These are my thoughts based on incidents that affect me personally. Purely a manifestation of what resides inside my mind.
Tuesday, August 31, 2010
Different Impairment approaches
Thursday, August 19, 2010
Stone melts - partially though
Why is this change so important in my life? Why is it, I have lived life the way I wanted to so long without considering that there are others who are living the way I want it? How is it going to affect people around me? How is it going to affect me? These are the questions that float around having realized that I have changed. Well, I need to find answers for that and fortunately I have found out.
This change makes me a part of society. This change makes me an human being who can be impactful. A person who will be missed. A person who can think what others feel. Larger portion of my life (touch wood) I believe is yet to happen. Larger to mean both in terms of depth and longevity. Obviously the benefits I would reap will be much more and so I have not missed much due to my erratic nature.
My past in many ways attributing to my ego has been glorious past. I was so egoistic and self centered that I cared a damn about what others feel. I can never empathize. I can never console a person. I can never feel that somebody will feel bad if I shout at them. I was so selfish that I have never worried about tears in others eyes – whether in front of me or outside my vicinity. I was so used to these qualities I never felt that I was odd man out. I never realized that I should be loved and taken care of. I saw everyone as selfish and those who do their duties. Similarly felt that I have a duty to do material things I receive. I never felt the intangibles of friendships or relationships. I never realized I was losing out on friendships. Still, I should say I am fortunate to have a bunch of friends who I can proudly hold out as friends to anybody in this world.
The people around me are important part of me as I realize. Its not going to be possible to live in isolation. I need love, affection, attention, care of people around me. I need to essentially be eligible to receive these. Only way I can be eligible is to give whatever I expect.
I am the ultimate beneficiary. There is certainly an argument from within me that I changed because of my realization that I need to benefitted more than what I possess today. I have again been selfish. I have changed by compulsion. But the fact is I needed to realize it. And the ultimate fact is I realized it. Well, I was made to realize.
I have changed. A word of caution for myself though is I have not changed for all.
Wednesday, May 19, 2010
Why my baloon?
I have never believed that one could fail in an examination when he has put in the necessary efforts. Also one can never pass an examination without putting in what is necessary. This has always been my inner thought. There have been no pity whatsoever for those who had failed the examination. And now I am in a precarious situation. I am utterly under prepared. Confidence quotient also seems to be lower this time. The time I would get for my three subjects from now on seems to be 2 days (a Sunday included) – I have already got 2 days. This would easily be my worst preparation ever for an examination. What fascinates me the most was that people around me have taken things for granted? There is this inexplicable feeling amongst them that I will be passing any case. I was never offered leave for my three exams. But there will be week of absence for a single day exam. This is the pinch of truth when you become a professional. You can never expect to be treated as a child. It is upto us to take care of the needs and demands. The world around you will be ruthless. The rules are set to be flexible where you always feel that you are at the loose end with no flexibility. Considering the demands at this stage of the career, imagining a similar situation few years down the line is a nightmare. Enjoying your space as a student is important. The days will never come back. Your mom will never wake you up with a coffee for you to study. Your dad will never stop watching TV for your studies. Your relatives and friends will never hesitate to trouble you while you study. And there will be other group of people seeking your attention depending on the stage of your life. It is important to be out of student age at the appropriate time. But also its important that you are not into professional life at very early stage. You always want somebody to pamper you when you are into professional life early. But when that doesn’t happen you feel let down and disappointed. The sum and substance is “be a student when you are supposed to be and be a professional when you are expected to be”. The 'X' factor is also missing for this exam - I am to blame for it.
Lease of land
Growth in industries, both manufacturing and services has been the prime focus of the Governments – Central and State. To sprout the growth, State Governments have been offering land or land and buildings on a long-term lease to companies to set up units. These long-term leases are typically for a period of 99 years. Most cases leases will be that of a land rather than land and buildings together. These leases are characterized by lump-sum payments upfront, either refundable or non-refundable. Various accounting and taxation concerns are around these models, which are discussed in the following article.
The GAAP for companies comprise Accounting Standards notified u/s 211 (3C) of the Companies Act, 1956 and requirements of Schedule VI to the Companies Act, 1956. Present provision of Accounting Standards excludes leases from its scope. The accounting has to comply with the requirements of Schedule VI.
