What is Budget?
Nirmala Sitharaman presents first-ever paperless Budget.
What is Budget?
According to Article 112 of the Indian Constitution, the Union Budget of a year is referred to as the Annual Financial Statement (AFS).
It is a statement of the estimated receipts and expenditure of the Government in a financial year. In addition to it, the Budget contains:
- Estimates of revenue and capital receipts,
- Ways and means to raise the revenue,
- Estimates of expenditure,
- Details of the actual receipts and expenditure of the closing financial year and the reasons for any deficit or surplus in that year, and
- The economic and financial policy of the coming year, i.e., taxation proposals, prospects of revenue, spending programme and introduction of new schemes/projects.
The Budget goes through six stages:
- Presentation of Budget.
- General discussion.
- Scrutiny by Departmental Committees.
- Voting on Demands for Grants.
- Passing of Appropriation Bill.
- Passing of Finance Bill.
List of Important Schemes in the latest Union Budget:
Health and well being:
- PM Atmanirbhar Swasth Bharat Yojana: To be launched to develop primary, secondary and tertiary healthcare systems, strengthen existing health systems and support future health interventions with an outlay of about 64,180 crores over 6 years.
- Mission Poshan 2.0 to be launched to improve nutritional outcomes across 112 aspirational districts.
- Jal Jivan Urban Mission: To be implemented over five years with an outlay of Rs 2.87 lakh crore.
- Voluntary Vehicle Scrapping Policy to phase out old vehicles and reduce vehicular pollution: vehicles will undergo fitness tests after 20 years in private vehicles, 15 years in case of commercial vehicles.
- Pneumococcal vaccine rollout: The pneumococcal vaccine, which is limited to only 5 states at present, will be rolled out across the country.
- Swachh Bharat Mission (Urban) 2.0 would be implemented over five years — from 2021 to 2026 — on an outlay of ₹41 lakh crore.
- Mega Investment Textile Parks- 7 textile parks will be added in the next three years.
- Proposal to set up Development Finance Institution at a cost of Rs 20,000 crore.
- A national monetising pipeline will be launched and a dashboard will be created to overlook the progress.
- The Indian Railways has prepared a National Rail Plan for India 2030. The plan is to create a future-ready railways system by 2030.
- New scheme to be launched to support augmentation of public bus service.
- MetroLite and MetroNeo to be introduced in Tier 2 cities and peripheral areas of Tier 1 cities.
- A framework to allow consumers of electricity alternatives to choose from more than one distribution company.
- National Hydrogen Mission for generating hydrogen from green power sources.
- The major ports will be moved from operating services on their own and they can enter into public-private partnership to get private players to operate and manage it for them.
- Ujjwala scheme, which has benefited 8 crore households so far, will be extended to cover 1 crore more beneficiaries.
- Gas pipeline network to be taken up in J&K union territory and City Gas Distribution (CGD) programme will be extended to 100 districts in next three years.
- Single securities market code: Centre to consolidate the provisions of the Sebi Act, Depositories Act and two other laws, into a Unified Securities Market Code.
- Investor Charter: Investor Charter to be introduced as a right for all investors in all financial products to enable investor protection.
- Operation Green Scheme to be enlarged to cover 22 perishable crops.
- 1000 more mandis to be integrated with E-NAM market place.
- Agricultural Infrastructure funds will be made available to APMCs for augmenting their infrastructure.
- Five major fishing harbours to be developed into fishing hubs for economic activity including Chennai, Kochi, Paradip, Petuaghat and Visakhapatnam.
- Seaweed farming to be promoted -Multipurpose seaweed park to be established in Tamil Nadu.
- An Agriculture Infrastructure and Development Cess (AIDC) on select items such as petrol, diesel, apples and alcohol.
Science and technology:
National Research Foundation (NRF) — an umbrella body that is expected to fund research across a range of disciplines, from science and technology to humanities. The NRF would be an autonomous body and represented by all major research and education bodies.
Major recommendations of the 15th FC that were incorporated into the Union budget include:
- Boost in health spending.
- Higher borrowing limits for states.
- A consolidation of Centrally-sponsored schemes or public programmes implemented by states but largely funded by the Union government.
- Creation of a non-lapsable defence and internal security fund either through allocation from the divisible pool of funds shared by the Centre and states or through a cess.
- To extend tax holiday for start-ups until March-end next year
- To extend the capital gains exemption for investment in start-ups by another year to encourage funding in the sector.
- To incentivise one-person companies (OPCs) by allowing them to grow without any restrictions on paid-up capital and turnover.
Govt. hopes to cut fiscal deficit to 4.5% by FY26
Finance Minister Nirmala Sitharaman has pegged the fiscal deficit for 2021-22 at 6.8% of the GDP and aims to bring it back below the 4.5% mark by 2025-26.
The original fiscal deficit target for 2020-21 was 3.5%. However, in reality, the deficit has shot up to a high of 9.5% of the GDP due to:
The impact of the COVID-19 pandemic.
Low revenue flows due to the lockdown.
Negative economic growth clubbed with high government spending to provide relief to vulnerable sections of society.
Finance minister has also proposed to introduce amendments to the FRBM Act to make necessary change in the fiscal consolidation roadmap.
What is the fiscal deficit?
It is the difference between the Revenue Receipts plus Non-debt Capital Receipts (NDCR) and the total expenditure.
In other words, fiscal deficit is “reflective of the total borrowing requirements of Government”.
Impact of high fiscal deficit:
In the economy, there is a limited pool of investible savings. These savings are used by financial institutions like banks to lend to private businesses (both big and small) and the governments (Centre and state).
If the fiscal deficit ratio is too high, it implies that there is a lesser amount of money left in the market for private entrepreneurs and businesses to borrow.
Lesser amount of this money, in turn, leads to higher rates of interest charged on such lending.
A high fiscal deficit and higher interest rates would also mean that the efforts of the Reserve Bank of India to reduce interest rates are undone.
What is the acceptable level of fiscal deficit for a developing economy?
For a developing economy, where private enterprises may be weak and governments may be in a better state to invest, fiscal deficit could be higher than in a developed economy.
Here, governments also have to invest in both social and physical infrastructure upfront without having adequate avenues for raising revenues.
In India, the FRBM Act suggests bringing the fiscal deficit down to about 3 percent of the GDP is the ideal target. Unfortunately, successive governments have not been able to achieve this target.
What is the FRBM Act?
The Fiscal Responsibility and Budget Management Act (FRBM Act), 2003, establishes financial discipline to reduce fiscal deficit.
What are the objectives of the FRBM Act?
- The FRBM Act aims to introduce transparency in India’s fiscal management systems.
- The Act’s long-term objective is for India to achieve fiscal stability and to give the Reserve Bank of India (RBI) flexibility to deal with inflation in India.
- The Act was enacted to introduce more equitable distribution of India’s debt over the years.
Key features of the FRBM Act:
The FRBM Act made it mandatory for the government to place the following along with the Union Budget documents in Parliament annually:
- Medium Term Fiscal Policy Statement.
- Macroeconomic Framework Statement.
- Fiscal Policy Strategy Statement.