Government expenditure in India

which is divided into revenue expenditure and capital

expenditure
Revenue expenditure is expenditure on consumption i.e

day to expenditure of the while capital Exp

day government
is expenditure on Infrastructure and creation of assets this
distinction was for the first time introduced in the

union budget from the year 2017 2018 to dearly distingui

between expenditure on consumption and expenditure on Investment

Prior to 2017 is for a

long time the distinction

was between plan and non plan expenditure which was

brought to an end after the completion of the nth five year

plan on 31 t March 2017

This distinction was not helping to dearly distinguish

between consumption expenditure and Investment expenditure
and therefor abolished on the recommendation of PrangeRajon

Committee and Bimal Jalan Committee

After abolition of the

Planning commission and setting

up of NITI Aayag the entire approach to government's

policymaking including expenditure management has shifted

from centralised approach of
planning
commission to BottomsUP

approach of NITs Aayog based on Cooperative federalism

 This bodies recommends from time to time various

measures to rationalise government expenditure as well as

measures for India's overall development of different

Sectors of the economy It has prepared three
year
Plan C2017 18 which down several
action to 19 20
lays
policy initiatives for development of the economy during
this period It has Identified agriculture Infrastructure

pertialarly roads and railways Urban transport and few

other sector for prioritasion on government expenditure
It has also identified 30 Sick and loss making
PSU's which are recommended to closed down It has
also been interested in task of preparing a realistic
cost structure for a flagship Aayushman Bharat program
It has also recommended that government expenditure
which amounts to 460000 Cr per year on autonomous

organisations numbering ones 500 Should be reduced by

reducing the number of such organisations Ucsc ICHR

which was
just 30 in
early 50 s in so
doing
It has taken a clue from the british government
where the number of such organisations numbering
over 900 has been brought down

In the context of government expenditure it is not

only to identify priority areas of expenditure but also

adopt basis to rationalise government expenditure as it
has been done over years in terms of DBT for a large
number of subsidies dismentaling of administered
mechanism the oil sector where by petroleum
price in

prices are now market determined resulting in Substantial

cat in Subsidies that the government was giving to
oil companies also the reforms in the pension sector
by new pension scheme for central government employees
based on contributing pensions has been significant step
on reducing expenditure
There are two principle techniques adopted by various
countries to rationalise government expenditure as follows
Zero base budgeting
Outcome budgeting

Zerobasebudgeting
It is a technique under which annual budget of
a ministry or a department is prepared assuming that
there was no budget in the previous years to refer

to In other words the base was zero

This technique is unbiased and helps reduce government

expenditure by allocating expenditure on each item on its

merit rather than with reference to what was allocated

in the previous years

Countries like UK Sweden and few others adopt this

OutcomeBudgeting
outcome budgeting Implies that the outlay
set aside for a certain project or scheme of ministry
or department is to be co related notonly with output
but also with its qualitative outcome as explained in the

following example
Department of health is allocated an outlay of 500 or

for construction of 2 health centres in a district

output budgeting will mean whether these health
centres have been constructed within this given outlay
outcome will imply the qualitative
budgeting evacuating
Impact of these health centres on Improving the overall

Health profile of the population of the district in

terms of reduction in meternal mortality Infant mortality

Incidents of epidemics and diseases in the district and

overall Improvement In various health indices of the

population of the district

These are qualitative deliverables which would justify

not only the object of constructing the health centres but
also every penny spent
outcome budgeting is the part of performance budgeting
the former is micro and later is macro

India adopted outcome budgeting technique from 2004 05

 FOREIGNINVESTMENTI
foreign Investment is of two types
foreign Direct Investment FDI

foreign portfolio Investment FPI

FDI
FDI means that a foreign Investor generally an MNC

invests in a country Sang India with the object of

a product a service
manufacturing providing engaging
itself in construction merely providing technical
or

knowhow and technology to an Indian company

Prominent examples of FDI in the manufacturing
sector in India are HUL MARUTI Suzuki Colgate Palmolive
Proctor and gamble and a
large number of foreign companies
engaged in manufacturing products ranging from
various

consumer goods to capital goods machinany locomotives

automobiles etc
prominent examples of FDI in the services sector
ICICI
are telecom vodafone prudential Sm life Ala In the

insurance sector HDFC bank ICICI bank and a large

number of foreign companies engaged in providing
services such as aviation shipping courier and a host of

other services
 Similarly in the construction sector foreign companies
from Japan US britain and other countries are

engaged in modernisation of airports construction of

Smartcities highways and a whole lot of commercial
Spaces in the country Thus FDI is considered the best

form of foreign capital because it enhances a country's

productive capacity
It is considered best also became a foreign company
invests at its own risk without any quid pro quo on the

part of the recipient country Also FDI by definition

is of long term in nature because a foreign company
Invests in a country with the intension of staying for a

