When the government cuts down the taxation rate then it faces budget deficit (expenditure over the revenue ); which is financed by borrowings from RBI. Then in future the government has to repay the loan to RBI . For this government will raise tax in future. Thus today fall in taxes will lead to rise tax in future; So we can conclude government debt is equivalent to future taxes.

Now the question is – will this process effect the citizens of the country and their consumption?
The answer is No; because consumers are forward looking; they know that tax cut today will lead to rise in the tax rate in future; thus the money today they have saved will be used to pay taxes in future hence consumption remain unchanged.

But it is not true for those people who have binding constraint because for them current income is more important than future because bank loans are not available to them; so they will consume today whatever amount they saves from the reduction in taxes thus there future consumption will be low but it was an exceptional case.

Overall we can say that reduction in taxes leads to tax rise in future ” Ricardian Equivalence “; thus consumption doesn’t get affected because people are more concern about their permanent income not on their temporary income.

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Here are some of the highlights from the Union Budget 2018-19 presented by the Finance Minister Arun Jaitley in the Parliament on February 1, 2018.

Taxations

— No changes to income tax to individuals

— Standard deduction of Rs 40,000 allowed for salaried class

— For senior citizens, exemption of interest income on bank deposits raised to Rs 50,000

— 85.51 lakh new taxpayers have filed returns for FY17

— 8.5 million new taxpayers have filed returns for FY17

— Women contribution to EPF to be reduced to 8% for 1st 3 years

— 12% of wages of new employees and EPF (Employees Provident Fund) for all sectors for next 3 years, also facility of fixed term employment will be extended to all sectors

— Health and Education Cess: At present 3% cess Proposal: Increase cess by 1% Exiting 3% cess will be replaced by 4%

— Large corporations to be nudged to meet 25% funding requirement from bond markets

— Propose to introduce tax on distributed income by equity-oriented mutual funds at 10%

— Proposal: Increase custom duty on certain items. Mobile phone 15% to 20%.

— To help cashew processing industry, Customs Duty has been reduced from 5% to 2.5%

— Propose to amend income tax act for electronic assessments

— Benefit of reduced corporate tax rate of 25% to companies with up to Rs 250 crore in financial year 2017

— Government to set up PM Research Fellow Scheme; 1000 B-Tech students to be selected

— Long-term capital gains exceeding Rs 1 lakh from sale of equities (stocks) to be taxed at 10% without allowing benefit of indexation if the share is sold after January 31, 2018

— Contribution of 8.33% to EPF for new employees by the govt for three years and 12% govt contribution to EPF in sectors employing a large number of people.

Long-Term Capital Gains

– Tax on Long-Term Capital Gains exceeding Rs. 1 lakh at the rate of 10 percent, without allowing any indexation benefit. However, all gains up to 31 January, 2018 will be grandfathered.

– Proposal to introduce tax on distributed income by equity-oriented mutual funds at the rate of 10 percent.

— Short-term Capital Gains Tax continues to be 15%

– Proposal to roll out E-assessment across the country to almost eliminate person to person contact leading to greater efficiency and transparency indirect tax collection.

— Long-term capital gains exceeding Rs 1 lakh from sale of equities (stocks) to be taxed at 10% without allowing benefit of indexation if the share is sold after January 31, 2018.

– Proposal to increase cess on personal income tax and corporation tax to 4 percent from present 3 percent.

GDP and Economic Growth

— Propose 100% tax rebate for farmer producer companies having a turnover of Rs 100 crore

— GDP to grow at 7.2% – 7.5% in the second half of 2017-18

— We are now a $ 2.5 trillion economy, and we are firmly on path to achieve 8% plus growth soon

— Target Mudra loans for Rs 3 lakh crore next FY

— Government has ended policy paralysis. India was in fragile five group. Today, India is one of the fastest growing economies in the world

— Non-performing assets and stressed accounts to be checked by government

— India is now a $ 2.5 trillion economy, and is firmly on path to achieve 8% plus growth soon

— Demonetization has widened tax base

— 100% tax deduction for the first five years to companies registered as farmer producer companies with a turnover of Rs. 100 crore and above

— Tax buoyancy more than expected, thanks to greater compliance

— Aim to lower central govt. debt-to-GDP ratio to 40%

— Indian economy was among fragile five in 2014 and today we are among the fastest growing economies of the world.

— Manufacturing sector is back on growth path, services sector is seeing high growth rate

— Rs 14.34 lakh crore rupees to be spent for rural infrastructure

— Structural reforms will help economy achieve greater goals in short as well as long-term

— Direct Benefit Transfer (DBT) has reduced corruption and cost of delivery

— 6.3% GDP growth has signalled turnaround in economy

— The government has made all time high allocation towards infrastructure

— PM personally reviews targets and achievements in Infrastructure segment

— Need investment of Rs 50 lakh crore for Infrastructure sector

— We are allocating natural resources in a more transparent manner; there is a premium on honesty now.

— Jaitley proposes creating infrastructure for aquaculture, fisheries and animal husbandry with an allocation of Rs. 10,000 crore.

Focus on Agriculture

— The Minimum Support Price of all crops shall be increased to at least 1.5 times that of the production cost.

— Grameen Agricultural Market (GRAM) will provide farmers a means to sell directly to buyers

— Niti Aayog to establish a national programme to direct efforts towards Artificial Intelligence, including research and development of its applications.

— Proposed to raise institutional credit for agriculture to Rs 11 Lakh Crore for 2018-19

— This year’s Budget focuses on agriculture, health, senior citizens, infra creation, working with states to improve education

— Govt. focusing on ease of living now; PM has articulated the vision of minimum government, maximum governance.

— Government aims to double farm income by 2022

— Agri-Market Development Fund with a corpus of Rs 2000 crore to be set up for developing agricultural markets

— India to launch ‘Operation Green’ to reduce price fluctuation in potatoes and tomatoes, vegetables

— Kisan credit cards for fisheries and animal husbandry

— To help cashew processing industry: Custom Duty has been reduced from 5% to 2.5%

— Women self-help groups will be encouraged to take up organic agriculture

— Proposed to raise institutional credit for agriculture to Rs 11 Lakh Crore for 2018-19

— Pradhan Mantri Jeevan Jyoti Bima Yojana (PMJBY) to be expanded to all poor households.

— 24 new govt medical colleges and hospitals to be set up by upgrading existing district hospitals.

