Union Budget

Annual Budget is one of the most anticipated economic and financial events of the year.
The report presented by the Finance Minister includes Government of Indias revenue and expenditure for one fiscal year. The Budget is the most comprehensive report of the Government`s finances, which aggregates revenues received from all sources and expenditure incurred on all activities. The Budget also includes forecasts for the next fiscal year called budgeted estimates.

Budgetary Process
The Budget process has been explained below: Every year, BUDGET DIVISION under the Ministry of Finance is responsible for the preparation of the budget. All government ministries & departments send in their funds proposals and requirements.

Based on the inputs, a DRAFT BUDGET is prepared.

The draft budget is to be approved by Finance Minister in consultation with the Prime Minister. A FINAL BUDGET is presented in the Parliament. A DISCUSSION ON THE BUDGET is held in the Parliament (regarding each ministrys grant proposals) and Finance Minister responds to questions. Revision of tax (direct & indirect) proposals are also discussed & voted upon here.

Once the grants are approved, 2 bills are introduced in the Lok Sabha APPROPRIATION BILL (final approval of funds to be given to each ministry) and FINANCE BILL (tax proposals). Union Budget is approved.
Source : investmentyogi.com

COMPONENTS OF GOVERNMENT BUDGET

DIRECT TAX TAX REVENUE REVENUE BUDGET GOVERNMENT BUDGET CAPITAL BUDGET REVENUE RECEIPTS REVENUE EXPENDITURE INDIRECT TAX NON TAX REVENUE

CAPITAL RECEIPTS
CAPITAL EXPENDITURE

REVENUE BUDGET
The revenue budget consists of revenue receipts of the government (revenues from tax and other sources) and the expenditure met from these revenues. The difference between revenue receipts and revenue expenditure is called the revenue deficit, which is usually negative. REVENUE RECEIPTS are divided into tax and non-tax revenue.
TAX REVENUES are made up of taxes such as income tax, corporate tax, excise, customs and other duties which the government levies.
NON-TAX REVENUES consist of interest and dividend on investments made by government, fees and other receipts for services rendered by Government.

REVENUE EXPENDITURE is the payment

incurred for the normal day-to-day running of government departments and various services that it offers to its citizens.

The government also has other expenditure like servicing interest on its borrowings, subsidies, etc.

Usually, expenditure that does not result in the creation of assets, and grants given to state governments and other parties are revenue expenditures.

Source : Moneycontrol.com

CAPITAL BUDGET
The capital budget consists of capital receipts and payments.

CAPITAL RECEIPTS

CAPITAL EXPENDITURE

Capital receipts are government loans raised from the public, government borrowings from the Reserve Bank and treasury bills, loans received from foreign bodies and governments, divestment of equity holding in public sector enterprises, securities against small savings, state provident funds, and special deposits.

Capital payments are capital expenditure on acquisition of assets like land, buildings, machinery, and equipment. Investments in shares, loans and advances granted by the central government to state and union territory governments, government companies, corporations and other parties.

Source : Moneycontrol.com

Receipts & Expenditure of Central Government

(As per cent of GDP)

Revenue receipts Revenue expenditure Capital receipts

14.1 AS PER CENT OF GDP 11.9

Tax revenue Subsidies Capital expenditure

14.1

Non-tax revenue Defence expenditure

13.5

10.9

9.6

8.9

10.4

7.1

6.1

5.3

8.9 7.5

8.8

7.9

7.5

12.3 2.1 5.2 2011-12(BE)

Data sourced from finmin.nic.in

3.4 2.4

2.2 1.3

2.1

2.1 1.4

1.8

2.9

1.7

1.7

1.7 1.2

1.6

2007-08
P: Provisional Actuals , BE : Budget Estimates

2008-09

2009-10

2010-11 (P)