Model I
Lets comprehend with an example. A company takes land on lease from SIPCOT for a period of 99 years by payment of non-refundable premium of Rs. 10 Crores. The company cannot transfer the land to any third party during the lease period unless it is under a business combination. If the land is handed back to SIPCOT during the lease period, it is not entitled to refund of any portion of the premium paid.
Accounting: Schedule VI requires disclosure of leaseholds in the Fixed Assets schedule under a separate head. Hence, the land should be disclosed under “Leasehold Land” in Fixed Assets schedule. At what Value? The entire non-refundable premium should be taken as cost and amortised over the lease term (99 years) on Straight Line Basis. Each year amortization is taken to Profit and loss account.
Taxation: The primary analysis to be made is whether the expenditure is revenue expenditure or capital expenditure. The decision of tribunal in the case of Jt. CIT vs Mukand Ltd forms the basis for tax treatment. The assessee argued that the entire expenditure is revenue in nature and should be allowed as a deduction. CIT (A) held that the expenditure is revenue in nature but is attributable to 99 years and hence should be claimed as deduction in each year. The case was before the special bench of the tribunal to determine whether the stand of CIT (A) to allow 1/99th of expenditure is correct. The tribunal noticed that the payment is a premium for leasing of land and it is not in the nature of advance rent to be adjusted against any future payments required to be made. Further, the tribunal noted that the expenditure bore the characteristics of capital expenditure, since the payment is for a benefit of enduring nature. The tribunal held that the premium is capital in nature and not allowable as a deduction to the assessee. The position of revenue is still questionable. Since, the expenditure is very much business expenditure, it can be argued that if the business expenditure is not allowed as a deduction in a single installment, the expenditure need to be allowed over the lease term.
Model II
A company takes land on lease from SIPCOT for a period of 99 years by payment of a refundable deposit of Rs. 15 crores. The company cannot transfer the land to any third party during the lease period unless it is under a business combination.
Accounting: Present GAAP position, the amount should be treated as refundable deposit. But where should it be included? Under Current Assets or Leaseholds? My view is that it should be held under “Leaseholds” rather than “Current Assets”. Considering that the present scenario will be short-lived with the introduction of AS 30,31 and 32, the new treatment needs to be looked into. The deposit which is a financial asset, should be recognised at its fair value – which will be present of value of discounted cash flows. The deposit amount would be increased each year with interest portion with a corresponding credit to profit and loss account. Again regarding the question of presentation, it is only appropriate to present under “fixed assets” rather than under “current assets”. These issues will be addressed once the existing leases standard is revamped based on the discussion paper issued by IASB.
Taxation: The revenue position is unambiguous here, since the amount is refundable it cannot be revenue expenditure or for that matter any expenditure and no expense can be claimed in this regard. On the new treatment as per AS 30,31,32 – the position of revenue cannot be speculated upon.
There will be these never ending spiral issues surrounding the topic of leases in the future as there will be lot of understanding and learning in this regard from the regulatory angle as well as the angle of revenue and professionals.
Tuesday, May 11, 2010
My guess of Raavan
A Mani Ratnam film will always evoke a kind of anxiety that most people would exhibit for a James Cameron or a Steven Spielberg movie. There are few directors are as articulate as Mani Ratnam is. He is a class act. The narration is crystal clear – be it his Pagal Nilavu, Nayagan, Aayutha Ezhuthu or Guru. He is also a clever director. He always bargains for best technicians to work with him – be in on screen or behind screen. He has the knack of getting the best out of all his colleagues. His latest bi-lingual flick is Raavan or Ravanan. He has roped in Abhishek and Aishwarya Rai Bachchan for the lead roles. Also Vikram plays an important role in both the languages. So casting is best in the profession. For music he stays with A R Rahman – and he weaves magic for Mani, who happens to be his debut director in the film Roja. And there is no doubt that he is the best in the business in Indian industry. He has Gulzar as lyricist for Hindi version and Vairamuthu for Tamil. No questioning of Gulzar, who won Oscar along with Rahman for Jai ho as also Vairamuthu, who easily is the best lyricist when it comes to Tamil cinema. Camera is handled by Santosh Sivan and Manikandan. Santosh Sivan is a veteran and Manikandan, off late is making his worth in Hindi cinema. So with all these quality people around him, what else can Mani produce – should be an extra-ordinary movie.
