Economy (by Reddy Sir)

1. Fiscal policy
2. Taxation system in India
3. Inflation
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What are the reasons for introduction of Fiscal
responsibility and Budget Management (FRBM)
act, 2003? Discuss critically its salient features
and their effectiveness. (2013)

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Distinguish between Capital Budget and Revenue
Budget. Explain the components of both these
Budgets. 2021

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Which among the following steps is mostly likely to be taken at the
time of an economic recession? 2021
(a) Cut in tax rates accompanied by increase in interest rate
(b) Increase in expenditure on public projects
(c) Increase in tax rates accompanied by reduction of interest rate
(d) Reduction of expenditure on public projects

Answer: B
With reference to Indian economy, demand-pull inflation
can be caused/increased by which of the following?
1. Expansionary policies
2. Fiscal stimulus
3. Inflation-indexing of wages
4. Higher purchasing power
5. Rising interest rates
Select the correct answer using the code given below:

(a) 1, 2 and 4 only

(b) 3, 4 and 5 only
(c) 1, 2, 3 and 5 only
(d) 1, 2, 3, 4 and 5
Which one of the following is likely to be the most inflationary in its
effects?
(a) Repayment of public debt
(b) Borrowing from the public to finance a budget deficit
(c) Borrowing from the banks to finance a budget deficit
(d) Creation of new money to finance a budget deficit
Answer: D
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keywords
• What is Economic Survey ?

• The Economic Survey is an annual commentary on the

state of the economy of India

• prepared by Department of Economic Affairs, Ministry

of Finance.
• It is an annual document that reviews the state of economy and
the country’s development over the past fiscal year

• projects India’s gross domestic product growth

• It offers a trend analysis across various sectors

• The survey reflects the state of economy

• recommends steps to be taken with economic rationality

• E.S. is a technical document that reflects the health of the
economy over the previous year hence understanding the
Survey becomes integral.

• E.S. is an official report card of the economy and serves as

the guiding map for the Government on how to focus on
the economic growth by suggesting policy changes in
future which sets the tone for the Union Budget.
Who authors the Economic Survey?

The Economic Survey is prepared under the

guidance of Chief Economic Advisor
A brief history of the Economy Survey
• The first Economic Survey was presented in the year 1950-51.

• Until 1964, it was presented along with the Union Budget, but
later it was disjointed from the Union Budget to give a better
understanding of the budget proposals.
Economic Survey  Advantages
1. Enrichment of the elected representatives

2. Infusion of expert knowledge

3. Tool for accountability

4. Future outlook
• while the budget spells out the practical aspects
within a political context, leading to a variation
between the two.
• V Anantha Nageswaran as new Chief Economic
Advisor
Objectives of Fiscal Policy
1. Development by effective mobilisation of resources
2. Reduction in inequalities of income and wealth
3. Price stability and control of inflation
4. Employment generation
5. Reducing the deficit in the balance of payment
6. Increasing national income
7. Development of infrastructure etc
112. Annual financial statement(BUDGET)
1)The President shall in respect of every financial year
cause to be laid before both the Houses of Parliament
a statement of the estimated receipts and expenditure
of the Government of India for that year, in this Part
referred to as the annual financial statement
Budget is a statement of estimated receipts both revenue
/ income and expenditure of government in respect to a
financial year.
(2) The estimates of expenditure embodied in the annual
financial statement shall show separately
(a) the sums required to meet expenditure described by
the Condition as expenditure charged upon the
Consolidated Fund of India; and
(b) the sums required to meet other expenditure
proposed to be made from the Consolidated Fund of
India, and shall distinguish expenditure on revenue
account from other expenditure
Consolidated Fund of India (CFI) 266(1)

CFI is a Government of India's account which is similar to a normal bank

account.