YEAR

1.5 1.1

1.4 1.1

1.4

1.8

Receipts & Expenditure of Central Government

(Rs 000 Crore) 1. Revenue receipts (a+b) (a) Tax revenue (net of States share) (b) Non-tax revenue 2. Revenue expenditure (a) Interest payments (b) Major subsidies (c)Defence expenditure 3. Revenue deficit (2-1) 4. Capital receipts (a) Recovery of loans (b) Other receipt (mainly PSU disinvestment) (c) Borrowings and other liabilities 5. Capital expenditure 6. Total expenditure [2+5=6(a)+6(b)] (a) Plan expenditure (b) Non-plan expenditure 7. Fiscal deficit [6-1-4(a)-4(b)] 8. Primary deficit [7-2(a)]
P: Provisional Actuals , BE : Budget Estimates

2007-08 2008-09 2009-10 2010-11 (BE) 2010-11 (P) 2011-12(BE) 542 440 102 594 171 67 54 53 171 5 39 127 118 713 205 508 127 -44 540 443 97 794 192 124 73 254 344 6 1 337 90 884 275 609 337 145 573 457 116 912 213 136 91 339 452 9 25 418 113 1024 303 721 418 205 682 534 148 959 249 109 87 277 427 5 40 381 150 1109 373 736 381 133 794 573 221 1039 235 131 92 245 405 13 23 369 160 1199 377 822 369 134 790 664 125 1097 268 134 95 307 468 15 40 413 161 1258 442 816 413 145

Data sourced from finmin.nic.in

Trends in Deficits of Central Government

Revenue Deficit Fiscal Deficit Primary Deficit

As per cent of GDP

6
4.5

6.5
5.2 3.2

4.8
3.2

4.6
3.4 1.6

2.5
1.1

2.6

1.8

-0.9

2007-08
P: Provisional Actuals , BE : Budget Estimates

2008-09

2009-10

2010-11(P)

2011-12(BE)
Data sourced from finmin.nic.in

Year

Sources of Tax Revenue

(Rs. '000 Crore) Direct Personal income tax Corporation tax Indirect Customs Excise Service tax Gross tax revenue 2007-08 296 103 193 279 104 124 51 593 2008-09 320 106 213 269 100 109 61 605 2009-10 2010-11 (BE) 2010-11 (P) 2011-12(BE) 368 122 245 245 83 103 58 625 423 121 301 315 115 132 68 747 439 139 299 346 136 138 71 795 525 165 360 397 152 164 82 932
Source: Budget Documents

P: Provisional Actuals , BE : Budget Estimates

Movements in Key Policy Variables

25

Per Cent

20 15 10 5

Effective Since

May 03 2011 Reverse Repo Rate 6.25 Repo Rate 7.25 Cash Reserve Ratio 6 Statutory Liquidity Ratio 24

Jun 16 2011 6.5 7.5 6 24

Jul 26 2011 7 8 6 24

Sep 16 2011 7.25 8.25 6 24

Oct 25 2011 7.5 8.5 6 24

Jan 28 2012 7.5 8.5 5.5 24

Feb 13 2012 7.5 8.5 5.5 24

Mar 10 2012 7.5 8.5 4.75 24

Apr 17 2012 7 8 4.75 24

Jun 18 2012 7 8 4.75 24

Aug 11 2012 7 8 4.75 23

Sep 22 2012 7 8 4.5 23

Nov 03 2012 7 8 4.25 23

Jan 29 2013 6.75 7.75 4 23

Source : RBI

TRENDS IN GOVERNMENT SUBSIDIES

2009 Subsidies (' 000 Cr) % yoy % to GDP Major Subsidies Food ('000 Cr) % yoy % of total subsidy 130 82.9 2.3 2010 141 9 2.2 2011 173 22.7 2.2 2012RE 216 24.7 2.4 2013BE 190 -12.2 1.9

44 39.7 33.7

58 33.6 41.3

64 9.2 36.8

73 14.1 33.7

75 3 39.5

Fertilizer ('000 Cr) % yoy % of total subsidy

Petroleum ('000 Cr) % yoy % of total subsidy
RE : Revised Estimate, BE : Budget Estimate

