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From the Desk of The National President From the Desk of The National President From the Desk of The National President From the Desk of The National President From the Desk of The National President
My Dear Readers,
Greetings from your National President !
The first Budget of the new government has been presented in parliament. It is indeed a forward
looking budget with focus on all round development.
Finance Minister Mr. Arun Jaitely in his budget has focused on the vision of our Prime Minister
Mr.Narendra Modi Sab ka Saath Sab ka Vikas. The key areas that have been focused on are
Manufacturing & Infrastructure. The government has targeted a 7-8% growth over the next 3-4 years.
There is a plan to reduce the debt so that the future generations are not burdened.
Various steps are being initiated for all round growth by reducing and streamlining the processes. This
will definitely give an impetus to growth and would also attract big investments in these areas. The
decision making would be speeded up which was not there earlier.
The focus is on education with an increased outlay of nearly 13%. With setting up of prestigious institutes
like IITs & IIMs would result in a big boost for students and job opportunities.
The government is initiating many programs for Rural Development so that the quality of life is made
better. It also gives an opportunity for all of us to be a part of the same.
For SCM professionals this opens many new avenues and we all look forward for the development of
the profession in near future.
I would like to specifically remind you all that we have already accepted the challenge for increase in
the membership strength to 20000, I am confident that you all will contribute to achieve this goal. The
increase in students enrollment is another task ahead of us and we will have to strive hard to achieve
desired target.
With warm regards
Lalbhai Patel
National President - IIMM
Email: lppatel09@yahoo.com
Materials Management Review 2 August 2014
From the Desk of Editor-in-Chief From the Desk of Editor-in-Chief From the Desk of Editor-in-Chief From the Desk of Editor-in-Chief From the Desk of Editor-in-Chief
Honble Finance Minister, Shri Arun Jaitely presented the Union Budget in parliament on
July 10, 2014. This is the first budget of newly formed Government under prevailing Economic
crisis with two successive years with less than 5% GDP growth, rising inflation, high Fiscal &
current Account Deficit etc.
Shri Arun Jaitely, has set the ground for reviving the economy and put back India to a growth rate of 7-8% in next
three to four years. The Fiscal Deficit is anticipated at 4.1% of GDP in 2014-15 and 3.6% in 2015-16 and 3% in
2016-17. It has clearly indicated the roadmap of Fiscal Consolidation of Indian economy over next five years.
Increase in FDI limits in Defense and insurance sector from 26% to 49% with Indian Management and Control,
will support local indigenous production and save precious foreign exchange resulting in lowering current account
deficit.
Total expenditure estimated to be at Rs 17950 billion while Plan Expenditure is at Rs 5.75 billion and non plan
expenditure is at Rs 12.19 billion. Defense gets an amount of Rs 2290 billion where as Subsidies stand out at Rs
2600 billion with Food subsidy bill raised significantly to Rs 1,15,000 Crore from Rs 92,000 Crore while petroleum
subsidy has moderated to Rs 63,427 Crores from Rs 85,480 Crores in 2013-14. Individual tax payers have also got
reason to cheer as tax slab limits raised to Rs 2.5 lakh from 2 lakh and for senior citizens, it is Rs 3 lakh from Rs 2.5
lakh.
A range of Infrastructure projects like setting up of 16 new ports, new airports in Tier I and Tier II cities, work on
Express Highways in parallel to Industrial Corridors, Jal Marg Vikas project for connecting Allahbad & Haldia as
an inland water way, Rural electrification, ultra modern power projects, creation of green power i.e. solar and
thermal power corridors are welcome move and will enhance investment in Infrastructure Sector. A fund of Rs 50
Billion has been allocated to warehouse capacity. Allowing Infrastructure loan for a longer period of time
matching the life of the asset is positive for the industry. Proposal for developing 100 smart cities will provide a
big boost to Indian Real Estate Industry and Civil Infrastructure.
Setting up of six textile clusters, pashmina clusters, seven Industrial smart cities, initiatives to revive SEZs, trade
facilitation center to promote handloom work in Varanasi are valuable steps taken towards enhancement in
manufacturing sector. Tax cuts/exemptions are other measures to promote manufacturing in power, consumer
goods and retail to create more jobs and consumption. However, wait for Implementation of GST should come to
an end to boost logistics efficiency & economic activities.