All the revenues, borrowings, receipts against loans and advances, etc. of
the Government are credited to CFI
Contingency Fund of India Article 267
Its purpose is to meet any urgent or unforeseen
emergency expenditure of the Government.
Public Account of India (PAI) 266(2)

The Provident Funds of the employees and small

savings flow into PAI
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Budgeting process in India

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 PRESENTATION OF THE BUDGET

GENERAL DISCUSSION

SCRUTINY BY STANDING COMMITTEES

VOTING ON DEMAND FOR GRANTS

PASSING OF APPROPRIATION BILL( A 114)

PASSING OF FINANCE BILL(A 110)
With reference to Union Budget, which of the following is/are
covered under Non-Plan Expenditure? (2014)

1. Defense expenditure
2. Interest payments
3. Salaries and pensions
4. Subsidies
Select the correct answer using the code given below.
(a) 1 only (b) 2 and 3 only
(c) 1, 2, 3 and 4 (d) None
 With reference to the expenditure made by an organization or a company,
which of the following statements is/are correct?
1. Acquiring new technology is capital expenditure.
2. Debt financing is considered capital expenditure, while equity financing is
considered revenue expenditure.
Select the correct answer using the code given below:
(a) 1 only
(b) 2 only
(c) Both 1 and 2
(d) Neither 1 nor 2
Which of the following is/are included in the capital budget of the
Government of India? 2016
1. Expenditure on acquisition of assets like roads, buildings, machinery,
etc.
2. Loans received from foreign governments
3. Loans and advances granted to the States and Union Territories
Select the correct answer using the code given below.
(a) 1 only
(b) 2 and 3 only
(c) 1 and 3 only
(d) 1, 2 and 3
In India, deficit financing is used for raising resources for 2013
(a) economic development
(b) redemption of public debt
(c) adjusting the balance of payments
(d) reducing the foreign debt
CAN CAPITAL EXPENDITURE BOOST
ECONOMY?
Public /sovereign/Govt debt
With reference to the Indian economy, consider
the following statements: 2022
1. A share of the household financial savings goes towards
government borrowings.
2. Dated securities issued at market-related rates in auctions form a
large component of internal debt.
Which of the above statements is/are correct?
(a) 1 only
(b) 2 only
(c) Both 1 and 2
(d) Neither 1 nor 2
Article 292
Borrowing by the Government of India

• The executive power of the Union extends to borrowing

upon the security of the Consolidated Fund of India within
such limits, if any, as may from time to time be fixed by
Parliament by law and to the giving of guarantees within
such limits, if any, as may be so fixed
Article 293
293. Borrowing by States

(1) Subject to the provisions of this article, the executive power of

a State extends to borrowing within the territory of India upon
the security of the Consolidated Fund of the State within such
limits, if any, as may from time to time be fixed by the Legislature
of such State by law and to the giving of guarantees within such
limits, if any, as may be so fixed
(2) The Government of India may, subject to such conditions as
may be laid down by or under any law made by Parliament,
make loans to any State or, so long as any limits fixed under
Article 292 are not exceeded, give guarantees in respect of loans
raised by any State, and any sums required for the purpose of
making such loans shall be charged on the Consolidated Fund of
India
• (3) A State may not without the consent of the Government of
India raise any loan if there is still outstanding any part of a
loan which has been made to the State by the Government of
India or by its predecessor Government, or in respect of which
a guarantee has been given by the Government of India or by
its predecessor Government
Fiscal Consolidation
• Fiscal consolidation is a process where government’s fiscal health
getting improved is indicated by reduced fiscal deficit which is
manageable and bearable for the economy.

• Improved tax revenue realization and better aligned expenditure are

thus components of fiscal consolidation.
What are the reasons for introduction
of Fiscal responsibility and Budget
Management (FRBM) act, 2003?
Discuss critically its salient features
and their effectiveness. (2013)
Along with the budget, the Finance Minister also places other documents before the Parliament,
which include 'The Macro Economic Framework Statement'. The aforesaid document is presented
because this is mandated by
(a) Long-standing parliamentary convention.
(b) Article 112 and Article 110(1) of the Constitution of India.
(c) Article 113 of the Constitution of India.
(d) Provisions of the Fiscal Responsibility and Budget Management Act, 2003.
Fiscal Responsibility and Budget Management
Act(FRBM), 2003
OBJECTIVES OF FRBM ACT

1. Ensuring Inter-generational equity in fiscal management

2. Long term macro-economic stability by removing fiscal
impediments in the effective conduct of monetary
policy
3. Prudential debt management consistent with fiscal
sustainability through limit on Central Government
borrowings, debt and deficits
4. Greater transparency in fiscal operations of the Central
Government
5. Conducting fiscal policy in a medium-term framework
Committee to review FRBM targets
The N.K. Singh panel
1. has recommended a debt to GDP ratio of 38.7% for the central
government and a fiscal deficit of 2.5% of GDP, both by 2022-23.

