Finance Commission of India: Powers, Functions and Responsibilities

The Finance Commission of India was established on 22nd November, 1951. It was established
under Article 280 of the Indian Constitution by the President of India. It was formed to describe
the financial relations between the centre and the state.

The Finance Commission has been provided for the Indian constitution as part of the scheme of
division of financial resources between the two different sets of governments. Finance
Commission also serves as as a constitutional body for the purpose of allocation of certain
resources of income between the Union and the State Governments.

Key role
The key role Finance Commission in India is to act as an instrument to divide proceeds of
divisible taxes between the states and the Union government or in cases of taxes that are
collected by the centre but the proceeds of which are allocated between the states, to determine
the principles of such allocation.
The Finance Commission of India also determines the principles of governing the grants in aids
of the revenues of states out of the consolidated fund of India. It is an important function of the
Indian Finance Commission. The commission has the responsibility of considering any matter
referred to the commission by the President in the interest of sound finance.
The President under Article 280 lays the recommendations of the finance commission before
each House of the Parliament with an explanatory note as to the action to be taken on the
recommendations.
The Finance Commission distributes of proceeds of Income-tax between the union and the
states. But taxes on the payments of the central government are attributable only to the union
territories.
Under Article 280 (C), the President may refer any matter to the Finance Commission in the
interest of “sound finance”. Till now the President of India has asked the commission to make
recommendations on the principles governing distribution of the net proceeds of estate duty in
respect of Property Tax on Railway fare and excise duties on sugar and tobacco. The President
also sought recommendations on the rates of interest, and terms of repayment of loans to the
various states by the Government of India.

Finance Commissions mainly focuses on the financial relations between the State government
and the Central government. These recommendations progressively increase share of the state
governments in the proceeds of the income tax. They also increased gradually the amount of
grants-in-aids to be given to the states. As a result the states now enjoy considerable degree of
financial autonomy so necessary for the proper functioning of the federation.

It can be said that the Finance Commission as an autonomous body has served a wonderful
purpose. In, as complex a society as India is, it acted as an agency to bring about coordination
and cooperation for smooth working of a federal system.
Under the Constitution, the basis for sharing of divisible taxes by the Centre and the States and
the principles governing grants-in-aid to the states have to be decided by the Commission every
five years. The President can refer to the Commission any other matter in the interest of sound
finance.

The recommendations of the Commission together with an explanatory memorandum as to the

action taken by the Government on them are laid before each house of Parliament. The
Commission has to assess the increase in the Consolidated Fund of a state to affix the
resources of the Panchayat in the state. It also has to evaluate the increase in the Consolidated
Fund of a state to affix the resources of the Municipalities in the state.

The Commission has been given passable powers to perform its function and within its area of
activity. It has all the powers of the Civil Court as per the Code of Civil Procedure, 1908. It can
call any witness, or can ask for the production of any public record or document from any court
or office. It can ask any person to give information or document on matters as it may feel to be
useful or relevant. It can function as a civil court in discharging its duties.

Key functions
The Commission makes recommendations to the president with regard to:

The distribution of the proceeds of taxes between the union and the states.
The principles which should govern the grants-in-aid to be given to the states.
Any other matter referred to the Commission by the President in the interest of sound finance.
The recommendations of the commission are generally accepted by the Union Government as
well as by the parliament.

Q.1. What is the Finance Commission?

Ans. The Finance Commission is constituted by the President under article 280 of the
Constitution, mainly to give its recommendations on distribution of tax revenues between the
Union and the States and amongst the States themselves. Two distinctive features of the
Commission’s work involve redressing the vertical imbalances between the taxation powers and
expenditure responsibilities of the centre and the States respectively and equalization of all
public services across the States.

Q.2 What are the functions of the Finance Commission?

Ans. It is the duty of the Commission to make recommendations to the President as to—

the distribution between the Union and the States of the net proceeds of taxes which are to be,
or may be, divided between them and the allocation between the States of the respective
shares of such proceeds;
the principles which should govern the grants-in-aid of the revenues of the States out of the
Consolidated Fund of India;
the measures needed to augment the Consolidated Fund of a State to supplement the
resources of the Panchayats in the State on the basis of the recommendations made by the
Finance Commission of the State;
the measures needed to augment the Consolidated Fund of a State to supplement the
resources of the Municipalities in the State on the basis of the recommendations made by the
Finance Commission of the State;
any other matter referred to the Commission by the President in the interests of sound finance.
The Commission determines its procedure and have such powers in the performance of their
functions as Parliament may by law confer on them.

Q.3. Who appoints the Finance Commission and what are the qualifications for Members?

Ans. The Finance Commission is appointed by the President under Article 280 of the
Constitution. As per the provisions contained in the Finance Commission [Miscellaneous
Provisions] Act, 1951 and The Finance Commission (Salaries & Allowances) Rules, 1951, the
Chairman of the Commission is selected from among persons who have had experience in
public affairs, and the four other members are selected from among persons who--
(a) are, or have been, or are qualified to be appointed as Judges of a High Court; or
(b) have special knowledge of the finances and accounts of Government; or
(c) have had wide experience in financial matters and in administration; or
(d) have special knowledge of economics

Q.4. How are the recommendations of Finance Commission implemented?

Ans. The recommendations of the Finance Commission are implemented as under:-

Those to be implemented by an order of the President:

The recommendations relating to distribution of Union Taxes and Duties and Grants-in-aid fall in
this category.
Those to be implemented by executive orders:
Other recommendations to be made by the Finance Commission, as per its Terms of Reference

Q.5. When was the first Commission Constituted and how many Commissions have been
Constituted so far?