Acknowledging the importance of agriculture sector in India, the Government has set a target of sustainable
growth of 4% in Agriculture. Finance Minister has also announced a Price stabilization fund of worth Rs 500
Crore. Rs 100 Crore also set aside for Kisan Television to provide real time information on various farming and
agricultural issues.
Along with growth and investment, Government is also keen to update the existing education infrastructure and
skill developmental programmes to develop the pool of talent that can meet the demand of industries and
corporate sector. Finance Minister announced a new scheme, Skill India to increase the employability. The
budget highlights creation of five new IITs and IIMs and four new AIIMs.
Industries and corporate houses have many positives from the current budget. Reforms and Strategies adopted
for manufacturing, infrastructure and MSME sector (creation of new Textile and Pashmina clusters, revival of
SEZs) will not only create employment but also boost the foreign investments and economic growth.
(M. K. BHARDWAJ)
Materials Management Review 3 August 2014
MATERIALS MANAGEMENT
REVIEW
Volume 10 - Issue 10 (August 2014)
C O N T E N T S
BUDGET GLOSSARY TERMS 4
TYPES OF BUDGET 7
BUDGET AT A GLANCE 8
BUDGET - DIRECT TAXES 9
BUDGET - INDIRECT TAXES 13
KEY PROPOSALS OF THE RAILWAY BUDGET 2014-15 20
ECONOMIC PERFORMANCE, PROSPECTS
AND REFORMS 22
STATISTICAL APPENDIX 24
COMMODITY INDEX 26
HIGHLIGHTS OF ECONOMIC SURVEY 2013-14 27
BUDGET 2014 OFFERS LOTS TO REVIVE
GROWTH, SPUR INVESTMENTS 29
BUDGET 2014: INFRASTRUCTURE GROWTH
CAN BE KEY FOR ECONOMIC REVIVAL 30
RAILWAY CIRCULARS ON SERVICE TAX 31
CUSTOM EXCHANGE RATES 32
FOR HIGHER FDI, REVIVE SEZS 33
WE WILL ADOPT POLICIES TO MAKE
PROCUREMENT TRANSPARENT 34
WAY FORWARD EMERGING INDIA - FOR A HIGH
SPEED RAIL (HSR) OPPORTUNITY AND CHALLENGE
IN VALUE CHAIN! 35
LIST OF CHANGES IN SERVICE TAX-BUDGET 2014-15 39
TAXATION PROPOSED CHANGES
UNION BUDGET 2014-15 - A NEW BEGINNING 41
BUDGET 2014-15: PPP IS THE NEW MANTRA FOR
INFRASTRUCTURE 47
BRANCH NEWS 48
EXECUTIVE HEALTH 56
PAGE NO.
IIMM is a charter member of
International Federation of
Purchasing & Supply Management
Editor in Chief & Publisher:
Mr. M. K. Bhardwaj
Past President, IIMM &
Former Director Ministry of Defence
Core Committee :
Mr. Ashok Sharma, President 5M India
Mr. V. K. Jain, Former ED, Air India
Mr. Tej K Magazine, Management Advisor
National President :
Mr. Lalbhai Patel
Editors :
Mr. O.P. Longia (Sr. Vice President)
Mr. H.K. Sharma, VP (North)
Mr. Samiran Basu, VP (East)
Mr. G.B.Palankar, VP (West)
Mr. R. K.Rastogi, VP (South)
Mr. A.K.Mehra, VP (Central)
Mr. P.M.Biddappa, NS&T
Mr. C. Subbkrishna, IPP
Prof.(Dr.) V. K. Gupta - IMT, Ghaziabad
Correspondence :
MATERIALS MANAGEMENT REVIEW
Indian Institute of Materials
Management
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Darya Ganj, New Delhi - 110 002.
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Fax: 91-11-43575373
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Website : iimm.org
Printed at :
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Edited, Printed & Published by :
INDIAN INSTITUTE OF MATERIALS MANAGEMENT
4598/12 B, Ist Floor, Ansari Road, Darya Ganj, New Delhi - 110 002.
Phones : 011-43615373 Fax: 91-11-43575373
E-mail: iimmdelhimmr@gmail.com & iimm2delhi@gmail.com
Website : iimm.org
(Published material has been compiled from several sources, IIMM disowns any responsibility
for the use of any information from the Magazine if published anywhere by anyone.)
