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yPresentation on Union

Budget: 2010-11y& Current Fiscal Situation

By prof- SC sharma

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y

Budget as a statement of incomeand expenditure of thegovernment.

yBudget as a summary of taxchanges and allocation ofresources to finance various

schemes.

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yThe Budget is a report card on what

the Government has done onmeasures to:1. Raise growth rate2. Reduce the number of the poor3. Creating infrastructure4. Raising capital expenditure.

yBudget is not merely tinkering with a

few tax rates.

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y

Budget should focus on long term fiscalissues such as:

1. Level of Fiscal deficit

2. Sustaining high rate of economic growth,savings and investment levels.

3. Supporting growth in capital expenditure

4. Creating favourable investment Climate for

corporate sector.

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FRBM Act (August 2003) and Its

Obligations

yAppropriate measures to

reduce fiscal deficit and revenuedeficit so as to eliminaterevenue deficit by 31st March2008 and thereafter build upadequate revenue surplus.

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y

Fiscal deficit to GDP ratio tobe 3% by 31.08.2008

y

RBI primary marketpurchases of GOI bondswould cease on 01.04.2006

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Trends in deficits of Central Government as % of GDP

Year Revenue Deficit FiscalDeficit

Revenue deficit as

per cent of fiscaldeficit

1996-97 2.4 4.1 58.2

1999-00 3.5 5.4 64.6

2002-03 4.4 5.9 74.4Enactment of FRBM

2003-04 3.6 4.5 79.7

2004-05 2.5 4.0 62.6

2005-06 2.6 4.1 63.02006-07 1.9 3.5 56.3

2007-08 1.1 2.7 41.4

2008-09 (RE) 4.5 6.1 73.9

2009-10 5.0 6.870.0

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Receipts and expenditure of the Central Government(As per cent of GDP)

2003-04 2006-07 2007-08 2008-09

(R.E.)

1. RevenueReceipts 9.6 10.5 11.5 10.6

2. RevenueExpenditure 13.1 12.5 12.6 15.1

3. Revenue Deficit 3.6 1.9 1.1 4.5

4. Capital Receiptsof which 7.5 3.6 3.6 6.4

(a) Borrowings4.5 3.5 2.7 6.1

5. CapitalExpenditure

4.01.7 2.5 1.8

6. Fiscal deficit 4.5 3.5 2.7 6.1 8

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Sources of tax revenue

Tax revenue as a percentage of gross tax

revenue

1995-96 2005-06 2007-082008-09

(RE)

Direct 30.2 45.1 49.9 54.9

Indirect 69.1 54.4 47.0 44.8

Tax revenue as a percentage of gross domesticproduct

1995-96 2005-06 2007-082008-09

(RE)

Direct 2.8 4.6 6.3 6.5

Indirect 6.4 5.6 5.9 5.3 9

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BUDGET AT A GLANCE (Rs. Cr.)

2007-08Actuals

2008-2009Revised

Estimates

2009-2010Budget

Estimates

1. Revenue

Receipts 541864 562173 6144972. CapitalReceipts

of which 170807 338780 406341

3. Borrowings 126912 326515 400996

4. TotalReceipts 712671 900953 1020838

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Gross Borrowings (Rs. Crore)

2005 - 06 131000

2006 - 07 1460002007 - 08 168101

2008 - 0 (R ) 306000

200 - 10 (B ) 4510 312

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13

Salient features of the budget

Focus on inclusive growth in ruralareas

Significant increase in

expenditure on rural schemes

(Bharat Nirman & NREGP)

Aims at pushing up consumptionexpenditure of masses in rural

areas

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Increase in social spending

for shaping socio-political

environment

Does not focus on stock

markets

Dominant role for publicsector

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Does not depend on FDI &

FII for supporting growthstrategy.

No further support tohousing and real estate

sector.Disconnect with corporate

world.

