01.03.2007

• Today, all of the notings will revolve around Indian Budget; obviously. For some of you it may look like overkill. But then, what else can you expect from a trigger-happy guy like me!!! J
• Today our notes will be very different. I am not going to give you any précis of what appeared in our favourite paper; nor am I going to flood you with only figures relating to budget. It is a given that you should have read the budget in entirety; the FM’s speech, the industry’s or experts’ reactions et al. What I try to bring to you today are answers to some simple questions that crop up in our mind when we go through the FM’s speech in detail. Do we really understand the meaning and import of all the words that the FM utters in his speech? I will quiz you with these words and phrases and try to explain them to get a better understanding. And of course, I can hardly do without giving you some facts and figures.
• Those of you who want to read the full budget documents can find them at http://indiabudget.nic.in/ub2007-08/ubmain.htm. And if you don’t have the patience and just want to read the highlights, you can find them at http://indiabudget.nic.in/ub2007-08/high.htm. So here we go…
• The FM has said that the growth rate of GDP has improved from 7.5% in 2004-05 to 9% (Quick Estimate) in 2005-06 and, according to Advance Estimate, to 9.2% in 2006-07. What is an Advance Estimate and what is a Quick Estimate? I would prefer not to answer this. I will leave to some of you (Sai Prasad, are you listening?) to answer this in the form of comments.
• He said in his speech that Gross Budgetary Support (GBS) for 2007-08 will be Rs. 205,100 crores. What exactly is this GBS? We all know that we come out with our 5 year plans. Whatever, we plan to do in these plans needs money. Where is this money going to come from? It is not going to be found separately from the annual budget. So, for all the planned schemes in a 5 year plan, it is the annual budget which will have to find money and finance the planned activities. That is nothing but the GBS. So when he says GBS is Rs. 205,100 crores, he saying that this much money he is going to allocate to finance the planned activities of the current 5 year plan during this year.
• In his speech, the FM said the World Bank has signed an agreement with Tamil Nadu for giving Rs. 2,182 crores as loan to restore 5,763 water bodies having a command area of 400,000 hectares. What exactly is a command area? The agricultural land below the main canal water level is referred to as command area.
• In his speech on Direct Taxes, he said, Section 35(2AB) allows a weighted deduction of 150 percent for expenditure relating to in-house R&D. He proposed extending the concession till March 31, 2012. What is this weighted deduction? If you are given a full exemption of the expenditure you made on a certain item that is called ‘deduction’ or 100% deduction. But when you spend Rs. 100 and become eligible to deduct Rs. 150 from your income to compute your taxable income, that is called ‘weighted deduction’. You are entitled to deduct more than what you have spent.
• We all know that from time to time various committees and commissions are appointed by the government. Many a time the reports submitted by these committees and commissions will be accepted, some of them accepted only partially and some of them confined to the dustbin. Let’s take a look at how many of these committees were remembered by our FM what he accepted or what he did not accept about their reports.
• National Commission on Farmers has submitted a Draft National Policy for Farmers. He says it is under consideration. While it is still under consideration, he unveiled his own slew of measures in the budget. What do you think of it? Is it a good practice?
• Dr. R. Radhakrishna committee on agricultural indebtedness. The committee is in the process of finalizing its recommendations. Government will act on the report as soon as it is received.
• Dr. Arjun Sengupta committee on social security scheme for unorganized workers. It has given its report which is under consideration. Pending the consideration, he has announced a scheme to cover landless rural households, called AABY ‘Aam Admi Bima Yojana’. About 1.5 crore such households are stated to be there as per NSS Reports. It is a death and disability insurance cover through LIC.
• Dr. C. Rangarajan Committee on Financial Inclusion. It has given its recommendations and the FM has implemented the following measures on its interim report:
• Ask RRBs (Regional Rural Banks) to undertake an aggressive branch expansion. In 2007-08 at least one branch in the 80 uncovered districts of the country to be opened by them.
• Extend the SARFAESI Act to loans and advances by RRBs. (This enables the RRBs with speedy recovery of their non-performing assets).
• Permit RRBs to accept NRE?FCNR deposits; and
• Recapitalize, in a phased manner, the RRBs which have a negative net worth.
• A Financial Inclusion Fund for meeting the cost of developmental promotional interventions and a Financial Inclusion Technology Fund for meeting the costs of technology adoption, each with a corpus of Rs. 500 crores to be set up.
• Deepak Parekh Committee on financing infrastructure. It has made some recommendations. The government will examine the legal and regulatory aspects of the recommendations in consultation with RBI.