Materials Management Review 4 August 2014
A
nnual Financial Statement : Article 112 of the
Constitution requires the government to present
to Parliament a statement of estimated receipts
and expenditure in respect of every financial year - April
1 to March 31. This statement is the annual financial
statement. The annual financial statement is usually a
white 10-page document. It is divided into three parts,
consolidated fund, contingency fund and public account.
For each of these funds, the government has to present a
statement of receipts and expenditure.
Consolidated Fund : This is the most important of all
government funds. All revenues raised by the government,
money borrowed and receipts from loans given by the
government flow into the consolidated fund of India. All
government expenditure is made from this fund, except
for exceptional items met from the Contingency Fund or
the Public Account. Importantly, no money can be
withdrawn from this fund without the Parliament's
approval.
Contingency Fund : As the name suggests, any urgent or
unforeseen expenditure is met from this fund. The Rs
500-crore fund is at the disposal of the President. Any
expenditure incurred from this fund requires a
subsequent approval from Parliament and the amount
withdrawn is returned to the fund from the consolidated
fund.
Public Account : This fund is to account for flows for
those transactions where the government is merely
acting as a banker. For instance, provident funds, small
savings and so on. These funds do not belong to the
government. They have to be paid back at some time to
their rightful owners. Because of this nature of the fund,
expenditure from it are not required to be approved by
the Parliament.
For each of these funds the government has to present a
statement of receipts and expenditure. It is important to
note that all money flowing into these funds is called
receipts, the funds received, and not revenue. Revenue
in budget context has a specific meaning.
The Constitution requires that the budget has to
distinguish between receipts and expenditure on revenue
account from other expenditure. So all receipts in, say
consolidated fund, are split into Revenue Budget (revenue
account) and Capital Budget (capital account), which
includes non-revenue receipts and expenditure. For
understanding these budgets - Revenue and Capital - it
is important to understand revenue receipts, revenue
expenditure, capital receipts and capital expenditure.
Revenue receipt/Expenditure : All receipts and
expenditure that in general do not entail sale or creation
of assets are included under the revenue account. On
the receipts side, taxes would be the most important
revenue receipt. On the expenditure side, anything that
does not result in creation of assets is treated as revenue
expenditure. Salaries, subsidies and interest payments
are good examples of revenue expenditure.
Capital receipt/Expenditure : All receipts and expenditure
that liquidate or create an asset would in general be
under capital account. For instance, if the government
sells shares (disinvests) in public sector companies,
like it did in the case of Maruti, it is in effect selling an
asset. The receipts from the sale would go under capital
account. On the other hand, if the government gives
someone a loan from which it expects to receive interest,
that expenditure would go under the capital account.
In respect of all the funds the government has to prepare
a revenue budget (detailing revenue receipts and revenue
expenditure) and a capital budget (capital receipts and
capital expenditure). Contingency fund is clearly not that
important. Public account is important in that it gives a
view of select savings and how they are being used, but
not that relevant from a budget perspective. The
consolidated fund is the key to the budget.
Corporation Tax: Tax on profits of companies. : Taxes on
Income other than corporation tax: Income tax paid by
non-corporate assesses, individuals, for instance.
Fringe benefit tax (FBT): The taxation of perquisites - or
fringe benefits - provided by an employer to his
employees, in addition to the cash salary or wages paid,
is fringe benefit tax. It was introduced in Budget 2005-
06. The government felt many companies were disguising
perquisites such as club facilities as ordinary business
expenses, which escaped taxation altogether. Employers
have to now pay FBT on a percentage of the expense
incurred on such perquisites.
Securities transaction tax (STT): Sale of any asset (shares,
property) results in loss or profit. Depending on the time
the asset is held, such profits and losses are categorised
as long-term or short-term capital gain/loss. In Budget
2004-05, the government abolished long-term capital
gains tax on shares (tax on profits made on sale of shares
held for more than a year) and replaced it with STT. It is
a kind of turnover tax where the investor has to pay a
small tax on the total consideration paid / received in a
share transaction.
Banking cash transaction tax (BCTT): Introduced in Budget
2005-06, BCTT is a small tax on cash withdrawal from
bank exceeding a particular amount in a single day. The
basic idea is to curb the black economy and generate a
record of big cash transactions.
