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Assignment-III
Understanding the budget of Union Government
By-
Dhirendra Mani Shukla FPM-14014
Saurabh Kumar FPM-14007
Section-G
We !!!!!!!!!!!!!!! and !!!!!!!!!!!!!!!!! hereby declare that the re"ort i# our $oint e%ort and
that no "art o& the re"ort i# co"ied &rom other#'
(ariou# )ecei"t# and *+"enditure alon, ith .#cal de.cit re/enue de.cit and "rimary de.cit')u"ee# in Billion
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Answer 1)
-2
-1
0
1
2
3
4
57
6
Percent chan,e o& /ariou# de.citin relation to GDP
chan,e o& .#cal de.cit chan,e o& re/enue de.cit chan,e o& "rimary de.cit
• 8he di%erence beteen the total re/enue e+"enditure and re/enue recei"t# i# called the
re/enue de.cit' 8he abo/e ,ra"h clearly #u,,e#t# that there i# a #i,ni.cant decline in the
&rom 2003 to 2007 hoe/er there are #i,n# o& an increa#e a&ter 2007'• 8hi# e%ect can be mainly attributed to ,lobal .nancial cri#i# in 2007-06' 8hi# economic
#lodon al#o cau#e# the $ob cut# in thi# duration'• 9n 2005-07 9n:ation a# in control and ,roth rate a# at ;'5 ' 8he cri#i# ha# di#turbed
thi# "o#iti/e macroeconomic en/ironment'• Fi#cal de.cit i# the di%erence beteen the ,o/ernment<# total e+"enditure# and it#
re/enue e+cludin, money &rom borroin,#' 9t i# e+"re##ed in term# o& GDP'Po#t economic #lodon in 2007-06 .#cal de.cit ha# ,one u" #i,ni.cantly' 8he increa#in,
le/el o& #ub#idie# and the load o& intere#t "ayment# ha# led to thi# #ur,e in .#cal de.cit
8he di%erence beteen Fi#cal de.cit and intere#t "ayment# i# called the Primary De.cit
8here&ore the /aryin, trend# in "rimary de.cit re#emble the #ame o& .#cal de.cit'
Answer 2)
Sources of Revenue:
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0'00
000'00
10000'001000'00
20000'00
2000'00
30000'00
Revenue Distribution
Direct ta+ 9ndirect ta+ =u#tom# dutie# >on-ta+ re/enue
9ntere#t recei"t# )e/enue recei"t# =a"ital recei"t#
• 8he ,ra"h clearly #u,,e#t# that ,o/ernment re/enue i# e#timated by re/enue recei"t# and
ca"ital recei"t#' Direct ta+ and indirect ta+ are al#o im"ortant &actor# in thi# calculation'Direct ta+ include# cor"oration ta+ income ta+ and ealth ta+ and 9ndirect ta+ include#
cu#tom# e+ci#e entertainment ta+ etc' 8he non-ta+ re/enue# com"ri#e# /ariou# intere#t
recei"t# Fi#cal Ser/ice# *conomic Ser/ice# etc'
!"enditure of Government:
0'00
000'00
10000'00
1000'00
20000'00
2000'00
Go/ernment *+"enditure
)e/enue e+"enditure )e/enue De&ence e+"enditure 9ntere#t "ayment#
Sub#idie# =a"ital e+"enditure ?oan# and ad/ance#
=a"ital outlay =a"ital De&ence e+"enditure
• 8he ,o/ernment e+"enditure mainly com"ri#e# de/elo"mental and non-de/elo"mental'
• 8he de/elo"mental e+"enditure include# the e+"enditure on railay# telecommunication
"o#t #er/ice# indu#trie# #ocial and community #er/ice#'• >on-de/elo"mental e+"enditure include# the e+"enditure on de&en#e #er/ice#
admini#trati/e #er/ice# and #ub#idie#' @l#o there are loan# and ad/ance# by =entre a#ell a# #tate ,o/ernment'
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• 8hi# ,o/ernment e+"enditure can al#o be cla##i.ed into "lan e+"enditure and non-"lan
e+"enditure' Plan e+"enditure i# an e+"enditure that the ,o/ernment "lan# to incur on a
#cheme to be im"lemented in a ,i/en year herea# >on-"lan e+"enditure i# de.ned a#e+"enditure committed by the e+"enditure' 9ntere#t "ayment# "en#ion# #alarie#
#ub#idie# and maintenance e+"enditure are all non-"lan e+"enditure'
Answer #)
• Go/ernmentA# .#cal ad$u#tment# can be better ad$ud,ed o/er a "eriod o& time' Beteen1;;1 and 1;;7 althou,h centreA# .#cal de.cit increa#ed it ent don a# "ro"ortion o& o&GDP &rom '3; "ercent to 4'71 "ercent' 9t a,ain increa#ed to 5'2; "ercent o& GDP by1;;6-;;'
