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The document discusses income tax calculations in India, including tax slabs, exemptions, and deductions. It specifically examines the difference between tax exemptions (not paying tax on certain income) and tax deductions (not paying tax on certain spending) and provides examples of each. It then analyzes how investing in the Rajiv Gandhi Equity Savings Scheme allows taxpayers to deduct up to Rs. 5,000 from their income tax through a 50% tax deduction on investments up to Rs. 50,000 in the scheme.
The document discusses income tax calculations in India, including tax slabs, exemptions, and deductions. It specifically examines the difference between tax exemptions (not paying tax on certain income) and tax deductions (not paying tax on certain spending) and provides examples of each. It then analyzes how investing in the Rajiv Gandhi Equity Savings Scheme allows taxpayers to deduct up to Rs. 5,000 from their income tax through a 50% tax deduction on investments up to Rs. 50,000 in the scheme.
The document discusses income tax calculations in India, including tax slabs, exemptions, and deductions. It specifically examines the difference between tax exemptions (not paying tax on certain income) and tax deductions (not paying tax on certain spending) and provides examples of each. It then analyzes how investing in the Rajiv Gandhi Equity Savings Scheme allows taxpayers to deduct up to Rs. 5,000 from their income tax through a 50% tax deduction on investments up to Rs. 50,000 in the scheme.
[Economy] Calculating Income Tax, Tax Exemption vs Tax Deduction, Rajiv
Gandhi Equity Saving Scheme
HOME >> Economy || Published 2 years ago || 23 Comments so far.
1. What are the Income tax slabs in Budget 2012? 2. How to Calculate income tax? 3. 3% educational cess 4. What is the difference between Tax exemption and tax deduction? #1: Tax exemption #2: tax deduction 5. Union budget 2012: provisions of Tax Deduction and Tax Exemption What is Tax Planning? Who is Tax-Consultant? Black Money and Agro-Income 6. How does RGESS save Rs.5000 In Tax? Case #1: dont invest in RGESS Case #2: investment maximum in RGESS 7. The important questions : Food for Thought You may have read this statement in newspaper, tv-channels. Rajiv Gandhi Equity Saving Scheme (RGESS) will give maximum benefit of Rs. 5,000 in tax-saving. What does it mean? Before we can talk about that, lets see the basics of Income Tax calculation, Exemption and Tax Deduction. What are the Income tax slabs in Budget 2012? You know about this already: Income tax slab (in Rs.) Tax 0 to 2,00,000 No tax 2,00,001 to 5,00,000 10% 5,00,001 to 10,00,000 20% Above 10,00,000 30% (We are skipping senior citizen provisions) Time for a very simple question: if your income is Rs.15 lakhs, how much income tax do you have to pay? 15 lakhs is above Rs.10 lakhs, so you fall in 30% income tax slab. 30% of 15 lakhs equals to 4.5 lakhs income tax. Sorry 4.5 lakhs is Incorrect Answer. Infact youre income tax will be quite less than Rs.4.5 lakhs. Why? Because income tax is not calculated like that. Then how to calculate income tax? Suitcase approach Imagine there are four suitcases labeled one, two, three, four. You have to fill up each suitcase with your cash. But there are some conditions you have to fill these suitcases in serial order: 1,2,3 then 4 First suitcase can contain maximum two lakh rupees only. Once it is fully packed, you move to the next suitcase. Second suitcase can hold maximum three lakh rupees Third suitcase can contain maximum five lakh rupees Fourth suitcase can contain any amount of money. No maximum limit. Step #1: Distribute money in suitcases Now start distributing your 15 lakh rupees into these four suitcases suitcase number Money packed One 2,00,000 Two 3,00,000 Three 5,00,000 Four 5,00,000 Total 15 lakhs Step #2: Make a new column and apply those four tax slabs suitcase number Money packed Tax slab One 2,00,000 0% Two 3,00,000 10% Three 5,00,000 20% Four 5,00,000 30% Total 15 lakhs Step #3: Calculate the income tax to be paid for each suitcase suitcase number Money packed Tax slab Tax to be paid One 2,00,000 0% Zero Two 3,00,000 10% 30,000 Three 5,00,000 20% 1,00,000 Four 5,00,000 30% 1,50,000 Total 15 lakhs 2,80,000 The total sum of income tax on all four suitcases =2,80,000 lakhs So, if your income is 15 lakhs, you have to pay 2.8 lakhs as income tax. But we forgot some important things: educational cess, tax exemption, tax deduction. 3% educational cess Cess means tax on the tax. Union budget 2012, has provision of 3% educational cess. Meaning 3% of 2.8 lakhs, equal to Rs.8400 Hence the total income-tax that you to pay = 2.8 lakhs +8400= Rs.2,88,400 Now time for two most important parts in the income tax calculation. What is the difference between Tax exemption and tax deduction? #1: Tax exemption Income tax= the tax on your income, but you dont have to pay income tax on certain type of income. For example Policemen and Army jawans get uniform maintenance allowance: Suppose Rs.1000 to wash and iron their uniforms and to polish their boots every month. Rs.1000 every month multiplied with 12 months equals to Rs.12,000 every year, apart from the regular salary. But Budget-2012 says this Uniform Allowance income is exempted from taxation. So, If an army jawan earns Rs. 2,12,000, then his taxable income is 2 lakhs minus Rs. 12000 exempted= Rs. 2,00,000. Now calculate his income tax on Rs. 200,000 based on our suitcase approach. (ans. Zero tax, because Cash finished at first suitcase.) Crux: Tax exemption is given on INCOME. #2: tax deduction If you spend your income on certain activities, you wont have to pay income tax on that much amount of your income. E.g.50% deduction, if you invest in Rajiv Gandhi Equity Savings Scheme. (RGESS) Suppose you earn nine lakh rupees a year and invest Rs.20,000 in RGESS, Thus , your taxable income = nine lakh rupees minus 50% of Rs.20,000 (invested in RGESS) = 9 lakhs-10,000 = Rs. 8,90,000 Now calculate the income tax on Rs.8,90,000 using our suitcase approach. Crux: Tax Deduction is given on SPENDING Union budget 2012: provisions of Tax Deduction and Tax Exemption Here are a few examples. Note: Im not filling up the minute details and you dont have to mug this list. Tax Exemption (on INCOME / Salary) Tax Deduction (on SPENDING) Transport / Conveyance Allowence Child education allowence Leave travel allowance (LTA) Medical Allowance Uniform / Dress allowance Gift from relatives Agricultural income House Rent income Rajiv Gandhi Equity Saving scheme. Tax saving mutual funds (ELSS) Five year tax-saver bank Fixed deposits Public provident fund (PPF) National Savings Certificate (NSC) or National Service Scheme (NSS) Employer contribution into New Pension Scheme (NPS) Life insurance/Unit Linked Insurance Plan (ULIP) premium Employees contribution towards Employee provident fund (EPF) Home loan principal amount payment. Post office tax saving deposit or tax saving bonds Pension scheme/Retirement plans (Secion 80CCC) Tuition fees paid for children education Medical Treatment of family (upto Rs.40k) What is Tax-Planning? It means use of Tax-Exemption and Tax-Deduction provisions in such a way that you can save maximum amount of tax. Who is Tax-Adviser / Tax-Consultant? These are extremely knowledgeable and experienced Chartered Accountants, MBA and Tax Lawyers. They make customized tax-saving plans according to your requirements. Big players in Tax Consulting = Ernst & Young, KPMG, Price waterhouse Coopers (PwC). Recall that Vodafone Essar deal: Saving Capital Gains tax in Caymens Island. These Big Players help in such huge tax-saving deals. Black Money and Agro-Income In above table, you can see that Agriculture income is exempted from income- tax. Lot of film stars forge documents and show they own farm-lands and theyre farmers. Game is simple. They take 5 crores from film producers or 50 lakhs to dance in Dubai. But on paper they show only few lakhs as legit payment received and pay income tax on that part only. Remaining money is shown as income from that agricultural land and thus totally exempted from income-tax. So this is also one type of Tax-Planning, just illegal. Black money = income on which tax is not paid. Coming back to the opening sentence of this article: How does RGESS save Rs.5000 In Tax? You already know the main provisions of Rajiv Gandhi Equity saving scheme Only first-time investors, with annual income less than Rs.10 lakh can invest in the scheme. One person can invest maximum Rs.50,000 only Ya but still how is Rs.5000/- saved? Youve to compare two cases to find that out. Case #1: dont invest in RGESS Your income is Rs.9 lakhs, and you dont invest in RGESS and dont get any other tax deduction or tax exemptions. The total taxable income is Rs. 9 lakhs. suitcase number Money packed Tax slab Tax to be paid One 2,00,000 0% Zero Two 3,00,000 10% 30,000 Three 4,00,000 20% 80,000 Four 0 30% 0 Total 9 lakhs 1,10,000 Thus, in case#1: youre paying Rs. 1.1 lakh as income tax Case #2: investment maximum in RGESS Your income is Rs.9 lakhs, and you invest to the maximum limit (Rs.50,000/-). Thus, the taxable income is = Rs. 9 lakhs minus 50% of Rs.50,000 ;because RGESS gives 50% Deduction. =9 lakhs 25,000 =Rs. 8,75,000 Now calculate income tax for Rs.8,75,000 using same suitcase approach suitcase number Money packed Tax slab Tax to be paid One 200000 0 0 Two 300000 10 30000 Three 375000 20 75000 Four 0 30 0 Total 875000
105000 Thus, in case#2, you pay 1,05,000 as income tax. Difference between Case #1 minus Case #2 =1,10,000 minus 1,05,000 = Rs. 5,000 Therefore all the newspapers, magazines and TV channels shout all the time that youll save Rs.5,000 by investing in RGESS. But here is a fine-print. This Rs.5000-magic works only if you fall under the 20% tax slab. If your income is rupees two lakhs and you invest Rs.50,000 in RGESS, you will not save any tax. Why? Because you fall in zero% tax slab. Your annual are not taxable in the first place! Similarly, if you are in the 10% tax slab, you will get different answers. Homework: (No, theyll not ask this in your exam, this is only for brain exercise) Calculate the maximum possible tax saving with RGESS, if your annual income is Rs.4 lakhs. Shortcut tip: You can get max deduction of 25,000 (that is 50% Deduction of Rs.50000 invested in RGESS) And your given income 4 lakhs fall under 10%. So, 10% of 25,000=Rs.2500 saved in tax. Why does this shortcut method work? Think about it. Anyways, whether you can save 5000 or 7000 that is not the important question for UPSC, IBPS (Bank PO) or MBA admission interviews. The important questions are following Why did Pranab come up with Rajiv Gandhi Equity saving scheme? Why are only first-time investors allowed to save money in the scheme? Why is Pranab not allowing people with annual income of Rs.10 lakh or above, to invest in this scheme? Why did Pranab say this move will improve the depth of domestic capital market? What is No-Frills demat account and why is Pranab talking about it? If you were in place of Pranab, How will you design the Tax Exemptions and Tax Deductions for the Aam-Aadmi and how will you help the Indian Economy? | Previous Articles in this category [Economy] Special 301 Report, Priority List, Implication on India, Nexvar case, Compulsory License, Patent Evergreening, IPR protection, USTR explained [Economy] Nokia Tax Row: Royalty Payment, Chennai Plant, Finland DTAA, Microsoft Takeover, UNICITRAL, TDS, Withholding Tax explained [Economy] New Bank Licences: Bandhan, IDFC, Bharatiya Mahila Bank; Differential Bank licences, Bimal Jalan Committee, Narsimhan Committee; arguments favor against, Bank nationalization, Historic evolution of Banking sector in India [Fed Tapering:Part1 of 2] Meaning of Fed Tapering, its Negative Impact on Indian Economy, Worst case scenarios, Balance of Payment Crisis, explained [Fed Tapering:Part2 of 2] Measures to immunize Indian Economy against negative impacts of Fed Tapering, Currency Swap, Dollar Swap, FCNR swap, Brics bank explained [Economy] Quantitative Easing: Meaning, phases, Impacts