2. Formation of Fiscal Council to advice the government

3. The committee favours a debt-to-GDP ratio of 60% for the general

government by 2022-23, 40% (38.74%) for the central government
and 20% for state governments.
• However, to deal with unforeseen events such as war, calamities of
national proportion, collapse of agricultural activity, far-reaching
structural reforms, and sharp decline in real output growth of at least 3
percentage points, the committee has specified deviation in fiscal
deficit target of not more than 0.5 percentage points (escape clause)
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Which of the following is not a feature of
Value Added Tax : (2013)
(a) it is a multi-point destination System
(b) It is a tax levied on value addition at each stage of transaction
in the production-distribution chain
(c) It is a tax on the final consumption of goods or services and
must ultimately be borne by the consumer
(d) It is basically subject of the central Government and the State
Governments are only facilitator for its successful implementation.
Consider the following statements related to Goods and
Service Tax (GST):

1. It is a destination based direct tax with the facility of

Input tax credit.
2. It has replaced large number of taxes which were levied
on production/sale of goods and services.
3. The implementation of GST would lead to higher tax
compliance and give boost to India’ GDP.

Which of the statements given above is/are correct?

(a) 1 only
(b) 2 and 3 only
(c) 1 and 3 only
(d) 1, 2 and 3
Advantages of Paying Taxes:
 Development of the nation

Welfare activities

Betterment of infrastructure

Upliftment of the society etc

• The taxation system in India is such that the
taxes are levied by the Central Government and
the State Governments.

• Some minor taxes are also levied by the local

authorities such as the Municipality and the
Local Governments.
UNION List
82 Income tax: Taxes on income other than
agricultural income.
83 Custom Duty: Duties of customs including export
duties
85 Corporation Tax
86 Taxes on capital value of assets, exclusive of
agricultural land, of individuals and companies, taxes on
capital of companies
84 Excise Duty: Duties of excise on the following goods
manufactured or produced in India namely (a)Petroleum crude (b)high
speed diesel (c)motor spirit (commonly known as petrol) (d)natural gas
(e) aviation turbine fuel and (f)Tobacco and tobacco products
87 Estate duty in respect of property other than agricultural land
88 Duties in respect of succession to property other than
agricultural land
89 Terminal taxes on goods or passengers, carried by railway, sea or
air; taxes on railway fares and freight.
90 Taxes other than stamp duties on transactions in stock exchanges
and futures markets
92A Taxes on sale or purchase of goods other than
newspapers, where such sale or purchase takes place in the
course of inter-State trade or commerce
92B Taxes on the consignment of goods in the course of
inter-State trade or commerce
97 All residuary types of taxes not listed in any of the
three lists of Seventh Schedule of Indian Constitution
State List

45 Land revenue, including the assessment and collection of

revenue, the maintenance of land records, survey for revenue
purposes and records of rights, and alienation of revenues etc.
46 Taxes on agricultural income
47 Duties in respect of succession to agricultural land.
48 Estate Duty in respect of agricultural land
49 Taxes on lands and buildings.
50 Taxes on mineral rights.
51 Duties of excise for following goods manufactured or produced
within the State (i) alcoholic liquors for human consumption, and (ii)
opium, Indian hemp and other narcotic drugs and narcotics.
53 Electricity Duty: Taxes on the consumption or sale of electricity
54 Taxes on sale of petroleum crude, high speed diesel, motor
spirit (commonly known as petrol), Natural gas aviation turbine fuel
and alcohol liquor for human consumption but not including sale in
the course of inter state or commerce or sale in the source of
international trade or commerce such goods.
56 Taxes on goods and passengers carried by roads or on inland
waterways.
57 Taxes on vehicles suitable for use on roads.
58 Taxes on animals and boats.
59 Tolls.
60 Taxes on profession, trades, callings and employments.
61 Capitation taxes.
62 Taxes on entertainment and amusements to be extent levied and
collected by a panchayat or Municipality or a regional council or a district
council.
63 Stamp duty
• Profession tax is the tax levied and collected by the state
governments in India.

• It is a direct tax.

• A person earning an income from salary or anyone practicing a

profession such as chartered accountant, company secretary,
lawyer, doctor etcntant, company secretary, lawyer, doctor etc
REVENUE AUTHORITIES
• The Central Board of Direct Taxes (CBDT)

• Central Board of Excise and Customs (CBEC)

• Central Board of Indirect Taxes & Customs

(CBIC
LAFFER’S CURVE
• graphic representation of the relationship between an
increasing tax rate and a government's total revenue.

