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Doubts and other questions on Budget and Economic Survey

edited July 2014 in SSC


The Budget provides for " International Settlement" of Indian Depository Receipts. Could any one please explain me the method and purpose of this "settlement"?
“The starting point of all achievement is DESIRE. Keep this constantly in mind. Weak desire brings weak results, just as a small fire makes a small amount of heat.”
― Napoleon Hill
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Comments

  • International settlement essentially means that the clearing of these DRs will be done by international corporations like the DTC in USA and not by the domestic clearing houses in India. Ergo, for the foreign investors, international clearing systems are more convenient.

    The method is more compliance related- payment for the DRs, its availability, transfer to the holder's account, compromise, etc. Similar to what happens in the settlement system in India.

    ForumIAS Moderator | Indian Revenue Service 2014 | Indian Administrative Service 2015
  • @Neanderthal
    But IDR is an instrument for foreign companies to raise money from Indian market, right? How is allowing 'International Settlement' going to benefit Indian economy? And if no benefit, then why does it feature in budget?
    “The starting point of all achievement is DESIRE. Keep this constantly in mind. Weak desire brings weak results, just as a small fire makes a small amount of heat.”
    ― Napoleon Hill
  • edited July 2014
    Correct. So essentially what that would mean is that Indian shareholders will get the clearance from the international settlement agencies directly and not have to wait for multiple stages of clearance- international first and then local. It eases the process and reduces compliance cost thus ensuring greater depth and penetration of the capital markets.
    ForumIAS Moderator | Indian Revenue Service 2014 | Indian Administrative Service 2015
  • OK. Thank you :-)
    “The starting point of all achievement is DESIRE. Keep this constantly in mind. Weak desire brings weak results, just as a small fire makes a small amount of heat.”
    ― Napoleon Hill
  • No problem!
    ForumIAS Moderator | Indian Revenue Service 2014 | Indian Administrative Service 2015
  • No problem!
    Can u clear what this DR, DTC are? This topic went over my head :-/ :-/
  • edited July 2014
    Depository Receipts? Well they are equity instruments through which a company/entity can raise resources from a foreign market w/o being listed on its bourses. There's a local intermediary and an international depository. Eg. If Reliance wants to raise resources on the NYSE, it'll float American DRs with the help of an Indian bank as a securitizer and the American Depository as the local representative for floating the ADRs. Similarly, if foreign companies want to raise money in India, they float Indian DRs. Makes sense. @Nihilist ?

    And Direct Tax Code is supposed to be a major tax reform in direct taxation where multitudes of cesses, exemptions, surcharges, etc. would be replaced by a more friendly tax structure which is simple, stable and predictable. There will be less discretion with the tax authorities and apparently more revenue through tax collections. I hope this helps a bit. :)
    ForumIAS Moderator | Indian Revenue Service 2014 | Indian Administrative Service 2015
  • nicely explained Neanderthal!
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  • I'm glad you found it useful, Gaujian. :)
    ForumIAS Moderator | Indian Revenue Service 2014 | Indian Administrative Service 2015
  • @Neanderthal yes it helps, now need to do my own studies on this
  • @Neanderthal yes it helps, now need to do my own studies on this
  • How does 5% withholding tax to all bonds encourage liquidity in bond market ??
  • The bond-holders will be discouraged from liquidating their assets as a result of which liquidity in the debt market will be maintained. @Aficionado
    ForumIAS Moderator | Indian Revenue Service 2014 | Indian Administrative Service 2015
  • @neanderthal, I couldn't get u , could u explain in a bit more detailed way.
  • Witholding tax is a disincentive for bond-holders to liquidate their debt instruments. If the bond-holders start offloading their bonds, the bond market will be liquidity starved (due to payments being made to these persons), therefore, the witholding maintains the liquidity by discouraging debt instrument liquidation.
    ForumIAS Moderator | Indian Revenue Service 2014 | Indian Administrative Service 2015
  • Can somebody explain what is 'advance tax ruling' which will be opened to resident tax payers as well according to budget? As I understand, it means before starting a major project, the investors may get a reliable tax estimate(?) so as to reduce risks of inflated unaccounted for taxation later on.
  • edited July 2014
    Correct. It aims to do away with nebulous taxation and discretionary powers in the hands of taxmen.
    ForumIAS Moderator | Indian Revenue Service 2014 | Indian Administrative Service 2015
  • @neanderthal , ur explanation was useful
    What r the broad outlines/guidelines that should b kept in mind while reading Budget (for UPSC)?
  • The abovementioned understanding of withholding tax is incorrect.
    I don't like to reply to idiots and if you think I am referring to you, you are probably correct.
  • edited July 2014
    What a certain person here is trying to suggest is this-
    A higher withholding tax is a disincentive for investors from participating in the bond market as their returns (dividends/interest on the bonds) are compromised by the higher tax rate. A lower withholding tax rate would encourage more investors to buy bonds, hence encouraging liquidity in the bond markets. Since there is a flat 5% withholding tax for all types of bonds (infra and non-infra), it will also concomitantly ease the pressure on domestic banks to lend to these sectors as they were not able to raise resources because investors were discouraged by the high tax rates earlier (non-infra bonds had a withholding tax of 20% prior to the budget announcements).