Education, Jobs and Career

— 70 lakh formal jobs being created in this year

— Railway University to be set up in Vadodara

— Proposed Rs 1 trillion for revitalization of infrastructure and education

— By 2022, every block with more than 50% ST population and at least 20,000 tribal people will have ‘Ekalavya’ school at par with Navodaya Vidayalas

— Most travel blocks will have ‘Eklavya’ residential school by 2022

— Two new planning & architecture schools to be set up in IITs

— Govt. will be setting up two new full-fledged Schools of Planning and Architecture

— Creation of job opportunities has been at the core of the policy planning

— Launch of national apprentice scheme

Roadway and its Expansion

– Confident of completing highways of 9,000 kilometers in 2017-2018

— NHAI to organize road assets in to a special purpose vehicle and then raise capital

Railway and its Expansion

— Much of the Railway Budget to invest on capacity building. 18,000 Km doubling of railway lines, 4,000 Km electrification of existing lines is planned in the coming year.

— Redevelopment of 600 major railways stations have been undertaken

— Bengaluru to get suburban rail network of over 100 km. Rs.17,000 crore for Bengaluru Metro

— All trains to be progressively provided with Wi-Fi, CCTV and other state-of-the-art amenities

— Government to eliminate 4,267 unmanned rail crossings at broad gauge network

— Focus on safety: Maintenance of tracks has been given special attention

Other Amendments

— Technology will be the biggest driver to improve quality of education. Move from ‘Black Board to Digital Board’

— Government to purchase surplus solar electricity

— SME loan sanctioning will be linked with GSTN

— Govt. to take all steps to weed out cryptocurrencies

— From ease of doing business, our govt has moved to ease of living for the poor and middle class

— The mass formalization of MSME sector is happening after demonetization and GST

— Measures to address the NPA of the MSME will be brought soon

— Three insurance companies to be merged, Rs 80,000 crore disinvestment target for next fiscal

2018-19

— Rs 1 lakh crore disinvestment target this fiscal 2017-18 and Rs 80000 crore in 2018-19

— Government to set up dedicated affordable housing under National Housing Bank

— Allocate Rs 16,000 cr to Pradhan Mantri Saubhagya Yojana

— Airlines have ordered 900 new aircraft

— India’s airport capacity to be increased five times to handle 1 billion passengers

— UDAN (Ude Desh ka Aam naagrik) scheme will connect 56 unserved airports and 31 unserved helipads

— Salary of President increased to Rs 5 lakh, for Vice President to Rs 4 lakh and Governors Rs 3.5 lakh

— Law to be introduced to fix MPs’ salary every 5 years indexed to inflation

— Government to set up comprehensive gold policy; to revamp Gold Monetisation Scheme

— AMRUT programme to focus on water supply to all households in 500 cities. Water supply contracts for 494 projects worth 19,428 core awarded

— 42 mega food parks will be established

— Allocation in Ministry of Food Processing Industries and is being doubled to boost food processing; specialized agro-processing and financial institutions to be promoted by Government

— 800 crore poor women to receive free gas connection

— 80 million poor families to get LPG connections under the Ujjwala Yojana

— 400 crore poor people to receive electircity: Rs 17 crore being spent on this effort

— Benefits to the poor have been targeted more effectively with the use of technology

— 470 APMCs have been connected to #eNAM network, the rest to be connected by March 2018

— Special scheme to address air pollution in NCT, UP, Punjab and Harayana

— 10 tourist sites to become iconic sites

— Allocation of Rs 600 crore for nutritional support to all tuberculosis patients

— Access to portable drinking water, toilets are govt’s priorities

— Open defecation free India is the goal

— 99 cities selected for urbanisation

— 6 crore toilets been set up in rural areas

— 187 projects sanctioned under the ‘Namami Gange’ programme

— Government committed to further enhancing public investment

— Allocation of Rs. 56,619 crore for SC welfare and Rs. 39,135 crore for ST welfare

— Government to allocate Rs 7,148 crore to textile sector

— Propose an outlay of INR 7,148 Cr for the textile sector

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What is GST (Good & Services Tax)

GST stands for Goods and Services Tax, it is a proposed comprehensive indirect tax which would be levied on all goods and services consumed and it will replace all the current different indirect taxes levied by the government on different consumed goods and services. In simple words right now there a number of different taxes levied on goods and services which cause a lot of problems in the economy, hence GST is a uniform tax which will be levied on all goods and services to put an end to these problems.

Replacing Existing Indirect Taxes

Before getting into what these problems are and also the effects GST will have on the economy, let us first see some of the existing indirect taxes that GST will be replacing.

At the Central level, it will subsume Central excise duty, service tax and additional customs duties while at the state level it will include value-added tax, entertainment tax, purchase tax, luxury tax, lottery taxes and electricity duty. Central sales tax (CST) will be completely phased out. Entry tax would be included in GST from the start. But state taxes on petroleum products will continue for a few years after GST is introduced, as per the deal between the Centre and states. State taxes on alcohol and tobacco, too, would remain. As we can see GST will serve the purpose of unifying all such taxes and integrate them systematically to introduce one uniform tax.

How GST will affect the existing tax system?

Now the question is why is GST being introduced? The current tax system has been the way it is since independence so why now is there a need for changing the system? The answer is that the current tax system is unfair to the manufacturing sector or the producers, the different taxes at each stage of production added with the insufficient setting off mechanism results in a huge amount of tax being levied upon the producers. This was one reason, another reason for the introduction of GST is that the inefficient solutions mechanism has made it extremely difficult for the foreign companies who have invested in India especially in SEZs (Special Economic Zones) to get their grievances dealt with, this inefficiency has made them prefer China as their system is much more efficient and helpful. So what is this proposed GST structure? GST structure basically will be two tiered i.e. tax would be levied by both the Centre and the States on the intra supply of goods and services through CGST (Central Goods and Services Tax) and SGST (State Goods and Services Tax).

Source : http://www.pradhanmantriyojana.in

Source : http://www.pradhanmantriyojana.in

Now a tax is collected for a reason, the government invests it somewhere which benefits the citizens of the country, so the question is where will the revenues from CGST and SGST be utilized? Basically the revenues from these taxes will be made available as a form of credit to the entire supply chain i.e. the manufacturers and producers to aid their process of manufacturing and the burden of the taxes will be entirely on the customer or consumer. Now other than SGST and CGST, there is also IGST (Inter-State Goods and Services Tax), this tax would be levied on all inter-state transactions of goods and services by the Centre. The introduction of such a structure then requires management and for that the GST Constitutional Amendment bill provides for creation of a GST Council comprising all the stakeholders across the Center and the state. The Council would recommend the rate of tax to be charged with bands.