Ans. The First Finance Commission was constituted vide Presidential Order dated
22.11.1951 under the chairmanship of Shri K.C. Neogy on 6th April, 1952. Fifteenth Finance
Commissions have been Constituted so far at intervals of every five years.

Q.6. Is the Finance Commission unique to India?

Ans. Most federal systems resolve the vertical and horizontal imbalances through
mechanisms similar to the Finance Commission. For example Australia and Canada.
Q.7. What is the composition of the Fifteenth Finance Commission?
Ans. The Composition of the Fifteenth Finance Commission is as under:

Chairman Shri N.K. Singh

Former Member of Parliament and former Secretary to the Government of India
Member Shri Shaktikanta Das
Former Secretary to the Government of India
Member Dr. Anoop Singh
Adjunct Professor, Georgetown University
Member (Part Time) Dr. Ashok Lahiri
Chairman (Non-executive, part time)
Bandhan Bank
Member (Part Time) Dr. Ramesh Chand
Member, NITI Aayog

Secretary Shri Arvind Mehta

Q.8. What is the tenure of the Fifteenth Finance Commission?

Ans. The Finance Commission is required to give its report by 30th October, 2019. Its
recommendations will cover the five year period commencing from 1st April, 2020.

BUSINESSRecommendations of the 14th Finance Commission

K. T. Jagannathan
FEBRUARY 24, 2015 17:19 IST
UPDATED: APRIL 02, 2016 06:16 IST
1)The 14th Finance Commission is of the view that tax devolution should be the primary route
for transfer of resources to the States.

2)In understanding the States’ needs, it has ignored the Plan and non-Plan distinctions

3) According to the Commission, the increased devolution of the divisible pool of taxes is a
``compositional shift in transfers’’ – from grants to tax devolution

4)In recommending an horizontal distribution, it has used broad parameters – population (1971),
changes in population since then, income distance, forest cover and area, among others.

5)It has recommended distribution of grants to States for local bodies using 2011 population
data with weight of 90 per cent and area with weight of 10 per cent

6)Grants to States are divided into two

7)One, grant to duly constituted gram panchayats

8)Two, grant to duly constituted municipal bodies

9)And, it has divided grants into two parts

10) A basic grant, and a performance one for gram panchayats and municipal bodies

11)The ration of basic to performance grant is 90:10 for panchayats; and 80:20 for
municipalities

12)The total grant recommended is Rs. 2,87,436 crore for a five-year period. Out of which, the
grant to panchayats is Rs.2,00,292 crore. And, the reminder goes to municipalities

13)The Commission has significantly departed from previous commission vis-à-vis

recommendation of the principles governing grants-in-aid to the States by the Centre

14)It has chosen to take the entire revenue expenditure for this purpose. Hence, it has decided
to take into account a state’s entire revenue expenditure needs without making a distinction
between plan and non-plan expenditure

15)The Commission is of the view that sharing pattern in respect to various Centrally-sponsored
schemes need to change. It wants the States to share a greater fiscal responsibility for the
implementation of such schemes.

The Fifteenth Finance Commission (XV-FC or 15-FC) is an Indian Finance Commission

constituted in November 2017 and is to give recommendations for devolution of taxes and other
fiscal matters for five fiscal years, commencing 1 April 2020. The commission's chairman is
Nand Kishore Singh, with its full-time members being Ajay Narayan Jha, Ashok Lahiri and
Anoop Singh. In addition, the commission also has a part-time member in Ramesh Chand.
Shaktikanta Das served as a member of the commission from November 2017 to December
2018.

Minister responsible
Nirmala Sitharaman, Minister of Finance
Deputy Minister responsible
Anurag Thakur, Minister of State for Finance
Commission executives
N. K. Singh, IAS, Chairman
Ajay Narayan Jha, IAS, Member
Prof. Anoop Singh, Member
Dr. Ashok Lahiri, Member
Prof. Ramesh Chand, Member (part-time)
Arvind Mehta, IAS, Secretary
Parent department
Department of Economic Affairs, Ministry of Finance, Government of India
Constitution Edit
The Fifteenth Finance Commission was constituted by the Government of India—after getting
ceremonial approval from President of India—through a notification in The Gazette of India on
27 November 2017.[1][2] Nand Kishore Singh was appointed as the commission's chairman,
with its full-time members being Shaktikanta Das and Anoop Singh and its part-time members
being Ramesh Chand and Ashok Lahiri.[3][4][5]

The commission held its first meeting on 4 December 2017.[6][7][8][9] Lahiri was elevated to the
status of a full-time member in May 2018 and was accorded the status of a minister of state.[10]
[11] Das resigned as member on 11 December 2018,[12] to become the Governor of Reserve
Bank of India.[13][14][15]

In July 2019, the commission's term was extended by a month to November 2019, and its terms
of reference (ToR) were expanded by the Union Cabinet and asked it to consider whether
"adequate, secure and non-lapsable" funds could be provided for funding defence and internal
security, and how would a distinct system to fund defence and internal security be
operationalised.

