax revenue)  An expansionary stance of fiscal policy involves a net increase in government spending (G > T)  A contractionary stance of fiscal policy (G < T)

Objectives of Fiscal Policy
 Development by effective Mobilisation of Resources
 Efficient allocation of Financial Resources  Reduction in inequalities of Income and Wealth  Price Stability and Control of Inflation  Employment Generation  Balanced Regional Development  Reducing the Deficit in the Balance of Payment

 Capital Formation
 Increasing National Income  Development of Infrastructure

 Foreign Exchange Earnings

Fiscal Deficit  government's total expenditures exceed the revenue that it generates (E>R)  economist John Maynard Keynes believed that deficits help countries climb out of economic recession  fiscal conservatives feel that governments should avoid deficits in favor of a balanced budget policy .

Fiscal deficit 2011-2012  Global research firm Macquarie  Fiscal deficit-of both the Centre and states-during     2011-12 could be as high as 8.6 percent of the GDP Slippage could risk a credit downgrade Loss of business confidence High inflation. > 5.5% last 22 months 9% this year .

dividends. etc . FDI.Fiscal Activities  Disinvestment policy  Deregulation of petroleum prices  Taxation policy  National Small Saving Funds  Other policies like crossholding.

Disinvestment of PSUs  Department of Disinvestments. Ministry of Finance controls Disinvestment policy  Disinvestment:  sale of equity and bond capital invested by the government in PSUs  sale of governments loan capital in PSUs through securitization  Sell shares in PSUs  It is the Government receive money not PSU  Raise capital for the government  Decrease the cash with PSUs and economy .

Approach to Disinvestment  the Government would retain at least 51% equity and the management control of the CPSE Already listed profitable CPSEs (not • made compliant by ‘Offer for Sale’ by Government or by the CPSEs through issue meeting mandatory of fresh shares or a combination of both shareholding of 10%) Unlisted CPSEs • If no accumulated losses and having earned net profit in three preceding consecutive years are to be listed .

on a case by case basis.Approach to Disinvestment…  Follow-on public offers would be considered taking into consideration the needs for capital investment of CPSE. and Government could simultaneously or independently offer a portion of its equity shareholding  All cases of disinvestment are to be decided on a case to case basis .

 Engineers India Ltd.  Coal India Ltd  Power Grid Corporation of India  Manganese Ore India Ltd. 22144.2010-2011 Proceeds from Disinvestment  Amount of Rs.  Shipping Corporation of India .21 crores realized from following six Public offers  Satluj Jal Vidyut Ltd.

Use of Disinvestment proceedings Disinvestment of PSU Deposit in National investment Fund (NFM) Capital investments (25%) requirements of profitable and revivable CPSEs that yield adequate returns. in order to enlarge their capital base to finance expansion/diversification Social Sector Projects (75%) promote education. health and employment .

Advantage of Disinvestment  Cash inflow to government  Private shareholders on board  Better governance and performance  Reduce government deficit financing  Higher disclosure level. transparency and accountability .

Challenges in Disinvestment  Higher capital expenditure  Not much capital generation  Administrative costs have been high  Insider trading has been prominent  Sale of equity to foreign players .

74-0.26% GDP  Actual 0.87% of GDP  Under-realisation of prices due to  Rise in international prices  Depreciation of Rupee  As per PPAC daily under-recovery of Rs. 319 crores from sale of diesel. kerosene.Oil Prices and Subsidy  Budget subsidy 0. Domestic LPG  Loss Compensation by Conversion into oil bonds .

Why Deregulation?  Sharp increase in demand for petrol and petroleum products  Difficulties in periodic adjustment of prices resulting in serious financial problems for the industry participants  Need to make available inputs to user industries at competitive prices: .

What is deregulation?  Government will not subsidize the petrol price  Price depends on international crude prices  Cost of production is greater than retail price  Raw material + Tax +Excise duty + Distribution costs + dealer commission .

Effects of Deregulation Short term effect:  Rate of inflation will rise  Real rate of inflation can be obtained Long term effect:  Reduce the long term debt and fiscal deficit  Stable economy  More marketing companies and higher profit  Recover losses immediately  Attract bigger players like Reliance and Shell .

Benefits to Government  No subsidy  Meet fiscal deficit  Better fiscal planning  Implementation of internal (Tax-VAT and Distribution system) and external solutions (Iran-Pak-India Fuel pipeline) .

TAXATION  CBDT: Central Board of Direct Taxes  Income tax department  Central Board of Excise and Customs  Types of Taxes  Direct taxes  Indirect taxes .

CBDT .

State Government taxation .

664457.14 crores  Expected to be around 10-12% of GDP  the direct tax collection (personal income tax and corporate tax) grew by 23 per cent to Rs 101.100 crore from Rs 54.Revenue from tax  Estimated tax revenue for 2011-2012 is Rs.600 crore in the first quarter of current financial year  corporate tax collections increased by 23 per cent in the first quarter of the fiscal to Rs 67.600 crore in the same period a year ago .

Introduction of Goods and Service Tax  Why?  Complex existing structure  Too many intermediate taxing points  Different tax rates    Interstate State Central  High Tax evasion/ high loss  Adverse affect on business. SCM .

Advantages of GST  Evade the cascading effect of indirect tax  Both tax charges on the manufacturing cost  Reduce tax burden  Increased transparency  Increase tax collection .

of India promising fixed rate of interest to push financial inclusion NSSF Postal Deposits Saving Certificates Social Security Schemes .National Small Savings Fund  Saving Schemes provided by Govt.

NSSF – Collections & Share Net amount collected under NSSF (gross collections minus repayments) is invested in special securities issued by central and state governments in a ratio decided by the governments. . These proceeds form a source for financing the fiscal deficit of both Centre and States.

000.  In addition. All these steps are taken to increase inflow of money in savings . the maturity period of monthly investment schemes and national savings certificates will be reduced form six to five years.  The ceiling on annual contributions to the public provident funds will also be raised to 1 lakh from 70.New Policy introduced  Interest rates on postal savings will go up to 4% from 3.5% at present.

all profit-making state-owned firms are required to declare a minimum 20 per cent dividend on equity or a minimum dividend payout of 20 per cent of post-tax profits. The Finance Ministry on October 31 wrote to the Oil Ministry saying the minimum dividend payout for PSUs in oil and gas. chemical and other infrastructure sectors would be 30 per cent this year. This means Government’s investment would reduce.  30% dividend  As per norms. . whichever is higher.Other proposed policies to reduce fiscal deficit  Crossholding  the finance ministry will move a cabinet proposal to allow government companies to acquire equity in other public sector units.

Other proposed policies to reduce fiscal deficit  FDI in retail  Growth of the Retail sector in India .Improvement in management of supply chain  Push to productivity .The Farming Community in India .Improvement in Retail capability building  FMCG retail: 12B to 100B by 2025-Nielsen  60-80 lakh jobs  Push to Infrastructure .

Conclusion .

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