• The relationship suggests that revenues decline beyond a peak tax

rate.
TAX BUOYANCY

• It refers to the responsiveness of tax

revenue to GDP growth.
• SURCHARGE AND CESS
SURCHARGE

• Surcharge on Income Tax

 Greater than 50 lakhs and less than 1 crore  10%

 Greater than 1 crore and less than 2 crores  15%
 Greater than 2 crores and less than 5 crores  25%
 Greater than 5 crores  37%
• Part of Central Divisible Pool-------???

• No

• Credited into which fund?????????

• Consolidated Fund of India (CFI)

CESS
• May Initially get credited to CFI.

• Transferred to separate dedicated fund outside CFI

• remain non-lapsable.

• Utilized for the purpose the cess is collected

• Health and Education Cess: 4% on major central taxes
such as Corporate Tax, Income Tax etc.

• Health Cess: Imported Medical Devices.

• Road and Infrastructure Cess: Rs 10 per litre on

imported and domestic sale of petrol and high-speed
diesel.
Minimum Alternate Tax (MAT)
• Companies can reduce their tax liability through various
provisions of the Income-Tax Act, such as exemptions,
deductions, depreciation, etc.

• There have been instances of some companies even managing

to show nil taxable income despite making substantial profits
and paying out dividends, thanks to the various tax
concessions and incentives.

• The tax provision known as Minimum Alternate Tax (MAT)

was created to bring these ‘zero-tax paying companies
• the Finance Act, 1987,

•
Minimum Alternate Tax is applied when the taxable income
calculated according to the I-T Act provisions is found to be less than
15.5 per cent (plus surcharge and cess as applicable) of the book
profit under the Companies Act, 2013.
• a company with Rs 100 crore book profit is required to pay a
minimum tax of Rs 15 crore (assuming 15 per cent MAT rate).

• If its normal tax liability after claiming deductions is Rs 10 crore

(less than MAT), it is required to pay the remainder Rs 5 crore
as MAT

• use MAT credit equivalent to Rs 5 crore to pay tax in the future.

Black money
• Black money is money on which tax is not paid to
the government.

• Black money is money earned through any illegal

activity controlled by country regulations.
Demonetization
On November 8, 2016, the government announced a historic measure,
with profound implications for the economy. The two largest
denomination notes, Rs 500 and Rs 1000, were “demonetised” with
immediate effect, ceasing to be legal tender except for a few specified
purposes. At one fell stroke, 86 percent of the cash in circulation was
thereby rendered invalid.
Objectives of Demonetization

1. Corruption
2. Counterfeiting
3. The use of high demonetisation notes for
terrorist activities
4. Accumulation of Black Money generated by
income that has not been declared by the tax
authorities.
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•Goods and Services Tax

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 Enumerate the indirect taxes which
have been subsumed in the Goods
and Services Tax (GST) in India. Also,
2019
comment on the revenue implications
of the GST introduced in India since
July 2017.
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 Explain the rationale behind the Goods and Services
Tax (Compensation to States) Act of 2017. How was
2020
COVID-19 impacted the GST compensation fund and
created new federal tensions?

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• Just as Sardar Vallabh Bhai Patel unified India by
helping several princely States subsume into a
common entity, the GST will bring economic
unification. If we take into consideration the 29 states,
the 7 Union Territories, the 7 taxes of the Centre and
the 8 taxes of the States, and several different taxes
for different commodities, the number of taxes sum
up to a figure of 500! Today all those taxes will be
shred off to have ONE NATION, ONE TAX right from
Ganganagar to Itanagar and from Leh to Lakshadweep.

B K REDDY SIR NEXT IAS

conclusion
• The introduction of the Goods and Services Tax (GST)
was a significant step towards making India
economically competitive by ushering in higher
transparency, lower transaction costs and improved
compliance. It was the much-needed transformation
in the field of indirect tax system of the country. It
was launched with the objective to streamline
taxation and reduce compliance burden.
• The Centre and Opposition-ruled states are at loggerheads

Rs 2.35 lakh crore GST shortfall in the current fiscal.

about Rs 97,000 crore is on account of GST

• 1.38 lakh crore is the impact of COVID-19 on states' revenue

Limitations of current Tax regime :

2. Multiple Registrations

Central
Excise
 What is GST?
One Tax
For

Manufacturing

Trading

Services
ONE NATION: ONE TAX
Limitations of current Tax regime :