Looking at the teasers and stills of Raavan, you have to believe that the movie will never be short of expectations. The storyline is supposed to be based on naxals – burning issue in our country now. Abhishek looks to be the head of the tribal population and there is no law and order beyond him. Vikram looks to be a police officer, married to Aishwarya Rai and he is posted to the tribal area. He would resolve to bring an end to Abhishek’s rule amongst the tribe. Sprouted by Vikram’s action, Abhishek would abduct Aishwarya Rai. The kidnap though initially would be to threaten Vikram, later Abhishek would befall to the beauty of Aishwarya Rai and forces her to marry him. Here is where parallels could be drawn to Ramayan and could potentially cause a roar in our country. The climax would be how Vikram fights against Abhishek and wins back his wife and the story would be on how Aishwarya and Vikram fight Abhishek. The character of Abhishek is portrayed by Vikram in tamil version. My intuition is Vikram would have donned the role better than Abhishek. Overall it is going to be mouth-watering entertainment in both the languages. A separate blog on music will follow soon, so much to write on that.
Strategic science
Saturday, March 20, 2010
Talking one out
Friday, February 26, 2010
Budget 2010-11 Analysis of Direct Tax Proposals
The Economic Survey indicates that the Indian economy has survived its worst phase and has not been impacted adversely by the global crisis. This is a good omen that the year ahead will be a rewarding one.
The GDP growth for the third quarter of 2009-10 is reported to be a shade lower than the expected level of 6%. The growth rate for the full year is extrapolated to be between 7.2% and 7.5%. If achieved, this will still be one of the highest growth rates in the world. In the current period, Manufacturing Sector has contributed to the growth more than the Services Sector, with Agriculture Sector registering a negative growth of - 0.2%. The challenges continue to be in:
a) Achieving a double digit growth rate
b) Controlling inflation, specially food prices
c) Reducing the overall fiscal deficit
It is in this backdrop, that the Finance Minister, Shri Pranab Mukherjee had presented his Budget proposals on 26th February 2010. The budget proposals focused on strengthening infrastructure, power, alternative and renewable sources of energy, and in providing adequate support to health, social security and food security. Overall, the budget was received well and was applauded as a balanced budget by both the economists and the industry leaders. I believe that the direction of budget proposals are in the growth trajectory. However, the significant allocation of Rs.1900 crores to UIDAI and the emphasis on setting up adequate IT infrastructure and interface across government organisations, the positive difference – relative to prior periods - will be ‘implementation’.
A summary of a few select items in the direct and indirect tax segment, proposed in the Budget follows. Unless mentioned otherwise, the amendments proposed to direct taxes will apply from assessment year 2011-2012
Direct Taxes
The new Direct Tax Code will be made effective from 1st April 2011. This is an important announcement. The summary of the tax amendments is as follows:
- Lower tax burden on individual taxpayers by widening of the tax slabs
- Small companies can convert into Limited Liability Partnerships without attracting capital gains tax liability
- Higher Turnover limits beyond which audit is compulsory, so as to reduce the compliance burden on small business enterprises
- Increased tax-saving investments in Research and Development (R&D) to enhance the competitive ability of the economy
- Tax deduction on investments in long-term infrastructure bonds to encourage savings and for funding infrastructure; and
- Simplification and rationalization of provisions relating to Tax Deduction at Source (TDS).
Personal taxation
Tax rates
The income tax slabs for individual taxpayers to be as follows:
Income upto Rs 1,60,000 | Nil |
Income above Rs 1,60,000 and upto Rs. 5,00,000 | 10% |
Income above Rs.5,00,000 and upto Rs. 8,00,000 | 20% |
Income above Rs. 8,00,000 | 30% |
The tax slab revisions are moving in the direction of proposal made in the direct tax code. While the amendment in the slab rates last year certainly benefitted higher income group than the medium and lower income group, this years’ slab limit revision is aimed at the middle class. The tax savings would be:
For an individual with taxable income more than Rs. 3,00,000 and less than Rs. 5,00,000 | Rs.20,000 |
For taxable income more than Rs. 5,00,000 | Rs. 50,000 |
Deductions
Deduction in respect of long-term infrastructure bonds
A new section 80CCF is being introduced to allow subscription during financial year 2010-11 made to long-term infrastructure bonds to the extent of Rs. 20,000 as deduction in computation of income of individual and HUF. This will be over and above the existing limit of Rs. 1,00,000 under Section 80C, 80 CCC and 80 CCD of the Act. This provision is available only for subscription made during the year 2010-11, and the long-term infrastructure bonds will be notified by the Government in due course.