Aims Edit
The commission was set up to give recommendations for devolution of taxes and other fiscal
matters for five fiscal years, commencing 1 April 2020.[1][2] The main tasks of the commission
were to "strengthen cooperative federalism, improve the quality of public spending and help
protect fiscal stability".[24][25][26] Some newspapers like The Hindu and The Economic Times
noted that commission's job was made harder because of the roll-out of goods and service tax
(GST) regime in India, as, it had taken certain powers concerning taxation away from the union
and the states, and, had given them to the newly formed GST Council.[27][28] The peer-
reviewed journal, Economic and Political Weekly, further noted that even after the passage of
the Fiscal Responsibility and Budget Management Act, 2003, some states still incur revenue
deficits, so, the commission would have to either recommend the disbandment of revenue
deficit grants, or, would have to recommend ways for further fiscal consolidation.[29]

The commission's chairman, N. K. Singh, said that the commission would need to define
populism, as, the commission's terms of reference (ToR) had a provision for rewarding states
which were successful in eliminating or reducing expenditure incurred on populist schemes.[30]
[31][32][33] Singh added that the commission would need to reappraise the formula of
devolution of revenue through the union's taxes, because of a provision in its ToR.[34][35][36]
Singh further said, in a lecture to Indian Institute of Management Ahmedabad students, that one
of the commission's challenges was to find a balance between equity and efficiency,[37] adding
that urban and rural local bodies—the constitutionally-mandated third-tier of government in India
—needed to be further empowered to stimulate added economic growth.[38]

Chief Economic Adviser to the Government of India, Arvind Subramanian, said that the
commission may need to function like the first finance commission because of an increased
decentralisation and change in India;[39][40][41] further suggesting to divide the tax devolution
system into four pots – "return", "redistribution", "risk sharing" and "reward",[39][41] while also
saying that tax devolution was no more a north–south issue.[40][41] However, Subramanian's
ideas were opposed by Pinaki Chakraborty, a professor at the National Institute of Public
Finance and Policy, and a member of the Fifteenth Finance Commission's advisory council, who
said that having a division of tax devolution into four pots would violate "the objective of
offsetting revenue disabilities."[42]

The commission's chairperson, N. K. Singh, said in April 2019 that there should be mechanisms
through which the Finance Commissions and the GST Council could coordinate to "ensure there
are multiplier benefits of a higher growth trajectory".[43]

Demands Edit
At its first interaction with members of parliament (MPs),[44] the commission was asked by
some MPs to recommend a plan on compensating states which suffered revenue losses after
the roll-out of GST.[45] Some parliamentarians also asked the commission to reassess the
criteria of classifying a state as 'backwards'.[46][47]

The president of Nationalist Congress Party, Sharad Pawar, suggested the commission to
create a financial buffer against oil prices.[48] Whereas, the chief minister of Bihar and Janata
Dal (United) president and convener, Nitish Kumar—in a letter to the commission's chairman, N.
K. Singh—asked the commission to revisit the criterion of the target of a maximum 3% fiscal
deficit under the Fiscal Responsibility and Budget Management Act, 2003, calling it "iniquitous".
[48] Singh added, that the state was still waiting for special financial allocations promised to it
under the Bihar Reorganisation Act, 2000.[48]

The commission, on its visit to the state, was asked by the Government of West Bengal to look
into restructuring the state's debt, so that it doe not become "a permanent drag on the economy
of Bengal";[49][50] the state's chief minister and All India Trinamool Congress chairperson,
convener and president, Mamata Banerjee, said in a press conference, that "we expect that
Finance Commission will consider our demand for debt restructuring or waiver".[49][50] West
Bengal government further suggested an alternative devolution formula based on factors like
social backwardness, locational complexities and continuation of revenue deficits to the
commission.[51]

The commission was asked by several state governments to increase states' share in union's
tax devolution from the existing 42 per cent to 50 per cent.[50][52][53][54] Whereas, the
Government of India asked the commission to review a 10 per cent hike from 32 per cent to 42
per cent in tax devolution given to states by the Fourteenth Finance Commission,[54][55][56]
with Union Minister of Finance, Arun Jaitley, saying that "India is a Union of states, the Union
also has to survive".[55][57]

Working Edit
A meeting of the Fifteenth Finance Commission, attended by its chairperson, members,
secretary and other staffers; c. 2017
The commission visited several states, and held meetings with senior political and non-political
state government officials of different states;[19][50][52][58] most states also generally
submitted a memorandum to the commission outlining their needs and demands to the panel.
[19][50][52][58] It also met with representatives of the industry and bankers.[59][60] Das acted
as chairman of the commission in state visits without Singh.[19] The commission further met
with the representatives of various federal government agencies, including the vice-chairman
and chief executive officer of its quasi-autonomous policy think-tank, the NITI Aayog, Rajiv
Kumar and Amitabh Kant respectively.[61]

The commission was headquartered in New Delhi at the Jawahar Vyapar Bhawan on Tolstoy
Marg and its offices were provided security cover by the Central Industrial Security Force.[62]
[63]

In July 2019, the commission's term was extended by a month to November 2019, and its terms
of reference (ToR) were expanded by the Union Cabinet and asked it to consider whether
"adequate, secure and non-lapsable" funds could be provided for funding defence and internal
security, and how would a distinct system to fund defence and internal security be
operationalised.[16][17]

Advisory bodies Edit

Advisory council Edit
The commission constituted an advisory council "to advise it on matters related to its terms of
reference".[64][65][66] The council consisted of president of Forum for Strategic Initiatives and
former Chief Economic Adviser to the Government of India, Arvind Virmani; Oxus Research and
Investments chairman and a part-time member of the Prime Minister's Economic Advisory
Council, Surjit Bhattal; a former deputy director in the IMF, Sanjeev Gupta; a professor at the
National Institute of Public Finance and Policy, Pinaki Chakraborty; JP Morgan chief India
economist, Sajjid Chinoy; and a managing director and India economist and strategist at Credit
Suisse, Neelkanth Mishra.[64][65][66]