    @Aficionado , I hope this gives you the complete and 'correct' picture. Also, I'd appreciate if the person can actually add his/her points rather than returning 404: Error messages. Signs of a very complexed person.

    Coming to parts to study, look at 'new' things added and budgetary allocations for programmes/policies/sectors in news. Eg. Railway safety allocation, NREGA 2.0 allocation and such. Nothing very detailed though. About 150 words on each.
    ForumIAS Moderator | Indian Revenue Service 2014 | Indian Administrative Service 2015
  • @neanderthal , this explanation helped me understand it much better.

    What does ' structural ' mean from economic perspective ?. [ we hear many a times of structural reforms needed ...]
  • Simply put, 'structural' means something which is systemic, internal, as a part of the process. There isn't a definition for it per se, aficionado.
    ForumIAS Moderator | Indian Revenue Service 2014 | Indian Administrative Service 2015
  • @ neanderthal , could u explain it with eg & y is it so important
  • Um, Let's talk about structural inflation?
    We have an inherently dysfunctional supply chain and many supply-side bottlenecks- poor storage facilities, inefficient transportation network, preponderance of middle-men et al- which require great investment and political will to revamp. Since presently this issue is systemic and 'a part of the process', inflation is said to be structural.

    Important? Um, that's a unique question! Could you praraphrase it a tad differently so that I can get what you really want me to explain?
    ForumIAS Moderator | Indian Revenue Service 2014 | Indian Administrative Service 2015
  • 1. is plan expenditure= gross budgetary support+central assistance to states?
    2. is GBS=what the govt decides to 'pay' to support the financial year's requirements for a scheme? where does the rest of the money come from? internal resources?

    some news sites take plan expenditure as above
    e.g. http://www.business-standard.com/article/economy-policy/plan-expenditure-modest-rise-in-allocations-114071100192_1.html
    while others take plan expenditure as gross budgetary support(using the word 'or')
    e.g.http://articles.economictimes.indiatimes.com/2013-02-14/news/37100407_1_plan-expenditure-fiscal-deficit-union-territories-plans
    which one is correct?

    3. what is the difference between central plan and central plan outlay?
  • edited July 2014
    can somebody please explain this

    How do GBS, central plan and plan expenditure differ?

    Central plan includes the GBS and the spending of the public enterprises that do not figure in the budget. In that sense the government's spending on the central plan is limited to GBS. But the centre also provides funds to states and union territories for their respective plans. This contribution, together with the GBS, makes up the total plan spending of the government for a year. This is about 30% of the total government expenditure.
    source:http://articles.economictimes.indiatimes.com/2011-01-27/news/28429066_1_gbs-gross-budgetary-support-planning-commission
    ~X(
  • edited July 2014
    Plan expenditure is that expenditure for which provision is made in the FYPs. There are usually productive expenditures aimed at fulfilling the commitments under the DPSPs. These include the outlay to central schemes, CSS, states and GBS.

    GBS is the 'support' extended to those sectors/programs which cannot meet their expenditure targets due to inadequacy of the revenue generated. Eg. GBS to the Railways in spite of the fact that it generates its own revenue.

    Central Plan is the expenditure incurred by the central government. Central Plan + State Plan + GBS= Plan Expenditure.

    Um, what else @corona ?

    ForumIAS Moderator | Indian Revenue Service 2014 | Indian Administrative Service 2015
  • What are Advance Tax Inflows, Advance Tax Outflows ? And what impact does these have on Liquidity ?

    Economic Survey says:
    i. Advance tax outflows also contributed towards the increase in liquidity stress in the
    system in September 2013.
    ii. Advance tax inflows tightened liquidity conditions in December 2013 and March 2014
    @Neanderthal Thanks :)
    CSM-2014
    CSM-2015

  • @Neanderthal
    Thanks a lot.
    I'm still confused about a couple of things. hope you wont mind answering them.
    Central Plan is the expenditure incurred by the central government. Central Plan + State Plan + GBS= Plan Expenditure.
    I dont get why state plan is under plan expenditure.

    so what the central govt provides for Centrally Sponsored Schemes which are implemented by state govts + what is provided to various ministries and depts to implement various schemes = GBS?

    many article say that after restructuring of CSS center has diverted the money earlier provided under CSS to central assistance to states. what is this central assistance to states? are these direct grants to states to support their budget?
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