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Gover ent endit reon r tir n ( . rore)

2005 - 06 121602006 - 0 1 6 6

200 - 0 24603

200 - 0 312 0200 - 10 45356

llocation to r ral-focus* flagshi

schemes ( s. rore)200 - 0 ' 36130

200 - 0 '' 50150

200 - 10' 62230 16

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Education

(in Rs. Cr.)2003-04 2.2% 10,145

2004-05 2.6% 13,098

2005-06 3.5% 17,8102006-07 4.0% 23,810

2007-08 3.8% 27,185

2008-09 (Revised) 4.2% 37,367

2009-10 (Budget) 4.4% 44,528

Figures in brackets are % of total17

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Health

(in Rs. Cr.)2003-04 1.5% 7,249

2004-05 1.6% 8,089

2005-06 1.9% 9,6502006-07 2.0% 10,948

2007-08 2.0% 14,410

2008-09 (Revised) 2.1% 18,476

2009-10 (Budget) 2.2% 22,641

Figures in brackets are % of total18

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Roads & Highways

(in Rs. Cr.)2003-04 1.5% 7,237

2004-05 1.5% 7,248

2005-06 2.2% 11,153

2006-07 2.3% 13,220

2007-08 2.1% 14,840

2008-09 (Revised) 1.8% 16,045

2009-10 (Budget) 1.9% 19,565

Figures in brackets are % of total19

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Areas of Concern

High and growing fiscal deficityFiscal Deficit as % of GDP 2009-10

yCentral Government = 6.8%

yState Government = 4%

yOff Budget items = 2%

yTotal = 12.8%

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y Rising debt to GDP ratio

The debt-to-GDP ratio which isalready at 83% could raise fears ofeither a debt default or blowing off

the real value of the debt throughresultant inflation. Both these willadversely influence long-termprivate investment plans.

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Revenue deficit

reachingalarming levels

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No road map for fiscal

consolidation

No policy announcement on

disinvestment.

More effort on spending

and borrowings. No efforton resource mobilization

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Implications of high level of

fiscal deficit:Monetization of deficit

Generation and strengthening ofinflationary forces

Crowding out effects for private

investmentPressure on interest rates to go up

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All India break-up of Monthly Per Capita Expenditure

by item (Expenditure Rs/person)

Items Rural UrbanMilk & Milk Products 51 85

Vegetables 38 50

Fruits 12 26

Beverages & processed foods 26 68

Food (total) 333 468

Clothing & Footwear 45 76

Education 17 73

Medical 44 71

Durable Goods 22 47

Non-Food (total) 291 703

Source: National Sample Survey Report on Household

Consumer

Expenditure in India, 2005-06.

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Institutional Investments (Rs cr) Since Budget

2009-10

ate et FIIInvestment et IIInvestment

13-Jul-09 -559 742

10-Jul-09 -903 886

9-Jul-09 -546 578

8-Jul-09 -828 594

7-Jul-09 -921 790

6-Jul-09 -1483 816

Total -5241 4406

Source: BSE/ SE

websites

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Receipts and disbursements ofStateGovernmentsa

(As per cent of GDP)2003-04 2005-06 2006-07 2007-

08(RE)

2008-09

(BE)

1. Total Receipts 18.7 16.6 16.3 16.2 16.8

2. TotalDisbursements

18.7 15.7 15.9 16.7 16.8

3. RevenueDeficit 2.3 0.2 -0.6 -0.5 -0.5

4. Gross fiscaldeficit

4.4 2.5 1.9 2.3 2.1

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International Comparison

Minimum RateIndia 10%

Brazil 7.5%

China 5%US 10%

UK 20%

South Africa 18%

Malaysia 1%

Pakistan 0.25% 28

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International Comparison

Maximum RateIndia 30%Brazil 27.5%

China 45%US 50%

UK 50%

South Africa 40%

Malaysia 28%

Pakistan 20% 29

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Values of Key Macro-economic Parameters

Investment

Rate

Gross

Domestic

Fixed

Capital

Formation

Domes

tic

Saving

s

Rate

Curre

nt

Accou

nt

Balan

ce

Domest

ic

Saving

s

Rate

Final

Consumption

Rate

Gross

Domestic

Capital

Formation

(GDCF)

GDCF in

Fixed Capital

only

Final Consumption

Expenditure

Priva

te

Gov

t.

otal Pvt.

Corp.

otal Pvt.

Corp

.