Customs: Taxes imposed on imports. While revenue is
an important consideration, Customs duties may also
be levied to protect the domestic industry or sector
(agriculture, for one), in retaliation against measures
by other countries.
Union Excise Duty: Duties imposed on goods made in
India.
Service Tax: It is a tax on services rendered. Telephone
bill, for instance, attracts a service tax. While on taxes,
let us take a look at an important classification: direct
tax and indirect tax.
BUDGET GLOSSARY TERMS
Materials Management Review 5 August 2014
Direct Tax : Traditionally, these are taxes where the burden
of tax falls on the person on whom it is levied. These are
largely taxes on income or wealth. Income tax (on
corporates and individuals), FBT, STT and BCTT are direct
taxes.
Indirect Tax : In case of indirect taxes, the incidence of
tax is usually not on the person who pays the tax. These
are largely taxes on expenditure and include Customs,
excise and service tax. Indirect taxes are considered
regressive, the burden on the rich and the poor is alike.
That is why governments strive to raise a higher
proportion of taxes through direct taxes. Moving on, we
come to the next important receipt item in the revenue
account, non-tax revenue.
Non-tax revenue : The most important receipts under
this head are interest payments (received on loans given
by the government to states, railways and others) and
dividends and profits received from public sector
companies.
Various services provided by the government - police
and defence, social and community services such as
medical services, and economic services such as power
and railways - also yield revenue for the government.
Though Railways are a separate department, all its
receipts and expenditure are routed through the
consolidated fund.
Grants-in-aid and contributions : The third receipt item
in the revenue account is relatively small grants-in-aid
and contributions. These are in the nature of pure
transfers to the government without any repayment
obligation.
Revenue Deficit : The excess of disbursements over
receipts on revenue account is called revenue deficit.
This is an important control indicator. All expenditure
on revenue account should ideally be met from receipts
on revenue account; the revenue deficit should be zero.
When revenue disbursement exceeds receipts, the
government would have to borrow. Such borrowing is
considered regressive as it is for consumption and not
for creating assets. It results in a greater proportion of
revenue receipts going towards interest payment and
eventually, a debt trap. The FRBM Act, which we will take
up later, requires the government to reduce fiscal deficit
to zero by 2008-09.
Receipts in the capital account of the consolidated fund
are grouped under three broad heads - public debt,
recoveries of loans and advances, and miscellaneous
receipts.
Public debt: Public debt receipts and public debt
disbursals are borrowings and repayments during the
year, respectively. The difference is the net accretion to
the public debt. Public debt can be split into internal
(money borrowed within the country) and external (funds
borrowed from non-Indian sources). Internal debt
comprises treasury bills, market stabilisation schemes,
ways and means advance, and securities against small
savings.
Treasury bills (T-bills): These are bonds (debt securities)
with maturity of less than a year. These are issued to
meet short-term mismatches in receipts and expenditure.
Bonds of longer maturity are called dated securities.
Market stabilisation scheme: The scheme was launched
in April 2004 to strengthen RBI's ability to conduct
exchange rate and monetary management. These
securities are issued not to meet the government's
expenditure but to provide RBI with a stock of securities
with which it can intervene in the market for managing
liquidity.
Ways and means advance (WMA): One of RBI's roles is
to serve as banker to both central and state governments.
In this capacity, RBI provides temporary support to tide
over mismatches in their receipts and payments in the
form of ways and means advances.
Securities against small savings: The government meets a
small part of its loan requirement by appropriating small
savings collection by issuing securities to the fund.
Miscellaneous receipts: These are receipts from
disinvestment in public sector undertakings. Capital
account receipts of the consolidated fund - public debt,
recoveries of loans and advances, and miscellaneous
receipts and revenue receipts are receipts of the
consolidated fund.
The consolidated fund has certain disbursements
'charged' to the fund. These are obligations that have to
be met in any case and, therefore, do not have to be
voted by the Lok Sabha. These include interest payments
and certain expenditure such as emoluments of the
President, salary and allowances of speaker, deputy
chairman of the Rajya Sabha, and allowances and
pensions of Supreme Court judges, Parliament and so
on.
Budget at a glance : This is a snap shot of the budget for
easy understanding. Nonetheless, it introduces some new
concepts. While receipts are broken down into revenue
and capital, unlike the consolidated fund, it shows the
centre's net tax revenues. This is because a decent part
of the gross tax revenue, as decided by the relevant
Finance Commission, flows to the state governments.
