A

Report
On
Union Budget
of
India
2006-2007
Submitted By :
Rashi Jain
Sushma Pareek
Mehak oberoi
Prasanjit Goswami
Nirmal Maloo
 Index
• Significance of Budget
• What is Union Budget
• Main components of Indian Budget
• Important Factors of Budget
• Budget Estimates 2006-07
• Overview Of The Economy
• Effect on Various Sectors of Indian Economy
• Tax Proposal
• Bibliography
 Significance of Budget
Lots of people fail to see why a budget is a good thing. It may seem as
if being put on a budget says that you don’t make enough money or make
wrong choices. Actually, being on a budget says that you make the right
choices. For now and for the future.

So why should you budget?

1. A budget gives you the ability to control your money. Your money
doesn’t control you when you say where it goes. You choose to make
the choices. If your money is controlling you, you are choosing not to
choose where your money goes. You aren’t making the decisions. But
you make that choice.

2. A budget not only lets you know what you are spending, it helps you to
live below your means. You know if you are spending more than you
make. You are able to look at your spending to see how you can make
it fit your income. Your income will never fit your spending on its own,
so you have to adjust your spending first.

3. A budget is more than what you are spending and where. It is your
goals and plans and spending. If you don’t have guidelines for your
goals and plans, you probably won’t reach them. You need to know
what you need to get where you are going. This is essential to being
able to retire comfortably, pay for your children’s education and enjoy
a carefree life.

4. A realistic budget frees up money for you. You are able to spend your
money on things you really want instead of wasting it on things you
don’t remember buying. If you have ever looked in your wallet and
wonder where you spent all of your cash today, you need to have a
budget. After all, fifty bucks can slip through your fingers rather
quickly.

5. A budget helps you get out of debt. It also helps you to stop from
creating debt. Your saving goals are very important. For every dollar
you spend on a credit card, you are cutting thousands out of your
savings. Look at how fast your savings can add up. Look at how long it
can take you to pay off your debt. It is easy to see that you should
 make a plan to pay off the debt and put your money to work for you,
not against you.

6. A budget can improve the quality of your life. You have a plan. You no
longer have to lie awake wondering how you will make ends meet. Your
budget lays things out for you. Your less stressed and able to enjoy life
a little more.
 What is a Union Budget?
To know about union budget or any sort of budget, first of all, we
should know the notion & significance of budget. A budget is basically "an
organized planning of intended expenditure & revenues for the upcoming
year before the last working day of February of each year", presented by
finance minister of India to the Lok Sabha (lower chamber) in parliament.
Union budget is also known as the general budget because it covers &
determines the maximum area of intended expenditure. Even after 60 year
of independence, India is listed in third world countries because Indian soil is
facing various economic troubles from a long time. It includes starvation,
unemployment, illiteracy, and unavailability of shelter, food, and many more.
For the eradication of these evils, our contemporary nation builders are
struggling & proposing various schemes & programmes. Some of them are
Mid-Day Meal Scheme,Sarva Shiksha Abhiyan,Antodaya Anna Yojna and
many more. All these schemes and programmes function under the guidance
of central government with the financial support of union budget. Apart from
all these, Indian government expense heavy expenditure on defense, this
also comes in union budget.

So, the basic idea is budget determines the expenditure & revenue of
every year & the parliament will approve the union budget before the
commencement of India’s fiscal year which starts from April 1st. The Union
Budget for a given year gives details of expenditures planned by the
government and expected revenues from the government's tax machinery to
finance them.

The Union Budget uses the term "receipts" for incomes. Both receipts
and expenditures are classified under two heads: Revenue Account and
Capital Account. While Revenue Receipts and Revenue Expenditures are
expected to occur in a given financial year, Capital Account Receipts and
Expenditures can happen over a longer time interval.