on Indian Economy, Rupee-Dollar Exchange rate, Pros & Cons, Positive & Negative aspects explained [Budget] Interim Budget 2014: speech highlights, Funds, Schemes, CSIS, UDAAN, Magnivisualizer, RDB Kit, NIMZ, Essays Subscribe by Email || Print || PDF This Post (Need Google Chrome Browser) Tags: budgettaxation 23 1. naveen lohar 01/09/2012 at 11:27 give answer please Reply 2. Mahendra 05/12/2012 at 00:10 Really Nice one to understand the income tax Reply 3. Mahendra 05/12/2012 at 00:11 Thanks for info! Reply 4. kaushal jha 05/12/2012 at 03:21 hi mrunal sir,rajiv gandhi equity savings scheme.max benefit is 50000rs?????????? Reply 5. ashok 24/12/2012 at 11:02 sir kindly give the explanation of the above question also Reply 6. ashok 04/02/2013 at 19:42 sir kindly give the explanation for abve also Reply 7. s.k.t 04/03/2013 at 16:37 GUYS IMPORTANT DO NOTE DOWN THE CHANGES IN THE RGESS IMPORTANT FOR THE UPSC EXAM *1)THE INCOME LEVEL OF AN INVESTOR HAS BEEN RAISED FROM 10 TO 12 LAKH PER ANNUM AND THE TAX BENEFIT WHICH WAS 50% FOR INITIAL MIN INVESTMENT OF 50,000 HAS BEEN INCREASED FOR 3 YRS FROM 1 YR(EARLIER) *=ANY DOUBT IN THE EARLIER PROVISION OF THE SCHEME REFER TO OUR BRILLIANTS(MRUNAL) ART AND THEN COMPARE IT Reply 8. komal 20/04/2013 at 18:39 how to calculate for 6 lakhs Reply o Neetu 23/12/2013 at 22:04 2,00,000 = zero 3,00,000 = 10% = 30,000 1,00,000 = 20% = 20,000 Total = 50,000 Reply o Neetu 23/12/2013 at 22:07 With investment in RGESS, Net Taxable income will be 5,75,000(if invested 50,000 in RGESS) 2,00,000 = 00 3,00,000 = 30,000 75,000 = 15,000 Total = 45,000 Reply 9. JASPAL 27/06/2013 at 11:35 Sir..for RGESS, now the max limit is 12 lakhs (for earlier 10L) and this 12L is gross total income (and not net notal income , hence no role of deductions play in RGESS) , am i right? Correct me if i am wrong.. Reply 10. JASPAL 27/06/2013 at 11:43 And also as the max limit is now 12L, then the max possible tax saving from RGESS would now be more than rs 5000? Am i right sir? Reply 11. Teja 08/10/2013 at 22:27 DOUBT in the difference between Tax exemption and tax deduction. Interest on Savings Bank deposit is allowable as DEDUCTION upto Rs.10000 under section 80TTA of the Income Tax Act,1961.Interest on savings deposit is an income and not spending,then why is that called/termed as DEDUCTION and NOT as EXEMPTION. Reply 12. shyam kishore 09/12/2013 at 19:59 how much money is to be invested to save 7000 income tax for the calender year 2013-14 Reply 13. sheetal 13/12/2013 at 21:37 hi, my salary is 500001 and monthly tax is deducting incometax 800 and 200 other tax. i want to save this money.pleaes guide me what procedure needs to be follow. and already i have done ING insurance policy of rs 1,35,000. and per year need to pay 55,000. Reply o Harish 23/12/2013 at 19:47 Check out PPF or VPF.. Reply 14. bankexamtrainee 23/12/2013 at 18:30 please provide answers Reply 15. M.PRITHVI RAJ 25/12/2013 at 17:11 Why is Pranab not allowing people with annual income of Rs.10 lakh or above, to invest in this scheme? Ans:because above 10 lakhs the profit a person gains is only 7500/-(u can check a person getting 11 lakhs and 15 lakhs where they get the same profit by investing in RGESS ==7500/-) Reply 16. PRITHVI RAJ 25/12/2013 at 17:13 Why is Pranab not allowing people with annual income of Rs.10 lakh or above, to invest in this scheme? Ans:because above 10 lakhs the profit a person gains is only 7500/-(u can check a person getting 11 lakhs and 15 lakhs where they get the same profit by investing in RGESS ==7500/-) Reply 17. ramesh 06/01/2014 at 10:25 thank u sir plrase post the answers for the above questions also Reply 18. Venkatesh 04/02/2014 at 15:52 The income tax is calculated on the Qualifying Amount after all your savings, exemptions and deductions. NOT on your whole gross annual salary. Say for example, your CTC is Rs.1000000 p.a and you have shown investment declarations for tax exemptions upto Rs.500000, then the tax will be calculated on the balance qualifying amount which is Rs.500000. Reply o Prabhat 01/03/2014 at 01:26 But you can tax deduction is allowed only up to 100000 savings Reply 19. HBL meena 13/02/2014 at 13:59 I have been paid Rs.50000 for getting coaching for IAS main examination whether the amount will give rebate for income tax or not [Economy] Fiscal Consolidation, Fiscal Deficit : Meaning, Implications, Explained Why Vijay Kelkar Committee was formed? HOME >> Economy || Published 2 years ago || 247 Comments so far.
1. Parts of Budget= Revenue + Expenditure 2. Types of Budget= Deficit/Surplus/Balanced 3. Why printing more money=Bad idea? 4. When fiscal deficit NOT BAD? 5. When & Why is fiscal deficit BAD? 1. Creates inflation 2. Black Money 3. Bond Yield increased 4. Crowding out investment 5. Twin deficit hypothesis 6. Current Account Deficit 7. Subsidy Burden = fiscal deficit increased 8. Interest Payment 9. Vicious circle: Trade to Fiscal deficit 6. Fiscal Consolidation: What is it? 7. Mock Questions Continuing episodes of technical incorrect economy. Set Location: Prime Ministers Office (PMO), New Delhi. Mohan is busy uploading (un)funny photos in his facebook album and tagging random friends in them to get more likes. Vijay Kelkar makes an entry in his office. Kelkar Sir, the expert reports suggest that fiscal deficit will be around 6 percent for 2012-13. This is very dangerous; you need do fiscal consolidation immediately! Mohan Ya but what is fiscal deficit and why is it dangerous? Kelkar What? youre an economist and yet you dont know what is fiscal deficit? Mohan Well I was an economist. But I didnt maintain notes and I did not revise the standard reference books either, so Im unable to recall the concepts right now, just like a no0b player of UPSC. Kelkar Well fiscal deficit (FD) = Budgetary Deficit + Market borrowing + other liabilities of Government Mohan Please Explain in English, from the very beginning. Kelkar Ok then let us start from the beginning.Every year, the Government puts out a plan for its income and expenditure for the coming year. This is, called annual Union Budget and you need to get it approved by the parliament. Mohan Side question: why do I need to get it approved by the parliament? Kelkar For the answer Click ME Mohan Ok back to the topic Parts of Budget: Revenue and Expenditure Kelkar: In every budget, there is incoming money (Revenue) and out going money (Expenditure). Incoming money Outgoing Money Incoming money is divided into two parts. Tax and Non Tax And outgoing money is divided into Plan and Non plan Expenditure. Incoming Outgoing Tax Non Tax Plan Non Plan Kelkar: We can further refine this classification into Revenue/capital receipts and Expenditure. But let us not complicate the matter for the time being. Mohan: Now What is this incoming money from tax and non tax sources? Kelkar: see the table yourself for the examples. Incoming money Outgoing Tax Revenue Non Tax Revenue Plan Non Plan Direct Tax Indirect Tax 1. income tax 2. Corporate tax; 3. Wealth tax 4. Capital gain tax (Vodafone case) 1. custom duty, 2. excise duty, 3. service tax. 4. VAT 1. Fees Collected (Driving license, RTI, Passport) 2. Fines and Penalties (Traffic violation etc) 3. Income from PSU (e.g. profit from Airindia (lolz) 4. Gifts. (discussed in 2 nd ARC article) 5. Grants (Foreign Aid from UN, Japan etc) 6.
Mohan: and what is this outgoing money? Plan and non-plan? Kelkar: Outgoing money = the area where Government spends the money (Expenditure). Plan-Expenditure means spending money on the activities related to the national five year plan. (FYP) Non-plan Expenditure, obviously means spending money on activities that are not related with national five year plan. Check the table for examples. Incoming Outgoing Tax Revenue Non Tax Revenue Plan Expenditure Non Plan Direct Tax Indirect Tax 1. income tax 2. Corporate tax; 3. Wealth tax 4. Capital gain tax (Vodafone case) 1. custom duty, 2. excise duty, 3. service tax. 4. VAT 1. Fees Collected (Driving license, RTI, Passport) 2. Fines and Penalties (Traffic violation etc) 3. Income from PSU (e.g. profit from Airindia (lolz) 4. Gifts. (discussed in 2 nd ARC article) 5. Grants (Foreign Aid from UN, Japan etc) 1. MNGREA 2. Janani Suraksha Yojana 3. JNNURM 4. Indira Awas Yojana 1. Salary of judges, bureaucrats and armymen 2. Buying new tanks and missiles 3. Subsidies: Petrol, Kerosene etc. 4. Light bills of Government offices. 5. Luxury Travel bills of Pratibha. Mohan: ok so now what? Kelkar: Now we classify the budget according to the balance between incoming and outgoing money. Types of Budget=Deficit,Surplus,Balanced When It is called a outgoing money > incoming money deficit budget. outgoing money < incoming money surplus budget. outgoing money = incoming money balanced budget. In reality, Government always has deficit budget. Because as long as there is Pakistan and China in the neighborhood, well have to maintain a huge army, keep buying new tanks and missiles. As long as there are poor people, well have to keep running various Government schemes. Mohan: come to the point. Kelkar: The point is, When Government spends beyond its aukaat, it creates a big pothole in the highway. This pothole can be called a Revenue deficit, budget deficit, fiscal deficit or primary deficit according to the formula you use to measure the depth of this pothole. This pothole cannot be filled with cement, asphalt or dirt. It can only be filled with cash.
In the 1980s, Sukhmoy Chrokroborthy Committee came up with the fiscal deficit formula Fiscal deficit= 1. Budgetary deficit (=total Expenditure minus total income) 2. + market borrowings (=through Government securities (G-Sec)/Bond) 3. + other liabilities (e.g. pension and provident to be given in future) Mohan: but why should we calculate this fiscal deficit? Kelkar: This fiscal deficit number tells you the depth of the hole and gives you the idea how much money do you need to borrow from the sources within India (internal borrowing from RBI, Other banks etc) and from abroad (external borrowing- World Bank, IMF etc.) Bigger the pothole, more cash you need to fill it up. Here is some food for thought. Incoming Outgoing Breakup for USA budget 2011. Click on Image to Enlarge.
Mohan then simply borrow money and fill up the pothole! What is the problem? Kelkar problem is Paisaa Ped pe toh nahi lagtaa (Money doesnt grow on trees). When you borrow money, youve to pay interest () to the party, every year.To pay this interest in the future, youve three options.first option =Increase the current taxes or create new taxes. Mohan Not a good idea sir-ji. Kelkar alright, Second option =Create policies to help stimulate economic growth so that tax collection automatically increases with it, like FDI in aviation, power sector, retail, insurance and so on. Mohan But thats Easier said than done :( Kelkar Then Third option : Print more currency and use it to fill up the pothole. This is called debt monetization. Mohan Now this third option sounds great :D Kelkar Actually thats the stupidest of all three solutions. Let me explain with the usual example. Why Printing more money= Not good idea? Suppose, Government orders RBI to print lots of cash to solve poverty. Then Government launches Rajiv Gandhi Suitcase yojana (RGSY) under which every BPL family is given a suitcase containing Rs.10 lakh. What will happen then? Theyll all go and buy lots of onion,milk,mobile, cars, houses everything. =Demand of product will increase, but the supply will remain almost the same as earlier. So, there will be one customer offering Rs.400 per kilo of onion, then another guy would offer Rs.500 per kilo of onion=inflation =not good. On the other hand, Suppose your boss pays you 10 lakh per year, but that means he definitely extracts work worth more than 10 lakhs from you and sells some goods/services to a third client. Thats why giving you 10 lakhs doesnt increase inflation. (because some other client is buying the services you had produced). but giving 10 lakh to a poor without making him economically productive = increases inflation. Hence printing money to solve problems= not good idea.
