government expenditure and budget

7/29/2019 Government Expenditure and Budget

1/33

1.Government expenditure: For the year ending March2013, the Indian government set a expenditure target of

Rs 14,90,925 crore, according to budget estimates. The

government expenditure falls into two categories: plan-expenditure and non-plan expenditure. Plan

expenditure is incurred according to the proposals put

in the five-year plans. Non-plan expenditure is

maintenance of existing assets, administrative services,

interest payments, subsidies, among other things. The

spending on defence is part of both plan and non-plan

expenditure. less

2.Revenue and Capital expenditure:Both plan and non-plan expenditures include a revenue

and capital expenditure component. Revenue

expenditure is the money spent to run the day-to-day

business of the government. Subsidies and interest

payments are a key component of the revenue

expenditure. Capital expenditure is the money spent forcreating new infrastructure in the economy. So the

government investment in education, roads, bridges,

airports, urban infrastructure form a part of the capital

expenditure.

3.What is the problem:India spends 65% of its total expenditure funds in a

year on non-plan expenditure. This means two-thirds of

the government revenue is spent on simply maintaining

the day-to-day affairs of the government. Over a third

of the government expenditure or over Rs 5,10,000

crore goes for repaying loans or paying interest on them


2/33

or subsidizing food, fuel and fertilizer for the poor.

Experts say that it is essential for India to spend more

on creating new assets to build the infrastructure in the

economy.

3.Spending right:When governments spend on building a countrys

infrastructure, it gives a push to the economic growth.

However, the spending for growth in India actually fell

over three months to December 2012. Totalexpenditure less subsidy and interest payments has

decelerated to 3% in the Sep-Dec 2012 period from

11.4% in Apr-Aug 2012, said Morgan Stanley, a global

bank in a note last week. This means Indias spending

for creating new assets to stimulate growth has gone

down.

What next:

When the budget is presented, you need to watch out for the

overall expenditure the government proposes to incur. It

should relatively lower than the previous year. It is also

important to see how the government proposes to allocate

resources. If the government allocates more money tostimulate growth by increasing the spending on the

infrastructure sector, that would be good news for the

economy.


3/33

1. United States

United States of America is the largest importer of goods

and services and tops the list of countries for its highest

budget. It has a mixed economy which is backed by natural

resources and a very well developed infrastructure.

Revenues (million USD): 2,303,000

Expenditures (million USD): 3,599,000


4/33

Deficit/Surplus (million USD): -1,296,000

2.2. JapanJapan is one of the largest economies in the world and

has a large industrial capacity. The country leads inscientific machinery, research and technology. It is also

known as the most technologically advanced producers

of machines in the world.



Deficit/Surplus (million USD): -524,000


5/33

2.3. ChinaChina is the worlds fastest growing economy and has

an upper hand in the in the manufacturing sector. Wellknown for its population growth, the country is the

largest exporter and manufacturer of goods. The

countrys rapid economic growth has led to severe

consumer inflation.


Expenditures (million USD): 1,729,000Deficit/Surplus (million USD): -83,000


6/33

4.4. GermanyGermany is a major economic power in Europe and

ranks number four for its government budget. Thecountry has developed a very high standard of living

and is recognized for its small and medium enterprises.

The country boasts its highly skilled labour and its level

of innovation.


Expenditures (million USD): 1,588,000Deficit/Surplus (million USD): -37,000


7/33

5. France

France has a mixed economy in which banking,

financial services and insurance are the key sectors of

the countrys economy. France has been a major

economic influence in Europe and also considered to bethe wealthiest nation there.





8/33

6. Italy

Italy is a democratic republic and its economic influence

makes it a major regional power. The nation rapidly

transformed from agriculture based economy into one of the

worlds most industrialized nations. Italy has a free market

economy which focuses on exports of luxury products and

niche market.





9/33

7. United Kingdom

United Kingdom is a partially regulated market economy, in

which, the service sector makes up more than 70 percent of

the countrys GDP. The automotive, pharmaceutical and

aerospace industries are a significant part of the United

Kingdoms economy.