The Union Budget uses the term “receipts” for incomes.Both receipts
and expenditures are classified under two heads: Revenue Account and
Capital Account. While Revenue Receipts and Revenue Expenditures are
expected to occur in a given financial year, Capital Acccount Receipts and
Expenditures can happen over a longer time interval.

Government's revenue incomes or receipts originate from two sources:

taxes, and returns on capital invested in public sector enterprises. The
government's tax income includes the income tax; service tax; the excise
levied on products and the customs duties charged on imports. Additional
income comes from taxes charged on company profits, besides taxes on
capital gains made while selling off assets like shares and houses.

Capital receipts could come from within India or from foreign

governments and multilateral organizations like the International Monetary
Fund (IMF). When you buy an Indira Vikas Patra or open a PPF account in the
post office, you boost the government's capital receipts. Repayment of loans
by the government, say, to a PSU, also come under the head of capital
receipts.

Government's revenue expenditure includes money spent on normal

running of government departments and various services, interest charges
on government debt, subsidies. Grants to State governments and other
parties are also treated as revenue expenditure.

Capital expenditure includes payments made for acquisition of efforts

like land, buildings and machinery, as also investments in shares. Loans and
advances extended by the Centre to State governments and Union
Territories, PSU's and other parties also fall under this category.

Government expenditure is also classified into plan and non-plan

expenditure. Plan expenditure is money spent on new projects such as new
power plants or bridges, expected to commence in the financial year. Non-
plan expenditures emanate from projects that have already been completed.
For instance, maintenance and salaries of staff of primary schools set up by
the government would be classified under this category.

The Budget also has policy announcements. The Budget indicates the
government's economic thinking and determines activities such as exports
and foreign direct investment, which indirectly impact our finances.

The Budget has both short-term and long-term effects on finances.

Short-term effects take place via taxes and prices. Tax rates determine
disposable income. Income tax rates laid down in the budget make a big
difference to salaried people, who have fixed incomes. The indirect taxes like
excise and customs duties laid down in the Budget impact product prices,
and hence spending decisions.

In the long run, the direction inflation takes in response to the budget
influences money. Suppose, to balance the budget, the government borrows
heavily. It may then be forced to print more money. This increases demand
for goods and services without a commensurate increase in supply, since
higher supply requires new plants and greater manpower, which take time.
So there will be an inflationary price rise.
 Main components of Indian Budget
The Indian constitution is a two chambered Parliament. All Government
expenditures and taxes are levied according to the drafted act of Parliament
of India. India Budget audits all Government accounts and ensures that all
expenditures are within the ambit of the Indian Parliament act and rules.
India Budget checks that all the previous budget allocated funds are properly
spent. However, tax or expenditure proposal can be offered by the minister
of finance only. On the last day of the month of February the finance Minister
proposes the India Budget before the full house of the Indian Parliament. All
the below fields are covered in a Budget.

• Plan expenditure and Non-plan Expenditure.

• Revenue deficit and fiscal deficit.
• Developments in
o Agriculture
o Farm credit,
o Irrigation,
o Transport,
o Railways,
o Subsidies,
o Banking system, Insurance, Agricultural Insurance, National Bank
for Agriculture and Rural Development, Regional Rural Banks,
Housing loans, Exclusive health insurance, Capital market,
o Urban and Rural Infrastructure Development,
o Industry,
o SMEs,
• Gross domestic capital, Foreign direct investment and Portfolio
investment.
• Central Public Sector Enterprises,
• Budgetary resources,
• Outstanding credit,
• Foreign Trade and Merchandise exports,
• Differential rate of interest,
• Expenditure on
o Defense,
o Education,
o Water,
o Health care,
 o Environmental matters,
o Physically challenged persons.