• F)BM Fi#cal )e#"on#ibility and Bud,et Mana,ement bill a# "a##ed "a##ed in year 2003to brin, .#cal di#ci"line in the economy' 8he bill reuire# central ,o/ernmentA# .#cade.cit be reduced to 3 "ercent o& GDP and re/enue de.ct be reduced by 0' "ercent ormore o& GDP and eliminated by 2013-14' 9n the time# o& .#cal con#olidation the centreA#.#cal de.cit declined &rom 4'34 "er cent o& GDP in 2003C 04 to 2'4 "er cent in 2007C06the loe#t #ince 1;;0C;1 but increa#ed to 5'45 "er cent a&ter the ,lobal economic cri#i#in 200;C10'
• GDP ,roth ith better ta+ admini#tration and the ad/ent o& ne ta+e# #uch a# the &rin,ebene.t ta+A ha# re#ulted in hi,her ,roth o& ta+ re/enue#' 8he #ur,e in the collection o&direct ta+ re/enue# can be a##ociated ith the im"ro/ement in ta+ com"liance credited tothe deci#ion o& incor"oratin, the 8a+ 9n&ormation >etork 89>'
• )e/enue recei"t ha# increa#ed at the =entre and it ha# led to a decrea#e in the de.cit onthe other hand ri#in, e+"enditure o/er re/enue ha# rai#ed the de.cit' )e/enuee+"enditure a# a "ercenta,e o& GDP declined &rom 12'21 "er cent in 1;;1C;2 to 11'20 "ercent in 1;;5C;7 and ro#e therea&ter to 13'36 "er cent in 2002C03' 9n the era o& .#cacon#olidation total re/enue e+"enditure declined to 11';2 "er cent o& GDP in 2007C 06 butincrea#ed to 14'10 "er cent in 200;C10' 8he uality o& e+"enditure deteriorated o/er theyear#Ethe #hare o& ca"ital e+"enditure declined &rom 4'32 "er cent o& GDP in 1;;1C;2 to
2'; "er cent in 2002C03' n the other hand e+"enditure on intere#t "ayment# increa#ed&rom 3'; "er cent o& GDP in 1;;1C;2 to 4'55 "er cent o& GDP in 2002C03' 9ntere#t"ayment# #ub#idie# "en#ion# and de&en#e ha/e been the main com"onent# 50C5 "ecent o& the =entreA# re/enue e+"enditure Go/ernment o& 9ndia 200'
• @&ter 2003 the &all in the ratio o& total e+"enditure to GDP came mo#tly &rom a reductionin ca"ital e+"enditure hich declined &rom 3'6 "er cent o& GDP in 2003C04 to 1'5 "ercent o& GDP in 2005C07 and ro#e to 2'37 "er cent o& GDP in 2007C06' 8herea&ter ca"itale+"enditure declined to about 1'57 "er cent o& GDP in 2012-13'
Answer $)
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• n a/era,e 51'3 "ercent o& the GFD i# .naced throu,h market borroin,# 4'5 "ercentthrou,h e+ternal .nance '34 "ercent throu,h drain,# &rom ca#h balance# and 26'3"ercent &rom other liabilitie#' Since 2005-07 #hare o& market borroin,# had been around66 hich make# the intere#t rate #en#iti/e to GFD a# market borroin,# cau#e#liuidity crunch in the market'
• n the other hand #ince 1;;1-;2 ,o/ernment had tried to reduce the #hare o& e+terna.nancin, in the o/erall .nancin, o& GFD' Durin, 2002-04 e+ternal .nancin, had beenne,ati/e hoe/er it# #hare a,ain ro#e to 11'6 "ercent in 2004-0' @&ter that it# #haredecre#ed to '; in 2005-07 then ro#e to 7'3 "ercent in 2007-06' 9n the year o& 2010-11
it# #hare #tood a# 5'3 "ercent o& the total GFD' n a/era,e central ,o/ernment had.nanced around 26'3 "ercent o& the GFD throu,h non-market liabilitie# #uch a# loan &rom)B9'
Answer %)
• 8here are &our #ource# C e+ternal borroin,# market borroin,# dra don o& ca#hbalance# and other borroin,#- o& de.cit .nancin, ha# a""arent im"lication# on the key
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indicator# o& the economy #uch a# intere#t rate "rice le/el or in:ation and e+chan,erate'
• Some o& the em"irical analy#e# hel" u# in under#tandin, the nature o& relation#hi"beteen the economic indicator# and nature o& de.cit .nancin,'
• 8o do the analy#i# e ha/e taken the intere#t rate# on ,o/ernment bond# and #ecuritie#o/er time a# the key intere#t rate# e+chan,e rate i# taken a# a/era,e yearly e+chan,erate beteen 9ndian )u"ee and HS Dollar Price le/el i# ba#ed on hole#ale "rice inde+
data hich i# con/erted by makin, 1;;1-;2 a# ba#e year 1;;1-;2 I 100'• @l#o current account de.cit=@D o& balance o& "ayment# and "ri/ate in/e#tment data ha#
been u#ed &or the analy#i# "ur"o#e' 8he#e data are "art o& the ra data "re#ented in .r#tue#tion'
• 8he .ndin,# and inter"retation o& the /ariou# re,re##ion analy#e# are ,i/en beloJ nlytho#e re,re##ion# are "re#ented here #ome #i,ni.cant relation#hi" ha# been &ound'