Here is another example: Suppose that there is only one commodity that everyone needs to buy in order to live a good life say wheat. Also, assume that our country produces 10,000 quintals of wheat every year. There are a total of 25,000 people in the country who spend Rs. 400 each per year to buy wheat. Since this Rs. 1 crore is spent to purchase ten thousand quintals of wheat, the cost of wheat is Rs. 1,000 per quintal. Now suppose that to repay some of its debt, the Government decides to print some new currency notes. Say the Government prints new notes worth Rs. 10 lacs. This means the amount of money available to spend increases from Rs. 1 crore to Rs. 1.1 crores. Since the amount of wheat produced hasnt increased, each tonne of wheat now costs Rs. 1,100, a 10% increase! (1.1 crores paid for ten thousand quintals = Rs. 1,100 per quintal). So we have just seen that the effect of debt monetization is inflation. Inflation acts like an invisible tax on all the people of a country. (recall the first option increasing tax was not a good option.) Mohan : Does that mean fiscal deficit =bad? Kelkar: not always bad. It depends on the situation. When fiscal deficit = NOT BAD? If the money that the Government had borrowed was used to increase the amount of wheat production, then the inflation could have been avoided. (for example borrowing money to create new canal or irrigation project) If Such irrigation project led to an increase in wheat production from 10,000 quintals to 11,000 quintals. In that case, even with an increase of money to 1.1 crores, the cost of wheat would remain steady at Rs. 1,000 per quintal. Thus wed have economic growth and also avoid inflation Clearly then, it was a good thing that the Government borrowed money to implement this program. Thus, fiscal deficit is not necessarily a bad thing, always. When and why is fiscal deficit= BAD? Creates inflation A large and persistent fiscal deficit =something is wrong in the economy. It can mean that the Government is spending money on unproductive programmes which do not increase economic productivity. (For example MNREGA, most of the money is eaten midway by the Sarpanch and Local officers.) =Bad Now these rich Sarpanch and Local officers buy more gold, land and cars= demand increased but other normal people dont have that much money = inflation. (demand pull type). Black Money Fiscal deficit= crudely speaking when incoming money is less and outgoing money is more. So, incoming money is less = tax collection machinery is not effective = perhaps lot of people are evading the taxes = black money =inflation (demand pull type) = Very bad. In extreme conditions, inflation can give way to hyperinflation that can completely destroy a country. =very bad. Bond Yield increased From Eurozone Greece Exit article, You already know what is bond yield. If not click me When Government keeps borrowing and borrowing to fill up the fiscal deficit pothole, then bond yield will increase = not good because more and more of taxpayers money (i.e. Government s incoming money) will go in repaying that bond interest rate rather than going into education or healthcare. Crowding out investment We already saw that, Fiscal deficit pothole can only be filled with cash. This cash has to be borrowed from RBI, other banks, FII etc. who buy the Government bonds. So, that much money (Credit/loan) is not available for other needy businessman. thus fiscal deficit Crowds outinvestment from private sector. Now that needy businessman will have to borrow money at higher interest from another party (this is how fiscal deficit increases interest rates)= input cost of product increased = he will increase the MRP of his product or service to maintain the same profit margin = inflation. (cost-push type)
Twin deficit hypothesis This hypothesis says that as the fiscal deficit of the country goes up its trade deficit (i.e. the difference between exports and imports) also goes up. Hence, when a government of a country spends more than what it earns, the country also ends up importing more than exporting. In India, the trade deficit story is basically about oil and gold two commodities that the country does not produce much but imports a hell of a lot. Current Account Deficit (CAD) When India imports more than it exports = leads to Current Account Deficit. (we already discussed it earlier, click ME) CAD is another pothole but it can be filled only with foreign currency (mostly dollars!) This increases the demand of dollars in Forex Market = rupee weakens against dollar= price of petrol will increase= again inflation= bad. Subsidy Burden = fiscal deficit increased the government of India does not pass on a major part of the increase in the price of oil to the end consumer and thus subsidises diesel, LPG and kerosene . So oil companies sell at a loss, and the government compensates these companies for the loss (by giving them bonds). This increases government expenditure, which, in turn, increases the fiscal deficit. Interest Payment In this financial year alone (2012-13), the government will pay more than 4 lakh crore just as interest payment on debt taken earlier! = more imbalance between incoming and outgoing money. The vicious circle: Trade to Fiscal deficit Thus, in Indias case, a greater trade deficit also leads to a greater fiscal deficit. So the causality in Indias case is both ways. A high fiscal deficit leads to higher trade deficit. And high trade deficit leads to higher fiscal deficit. And this, in turn, also leads to a weaker rupee, which, in turn, pushes up the cost of oil in rupee terms leading to a higher fiscal deficit. Now in the opening lines, Kelkar said Fiscal deficit would be around 6%. What does that mean? There are two ways to express Fiscal Deficit. 1. Absolute Value: Rs. 521,980 crores on March 31, 2012 . 2. Percentage: 5.9% of GDP. In newspapers and economic discussions, the Fiscal is usually expressed in second form (percentage). You might think 5 or 6% is such a trivial amount, why Kelkar is so worried? Well, to understand the gravity of the situation, youve to compare the percentage with other percentages. 1. Around 3.8% of Indias GDP goes in Education. (2012) 2. Around 6% of Indias GDP goes in Fiscal Deficit. (2012) 3. Greeces Fiscal deficit was more than 10% of its GDP and look how much trouble it is facing. (recall Eurozone Article) Therefore, we must not only pay attention to the fiscal deficit, we must also try and understand the different areas of Government spending. Is the Government borrowing money to spend on programmes that lead to increased economic productivity or is it spending on unproductive programs? Remember, even directly giving money (or amenities) to BPL, without making them more economically productive = dangerous because of the various reasons seen above. Fiscal Consolidation: What is it? Mohan ok so far I understood 1. What is fiscal deficit. 2. Why and when fiscal deficit is bad. But what is this fiscal consolidation? Kelkar Fiscal consolidation means doing everything to fix the fiscal deficit problem in its root and preventing heavy fiscal deficits situation from occurring in future. Mohan But How can we do that? Kelkar Just try to reduce the outgoing money and increase the incoming money. (Look at that plan-non plan table again.)That means 1. Cut down subsidies. 2. Stop leakages in subsidies. 3. Reform the tax structure (implement GST). 4. Improve the performance of PSUs. 5. Recover blackmoney 6. stop ministers from using Business class airtickets and other wasteful Government expenditures. (= take austerity measures) + Policy reforms such as FDI (to create environment conductive for economy = that will automatically increase productivity and tax collection. Recall the second option.)
Mohan hmm that itself sounds like a problem. I think I should make another Committee (so that I dont have to implement its recommendations). Let me check my phonebook for retired judges. Kelkar Sir this is the matter of economy not railway accidents. It requires an expert on economy. Mohan Then make a Committee headed by Montek Singh Kelkar but Media wont like his recommendations. (Everyone who earns more than Rs.20 is not a BPL and he should pay 10% income tax.) Mohan Then make a Committee headed by some columnist from The H*****! Kelkar But Madam-ji wouldnt like his recommendations. (hand over Finance Ministry to Fidel Castro) Mohan Then whom should I appoint? Kelkar The expert is sitting in front of you. Mohan Alright, tomorrow morning you goto the finance Minister along with your class 10,12,college marksheets, extra-curricular activity certificates and job experience certificates (if any) and get the appointment letter from him. Kelkar What??? I served as the finance Secretary of India (despite not being an IAS). I served as an executive director in IMF. Hell I even served as the chairman of 13 th Finance Commission of India! and now youre asking the Vijay Kelkar to submit his class 10-12 marksheets and extra curricular activity certificates? Mohan Chillx. I was joking. You may go now. If I need any more help, Ill give you a miss call. Kelkar PM and miss-call? Another joke? Mohan No, Im serious! Miss call= Government expenditure on phone bills reduced= fiscal consolidation. Kelkar Whaat an idea sir-ji. Then Vijay Kelkar set out for a journey to prepare a roadmap for fiscal consolidation. In September 2012, He submitted his report to the Government. Well see the recommendations of Kelkar Committee in future article. (To Be continued.) Mock Questions Which of the following statements are correct? 1. Salaries paid to Constitutional bodies is an example of Planned Expenditure 2. Fiscal deficit is always higher than budgetary deficit. 3. Fiscal deficit cannot be financed through external borrowing. 4. Kelkar Committee was created to suggest the roadmap for implementation of Direct Tax Code. 5. High and persistent Fiscal Deficit is a sign of healthy and growing economy. 6. To achieve Fiscal consolidation, Government should increase the non-plan expenditure. 7. Fiscal consolidation means the steps taken by Government to increase its shareholding in PSUs. 8. Vijay Kelkar is the chairman of 14th Finance Commission. Descriptive 15 marks (150 words) 1. What is fiscal deficit. Whatre the salient features of FRBM Act? 2. Major recommendations of Kelkar Committee on Fiscal consolidation. All of my articles on Economy are Archived on this link: mrunal.org/economy Ref 1. Wheat example from Parijat Gargs article on governindia.org 2. Kelkars Character is portrayed according to his bio on http://www.rediff.com/business/1998/sep/11kelkar.htm 3. US budget from www.sankey-diagrams.com 4. Twin deficit etc from http://www.dnaindia.com/money/column_of-deficits-falling- rupee-good-economics-and-mindless-austerity_1690732 5. Education GDP http://www.sunpost.in/2012/05/17/india-spends-3-85-gdp-on- education/ | Previous Articles in this category [Economy] Special 301 Report, Priority List, Implication on India, Nexvar case, Compulsory License, Patent Evergreening, IPR protection, USTR explained [Economy] Nokia Tax Row: Royalty Payment, Chennai Plant, Finland DTAA, Microsoft Takeover, UNICITRAL, TDS, Withholding Tax explained [Economy] New Bank Licences: Bandhan, IDFC, Bharatiya Mahila Bank; Differential Bank licences, Bimal Jalan Committee, Narsimhan Committee; arguments favor against, Bank nationalization, Historic evolution of Banking sector in India [Fed Tapering:Part1 of 2] Meaning of Fed Tapering, its Negative Impact on Indian Economy, Worst case scenarios, Balance of Payment Crisis, explained [Fed Tapering:Part2 of 2] Measures to immunize Indian Economy against negative impacts of Fed Tapering, Currency Swap, Dollar Swap, FCNR swap, Brics bank explained [Economy] Quantitative Easing: Meaning, phases, Impacts on Indian Economy, Rupee-Dollar Exchange rate, Pros & Cons, Positive & Negative aspects explained [Budget] Interim Budget 2014: speech highlights, Funds, Schemes, CSIS, UDAAN, Magnivisualizer, RDB Kit, NIMZ, Essays Subscribe by Email || Print || PDF This Post (Need Google Chrome Browser) 247 1. dhanjit choudhury 05/01/2014 at 10:33 plz explain how state can be a producer and or supplier of the private goods and services.. Reply 2. Anil Hasani 26/01/2014 at 21:35 killer sense of humour sir Reply 3. mayankmishra 28/01/2014 at 19:51 very good articleand hilarious too Reply 4. mayankmishra 31/01/2014 at 18:26 why cant we print money secretly and give that money to world bank,imf loans ? Reply o E.P.SANTHANAKUMAR 31/01/2014 at 19:14 hi frnds me too having same doubt why cant we print money secretly and use it for transactions Reply ABCD 31/01/2014 at 19:28 IMF , WB make use of Dollar as transaction . Even if we still wish to convert domestic currency to Dollar , the result could cause stag-flation . Reply o Nikhil Jain 06/03/2014 at 21:17 We can print money only against our bullion reserve. We cant print more money as it will carash the economy and also decrease bullion reseve. Reply 5. Deepali 14/02/2014 at 20:42 Hi Mrunal, Very well explained. Appreciate the effort. The new layout seems a little distorted. Certain texts are not clearly aligned and the whole thing is justified to the right. I suppose its work in progress. Reply 6. saurabh verma 14/02/2014 at 21:53 i am a follower of ur site since beigining,i truly enjoyed ur sense to simplfy the hard topic thank you for this .but this new layout version is not comfortable as previous version Reply 7. sandipan 11/03/2014 at 18:35 I think the correct formula is: Fiscal deficit = Budgetary deficit (Borrowings + Other liabilities) Reply 8. bhanu singh 31/03/2014 at 12:50 sorry to say but..anywhere if i am wrong then correct me..please .why not discussed about capital recieved and capital expenditureand this is a question of upsc 2010how to fiscal consolidate1-praise to fdi.2-privatisation of higher educational istitutions 3- downsizing of officers..4-offloading/sale shares of PSUsoptions area- 1,2,and 3.b-2,3,and 4..c-1,2,and 4.d-only 3 and 4 Reply 9. srikanth 12/04/2014 at 18:16 how to calculate gdp article in iyor site not open sir showing error please reslove this problem Reply 10. srikanth 12/04/2014 at 18:26 money/bitcoins:In this section 4,5,6,7 articles was not open please slove the problem Reply 11. Neeranshu 30/04/2014 at 11:41 Sir, some of your articles are showing page error.please help to resolve them Thanq Reply o Vivek Sahu 07/05/2014 at 01:05 we are not able to check out many old articles, Manu should appoint a committee of retd. judges before going out of govt. on this Reply 12. Rohit 11/05/2014 at 12:29 aarey yaar..many of the LINKS in this page as well as other pages arent working :(.. Reply 13. nidhimail.com 25/05/2014 at 13:24 thank you, Mrunal sir Reply 14. Naseeruddin 28/05/2014 at 16:47 Thank you so much sir i was bit afraid of economy subject but as i started reading your articles i am feeling myself as economics graduate :P My intention of posting message here is i am trying to know MORE about current account deficit but the link which you had provided in this article is NOT working Please resolve the problem (TO Friends ..Please help me with current account defict topic mail(naseer.ips@gmail.com) me if you have previous article of mrunal sir or else other) Reply 1 3 4 5 !
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[Economy] Recommendations of Vijay Kelkar Committee on Fiscal Consolidation Roadmap HOME >> Economy || Published 2 years ago || 33 Comments so far.