Important Factors of Budget

India Budget is essentially - a detail of estimated ‘expenditure’ and
projected ‘income’ of the Government if India. After thirty days of the Budget
proposal, the Lok Sabha scrutinizes and amends the proposed India Budget.
India Budget finally comes into effect from the 1st day of April – which is the
the 1st day of the new financial year. These are the factors and papers which
are included while presenting a budget :

• Economy Survey
• Budget Speech
• Key to Budget
• The Medium Term Fiscal Policy Statement
• India National Budget
• Implementation of Budget Announcements
• Receipt Budget
• Online Trading
• Infrastructure
• Memorandum
• Statement of Revenue Foregone
• The Fiscal Policy Strategy Statement
• The Macro Economic Framework Statement
 Budget Estimates 2006-07
• Plan Expenditure: estimated at Rs. 172,728 crore, up by 20.4%.
• Non-Plan Expenditure: estimated at Rs. 391,263 crore, up by 5.5%
• Revenue Deficit: estimated at Rs. 84,727 crore, 2.1% of the GDP.
• Fiscal Deficit: estimated at Rs. 148,686 crore, 3.8% of the GDP.

Overview Of The Economy

• 2004-05: growth rate 7.5% with manufacturing sector at 8.1%; gross
domestic saving increased t 29.1% of GDP and the rate of gross
capital formation, 30.1% of GDP.
• 2005-06: GDP growth likely 8.1% with manufacturing sector to 9.4%;
agricultural growth 2.3%; inflation as on 11th February'06 was 4.02%;
non-food credit growing by over 25%.
 Effect on Various Sectors of Indian
Economy
The main features of the budget are as follows-

1) Agricultural development

2) Promoting employment

3) Increasing investment

4) Augmenting infrastructure

5) Flagship Programs

1)Agricultural development-
State is expected to pool in Rs2,2520 crore from their resources, Command
Area Development Programme to be revamped to allow irrigation management
through water user’s association, 20,000 water bodies with an area of 1.47 million
hectares identified in the first phase for repair, estimated cost for renovation and
restoration is Rs4,481 crore. Farm credit expected to increase to Rs175,000 crore in
06-07 with an addition of 50lakh farmers, banks asked to open a separate window
for self-help groups, one-time relief to be granted to farmers who have availed of
crop loan from scheduled commercial banks. National Insurance Scheme to
continue. Central Institute of Horticulture to be established in Nagaland , National
Fisheries Development Board to be constituted.

2) Promoting employment-
Five industries with employment opportunities identified are in manufacturing
sector, including textiles, food processing, petroleum, chemicals and petro-
chemicals, leather and automobiles; in services sector including, tourism and
software can offer large number of jobs.

Industry Govt. Changes

 1. Textiles Allocation for Technology Up gradation Fund
enhanced from Rs435cr to Rs535cr,
Rs189cr to be provided for Scheme for
Integrated Textiles Parks , Jute Technology
Mission to be launched, National Jute Board
to be established.

2. Food processing This is the priority sector for bank credit.

National Institute of Food Technology
Entrepreneurship and Management to be
setup, Paddy processing Research Centre,
Thanjavur to be developed into a national-
level institute.

3. Petroleum A Task force setup to facilitate development

of large PC&P Investment Regions, three
such Investment Regions expected to be
developed in 06-07.

4. Service sector SMEs to be recognized in the service

sector and small scale enterprises in the
services sector to be treated on par with
small scale enterprises manufacturing
sector. In the tourism industry ,
development of 15 tourist destinations and
circuits to be taken up, 50 villages with
competency in handicrafts, handlooms and
culture , to be identified and developed.
Four new institutes of hotel management to
be established in Chhattisgarh , Haryana,
Jharkhand and Uttaranchal. Foreign trade
share in world exports to be doubled by 08-
09.

3) Increasing investment :-
Government to provide equity support of Rs 16,901cr and loans of Rs.2,789
cr to central PSEs (including Railways). Net capital support to banking sector
standing at Rs.22,808cr to be restructured to facilitate increased access of banks to
additional resources for lending to the productive sectors, Bill on insurance to be
introduced in 06-07. Limit on FII investment in Government securities to be
increased from $1.75 billion to $2 billion and the limit on FII investment in corporate
debt from $0.5 billion to $ 1.5 billion, ceiling on aggregate investment by mutual
funds in overseas instruments to be raised from $ 1 billion to $ 2 billion with
removal of requirement of 10 mutual funds to be allowed to invest, limited number
of qualified Indian mutual funds to be allowed to invest up to $1 billion in overseas
exchange traded funds.