3. Different Points of Taxation

Limitations of current Tax regime :

Central Excise Service Tax VAT

(On Manufacturing) (On provision of ( On sale of Goods)
Service)
Intro
• The launch of the GST represents an historic
economic and political achievement,
unprecedented in Indian tax and economic
reforms
BODY
conclusion
• The introduction of the Goods and Services Tax (GST)
was a significant step towards making India
economically competitive by ushering in higher
transparency, lower transaction costs and improved
compliance. It was the much-needed transformation
in the field of indirect tax system of the country. It
was launched with the objective to streamline
taxation and reduce compliance burden.
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Fiscal Federalism

It deals with the division of financial powers

as well as the functions between multiple
levels of the federal government.
Challenges

The ability of States to finance current expenditures from their own

revenues has declined from 69% in 1955-56 to less than 38% in 2019-
20.

States cannot raise tax revenue because of curtailed indirect tax

rights — subsumed in GST, except for petroleum products, electricity
and alcohol

the revenue has been stagnant at 6% of GDP in the past decade

Curbing autonomy and diversion of a State’s own
funds
 There are 131 centrally sponsored schemes, with a few dozen of them accounting for
90% of the allocation, and States required to share a part of the cost.

States autonomy has been curbed by turning them into mere implementing agencies
of the Union’s schemes

These schemes, driven by the one-size-fits-all approach, are given precedence over
State schemes, undermining the electorally mandated democratic politics of States.

The diversion of a State’s own funds to centrally sponsored schemes, thereby

depleting resources for its own schemes, violates constitutional provision.
Deepening inequality
The political centralization has only deepened
inequality.

The poorest half of the population has less than 6%

of the wealth while the top 10% nearly grab two-
third of it’.
Differential interest
States are forced to pay differential interest — about 10% against
7% — by the Union for market borrowings.

the Union gains at the expense of States by exploiting these

interest rate differentials.
This non-divisive pool in the Centre’s gross tax revenues shot up to
15.7% in 2020 from 9.43% in 2012, shrinking the divisible pool of
resources for transfers to States.

Instead of strengthening direct taxation, the Union government

slashed corporate tax from 35% to 25% in 2019 and went on to
monetise its public sector assets to finance infrastructure.
Recommendations of Finance commission
rejected by Union Government
It recommended a special grant to three States to ensure that the tax
devolution in 2020-21 in absolute terms should not be less than the
amount of devolution received by these States in 2019-20.
Recommendation relating to grants for nutrition: amounting to
₹7,735 crore was not accepted.
Grants to States recommended by the Finance Commission for the
period 2021-26: The sector-specific grants and State-specific grants
recommended by the Commission have not been accepted
The share of cesses and surcharges in the gross tax revenue of
the Centre increased from 5(thirteen point five)% in 2014-15 to
20% in the Budget estimates for 2022-23.

States only get a 29.6(twenty nine point six)% share of taxes:

because of higher cesses and surcharges.

Though the States’ share in the Central taxes is

41%,(recommended by the Fifteenth Finance Commission)
The C&AG in its Audit Report on Union Government
Accounts(2018-19):

It observed that of the ₹2 lakh 74 crore(approx) collected from

35 cesses in 2018-19, approx ₹1 lakh 64 crore had been credited
to the dedicated funds and the rest was retained in the
Consolidated Fund of India.
• India’s fiscal transfer worked through two
pillars,

• the Planning Commission

• the Finance Commission.

FINANCE COMMISSION

The Finance Commission is a constitutional

body formed every five years to give
suggestions on centre-state financial
relations.
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 Criteria 14th Finance Commission 15th Finance Commission

Income Distance 50 45

Population (1971 Census) 17.5 Not Considered

Population (2011 census) 10 15

Demographic Performance Not Considered 12.5

Forest Cover 7.5 Not Considered

Forest and Ecology Not Considered 10
Area 15 15
Tax Effort Not considered 2.5
Total 100 100
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SECTOR-SPECIFIC GRANTS
nutrition
health
pre-primary education
judiciary
rural connectivity
railways
police training, and Housing.
Performance-based grants