1. Observations of Kelkar 2. How to increase incoming money? 3. How to increase collection of Direct Taxes? Review DTC bill Data Mining PAN/UID Card Mandatory Create fake Orkut profiles Charge interest rate on tax defaulters 4. How to increase collection of Indirect Taxes? Increase the coverage of service tax Implement Goods and Services Tax (GST) 6% Excise duty on Merit goods only Whats the difference between Custom and Excise duty? What is Externality? Negative externality Positive externality E-Governance in CBEC 5. Disinvest from PSUs 6. Dividend from PSUs 7. How to Decrease Outgoing Money? Reduce Subsidies Change focus of Government schemes 8. Mock questions for CSE, RBI Grade B etc. Let us recap what we saw in previous episode starring Vijay Kelkar: 1. Fiscal deficit =When outgoing money is more than incoming money, a pothole is created. This pothole is known as Fiscal deficit and it is not good for the economy. 2. Fiscal consolidation = steps to be taken for preventing (or reducing) fiscal deficit pothole. Now the moving on: Observations of Kelkar 1. High fiscal deficits tend to 1. heighten inflation. 2. reduce room for monetary policy stimulus (=steps taken by RBI to direct economy) 3. dampen private investment, growth and employment. 4. millions of young, both skilled and unskilled, enter the labour force each year, hence inflation and unemployment can be politically destabilizing for the Government. If Government takes no step, then with a do-nothing approach, the fiscal deficit will be more than 6 per cent of GDP in the current year 2012-13, and such situation could lead the country to a 1991-like crisis. Therefore, Fiscal consolidation is necessary. So obviously, for fiscal consolidation, well need to increase the incoming money and reduce the outgoing money. Now, let us check some of the important recommendations of this Kelkar Committee.
How to increase incoming money? Increase Tax Collection In 2007-08, the tax to GDP ratio was almost 12% (but) in 2012-13 this ratio is estimated around 10%. It means tax collection has fallen down. Recall that fiscal deficit = Governments incoming money is less than its outgoing money. Thefore Government should take some measures to increase tax collection. There are two types of taxes: Direct and Indirect. Kelkar has given recommendations to increase the collection of both Direct and indirect taxes, in following manner. How to increase collection of Direct Taxes? Review DTC bill If Direct Taxes Code Bill, 2010 is implemented in its present form then there will be considerable tax losses to the Income Tax department. Hence it (DTC bill) should be comprehensively reviewed. Data Mining Since 2004, the Income Tax Department has been electronically obtaining a large volume of information from third-parties through the Tax Information Network (TIN). This is done to check tax evasion and black money. (but) there is a growing perception that the Income Tax Department is unable to harness this large volume of information, because it lacks data mining skills. (Therefore) Taxpayers have found new methods and avenues for parking their undisclosed income to escape detection by Income Tax dept. Thats why Income tax department should provide training in data-mining for all directly recruited inspectors and Assistant Commissioners, with the help of Big IT companies. PAN/UID Card Mandatory What is PAN, why is It used- all discussed in earlier articles. But still here is the brief recap: PAN is an all India, unique ten-digit alphanumeric number. PAN card is issued by the Income Tax Department. It does not change with changes in address or place.
This an example but dont be surprized, anyone can get PAN card. (=You dont have to be Indian Citizen) UID (Aadhar) is also similar- a unique 12 digit number, issued by Unique Identification Authority of India (UIDAI) to all the residents of India. Please note: there is difference between resident and citizen. Some people oppose Aadhar on this ground. (That illegal Bangladesis might also get it, if theyve the proof of residence). Please check this chart uploaded on official UID site. Extremely important for MCQs.
An Example of Aadhar Card. It also doesnot change with address or place. So if you got your PAN/UID while you were in college of Delhi but then shifted to Banglore, your PAN/UID numbers wouldnot change. This helps in tracking down tax evaders. Kelkar says amend the laws so that Irrespective of amount of money transected, PAN / UID number must be quoted in bank accounts, fixed deposits with banks, all salary payments and sale of immoveable property. This will also help detecting tax frauds and reduce black money. Create fake Orkut profiles Income Tax dept should create a 360 degree orkut profile of all taxpayers. This will help decreasing tax evasion and tax fraud. Online verification of PAN could be made mandatory for all high value transactions, in order to reduce black money transactions. Thus, if Government takes above steps then direct tax collection would increase. Charge interest rate on tax defaulters
Hasan Ali is Indias largest tax defaulter with dues allegedly over Rs 50,000 crore (Rs 500 billion) If a company or individual doesnt pay his taxes on time, then Government should charge 22-24% interest rate on his pending tax payments. Now second part: How to increase collection of Indirect Taxes? Kelkar says Mohan should reform Union Excise Duties (UED) and Service Tax (ST) so that they can be smoothly intergrated into upcoming Goods and Services Tax. Increase the coverage of service tax At present, many activities are outside the service tax regime, for example Department of Post, renting houses, Funeral services etc.etc.etc. Negative list= It is a list prepared by Government. It contains the names of services, which are exempted from Service tax. You can download the entire list by clicking me Kelkar says, this Negative list should be pruned (=trimmed, cut-down, shortened, condensed). That means, give exemption to very few activities. For example: Non-profit organizations should pay Service Tax. Government had given exemption to the Railways from service tax payment for transportation of goods and passengers (of higher class) upto 30.09.2012 Kelkar says, the Railways should no longer be exempted from service tax after that date. Implement Goods and Services Tax (GST) Kelkar agrees that it is difficult to implement GST from from 1st April, 2013 (because many states are opposed to it) But Government should atleast try to pass the Constitutional Amendment relating to introduction of GST, in the Winter Session of the Parliament. This would send out very strong signal to trade and industry about Governments serious intent to move forward on this issue. Once the GST is implemented, it will automatically increase the industrial output, exports and (thus) the tax revenues. 6% Excise duty on Merit goods only Excise duty = a type of indirect tax. Excise duty is collected by Union Government, on the goods manufactured or produced in India. Whats the difference between Custom and Excise duty? Excise duty = charged on goods produced (or manufactured) in india Customs duty= charged on goods imported into India as well as on goods exported from India. Please note: Excise on alcoholic liquors, opium and narcotics falls under the domain of State Government. Why? Because Seventh Schedule of the Constitution says so.
Anyways back to business. We were talking about Kelkars recommendations on Excise duties. Government of India charges excise duties on various goods produced in India. For example 12% small cars 6% on Iodine and LED Lamps. Kelkar says review the list of goods under 6% excise duty. Only Merit Goods should have Union Excise Duty of 6%. And for the other items, collect 8% excise duty. What are merit goods? Merit goods are products, such as education, library, museum, vaccination which consumers may undervalue but which the government believes are good for consumers as they exhibit positive externalities. ok now what is Positive externalities? I think we discussed that in earlier articles, but again What is Externality? Externality = When two party do some business, externality is experienced by the unrelated third parties that are not involved in that business. Negative externality I take admission in some pharmacy college. (ME and college are buyer and seller of education). But the college is bogus and doesnt teach anything meaningful. Then third party (Pharma industry) also suffers negatively, because the drug- company that gives me job in future will run less efficiently because Im not very skilled pharmacist! (this is an example of Negative Externality) Positive externality IF all kids are given policy vaccine by Government, then then Indias future workforce will be healthier and fitter =third party (Industries) will also benefit. E-Governance in CBEC Kelkar observed that under the Kerala VAT regime, the dealer must electronically provide invoice-wise details of all sales to, and purchases from, registered dealers. Central Board of Excise and Customs (CBEC) should also develop a similar computerized system for comprehensive cross-verifications. This will help in detecting the tax-evaders. These are (not all but) main recommendations of Kelkar on how to increase collection of direct and indirect taxes = incoming money will increase. He also suggested some more ways to increase incoming money. Disinvest from PSUs First of all, what is PSU? Answer Click ME You already know about Debt vs Equity, Shares vs Bonds If not click me Disinvestment (in crude terms) = when Government sells its shares from a PSU. The Budget 2012 wants Government to collect Rs.30,000 crores via Disinvestment. (This money would go in National Investment Fund under Ministry of Finace. And later on this money would be used to finance bogus Government schemes and to revise other PSUs, if theyre capable of making profits) Kelkar says, Government should sell minority stakes in entities such as SUUTI , Hindustan Zinc and Balco etc. This way, it can easily get the required 30k crores. But Kelkar has different views about what to do with this money! He says, The money thus collected, through the disinvestment process should be deployed in infrastructure= growth and employment. Using this money, Government could move into the sectors where private players would be hesitant to play a role. These include areas such as garbage clearing, public health, cleaning of rivers, recharging of groundwater, urban mobility and so on. Dividend from PSUs You already know about shares and dividend. If not, then go through the same debt vs equity article. Ok let us review what we learned so far 1. Fiscal deficit = outgoing money > incoming money. 2. Fiscal consolidation = steps aimed at reducing fiscal deficit. 3. To reduce fiscal deficit, we need to increase incoming money and decrease outgoing money. 4. We saw how to increase the incoming money (direct+indirect tax, PSU dividend and sell land) Now let us move to the second part: How to Decrease the Outgoing Money? Kelkar has plain and simple solution for this. Reduce Subsidies Kelkar says increase the prices of diesel, petrol, keroscene, LPG and Urea etc. (Actually he says Government should reduce the subsidies on each of them, in phased manner = price will increase automatically!) Kelkar also clarifies that he doesnt want complete elimination of subsidies. He says we shouldnt eliminate subsidies. Food subsidy is defensible. For undernourished children or lactating mothers food subsidy is not only defensible, it is ethically right and morally correct Subsidy must be continued for kerosene as long as it is affordable (for the government) But the subsidies should be reduced as and where possible. For example, LPG subsidies do not go to our people who fall in the low income bracket, therefore LPG subsidies should be removed. With a drastic cut in subsidies, a bigger part of the resultant savings should be channelized towards programmes that lead to creating new job opportunities. Kelkar agrees that Yes, reduction in (petrol, diesel, kerosene, urea) subsidies could lead to some short-term pain (=inflation ) but the government should spend more on employment generation, which would lead to higher growth and benefit everyone. If Kelkar report is implemented then Diesel price will increase by around Rs.6/lit and LPG price by Rs 87 per cylinder. Change focus of Government schemes Kelkar suggess that all Government schemes/Programmes for the poor should be centred around employment generation.(rather than populist schemes aimed at free electricity, TV Fridge etc.) These are the major recommendations of Kelkar Committee. This is what Kelkar said Now let us check what Government said on his report? Chindu: Im going to hold consolations with various stockholders and then decide the future course of action (about whether should we implement his report or throw it in dustbin). And In a developing country where a significant proportion of the population is poor, a certain level of subsidies is necessary. Mock questions for CSE, RBI etc. MCQs Which of the following, is/are not recommend by Kelkar Committee on fiscal consolidation 1. Government should sell unused land owned by various ministries, if it is not generating any Revenue. 2. Government should increase the subsidies on Urea. 3. Government should increase the excise duty on merit goods. 4. Government should exempt railways and non-profit organizations from service tax. 5. Government should not implement Direct Tax Code in its present form. 6. Government should not implement GST in its present form. Which of the following statements are correct? 1. Fiscal deficit stimulates the private investment, growth and employment. 2. All Excise duties fall under the domain of Union Government. 3. Customs duty is charged on imported items only. 4. Funeral services are exempted from service tax. 5. Property tax is an example of Direct tax. 6. Service Tax is collected by Income Tax Department. 7. PAN is a 12 digit alphanumeric code. 8. Only a person above 18 years, can get PAN card. 9. Only an Indian Citizen can get PAN card. 10. Aadhar is issued by Ministry of Home Affairs. 