4) Augmenting infrastructure:-
Telecommunications to reach 260million connections by December, 07. In
power, five ultra mega power projects of 4000MW each awarded before December
31,06 to create an enabling and empowered framework to carry out reforms an
Empowered Commission of Chief Ministers and Power Ministers to be setup. India
Infrastructure Finance Company Limited Incorporated with principal approval
granted for three road projects in Gujarat.

5) Flagship Programs-
Allocation for eight flagship programmes to increase by 43.2 percent from Rs34,927
cr in 05-06 to Rs 50,015 cr.

1) Sarva Shiksha Abhiyan- 500,000 additional classrooms to be constructed and

1,50,000 more teachers to be appointed, Rs 8,746 cr to be transferred to the
Parambhik Shiksha Kosh from revenues through education cess.

2) National rural Health Mission- more than 200,000 Associated Social Health
Activists to be fully functional and over 1,000 block level community health
centres to provide round the clock services, allocation increased from Rs
6,555 to Rs 8,207 cr.

3) Integrated Child Development Services- additional 188,168 centres created,

centre assisting the States to the extent of 50 percent of the actual
expenditure incurred for supplementary nutrition .

4) National rural Employment Guarantee Scheme- allocation of Rs 14,300 cr for

rural employment in 06-07.

5) Jawaharlal Nehru National Urban Renewal Mission- government to promote

establishment of new towns, focused on a specific sector or a specific theme
with grant of Rs 4,595 cr.
6) National Social Assistance Programme- old age pension to destitute above
the age of 65years to increase from Rs75 per month to Rs 200 per month.

7) Kasturba Gandhi Balika Vidyalaya scheme- 1000 new residential schools for
girls from Sc, St, OBC and minority communities to be opened in 06-07, as a
futher incentive if a girl passes 8th standard and enrolls in secondary school ,
a sum of Rs 3000 to be deposited in her name and withdrawn by her reaching
on 18yrs of age.

8) Rajiv Gandhi National Drinking Water Mission- provision to be increased from

Rs 3,645 cr to Rs 4,680 cr and for rural sanitation campaign from Rs 630 cr to
Rs 720cr.
TAX PROPOSAL

Direct Tax
• The rates remain same on personal income tax and corporate income
tax. Further, no new taxes have been imposed.
• 1/6 scheme will stand abolished.
• There is a marginal revision in certain tax rates. Minimum Alternative
Tax (MAT) rate is increased to 10% from the present 7.5%; long-term
capital gains arising out of securities is included in calculating book
profits; the credit period for MAT has been increased to seven years.
• There is an increase of 25%, across the board, on all rates of STT.
• Investments in fixed deposits in scheduled banks included in section
80C provided the term is not less than 5 years; limit of Rs. 10,000 for
the contribution of certain pension funds is removed from 80CCC
subject to overall ceiling of Rs. 1,00,000.
• Open-ended and close-ended equity-oriented schemes to be treated
on par for exemption from dividend distribution tax.
• Exemption under section 10(23G) removed.
 • Primary Agricultural Credit Societies and Primary Cooperative
Agricultural and Rural Development Banks is still exempt from tax
under section 80P; all other cooperative banks are excluded.
• Benefit of section 54ED withdrawn w.e.f. April 1, 2006; scope of
section 54EC restricted to two institutions, viz., NHAI and REC; for
NABARD, SIDBI and NHB route of zero coupon bonds to raise low cost
funds already opened.
• Donations to wholly charitable institutions to be taxed at the highest
marginal rate; such donations to partly religious and partly charitable
institutions/trusts to be taxed only if the donation is specifically for an
educational or medical purpose.
• Banking Cash Transaction Tax (BCTT) to continue until the Annual
Information Returns (AIR) system can capture all significant financial
transactions.
• Fringe Benefit Tax (FBT) introduces last year is proposed for the
following changes:
o FBT on 'tour and travel' reduced to 5%. - For airline companies
and shipping industry, value benefit in the form of 'hospitality'
and 'use of hotel boarding and lodging facilities,' at 5% instead
of 20%.
o Expenses on free samples of medicines and medical equipment
distributed to doctors excluded.
o Under section 115WB(1)(c) contribution by an employer to an
employee per year a threshold of Rs. 1,00,000 has been
prescribed to attract FBT.