Priva

te

Go

vt.

otal

Ratio to GDP at market prices Growth rate at Constant Prices

2000/01 * 24.3 22.7 23.7 0.6 23.7 64.0 12.6 -4.0 28.3 -0.01 -

11.0

3.6 0.9 3.2

2001/02 * 22.8 23.6 23.5 0.7 23.5 64.5 12.4 3.8 8.6 7.4 3.6 5.7 2.3 5.2

2002/03 * 25.2 23.8 26.3 1.2 26.3 63.3 11.9 10.9 17.1 6.8 3.5 2.8 -0.4 2.3

2003/04 * 27.6 25.0 29.8 2.3 29.8 61.8 11.3 12.9 24.6 13.6 23.2 6.0 2.6 5.5

2004/05 32.7 28.8 32.2 0.3 32.2 59.5 11.0 22.3

*

68.1* 18.9* 62.8

*

5.5* 3.6

*

5.2*

2005/06 34.3 30.4 33.1 1.2 33.1 58.2 10.9 16.0 44.1 15.3 41.7 8.6 8.3 8.5

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Values of Key Macro-economic Parameters

Investment

Rate

Gross

Domestic

Fixed

Capital

Formatio

n

Domesti

c

Savings

Rate

Current

Accoun

t

Balance

Domesti

c

Savings

Rate

Final

Consumption

Rate

Gross

Domestic

Capital

Formation

(GDCF)

GDCF in

Fixed Capital

only

Final Consumption

Expenditure

Private Govt. Total Pvt.

Corp.

Total Pvt.

Corp.

Private Govt. Total

Ratio to GDP at market prices Growth rate at Constant Prices

2006/0

7

35.5 31.4 34.4 1.0 34.4 57.8 10.4 16.1 20.2 14.3 18.7 8.3 3.8 7.6

2007/0

8

37.7 33.0 36.4 1.3 36.4 57.1 10.4 15.2 23.0 15.2 20.6 9.6 9.7 9.6

2008/0

9 QE

34.9 33.0 32.5 2.4 32.5 57.9 11.7 -2.4 -16.6 4.0 -5.1 6.8 16.7 8.3

2009/1

0 est.

36.2 33.0 34.0 2.2 34.0 57.8 12.1 5.2 7.5 5.2 5.0 4.2 8.2 4.9

2010/1

1 proj.

37.3 33.7 35.2 2.1 35.2 56.0 10.8 15.0 20.0 12.8 15.0 6.8 3.1 6.2

2011/1

2

proj.

38.2 35.0 36.1 2.1 36.1 55.5 10.3 12.7 14.4 12.8 15.0 8.0 4.0 7.4

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Trends in Industrial OutputUnit per cent

General Manufacture Electricity Mining Basic

goods

Capital

Goods

Intermed

iate

goods

Total Consum

er

Goods2007/08 Durable

s

Non

durable

s

Q1 10.3 11.1 8.3 2.7 9.4 19.1 9.3 9.0 -0.7 12.4

Q2 8.7 8.9 7.1 7.4 9.3 21.3 10.5 2.2 -5.5 5.1

Q3 8.3 8.9 4.6 5.5 5.0 20.8 8.9 6.2 2.1 7.6

Q4 6.7 7.3 5.5 5.2 4.7 12.2 7.1 6.8 0.1 8.9

2008/09

Q1 5.3 5.8 2.0 4.0 3.1 7.9 2.6 8.6 3.5 10.1

Q2 4.7 4.9 3.2 3.8 4.7 13.2 -1.7 6.6 10.8 5.1

Q3 0.8 0.5 2.9 2.0 2.4 3.8 -5.8 3.3 -1.8 4.9

Q4 0.8 0.3 3.0 0.9 0.4 5.0 -3.2 1.2 5.6 -0.1

2009/10

Q1 3.8 3.4 6.0 6.8 6.3 2.0 7.4 -0.5 15.6 -5.3

Q2 9.0 9.2 7.4 9.0 5.9 8.6 11.7 10.1 23.7 5.1

Q3 13.1 14.3 4.5 9.5 5.9 21.6 18.7 11.9 33.8 5.2

Q4 F 13.6 14.6 6.1 9.6 9.3 24.8 18.0 10.0 27.5 4.633

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DOWN A SLIPPERY SLOPE

*Revenue deficit

(RD)

*Gross fiscal

deficit (GFD)