Chief Economic Adviser to the Government of India, Krishnamurthy Subramanian, was inducted
as a member of the advisory council in May 2019.[67][68]

Criticism Edit
Devolution of taxes to certain states Edit

Finance minister of Kerala and CPI(M) politician, T. M. Thomas Isaac was a major opponent of
the Fifteenth Finance Commission's terms of reference
Politicians—including chief ministers and finance ministers—; retired civil servants; judges; and
economists from South Indian states opposed the commission's terms of reference,[71][72][73]
[74] as, it used the data of 2011 census, instead of the data of 1971 census, as previous
commissions had.[75][76][77] Politicians from the south believed that this would dilute the share
of South India in the pool of union's tax revenue, because of its shrinking population vis-à-vis
the north since 1971.[78][79][80][81][82] Communist Party of India (Marxist) central committee
member and Kerala finance minister, T. M. Thomas Issac, proposed a meeting of finance
ministers of the ten states and union territories to discuss the commission's ToR.[83][84][85][86]
In response, Subhash Chandra Garg, Union Economic Affairs Secretary, said that the terms of
reference were balanced and were "not one way or the other", adding that according to the
second provision of the ToR, states with a good total fertility rate—especially, the ones which
had reached the replacement rate (2.1 children per woman)—would be incentivised.[87][88][89]
Garg's views were reiterated by the nation's finance minister and Bharatiya Janata Party (BJP)
Rajya Sabha leader, Arun Jaitley, who—in a Facebook post—said that the row over the
commission's terms of reference was "needless" and could not have been "further from the
truth".[90][91] Prime minister and BJP Lok Sabha leader, Narendra Modi, said that vested
interests were behind the allegations that the commission's terms of reference being biased
against certain states and union territories and called such allegations "baseless".[92][93]

Finance ministers of the states of Karnataka, Kerala and Andhra Pradesh and the finance
minister of the Union Territory of Puducherry met at a conclave in Kerala's capital,
Thiruvananthapuram, in April 2018 and collectively denounced the commission's terms of
reference, calling them to be in contradiction with the principles of federalism.[94][95] Five state
and two union territory finance ministers met in Andhra Pradesh's capital, Amaravati, and
drafted a memorandum to the president, Ram Nath Kovind, seeking changes in the
commission's terms of reference.[96][97] The group of finance ministers eventually met the
president on 17 May 2018.[98]

In July 2018, the vice president, Venkaiah Naidu—in his capacity as the chairman of Rajya
Sabha—asked the commission's chairman, N. K. Singh, if certain states would be penalised
with the use of 2011 census and was ensured by Singh that performing and progressive states
would not be penalised by the commission.[99]