Deduction in respect of contribution to the Central Government Health Scheme
Under the existing provisions of section 80D, deduction in respect of premium paid towards a health insurance policy up to a maximum of Rs. 15,000 is available for self, spouse and dependent children. A further deduction of Rs. 15,000 is also allowed for buying an insurance policy in respect of dependent parents. For senior citizens of the age of 65 and above, the ceiling level for this deduction is Rs.20,000.
The Central Government Health Scheme (CGHS) is a medical facility available to serving and retired Government servants. This facility is similar to the facilities available through health insurance policies.
Deduction will be allowed in respect of any contribution made to CGHS by including such contribution under the provisions of section 80D. The deduction will be limited to the current aggregate of Rs.15,000 or 20,000 as mentioned.
Tax returns
As promised by the Finance Minister in the last budget speech, SARAL II is making a comeback to do away with ITR, with respect to individuals.
Corporate tax
Tax rates
Surcharge on taxes for domestic companies is reduced from existing 10% to 7.5%. No change in surcharge of foreign companies.
MAT rate increased from existing 15% to 18%. Companies having to pay Minimum Alternate Tax MAT will have an additional outflow 3% on this score, irrespective of the reduction of surcharge to 7.5%.
Definition of charitable purposes
An amendment was introduced in the last budget to exclude from the definition of “charitable purposes”, if its activities involve ‘the carrying on of any activity in the nature of trade, commerce or business, or any activity of rendering any service in relation to any trade, commerce or business, for a cess or fee or any other consideration, irrespective of the nature of use or application, or retention, of the income from such activity’.
The absolute restriction on any receipt of commercial nature did create hardship to organizations which receive sundry considerations from such activities. To mitigate such difficulties, section 2(15) is amended to provide that “the advancement of any other object of general public utility” shall continue to be a “charitable purpose” if the total receipts from any activity in the nature of trade, commerce or business, or any activity of rendering any service in relation to any trade, commerce or business do not exceed Rs.10 lakhs in the previous year.
This is a retrospective amendment to be applied in respect of assessment years 2009-10 onwards.
Income deemed to accrue or arise in India
A new explanation is inserted to specifically state that the income of a non-resident shall be deemed to accrue or arise in India under clause (v) or clause (vi) or clause (vii) of sub-section (1) of section 9 and shall be included in his total income, whether or not,
(a) the non-resident has a residence or place of business or business connection in India; or
(b) the non-resident has rendered services in India.
This amendment is seen to be to neutralize the impact of the decision of Hon’ble Supreme Court, in the case of Ishikawajima-Harima Heavy Industries Ltd., Vs DIT (2007)[288 ITR 408], wherein it was held that despite the deeming fiction in section 9, for any such income to be taxable in India, there must be sufficient territorial nexus between such income and the territory of India. It further held that for establishing such territorial nexus, the services have to be rendered in India as well as utilized in India. Whereas the intention of the source rule was to bring to tax interest, royalty and fees for technical services, by creating a legal fiction in section 9, even in cases where services are provided outside India as long as they are utilized in India. The source rule, therefore, means that the situs of the rendering of services is not relevant. It is the situs of the payer and the situs of the utilization of services which will determine the taxability of such services in India.
This interpretation was felt as not in accordance with the legislative intent that the situs of rendering service in India is not relevant as long as the services are utilized in India. The Explanation sought to clarify that where income is deemed to accrue or arise in India under clauses (v), (vi) and (vii) of sub-section (1) of section 9, such income shall be included in the total income of the non-resident, regardless of whether the non-resident has a residence or place of business or business connection in India.
This amendment is proposed to take effect retrospectively from 1st June, 1976 and will, accordingly, apply in relation to the assessment year 1977-78 and subsequent years
Weighted deduction for scientific research and development
Under the existing provisions of section 35(2AB) of the Income-tax Act, a company is allowed weighted deduction of 150 per cent of the expenditure (not being expenditure in the nature of cost of any land or building) incurred on scientific research on an approved in-house research and development facility.
In order that Corporate Sector is bestowed with inducements to invest in in-house research, it is proposed to increase this weighted deduction from 150 per cent to 200 per cent.