77 135.8 59.1
3 1.1 2.2

61 -20 43.3
15 424.2 10.6

62 1.7 35.9
38 156.6 22.1

67 7.9 31.1
68 78.5 31.7

61 -9.3 32.1
44 -36.4 22.9

Source: Angel Research, Budget Documents

Gdp Growth Rates

Real GDP 12 10.3 10 8 6 9.7 9.3 5.8 8.4 6.7 4.4 3.4 0.1 2007-08 2008-09 1 2009-10 YEAR 2010-11 7.2 7 10 8.4 8.37 6.53 5.37 3.2 Agriculture 10.5 9.3 8.9 7.5 Industry Services

PER CENT

4
2 0

2.8

0.5
2012-13 E

2011-12

Source: Planning Commission, Govt. of India

Components of Gdp
Agriculture & allied activities Year Agriculture Industry Mining & Quarrying Manufacturing

Rs. Billion

Electricity, Gas & Water Supply

Constant Current Constant Current Constant Current Constant Current Constant Current Constant Current Prices Prices Prices Prices Prices Prices Prices Prices Prices Prices Prices Prices

2006-07 6192
2007-08 6551

7230
8365

5237
5570

6047
7163

7364
8045

8178
9414

926
960

1068
1248

5705
6291

6348
7327

734
794

762
838

2008-09 6557
2009-10 6625

9432
10794

5554
5594

8066
9246

8374
9122

10492
11770

981
1042

1398
1574

6563
7197

8183
9070

831
883

911
1125

2010-11 7091
2011-12 7287
Source: RBI

12699
14174

6029
-

10938
-

9745
10000

13556
15034

1094
1085

1912
2239

7742
7935

10403
11435

909
981

1240
1360

(Continued)

Components of Gdp
Services (Including Construction)
Year Finance, Trade, Hotel, Insurance, Real Construction Transport and Estate & Business Communications Services
Constant Prices

Rs. Billion

Community, Social & Personal Services

GDP at Factor Cost

Constant Current Constant Current Constant Current Prices Prices Prices Prices Prices Prices

Current Constant Current Constant Current Prices Prices Prices Prices Prices

2006-07
2007-08 2008-09 2009-10 2010-11 2011-12
Source: RBI

22088
24371 26656 29329 32023 34738

24125
28042 33111 38352 45319 53119

2848
3155 3323 3557 3842 4046

3224
3889 4510 5022 5853 6707

9101
10095 10851 11972 13305 14628

9984
11500 13108 14855 17555 20724

5611
6281 7036 7699 8500 9317

5866
6915 8454 9622 11705 13955

4528
4839 5445 6101 6377 6747

5051
5738 7039 8853 10206 11732

35644 39533
38966 45821 41587 53036 45076 60915 48860 71574 52025 82327

Inflation
13 9.5 8 4.8 8.6 8.8 9.1 7.8 6.2 3.6

Inflation Rate in India is reported by the Ministry of Commerce and Industry. Historically, from 1969 until 2013, India Inflation Rate averaged 7.8 Percent reaching an all time high of 34.7 Percent in September of 1974 and a record low of -11.3 Percent in May of 1976.

WPI (AVERAGE)
2007-08 2008-09 2009-10

CPI (AVERAGE)
2010-11 2011-12 2012-13

In India, the wholesale price index (WPI) is the main measure of inflation. The WPI measures the price of a representative basket of wholesale goods. Wholesale price index is divided into three groups:

WHOLESALE PRICE INDEX

Primary Articles Fuel and Power Manufactured Products

Primary Articles 20% Manufactured Products 65% Fuel and Power 15%

Source: Planning Commission & Tradingeconomics.com

Sector-Wise Domestic Savings

(Base Year: 2004-05)

(Rs Billion)
Household Sector Year 1 2005-06 2006-07 2007-08 Financial Savings 2 4383 4843 5802 Physical Savings 3 4307 5101 5381 Total (2+3) 4 8690 9944 11183 Private Corporate Sector 5 2772 3386 4690 Public Sector 6 890 1529 2490 Gross Domestic Savings (4+5+6) 7 12352 14859 18363 Net Domestic Savings 8 8714 10672 13516