Classification of Delhi Edit

Aam Aadmi Party (AAP) convener and the chief minister of Delhi, Arvind Kejriwal, criticised the
commission for treating the National Capital Territory of Delhi neither as a state nor as a union
territory (UT), saying that the Delhi government deserved a ₹52,000 crore (US$7.3 billion) grant
from the union government if it qualified as a UT in the commission's eyes,[100][101][102] else it
deserved more devolution of union government's tax revenue as a state.[100][101][102] Kejriwal
added that the Government of Delhi would move the Supreme Court of India on the matter.[100]
[101][102] AAP national executive and political affairs committee member and Delhi deputy
chief minister and finance minister, Manish Sisodia said that the terms of reference of the
commission were "unfair";[103][104] Sisodia was a part of the group of state and union territory
finance ministers who met with the president.[98] In addition, AAP national joint secretary,
Akshay Marathe said—citing Central Board of Direct Taxes figures—that the National Capital
Territory of Delhi contributed as much as ₹1.08 lakh crore (equivalent to ₹1.1 trillion or US$16
billion in 2018)—or 13 per cent—of the nation's direct tax revenue and got around ₹325 crore
(equivalent to ₹341 crore or US$48 million in 2018) from the Government of India in return.
Budget 2019 Speech by Nirmala Sitharaman
Budget 2019 Highlights
1. Direct Taxation – Budget 2019 Highlights
Interest deduction on housing loan under Section 80EEA increased by 1.5 lakh for home loans
taken on self-occupied house property by 31/3/2020, houses with the cost of Rs 45 lacs will be
eligible for this.
Interchangeability of PAN and Aadhar for ease and convenience of taxpayers! Income Tax
return can be filed using Aadhar Number!!
To discourage cash payments TDS@ 2% on withdrawals exceeding 1Cr per annum from a
bank account under a new section 194N.
Surcharge for individuals having taxable income from Rs 2 crores to Rs 5 crores increased to
25% – FY 2019-20
Surcharge for individuals having taxable income from Rs 5 crores to Rs 10 crores increased to
37% – FY 2019-20
Proposal to give relief in levy of securities transaction tax
Corporate tax worth 25% that is applicable to companies with an annual turn over Rs 250 crore
will be applicable to the ones with an annual turnover of Rs 400 crore
Section 35AD deduction extended to Li-On battery, semi-conductor, Laptops, Fabrication &
Photovoltaic cell.
Additional income tax deduction of up to Rs. 1.5 lakhs is proposed on payment of interest on
loan is taken to purchase electric vehicles under section 80EEB.
Faceless and anonymous assessment system for income tax being rolled out this year in
phases.
2. Infrastructure – Budget 2019 Highlights
Focus on investment in infrastructure, national highways and aviation sectors
The second phase of Bharat Mala to develop state highways
A comprehensive restructuring of national highways will be taken up
3. Education – Budget 2019 Highlights
National education policy to propose major changes in both secondary and higher education
Swayam Initiative – Digital education to be promoted
Greater focus on research and development – National Research Foundation to fund and
promote research – pooling of research grants from various ministries and disbursing them,
preventing duplication of research projects
For the Youth – New national educational policy to transform the Indian education system
4. Startup Development – Budget 2019 Highlights
Government to introduce a host of exclusive programs for startups on DD News
5. Household – Budget 2019 Highlights
Provision of housing, electricity, clean cooking facility, safe and adequate drinking water to all in
rural India
Encouragement of rainwater harvesting, groundwater recharge, and management of household
wastewater for reuse in agriculture
Har Ghar Jal – to all rural household by 2024
7 crore LPG connections delivered to rural households
6. Pension – Budget 2019 Highlights
1.Proposed pension benefit to 3 crore retail traders and shopkeepers whose annual turnover is
up to Rs 1.5 crore
7. MSME- Budget 2019 Highlights
350 crore rupees allocated for 2% interest subvention for all GST-registered MSMEs on fresh or
incremental loans
MSME: Large-scale extensive reforms planned, government to create a platform for MSME
payments
MSME to get loans up to 1 crore within 59 minutes. Loans worth Rs. 350 crore already disburse
8. Women Empowerment- Budget 2019 Highlights
Committee to be formed with Public and Private stakeholders for gender equality: FM
Every SHG Women having Jan Dhan Account – Rs. 5,000/- overdraft allowed: FM
Loan up to 1 lakh under Mudra Scheme for Women entrepreneurs: FM
9. NRI- Budget 2019 Highlights
Proposal for Issuance of Aadhar Card on arrival for NRIs with Indian Passports: FM
Aadhaar card for NRI’s post arrival in India
To increase NRI investment in Indian capital market – NRI portfolio scheme route and FPI route
should merge
10. Budget – Railway Budget 2019 Highlights
Railway infra would need an investment of 50 lakh crores between 2018 and 2030;
PPP to be used to unleash faster development and delivery of passenger freight services
Railway Station Modernisation will be launched this year.
Indian Railways to be encouraged to invest more in urban and suburban regions
657KM of Metro Rail operational in the country.
11. Banking and Financial Sector – Budget 2019 Highlights
Reforms will be taken to strengthen governance in Public Sector banks
NPAs of commercial banks reduced by over 1 lach crores over last year
Record Recovery of over 4lac crore with IBS
NPAs of commercial banks reduced by over 1 lakh crore over last year
After Consolidation of Public Sector Banks, now 70,000 Crore of Capital boost for credit
improvement
Government has smoothly carried out consolidation, reducing the number of PSBs by 8
NBFCs – that are fundamentally sound, will get fundings from govt to a total of 1lakh crore
during the current financial year
RBI has limited regulatory Authorities, Now the Regulatory Authorities of RBI over NBFC will be
placed
Proposals for strengthening the regulatory authority of RBI over NBFCs – Debenture
Redemption Reserve to be maintained
Proposal to return regulatory authority from NHB to RBI!
12. Electric Vehicles – Budget 2019 Highlights
Lower GST Rate from 12% to 5% on Electric vehicle and Additional Income Tax Deduction of
2.5 Lakh on Interest paid on loan taken to purchase an electric vehicle
To make electric vehicles affordable, additional IT deduction on 1.5 lakh on interest paid on loan
taken to purchase electric vehicles
13. Technology – Budget 2019 Highlights
Solar storage batteries and chargers included in 35AD deduction: FM
Program of mass scaling of LED Bulbs – Approx. 35 Crores of LED bulbs distribute
Machines and robots to be deployed for scavenging
Focus on VR, AI, Robotics training to youth to align India with the World

Union Budget is the annual budget of the Indian Republic. It is presented every year in the
month of February generally by the Union Finance Minister. In this page, you can read all about
what a budget is, and what to expect in the Union Budget 2020-21. This is an important topic for
the UPSC exam.

68,473
Union Budget
The Union Budget is also known as the Annual Financial Statement. Article 112 of the
Constitution of India lays down that it is a statement of the estimated expenditure and receipts of
the Government for a particular year.

The Budget keeps the account of the finances of the government for the fiscal year (from 1st
April to 31st March).
The Budget is presented on 1st February (until 2016, it was presented on the last working day
of February) so that it can materialise before the commencement of the new financial year
which starts on 1st April.
In 2017, a 92-year-old tradition was broken when the railway budget was merged with the Union
Budget and presented together.
The Budget has to be passed by the Lok Sabha before it can come into effect.
The Union Budget is divided into Revenue Budget and Capital Budget. For more on these
terms, check Union Budget – Important Economic Terms.
In the Union Budget, the disbursements and receipts of the government comprise the various
types of government funds in India namely, the Consolidated Fund of India, the Contingency
Fund and the Public Account.
The Economic Survey of India is released ahead of the presentation of the Budget. This
document is prepared under the guidance of the Chief Economic Advisor and is presented for
discussion in both Houses during the Budget session.
Highlights of Budget 2020:-