RD/GFD

2004-05 3.99 2.49 62.4

2005-06 4.08 2.57 62.9

2006-07 3.45 1.94 56.2

2007-08 2.69 1.11 41.3

2008-09 4.50 6.00 75.0

2009-10(RE) 5.30 6.70 79.1

2010-11 (BE) 4.00 5.50 72.7

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Balance of Payments

Unit: US$ billion2004-05 2005/06 2006/07 2007/08 2008/09 2009/10

Apr-Sep Oct-Mar Total

O/W

Software &

BPO

14.7 23.8 27.7 37.2 44.5 17.2 30.0 47.2

Private

Remittances

20.5 24.5 29.8 41.7 44.6 26.7 30.0 55.7

Investment

Income

-4.1 -4.1 -6.8 -4.4 -4.0 -2.1 -2.0 -4.1

CurrentAccount

Balance

-2.5 -9.9 -9.6 -15.74 -28.7 -18.6 -10.9 -29.5-0.3 -1.2 -1.0 -1.3 -2.4 -2.2

Foreign

Investment

13.0 15.5 14.8 45.0 3.5 32.1 15.2 47.3

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Balance of Payments

Unit: US$ billion2004-05 2005/06 2006/07 2007/08 2008/09 2009/10

Apr-Sep Oct-Mar TotalO/W FDI

(net)

3.7 3.0 7.7 15.4 17.5 14.1 6.0 20.1

Inbound FDI 6.0 8.9 22.7 34.2 35.0 21.0 15.0 36.0

Outbound

FDI

2.3 5.9 15.0 18.8 17.5 6.8 9.0 15.8

PortfolioCapital

9.3 12.5 7.1 29.6 -14.0 17.9 9.2 27.2

Loans 10.9 7.9 24.5 41.9 4.1 0.7 6.5 7.2

Banking

Capital

3.9 1.4 1.9 11.8 -3.2 1.2 3.8 4.9

Other Capital 0.7 1.2 4.2 9.5 4.5 -4.3 -6.5 -10.8

Capital

Account

Balance

28.0 25.5 45.2 108.0 8.7 29.6 19.0 48.5

3.9% 3.0% 4.8% 8.8% 0.7% 3.7%

Errors &

Omissions

0.6 -0.5 1.0 1.2 1.1 -1.4 -1.4

Accretion to

Reserves

26.2 15.1 36.6 92.2 -18.9 9.5 8.1 17.6

3.6% 1.8% 3.9% 7.5% -1.5% 1.3%37

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Fund Raising from Banking System and Capital Market

Rs in Crore 2007/08 2008/09 Apr-Sep

2008/09

Apr-Sep

2009/10

Oct-Jan

2008/09

Oct-Jan

2009/10

Apr-Jan

2009/09

Apr-Jan

2009/10

1 Bank

Sources of

Funds

1.1 Increase in

Credit to

CommercialSector

446,299 431,393 202,948 110,901 83,740 165,551 286,688 276,452

1.2 Increase in

Bank holding

of Govt.

securities

187,861 195,333 8,871 208,505 189,024 33,925 197,895 242,430

2 Capital

Market-All

Sources

241,156 224,072 68,432 146,908 95,787 92,243 164,219 239,151

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Fund Raising from Banking System and Capital Market

Rs in Crore 2007/08 2008/09 Apr-Sep

2008/09

Apr-Sep

2009/10

Oct-Jan

2008/09

Oct-Jan

2009/10

Apr-Jan

2009/09

Apr-Jan

2009/10

2.1 Debt

(bonds)$

128,602 209,164 55,947 102,968 94,026 71,874 149,974 174,842

2.2 Capital

Market

Equity

Raising

(a+b+c)

112,554 14,908 12,484 43,940 1,760 20,369 14,245 64,309

A IPO and

FPO (public)

54,511 2.082 2,032 15,081 26 6,952 2,059 22,033

B QIP** 25,525 189 75 26,181 114 12,963 189 39,144

C Rights 32,518 12,637 10,377 2,679 1,620 453 11,997 3,132

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Select sectoral investment growth rates at 2004-05 prices

Rate of growth of GCF

2005-0 200 -0 200 -0 200 -0

Mining &

Quarrying 40.0 3.5 14. - .