Budget at a glance also segments expenditure into plan
and non-plan expenditure, instead of splitting into
revenue and capital. Each of these is then split into
revenue account and capital account. Before discussing
plan and non-plan expenditure it is important to discuss
the concept of the central plan.
Central plan: Central or annual plans are essentially
Five Year Plans broken down into annual instalments.
Through these plans, the government achieves the
objectives of the Five Year Plans. The central plan's
funding is split almost evenly between government
support (from the budget) and internal and extra
budgetary resources of public enterprises. The
government's support to the central plan is called budget
support. We will take up plan and non-plan expenditure
in the next part.
Plan expenditure: This is essentially the budget support
to the central plan and the central assistance to state
and union territory plans. Like all budget heads, this is
also split into revenue and capital components.
Non-plan expenditure: This is largely the revenue
expenditure of the government. The biggest items of
expenditure are interest payments, subsidies, salaries,
defence and pension. The capital component of the non-
plan expenditure is relatively small with the largest
allocation going to defence. Defence expenditure is non-
plan expenditure.
Fiscal Deficit: When the government's non-borrowed
receipts fall short of its entire expenditure, it has to
Materials Management Review 6 August 2014
borrow money from the public to meet the shortfall. The
excess of total expenditure over total non-borrowed
receipts is called the fiscal deficit.
Primary deficit: The revenue expenditure includes interest
payments on government's earlier borrowings. The
primary deficit is the fiscal deficit less interest payments
A shrinking primary deficit indicates progress towards
fiscal health. The Budget document also mentions deficit
as a percentage of GDP. This is to facilitate comparison
and also get a proper perspective. Prudent fiscal
management requires that government does not borrow
to consume in the normal course.
FRBM Act: Enacted in 2003, Fiscal Responsibility and
Budget Management Act require the elimination of
revenue deficit by 2008-09. Hence, from 2008-09, the
government will have to meet all its revenue expenditure
from its revenue receipts. Any borrowing would only be
to meet capital expenditure. The Act mandates a 3% limit
on the fiscal deficit after 2008-09.
Resources transferred to the states: A part of the Centre's
gross tax collection goes to state governments. In the
Budget 2007-08, the states were to receive nearly 27% of
the gross tax collections. The Centre also transfers funds
to states by way of support to their plans. It also gives
large grants to manage centrally-sponsored schemes.
The government counts small savings transfers to state
governments, which are in the nature of borrowings, as
resources transferred to states.
Before March 31, 1999, the Centre used to borrow net
accretions to small savings and lend them to the states.
From April 1, 1999, states started receiving 75% of net
small savings directly; the balance was invested in
special government securities during 1999-2000 to
2001-2002. The sums received in the NSS fund on
redemption of special securities are being reinvested in
special G-secs. From April 2002, the entire net collection
under small saving schemes in each state and UT are
advanced to the to the concerned state/UT government
as investment in its special securities. The expenditure
and receipts Budget take up the respective heads in
greater detail.
Value-Added Tax (VAT) and GST: VAT helps avoid cascading
of taxes as a product passes through different stages of
production/value addition. The tax is based on the
difference between the value of the output and inputs
used to produce it. The aim is to tax a firm only for the
value added by it to the inputs it is using for
manufacturing its output and not the entire input cost.
VAT brings in transparency to commodity taxation.
In this concluding part we take a look at some of the
important terms that figure in the Budget
CESS:
This is an additional levy on the basic tax liability.
Governments resort to cess for meeting specific
expenditure. For instance, both corporate and individual
income is at present subject to an education cess of 2%.
In the last Budget, the government had imposed another
1% cess - secondary and higher education cess on
income tax - to finance secondary and higher education.
COUNTERVAILING DUTIES (CVD): Countervailing duty is
a tax imposed on imports, over and above the basic
import duty. CVD is at par with the excise duty paid by
the domestic manufacturers of similar goods. This
ensures a levelplaying field between imported goods
and locally-produced ones. An exemption from CVD
places the domestic industry at disadvantage and over
long run discourages investments in affected sectors.