• High Powered Expert Committee on making Mumbai a regional financial centre. It has submitted its report recently. It will be placed in public domain and feedback obtained before further action is taken.
• Proposed to set up an expert committee to study the impact of climate change on India and identify the measures that are needed.
• Hoda Committee on mineral policy. Submitted its recommendations. Accepting its recommendation, an export duty of Rs. 300 per metric tonne on export of iron ores and concentrates and Rs. 2000 per metric tonne on export of chrome ores and concentrates, is proposed by government.
• Now we look at some of the important announcements or facts that are worthy of note:
• An amount of Rs. 97,000 crores is invested so far by private companies in exploration of oil and natural gas activities under the NELP, New Exploration Licensing Policy.
• Budget measures to ensure ground water recharge
• The Central Ground Water Board has identified 1,065 assessment blocks in the country as ‘over-exploited’ or ‘critical’. Over 80% of these blocks are in 100 districts in 7 states. The strategy being adopted is diverting rain water into ‘dug wells’. Each structure will cost about Rs. 4,000.
• Recognition of the failure of agricultural extension work
• The FM has admitted that the extension work – especially the T&V (Training and Visit) component of the work has collapsed. So, to revive it, the Ministry of Agriculture will draw up a new program that will replicate T&V with suitable changes.
• Fertilizer subsidies
• Have shot up to Rs. 22,452 crores from the budgeted Rs. 17,253 crores.
• The FM recognized the need for an alternative method of administering the subsidy. He said the fertilizer industry and the Department of Fertilizers will conduct a study and find a solution. Based on the report, a new pilot program will be conducted in each State in 2007-08.
• IIDCA: India International Development Cooperation Agency. Proposed to establish for coordinating all the activities relating to development cooperation, being extended by India to various other countries.
• And finally some tidbits noted from today’s paper:
• The fiscal and revenue deficits for the current years are estimated at 3.7% and 2% of GDP respectively, marginally lower than budgeted, and are estimated to fall further to 3.3% and 1.5% of GDP next year.
• Who was India’s first Finance Minister?
• Sir RK Shanmukham Chetty (1892-1953). He was independent India’s first FM. He presented the first budget for the country on November 26, 1947. It was an interim budget and no new taxes were proposed in that budget.
• ASHA: Associated Social Health Activists. About 320,000 of them have been recruited and about 200,000 have received orientation training. They are the people through whom the healthcare in rural areas is going to be serviced.
• NREGS: National Rural Employment Guarantee Scheme. Its reach has been extended to 330 districts from the current 200 districts.
• DONER: Ministry of Development of North Eastern Region. The total budget allocation for this region has been increased to Rs. 14,365 crores.
• Where is the Indian Institute of Pulses Research located? Kanpur.
• NRAA: National Rainfed Area Aurhority. Its mandate is to coordinate all schemes relating to watershed development and other aspects of land use.
• So far the government had given Rs. 2,072 crores towards viability gap funding and had received Rs. 1900 crores as negative grant in road projects under PPP model.
• The amount of credit given to SME segment till December 2006 was Rs. 173,460 crores.
• Total expenditure of the budget: Rs. 680,521 crores. Total revenue receipts are projected to be Rs. 486,422 crores.
• Revenue deficit estimated to be Rs. 71,478 crores; it is 1.5% of GDP.
• Fiscal deficit is estimated to be Rs. 150,948 crores; it is 3.3% of the GDP.
• SSI exemption limit enhanced from Rs. 1 crore to 1.5 crores.

· And I give below the definitions for some of the oft used words and phrases relating to budget.

· Budget Estimates These estimates contain an estimate of Fiscal Deficit and the Revenue Deficit for the year. The term is associated with the estimates of the Center's spending during the financial year and the income received as proceeds of tax revenues.

• Revised Estimates are the estimates of probable revenue or expenditure of a financial year under the various major and minor heads and their primary units of appropriation framed in the course of the year on the basis of actual transactions till then recorded and in the light of the facts which may be known as regards the remainder of the year.
• Fiscal Deficit It is the difference between the Revenue Receipts and Total Expenditure.
• Revenue Deficit: is the excess of revenue expenditure over revenue receipts. It shows the shortfall of government’s current receipts over current expenditure. If the capital expenditure and capital receipts are taken into account too, there will be a gap between the receipts and expenditure of a year. This gap constitutes the overall budgetary deficit, and it is covered by the issue of 91-day Treasury Bills, mostly held by the RBI.
• Factor Cost: Gross value added at factor cost is derived by subtracting the value of any taxes, less subsidies, on production payable out of gross value added.