2008-09
2009-10 2010-11
Source : RBI

5710
8356 7677

7598
8035 9816

13309
16390 17493

4175
5321 6025

543
118 1302

18026
21830 24819

12374
15251 17285

Trade
2007-08 Exports (US$bn) % YoY Imports (US$bn) %YoY Trade deficit (US$bn) Invisibles (US$bn) Current Account Deficit (US$bn) % to GDP
Source: Planning Commission, Govt. of India

2008-09 189 13.7 308.5 19.8 -119.5 91.6 -27.9 -2.3

2009-10 182.4 -3.5 300.6 -2.6 -118.2 80 -38.2 -2.8

2010-11 250.5 37.3 381.1 26.7 -130.6 84.6 -45.9 -2.7

2011-12 309.8 23.7 499.5 31.1 -189.8 111.6 -78.2 -4.2

2012-13 E 291.2 -6 479.6 -4 -188.4 118.4 -69.9 -3.7

166.2 28.9 257.6 35.1 -91.5 75.7 -15.7 -1.3

Trade
-300 -200 -100 0 100 200 300 400 500

Exports (US$bn)

Imports (US$bn)

Trade deficit (US$bn)

Invisibles (US$bn)

Current Account Deficit (US$bn)

2007-08

2008-09

2009-10

2010-11

2011-12

2012-13 E

DEVELOPMENTAL AND NON-DEVELOPMENTAL EXPENDITURE OF THE CENTRAL GOVERNMENT

(Rs Billion) Year 1 2006-07 2007-08 2008-09 Developmental expenditure 2 2557 3257 4714 of which Economic services 3 1428 1730 2732 Social services 4 438 616 898 Nondevelopmental expenditure 5 3413 4007 4281 Total expenditure (2+5) 6 5970 7264 8995

2009-10
2010-11 2011-12 RE 2012-13 BE

5282
6661 7113 7767

3044
4043 4504 4587

1026
1250 1078 1293

5141
5515 6362 7385

10423
12175 13475 15152
Source : RBI

RE : Revised Estimates, BE : Budget Estimates

Outstanding Liabilities of Central Government

(Rs Billion)

of which Year (endMarch) Internal debt Market loans 1 2 3 91-day treasury bills 4

Small savings, deposits &

Reserve funds and deposits Other accounts

Total internal liabilities

Total liabilities (9+10) External liabilities

provident
182/364day treasury bills 5 6 funds

(2+6+7+8)

10

11

2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 RE 2012-13 BE

15449 17996 20198 23283 26671 32024 37436

9728 11045 13381 17466 20720 25084 29874

308 303 755 715 703 1344 1294

426 413 657 629 644 1427 1567

5394 5536 5535 6206 6805 6845 6965

2201 2450 3340 3274 3046 2861 2719

1312 1270 1286 1194 1287 1276 1350

24358 27253 30361 33958 37811 43007 48472

2011 2100 2640 2493 2715 2933 -

26370 29354 33001 36451 40527 45941 Source : RBI

RE : Revised Estimates, BE : Budget Estimates

Centre's Gross Fiscal Deficit (GFD) and its Financing

(Rs Billion) Gross fiscal deficit (3-2) 1 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2 4349 5807 5408 5974 8113 7825 9657 3 5775 7076 8778 10159 11849 13045 14793 4 1426 1269 3370 4185 3736 5220 5136 External finance 5 85 93 110 110 236 103 101

Financing of GFD
Internal finance Market Other borrowings borrowings 6 1148 1306 2470 3944 3264 4843 4930 7 148 142 264 145 172 520 104 Draw down of cash balances 8 45 -272 526 -14 64 -247 0 Total (6+7+8) 9 1341 1176 3260 4074 3787 3983 Source : RBI