How GST will affect the Indian Economy?

Now coming to the most important questions, what will be the impact of GST on the economy? Will the impact be all positive? Does it have any negative impacts as well? Let us take these questions one by one.

The biggest impact of GST on the economy will be that it will unify the Indian market and make it one common market, GST would ensure taxes at each stage are creditable and make sure there is no double taxation. Some of the positive impacts of GST would be as follows:

Firstly it will bring a layer of transparency in the business accounting system as GST can be listed in every sales invoice unlike the other indirect taxes which were not mentioned leading to unfair high taxes. Secondly and very importantly, it will reduce administrative corruption, for instance, in the present scenario if a good or service is sold, a tax is levied on the product at the time it is manufactured i.e. comes out of the factory and when it is sold i.e. at the retail front, With GST this system will stop and only one tax will be levied and will have to be paid once. Thirdly, it will make it much easier to do business in India, something which the current government seems to promote a lot, as introduction of GST will lead to lowering the cost of production of business and it will not appear as a cost to registered retailers, and hence will wipe out the tax evaders and hence increase market for the registered retailers. Fourthly, GST will lead to a holistic development of the common Indian market by removing economic distortions, how? As GST will be levied only on the final stage of consumption and not through every stage of the entire supply chain. Fifthly, the main beneficiaries of GST introduction are the manufacturing sector and the producers, right now at different stages these producers have to pay different taxes which includes great complications and rising compliance costs. GST would reduce the cost of manufacturing both from a tax perspective as well as on compliance front, hence ensuring that there is equitable distribution of tax burden between the manufacturing and service sector. Finally, the most obvious effect, if taxes are reduced at the production phase it will bring down the prices of products like cars, FMCG (Fast Moving Consumer Goods) like soft drinks, toiletries etc. Hence it will make goods and services from basic to higher needs more affordable.

Benefits of implementing GST

All these were positive impacts basically on the manufacturing sector but how does it benefit the government? It does as GST promotes exports and indirectly makes it easier for foreign companies to invest in India, in addition to this on a macroeconomic level it leads to creation of job opportunities and overall growth of the economy. The negative impacts of GST are a few, Firstly most services like telecom, banking, airline will get expensive according to the tax rate. Secondly, in theory the bill seems very attractive but only time will tell how well it is implemented. Thirdly some economists have the view that it will have a bad effect on real estate, it would increase the cost of purchasing a new home and reduce demand. Fourthly, it is not as big an achievement for India as promoted as some say that CGST, SGST, IGST are all just different names for Central/State excise duty and VAT (Value Added Tax) and the concept of GST has already being used by numerous countries like Australia, Canada, Germany & Japan.

Effect of GST on the consumer

So far we have seen GST impact on government and manufacturing sector, but what about the consumer sector? Does the common man benefit from introduction of GST? This is a very tricky question and there is no definitive answer to this as for the producers and the government, the straight answer was YES, GST will benefit them but for the common man it is not that simple. This is because GST will have different impact on different goods and services used by consumers. One thing is for certain that it will bring down prices leading to increasing demand of goods and services which would benefit individual companies, but not everything will become cheaper.

Let us see a few examples. Eating out will get expensive as right now when you eat out, a tax of 18.5% is laid on the bill, GST fixes this tax at a rate of 18 or above, this may mean one is charged 20% tax for the same meal. As mentioned earlier telecom sector will get expensive i.e. phone bills, the current tax charged on phone bills is 15% but with the introduction of GST it will rise up to at-least 18%. This was about the phone bills, but with GST purchasing phones themselves will become expensive, the current tax rate on phone purchase being 12.8%, with GST it will again rise to at-least 18%. Jewellery is also likely to get expensive as right now only 2 percent of tax is passed on to consumers but with GST it may rise to 6 percent .But it is not like everything will become expensive, some products will become cheaper, for example, Buying a car will get cheaper, currently a car purchased has an excise duty of 12.5% laid plus VAT on purchase, GST is said to bring this down to 18%. Watching TV, the favorite pass time could get cheaper, as LED TVs which currently have a tax of 24.5% laid on them will be reduced to 18%. There are many other examples we can discuss and each will have its own impact, hence I said there will not be one definite effect of GST on the common man, some may benefit, some may not.

In conclusion GST is a step forward for India to integrate its market and systematically develop its economy as a whole. GST will show its benefits in the long run.

Article Written By :

Tanmay Puri (Vskills Intern)
Student of BA (Hons.) Philosophy ,Hindu College, University of Delhi

The post What is GST Bill? | Goods & Services Tax appeared first on Vskills Blog.

Finance Minister Arun Jaitley presented the annual budget of India on 1^st Feb 2017, which was awaited by the entire nation. To analyze the union budget 2017 and understand its implications, it’s important to know the background story first. What happened in India and what is expected to happen forms the basis of all the elements of budget.

On 8^th December, 2016, at 8:00 PM, Prime Minister Narendra Modi banned the use of Rs. 500 and Rs. 1,000 notes in India. This act of demonetization was aimed to target black money holders, curb its accumulation and channelize national funds by circulating them back into the economy. Though, the move was launched with honest intentions, it had bad implementation process. If analyzed carefully, one would realize that the incidence of this move was born mostly by people who are poor, unprivileged, and needy and who barely have resources to sustain their livelihood. In short, common man had to suffer the most.

Keeping in consideration the ongoing chaos, union budget has been created to ensure maximum benefits for the sections of the society which were hurt the most due to demonetization. Thus, the union budget 2017 can be best described as an aim towards stability. The government made sure that it launches no new big schemes or dramatic reforms. Instead, the entire focus was to make the adversely hit societies feel comfortable.

Major Changes

Union budget 2017 observed many changes. The major ones along with their reasons have been listed as follows:

1.Not a populist budget:

A populist budget can be defined as one which the government uses to empathize with citizens of the nation. It is sometimes used as a political weapon to mobilize a particular group or section of people against a particular government or opponents. By using the budget and including numbers that are people friendly, the government can gain their confidence, show empathy and channelize their will.

