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Banking and Finance

14th Finance Commission Recommendations
Economic Survey
Railway Budget 2015
Union Budget 2015

Banking and Finance

Finance Commission of India

The Finance Commission of India was formed in 1951. It was established under Article 280
of the Indian Constitution by the President of India. The Commission was formed to define
the financial relations between the centre and the state.
Till date, Fourteen Finance Commissions have submitted their reports.
Composition of the Fourteenth Finance Commission
Chairman

Dr. Y.V.Reddy (Former Governor Reserve

Bank of India)

Member(Part Time)

Prof Abhijit Sen

Member

Member, Planning Commission

Ms. Sushama Nath

Member

Former Union Finance Secretary

Dr. M.Govinda Rao

Member

Director, National Institute for Public

Finance and Policy, New Delhi
Dr. Sudipto Mundle

Secretary

Former Acting Chairman, National Statistical

Commission
Shri Ajay Narayan Jha

Functions of Finance Commission

The main function of Finance Commission in India is to act as an instrument to divide
proceeds of divisible taxes between the states and the Union government or in
cases of taxes that are collected by the centre but the proceeds of which are
allocated between the states, to determine the principles of such allocation.
The Finance commission of India also determines the principles of governing the
grants-in-aids of the revenues of states out of the consolidated fund of India. It is an
important function of the Indian Finance Commission.
Thirdly the commission has the duty of considering any matter referred to the
commission by the President in the interest of sound finance.
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Powers of the Finance Commission
The Finance Commission has the following powers
The Commission shall have all the powers of the Civil Court as per the Code of Civil
Procedure, 1908.
It can call any witness, or can ask for the production of any public record or
document from any court or office.
It can ask any person to give information or document on matters as it may feel to be
useful or relevant. It can function as a civil court in discharging its duties.
Recommendations of 14th Finance Commission (Source Business Standard)
TAX DEVOLUTION TO BE BASED ON AREA, POPULATION, DEMOGRAPHY, INCOME DISTANCE
& FOREST COVER
Highest weight of 50 per cent is given to distance from the highest per capita income
district, followed by population (1971 census) at 17.5 per cent, demography (2011 census)
at 10 per cent, area at 15 per cent and forest cover at 7.5 per cent
CENTRE'S FISCAL AND REVENUE DEFICITS
Fiscal deficit should come down to 3.6 per cent of GDP in 2015-16 from projected 4.1 per
cent in 2014-15 and then 3 per cent in following year and kept at that for three more years.
Not different from existing roadmap, though the present time frame ends in 2016-17.
Wants revenue deficit to come down from 2.9 per cent in FY15 to 2.56 per cent in FY16 and
then progressively reduce to 0.93 per cent by 2019-20
STATES' FISCAL AND REVENUE DEFICITS
Fiscal deficit should be at 2.76 per cent in FY16, to come down to 2.74 per cent by FY20
though it would increase in between. To be revenue surplus in all these years
CENTRE'S DEBT
To come down from 45.4 per cent of GDP in FY15 to 43.6 per cent in FY16 and then
progressively should reduce to 36.3 per cent by FY20
STATES' DEBT
Projected to increase from 21.90 per cent in FY16 progressively to 22.38 per cent in FY20

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NATIONAL SMALL SAVING FUND (NSSF)
States be taken away from operation of NSSF with effect from next financial year
CONSOLIDATED SINKING FUND
Examine the possibility of setting up of CST for amortisation of debt of the Union govt
RAIL TARIFF AUTHORITY
Replace the advisory body with a statutory body, through necessary amendments to the
Railways Act, 1989.
ADVERTISEMENT TAX
States should empower local bodies to impose this tax to augment their revenues
BOOST FOR STATES' SHARE IN NET PROCEEDS OF TAX REVENUES
The commission has recommended states' share in net proceeds of tax revenues be 42 per
cent, a huge jump from the 32 per cent recommend by the 13th Finance Commission, the
largest change ever in the percentage of devolution. As compared to total devolutions in
2014-15, total devolution of states in 2015-16 will increase by over 45 per cent
TAX DEVOLUTION BE PRIMARY ROUTE OF TRANSFER OF RESOURCES
The panel has recommended tax devolution be the primary route of transfer of resources
to the states; the government has accepted the recommendations keeping in mind the
spirit of National Institution for Transforming India (NITI)
GRANTS FOR LOCAL BODIES BE BASED ON 2011 POPULATION
The commission has recommended distribution of grants to states for local bodies using
2011 population data. Grants will be divided into two broad categories on the basis of rural
and urban population - (i) a grant constituting gram panchayats and (ii) a grant constituting
municipal bodies
GRANTS BE IN TWO PARTS - BASIC AND PERFORMANCE
The panel has recommended the grants to states for local bodies be in two parts, a basic
grant and a performance grant. The ratio of basic to performance grant is 90:10 with
respect to panchayats and 80:20 in the case of municipalities.