Revenues (million USD): 986,500




10/33

8. Brazil

Brazil is the largest country in South America and is known

as one of the fastest growing economies of the world. With

new generation tycoons and booming exports, Brazil has a

mixed economy. Since the nation has abundant natural

resources, its economy is growing rapidly.


Expenditures (million USD): 901,000

Deficit/Surplus (million USD): +77,300


11/33

9. Canada

Canada has one of the most advanced economies in theworld and is recognized as an economic power

internationally. The nation ranks among the highest in

economic freedom, quality of life and government

transparency.





12/33

10. Spain

Spain has a capitalist mixed economy that has a strong

economic growth. With a balanced government budgetwhich got inflation under control, Spain was admitted into

the Eurozone in 1999. Tourism in Spain plays a key role for

the countrys economic health.





13/33

11. Australia

Australia is recognized as one of the wealthiest and highly

developed countries in the world. The nation has a marketeconomy which emphasizes on exporting commodities.

Tourism, education and financial services account to more

than 70 percent of the nations GDP.





14/33

12. Russia

Russia has one of the most powerful economies worldwide.

Oil and gas is a major natural economy resource in Russias

market economy. Apart from oil and gas, timber and metals

make up for a major portion of the countrys exports.





15/33

13. Netherlands

Netherland is a constituent country which leads Europeannations in attracting foreign direct investment. This

developed economy is one of the major investors in the

United States of America. Trade, shipping, banking and

fishing are the leading sectors of the Dutch economy.





16/33

14. Norway

Norway is categorized as one of the worlds wealthiest

nations and is a perfect example of a mixed economy. The

revenue that the nation receives from its natural resourcesadds to be a major contribution to the economic health.





17/33

15. Sweden

Sweden is ranked among other highly developed

countries worldwide. This country is has a mixed

economy that is export oriented. The nations

engineering sector accounts for more than 50 percent ofexports. Services and manufacturing industries

dominate the Swedish economy.





18/33

. South Korea

South Korea is a developed country with a high standard of

living. It has an export driven economy which mainlyfocuses on automobiles, electronics, machinery, ships and

pharmaceuticals. The countrys credit rating suffers in times

of military crisis with North Korea.





19/33

17. Mexico

Mexico is a regional power as a newly industrialized

country. The country is known to produce some of the most

complex components which are mostly engaged in research

and development activities. According to Goldman Sachs,

Mexico will have the fifth largest economy in the world by

2050.





20/33

18. Belgium

Belgium is a prosperous commerce and cultural hub. The

nations strong globalized economy and transport

infrastructure are integrated with the rest of Europe. It is a

highly industrialized economy with a highly productive workforce.





21/33

19. Saudi Arabia

Saudi Arabia is a wealthy nation with a concentration of

large oil reserves. Oil accounts to more than 70 percent of

government reserves and 95 percent of exports. The oil

sector in the country has allowed the economy to grow at a

rapid pace.





22/33

20. Switzerland

Switzerland is one of the worlds richest countries and

largest exporters. Among other economies, its economy isconsidered to be the most competitive in the world.

Switzerland is high-tech and prosperous economy.





23/33

21. Austria

Austria is a developed country with a high standard of

living. It has a well developed social market economy that

has a major influence on labour politics. Tourism plays an

integral part in terms of the countrys economic revenues.





24/33

22. India

India is one of the fastest growing economies in the world

and is considered to be a newly industrialized country.

Textiles, telecommunications, chemicals, pharmaceuticals,transport, machinery and mining are among the major

sectors of the Indian economy.





25/33

23. Turkey

Turkeys growing economy has given it recognition as a

regional power. Tourism is a key industry that attractsrevenue for the government and has experienced a rapid

growth in the last two decades. The nations economy is

becoming dependent on industries in major cities.





26/33

24. Finland

Finland is ranked among other wealthiest countries in the

world despite it being a latecomer to industrialization. Theeconomic development was rapid and is considered to be one

of the most competitive nations in the world. It is also known

to a have high quality of life.





27/33

25. Indonesia

Indonesia has a mixed economy and serves as the largest

economy in Southeast Asia. The industry sector contributes

the most for the countrys GDP. The rapidly developing

export oriented sector attracts foreign investment for the

nation.