Important Highlights of Budget 2020 for UPSC

Unprecedented milestones and achievements of Indian Economy
India is now the fifth largest economy of the world.
4% average growth clocked during 2014-19 with inflation averaging around 4.5%.
271 million people raised out of poverty during 2006-16.
India’s Foreign Direct Investment elevated to US$ 284 billion during 2014-19 from US$ 190 bn
during 2009-14.
Central Government debt reduced to 48.7% of GDP (March 2019) from 52.2% (March 2014).
Two cross-cutting developments
Proliferation of technologies (Analytics, Machine Learning, robotics, Bioinformatics and Artificial
Intelligence).
Highest ever number of people in the productive age group (15-65 years) in India.
GST removed many bottlenecks in the system.
Aim of the union budget is
To achieve seamless delivery of services through Digital governance.
To improve physical quality of life through National Infrastructure Pipeline.
Risk mitigation through Disaster Resilience.
Social security through Pension and Insurance penetration.
Three prominent themes around which budget has been framed
Aspirational India in which all sections of the society seek better standards of living, with access
to health, education and better jobs.
Three components are:
Agriculture, Irrigation and Rural Development.
Wellness, Water and Sanitation.
Education and Skills.
Economic development for all, indicated in the Prime Minister’s exhortation of “Sabka Saath,
Sabka Vikas, Sabka Vishwas”.
Caring Society that is both humane and compassionate.
These three themes are held together by corruption free policy driven good governance and;
clean and sound financial sector.