Union Budget 2017 cannot be termed as a totally populist budget because the need to include people friendly elements was much felt. Had they not been included, people who suffered due to demonetization would not have been dealt with justice. So, certain favourable points were necessary. Apart from that, there is nothing in the budget that can be called to drive people against other governments and hamper the to-be-held elections in 5 states of India. Whatever values have been included are making sense if we keep in mind the adversities faced by the entire population.

2.Date of budget announcement:

Earlier, the union budget used to be announced on the last working day of February. This year, the finance minister announced it on 1^st Feb, 2017. The provision to announce it on the changed date every year was an issue of debate among political parties contesting elections in 5 states of India. They were scared that the budget will be used as a tool of manipulation and drive people’s votes towards the ruling party. However, there was a logical reason behind its advancement.

Every government department needs to change its working as per the changes suggested in union budget. When the union budget used to get announced on last day of Feb, the departments felt short of time to run those changes operational. To buy them some time, government took this decision. Moreover, when the recommended changes are done away with before monsoon, growth is expected to rise. This reflects a true and better image of the nation. When the implementation of changes is delayed, it impacts the agrarian decisions and hence contribution to GDP suffers a great deal. Monsoon stands non-beneficial in that case.

3.Merging of Railway Budget:

Earlier, union budget used to come separately from railway budget. Despite being a monopoly of the government, allocation towards railways was not included in the union budget. Since it was a colonial legacy acquired from the British, it was never considered for consolidation in union budget. This year, it was clubbed with the union budget to offer it due importance.

It will ease up the preparation and allocation for government and simplify understanding. Many people feared that railways might end up being privatized if included in the union budget. However, the government made it clear that railways will retain its autonomous powers, continue as a monopoly and not be privatized.

4.Plan and Non-Plan classification done away with:

Earlier, budget expenditure used to be divided into two segments – Plan and Non plan expenditure. Any expenditure that is incurred on programmes which are detailed under the current Plan of the centre or centre’s advances to state for their plans is called plan expenditure.  Non plan expenditure is the estimated expenditure provided in the budget for spending during the year on routine functioning of the government.

The reason why this classification has been abolished is because it was unnecessary, it used to complicate calculations, hampered presentation and understandability and since there is no planning commission now, it isn’t in the provisional mandate of our country to follow it.

Revenue & Expenditure at a Glance

The following graphs show the division of revenue and expenditure of union budget. The figures given are in comparison with the last year’s budget.

Areas of Focus

Union Budget 2017 kept the following sectors as its major focus:

1.Farmers:

• Agricultural credit in 2017- Rs. 10 lakh crores
• NABARD computerization and integration – cost Rs. 1,900 crores
• 100% coverage of all 648 for soil sample testing
• National Agricultural Market (e-NAM) to be expanded from 250 markets to 585 APMCs

Analysis – It was feared that demonetization will largely affect the farmers. However, the reports show that the area under Rabi and Kharif crop remained the same. Thus, even if farmers had to suffer, demonetization didn’t impact much. E-NAM has been implemented so that the wastage is as low as possible. It is a great initiative for farmers.

2.Rural population:

• Total allocation for Rural, Agriculture and Allied sectors – Rs. 187223 crores
• MGNREGA allocation – highest ever at Rs. 48,000 crores
• To make 50,000 Gram Panchayats poverty free by 2019, the 150^th birth anniversary of Gandhiji
• Pradhan Mantri Awaas Yojana – Gramin increased to Rs. 23,000 crores
• 100% village electrification by 1st May 2018
• mason training will be provided to 5 lakh persons by 2022

Analysis –The commitments made under this sector are strong and welfare oriented. Electrification of villages is another big mission for the government. However, the definition of electrified villages has not been clearly specified in the legislative mechanism, thereby leaving it just a promise.

3.Youth:

• Measuring annual learning outcomes in our schools
• SWAYAM to be launched with at least 350 online virtual learning courses
• National Testing Agency to conduct all entrance examinations
• Skill Acquisition and Knowledge Awareness for Livelihood Promotion programme (SANKALP) to be launched at a cost of Rs. 4000 crores

Analysis – It is very important to analyze whether the incentives being given by government to promote education are resulting in anything fruitful or not. Moreover, whether the students are learning or not, remains a question. To overcome this problem, government launched variety of programs. It has ensured that care should not be limited to education. It is also focusing on skill enhancement and providing job opportunities. Since, all government exams be governed by one authority, there’ll be no misuse of power. Donation seats, leakage of exams can be checked upon. IIMs and IITs will be autonomous bodies.

4.Underprivileged:

• Maternity Benefit Scheme – Rs. 6,000 each will be transferred to bank accounts of pregnant women
• NHB will refinance individual housing loans of Rs. 20,000 crore
• AIIMS to be set up in Jharkhand & Gujarat
• Allocation for SCs has been increased by 35%

Analysis – It is practically not feasible for government to create separate centers underprivileged groups. Thus, to save costs, it has integrated all the centers. The cash transfers being provided for vaccination are conditional in nature. It means that certain conditions need to be fulfilled to avail the same.

5.Infrastructure:

• For transportation sector as a whole a provision of 2,41,387 crores
• Total expenditure of Railways pegged at Rs. 1,31,000 crores.
• Rashtriya Rail Sanraksha Kosh for safety of passengers
• SMS based Clean My Coach Service to be started
• New Metro Rail Act will be enacted
• IInd phase of Solar Park development for additional 20,000 MW capacity

Analysis – Since demonetization has resulted in a decrease of private investment in the economy, government has made sure to spend heavily on infrastructure. Bringing railways under union budget will also help it making multimodal transport a success. Due to several train accidents, the major concern for government remains passenger safety.

6.Electoral funding:

• Maximum amount of cash donation will be Rs. 2000/- from one person
• Political parties can receive donations by cheque or digital mode
• Amendment to RBI Act to enable the issue of electoral bonds
• Every political party would have to file its return within the time prescribed

Analysis – This move has been welcomed by all to ensure transparency in poll funding. However, most of the transfers are unreported. Hence, it will be difficult for the government to monitor.

7.Digital Economy:

• Aadhar Pay will be launched shortly
• Referral Bonus and Cashback Scheme for BHIM
• Target of 2,500 crore digital transactions
• All government receipts through digital means

Analysis – BharatNet will enhance economic activity, rural consumption and networking in the backward areas. The idea of digital economy is brilliant, however, it is not so easy to achieve for a nation as huge as ours. Given the latest incident of 3.2 million ATM cards getting blocked, cyber security is being given priority.

