Today in History (February 01th,2017)
The Union Budget is presented on February 1st each year. Before 2017, the Budget was presented on the last working day of February. In 2017, then-Finance Minister Arun Jaitley shifted the date to February 1st to allow more time for policy implementation.
Summary of Today’s News
BUDGET IN PARLIAMENT
The Budget goes through following stages:
1. Preparation of Budget:
• The Budget Division of the Department of Economic Affairs in the Finance Ministry is the nodal body responsible for preparing the Budget.
• Budget is prepared on Cash Basis (i.e. whatever is expected to be actually received or paid under proper sanction during a financial year).
2. Presentation:
• President in every financial year cause to be laid before both the Houses of Parliament the annual financial statement.
• In the Parliament, the budget is presented by the Union Finance Minister (usually on 1st February of every year since 2017)
3. General discussion
4. Scrutiny by Departmental Committees
5. Voting on Demands for Grants
6. Passing of Appropriation Bill
7. Passing of Finance Bill
CHANGES INTRODUCED IN 2017
• Advancement of Budget presentation to February 1 (earlier presented on the last working day of February),
• Merger of Railway Budget with the General Budget, and
• Doing away with plan and non-plan expenditure.
BALANCED, SURPLUS AND DEFICIT BUDGET
• Balanced Budget – A government Budget is assumed to be balanced if the expected expenditure is equal to the anticipated receipts for a fiscal year.
• Surplus Budget – A Budget is said to be surplus when the expected revenues surpass the estimated expenditure for a particular business year. Here, the Budget becomes surplus, when taxes imposed, are higher than the expenses.
• Deficit Budget- A Budget is in deficit if the expenditure surpasses the revenue for a designated year.
Middle-Income Trap and India
India, despite being the world’s fifth-largest economy by nominal GDP, remains a middle-income country, which points to the challenge of the middle-income trap.
Key Points:
• According to the Finance Ministry, India is set to become the third-largest economy in the world, reaching a GDP of $5 trillion in the next three years and $7 trillion by 2030.
• India has a goal to become a $30 trillion economy by 2047.
• NITI Aayog’s plan for “Viksit Bharat” (Developed India) aims to raise India to a high-income status by the centenary of its independence.
NITI Aayog’s Vision for Viksit Bharat by 2047:
• India needs to grow its GDP nine times from the current $3.36 trillion.
• It must raise its per capita income by eight times, from $2,392 per year to levels seen in developed nations.
• The vision highlights key challenges such as:
• Expanding manufacturing and improving logistics.
• Reducing income gaps between rural and urban areas.
• Ensuring energy security, affordability, and sustainability.
• Boosting industrial competitiveness and moving people from agriculture to industry.
World Bank’s Classification of Countries:
• The World Bank classifies countries by their Gross National Income (GNI) per capita:
• Low-Income Countries (LICs): GNI per capita less than $1,145.
• Lower-Middle-Income Countries (LMICs): GNI per capita between $1,146 and $4,515.
• Upper-Middle-Income Countries (UMICs): GNI per capita between $4,516 and $14,005.
• High-Income Countries (HICs): GNI per capita more than $14,005.
• The classification is updated annually by the World Bank.
Middle-Income Countries (MICs):
• Middle-income countries are home to 75% of the world’s population and 66% of the world’s poor.
• These countries represent about one third of global GDP and produce 40% of the world’s economic output.
• Over the past 34 years, only 34 middle-income countries have successfully moved to higher-income levels, mostly from the European Union, including countries like Saudi Arabia, Latvia, Bulgaria, and South Korea.
Middle-Income Trap:
• The middle-income trap is when a country struggles to move from middle-income to high-income status, despite experiencing economic growth and reducing poverty.
• This term was coined by the World Bank in 2007 to describe countries in Latin America and the Middle East that failed to transition to high-income nations.
• Factors contributing to the middle-income trap include:
• Rising labor costs, causing industries that rely on cheap labor to move elsewhere.
• Declining competitiveness due to a lack of investment in high-value industries like technology or advanced manufacturing.
• Insufficient innovation and the failure to build strong innovation ecosystems.
• Currently, 108 countries, including major economies like China, Brazil, Turkey, and India, are stuck in the middle-income trap. A key reason is the lack of development in domestic innovation.
Challenges India Faces:
• Innovation & Technology: Low investment in research and development limits India’s economic growth and diversification.
• Dependence on Agriculture: Many people still depend on low-productivity agriculture, with the pandemic causing an increase in agricultural employment in less productive areas.
• Slow Wage Growth: In 2023-24, wages for regular workers increased by just around 5%, while casual workers’ wages grew by roughly 7%. With inflation at about 5%, real wage growth has been very slow.
• Global Competition: India faces tough competition from other emerging economies seeking growth.
The Way Forward:
• Middle-income countries now face challenges such as ageing populations, trade issues, and the need to grow faster while protecting the environment.
• To escape the middle-income trap, countries need a focused strategy on innovation and active policies.
• Suggested solutions for India:
• Increase innovation and technological development.
• Invest in education and skills to build human capital.
• Focus on industrialization, especially in high-value manufacturing and services.
• Improve infrastructure, especially in underdeveloped areas.