11. A person below the age of 18 years, is not eligible for Aadhar. 12. Only a Citizen of India can get Aadhar Card. Descriptive 150 words 1. What are the major recommendations of Kelkar Committee on fiscal consolidation? 2. Salient features of DTC Bill. 3. Salient features of proposed Goods and Services Tax. Interview 1. What is fiscal consolidation? 2. Why is it necessary to have low fiscal deficit? 3. The presidential debate between Obama and Mitt Romney revolved around healthcare cuts, tax cuts and fiscal deficits. How are they related with each other? | Previous Articles in this category [Economy] Special 301 Report, Priority List, Implication on India, Nexvar case, Compulsory License, Patent Evergreening, IPR protection, USTR explained [Economy] Nokia Tax Row: Royalty Payment, Chennai Plant, Finland DTAA, Microsoft Takeover, UNICITRAL, TDS, Withholding Tax explained [Economy] New Bank Licences: Bandhan, IDFC, Bharatiya Mahila Bank; Differential Bank licences, Bimal Jalan Committee, Narsimhan Committee; arguments favor against, Bank nationalization, Historic evolution of Banking sector in India [Fed Tapering:Part1 of 2] Meaning of Fed Tapering, its Negative Impact on Indian Economy, Worst case scenarios, Balance of Payment Crisis, explained [Fed Tapering:Part2 of 2] Measures to immunize Indian Economy against negative impacts of Fed Tapering, Currency Swap, Dollar Swap, FCNR swap, Brics bank explained [Economy] Quantitative Easing: Meaning, phases, Impacts on Indian Economy, Rupee-Dollar Exchange rate, Pros & Cons, Positive & Negative aspects explained [Budget] Interim Budget 2014: speech highlights, Funds, Schemes, CSIS, UDAAN, Magnivisualizer, RDB Kit, NIMZ, Essays Subscribe by Email || Print || PDF This Post (Need Google Chrome Browser) 33 1. Dr. Pooja 06/10/2012 at 03:11 MCQ ANS. I. statements NOT recommended by Kelkar Committee: 2, 3, 6. II. correct statements: 4, 5. Reply o Mrunal 08/10/2012 at 00:09 please recheck first answer. Reply o shailesh 30/04/2013 at 13:59 I 234 II 45 Reply 2. subhash 06/10/2012 at 08:25 Again a very well written article Reply 3. Manju G 06/10/2012 at 09:46 good article !! Property tax by nature is direct right ? but collected by Local bodies,, so can it be named under Direct Taxes ? Reply 4. sameer 06/10/2012 at 10:15 great article the obama pic on pan card is really funny hope MOHAN gets it Reply 5. Jay 06/10/2012 at 11:18 2,3,4,6 are not recommended by Kelkar Committee 4 and 5 are correct statements Reply 6. abhishek singh 06/10/2012 at 13:49 great article sir, you have made article very interesting by taking examples of Agneepath 2 and Barack Obama . nice efforts thanks very much. Reply 7. Lamrin 06/10/2012 at 16:41 GREAT ARTICLE!!!!!!!!!!!!!! Reply 8. vijaya pandi.p 06/10/2012 at 18:54 i am really like, your presentation strategy Reply 9. atul 06/10/2012 at 20:31 great work thank you statements I Ans: all are not recommend by Kelkar except 5 statements II Ans: only 4 & 5 are correct Reply 10. arp 07/10/2012 at 13:11 QUERY: For example, LPG subsidies do not go to our people who fall in the *low income bracket*, therefore LPG subsidies should be removed?? low or high? I > 2,3,4,6 are not recommended by Kelkar Committee II> 4 and 5 are correct statements Reply o Mrunal 08/10/2012 at 00:08 Your both answers are correct. Regarding your query: LPG subsidies are not reaching to low income bracket group people. because subsidized cylinders are bought in black market by restaurants etc. so the targeted beneficiaries (lower-middle class) are not getting sufficient supply and have to pay extra money to the LPG-dealer to get steady and regular supply for cylinders at home. Reply 11. mueenudheen 07/10/2012 at 17:48 thank u sir may god bless u. be vth us throughout our preparation Reply 12. prakash 07/10/2012 at 21:27 thank u sir for ur pretty simple presentation.plz tell me one online coaching which is good for preparations Reply 13. monu 08/10/2012 at 12:31 Mrunal.. with refer to your above mentioned line Once the GST is implemented, it will automatically increase the industrial output, exports and (thus) the tax revenues How GST will increase the industrial output, and exports..? unable to understand. may your clarify it please. Reply o Sankha Moulik 16/10/2012 at 17:22 When taxation structure for Industries becomes simple and they have to pay only one tax i.e.GST irrespective of location,product etc., obviously it will lead to the companies pumping more money into building capacities leading to higher productivity and employment generation.as now they do not bother about what types of taxes to pay for their products or places of saleslike whether its ED exempted,how much CST to payor its VAT applicable or CENVAT has to be paid. Reply 14. Akilan 08/10/2012 at 19:27 I have read most of your Economics article and i am irresistable to post this. Adam Smith may be the father of Economics but you (Mrunal Patel) is the father of Economics for us who are poor in Economics. Reply 15. SIDHARTHA 09/10/2012 at 11:50 Mrunal sir i have some doubts oct 1 hindu the article by crl narsimhan i.e. throwing good money after bad money,i m unable to understand.please through some light on it.. and on oct 8 playing brinkmanship to promote infrastructure he has mentioned that multibrand retail thing does not need legislative approval.how come sir?but i think the insurance and pension needs to be passed in parliament. please clarify thank you Reply 16. SIDHARTHA 09/10/2012 at 11:52 halo friends does any one have any idea when will the upsc epfo results be declared and when will the rbi grade b advertisement be published Reply 17. rakesh 09/10/2012 at 12:23 thanks sir Reply 18. prakash 10/10/2012 at 21:10 sir kindly plz suggest one good online coaching class or dvd s containing classes Reply 19. sridhar 30/10/2012 at 23:17 Nice Article. Thank you very much. Reply 20. AJAY 20/11/2012 at 02:55 thank u. Reply 21. Siddartha 11/12/2012 at 15:00 Mrunal sir can you say in detail dpt vaccine Reply 22. surya kant 26/12/2012 at 07:56 all option of first question is not recommended by kelkar and in second question all option are wrong Reply 23. b kumar 30/12/2012 at 10:51 you are really very funny great work sir i feel happy when i read ur article. Reply 24. Payal 30/01/2013 at 01:13 Sir can u pls tel me which ministry issues the aadhar card?? Reply 25. karan 02/03/2013 at 01:57 aadhar- plg commission Reply 26. RAHUL GIRREDDY 19/12/2013 at 10:20 EXCELLENTYOU ARE BETTER THAN COLLEGES. Reply 27. JASPAL 11/02/2014 at 11:24 Sir in the article there is no point on kelkars recommendations on PSU dividend and land use? (there is a heading on PSU dividend,but no explanation on that) Reply 28. dimple 28/03/2014 at 17:35 NICE ARTICLE MRUNAL Reply 29. Dr G.k.jha 25/04/2014 at 20:55 Very nice article [Economy] Capital Goods and Capital Gains: Meaning, Difference Explained HOME >> Economy || Published 1 year ago || 63 Comments so far.
1. What is Capital Goods? 2. Examples of Capital goods? 3. Why is Capital Goods important? 4. What is capital gains? Question from a reader: What is the difference between Capital Goods and Capital Gains? What is Capital Goods? Capital goods are the tools and machinaries used for producing consumer products. Theyre (usually) expensive, and theyre purchased for long-term use. Raw materials are also needed for producing consumer goods (Biscuits, bread etc) but they are not capital goods. Capital goods are also known as producer goods. Examples of Capital goods? Heavy equipment (such as excavators, forklifts, generators, metal-forming or metal-working machines, vehicles). boilers, storage tanks, evaporators Chemical factory Mixer, grinders, refidgerators Ice-cream factory Dumpsters, bulldozers etc big vehicles Construction, mining industry. In short, factory equipment are capital goods because theyre used to produce customer goods. But the equipment used in an office= not capital goods for example stapler, paper shredder, pen-holder, water-cooler table, chair etc. Similarly, specialized air-conditioners installed in drug/ ice-cream factories to maintain uniform temperature during production= capital goods. But air-conditioners installed in that factory owners cabin=not capitals goods. Why is Capital Goods important? If Capital goods are expensive, then companies cannot buy them=low production= low GDP. If they buy expensive capital goods, theyll keep final products MRP high to keep the profit margin same. Hence, Government gives tax reliefs on purchase/import of Capital goods by businessmen. When you want to import Capital goods from a foreign country (e.g. USA ), youll need pay them in their own currency (dollars)? So where to arrange for the dollars? Recall the FCNR account article Click ME What is capital gains? Capital gains= profit made by selling your capital assets. When you make profit by selling your capital assets, youve to pay tax to the Government on that profit. That is known as Capital Gains Tax. (CGT) Examples of Capital Assets are 1. Land (but not the agricultural land) 2. Building Factory Plant and machinery. (except raw-material, or finished products) So when you sell capital goods discussed above, and make profit, then youll have to pay capital gains tax (CGT). 3. Shares, debentures, mutual funds etc. 4. jewelry, paintings, sculptures and other Archaeological collections. (from 2008 onward) Capital gains tax are of two types: short term and long term. (depending on how long you kept the asset before selling it.) Capital gains tax is a direct tax. (because direct tax=charged on your income and property). For more on Capital Gains tax, check Vodafone Case article click me). Mock Qs Q1. Which of the following is correct 1. Capital Gains tax, Custom duty are examples of Direct tax 2. Agricultural land is exempted from Capital Gains tax. 1. Only 1 2. Only 2 3. Both 4. none Q2. Which of the following are not Capital goods? 1. Wheat stored in a granary 2. Boiler in a chemical factory 3. Air-conditioner in a corporate executives office 1. Only 2 2. Only 1 and 2 3. Only 1 and 3 4. Only 2 and 3 | Previous Articles in this category [Economy] Special 301 Report, Priority List, Implication on India, Nexvar case, Compulsory License, Patent Evergreening, IPR protection, USTR explained [Economy] Nokia Tax Row: Royalty Payment, Chennai Plant, Finland DTAA, Microsoft Takeover, UNICITRAL, TDS, Withholding Tax explained [Economy] New Bank Licences: Bandhan, IDFC, Bharatiya Mahila Bank; Differential Bank licences, Bimal Jalan Committee, Narsimhan Committee; arguments favor against, Bank nationalization, Historic evolution of Banking sector in India [Fed Tapering:Part1 of 2] Meaning of Fed Tapering, its Negative Impact on Indian Economy, Worst case scenarios, Balance of Payment Crisis, explained [Fed Tapering:Part2 of 2] Measures to immunize Indian Economy against negative impacts of Fed Tapering, Currency Swap, Dollar Swap, FCNR swap, Brics bank explained [Economy] Quantitative Easing: Meaning, phases, Impacts on Indian Economy, Rupee-Dollar Exchange rate, Pros & Cons, Positive & Negative aspects explained [Budget] Interim Budget 2014: speech highlights, Funds, Schemes, CSIS, UDAAN, Magnivisualizer, RDB Kit, NIMZ, Essays Subscribe by Email || Print || PDF This Post (Need Google Chrome Browser) 63 1. Virjeet 20/12/2012 at 14:37 1-C 2-B Correct me if i am wrong Reply o Pranav 20/12/2012 at 14:40 You are correct..!!! All the best for future answers :)..!!!! Reply Pranav 20/12/2012 at 14:42 COrrecting you: 1.B 2.C Reply suresh mannepula 21/12/2012 at 21:21 HI Pranav 1st question answer is both just check it Reply Sailesh 08/04/2014 at 01:47 Capital gains tax = Direct tax but Custom duty = Indirect tax Virjeet 20/12/2012 at 14:43 Sorry my mistake, here it is NOT CAPITAL GOODS. Answers would be: 1-B and 2-C Reply o vinod 27/02/2014 at 00:33 why c ..aggriculture is not asset so why considering ingoods Reply 2. Jayanth 20/12/2012 at 14:52 thank you mrunal ji for the article. Reply 3. Krishna Kumar Saurabh 20/12/2012 at 14:57 answering in simple and very effective way. Thanx Reply 4. Majhar 20/12/2012 at 15:18 Beautiful, thank you Mrunal.. 1.c 2.c Reply 5. dee... 20/12/2012 at 15:50 1-c,2-c Reply 6. Sunit 20/12/2012 at 17:37 Sir, please throw light on the political scene in Nepal. Thanku Reply 7. Vineeth V 20/12/2012 at 18:02 Hi Mrunal, Can you please elaborate about Direct cash Transfer scheme. Many arguments are there for and against this scheme. Also, please explain about Multiplier effect, since I am from engineering background. Thanks. Reply 8. gaurav 20/12/2012 at 18:48 @mrunal=Hey plz answer the ques. That came in csat 2012 bout capital gain..it includes painting as capital gain Reply 9. Sexy Radha 20/12/2012 at 20:51 1 B 2 C Reply 10. gopal 20/12/2012 at 21:03 IT IS GOOD SITE FOR GS Reply 11. Shiva Ram 20/12/2012 at 21:57 Hey Mrunal, I have a doubt. So if I am selling my stock over a short term or long term then I am gaining from the transaction. But I dont have to pay for the gain I made in making the buck as I am selling it? But I have to pay tax on the stocks I bought(be it short term or long term)? Reply o Manish 21/12/2012 at 06:29 Friend, I suppose Income Tax Department can only keep a check on the stocks bought to levy tax on, the profits you made out of them, are not in direct vigilancemrunal sir please correct me and clarify.. Reply Shiva Ram 25/12/2012 at 18:59 But the profit gained can be tracked through our bank account and PAN card right. Mrunal sir?? Reply 12. Rajvinder 20/12/2012 at 22:09 I think ans should be 1:b 2:a Reply 13. vivekanand 20/12/2012 at 22:23 sir, pls.put light on FDI in retail. Reply 14. vivekanand 20/12/2012 at 22:31 SIR, WHAT IS DIFFERENT BETWEEN CPF AND PF/GPF,AS I M A GOVT.SERVENT THERE IS NO ANY DEDUCTION FOR GPF/PF.PLS.CLEAR THIS IN YOUR OWN STYLE. Reply o Shekhar Mishra 21/12/2012 at 00:40 PPPin Post Office . PF( may call it CPF ) -for private and PSUs ( PSUs and some large private companies may run their own PF after getting approval from Income Tax dept. and CPF commissioner ) . GPF for government employees ( for State government employees to State government ). Actually they do cut your GPF you never get your pay slip ! Reply 15. Yashpal 20/12/2012 at 22:40 Q. What is the difference between Capital Goods and Capital Gains? Capital gain is a profit that results from selling/disposition of a capital assets/goods. While capital goods are goods used as means of production. Capital goods are generally man-made. [Wiki] Reply 16. D.K.Gupta 21/12/2012 at 07:54 C C Reply o Mrunal 21/12/2012 at 19:16 Please recheck. Correct answers are: 1B and 2C. Reply kris 01/08/2013 at 19:28 sir, actually wheat also useful for making another product (like bread) so,we not consider it as a capital good? Reply 17. prabhat patel 21/12/2012 at 08:26 sir, please tell me about GST. Reply 18. Anurag Dixit 21/12/2012 at 11:04 The Goods and Services Tax (GST) is a value added tax to be implemented in India, [1] the decision on which is pending.