Year

GFD receipts

GFD expenditure

RE : Revised Estimates, BE : Budget Estimates

FOREIGN INVESTMENT INFLOWS

Gross inflows/ Repatriation/ Gross Disinvestment Investments
Rupees US $ Billion Million Rupees Billion US $ Million

Year

Direct Investment to India

Rupees Billion US $ Million

FDI by India

Net Foreign Direct Investment

Rupees Billion US $ Million

Net Portfolio Investment

Rupees Billion US $ Million

Total

Rupees Billion

US $ Million

Rupees US $ Billion Million

2006-07 2007-08 2008-09 2009-10 2010-11 2011-12

Source : RBI

1030 22826 1399 34843 1914 41873 1796 37745 1500 34847 2200 46553

4 5 8 218 319 650

87 116 166 4637 7018 13598

1027 1394 1906 1578 1181 1550

22739 34727 41707 33108 27829 32955

677 756 905 718 752 518

15046 18836 19364 15143 16524 10950

349 638 1001 860 429 1032

7693 15891 22343 17965 11305 22006

319 1106 -650 154 1394 856

6947 27434 -14032 32396 30292 17171

668 1744 351 1014 1823 1888

14640 43325 8311 50361 41597 39177

FOREIGN EXCHANGE RESERVES

End of Financial Year SDRs (Rupees Billion) (USD Million) Gold (Rupees Billion) (USD Million) Foreign Currency Assets (Rupees Billion) (USD Million) Reserve Tranche Position (Rupees Billion) (USD Million) Total (Rupees Billion) (USD Million)

2006-07
2007-08 2008-09

0.08
0.74 0.06

2
18 1

295.73
401.24 487.93

6784
10039 9577

8365.97

191924

20.44
17.44 50.00

469
436 981

8682.22

199179

11960.23 299230 12300.66 241426

12379.65 309723 12838.65 251985

2009-10
2010-11 2011-12
Source : RBI

225.96
204.01 228.60

5006
4569 4469

811.88
1025.72 1382.50

17986
22972 27023

11496.50 254685
12248.83 274330 13305.11 260069

62.31
131.58 145.11

1380
2947 2836

12596.65 279057
13610.13 304818 15061.30 294398

Impact of Budget
The Budget impacts the economy, the interest rate and the stock markets. How the finance minister spends and invests money affects the fiscal deficit. The extent of the deficit and the means of financing it influence the money supply and the interest rate in the economy. High interest rates mean higher cost of capital for the industry, lower profits and hence lower stock prices. The fiscal measures undertaken by the government affect public expenditure. For instance, an increase in direct taxes would decrease disposable income, thus reducing demand for goods. This decrease in demand will translate into a decrease in production, therefore affecting economic growth. Similarly, an increase in indirect taxes would also decrease demand. This is because indirect taxes are often partially or completely passed on to consumers in the form of higher prices. Higher prices imply a reduction in demand and this in turn would reduce profit margins of companies, thus slowing down production and growth. Non-plan expenditure like subsidies and defence also affect the economy as limited government resources are used for non-productive purposes.
Source : Moneycontrol.com

Know Your Finance Minister

P Chidambaram
POSITION: Minister of Finance, India INCUMBENT: Palaniappan Chidambaram DATE OF BIRTH: September 16, 1945 TERM: Appointed in August 2012 KEY FACTS: A member of the Indian National Congress and member of the lower house of parliament since 1984, Chidambaram has held several ministerial posts since 1985. This is Chidambaram's third stint as Finance Minister, having held the post in 1996-1998 and 2004-2008. He also served as Home Minister from December 2008 to July 2012, and as Deputy Commerce Minister on two occasions. He is widely credited with implementing a series of reforms, along with Prime Minister Manmohan Singh, to stem a slowdown in growth, curb a widening fiscal deficit and attract more foreign investment into Asia's third largest economy. Chidambaram holds degrees from Madras University in Chennai and a Masters of Business Administration from Harvard University. He is married and has a son.
Source : Reuters