Indirect Tax
Customs

• Non-agricultural products peak rate reduced to 12.5% from

15%; duty of alloy steel and primary and secondary non-
ferrous metals reduced to 7.5% from 10% (also includes duty for
ferro alloys); on steel melting scrap, the duty raised to 5%.
• Apart from few exceptions, the duty on mineral products
reduced to 5%.
• Duty on ores and concentrates reduced to 2% from 5%.
• On refractories and number of materials for manufacture of
refractories reduced to 7.5%.
• On basic inorganic chemicals reduced to 10% from 15%; on basic
cyclic and acyclic hydrocarbons and their derivatives to 5%; on
catalysts the duty to be reduced to 7.5% from 10%.
 • Duty reduced to 5% from 10% on major bulk plastics such as
PVC, LDPE and PP; on naptha for plastics it is nil; on raw materials of
plastics like styrene, EDC and VCM, the duty is 2%.
• On 10 anti-AIDS and 14 anti-cancer drugs customs duty has been
reduced to 5%; on certain life saving drugs, kits and equipment it is
reduced to 5% from 15%; these drugs are exempted from excise duty
and CVD.
• On packaging machines, duty reduced to 5% from 15%.
• Concessional project rate of 10% is to be extended to pipeline
projects for the transportation of natural gas, crude petroleum and
petroleum products.
• 4% CVD on all imports with few exceptions.
• On vanaspati, custom duty to be increased to 80%.
• Reduction of import duty on all man-made fibres and yarns,
and raw materials lik DMT, PTA and MEG to 10% from 15% and on
paraxylene to 2%.

Excise

• Reduction of excise duty on all man-made fibre yarn and

filament yarn to 8% from 16%.
• Duty on aerated drinks and small cars to be reduced to 16%.
• Customised software and software packages downloaded
from the internet, DVD Drives, Flahs Drives and Combo Drives
is to be fully exempted from excise duty but 8% duty to be
imposed on packaged software sold over the counter.
• To all LPG stoves, concessional rate of 8% to be extended.
• Duty to be reduced to 8% from 16% on compact fluorescent lamps.
• Increase in excise duty on cigarettes by 5%.

Service Tax

• Service tax rate increased to 12% from 10%.

• New services to be included like ATM operations, maintenance
and management, share transfer agents, sale of space or time
(other than print media), sponsorship of events (other than sports
events), ship management, etc.
• Leasing and hire purchase to be treated as loan transactions.
• Proposal to set April 1, 2010 as the date for introducing Goods and
Service Tax (GST).

VAT and CST

• To moderate the price, LPC has been included in the list of 'declared
goods' under the CST Act.
 The Chart here shows various rises and falls of the tax revenue collected due to
various types of taxes and shows the whole trend to analyze how has it emphasized on
the economy of India. Each type of tax revenue has shown a certain rise in the on going
years.
 Bibliography

1. www.indiabudget.nic.in

2. www.google.co.in

3. www.economywatch.com

4. www.rediff.com

5. www.crisil.com

6. www.indianchild.com/indian_budget.htm

7. www.iloveindia.com/finance/union-budget06-07/index.html