8.Fiscal Prudence:

• FRBM Committee has recommended 3% fiscal deficit
• Allocation for Capital expenditure increased by 25.4%
• Net market borrowing of Government restricted to Rs. 3.48 lakh crores

 Analysis – The fiscal deficit in 2015-16 was 3.9%. Last year’s revised estimates show FD of 3.5%. The best part is, reduction in FD has not been due to reduction in expenditure, but increase in revenue of the government. Budget 2017-18 projects FD to be 3.2%. Low FD will make the economy less prone to crisis.

9.Tax Administration:

• Individual income tax of 2.5 lakhs to 5 lakhs income reduced to 5% from the present rate of 10%
• Surcharge of 10% of tax payable by individuals whose income is between Rs. 50 lakhs and Rs. 1 crore
• Simple one-page form to be filed as Income Tax Return

Analysis – The government is trying to bring more and more people within the tax base so that lesser and lesser number of citizens evade tax. This will relieve the honest taxpayers from suffering the burden of taxation.  The change in income tax for companies has been made in order to make MSEMs more viable.

Conclusion

In a nutshell, budget 2017 is well balanced, being received with a sanguine view point. The budget is non-populist, focusing on vulnerable sectors of the economy. Various allowances are being provided to improve the quality of infrastructure, fiscal prudence, digitization, cyber security, minimum role of government and maximum governance, ease of doing business, to reduce uncertainty of post demonetization era and ensure stability.

– Shweta Arora, Intern, Vskills

Shweta Arora is a student of Kirori Mal College, Delhi University, pursuing a Bachelors degree in Commerce. Curiosity to find a logic drives her writing.

The post Union Budget 2017 Analysis appeared first on Vskills Blog.

A budget is a statement of financial intent, no more, no less. It is not Aladdin’s Lamp.

The Sensex rallied 486 points post budget, relieved that the budget did no damage.

Two adjectives define the Union Budget 2017 :

Sober

Disciplined

The Backdrop

• Slow global growth (slowest recovery post-recession, worldwide)
• U.K. grows at 2.5% (highest among developed economies)
• Brexit….. uncertainties
• Trumponomics…..can it lead to a black swan event?
• Fear of normalization (increase) in interest rates in the U.S.A. & other countries
• Rising protectionism & de-globalization
• Anger over tax inversion
• India & China going strong (but fears persist)

India

•  Demonetization…….medium-term effects are unpredictable
•  The numbers do not add up…..7.9% real growth (over 11% nominal growth) is not visible
•  L&T shed 14,000 people, due to challenging environment & slow economic growth
•  Infosys released 9,000 employees due to automation
•  Over US$ 11 billion have been withdrawn from Indian markets in the last few months
•  Huge savings on account of lower crude oil & commodity prices are unlikely to continue
•  Unemployment is a problem
•  Idle capacity exists across most industries

What was Needed

• Stable economic regime
• Focus on employment generation & manufacturing
• Skill development & effective allocation to education, women empowerment, healthcare & sanitation
• Clarity on GST & rationalization of tax structure
• Increase in discretionary consumer spending (higher disposable income)
• Poverty alleviation. ”Massive Poverty & Obscene Inequality….rank alongside Slavery & Apartheid as social evils.”  Nelson Mandela
• Boost to capex by the private sector
• Infrastructure spending

All this: with fiscal constraints.

What was Delivered

The Good

• Focus on farmers, agriculture & poverty alleviation
• Infrastructure & housing got a fillip
• Education, harnessing the power of broadband & virtual classrooms
• Defence gets respect
• Financial markets to become more robust & institutions to be strengthened
• Railways move to accrual system of accounting from 2019
• Use of Big Data
• Fiscal Deficit @ 3.2% of GDP & Revenue Deficit @ 1.9% of GDP

The Question Marks

• Demographic dividend has a life & will wane over time
• Crude oil & commodity prices may not stay benign (crude has already doubled from its             recent low)
• Actual Fiscal & Revenue Deficits….will they look equally prudent?
• With elections in several states, will there be slippages?

The Not-so-Good

• Bank NPAs, no clear enunciation of the way forward. This can balloon into a serious threat
• Tax evasion: time will tell whether the big fish are caught
• The legacy of retrospective taxes still festers

 Hopefully, in the near future, these ideas will be seriously considered:

• Two slabs of Income Tax for individuals (on all sources of income)

Up-to ₹ 10 lakh                        NIL

Above ₹ 10 lakh                        30%

• Universal Basic Income.  This requires shutting down several schemes & subsidies, but has    the considerable advantages of transparency, convenience, direct benefits, no middle-men, zero slippages & above all, it maintains the dignity of the receiver & does not require proof of impoverishment in order to be eligible.

The Score

You rate the budget.

1          Does it Inspire Confidence?

2          Will it Stimulate Growth?

3          Will it Generate Employment?

4          Does it include Meaningful Action for Poverty Alleviation?

5          Is it Prudent & Do the Actions Match the Words?

6          Is it Relevant in the Global Context?

7          Is it Honest & Transparent?

Professor Manohar V Dansingani, B.Com (Hons.), DBF, ACMA, CSCA, CSSBBP, MCSI

author, corporate trainer, professional investor

https://in.linkedin.com/in/manohar-dansingani-ba1b7587

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On 8^th November,2016,Prime Minister Narendra Modi came out with his master stroke on corruption, counterfeit currency, terrorism and black money by announcing demonetisation and ceasing Rs. 500 and Rs. 1000 notes as a part of legal tender in India. The Reserve Bank of India manages currency in India and derives its role in currency management on the basis of the Reserve Bank of India Act, 1934. A new redesigned series of Rs 500 banknote, in addition to a new denomination of Rs 2000 banknote is in circulation since November 10, 2016. The new redesigned series is also expected to be introduced to the banknote denominations of Rs 1000, Rs 100 and Rs 50 in the coming months.

While the pros and cons of the measure still continue to be debated, the consensus of opinion appears to be that while the proponents of demonetization may have had good intentions, the suffering it has caused to millions of Indians is unwarranted. Since Rs500 and Rs1000 notes make up some 86% of the total currency in circulation in India, especially in the vast rural areas, one economist compared the pain to what individuals might experience if 86% of their blood was removed from their bodies.