• implementation of agricultural reforms,

• development of aspirational districts and blocks,
• power sector reforms,
• enhancing trade including exports,
• incentives for education,
• promotion of domestic and international tourism.
Special Category Status (SCS)
• no provision of SCS in the Constitution.
• Fifth Finance Commission in 1969
• It was based on the Gadgil formula. (Deputy
Chairman of the Planning Commission, Dr Gadgil)
• The 14th Finance Commission has done away with
the 'special category status' for states, except for the
Northeastern and three hill states.
The sales tax you pay while purchasing a toothpaste is a 2014
(a) tax imposed by the Central Government
(b) tax imposed by the Central Government but collected by the
State Government
(c) tax imposed by the State Government but collected by the
Central Government
(d) tax imposed and collected by the State Government
Consider the following items :2018
1. Cereal grains hulled
2. Chicken eggs cooked
3. Fish processed and canned
4. Newspapers containing advertising material
Which of the above items is/are exempted under GST (Goods and
Services Tax)?
(a) 1 only
(b) 2 and 3 only
(c) 1, 2 and 4 only
(d) 1, 2, 3 and 4
What is/are the most likely advantages of implementing
'Goods and Services Tax (GST)'? 2017
1. It will replace multiple taxes collected by multiple authorities
and will thus create a single market in India.
2. It will drastically reduce the 'Current Account Deficit' of India
and will enable it to increase its foreign exchange reserves
3. It will enormously increase the growth and size of economy of
India and will enable it to overtake China in the near future.
Select the correct answer using the code given below :
(a) 1 only (b) 2 and 3 only
(c) 1 and 3 only (d) 1, 2 and 3
Consider the following statements: 2017
1. Tax revenue as a percent of GDP of India has steadily increased in
the last decade.
2. Fiscal deficit as a percent of GDP of India has steadily increased in
the last decade.
Which of the statements given above is/ are correct ?
(a) 1 only
(b) 2 only
(c) Both 1 and 2
(d) Neither 1 nor 2
The term 'Base Erosion and Profit Shifting' is sometimes seen in the
news in the context of 2016
(a) mining operation by multinational companies in resource-
richbut backward areas
(b) curbing of the tax evasion by multinational companies
(c) exploitation of genetic resources of a country by multinational
companies
(d) lack of consideration of environmental costs in the planning
and implementation of developmental projects
A decrease in tax to GDP ratio of a country indicates which of the
following? 2015
1. Slowing economic growth rate
2. Less equitable distribution of national income
Select the correct answer using the code given below.
(a) 1 only
(b) 2 only
(c) Both 1 and 2
(d) Neither 1 nor 2
With reference to the Fourteenth Finance Commission, which of the
following statements is/are correct?
1. It has increased the share of States in the central divisible pool
from 32 percent to 42 percent.
2. It has made recommendations concerning sector-specific
grants.
Select the correct answer using the code given below.
(a) 1 only
(b) 2 only
(c) Both 1 and 2
(d) Neither 1 nor 2
All revenues received by the Union Government by way of taxes and
other receipts for the conduct of Government business are credited to
the 2011
(a) Contingency Fund of India
(b) Public Account
(c) Consolidated Fund of India
(d) Deposits and Advances Fund
• The "Angel Tax" had assumed significance in recent
times as several start-ups and angel investors had
raised concerns over notices received from income
tax authorities over the payment of "Angel Tax".

• This had adversely affected the start-up ecosystem in

India which nurtures innovation and
entrepreneurship.
•ANGEL TAX
•Equalisation Levy
•Anti-dumping duty
•Countervailing duty (CVD)
•safeguard duty

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WHAT IS ANGEL TAX?
• Angel tax is the tax levied on funds raised by Indian
start-ups through issue of shares to Indian residents.

• It is imposed at 30.9 % tax of the funding received by

startups from an external investor.

• it is to be noted that this tax is levied when startups

receive funding at a valuation higher than its ‘fair
market value’.
Equalisation Levy(6 %)
• Equalisation Levy was introduced in India in 2016

• with the intention of taxing the digital transactions i.e. the income
accruing to foreign e-commerce companies from India.

• It is aimed at taxing business to business transactions

• Eg ….Online advertisement
• As per Finance Bill of 2016, Equalization levy is applicable for certain
specified services related to digital domain wherein the amount of
consideration exceeds a specified value (threshold prescribed by
Income Tax Department). Rules to The Finance Act, 2016 states that
with effect from July 1, 2016, equalization levy @ 6% should be
deducted by a resident or non-resident (having permanent
establishment in India) on the amount of consideration paid or
payable to the non-resident not having permanent establishment in
India.