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GRANTS TO GRAM PANCHAYATS & MUNICIPALITIES
The total grants recommended by the commission are Rs 2,87,436 crore for a five-year
period from April 1, 2015 to March 31, 2020. Of this, Rs 2,00,292.20 crore will be given to
panchayats and Rs 87,143.80 crore to municipalities. The transfers for financial year 201516 will be Rs 29,988 crore
STATES' SHARE IN DISASTER RELIEF SHOULD STAY UNCHANGED
The Commission has said, with regard to disaster relief, the percentage share of states will
continue to be as before and follow the existing mechanism. This will be to the tune of Rs
55,097 crore. After implementation of GST, the recommendations of the panel on disaster
relief would be implemented
POST-DEVOLUTION REVENUE DEFICIT GRANTS FOR STATES
The panel has recommended 'post-devolution revenue deficit grants' for a total of Rs
1,94,821 crore on account of expenditure requirements of the states, tax devolution and
revenue mobilisation capacity of the states. These grants will be given to 11 states.
SOME CENTRAL SCHEMES BE DE-LINKED
Eight centrally sponsored schemes will be delinked from support from the Centre. Various
centrally sponsored schemes will now see a change in sharing pattern, with states sharing a
higher fiscal responsibility for implementing the schemes
OTHER RECOMMENDATIONS
The Finance Commission has also made recommendations on cooperative federalism, GST,
fiscal consolidation roadmap, pricing of public utilities and public sector undertakings

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Economic Survey
The Finance Ministry of India presents the Economic Survey in the parliament every year,
just before the Union Budget. It is the ministry's view on the annual economic
development of the country. The survey was prepared by the finance ministry's chief
economic adviser Arvind Subramanian.
The economic survey, the basis for Jaitley's budget for the fiscal year starting April 1,
forecast the economy would grow by 8.1-8.5 percent under a new calculation method that
makes India the world's top-growing big economy.
Fiscal Deficit

India must meet its medium-term fiscal deficit target of 3 percent of GDP

Government will adhere to fiscal deficit target of 4.1 percent of GDP in 2014/15

Govt should ensure expenditure control to reduce fiscal deficit

Expenditure control and expenditure switching to investment key

Growth

2015/16 GDP growth seen at over 8 pct y/y

Double digit economic growth trajectory now a possibility

Economic growth at market prices seen between 8.1 - 8.5 percent in 2015/16 on new
GDP calculation formula

Total stalled projects seen at about 7 percent of GDP, mostly in private sector

Reforms

There is scope for big bang reforms now

India can increase public investments and still hit its borrowing targets

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Inflation

Inflation shows declining trend in 2014/15

Inflation likely to be below central bank target by 0.5 - 1 percentage point

Lower inflation opens up space for more monetary policy easing

Govt and central bank need to conclude monetary framework pact to consolidate
gains in inflation control

Consumer inflation in 2015/16 likely to range between 5-5.5 percent

Fiscal Consolidation

Govt remains committed to fiscal consolidation

India can balance short-term imperative of boosting public investment to revitalize

growth with fiscal discipline

Outlook for external financing is correspondingly favourable

Current Account Deficit

Estimated at about 1.3 percent of GDP in 2014/15 and less than 1.0 percent of GDP in
2015/16

