GS Paper III- Government Budgeting.

Rail budget – a requiem.

What’s Happening-
The Indian Railways (IR) is a behemoth employing 1.3 million workmen, lifting more than 1 billion tonnes of freight annually and carrying 24 million passengers in its 12,000 passenger trains each day.
Only a few railway systems in the world match or outdo these indices, but one factor that no other railway had matched was that the Indian Railways had its own budget – to be presented every year on the floor of the Parliament.
At least this was the case until last year.
2017 will go down in history as the first year when the Rail Budget was subsumed in the General Budget.

Key Points discussed were:

  • In 1947, when independence was achieved, railway revenues were still 6% more than the general revenue.
  • The Railway Convention Committee headed by Sir Gopalaswamy Ayyangar recommended, “separation of Railway finances from General finance should continue”.
  • A resolution to this effect was approved by the Constituent Assembly on December 21, 1949.
  • The revised convention was to be effective for a period of five years starting 1950-51, but continued for 66 years, just as a few other constitutional provisions for language and reservation have enjoyed an extended life.
  • In 2015-16 Many erudite scholars of economics like Swaminathan S.A.Aiyar and Bibek Debroy were now raising the pitch for discontinuance of the rail budget.

Could the IR have avoided this fate?

  • It erred on two facets of its philosophy for growth.
  • First and foremost was its penchant for subsidising the passenger fares from artificially jacked up freight rates.
  • The non-AC fares have remained static for the past 12 years;
  • Freight rates now are at such high levels that road hauliers successfully compete with railways on grounds of being cheaper. 
  • Secondly, the railways themselves have been withdrawing from their core areas of operations and concentrating on peripheral items.
  • They have withdrawn themselves from all urban transport activities. 

Is a retrieval from this quagmire feasible?

  • a retrieval of the railways’ financial health is quite within reach, if due focus is laid on the core sectors of freight operation and enhanced productivity of assets.
  • On February 1, this year, when the Finance Minister presents his General Budget, he will set the tone for the relevance of Indian Railways in the country’s ethos and future health.

A separate rail budget has its genesis in the recommendations of the Acworth Committee of 1920 when its chairman, Sir William Acworth, pointed out the need for unified management of the entire railway system general budget of the Government of India.
This was considered necessary because the railway’s revenues far outstripped the general revenue.
‘separation convention’ on September 20, 1924 dissociated the railway finances from the general finances.

Sources- The Indian Express, The Hindu. Page 24

GS Paper II- Indian Economy and issues relating to planning, growth, development and employment.

IT Ministry urges tax sops for PC manufacturers too

What’s Happening-
The Ministry of Electronics and Information Technology has urged the Finance ministry to retain the differential excise duty regime and tax exemptions granted for the manufacture of mobile handsets and tablets, under the impending Goods and Services Tax regime, to prop up domestic manufacturing of electronic products.

Key Points discussed were:

  • In its key recommendations for the Union Budget 2017-18, the Ministry has suggested that these exemptions be expanded to personal computers and servers, as per the Phased Manufacturing Roadmap it has worked out in consultation with the Centre’s think tank NITI Aayog.
  • The current duty dispensation is 12.5% countervailing duty (CVD) versus 1% excise duty (without input credit of excise duty paid on the goods). Differential duty makes imports of mobile handsets more expensive compared with making them locally, encouraging smartphone players to set up manufacturing units in India.
  • The Ministry has also suggested that specified capital goods for the manufacture of electronic goods be exempted from basic customs duty and countervailing duties.
  • “There is hardly any domestic capital goods industry for the manufacture of electronic goods and these are largely imported, being very specialised equipment with limited number of global suppliers.”

Capital goods:

  • “In order to increase the competitiveness of the Indian Electronics Industry by offsetting disability costs in domestic manufacturing to a certain extent, it is recommended that all capital goods for the electronics industry be exempted from customs and countervailing duties,” the official explained.

Employment generation
Over the past one and a half years, about 40 new mobile factories have come up in the country.
Generating direct employment for more than 40,000 people and indirect employment for 1.25 lakh people.

Software R&D:
The ministry has also pitched for extension of income tax benefit for research and development (R&D) to software products and the chip design industry.
The proposal is expected to boost the generation of intellectual property in the country.

Sources-The Hindu, The Indian Express. Page 32