B K REDDY SIR NEXT IAS

• Anti dumping is a measure to rectify the situation arising out of the
dumping of goods and its trade distortive effect. Thus, the purpose of anti
dumping duty is to rectify the trade distortive effect of dumping and re-
establish fair trade.

• The use of anti dumping measure as an instrument of fair competition is

permitted by the WTO.

• In fact, anti dumping is an instrument for ensuring fair trade and is not a
measure of protection per se for the domestic industry.

• It provides relief to the domestic industry against the injury caused by

dumping
• Dumping is said to occur when the goods are exported by a
country to another country at a price lower than its normal
value.

• This is an unfair trade practice which can have a distortive

effect on international trade.
•Anti-dumping duty is a tariff imposed on
imports manufactured in foreign countries
that are priced below the fair market value
of similar goods in the domestic market.
• Countervailing duty (CVD) is an additional import duty imposed on
imported products (by the importing country) when such products
enjoy benefits like export subsidies and tax concessions in the
country of their origin (ie., where it is produced and exported).
• Customs Tariff Act (As per section 8B(1) of Customs Tariff Act)
• Safeguard duty is imposed for protecting the interests of any
domestic industry in India and it is product specific.
''Transparent Taxation – Honoring the
Honest''
• इस प्लेटफॉमर् म� Faceless Assessment, Faceless Appeal
और Taxpayers Charter जै Faceless Assessment और
Taxpayers Charter आज से लागू हो गए ह� : PM
@narendramodi
• Prime Minister Narendra Modi has unveiled the new platform known
as “Transparent Taxation - Honouring the Honest” to implement
various tax reforms.

• The platform has major reforms like Faceless Assessment, Faceless

Appeal and Taxpayers Charter.
• The Income Tax (I-T) department on adopted the taxpayers' charter
which mentions that it is committed to treat every taxpayer as
honest, unless proven otherwise, and provide fair, courteous and
reasonable treatment.

• it expects taxpayers to pay taxes on time and be honest and

compliant.
•Special category status

B K REDDY SIR NEXT IAS

•Gadgil - Mukherjee formula
Special category status is a classification
given by the Centre to assist development of
states that face geographical and socio-
economic disadvantages.
Parameters:
1. Hilly Terrain;
2. Low Population Density/Sizeable Share of Tribal
Population;
3. Strategic Location along Borders With Neighbouring
Countries;
4. Economic and Infrastructure Backwardness;
5. Nonviable Nature of State finances.
• 1969 - Jammu and Kashmir, Assam and Nagaland.
• eight more states have been included (Arunachal
Pradesh, Himachal Pradesh, Manipur, Meghalaya,
Mizoram, Sikkim, Tripura and Uttarakhand).
Benefits

The Centre pays 90% of the funds - centrally-sponsored

scheme to special category status states
 as against 60% or 75% in case of other states
Unspent money does not lapse and is carried forward.
Significant concessions are provided to these states in
excise and customs duties, income tax and corporate tax.
Which states have been demanding special
category status?
 Andhra Pradesh
 Bihar
 Goa
 Odisha
 Rajasthan
Chapter -Inflation
Philips Curve
• Establishes the inverse relation between
inflation and unemployment.
• Accordingly as levels of unemployment
decrease, inflation increases
Consider the following statements: (2020)
1. The weightage of food in Consumer Price Index (CPI) is higher than that in
Wholesale Price Index (WPI).
2. The WPI does not capture changes in the prices of services, which CPI does.
3. Reserve Bank of India has now adopted WPI as its key measure of inflation
and to decide on changing the key policy rates.
Which of the statements given above is/are correct?

(a) 1 and 2 only

(b) 2 only
(c) 3 only
(d) 1, 2 and 3
CPI for industrial workers (CPI-IW) – Base year has
been revised from 2001 to 2016.

CPI for agricultural labourers (CPI-AL) – Base year

1986-87.

CPI for rural labourers (CPI-RL) – Base year 1986-87.

• The MGNREGA wages are presently linked
to CPI-AL and the government's proposal
is to link it to CPI-RL.