Country for period in a country earning

a longer Investing

profits remitting a part of profit to its parent county and

spreading its wings as ghonble MNC

FDI bring to a country several benefits like state

of the art technology much needed foreign exchange

helps export promotion generates employment increases
productive capacity and among all infuses a spirit
of competition among the domestic Industries
 FI
FPI means that a foreign Investor generally foreign
Institutional Investors invest In a countries stock market

by investing in shares bonds and debentures of

various companies in a country with the soul objective of

capital gains in the stock market If they

making
find a country's stock marke bearish and lens Incretive

have a tendency to move to other countries stock

they
market in search of quick profits
As such unlike FDI which is long term in nature

FPI is essentially short term and has the potential to

cause
volatility and turbulence in financial markets

due to this is know

reason Fei popularly as
fly by
night money
Fll's comprises a varied category of Institutional investors

like pension funds mutual funds sovereign wealth funds

Investment bankers Investment trust companies Hedgefunds
wealth management companies Insurance companies and
banks etc

various aspects of
FDIPolicyinIndia Fbi policy
in India are as follows
ROUTES OF FDI
There are three routes to attract FDI in India
 I Automatic route of the RBI

II Government approval route

III Non Resident of India

I Automatic route of the RBI

This route Implies that a foreign company wishing
to Invest in India need not seek prior approval of any
agency before Investing in India
It can streight away bring Its capital which

it was to invest in India and it has only to

inform the RBI within 1 month of bringing its
capital and again within 1 month of issuing share
to non residents

This route is a hastle free route as it does not

require any prior approval The government of India

notifies from time to time all those sectors
and industries which are open to foreign companies
for investment under the automatic route

This notification can be excused by foreign companies to

decide in which sector they wish to invest under the
automatic route

In recent years as part of MAKE IN INDIA initiative

the government has brought more and more sectors

under the automatic route to the extend that at

 present nearby 924 of the total FDI comes to India

through this route

I Government approval route

This route Implies that a foreign company has to seek

prion approval of FIPB foreign Investment promotionBoard

setup 1992 board for
in as an apex granting
approval of FDI proposals This board was abolished
in 2017 because majority of the sectors were brought
under automatic route Thus after its abolition the

approval is now to be granted the concerned ministry

by
or department

III Nrl

The government of India will provide some special

facilities and incentives to Nrl's to invest in selected

sectors
It also organises Pravasi Bhartiya Divas to attract

Investments from NRL's and OCB's overseas corporate

bodies most of which run by NRL's

CAPS IN FDI POLICI

FDI policy in India like in many other countries
based
is on cops ie ceiling of equity participation
 share participation of a foreign company in a
joint
venture enterprise in India
These caps range from 24 Y 264 40 497
517 74 1 and 1007

A 100 1 Cap Implies that the entire investment in a

certain venture will be made by the foreign company

without any Indian counterpart
Generally Government permits 100 Y FDI in sectors
In which country has scarcity of resources like
highways Infrastructure
smartcities roads bridges posts and
a whole lot of Infrastructure
It may also permit Coot FDI in high technology
pumazara
reebok ions
areas as also in sectors like Single brand retail
wholesale trade telecom and various other sectors

FDI is restricted up to 497 in Sensitive sectors like

d ihum and such other sectors

These caps ensure that

only the requisite contribution
of equity by a foreign company is permitted which
provides cheeks and balances to a Carthy's overall
FDI Policy
Moreover FDI cops are not static and fixed and

can be raised lowered

or
depending upon changing
economic conditions
 Demerits of FDI
It can threaten a country's economic and political
Sovereignty
foreign companies may often indulge in wet
throat competition

foreign companies may bring to a country a

technology which is already outdated in their

parent country
foreign companies take out of the country
may
more than they bring in the county by the way of
foreign exchange drvident profit royalty etc
foreign companies may generally invest more

rather
in sectors which
give them quick return
than in sectors which have long gestation period
foreign companies worldwide indulge in toonfer

pricing practices