The existing provisions of section 35(1)(ii) of the Income-tax Act provide for a weighted deduction from the business income to the extent of 125 per cent of any sum paid to an approved scientific research association that has the object of undertaking scientific research or to an approved university, college or other institution to be used for scientific research. Further, under section 35(2AA) of the Act, weighted deduction to the extent of 125 per cent is also allowed for any sum paid to a National Laboratory or a university or an Indian Institute of Technology (IIT) or a specified person for the purpose of an approved scientific research programme.
In order to encourage more contributions to such approved entities for the purposes of scientific research, it is proposed to increase this weighted deduction from 125 per cent to 175 per cent.
Also section 35(1)(iii) is amended so as to include an approved research association which has as its object undertaking research in social science or statistical research, to qualify under Section 35(1)(ii). It is also proposed to amend section 10(21) so as to also provide exemption to such associations in respect of their income.
Investment linked deduction for specified business
Section 35AD is amended to include hotel sector, irrespective of location, allowing 100% deduction in respect of whole of any expenditure of capital nature incurred wholly and exclusively for the purposes of the business. It will include entities in the business of building and operating a new hotel of two-star or above category which starts functioning after 1st April 2010.
Disallowance of expenditure on account of non-compliance with TDS provisions
The existing provisions of section 40(a)(ia) of Income-tax Act provide for the disallowance of expenditure like interest, commission, brokerage, professional fees, etc. if tax on such expenditure was not deducted, or after deduction was not paid during the previous year. However, in case the deduction of tax is made during the last month of the previous year, no disallowance is made if the tax is deposited on or before the due date of filing of return.
The said section is amended to provide that no disallowance will be made if after deduction of tax during the previous year, the same has been paid on or before the due date of filing of return of income specified in sub-section (1) of section 139.
This amendment will be effective for assessment year 2010-11. This provision can be utilized for the tax deductions in respect of financial year 2009-10.
The interest for non-payment of tax deducted at source after deduction will now attract interest at the rate of 18% instead of existing 12%. This amendment will take effect from 1st July 2010.
Upward revision in the turnover or gross receipts thresholds, for purposes of audit of accounts and of presumptive taxation
In order to reduce compliance burden of small businesses and professionals, the threshold limit under section 44AB has been increased from Rs. 40 lakhs to Rs.60 lakhs in the case of persons carrying on business and from Rs. 10 lakhs to Rs. 15 lakhs in the case of persons carrying on profession
In view of the amendment proposed above, the maximum penalty, leviable under section 271B for failure to get accounts audited under section 44AB or to furnish a report of such audit, is increased from Rs. 1 lakh to Rs. 1.5 Lakhs .
For the purpose of presumptive taxation under section 44AD, the threshold limit of total turnover or gross receipts would be increased from Rs. 40 lakhs to Rs.60 lakhs.
Conversion of a private company or an unlisted company into a LLP
The Finance (No. 2) Act, 2009 provided for the taxation of LLPs in the Income-tax Act on the same lines as applicable to partnership firms. Section 56 and section 57 of the Limited Liability Partnership Act, 2008 allow conversion of a private company or an unlisted public company (hereafter referred as company) into an LLP. Under the existing provisions of Income-tax Act, conversion of a company into an LLP has definite tax implications. Transfer of assets on conversion attracts levy of capital gains tax. Similarly, carry forward of losses and of unabsorbed depreciation is not available to the successor LLP.
Now, the transfer of assets on conversion of a company into an LLP in accordance with section 56 and section 57 of the Limited Liability Partnership Act, 2008 shall not be regarded as a transfer for the purposes of capital gains tax under section 45, subject to certain conditions. These conditions are as follows:
(i) the total sales, turnover or gross receipts in business of the company do not exceed Rs. 60 lakhs in any of the three preceding previous years;
(ii) the shareholders of the company become partners of the LLP in the same proportion as their shareholding in the company;
(iii) no consideration other than share in profit and capital contribution in the LLP arises to partners;
(iv) the erstwhile shareholders of the company continue to be entitled to receive at least 50 per cent of the profits of the LLP for a period of 5 years from the date of conversion;
(v) all assets and liabilities of the company become the assets and liabilities of the LLP; and
(vi) no amount is paid, either directly or indirectly, to any partner out of the accumulated profit of the company for a period of 3 years from the date of conversion.
· Carry forward and set-off of business loss and unabsorbed depreciation are allowed to the successor LLP which fulfills the above mentioned conditions.
· If the conditions stipulated above are not complied with, the benefit availed by the company shall be deemed to be the profits and gains of the successor LLP chargeable to tax for the previous year in which the requirements are not complied with.