28/33

Measures taken positively by markets:

- Measures to reduce fiscal deficit

- Any increase in foreign investor participation

- Thrust to infrastructure- Roads, Power etc.

- Reduction in taxes

Measures taken negatively by markets:

Added pressure on fiscal deficit

New tax measures, mostly higher taxes or change in tax

policy


29/33

Policy measures that hinder investment climate

Budget and market performance

- Last 20 years, MSCI India outperformed MSCI EM (MSCIEmerging Markets Index) 8 out of 20 times in the month

after budget

- 20 year average shows Indian markets are down 2.3% in

month after Budget underperforming EM by 1.5%,

- MSCI India outperformed MSCI EM (years): 1997, 1999,

2001 , 2004 , 2005, 2006, 2010, 2011

1.Measures taken positively by markets:- Measures to reduce fiscal deficit

- Any increase in foreign investor participation

- Thrust to infrastructure- Roads, Power etc.

- Reduction in taxes

(AFP PHOTO/ Punit PARANJPE)

2.Measures taken negatively by markets:Added pressure on fiscal deficit

New tax measures, mostly higher taxes or change in taxpolicy

Policy measures that hinder investment climate

(AFP PHOTO/Indranil MUKHERJEE)


30/33

3.Budget and market performance- Last 20 years, MSCI India outperformed MSCI EM

(MSCI Emerging Markets Index) 8 out of 20 times in

the month after budget

- 20 year average shows Indian markets are down 2.3%

in month after Budget underperforming EM by 1.5%,

- MSCI India outperformed MSCI EM (years): 1997,

1999, 2001 , 2004 , 2005, 2006, 2010, 2011

(REUTERS/Ajay Verma)

4.1. UNION BUDGET 1992-93Finance Minister: Manmohan Singh

Stock market reaction: Feb 29, 1992: Sensex up (+)

9.37%

- Indian economy liberalized thorough reforms acrossthe board

- New import-export policy encouraged FDI

- Foreign investment limit in high-priority industries

was raised to 51%

- Private sector expansion and participation encouraged

- Licences and quotas were abolished

- Interest rates were made flexible


31/33

- Banks got freedom to set lending rates according to

risk profile

2. UNION BUDGET: 1997 -98

Finance Minister: P Chidambaram

Stock market reaction: Feb 28, 1997: Sensex up (+) 6.54%

- This Budget was called a Dream Budget

- Budget presented a plan for economic reforms in India

- Tax policy (Direct and indirect) was reormed

- FII investment limit was raised from 24% to 30%

- Maximum income tax rate for individuals was cut from

40% to 30%

- Income tax rate for companies was decreased to 35% per

from 40%

- Peak customs duty was reduced to 40% from 50%

- Dividend tax on individual investors was abolished

- Budget launched Voluntary Disclosure of Income Scheme

or VDS to recover of black money

3. UNION BUDGET: 1998

Finance Minister: Yashwant Sinha

Stock market reaction: June 1, 1998: Sensex fell (-) 11%


32/33

- Budget after India conducted Nuclear tests and US

sanctions

- Defence spending was hiked

- Allocation for Department of Atomic Energy was hiked by

68%

- Import duties were increased

4. UNION BUDGET: 2002

Finance Minister: Yashwant Sinha

Stock market reaction: Feb 28, 2002: Sensex fell (-) 3.87%

- Dividend distribution tax was abolished: Dividends were to

be taxed in the hands of the investors instead of taxing

companies and mutual funds

- Gujarat riots were an added pressure

5. UNION BUDGET 2012

Finance Minister: Pranab Mukherjee

Stock market reaction: March 16, 2012: Sensex fell (-) 1.9%

- Introduction of GAAR or General Anti Avoidance Rule

- GAAR to counter aggressive tax avoidance sent marketsinto a tizzy

- Budget sought to amend the Income Tax Act

retrospectively from 1962


33/33

- Lack of clarity on retrospective tax on older deals further

dipped market sentiment

- A ballooning fiscal deficit at 5.1% of GDP further worried

investors

government expenditure and budget

Documents