Subsidies

Overhauling of subsidy regime would pave the way for expenditure rationalisation

Liquidity

Liquidity conditions expected to remain comfortable in 2015/16

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Railway Budget
The Railway Budget is presented separately from the general budget of India every year
since 1924. At that time, Railway budget was more than 70% of the countrys Budget. So
there was need of separate Budget for Railways. Now Railway Budget is around 15% of
countrys budget. But still we follow the traditional way of budgeting.
Railway Minister Suresh Prabhu presented the Railway Budget for 2015 to 2016 in Lok
Sabha on February 26 2015. While presenting the budget, the Minister referenced Prime
Minister Narendra Modis pet schemes like Swachch Bharat, Digital India and Make in
India. The Minister announced no new trains and there is no will be no hike in Passenger
fares.
Points to Remember in Railway Budget 2015
Rs.8.5 lakh crore will be invested in Railways in next 5 years.
Sanctioned fast track expansion of 7000 Km of existing railway routes.
Expansion of 77 projects covering 9,400 Km of existing rail lines.
Resolving the rail traffic allocated Rs. 2,374 crore for this purpose.
Increasing the speed of 9 railway corridor from 110 Km to 140 kmph and from 160
Km to 200 kmph.
Raised freight fares for several commodities by as much as 10%.
Surveillance cameras in select coaches and ladies compartments for womens safety
Reducing the long haul Journeys between metros like Delhi-Kolkata and DelhiMumbai to overnight.
Bio toilets and airplane-type vacuum toilets in trains.
The
feasibility study of bullet train on Mumbai-Ahmadabad route.
A full fledged university to be set up in this financial year.
Setting up of Environment Directorate to focus on environment management.
Setting up of 1000 MW solar plants on railway land.
Enabling 100 Demu trains for dual fuel CNG and diesel.
Rail tickets can now be booked 120 days in advance.
Operation 5 mins Passengers travelling unreserved can purchase a ticket in just 5
minutes.
Wi-Fi in more stations, mobile phone charging facilities in all train compartments.
Facility of online booking of wheelchair for senior citizens.
Four Railway Research Centers to start in four universities.

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Banking and Finance

Union Budget 2015

Budget
Budget is an itemized summary of likely income and expenses for a given period. It include
planned sales volumes and revenues, resource quantities, costs and expenses, assets,
liabilities and cash flows.
India
The budget is prepared by the Budget Division of Department of Economic Affairs of
the Ministry of Finance annually. The Union Budget of India, referred to as the Annual
Financial Statement in Article 112 of the Constitution of India, presented each year on the
last working day of February by the Finance Minister of India in Parliament.
The first Union budget of independent India was presented by R. K. Shanmukham Chetty on
November 26, 1947.
Highlights of Union Budget 2015 (Source-Hindu)
Taxation

Abolition of Wealth Tax.

Additional 2% surcharge for the super rich with income of over Rs. 1 crore.
Rate of corporate tax to be reduced to 25% over next four years.
Total exemption of up to Rs. 4,44,200 can be achieved.
100% exemption for contribution to Swachch Bharat, apart from CSR.
Service tax increased to14 per cent.

Infrastructure
Rs. 70,000 crores to Infrastructure sector.
Tax-free bonds for projects in rail road and irrigation.
PPP model for infrastructure development to be revitalised and govt. to bear
majority of the risk.
Atal Innovation Mission to be established to draw on expertise of entrepreneurs, and
researchers to foster scientific innovations; allocation of Rs. 150 crore.
Govt. proposes to set up 5 ultra mega power projects, each of 4000MW.

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Education
AIIMS in Jammu and Kashmir, Punjab, Tamil Nadu, Himachal Pradesh, Bihar and
Assam.
IIT in Karnataka; Indian Institute of Mines in Dhanbad to be upgraded to IIT.
PG institute of Horticulture in Armtisar.
Kerala to have University of Disability Studies
Centre of film production, animation and gaming to come up in Arunachal Pradesh.
IIM for Jammu and Kashmir and Andhra Pradesh.
Welfare schemes
GST and JAM trinity (Jan Dhan Yojana, Aadhar and Mobile) to improve quality of life
and to pass benefits to common man.
Six crore toilets across the country under the Swachh Bharat Abhiyan.
MUDRA bank will refinance micro finance orgs. to encourage first generation SC/ST
entrepreneurs.
Housing for all by 2020.
Upgradation 80,000 secondary schools.
DBT will be further be expanded from 1 crore to 10.3 crore.
For the Atal Pension Yojna, govt. will contribute 50% of the premium limited to Rs.
1000 a year.
New scheme for physical aids and assisted living devices for people aged over 80 .
Govt to use Rs. 9000 crore unclaimed funds in PPF/EPF for Senior Citizens Fund.
Rs. 5,000 crore additional allocation for MGNREGA.
Govt. to create universal social security system for all Indians.
Agriculture
Rs. 25,000 crore for Rural Infrastructure Development Bank
Rs. 5,300 crore for Micro Irrigation Programme
Rs. 8.5 lakh crore for Targeted for farmer credit
Defence
Rs. 2,46,726 crore allocated for defence (an increase of 9.87 per cent over last year)
Focus on Make in India for quick manufacturing of Defence equipment.

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Renewable energy
Rs. 75 crore for electric cars production
Renewable energy target for 2022: 100K MW in solar; 60K MW in wind; 10K MW in
biomass and 5K MW in small hydro
Tourism
Develpoment schemes for churches and convents in old Goa; Hampi, Elephanta
caves, Forests of Rajasthan, Leh palace, Varanasi, Jallianwala Bagh, Qutb Shahi tombs
at Hyderabad to be under the new tourism scheme.
Visa on Arrival for 150 countries.

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