[2] It will replace all indirect taxes levied on goods and services by the Indian Central and State governments. It is aimed at being comprehensive for most goods and services with few tax exemption. India is a federal republic, and the GST will thus be implemented concurrently by the central and state governments as the Central GST and the State GST respectively.[3] Exports will be zero- rated and imports will be levied the same taxes as domestic goods and services adhering to the destination principle. Reply 19. Dinesh Jaan 21/12/2012 at 12:05 From April 2000 to Aug 2012. INdias FDI INFLOWS STATEMENT: COUNTRY IN CRORES PERCENT 1.MAURITIUS 303,261 37.26% 2.SINGAPORE 82,866 10.12% 3.U.K 77,693 9.52% 4.JAPAN 64,297 7.53% 5.U.S.A 49,126 6.03% Etc. Mrunal. Can you make this clear with an article? This may help in GS -2 for all UPSC ASPIRANTS Reply o Mrunal 21/12/2012 at 18:54 most of that FDI coming from Mauritius (37%) money is round tripping. (Indians bringing their own money back via fake companies to evade tax.) Reply 20. GOPAL GUPTA 21/12/2012 at 12:25 would you please suggest me?, how can i prepare for upsc efficiently while working with govt. organisation? Reply 21. Niraj Kumar 21/12/2012 at 12:29 1. B 2. C Reply o Mrunal 21/12/2012 at 18:51 your answer is right. Reply 22. Mayank 21/12/2012 at 13:09 Thanks a lot mrunal bhai for this article. Customs duty is an indirect tax. Hence answer to 1 is b Boiler in a chemical factory falls under the capital goods, answer is c. by the way, APFC ka result kab aa raha hai ?? Reply o Mrunal 21/12/2012 at 18:52 your answers are correct. Reply 23. Hafsa 21/12/2012 at 15:42 Hello Sir, Thank you for the article. Kindly write on Banking Amendment bill..Its benefits and losses in the market and to the common people. What actions need to be taken by Government to implement this bill successfully? Thank you once again Reply 24. vaishali 21/12/2012 at 18:05 1.b 2.c Reply 25. vaishali 21/12/2012 at 18:09 sir how can i prepare for civil while doing job? Reply o Mrunal 21/12/2012 at 18:34 read forth article: 1. (Part 1 of 5): UPSC Exam Trends and Changes 2. (Part 2 of 5) : Importance of Notes, Newspapers and Books 3. (Part 3 of 5): How to approach General Studies for CSAT prelims, Mains and Interview 4. (Part 4 of 5): Time Management, Coaching etc. 5. (Part 5 of 5) Career Backup Plans: How to prepare for State PSC etc Reply 26. Dhruv 21/12/2012 at 18:26 how are shares, debentures, MFs capital goods? Reply o Rubina 21/12/2012 at 18:29 they r not capital goods they r capital assets Reply Dhruv 21/12/2012 at 18:34 whats the difference? Reply 27. SOVA 21/12/2012 at 19:48 THANKS GURUJI Reply 28. Ravi 21/12/2012 at 19:55 in the recommendation of narasimha rao committee for banking reforms in 1991.. one of the recommendation was the public sector bank should attain CAPITAL ADEQUACY RATIO of 8% by 1998. so what is the capital adequacy ratio?? n also what is Asset reconstruction company?? please if you can tell me.. Reply o MAHARAJA RANJEET SINGH 21/12/2012 at 20:29 mr ravi ye narsimham committee hai bhai,narsimha rao was the then prime minister Reply 29. Mohita Agrawal 21/12/2012 at 21:33 Q.1 (b) Q.2 (c) Your articles are indeed a boon for all aspirants. Especially for those who are looking for concept clarity. Excellent and lucid explanations. Thank you Sir. Reply 30. ANKUSH 21/12/2012 at 22:13 easy explanation Reply 31. naveen lohar 21/12/2012 at 22:18 c c Reply 32. prabhat patel 21/12/2012 at 22:58 sir,what is GST? Reply 33. Pi-ace 22/12/2012 at 11:42 Ans1. B [Economy] Infrastructure Debt Funds (IDF), Withholding Tax, EPFO Angle: Meaning, Concept, Explained HOME >> Economy || Published 1 year ago || 49 Comments so far.
1. What is Infrastructure? 2. Why is Infrastructure important? 3. What is the problem with Infrastructure? 4. What is problem with Banks? 5. Mechanism of Infrastructure Debt Fund 6. Attracting investors 7. What is withholding Tax? 8. First IDF 9. Why EPFO interested in Infra-Debt Funds? What is Infrastructure? Things that are essential for functioning of economy: roads, sea-ports, airports, railways, metro rail, electricity-generation etc. Why is Infrastructure important? GDP=Money value of all goods and services produced in a country within a year. If there is shortage of electricity, factory owners cannot produce lot of mobilesets, TVs, refrigerators. = Production of goods decreases. If there is shortage of electricity, hospitals cannot carryout X-ray, CAT-scan etc. = Production of services decreases. Therefore, good quality Infrastructure is essential for achieving high GDP growth (9%). What is the problem with Infrastructure? Government estimates that one trillion dollars will be required in next 5 years to finance all the important infrastructure projects. But Government cannot finance all those projects by itself. Because theyre already spending lot of money on Food-Fertilizer subsidies, MNREGA, Air-India etc. Government cannot merely print more suitcases full of money to finance these infrastructure projects, else itll create inflation. click me to know why If Government borrows money from public, to finance these infrastructure projects, itll severe the problem of fiscal deficit. So, Government wants 50% of that required money to come from private sector (banks, domestic and foreign investors.) What is problem with Banks? Such infrastructure projects require long-term funding for 20-25 years, but banks are already exposed to too much risk (loans given to 2G players, Vijay Mallya etc.) In the present situation, banks are unable to finance infrastructure projects for more than 5-7 years time-frame. Hence, there is need to channel money from the hands of investors into infrastructure projects. (+ also need to reduce investment in Gold, because it increases current-account-deficit.) To achieve this, Government has come up with new idea = Infrastructure Debt Funds. Mechanism of Infrastructure Debt Fund You already know about Debt Vs Equity, Shares vs Bonds, if not click ME In technically-not-so-correct term, Infrastructure Debt Fund (IDF) essentially means that 1. You invest money in an IDF company. 2. IDF company lends your money in some Infrastructure project company (as Debt). 3. That infrastructure project company pays interest rate to IDF Company. 4. IDF company gives that interest money to you. (after cutting its commission). Thus you make profit on your investment. Tax Policy to Attracting investors By merely allowing creation Infra Debt Funds, Government cannot bring in the investment in infrastructure projects. Government also needed to give some benefit (carrots) to lure the investors. Finance Minister has given two carrots 1. Withholding Tax reduced from 20% to 5% (for foreign investors) 2. Money earned from IDF is exempt from income tax. (for desi investors) What is withholding Tax? Suppose a non-resident (foreigner), lends money to an Indian company and earns Rs.100 interest per year. Earlier he was supposed to pay Rs.20 to the Government, but from now onwards only Rs.5 It is called withholding tax, because he (foreigner) doesnt need to pay the tax himself, but the company who borrowed money, is required to withhold it and give money to Government. Example you (foreigner) loaned me (Indian company) some money. On 1 st December, Im supposed to pay you Rs.100 as interest, but Ill give you only Rs.95, and put aside Rs.5 and send it to Government as withholding tax. Since Government reduced withholding tax from 20% to 5%, that mean you (foreign investor) can earn more money, so this way Government has tried to seduce the foreign investors, into investing in Infra-Debt Fund in India. First Infra-Debt Fund of India The first IDF-fund of India, was setup by a consortium (gang) of ICICI, BoB, Citi bank and LIC. This entity will work as a Non-Banking Finance Company (IDF-NBFC), and hence theyll come under the jurisdiction of RBI. They could have set it up as a mutual fund company, but then theyd have come under the jurisdiction of SEBI. Anyways, shareholding pattern is Member % ICICI 31 Bank of Baroda 30 Citi Bank 29 LIC 10 Total 100% ^there is no need to mugup, this is just for information. We can speculate that near future, SBI will also come up with something like this, to counter ICICI. Why EPFO interested in Infra-Debt Funds? Problem with EPFO Employees Provident Fund Organization (EPFO) takes money from people, invests it shares and bonds, earns money and pays it to the EPFO subscribers. (After cutting its commission). Central Board of Trustees= the decision making body of EPFO. It is headed by Labour minister. Theyve made rule : EPFO must invest in Government-securities (G-sec) and companies AAA credit rating only. Problem: Most companies dont have AAA-rating, so EPFO is forced to park majority of its money in Government-securities (G-sec). Recall the concept of Gilt-edged securities (click me). Government/ treasury bonds are more reliable, hence, they pay less interest. (because they dont need to seduce investors by offering higher interest rate, unlike some junk bond company with C or D credit rating.) So, ultimately problem for EPFO managers= G-sec doesnt pay much interest. (Around 8% only). While New Pension Scheme (NPS) managers, invests in many other places, including risky bonds, and make around 12% profit. If things go on as usual, then in long term, people might switch from EPFO to NPS and other various pension-provident-retirement policies offered by private firms like Max Life insurance, Bajaj Alliance, Kotak Mahindra etc. to get better deals. Solution Therefore, EPFO wants to invest money in Infrastructure Debt Funds (IDF) to earn more profit to give better return-on-investment to its subscriber. It is looking forward to invest about 5 lakh crores in IDF funds. But newly formed Infrastructure Debt Funds (IDF) companies will not get AAA credit rating immediately. So EPFO needs approval from Central Board of trustees to modify the investment rules. And since Central Board of Trustees, is headed by labour minister so essentially EPFO needs approval of Labour Ministry. Mock Questions Q1. Regarding Infrastructure Debt Funds (IDF) in India 1. The first IDF fund was setup by State Bank of India (SBI) 2. IDF is exempted from Withholding tax. Which of above is/are correct? 1. Only 1 2. Only 2 3. Both 4. None Q2. Find Incorrect Statement 1. The apex decision making authority for EPFO rests with the Finance Minister of India. 2. Withholding tax is an example of Indirect Tax 1. Only 1 2. Only 2 3. Both 4. None Q3. Which of the following fund receives the proceeds from disinvestment? 1. Infrastructure Debt Fund 2. Consolidated fund of India 3. National Investment Fund 1. Only 1 2. Only 2 and 3 3. Only 1 and 2 4. Only 3 | Previous Articles in this category [Economy] Special 301 Report, Priority List, Implication on India, Nexvar case, Compulsory License, Patent Evergreening, IPR protection, USTR explained [Economy] Nokia Tax Row: Royalty Payment, Chennai Plant, Finland DTAA, Microsoft Takeover, UNICITRAL, TDS, Withholding Tax explained [Economy] New Bank Licences: Bandhan, IDFC, Bharatiya Mahila Bank; Differential Bank licences, Bimal Jalan Committee, Narsimhan Committee; arguments favor against, Bank nationalization, Historic evolution of Banking sector in India [Fed Tapering:Part1 of 2] Meaning of Fed Tapering, its Negative Impact on Indian Economy, Worst case scenarios, Balance of Payment Crisis, explained [Fed Tapering:Part2 of 2] Measures to immunize Indian Economy against negative impacts of Fed Tapering, Currency Swap, Dollar Swap, FCNR swap, Brics bank explained [Economy] Quantitative Easing: Meaning, phases, Impacts on Indian Economy, Rupee-Dollar Exchange rate, Pros & Cons, Positive & Negative aspects explained [Budget] Interim Budget 2014: speech highlights, Funds, Schemes, CSIS, UDAAN, Magnivisualizer, RDB Kit, NIMZ, Essays Subscribe by Email || Print || PDF This Post (Need Google Chrome Browser) 49 1. Nitish Pathode 07/12/2012 at 11:46 Can you please upload a schematic showing different ministries n under them different boards n schemes. Its confusing n often asked. Reply 2. D arya 07/12/2012 at 12:23 d a c Reply 3. Ram 07/12/2012 at 12:30 Ans: 1. B 2. B 3. D Guys.Correct me if am wrong Reply o kaushal jha 08/12/2012 at 04:04 read above news,he askd ? 4m there only1-d ,2-a ,3-d Reply Suman 10/12/2012 at 16:00 1-d 2-c 3-d Reply kaushal jha 16/12/2012 at 03:37 2-c Reply o Suman 10/12/2012 at 16:00 Q-2: Which is incorrect A:- Both (c) Reply 4. Jazz & Liquor = Jazzy L 07/12/2012 at 12:50 Funtasktisch Reply 5. parmod 07/12/2012 at 13:21 thanks Reply 6. arvind 07/12/2012 at 13:27 @ram u r rite bro Reply 7. Partho 07/12/2012 at 13:38 D Not exempted but reduced to 5 %. D Is a direct tax. D NIF Reply o rahul 02/01/2013 at 20:40 Withholding tax is indirect tax. Reply Amrinder 09/01/2013 at 12:02 Withholding tax is direct tax. Reply 8. Neeraj kumar 07/12/2012 at 14:02 i think answer is D,C,D Reply 9. Partho 07/12/2012 at 14:10 EPFO is headed by Labour Minister. @Neeraj you might want to check your answer. Reply 10. Bhupender Singh 07/12/2012 at 16:45 D D D Reply 11. Shakta 07/12/2012 at 17:03 1-D 2-C (@Partho in Q.N.2 we have to choose the incorrect statement and both are incorrect.)