Agriculture, Irrigation and Rural Development

The govt has announced 16 point agenda
Comprehensive measures for 100 water-stressed districts proposed
Blue Economy
Fisheries exports worth Rs. 1 lakh Cr by 2024-25.
200 lakh tonnes of fish production by 2022-23.
3477 Sagar Mithras and 500 Fish Farmer Producer Organisation.
Railways
Kisan Rail to be setup by Indian Railways through PPP.
To build a seamless national cold supply chain for perishables (milk, meat, fish,etc).
Express and Freight trains to have refrigerated coaches.
Civil aviation
Krishi Udaan to be launched by the Ministry of Civil Aviation.
Both international and national routes to be covered.
One-Product One-District
Will help in better marketing and export in the Horticulture sector.
Balanced use of all kinds of fertilizers – traditional organic and innovative fertilizers
Measures for organic, natural, and integrated farming
Organic products market to be strengthened through Jaivik Kheti Portal.
Zero-Budget Natural Farming to be included.
Integrated Farming Systems in rain-fed areas to be expanded.
Multi-tier cropping, bee-keeping, solar pumps, solar energy production in non-cropping season
to be added.
Expansion of PM-KUSUM
20 lakh farmers to be provided for setting up stand-alone solar pumps.
Another 15 lakh farmers to be helped to solarise their grid-connected pump sets.
Scheme to enable farmers to set up solar power generation capacity on their fallow/barren
lands and to sell it to the grid.
Village Storage Scheme
Will be run by the SHGs to provide farmers a good holding capacity and reduce their logistics
cost.
NABARD to map and geo-tag agri-warehouses, cold storages, reefer van facilities, etc.
Viability Gap Funding for setting up such efficient warehouses at the block/taluk level.
Food Corporation of India (FCI) and Central Warehousing Corporation (CWC) to undertake
such warehouse building.
Financing on Negotiable Warehousing Receipts (e-NWR) to be integrated with e-NAM.
State governments who undertake implementation of model laws (issued by the Central
government) to be encouraged.
Model Agricultural Land Leasing Act, 2016.
Model Agricultural Produce and Livestock Marketing (Promotion and Facilitation) Act, 2017.
Model Agricultural Produce and Livestock Contract Farming and Services (Promotion and
Facilitation) Act, 2018.
Livestock – Doubling of milk processing capacity to 108 MMT from 53.5 MMT by 2025.
Wellness, Water and Sanitation
PM Jan Arogya Yojana (PMJAY)
Viability Gap Funding window proposed for setting up hospitals in the PPP mode.
Aspirational Districts with no Ayushman empanelled hospitals to be covered in the first phase.
TB Harega Desh Jeetega campaign launched to eliminate tuberculosis by 2025.
Under Jal Jeevan Mission Rs. 11,500 Cr allocated for the year 2020-21.
Under this augmenting local water sources, recharging existing sources and promoting water
harvesting and desalination will be undertaken.
Swachh Bharat Abhiyan
Allocation of Rs. 12,300 Cr.
ODF-Plus in order to sustain ODF behavior.
Education and Skills
New Education Policy will be announced soon.
National Police University and National Forensic Science University has been proposed for
policing science, forensic science and cyber-forensics.
Degree level full-fledged online education program would be provided by top 100 institutions in
the National Institutional Ranking Framework.
1 – year internship to fresh engineers to be provided by Urban Local Bodies.
Medical college to be attached to an existing district hospital in PPP mode.
External Commercial Borrowings and FDI to be enabled in education sector.
Economic development
Investment Clearance Cell has been proposed
To provide “end to end” facilitation and support.
To work through a portal.
Five new smart cities proposed to be developed
National Technical Textiles Mission
Implementation period from 2020-21 to 2023-24.
The aim is to position India as a global leader in Technical Textiles.
NIRVIK scheme
The objective is to achieve higher export credit disbursement.
Turnover of Government e-Marketplace (GeM) proposed to be taken to Rs 3 lakh crore.
Scheme for Revision of duties and taxes on exported products to be launched.
Infrastructure
Rs. 100 lakh Cr to be invested in the next five years.
National Infrastructure Pipeline has been launched in December 2019. This had over 6500
projects worth over Rs.102 lakh Cr.
National Logistics Policy to be released soon. This will
Clarify roles of the Union Government, State Governments and key regulators.
A single window e-logistics market to be created.
The focus will be on generation of employment, skills and making MSMEs competitive.
Accelerated development of highways will be undertaken.
Railways
Large solar power capacity to be set up along the rail tracks, on land owned by railways.
Four station redevelopment projects and operation of 150 passenger trains through PPP.
More Tejas type trains to connect iconic tourist destinations.
High speed train between Mumbai and Ahmedabad to be actively pursued.
148 km long Bengaluru Suburban transport project will be developed at a cost of Rs.18600 Cr.
Centre to provide 20% of equity and facilitate external assistance up to 60% of the project cost.
Ports, waterways and airports
One major port to be corporatized and it would be listed on the stock market.
Economic activity along river banks will be energized based on the Arth Ganga concept of PM.
100 more airports to be developed by 2024 to support Udaan scheme.
Smart metering will be undertaken and more reforms to be taken to address the distress in
discoms.
To take advantage of new technology
Policy to enable the private sector to build Data Centre parks throughout the country to be
brought out soon.
Fiber to the Home (FTTH) connections through BharatNet to link 100000 gram panchayats this
year.
The govt has proposed Rs.8000 Cr over the next five years for National Mission on Quantum
Technologies and Applications.
To benefit startups
A digital platform will be promoted to facilitate seamless application and capture of IPRs.
Facilities for designing, fabrication and validation of proof of concept and further scaling up
Technology Clusters, harbouring test beds and small scale manufacturing will be established.
Mapping of India’s genetic landscape- Two new national level Science Schemes.
to be initiated to create a comprehensive database.
Early life funding proposed, including a seed fund to support ideation and
development of early stage Start-ups.
Caring for society
The govt has proposed to appoint a task force to study about the age of girls entering
motherhood. The task force top submit recommendations in six months.
Allocation of Rs.28600 Cr proposed for women specific programs.
Indian Institute of Heritage and Conservation has been proposed under the Ministry of Culture.
This will be given a status of deemed university.
5 sites will be developed as iconic sites with on-site museums
Rakhigarhi (Haryana)
Hastinapur (Uttar Pradesh)
Shivsagar (Assam)
Dholavira (Gujarat)
Adichanallur (Tamil Nadu)
Maritime museum to be set up at Lothal- the Harappan age maritime site near Ahmedabad, by
Ministry of Shipping.
Environment and Climate change
Has proposed to advise the utilities to close the old thermal power plants with carbon emissions
above the set norms.
Would encourage the states which are formulating and implementing the plans for cleaner air in
cities.
Governance
Taxpayer charter to be incorporated into the statute. This is expected to bring in efficiency and
fairness in tax administration.
Companies act to be amended to make convert certain offences from criminal to civil offences.
A National Recruitment Agency (NRA) to be established. This is to conduct recruitment for non-
gazetted posts.
Financial Sector
So far, govt has announced merge of 10 PSBs into 4 and has infused a capital of Rs.350000 Cr.
More governance reforms would be carried out to bring in transparency and greater
professionalism.
In order to raise capital, certain banks would be asked to go to the capital market.
The DICGC (Deposit Insurance Credit Guarantee Corporation) has been asked to raise the
deposit insurance from the current level of Rs.1 lakh to Rs.5 lakh per depositor co-operative
banks would be strengthened by amending Banking Regulation Act by enabling oversight and
governance powers given to RBI, enabling access to capital etc.
Pension Fund Regulatory Development Authority of India Act to be amended to
Strengthen regulating role of PFRDA
Facilitate separation of NPS trust for government employees from PFRDA
Enable establishment of a Pension Trust by the employees other than Government
Window for MSME’s debt restructuring by RBI to be extended by one year till March 31, 2021
New scheme to provide subordinate debt for entrepreneurs of MSMEs by the banks
Would be counted as quasi-equity
Would be fully guaranteed through the Credit Guarantee Trust for Medium and Small
Entrepreneurs (CGTMSE)
The corpus of the CGTMSE would accordingly be augmented by the government
Factor Regulation Act 2011 to be amended to enable NBFCs to extend invoice financing to the
MSMEs through TReDS
Export promotion of MSMEs
For selected sectors such as pharmaceuticals, auto components and others.
Rs. 1000 crore scheme anchored by EXIM Bank together with SIDBI.
Hand holding support for technology upgradations, R&D, business strategy etc.
Financial Market
To deepen the bond market
Certain specified categories of Government securities would be opened fully for non -resident
investors.
FPI limit in corporate bonds increased to 15% from 9% of its outstanding stock.
Debt Based Exchange Traded Fund (ETF) expanded by a new Debt-ETF consisting primarily of
Government Securities, this would give attractive access to retail investors, pension funds and
long-term investors.
Disinvestment – partial sale of govt holdings in LIC would be conducted by the govt by way of
Initial Public Offering.
Fiscal Management
Excess/Surplus collections in the GST compensation fund for FY17 and FY18 would be
transferred into the fund in two installments.
The centrally sponsored schemes and Central sector schemes would be overhauled in order to
meet the emerging social and economic needs and to ensure that the scarce resources are
utilized optimally.
For the FY 2019-20
Revised Estimates of Expenditure: at Rs. 26.99 lakh crore.
Revised Estimates of Receipts: estimated at Rs. 19.32 lakh crore.
For year 2020-21:
Nominal growth of GDP estimated at 10%.
Receipts: estimated at Rs.22.46 lakh cr.
Expenditure: at Rs.30.42 lakh cr.
Fiscal deficit of 3.8% estimated in RE 2019-20 and 3.5% for BE 2020-21.
The govt has announced a deviation of 0.5%in the fiscal deficit, consistent with Section 4(3) of
FRBM Act, both for RE 2019-20 and BE 2020-21.
Market borrowings: Net market borrowings: Rs.4.99 lakh crore for 2019-20 and Rs.5.36 lakh
crore for 2020-21.
A good part of the borrowings for the financial year 2020-21 to go towards Capital expenditure
that has been scaled up by more than 21%.
Direct Tax
A new personal income tax regime has been proposed
It is optional.
About 70 of the existing exemptions and deductions to be removed.
The new corporate tax rate of 15% to be extended to cover new electricity generation
companies.
Dividend Distribution Tax removed.
Startups
Would enjoy 100% tax deduction for a 3 year consecutive period (these must have a turnover of
up to ₹ 100 Cr).
The cooperatives
Would be taxed at the same rate as the corporate sector.
Exempted from Alternate Minimum Tax (AMT) as the companies are exempted from Minimum
Alternate Tax (MAT).
Indirect taxes
GST
Cash reward system envisaged to incentivize customers to seek invoice.
Simplified return with features like SMS based filing for nil return and improved input tax credit
flow to be implemented from 1st April, 2020 as a pilot run.
Dynamic QR-code capturing GST parameters proposed for consumer invoices.
Electronic invoice to capture critical information in a centralized system to be implemented in a
phased manner.
Aadhaar based verification of taxpayers being introduced to weed out dummy or non-existent
units.
GST rate structure being deliberated to address inverted duty structure.
5% health cess to be imposed on imports of medical devices, except those exempt from BCD
(Basic Customs Duty).
Trade Policy Measures
Customs Act being amended to enable proper checks of imports under FTAs.
Rules of Origin requirements to be reviewed for certain sensitive items.
Provisions relating to safeguard duties to be strengthened to enable regulating such surge in
imports in a systematic way.
Provisions for checking dumping of goods and imports of subsidized goods being strengthened.
Tax facilitation measures
Instant PAN to be allotted online through Aadhaar.
‘Vivad Se Vishwas’ scheme, with a deadline of 30th June, 2020, to reduce litigations in direct
taxes.
Waiver of interest and penalty – only disputed taxes to be paid for payments till 31st March,
2020.
Additional amount to be paid if availed after 31st March, 2020.
Benefits to taxpayers in whose cases appeals are pending at any level.
Faceless appeals to be enabled by amending the Income Tax Act.
Highlights of Budget 2020:-