Manufacturing 14. 25.5 1 . -21.

Registered 3 .1 1 . 24.4 -1 .

Unregistered -40. 1.5 1.4 -42.5

Electricity, Gas &

Water Supply 2 . 23. . 1.3

Construction 0. 45.5 23.5 -22.

Banking &

Insurance 4 .3 3 .3 1.4 -1 .0

Other Services 20. 10.2 1 .4 3.0

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42

Thank

You

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Rate of growth at factor cost at1999-2000 price (per cent)

2003-04 2006-07 2007-08 2008-09

Agriculture, Forestry& fishing

10.0 4.0 4.9 1.6

Manufacturing 6.6 11.8 8.2 2.4

Electricity, gas &water supply

4.8 5.3 5.3 3.4

Construction 12.0 11.8 10.0 7.2

Financing, insurance,real estate &business services

5.6 13.8 11.7 7.8

Total GDP at factor

cost8.5 9.7 9.0 6.7

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Composition of Revenue Expenditure(As per cent)

InterestPay-ment

MajorSub-

sidies

DefenceExpend

-iture

2003-04 34.3 12.0 11.9

2004-05 33.0 11.6 11.4

2005-06 30.2 10.1 11.0

2006-07 29.2 10.4 10.0

2007-08 28.8 11.4 9.1

2008-09 24.0 15.3 9.245

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Key indicators of Indian Economy

Items Units 2003-04 2007-08 2008-09

1. GDP and related indicators

GDP (current

market price)Rs. Crore

275462

0

472340

0

5321753R

E

Growth Rate % 8.4 9.1 6.1

Savings Rate % of GDP 29.8 37.7 na

2. Prices

Inflation (WPI)(52- weekaverage)

% Change 5.5 4.7 8.4

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Items Units2003-

042007-

082008-

09

3. ternal Sector

port growth(UG$)

% Change 21.1 28.9 3.6

Import growth(US$)

% Change 27.3 35.4 14.4

Current accountdeficit(CAD)/GDP

Percent 2.3 -1.5 -4.1

Foreign

e changereserves

US$ bn. 113.0 309.7 252.0 @

4. Fiscal indicators (Centre)

Gross fiscal

deficit % of GDP 4.5 6.2 ##47

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Total Expenditure (Rs.

Crore)2005 - 06 505738

2006 - 07 583387

2007 - 08 712671

2008 - 09 (RE) 900953

2009 - 10 (BE) 102083848

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Total Recipts (Rs. Crore)

2005 - 06 506123

2006 - 07 581637

2007 - 08 680521

2008 - 09 (RE) -2009 - 10 (BE) -

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Demand side growth in GDP, growthcontribution and relative share

(figures in per cent at 1999-00 market prices)

2006-07

2007-08

2008-09

DGDP at market

prices9.7 9.1 6.1

Consumption (pvt.) 6.3 8.5 2.9

Consumption (Govt.) 5.5 7.4 20.2

Gross fixed capitalformation

14.5 12.9 8.2

Export 21.1 2.1 12.8

Import 24.5 6.9 17.9 50

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Ratio of savings and investment to GDP(% at current market price)

2003-04

2005-06

2006-07

2007-08

Gross

domesticsaving

29.8 34.2 35.7 37.7

Public Sector 1.1 2.4 3.3 4.5

Private Sector 28.7 31.8 32.4 33.2

HouseholdSector

24.1 24.1 24.1 24.3

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2003-04

2005-06

2006-07

2007-08

Gross capitalformation(investment)

27.6 35.5 36.9 39.1

Public Sector 6.3 7.6 8.0 9.1

Private Sector 19.6 26.1 27.2 28.5

CorporateSector

6.8 13.7 14.8 15.9

HouseholdSector

12.7 12.4 12.4 12.6

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Sector investment growth rates(at constant 1999-00 prices)

2003-04 2006-07 2007-08

Agriculture,Forestry &

fishing

-3.8 10.9 8.2

Manufacturing 22.5 17.8 13.3

Registered 13.9 16.3 17.3

nregistered 41.6 21.9 2.9

Electricity, gas &water supply

22.8 15.2 3.6

C t ti 27 6 25 4 16 1 53