Pls clarify the Q.N.3 Reply o Partho 07/12/2012 at 18:31 Yes you are right. it is C as both the statements are wrong. I dont know why i am making mistakes in reading questions these days!! Reply o upscaspirant 07/12/2012 at 19:10 Question no.3 D Reply 12. asheesh 07/12/2012 at 18:07 so lucid and easy way to clear content.thanks Reply 13. ASHUTOSH MISHRA 07/12/2012 at 18:07 1-b 2-b 3-b Reply 14. AK 07/12/2012 at 18:13 Acc to me answers should be DAD. Reply o sanjeev 07/12/2012 at 18:39 u r rt Reply 15. arvind 07/12/2012 at 18:27 @shakta all the money which gov get from all sources goes into the consolidated fund but this disinvestment money goes into the NIF which is used by two ways..first in Investment in social sector projects which promote education, health care and employment; and other is Capital investment in selected profitable and revivable Public Sector Enterprises that yield adequate returns in order to enlarge their capital base to finance expansion/ diversification. Reply 16. sanjeev 07/12/2012 at 18:30 d a d nice article Reply 17. upscaspirant 07/12/2012 at 19:15 answers 1. d 2. c 3. d mrunal please clarify Reply 18. Shakta 07/12/2012 at 23:18 @Arvind yup got it bro :) Thanks a lot :)
@Mrunal Sir pls clarify if D C D is correct ? Reply 19. Arjun 08/12/2012 at 01:39 Answers 1) d 2)c 3)d explanation : Salient features of NIF: (I)The proceeds from disinvestment of CPSEs will be channelised into the National Investment Fund which is to be maintained outside the Consolidated Fund of India Reply 20. shalinee 08/12/2012 at 08:29 Hi, the above questions aregood Answers are D,A ,C Reply 21. Umar 08/12/2012 at 09:44 AWESOME SIRJI Reply 22. suresh 08/12/2012 at 09:54 1.d 2.b 3.d Reply 23. Mrunal 08/12/2012 at 12:27 To all, here is the official Answerkey 1-D 2-C 3-D Explanation Q1. The first IDF of India was not setup by SBI. and if there is foreign investor, he is liable to withholding tax in IDF investment. So both statements are false. Hence Answer choice (D) none of them is correct. Q2. EPFO Decision Making = Central Board of Trustees headed by Labour Minister. so first statement is false. Direct Tax is levied in the income or property of a person. On that line, Withholding tax is also a direct tax, because it is levied on the income of a foreign investor (interest rate earned by him). Hence Both statements are false, and question is asking about find incorrect statements. Therefore Answer is (C) both are incorrect. Q3. Proceeds from disinvestment goto NIF (National investment fund). Answer is (D) only 3. Reply o rahul 02/01/2013 at 20:44 Withholding tax is indirect tax. Since it is paid by one and submitted by someone else. Like service tax ,custom,excise duty etc. Reply Siri 13/05/2013 at 11:57 Indirect tax is that where burden of taxation shifts to someone else from the point of taxation Here the burden of taxation is still on the foreign investor, though its being deducted by IDF, his income is reduced as a result( SO burden on the investor ) Reply 24. ANKIT 08/12/2012 at 19:01 Great articles! very interesting way of teaching. Clears the concept to a very large extent. Most helpful . thanks Reply 25. shilpa 08/12/2012 at 20:35 Very much right Ankit :) Thank u so much Mrunal Sir. It is because of your guidance that I do not find the necessity of joining some coaching centre !! I never find myself directionless or confused (like how to study/ what to study etc) even without coaching. All credits to u Sir. Reply o kaushal jha 09/12/2012 at 03:22 optionals???????????????? Reply 26. Shyam 09/12/2012 at 06:29 Nice One Well Explained Mrunalji :) Reply 27. bedivicky 09/12/2012 at 20:48 hello sir, i want to know about how to prepare for csat paper 2. i want to appear in CSE-2013, pls provide any simple strategy to prepare in that much short period, pls help, CSE-paper-2 is very much difficult for me. pls help. Reply 28. prasoon 10/12/2012 at 00:10 thankyou sir Reply 29. Manoj Kumar Dhaka 10/12/2012 at 16:41 Sir, Thanx for your efforts . You are helping Us for a great extent . A very important article explained very simply . Thanx again . MANOJ Reply 30. pachiyappan 11/12/2012 at 17:52 plz explain , national offset policy? Reply 31. Krishna Kishore 18/12/2012 at 12:12 Thank you very much for your effort to make economy easier to every one(aspirants) Reply 32. Abirami 24/02/2013 at 13:51 Why do they need Infrastructure Debt Funds (IDF) when they already have Infrastructure Financing company (IFC) established 3 years back to support infrastructure financing in India ? Reply 33. Shashank Shekhar Roy 08/03/2013 at 21:18 Respected Sir, plz write an article on arsenic contamination, as i came across it while going through the union budget. Govt has taken some steps for arsenic contaminated areas of west West Bengal. regards shashank shekhar roy Reply 34. Shashank 29/03/2013 at 00:39 Sir id like to make a correction income from idfs is taxable, one can DEDUCT upto 20,000 from taxable income by investing in idfs Check this out http://content.icicidirect.com/mailimages/Infrastructure%20Bonds.html Reply 35. Santhakumar 03/04/2013 at 19:43 thanks sir.Great explanation Reply 36. Gaurav 25/04/2013 at 12:45 1. D 2. C 3. D Reply 37. Indian87 20/12/2013 at 10:33 1. IDF were raised by GoI only..means fiscal deficit only na But it was mentioned indirectly..itz not fiscal deficit. 2. who will own IDF..? is it board of directors ? appointed by govt ..? 3. diffrence between IDF and govt sec Pls . clarify any1 [Economy] High GDP and High Corruption: Cause or Consequence? HOME >> Economy || Published 2 years ago || 35 Comments so far.
Not really an article, just some fodder/food for thought. 1. High GDP= High Corruption= Bright Future! 2. Land Grabbing = Universal phenomenon 3. High GDP => High corruption 4. The Incentive structure 5. High level corruption 6. High corruption => High GDP! High GDP= High Corruption= Bright Future Mark Twain coined a term Americas Gilded Age. It has been used to describe, roughly, the last four decades of the 19th century. During that time situation in America was as grim as Indias current political and economic situation. 1. During that time, majority of American population was involved in agriculture and allied activities (just like Indian population right now) 2. During that time, USAs GDP growth rate was 7% per year (similar case in India right now.) 3. And during that time, USA too had high-level of political corruption and scandals. (Just like India) 4. By the end of this Gilded Age, USA became an urban majority society And went on to become the superpower, supercop, judge, jury, executioner, leader, financer and top innovator of the world. So one can be optimistic that the situation in India today, is just normal and expected- sign of good things to come, just like the labor pain before a child delivery. Land Grabbing = Universal phenomenon Today, India has four times as many people as the US, but only a third as much land. It means Land in India, is very scarce. Therefore, Indias politicians and businessmen end up buying land wherever they can, however they can and then bribe get the government to convert its use from agricultural to commercial. Such transformation of land-use raises the value of land by 10 to 20 times. China and S.Korea A roughly similar process of land-grabbing and political corruption is under way in a high-growth China. But because of strict internet and media censorship, we dont see/hear about anti- corruption protests (dharnaa-pradarshan) in Beijing, like we hear in Jantar Mantar of Delhi. Similarly, during South Koreas rapid transformation in the 1970s and 80s it also faced the same situation like we are facing right now. In short, the corruption problem is universal and not related with Indian morality or lack of it. Rather, high economic growth brings with it a set of virtues and vices. But How? High GDP => High corruption If GDP of a country is growing at an average of 8% per year then some sectors are likely to grow at 15-18 per cent. (service sector, telecom, mining, industries for example) Rapid GDP growth makes overnight millionaires, even overnight billionaires, possible in those sectors. So, if government regulations and permissions are required in such sectors, then a government-business nexus is very likely to emerge. (as it did, in 2G and coal mining) Thus, high growth creates enormous opportunities for corruption. Does it means High GDP growth itself is responsible for corruption? No, not the GDP but the incentive structure. The Incentive structure If Government of India makes a new policy that every Government Primary school teachers salary will be directly proportional to number of students passing from his class. Sounds good? Well think of the consequences. 1. Now the teacher has incentive to personally look after every student and see that he/she is learning every lesson. 2. Now the teacher has incentive to setup very easy question paper so that every student passes in the exam. 3. Now the teacher has incentive to evaluate the answersheets in very liberal manner so that every student passes in the exam. 4. Hell, now the teacher has incentive to leak the damn question paper one week before the actual exam or simply dictate answers in the examhall! Yes, there will be some good teachers, opting for option (a) and there will be some good students who will study seriously, irrespective of the cheap tricks used by their teacher to up the passing rate. But by and large, most teachers would opt for the option b, c or d. Then Government makes excuse Our policy is good but implementation is bad, we send money from Delhi but State Governments are not doing enough! But can a policy be good if it has not taken precautions to prevent bad things @implementation level, in States and Districts? An Economy/country/society works because people respond to incentives. Therefore job of the Government is to create laws and policies in such manner that good people have incentives to do good things and bad people have incentives not to do bad things. If Raja and Kalmadi can walk out jail and walk into parliament again- Then something is wrong with this incentive structure. At the same time, Society too has a role to play in it. If we keep attending and admiring the lavish wedding reception parties held by corrupt people -our neighbor and relatives, then we too are creating incentives for them to accept bribes to finance their expensive wedding. Mr. Vijay Kharadi (IAS, Gujarat cadre), recently got married. Ofcourse, wed expect this ought to be an expensive wedding ceremony. But it wasnt. He married in a simple mass-wedding ceremony. His words, Spending on extravagant weddings is a complete waste. I am a tribal, and I know my community lives on the fringes. We need to spend on health and education, not weddings. I want to set an example by getting married in the simplest way.
Vijay Kharadi marriage In 2011, Erode (TN) District Collector Mr.R. Anandakumar admitted his daughter in Government primary school. His decision has surprised many parents in the district, which has a number of well-known private schools. Now The Collector will be making sure that Government schools are working nicely, they has sufficient funds, teachers and infrastructure. It will encourage more parents to admit their children in government schools and feel safe about their future.