The net result can be a fall of between 0.5% and 2% in GDP,” says online news channel Firstpost. “The debate still goes on.”The goals which were earlier said to be of removing black money and fighting terrorism has now shifted to promoting cashless transactions. Several measures have been introduced, among them a 0.75% discount on digital payments made for buying petrol and diesel and a 0.5% cut in the price of railway season tickets bought using digital technology.

In another twist, the government appears to be no longer pushing demonetization as a “cashless” plan. It has now become a “less-cash” strategy. That is as it should be; the world doesn’t have a cashless economy so far. In India, Bloomberg data shows the share of cash in the volume of consumer transactions is 98% (against 55% in the U.S. and 48% in the U.K.). It is 90% in China and 86% in Japan. Much of the cash transactions are in rural India. So, expectedly, life came to a near standstill and much misery ensued when people found themselves unable to use their own money. Even when the money was in a bank account, limits on ATM withdrawals compounded the problem further.

Nobody is denying a short-term setback. The Reserve Bank of India (RBI) has reduced the GDP growth rate forecast for 2016-17 from 7.6% to 7.1%, the Asian Development Bank from 7.4% to 7%, Fitch from 7.4% to 6.9% and Bank of America-Merrill Lynch from 7.7% to 7.4% (for calendar 2016). All believe, however, that growth will recover the next year.According to the Economic Survey 2017, The faster the remonetisation takes place, the shorter and less severe will be the impact of demonetization”. The survey also notes that growth rate of industrial sector will moderate to 5.2 percent this fiscal, from 7.4 percent last fiscal year.

The survey also  warns that note ban will adversely impact cash-intensive sectors such as agriculture, real estate and jewellery. On the digitization, Public policy must balance benefits and costs of both forms of payments. Second, the transition to digitalization must be gradual, take full account of the digitally deprived, respect rather than dictate choice and be inclusive rather than controlled,” said the survey.

Nearly three months into demonetisation, the cash crunch still continues. On Monday, the RBI announced some relaxations on cash withdrawals but it has not yet given a final word on till when the cash curbs will be withdrawn fully.

By now, it is a fact that the cash crunch has already hit the informal sector badly. Hit the consumption demand in the economy and resulted in job loss. According to a study by All India Manufacturers’ Organisation (AIMO), in the first 34 days since demonetisation, micro-small scale industries suffered 35 percent jobs losses and a 50 percent dip in revenue. The study showed nearly all industrial activities came to a standstill post note ban, with the Small and Medium-sized Enterprises (SMEs).

Simultaneously, Business confidence in India has slipped to a one-year low due to the demonetization drive introduced by Prime Minister Narendra Modi in November, according to a survey conducted by the Federation of Indian Chambers of Commerce and Industry (FICCI).

The survey, conducted between December 2016 and January 2017, showed the country’s Overall Business Confidence Index (OBCI) slipped to 58.2, compared to a figure of 67.3 for the same period last year. The survey drew responses from 207 companies and aimed to capture the assessment of the current situation, as well as gauge expectations regarding performance for the first half of this year.

“The sharp dip in current condition index can be attributed to the sudden spur of uncertainty created by the government’s move to demonetize high value currency notes,” the survey said. “Cash dependent sectors especially in the informal economy have been affected.

The economic growth projections and caution on the impact of demonetisation is reminder to the government that why it is crucial to resolve the cash crunch fast. Secondly, the survey cautions on the need for reforms on taxation and financial sector reforms. It moots faster reduction in corporate taxes.

Summary

The impacts which have been on the economy can be summarized as follows:-

• Stock of black money fell as some holders came in the tax net. The government expects formalization to reduce the flow of unaccounted income.
• Digital transactions among new users increased sharply; existing users’ transactions increased in line with historical trend.The government expects some return to cash as supply normalizes but the digital revolution to continue.
• Income taxes rose because of increased disclosures. Payments to local bodies and discoms increased because demonetized notes remained legal tender for tax payments, clearance of arrears.The government expects indirect and corporate taxes to decline, to the extent growth slows. Over the long run, taxes should increase as formalization expands and compliance improves.
• Decline in prices as wealth fell while cash shortages impeded transactions.The government expects prices to fall further as investing undeclared income becomes more difficult. Tax component is also expected to rise if GST is imposed on realty.
• Growth slowed as demonetization reduced demand, supply and increased uncertainty. The government says this could be beneficial in the long run if formalization increases and corruption falls.
• Uncertainty increased as firms and households were unsure of the economic impact and implications for demonetization. The government expects credibility to be strengthened if demonetization is accompanied by complementary measures. Early and full remonetization is essential.
• On top of all this, early estimates indicate that the Indian banks ended up receiving 97 percent of the banned bank notes by the December 30 deadline last year — far more than the government estimated would be returned, based on the assumption that illicitly held money would’ve simply been left undeclared.In other words, it appears that one key goal of Modi’s — to deal a financial blow to people using the cash for illegal purposes — simply didn’t bear fruit.

To be sure, even with the reduced growth projections, India is set to remain one of the fastest growing major economies in the world, growing at more than twice the global growth rate. Some institutions are betting on India to pass key reforms and follow-up actions to them that would ease the way for longer term benefits as demonetization impact ebbs.

Guess we’ll just have to keep watching.

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Karl Marx was a German philosopher, economist, sociologist, journalist and revolutionary socialist. He published numerous books, the most notable being Das Kapital and The Communist Manifesto. He also put forward his views on Economics.

Economics is the branch of knowledge concerned with the production, consumption, and transfer of wealth. Economics can also be defined as a social science subject which focuses on the production, distribution and consumption of goods and services in a country or world.

Marx predicted things almost two centuries before those things actually happened. His work in economics laid the basis for much of the present understanding of labour and its relation to capital and subsequent economic thought.

Karl Marx was a socialist. He believed in socialism. He believed that capitalism is doomed and will cease to exist.  His work has had an everlasting impact on the arena of sociology in that his views and its interpretations opened the door to the study of how one’s social class has a direct influence on one’s life experiences and life chances and a plethora of perspectives on the issue of the wealthy and the poor in society.

According to Marx, the society was essentially divided into two classes, the upper/capitalist class and the lower/labour class. The capitalist class was also the bourgeoisie and the labour class was the proletariat. There was one social element on the basis of which it was decided where one would fit in the social class hierarchy – that of one who owns the means of production. Means of production were resources necessary to produce what people needed to survive such as facilities, machinery, tools, infrastructural capital and natural capital. Bourgeoisie, who were in minority, owed most (if not all) of the means of production and proletariat, who were in majority, owned an insignificant (if at all) share of means of production.

