 Fiscal Policy means the Govt.

decisions regarding Government’s taxation, expenditure,

subsidies and other financial operations. Using fiscal policy, Govt influences the
savings, investment and consumption in an economy to accomplish certain national
goals such as income redistribution, socio-economic welfare, inclusive growth etc.
 Budget Budget is an annual financial statement containing estimated revenues and
expenditures for the next financial year. Budget is the primary tool used by Govt to
implement its fiscal policy.

TAX -
 TYPES OF TAXES:
◦ PROGRESSIVE VS REGRESSIVE vs PROPORTIONAL
  Direct tax vs Indirect Taxation

DIRECT TAXES: TYPES

Thing to rejoice or concern?
Indirect Taxes-
In the indirect taxes, tax incidence and tax impact does not fall on the same person. E.g.
Customs Duty on import and export, Excise duty on manufacturing of goods, Service tax on
services, Sales Tax, Value Added Tax (VAT), and Goods and Services tax (GST).

GST -Goods and Service tax

 successor to VAT used in India on the supply of goods and service.

  It is a comprehensive, multistage, destination-based tax:
◦ comprehensive because it has subsumed almost all the indirect taxes except a few
state taxes.
◦ Multi-staged as it is, the GST is imposed at every step in the production process,
but is meant to be refunded to all parties in the various stages of production other
than the final consumer
◦ destination-based tax, it is collected from point of consumption and not point of
origin like previous taxes.
 Goods and services are divided into 5 different tax slabs for collection of tax: 0%, 5%, 12%,
18% and 28%. However, petroleum products, alcoholic beverages, and electricity are not
taxed under GST and instead are taxed separately by the individual state governments, as
per the previous tax system.
 There is a special rate of 0.25% on rough precious and semi-precious stones and 3% on
gold.
 In addition a cess of 22% or other rates on top of 28% GST applies on several items like
aerated drinks, luxury cars and tobacco products.

India currently recognizes four types of Goods service tax returns. These are:
 CGST (Central Goods and Services Tax):When buying or selling things within one state,
CGST is collected as an indirect tax by the central government in order to raise money for
activities like infrastructure development and public services
 SGST (State Goods and Services Tax): When purchasing or selling something within your
state, an SGST tax is collected by your government and used for local projects, schools and
other purposes that benefit the entire population of that particular state. The money collected
stays within its borders to fund local needs or state initiatives
 IGST (Integrated Goods and Services Tax): When buying something that originates in
another state, IGST comes into effect to facilitate transactions smoothly across state
boundaries and ensure a fair distribution of revenues among participating jurisdictions.
 UTGST (Union Territory Goods and Services Tax): UTGST is applied only on sales
occurring within Union Territories governed directly by the central government; thus
enabling more consistent financial management and development across these regions.

Taxes subsumed
 The single GST subsumed several taxes and levies, which included central excise duty,
services tax, additional customs duty, surcharges, state-level value added tax and Octroi.
 Other levies which were applicable on inter-state transportation of goods have also been
done away with in GST regime.
  GST is levied on all transactions such as sale, transfer, purchase, barter, lease, or import of
goods and/or services.
 India adopted a dual GST model, meaning that taxation is administered by both the Union
and state governments. Transactions made within a single state are levied with Central GST
(CGST) by the Central Government and State GST (SGST) by the State governments.
 For inter-state transactions and imported goods or services, an Integrated GST (IGST) is
levied by the Central Government.
 GST is a consumption-based tax/destination-based tax, therefore, taxes are paid by the state
where the goods or services are consumed not the state in which they were produced.
 IGST complicates tax collection for State Governments by disabling them from collecting
the tax owed to them directly from the Central Government.
 Under the previous system, a state would only have to deal with a single government in
order to collect tax revenue

HSN code

 India is a member of World Customs Organization (WCO) since 1971. It was originally
using 6-digit HSN codes to classify commodities for Customs and Central Excise. Later
Customs and Central Excise added two more digits to make the codes more precise,
resulting in an 8 digit classification. The purpose of HSN codes is to make GST systematic
and globally accepted.
 The Harmonized system of Nomenclature (HSN) code is used for classifying goods under
the Goods and Services Tax (GST) in India.
 The HSN code is a six-digit code that uniquely identifies a product. The first two digits of
the code identify the chapter, the next two digits identify the heading, and the last two digits
identify the subheading.
 HSN codes will remove the need to upload the detailed description of the goods. This will
save time and make filing easier since GST returns are automated.