· The aggregate depreciation allowable to the predecessor company and successor LLP shall not exceed, in any previous year, the depreciation calculated at the prescribed rates as if the conversion had not taken place.
· The actual cost of the block of assets in the case of the successor LLP shall be the written down value of the block of assets as in the case of the predecessor company on the date of conversion.
· The cost of acquisition of the capital asset for the successor LLP shall be deemed to be the cost for which the predecessor company acquired it.
· Credit in respect of tax paid by a company under section 115JB is allowed only to such company under section 115JAA. It is proposed to clarify that the tax credit under section 115JAA shall not be allowed to the successor LLP.
Taxation of certain transactions without consideration or for inadequate consideration
Section 56(2)(vii) amended to cover transfer of shares by a company to a firm or company without consideration or at a price lower than the fair market value. The value of such shares will be taxed in the hands of the recipients as income. The assessing officer can make reference to the valuation officer for an estimate of the value of the property under section 56(2).
Deduction for developing and building housing projects
Under the existing provisions of section 80-IB(10), 100 per cent deduction is available in respect of profits derived by an undertaking from developing and building housing projects approved by a local authority before 31.3.2008. This benefit is available subject to, inter alia, the following conditions:
a) the project has to be completed within 4 years from the end of the financial year in which the project is approved by the local authority.
b) the built-up area of the shops and other commercial establishments included in the housing project should not exceed 5 per cent of the total built-up area of the housing project or 2,000 sq.ft. whichever is less.
To allow for extraordinary conditions due to the global recession and the resultant slowdown in the housing sector, the period allowed for completion of a housing project in order to qualify for availing the tax benefit under the section, has been increased from the existing 4 years to 5 years from the end of the financial year in which the housing project is approved by the local authority. This extension will be available for housing projects approved on or after 1.4. 2005.
Further, the current norms for built-up area of shops and other commercial establishments in housing projects in order to enable basic facilities for the residents is enhanced. The built-up area of the shops and other commercial establishments included in the housing project is three per cent of the aggregate built-up area of the housing project or 5000 sq. ft., whichever is higher. This benefit will be available to projects approved on or after the 1.4.2005, which are pending for completion, in respect of their income relating to assessment year 2010-11 and subsequent years.
Upward revision in threshold limits for tax deduction at source
Threshold limits for deduction of tax at source has been marginally increased in the following cases:
Section | Nature of payment | Existing threshold limits | Proposed threshold limits |
194B | Winnings from lottery or cross word puzzle | 5,000 | 10,000 |
194BB | Winnings from horse races | 2,500 | 5,000 |
194C | Payment to contractors | 20,000 (for a single transaction) | 30,000 (for a single transaction) |
| | 50,000 (for aggregate of transactions) | 75,000 (for aggregate of transactions) |
194D | Insurance commission | 5,000 | 20,000 |
194H | Commission or brokerage | 2,500 | 5,000 |
194I | Rent | 1,20,000 | 1,80,000 |
194J | Fees for professional or technical services | 20,000 | 30,000 |
These amendments are with effect from 1st July 2010.
Other highlights
· Cancellation of registration obtained under Section 12A: This is an amendment to make it clear that registration made under Section 12A can also be cancelled by the commissioner vide powers under Section 12AA (3). This amendment takes effect from 1st June 2010.
· Two more centralized centre for processing returns similar to one in Bangalore
· No need to furnish TDS certificates to tax authorities. However, the requirement that deductor should issue Tax Deduction Certificates to deductees, remains undisturbed
· Scope of cases settlement commission expanded to include proceedings related to search and seizures, if additional amount of tax payable exceeds Rs. 50 lakhs.
Thursday, February 25, 2010
ECONOMIC SURVEY
How many of our so-called knowledge fraternity really care about the Economic Survey (there may be a few questioning what is it?). It calls for serious introspection particularly when you project yourself as the ones who are interested (partners) in the economic development and growth of the nation. The budget which hardly has an impact in the most immediate short term hogs our attention, whereas a document which looks far behind to identify the path for growth in the long term is horrendously ignored. This is an attempt to throw light on the economic survey which is presented each year. The salient feature of Economic Survey 2009-10 will post in a separate one.