The wealthy would be the ones who owned land and factories and controlled all elements of society, including the livelihood of the labour class. The labour class owned nothing but their own labour that they would sell, for wages, on the land or in factories.

Marx gave answer to the most basic question – how can there be poverty on such a large scale in a world where there was an abundance of wealth. His answer was simple: capitalism.

In order to trace the outlines of capitalism, it is necessary to first say a few words about history – feudalism. It was a feudal hierarchy, in which the serf was protected by the lord of the manor, who in turn owed allegiance to a higher overlord. The system finally ended with the king. The stronger protected the weak, and charged a very high price. The hierarchy was based on a system of mutual obligations and services. The lord was obliged to protect the serf and serf was to perform extensive labour for the lord. Serf could not be parted from either his/her family or land. They were exploited in the extreme.

The Catholic Church was the supreme power and the largest owner of land during the Middle Ages. Religious lords had a primary loyalty to the church in Rome. The teachings of church had a very strong and pervasive influence throughout Europe. Serfs were living on bare minimum amount and they did not revolt for a very long time because the church said that it’s a sin to keep any extra amount and that all the surplus should be given to the king or the church.

With the onset of industrial revolution, Marx thought that now the working poor will rise financially and socially. However, this did not materialize.

In the industrial society, the lords and overlords were replaced by the bourgeoisie who owned businesses and were driven with the goal of earning profit. The serfs were replaced by the proletariat who laboured for wages.

According to Marx, this system was inherently unfair. He believed that the workers would become poorer and poorer and will be faced with the feeling of alienation. They will become more distanced from, or isolated from, their work and feel powerless. To replace this feeling of alienation and this extreme social class structure, capitalism had to end and be replaced by a socialist system where everyone had equal rights over the means of production and people’s needs were met.

In his work with Fredrick Engels, The Communist Manifesto, Marx stated, ‘The proletarians have nothing to lose but their chains. They have a world to win.’

Therefore, Marx had called for a workers’ revolution where proletarians would rise up against bourgeoisie and overthrow them. This will ultimately lead to the end of capitalism and rise of a new social structure, socialist system. Such revolutions did occur in various countries such as Russia and China, but did not occur in the more industrialized nations, like Britain and Germany.

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The oil industry, with its history of booms and busts, appeared to be in the early stages of its latest downturn past few months. The price of oil which had plunged time and again reached its lowest point in more than five years.

WHAT ACCOUNTED FOR THE PRICE DROP? 

This is a complicated question, but it boils down to the simple question of supply and demand. The United States domestic production nearly doubled over the last six years, which pushed out oil imports and that needed to find another home. Saudi Arabia,  Nigeria, and Algerian oil that once found home in the United States suddenly started to compete in the Asian markets , and the producers were forced to drop prices. On the demand side, the economies of Europe and developing countries statted weakening and vehicles started to become more energy efficient. So the demand for fuel started to lag a bit.

WHO BENEFITED FROM THIS PRICE DROP? 

Drop in oil prices was certainly a good news for consumers especially motorists across the world. According to Moody’s Investor Service’s Chief Economist , Mark Zandi, who quoted in his Bloomberg report that if oil price stayed at $60 a barrel, American consumers would save a whopping $150 billion on their fuel bills which, according to him, will be spent therefore elsewhere, driving economic growth. This would hold true even for other countries as well, like India. And which was observed to be true!

WHO LOST IN THIS GAME?

For starters, oil producing countries and states. Venezuela,  Iran,  Nigeria, Ecuador, Brazil and Russia are just a few petro states that suffered economic and perhaps political turbulence.  Persian Gulf states were thought to invest less money around the world and cut in the aid to countries like Egypt. In the United States, Alaska,   North Dakota,  Texas, Oklahoma, and Louisiana faced economic challenge s. Some smaller oil companies that were already in debt heavily went out of business , which pressurised some banks that lent to them.

WAS THERE A CONSPIRACY TO BRING DOWN THE OIL PRICES? 

There were a number of conspiracy theories floating aroubd at the time of price drop. Even some of the oil executives quietly noted the possibility that the Saudis wanted to hurt Russia and Iran, and so did the United States – motivation enough for the two oil producing nations to force down prices. Dropping prices in the 1980s did help bring down the Soviet Union after all. But there is no evidence to support the conspiracy theories and Saudi Arabia and the United States rarely coordinated smoothly. And the Obama administration was hardly in a position to coordinate the drilling of hundreds of oil companies seeking profits and answering to their shareholders.

WHEN WERE THE OIL PRICES THOUGHT TO RECOVER LIKELY? 

Not anytime in the nearing future. The oil production still increased in the United States and some other countries. Many Wall Street Bank even predicted the oil price to fall further further and go as low as $40 a barrel .

WHAT HAPPENED TO THE ORGANIZATION OF THE PETROLEUM EXPORTING COUNTRIES (OPEC) ?

The price of oil, as with other commodities, goes up and down. And in the past, the Organization of the Petroleum Exporting Countries,  known as OPEC, has frequently cut production to firm up prices. Iran, Venezuela and Algeria were pressing the cartel to do so again , but Saudi Arabia, the United Arab Emirates and the other Gulf allies were refusing to cut. At the same time, Iraq  was actually pumping more. Saudi officials said that if they cut production and prices go up, they will lose market share and and merely end up benefiting their competitors.

OPEC’s role : Established in 1960, OPEC’s objective is to coordinate and unify petroleum policies amon the member countries to secure fair and stable prices for petroleum producers.

INDIA’S ANGLE

As far as India was concerned, a lot depended on how well the government exploited the low price scenario. For one may think, it should use the chance to clean up its subsidy act once and for all, mainly in cooking gas and fertilizers and the government should also ensure market prices for oil producing PSUs -ONGC and OIL- so that they can invest in exploration and production.

PRICE OF OIL: TIMELINE

● During 1999-mid 2008, oil prices were rising sharply because global demand was surging,  especially in India and China, and there wasn’t enough oil production to keep up.

● In the middle of the financial crisis odf 2007-2008, after reaching the record peak of US $145 it reached in July 2008,this price of oil underwent a significant decrease .

