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1 Mar 2013

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28 Feb 2013

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27 Feb 2013

RAIL NEWS CENTER: Railway Budget 2013: Which metros get what?

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25 Feb 2013

Budget: How the government spends its money

The Indian government spends more than it earns. This is the reason why it has a fiscal deficit. While most countries in the world have a high fiscal deficit, it is a problem for a developing economy like India. It stokes inflation and stifles economic growth as interest rates stay high.
To manage the fiscal deficit, the Indian government needs to either raise taxes or cut expenditure.
Here are pointers that explain where India spends money:


Government expenditure: 
For the year ending March 2013, the Indian government set a expenditure target of Rs 14,90,925 crore, according to budget estimates. The government expenditure falls into two categories: plan-expenditure and non-plan expenditure. Plan expenditure is incurred according to the proposals put in the five-year plans. Non-plan expenditure is maintenance of existing assets, administrative services, interest payments, subsidies, among other things. The spending on defence is part of both plan and non-plan expenditure.

Revenue and Capital expenditure:
Both plan and non-plan expenditures include a revenue and capital expenditure component. Revenue expenditure is the money spent to run the day-to-day business of the government. Subsidies and interest payments are a key component of the revenue expenditure. Capital expenditure is the money spent for creating new infrastructure in the economy. So the government investment in education, roads, bridges, airports, urban infrastructure form a part of the capital expenditure.

What is the problem:
India spends 65% of its total expenditure funds in a year on non-plan expenditure. This means two-thirds of the government revenue is spent on simply maintaining the day-to-day affairs of the government. Over a third of the government expenditure or over Rs 5,10,000 crore goes for repaying loans or paying interest on them or subsidizing food, fuel and fertilizer for the poor. Experts say that it is essential for India to spend more on creating new assets to build the infrastructure in the economy.

How the government spends its money?
Spending right:
When governments spend on building a country’s infrastructure, it gives a push to the economic growth. However, the spending for growth in India actually fell over three months to December 2012. “Total expenditure less subsidy and interest payments has decelerated to 3% in the Sep-Dec 2012 period from 11.4% in Apr-Aug 2012,” said Morgan Stanley, a global bank in a note last week. This means India’s spending for creating new assets to stimulate growth has gone down.

What next:
When the budget is presented, you need to watch out for the overall expenditure the government proposes to incur. It should relatively lower than the previous year. It is also important to see how the government proposes to allocate resources. If the government allocates more money to stimulate growth by increasing the spending on the infrastructure sector, that would be good news for the economy.
Source - Yahoo

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