Also Read: Interim Budget – UPSC Notes

Summary of Union Budget 2020-21

The Union Budget 2020-21 unveiled a series of far-reaching reforms, aimed at energizing the
Indian economy through a combination of short-term, medium-term, and long term measures.

Agriculture

Farmer friendly initiatives such as Agriculture credit target of Rs 15 lakh crore for 2020-21;
schemes of “Kisan Rail” and “Krishi Udaan” for a seamless national cold supply chain for
perishables; and expansion of PM-KUSUM to provide 20 lakh farmers for setting up stand-alone
solar pumps.

Heatlh

In the health sector, the Budget proposes more than 20,000 empanelled hospitals under PM
Jan Arogya Yojana for poor people; and expansion of Jan Aushadhi Kendra Scheme to all
districts offering 2000 medicines and 300 surgicals by 2024.

Infrastructure

Infrastructure receives a boost, with 100 more airports by 2024 to support Udaan scheme; and
operation of 150 passenger trains to be done through PPP mode.

Education

Starting apprenticeship embedded courses through 150 higher educational institutions by March
2021 and a proposal to establish Indian Institute of Heritage and Conservation.

GST

A simplified GST return shall be implemented from the 1st April, 2020. It will make return filing
simple with features like SMS based filing for nil return, return pre-filling, improved input tax
credit flow and overall simplification. Dynamic QR-code is proposed for consumer invoices. GST
parameters will be captured when payment for purchases is made through the QR-code.

Instant PAN through Aadhaar

In order to further ease the process of allotment of PAN, a system will be launched under which
PAN shall be instantly allotted online on the basis of Aadhaar, without any requirement for filling
up of detailed application form.

Affordable Housing

In the last budget, the Finance Minister had announced an additional deduction of upto one
lakh, fifty thousand rupees for interest paid on loans taken for purchase of an affordable house.
The date of loan sanction for availing this additional deduction is proposed to be extended by
one year, beyond 31st March, 2020.

Personal Income Tax and Simplification of Taxation

In order to provide significant relief to the individual taxpayers and to simplify the Income-Tax
law, the Finance Minister has proposed to bring a new and simplified personal income tax
regime, wherein income tax rates will be significantly reduced for the individual taxpayers who
forego certain deductions and exemptions.

The proposed changes in tax slabs are listed in the following table:

Taxable Income Slab (Rs.)

Existing Tax Rates

New Tax Rates

0-2.5 Lakh

Exempt

Exempt

2.5-5 Lakh

5%

5%

5-7.5 Lakh

20%

10%

7.5-10 Lakh

20%

15%

10-12.5 Lakh
30%

20%

12.5-15 Lakh

30%

25%

Above 15 Lakh

30%

30%

Surcharge and cess shall be continued to be levied at the existing rates.

The new tax regime shall be optional for taxpayers. An individual who is currently availing more
deductions and exemption under the Income Tax Act may choose to avail them and continue to
pay tax in the old regime.

Source : PIB
http://vikaspedia.in/news/summary-of-union-budget-2020-21