e-Way Bill
 An e-Way Bill is an electronic permit for shipping goods similar to a waybill. It is an
electronic bill; there is no requirement for a paper bill.
  It was made compulsory for inter-state transport of goods from 1 June 2018. It is required to
be generated for every inter-state movement of goods beyond 10 kilometres (6.2 mi) and the
threshold limit of ₹50,000 (US$590).
Reverse Charge Mechanism
 Reverse Charge Mechanism (RCM) is a system in GST where the receiver pays the tax on
behalf of unregistered, smaller material and service suppliers. The receiver of the goods is
eligible for Input Tax Credit, while the unregistered dealer is not.

GST Council

 GST Council is the governing body of the GST having 33 members, out of which 2
members are of centre and 31 members are from 28 state and 3 Union territories with
Legislature.
 The council contains the following members
◦ (a) Union Finance Minister (as chairperson)
◦ (b) Union Minister of States in charge of revenue or finance (as member)
◦ (c) the ministers of states in charge of finance or taxation or other ministers as
nominated by each states government (as member).
 GST Council is an apex member committee to modify, reconcile or to procure any law or
regulation based on the context of goods and services tax in India.
 The council is headed by the union finance minister Nirmala Sitharaman assisted with the
finance minister of all the states of India. The GST council makes recommendations to the
Parliament of India to make or amend laws related to the taxes on goods and services in
India.

Challenges in GST Implementation in India

The introduction of the Goods and Services Tax (GST) was a landmark reform in India's taxation
system, aimed at streamlining and simplifying multiple taxes into a singular, unified system.
However, like any significant overhaul, its implementation came with a set of challenges:
1. Technological Hurdles: The GST regime brought in the need for businesses to file taxes online
through the GSTN portal. However, frequent technical glitches, server downtimes, and difficulties
in navigating the portal posed significant challenges, especially for small businesses unfamiliar with
digital tax filing.
2. Complex Return Filing Process: With multiple return forms to be filled and regular filings
required, many businesses found the process intricate and time-consuming. Adopting automated
billing software that assist in accurate form selection, auto-population of details, and timely
submission can be instrumental.
3. Compliance Costs: The transition to the GST system necessitated changes in business processes,
IT systems, and skill up-gradation, leading to increased compliance costs for businesses.
4. Input Tax Credit (ITC) Challenges: While the ITC mechanism aimed to prevent the cascading
effect of taxes, businesses faced issues in availing and reconciling ITC due to mismatches in
invoices between suppliers and recipients.
5. Multiple Tax Slabs: The GST system introduced different tax rates for various goods and
services. This multi-tiered structure led to confusion about the correct tax rate applicable to specific
products or services.
6. Transition Issues: The shift from the old tax regime to GST led to challenges related to the
carry-forward of tax credits, stock transition provisions, and more.
7. Training and Education: There was a significant knowledge gap among businesses, especially
SMEs, regarding GST's nuances. Proper training and education became essential to ensure
compliance and make the most of the new system.
In conclusion, while the GST regime aimed at simplifying the tax landscape in India, its initial
phase presented several challenges. However, with the right tools and continuous learning,
businesses can navigate this landscape efficiently and ensure compliance.

Concept of Input tax credit-

Disinvestment-

What is Disinvestment?
Disinvestment is the process of reducing or liquidating government ownership in a company or
asset, typically through the sale of shares or assets to private or public investors. It is often
undertaken to raise capital, improve efficiency, or reduce government intervention in the economy.
Process of Disinvestment in India:
 In India, the disinvestment process is overseen by the Department of Investment and
Public Asset Management (DIPAM), operating under the Ministry of Finance.
 DIPAM’s main goal is to manage the government’s investments in public sector
enterprises and supervise the disinvestment of government equity in these enterprises.
Additionally, in 2005, the government established the National Investment Fund (NIF) to
serve as a channel for the proceeds generated from the disinvestment of Central Public
 Sector Enterprises. The creation of NIF aimed to ensure transparent and efficient
utilization of these funds for various developmental purposes.
Approaches:
1.Minority Disinvestment: Govt. retains >51%, ensuring control.
2.Majority Divestment: hands control but retains some stake.
3.Complete Privatisation: 100% control transferred (full privatisation)
Methods of Disinvestment:

Methods Description
Offer of shares by an unlisted Public Sector
Initial Public Offering (IPO) Enterprise (PSE) or the Government to the
public for subscription for the first time.
Offer of shares by a listed Public Sector Enterprise
Further Public Offering (FPO) (PSE) or the Government to the public for
subscription.
Auction of shares by promoters through the Stock
Offer for Sale (OFS) Exchange platform. This method has been
extensively used by the Government since 2012.
Sale of a substantial portion of Government
Strategic Sale shareholding (up to 50% or as determined) of a
PSE along with transfer of management control.
Offering where only Qualified Institutional Buyers
Institutional Placement Program
can participate. These buyers are perceived to
(IPP)
possess the expertise to invest in capital markets.
Disinvestment through the ETF route allows the
CPSE Exchange Traded Fund simultaneous sale of the Government’s stake in
(ETF) various PSEs across diverse sectors through a
single offering.

Trends of Disinvestment in India:

Disinvestment & Privatization in the Modi Raj (2014-19)
 Tried three methods of Disinvestment, depending on the Company
 CPSE-ETF, Bharat-22-ETF
 Institutional placement Programme (IPP): offer shares only to non-retail
investors
 Offer for sale (OFS): offer shares to both retail and non-retail investors
 Modi govt shut down many sick Govt companies such as HMT watches, Hindustan Photo
Film etc.
Latest Disinvestment Policy
The latest disinvestment policy classifies the public sector into strategic and non-strategic
sectors
 In non-strategic sectors, the government will exit all businesses except for a ‘bare
minimum’ presence in four key strategic sectors
◦ Atomic energy, space and defence
◦ Transport and telecommunications
◦ Power, petroleum, coal, and other minerals
◦ Banking, insurance, and financial services

 States will be incentivized for disinvestment in their public sector companies.

This policy marks a departure from past approaches, providing a framework for deciding the
ownership pattern of 439 CPSEs. It also includes the monetization of surplus land and the
creation of the National Land Monetization Corporation.
Challenges related to Disinvestment in India:

Challenges Description
Disinvestment is a politically sensitive issue in India, with
Political Sensitivity
opposition from various political parties and trade unions.
Valuing public sector enterprises can be challenging due to their
Valuation
unique structures and market conditions, leading to potential
Complexity
discrepancies.
Disinvestment often raises fears among employees regarding job
Labour Concerns security and wage cuts, leading to potential resistance and labour
unrest.
Finding suitable buyers for shares in public sector enterprises
Investor Appetite (e.g., in the case of Air India), especially those with poor financial
performance, can be difficult.
Disinvestment processes are subject to complex regulatory
Regulatory
frameworks, including approval requirements and compliance
Hurdles
standards.
Disinvestment decisions and processes can face legal challenges,
Legal Risks
including disputes over valuation, terms, and adherence to regulations.
Bureaucratic Bureaucratic procedures and decision-making processes can slow
Delays down the disinvestment process, leading to inefficiencies and delays.
Disinvestment proceeds may impact government revenue streams
Economic Impact and fiscal deficits, requiring careful management and planning for
economic stability.
Complete privatization can lead to public monopolies transforming
Private monopoly into private monopolies, which may exploit their dominant position
to raise service costs and maximize profits.

Types of Deficit in India

The main types of deficits in India are:

 Revenue deficit: When a government spends more on revenue than it receives in revenue
 Fiscal deficit: When a government spends more than it receives in revenue, excluding borrowings
 Primary deficit: When a government's fiscal deficit is reduced by interest payments
 Effective revenue deficit: When a government's revenue deficit is reduced by grants for capital
assets
 Monetized fiscal deficit: When a government borrows from the RBI to cover part of its fiscal
deficit

Debt of government of India

The Government of India's debt is classified into

Internal debt
 Marketable debt: Includes Treasury bills and government dated securities, which are
issued through auctions
 Non-marketable debt: Debt that is not marketable
External debt
 Borrowings from multilateral agencies: Borrowings from agencies other than the IMF
 Borrowings from bilateral sources: Borrowings from bilateral sources
 Borrowings from the IMF: Borrowings from the IMF
 Trade credits: Trade credits
 Commercial borrowings: Commercial borrowings
 NRI deposits: Deposits from Non-Resident Indians
 Rupee debt: Debt denominated in rupees
Features of India's public debt
 Most of India's public debt is fixed interest rate debt
 The government has tried to increase the maturity profile of its debt to reduce the risk of redemption
in the short to medium term
 The government has tried to reduce its dependence on foreign loans