The economic survey is a report on the performance of the economy over the past year, its comparison with the past and providing its outlook for the future. This document is an honest analysis of the performance of the economy. The economic survey is usually presented to the nation, a day before the budget each year, prepared by eminent economist part of the finance ministry and the planning commission. The finance minister tables it before both the houses of the Parliament. If analysed in detail, it is a document containing the history and also near-perfect prediction of the economy in the future (bet you, there can be no astrologer who can tell your future, these guys tell the future of the nation). The economic survey is a narrative with key statistical data supporting the analysis and conclusions.
The economic survey 2009-10 contains the following chapters:
· State of the economy and prospects: Commentary on overall growth of the economy over the year, overall GDP growth, sector-wise growth, reasons for shortfall/excess of growth over projections, quarterly trend of the growth, per capita income growth, demand and consumption, sector-wise production and supply, savings pattern in the country, Inflation during the year, details of balance of payments, foreign exchange reserves, impact of monetary and fiscal policy, short and medium term prospects are given in this chapter. This section gives an idea of the pattern of growth over years, sectors which are at various stages of its life-cycle and the demand-supply pattern and expectations. These also provide an insight into the potential growth of existing business and viability for new businesses based on the needs of the economy.
· Micro-foundations of inclusive growth: Contains details of how the distribution of growth has taken place in the economy, the challenges face by the economy for inclusive growth, measures taken by government to overcome the challenges of poverty, the measures taken in the form of subsidies, the bureaucratic costs and delays affecting the economy, impact of inflation and availability of food are discussed in this section. This gives an insight into the shortcomings of the economy to stand up to the global needs and growth, particularly with reference to China.
· Fiscal developments and Public finance: The receipts and expenditure statistics of the exchequer, revenue from various taxes, interest liabilities on internal and external funding for the government, plan outlay, outstanding liabilities of the government, performance of government enterprises like railways and post, revenue and fiscal deficits of the states are discussed. This gives a picture of the financial position of the Government. These are like financial statement analysis and can make out where the government is keen to tap revenues and cut down expenditures.
· Prices and monetary management: Analysis of wholesale price index which is taken as base for calculation of inflation, food inflation, main drivers of inflation, city-wise inflation trends, monetary developments like reserve money, liquidity management, repo and reverse repo rates, money market operations and rates, treasury bills, yields of government bonds and outlook are outlined in this chapter. Impact of inflation on each product, for each city and the trend vis-à-vis global trend are elaborated.
· Financial intermediation and markets: Bank operations with respect to credits, deposits and those of financial institutions role as financial market intermediaries, sectoral development of credit, agricultural credit, performance of commercial banks, Commodity markets, currency markets primary and secondary market performance of the economy, debt market and derivatives market performances are analysed in this section. This is one stop source for all those information flowing in the business news channels on stock markets and banking system of the country.
· Balance of Payments: Country’s BOP position in the midst of the challenges of the economic slowdown, current account balances, transaction on capital accounts and foreign exchange reserves, foreign exchange rates over the year and significant developments are discussed in this section. The strength of the economy on the basis of reserves and BOP can be determined from this section.
· International trade: Export trends globally, India’s export trend across various countries and various products, also import trends, direction of trade, India’s position globally, service sector international trade, suggestions for policies for service sector are discussed in this section. India’s present position in the global market and the measures for future is often discussed here.
· Agriculture and food management: Analysis of the entire agriculture sector highlighting contribution of private sector, public sector, foodgrains production, impact of rainfall and monsoons, policy for the sector are discussed in this section.
· Industry: Growth in outputs, performance of each of the sector, flow of finances for the sector, credit availability, policy measure taken for each of the sector and needed for those sectors, project appraisal status and challenges and outlook are discussed in this section. A smart businessperson has enough information to strategise the growth of the business in this section.
· Energy, Infrastructure and Communications: A special emphasis on the much needed resources for the economy is discussed for the present status, prospects and challenges to be addressed, ways of addressing and the outlook. One of the factors in the fundamental analysis of an economy is detailed out.
· Human development, poverty and public programme: Human development index, social sector expenses pattern, poverty status, measuring of the population below poverty line, determination of below poverty line category, employment status and various populist schemes of the government are discussed here in this section.
Economics is such an interesting subject that provides insight into every detail of the country, in the process better understanding often results in successful ventures for those who understand and utilize the reports of the government. Now that we know what exactly is in the economic survey document, we shall try to be literate of the status of the nation and indirectly take any other advantages attached with that, which is reward for being aware of your own economy.