Economic Survey Volume 2 Chapter 2 (Latest)

ECONOMIC SURVEY   

VOLUME II

CHAPTER – 2

REVIEW OF FISCAL DEVELOPMENTS

INTRODUCTION

The chapter describes the trends in receipts and expenditure of the Central Government and highlights government’s focus on improving its public financial management which has resulted in improved macro-economic stability in the last three years.

RECEIPTS AND EXPENDITURE OF THE CENTRAL GOVERNMENT

  1. Receipts

Three distinct patterns of on the revenue front till Nov 2017:

  • The gross tax collections are reasonably on track
  • The non-tax revenues have visibly underperformed
  • Non-debt capital receipts mainly proceeds from disinvestment are doing well.

The budgeted growth for indirect taxes for the full year of 2017-18 is only 7.6 %, the eventual outcome in indirect taxes during this year will depend on the final settlement of GST accounts between the Centre and the States and the likelihood that only taxes for eleven months (excluding IGST on imports) will be realized.

 

  1. Expenditure and Deficits
  • Central Government expenditure progressed at a robust place – due to advancing of the budget cycle and processes by a month – giving considerable leeway to the spending agencies to plan in advance and start implementation early in the financial year – it also partly contributed to greater deficits in the current year compared to the previous year so far.
  • Overshooting of fiscal deficit – due to the front-loading of some expenditure, undertaken as part of prudent expenditure management.
  • Increase in Revenue Expenditure – due to rise in:
  • Interest payment liabilities ( possibly due to outgo on account of servicing the market stabilization bonds issued to reduce excess liquidity, post demonetization )
  • Petroleum subsidy ( due to loss of price advantage in petroleum products in the international market )
  • Outgo of pensions (reflecting enhanced payments under the Seventh Pay Commission

 

STATE AND GENERAL GOVERNMENT

 

  • Consolidation of finances in the current year by states – after the UDAY-led aberration in their fiscal balances for the previous two years. UDAY bonds had an impact of 0.5% and 0.6% of GDP on the deficit of states in 2015-16 and 2016-17 respectively.
  • Both revenue and fiscal deficits as percentage of the corresponding budget estimates is lower in the current year, compared to the previous year.
  • The net market borrowing by the states combined with the advance estimates of GDP for 2017-18 shows that all the states would possibly be able to meet their targeted level of fiscal deficit.

 

Government initiatives to address difficulties faced by various sections of taxpayers:

 

Salient measures under Indirect taxes during 2017-18:

 

  1. Custom duty changes to incentivize ‘Make in India’
  2. Facilitation measures taken in GST:
  • Ease of doing business for small traders

The reverse charge mechanism has been suspended till 31.03.2018.

 

  • Rationalization of GST tax rate structure

 

There are 5 tax slabs under GST:

            Rate of GST                               Items covered

  1. Nil             Guar meal, sweet potatoes, khandsari sugar
  2. 5%             Finished leather, fly ash, sulphur recovered in refining of crude
  3. 12%             Diabetic food, printing ink, condensed milk, spectacles frames
  4. 18%             Wire, cables, furniture, shampoos, floor covering
  5. 28%             ACs, cigars and cigarettes, cars and two wheelers

** There has been a reduction from 3% to 0.25% on diamonds and precious stone.

Salient measures taken on Direct Taxes in the Budget 2017-18 and thereafter

  1. Lowering of tax rate on domestic companies with turnover or gross receipts less than or equal to Rs. 50 Crore in FY 2015-16 to 25% from 30%. The reduced corporate tax was extended to companies with turnover of up to Rs 250 Crore in financial year 2016-17.
  2. Lowering of tax rate on individuals between income of Rs. 2.5 lakhs and Rs. 5 lakhs to 5 % from 10 %.
  3. Levying of surcharge at 10 % on individuals with income between Rs. 50 lakhs and Rs. 1 crore.
  4. Base year for fair market value and cost inflation index has been shifted from 1981 to 2001.
  5. Period of holding for computation of long term capital gains in the case of immovable property reduced from 36 months to 24 months to give fillip to the housing sector.
  6. In view of the reduction in tax rates for individuals in the income slab up to Rs. 5 lakh, the amount of rebate in income-tax has been reduced from Rs. 5,000/- to Rs. 2,500/- and it has further been provided that rebate shall be available in respect of individuals having income up to Rs. 3.5 lakh.
  7. In order to eliminate bogus/multiple PANs, linking of Aadhaar with PAN database has been mandated.
  8. Cash receipt equal to or exceeding Rs. 2 lakh was prohibited.
  9. Income-tax return (ITR) Forms have been rationalized to make it more objective and taxpayer friendly i.e. a one page ITR-1 (Sahaj) Form has been notified for the assessment year 2017-18 for taxpayers having income upto Rs. 50 Lakh from salary and one house property.
  10. Allowable limit for claiming expenditure under the head “Income from Profit & Gains of Business or Profession” on revenue expenditure in cash has been reduced from Rs. 20,000 to Rs.10,000 .

 

 

Policy Initiatives on Investment Management in CPSEs:

  1. The government has migrated from the ‘disinvestment based approach’ to ‘investment based approach’ for CPSEs- a paradigm shift in the thinking process of the Government on its strategy to manage its investment in CPSEs.
  2. Guidelines on “Capital Restructuring of CPSEs” have been issued with focus on efficient management of Government’s investment in CPSEs by addressing various aspects, such as payment of dividend, buyback of shares, issues of bonus shares & splitting of shares.
  3. Time-bound listing of CPSEs: The Government has put in place a mechanism/procedure along with indicative timelines for listing of CPSEs.
  4. The focus of the strategic disinvestment is on adopting a pragmatic approach for the Government to exit from non-strategic business to optimize economic potential.
  5. The Government has started using index based Exchange Traded Fund (ETF) to offer an investment opportunity in CPSEs to pension funds and retail investors in India. For this purpose a new ETF, namely BHARAT 22 was launched.