● Cude oil spot price fell to US $30.28 a barrel on December 23, 2008 , the lowest since the financial crisis of 2007-2010 began. The price sharply rebounded after the crisis and rose to US $82 a barrel in 2009.

●In 2014, prices started declining due a significant increase in oil production  the US, and declining demand in the emerging countries.

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Economics, it’s the science that discusses about the reasons and explains the factors that are associated with the production, distribution and consumption of goods and various services by the people. The Keynesian and the Classical school of thought represent the various types of thought process and theories used in Economics. The main difference between the two schools of thought is regarding the economic policies for which they oppose each other ideas. The questions such as whether the government should intervene in the functioning of its economy or not and whether the economic schemes made by the government should focus on immediate short term problems or should focus over the long term , are answered by these school of thought but contradicting each other’s statements.

Classical economics was developed around the time of 18th and 19th century and it included the theory of value and distribution. In this school of thought the value associated with a particular product depended on the various costs that were involved in manufacturing the product. The thing to notice was that the explanation of costs was the same as explanation of distribution. It is said that the work of the likes of Adam Smith and David Ricardo had influenced this school of thought. The theory was further developed by the works of Joan Robinson and Edward H. Chamberlain who introduced the marginal revenue curve.

Keynesian Economics was developed by John Maynard Keynes, a British economist , whose revolutionary idea changed the future of economics forever. He compelled the governments to change their economic policies by viewing his school of thought too. He worked on the causes of business cycles and as of today is known to us as the father of Macroeconomics he is the biggest and the most influential economist of the 20th Century. In the late 1930s he revolutionized the economic thinking and heavily challenged the classical school of economics on the ground of free trade and he staunchly supported the idea of government’s intervention to protect the economies from going a bust. He always supported short term solutions and had thus contradicted the classical school of thought single handedly.

Now in Keynesian economics, Keynes rubbished the Classical economics’ idea stating that the Say’s law is correct and universal. The main idea of Say’s Law was “costs of output are always covered in the aggregate by the sale-proceeds resulting from demand”, which according to Keynes was absolutely incorrect as according to him this law would be true only if the aggregate investment i.e. the total investment of the people were exactly equal to the savings done by the people individually. The classicists believe in the theory of adjustments which is to say that any complications or obtuseness in the economies will get adjusted automatically, this idea was totally not okay with the Keynesian economists and according to them adjustments such as that of price were far from reality and so the classical school of thought didn’t worked. The pro Keynesian economists were able to define variables like production and savings quite uniquely than the classicalists.

The classical school of economists believed that during the time of crisis there should be no monitory policy or framework to effect the economy, while the views of Keynesian economists was just the opposite, they argued that the government should intervene in the economy during the time of crisis and introduce various types of policies and regulations so as to make sure that the economy do not suffer. While the classicalists favored in advising the governments for making long term policies, Keynes was totally against this ideology and countered it with saying that policies should be made for short term duration. Keynes believed that people should not save beyond investments that are planned, to which the classicalists argued that the fluctuating interest rates would adjust such problems and thus the economy will keep running smoothly.

Both Keynesian economists and classical economists however had consensus on one point that said future economies are affected by expectations. The major difference among the two factions is only about whether the government should intervene in economy or not, to which Keynesian economists gave a big approbation while the classical economists gave it a red flag.

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Karl Marx, born in Prussia, was a philosopher, economist and a revolutionary thinker. He had developed a rich understanding in labor and was successfully able to relate their effects on capital and hence leading to economic growth. His theories regarding various politics, his views on society and his understanding of economics where collectively referred to what is called as Marxism.

Although Marx was an innovator and an avid thinker his thought were greatly affected by philosophers such as Hegel and Fuerbach. After getting affected by the ideologies of so many thinkers and philosophers Marx developed a view regarding capitalism and according to his view capitalism was intrinsically exploitative and he argued that a prosperous society that followed socialism or communism could only be possible by totally eradicating the capitalism, by mutating the production of social relations.

Marx’s theory of economic was developed on the chain of thought similar to Ricardo and Smith, the Britain’s political economists, now their theories was contradicted with the neoclassical theory that is working today as they emphasized on explaining the distribution of excess while the neoclassic focused more on exchange relations. The major shortcomings of these theories were rectified by Marx and thus Marx explained the concept of labor time and its relation with commodity.

The general concept of economics that was derived from Marx’s writings represents a separate thought process which is just plain unique. Many economists and experts describe his take on economics as unorthodox, as it provides conflicting and exploitative deductions. It would be safe to say that the best way to interpret Marx’s theory would be referring it an attempt to explain social structure and capitalism. As for Marx there was no universal law that governed economics, according to him for every era the economic law would change and the older laws would relevance over the period of time. Marxist viewed that there were no economic law except the relations human beings shared with each other, according to him everything could be solved by his theory of production.

The essence of Marx’s theory has always been anti-capitalism, he always advocated that capitalism’s nature was always exploitative as there was no parameter guiding the growth and demand leading to either two of the conditions: Under consumption or Overproduction. Owing to under consumption or Overproduction, commodities will either remain unsold, the correct values of the commodities will not be realized, and companies will file for bankruptcies more often. Now when the companies would start fearing to go to bankruptcies they start exploiting their manpower and installing more productive machines, which all in all further exacerbate the situation.

The recent advancements in the theory of Marxist economics could be seen due to the change of scenery in the economic environment in the late 1970s. This period revived the interest of people in his theories. During the post war era that is also termed as the ‘Golden Age’ by many expert, Marxist theories was barely discussed as the economy boomed as people thought that his theories were old fashioned and not pertained to their era. This era was also called as Keynesian Era as people thought that his school of thoughts of demand management and distribution was the key to steady growth. When the oil crisis occurred in 1970s it changed everything and finally people started taking interest in Marxist economy analysis, through which they could explain the generated economic problem. The economists who followed Keynesian principles blamed the oil prices as the culprit but the Marxists declared that the oil prices where nothing but the final straw.

Owning to the changing scenarios at such a fast pace Marxist’s economics school of thought has evolved his analysis so as to deal with the ever changing face of Capitalism. Even though his theories appear unconventional to many and have been the topic for debate for many decades now; whatever may be the reason Marx’s theory have always delivered results as opposed to the orthodox nature of the Stalinist theories. It’s very clear that for this century Marxists will continue to guide us with the nature and change that is getting developed in the societies that are purely based on the idea of Capitalism.

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