Dr. R. Anandakumar, IAS Ofcourse the cynics can brush off both Vijay Kharadi and Anandakumar that you cannot change the mindsets of thousands by doing such acts of symbolism. But for them Andrew Jackson had said, One man with courage makes a majority. In TV Debates, politicians often cite these one man with courage, as a good excuse to suggest that by and large majority of our ministers and bureaucrats are honest, only a few bad fishes. Otherwise aal ij well. But aal ij not well, otherwise we wouldnt be hearing about a new scam every week- India as a nation, has not done enough thinking about what kind of laws and policies are necessary to change the incentive structures, reducing temptations for bribes and making politics and bureaucracy much more cleaner. High level corruption: Solutions? the Use of technology like Aadhaar-UID will reduce lower-level corruption, @district, tehsil, PDS ration shops, but what about the upper-level, high level, white collar corruption? How about a debate on the reform of election and party financing? Can we really clean up the businessmen-politician nexus without reforming how political parties are funded in India during election campaigns? Anyways upto this point, the argument was corruption follows High GDP . Now how about the reverse Argument? High GDP follows corruption! High corruption => High GDP! The bribe money in India either goes to tax heavens abroad (Switzerland etc) or gets invested in gold and real-estate (buildings, farm houses, properties) So, if bribe money does not go into tax heavens abroad, it creates employment in India and improves our GDP! Around 2 crore people are employed directly or indirectly in real estate & construction sector = employment = more demand (because theyre employed so theyll buy more stuff)= more production =higher GDP! If the corrupt person hosts a lavish wedding reception party = more employment for cooks and catering wallas. if he decides to spend vacation in any tourist resort of India = again GDP boosted. Is/Can/should GDP alone be the criteria to measure the Aukaat of a Country? And Can end-goal justify the means used to achieve it? If yes, then How about cut down all trees, make furniture and export it to USA? How about kill all tigers, sell their hides and bones to China and Thailand? How about legalizing gambling and cricket betting? Ref 1. Ashutosh Varshney, http://www.indianexpress.com/news/growth-and-graft/1022031/0 2. Navendu Mahodaya, http://rivr.sulekha.com/carry-on-tamasha- 28_594824_blog?c=2263181 3. http://www.indianexpress.com/news/gujarat-ias-officer-to-tie-knot-in-mass- wedding/940786 4. http://www.thehindu.com/news/cities/Coimbatore/article2109347.ece | Previous Articles in this category [Economy] Special 301 Report, Priority List, Implication on India, Nexvar case, Compulsory License, Patent Evergreening, IPR protection, USTR explained [Economy] Nokia Tax Row: Royalty Payment, Chennai Plant, Finland DTAA, Microsoft Takeover, UNICITRAL, TDS, Withholding Tax explained [Economy] New Bank Licences: Bandhan, IDFC, Bharatiya Mahila Bank; Differential Bank licences, Bimal Jalan Committee, Narsimhan Committee; arguments favor against, Bank nationalization, Historic evolution of Banking sector in India [Fed Tapering:Part1 of 2] Meaning of Fed Tapering, its Negative Impact on Indian Economy, Worst case scenarios, Balance of Payment Crisis, explained [Fed Tapering:Part2 of 2] Measures to immunize Indian Economy against negative impacts of Fed Tapering, Currency Swap, Dollar Swap, FCNR swap, Brics bank explained [Economy] Quantitative Easing: Meaning, phases, Impacts on Indian Economy, Rupee-Dollar Exchange rate, Pros & Cons, Positive & Negative aspects explained [Budget] Interim Budget 2014: speech highlights, Funds, Schemes, CSIS, UDAAN, Magnivisualizer, RDB Kit, NIMZ, Essays Subscribe by Email || Print || PDF This Post (Need Google Chrome Browser) 35 1. vijayravisrikanth 30/10/2012 at 01:59 corruption and gdp r closely linked. thats why GOI shared DTAA with Marishus and other tax hevens. the same s responsible for not leaking the known names of swiss black money holders list out. but it doesnt mean that growth is more dependent on corruption. it s possible despite no corruption. otherwise on longrun it leads to the creation of large amount of parallel economy with monopolies under corruptive criminals. then the govts can not tackle with both the criminals and economy. the first because of criminalization of politics(corruption on with high gdp with inefficient control encourages it). and the second as a result of ever growing size of parallel economy (money earned via corruption s to b spent on illegal purpose, it means it s self propagative. as govts regulating policies can control legal econy only(commonly). so though the corruption accelerates the growth of our gdp wr have to curb it with proper institutions like lokpal and others with comprehensive strategy. Reply o Mrunal 30/10/2012 at 09:35 . on longrun it leads to the creation of large amount of parallel economy with monopolies under corrupt criminals Absolutely. Reply o gaurav 31/10/2012 at 19:16 couldnt be explained in a better way. Thanks Reply vijay ravi srikanth 01/11/2012 at 12:31 we know that many of the tax heavens do not have any natural resources to offer. they are not technologically advanced. they do not have any other special features. take the case of one of our highest fdi investors. Mauritius. it has nothing to offer(in economic terms) to us. but again its tax laws are not transparent with very less corporate taxes. it does not want to offer its tax information with any other country. so any one can easily expect the source of such a huge amounts of investment. our government is also aware that many of Indians are running many shell companies there. if our government does not want to allow any illegal activities it can easily take action on those indirect Indian investors. but instead of doing that it has shared Double TAX AVOIDANCE agreement. if every thing goes legally then that agreement with Mauritius will be a loss making one. but we have made that agreement.we have many international agreements of such kinds. take the case of black money account holders.though the names are known to the govt it couldnt leak the names out despite the supreme courts directions. and chidambaram had explained to the Court that it would impact adversely. in response to that event our Supreme Court has constituted a SIT on black money issue, midst heavy criticism. take the case of havala incident, only the mediator(hussain ali khan) is arrested but not even a single name of money holders are released. we have many more examples to mention.. all this secrecy is maintained just to not to let our GDP to fall any further a midst high amount of CAD and Fiscal deficit.(please note, along with these, we are aware of the nexus between politicians and business men). so what i conclude is even our Government is also accepting the practical implications of weeding out of the corruption as it knows that corruption is aiding the growth of our GDP. thats why sudden weeding out of corruption is more dangerous. but its phasing out is a mandatory for long term welfare of any society. Reply Govardhan km 11/03/2014 at 20:00 Mr vijay , foremostly i must tq 4 above information and effective interaction. but 1 thing i want 2 differ with u dat as u said corruption is indirection helps in gdp hike . it may help but its neglegible .as u said bribed money has to be invested in ileegal markets only, its absolutely ri8 (reference gali janardhan (coal illegal mining)). so the amount got through the corruption and investment of those are distinguishable. more money vested in foreign banks and stocks. so we can not say corruption gonna help in gdp rise. so mi8 be 30 % of total corruption may not left indian boarders. ne way dont mind . i juz wanted 2 exhibit my point of view t. after all tnx for sharing ur views :) Reply 2. pratishtha 30/10/2012 at 02:15 nice Mrunalalwaz read ur articles,,highly impressedGod bless :) Reply 3. Abhishek Singh 30/10/2012 at 06:30 nice article sir, written in simple and easy manner all the best sir :) .. may God bless u with lot of success :) .. Reply 4. Varadha 30/10/2012 at 08:54 Not one of his best finished articles, but it does have ample points to learn from, like the history of corruption in the US, and the comparison between India and China, Korea etc. Thank you. The last point from Lets strech this argument further- wasnt an appropriate example. Reply 5. karthik 30/10/2012 at 10:26 Sir can you please provide this link [Economy] LIST of All Articles published by me to clear the basic concepts of Economy for any recruitment exam or interview Mrunal as I am unable to access it Reply o Binoy 30/10/2012 at 10:32 @karthik, this is the link: http://mrunal.org/economy Reply 6. chandu 30/10/2012 at 12:01 Very nice article.Thought provoking. Reply 7. Divya Prakash 30/10/2012 at 12:04 Very good article. You might have mentioned social justice as an indicator of the well being of the society and country. Reply 8. IITBHU_Anand 30/10/2012 at 12:53 http://in.jagran.yahoo.com/news/national/general/DGP-ask-bribe-postings_5_1_9801173.html , -
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Reply 9. manoj 30/10/2012 at 12:56 we keep blaming everyone except ourselves for the countrys ills.This is what keeping us down,we are our officials our rulers and our leaders,we can not shift blame to others while we are doing nothing against, it in that sense we are corrupt also.this is true for any society Reply 10. Tannu Dua 30/10/2012 at 13:08 Thanks a lot Mrunal Sir. I am very grateful to you for so much cooperation in my studies. Reply 11. Ashok 30/10/2012 at 13:17 Sir one request..Please Put some question in the last of every artice if it is possible..i know it will take 5 min for you make it but will helps a lot so that We can think and discuss on that..I liked that you put some question on Fiscal Deficit Article.But i request Pls put question in every Article.love to read Your Article.Thanks Reply 12. Saiteja 30/10/2012 at 13:35 And thats why many intellectuals(dont ask me names, see some articles) are shouting that India developement does not only depends high GDP, but also through optimum GDP + improving quality of lives (especially of BPLs)( eg: proper MGNREGA). Reply 13. Priyanka 30/10/2012 at 14:12 Very nice article..mrunal Reply 14. Ganesh Trivedi 30/10/2012 at 14:54 Mrunal please discuss: Cess v/s Surcharge and Business Cycles with implications. Reply 15. sameer 30/10/2012 at 14:58 the problem so called parallel economy or in Indian sense a corruption based economy does that it widens the gaps between haves and have nots.. true some jobs are created mostly in the unorganised sector.. but they are usuallly seasonal & those resources which belong to everyone in general & Nation in particular are cornered by few wealthy.. thus creating an Oligarchic State and Economy. Mrunal sir, not only does India have similarities with psst in US but also present socio-economic conditions with high levels of Inflation and ever raising unemployment rater If we are simply gona dilute state machinery in names of Liberalisation(Reforms) we will soon be doomed Reply 16. Mohammad Arshad Raza 30/10/2012 at 14:58 Sir, you have a unique talent to discern a number of different points in the topic. Reply 17. nikhil 30/10/2012 at 15:24 mrunal you are gifted with the art of making difficult things simpler,really enjoy ur articles.. one question:petrol/diesel prices have a strong dependence on tax,instead of funding these bogus schemes can common people be directly benefitted by lowering tax.. Reply 18. Abhimanyu 30/10/2012 at 16:23 The bribe money in India either goes to tax heavens abroad (Switzerland etc) or gets invested in gold and real-estate (buildings, farm houses, properties) Well this Black Money ( Money not accounted for) is the sole reason for Irrational prices of Real estate properties . & although the unaccounted money is invested or spent it is a major contributor towards general price rise or INFLATION. So it is not necessary that the people who are employed can actually be able to buy the food items whose prices had increased owing to this increased money supply .( More Black Money = More INFLATION= More mIsery). So More Corruption = More GDP ..Im not finding this argument very convincing Although im sure that More Corruption= More Inflation= More Economic Disparities & social Injustice = More MISERY= More DISCONTENT= MORE Naxalism & riots = More state & central expenditure= More Fiscal Deficit= Less Growth= Less GDP= Less Jobs Reply o Occam 31/10/2012 at 15:03 Growth is not about economic disparities, social justice, misery or discontent among people. Growth is only about increased output. Wo kaise bhi ho! Growth does not take into account the inequality in the economy. So if billionaires become zillionaires and poor become poorer, we might still be growing. More corruption may lead to a higher growth in the form of increased investments. Inflation will take place, as it always does with higher growth (hence the growth-inflation dilemma for the RBI). Some economists argue that, existence of the parallel economy acted as a cushion for the country against the 2008 global crisis, since the corporates etc. used their hidden stashes. Reply 19. XY 30/10/2012 at 18:41 I like to put some of my argument In your comparison of India and USA, Korea or else with India projects vague figure as India is highly complex in diversity say culture, costume, etc.So corrupt politians will hardly think for other racial groups, high discrimination etc..and so it is doubtful that these politicians will spent it optimally means probably most of the corrupts will think why give? someone..if my own people are self sufficient(Remember Drain of Wealth during British ruleeven copied by politicians of India today)..so Black money creation ormoney goes to savingno product generationlow GDP growth while in Country like US even if money is siphoned away it is likely to be utilised for the well being of the people because of racial closeness. while US becoming super power cannot be matched with India conditions as time factors and opportunity at those time.Thanks .@Mrunal Im little confuse with your standI think you wrote as it happen..very optimistic viewlike itBut nice reading your article. Reply o Amruth 13/02/2013 at 17:15 HI XY, u r wrong i guess.. how abt US they got different races, ethinicity, native americans, whites, blacks and asians.. so how can you say that racial closeness just think mate.. no offence just giving clearity let me know if i am wrong Reply 20. pradeep 30/10/2012 at 19:18 The article is too good.. Very simple to understand common man Thanks for the good work..:) God bless You Reply 21. ABC 30/10/2012 at 23:20 Hello Sir, I started reading your articles today, found really interesting, knowledgeable, simple. I want to know your thoughts on Marxist Philosophy of Economics and do you think that it is a failed philosophy. Or it is an alternate option at which most of them are not looking at. Reply 22. DIPAK 31/10/2012 at 19:25 The best part of all articles is Extreme Common Language. Reply 23. deepak n gowda 03/11/2012 at 12:20 sir your website too good .can u provide articles about basic physical geography and public administration thinkers .it will help rural side students like me . Reply 24. Pramod 06/11/2012 at 10:00 hi mrunal, l am new to your blog & i have a question in todays newspaper jaipal reddy has said that anyone who holds oil min will be frustrated because india imports 75% of the oil and not even god can explain why and who is increasing oil prices when there is no disconnect between demand and supply please help on this though i l know that when dollar becomes expensive oil pices go up but still i need a thorough details on this topic. Thanks Reply 25. Jazz & Liquor 27/11/2012 at 08:25 two comments from the original article(copy-paste) It is the other way round Reply | Forward Vivek | 26-Oct-2012 Dear Varshney, I think you are putting the cart before the horse. It is the other way round. Corruption and loot provides a chance for greedy rapacious businessmen to grab resources and public funds and generate easy unproductive non-innovative income which results in fast growth. So public loot results in fast growth and not the other way round. But this is not the sort of growth which one should be aiming for in which enormous multi-generational wealth gets robbed in weeks and months. Accounting-wise on paper this shows up as huge income growth for the robber business barons but in actual non-accounting terms this leaves the public that much poorer. Exactly Reply | Forward Shankar | 26-Oct-2012 Exactly. The problem with Varshney and such analysts is that they ignore everything except a numerical quantity GDP growth. But this is just a statistic. What matters is how that growth is generated. In practice, Indias growth has been driven by expropriation, profiteering and corruption, and hence it is not surprising that it has not achieved any of the goals of poverty reduction etc. that Varshney holds out as its supposed necessary consequences. Such upside down analyses fill our media today.