• CPI-IW is used for calculation of Dearness

Allowance.
Wholesale Price Index

Measures Inflation at Wholesale level

Office of Economic Advisor, Ministry of Commerce and Industry
2011-12
th
14 of Every Month
697
Primary Articles: (22.6%)
Manufactured products (64.2%)
Fuel and Power (13.2%)
Consumer Price Index (CPI)
Measures Inflation at Retail level
National Statistical Office, MoSPI
2012
th
12 of Every Month
299
Food and beverages (45.86%)
Pan, Tobacco and Intoxicants (2.38%)
Clothing and Footwear (6.53%)
Housing (10%)
Fuel and Light (6.84%): Electricity, LPG, Kerosene etc. (Does not include Petrol
and Diesel)
Miscellaneous- Education, Healthcare, Transportation and Communication etc.
(28.32%)
GDP Deflator

It refers to the ratio between GDP at Current

Prices and GDP at Constant Prices.

GDP deflator = GDP at Current Prices / GDP at

Constant Prices
SERVICES PRICE INDEX (SPI)
• Published by the Office of Economic Advisor under Ministry for
Commerce and Industry.

• Measures separately inflation in services such as Railways,

Postal, Banking, Aviation, Insurance, Telecom etc.
HOUSING PRICE INDEX
• The Housing Price Indices (HPIs) are a broad measure of
movement of residential property prices observed
within a geographic boundary.

• NHB RESIDEX, India’s first official housing price index,

Ministry of Finance, Government of India.

• 2017-18 as new base year

Causes of inflation
1. Demand-pull inflation
2. Cost-push inflation
3. Structural inflation
With reference to Indian economy, demand-pull
inflation can be caused/increased by which of the
following?
1. Expansionary policies
2. Fiscal stimulus
3. Inflation-indexing of wages
4. Higher purchasing power
5. Rising interest rates
Select the correct answer using the code given below:

(a) 1, 2 and 4 only

(b) 3, 4 and 5 only
(c) 1, 2, 3 and 5 only
(d) 1, 2, 3, 4 and 5
Which one of the following is likely to be the most inflationary in its
effects?
(a) Repayment of public debt
(b) Borrowing from the public to finance a budget deficit
(c) Borrowing from the banks to finance a budget deficit
(d) Creation of new money to finance a budget deficit
Answer: D
Greedflation

Greedflation is the exploitation of inflation by corporates to create

excessive profits.

It simply means (corporate) greed fuelled inflation.

• Net profits of 4,293 listed companies reached Rs.2.9 trillion in the March
2023 quarter.

• This spike in profits is over 3.5 times the average quarterly profit earned
by listed companies till before the pandemic of 2020.

• The data shows the Indian corporate sector has generated superlative
profits in the post pandemic period.

• The sharp spike in profits depicts there is a very good chance that
corporate greed also played a role in spike the inflation rate in India.
Wage-price spiral - A cyclical condition where the rise in wages leads to
increased prices, resulting in inflation.

Profit-price spiral - Companies exploit the existing inflation by putting

up their prices way beyond just covering their increased costs.
How to Control inflation ?
1. Monetary measures

2. Fiscal measures

3. Administrative measures
1. By reducing private spending (by enhancing taxes on private
businesses), i.e. when the Government reduces private spending by
increasing taxes, individuals decrease the total expenditure; and the
money supply in the economy is reduced.

2. By decreasing non-developmental Government expenditure.

3. By avoiding deficit financing as far as possible.

1. By selling Government securities through Open Market Operation
(OMO)
2. By increasing Cash Reserve Ratio (CRR)
3. By increasing Statutory Liquidity Ratio (SLR)
4. By increasing Bank Rate (thereby making borrowings costlier)
5. By increasing Repo Rate and Reverse Repo Rate
(b) Qualitative Measures
Margin requirements, Moral (per)suasion, etc.
Administrative Measures
Prevention of black marketing and prevention of hoarding.

Banning export of constrained materials.

Suspending future trading, etc.

Facilitating supply of goods and services in case of demand-pull

inflation.
URJIT PATEL COMMITTEE
• Control CPI

• Control Inflation

• Define a target

• Accountability
 Committee Recommendation
B N Goldar Developing PPI for India
Committee
Ramesh Chand Roadmap for switch over from WPI to PPI
Committee (Niti
Aayog)
Urjit Patel Recommended Monetary Policy Committee
Committee

Mahendra Dev Linking MGNERGA to CPI-RL

Verman Committee
• March 2015, Reserve Bank of India (RBI)
officially adopted inflation targeting as the
monetary policy framework for the Indian
economy.
•Inflation targeting (mains possible topic)

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Intro
• Inflation targeting basically means bringing the
inflation to a targeted level within a specific time
horizon.