EXPORT DUTY: This is a tax levied on exports. In most
instances, the object is not revenue , but to discourage
exports of certain items. In the last Budget, for instance
, the government imposed an export duty of Rs 300 per
metric tonne on export of iron ores and concentrates
and Rs 2,000 per metric tonne on export of chrome ores
and concentrates.
FINANCE BILL: The proposals of government for levy of
new taxes, modification of the existing tax structure or
continuance of the existing tax structure beyond the
period approved by Parliament are submitted to
Parliament through this bill. It is the key document as
far as taxes are concerned.
FINANCIAL INCLUSION: Financial inclusion is
universalising access to basic financial services (to have
a bank account , timely and adequate credit) at an
affordable cost. Exclusion from financial services
imposes costs on those excluded ; these are typically
the disadvantaged and low-income group. Exclusion
forces them into informal arrangements such as
borrowing from local money lenders at high rates.
Financial inclusion remains a serious issue in India.
The government has proposed a no-frills account to
provide cheap banking.
MINIMUM ALTERNATE TAX (MAT): This tax on corporate
profits was introduced in 1996-97 and has been modified
since. If the tax payable by a company is less than 10%
of its book profits, after availing of all eligible deductions
, then 10% of book profits is the minimum tax payable.
Book profits are profits calculated as per the Companies
Act, while profits as per the Income-Tax Act could be
significantly lower, thanks to various exemptions and
depreciation.
PASS-THROUGH STATUS: A pass-through status helps
avoid double taxation. Mutual funds, for instance , enjoy
pass-through status. The income earned by the funds is
tax free. Since mutual funds' income is distributed to
unitholders, who are in turn taxed on their income from
such investments, any taxation of mutual funds would
amount to double taxation.
Essentially , it means the income is merely passing
through the mutual funds and, therefore, should not be
taxed. The government allows venture funds in some
sectors pass-through status to encourage investments
in start-ups .
SUBVENTION: The term subvention finds a mention in
almost every Budget. It refers to a grant of money in aid
or support, mostly by the government. In the Indian
context, for instance, the government sometimes asks
institutions to provide loans to farmers at below market
rates. The loss is usually made good through subventions.
SURCHARGE: As the name suggests, this is an additional
charge or tax. A surcharge of 10% on a tax rate of 30%
effectively raises the combined tax burden to 33%. In the
case of individuals earning a taxable salary of more
than Rs 10 lakh a surcharge of 10% is levied on income
in excess of Rs 10 lakh. Corporate income is levied a flat
surcharge of 10% in the case of domestic companies
and 2.5% for foreign companies. Companies with revenue
less than Rs 1 crore do not have to pay this surcharge.
FISCAL INDICATORS
Materials Management Review 20 August 2014
Financial Performance of Railways in
2013-14
Goods Earnings were short by Rs. 94 crore.
Passenger Earnings were short by Rs. 968 crore
over revised target.
Gross Traffic Receipts grew by 12.8% to reach Rs.
1,39,558 crore. However, it falls short of revised
target by Rs. 942 crore.
Ordinary Working Expenses stood at Rs. 97,571
crore, which was in excess by Rs. 511 crore.
Operating Ratio deteriorated by 2.7% over revised
target to touch 93.5% by end of 2013-14 fiscal.
As far the Plan Expenditure for ,2013-14 is
concerned, it fell short of Revised target of Rs.
59,359 crore mainly due to non-materialization of
PPP targets
Annual Plan 2014-15
Plan outlay under budgetary sources: Rs. 47,650 cr
Additional Budgetary Support as Capital: Rs. 1,100
cr
Railway share from diesel cess for important Road
Safety works: Rs. 273 cr
Internal Resources: Rs. 11790 cr
Budget Estimates for FY 2014-15
Total receipts of Rs. 1,64,374 crore and total
expenditure at Rs. 1,49,176 crore.
Earnings from Freight Traffic Rs. 1,05,770 crore and
from Passenger Traffic Rs. 44,645 crore
Ordinary working expenses have been proposed at
Rs. 1,12,649 crore, which is Rs. 15,078
cforeJiigherthan 2013-14. This has been
necessitated by fuel price hike and increase in staff
costs. Pension outgo in 2013-14 had grown by about
16%.
Resource Mobilisation for Railways
Leveraging Railway PSU Resources: Railway PSUs
are financially sound. It is proposed to launch a
scheme to bring in investible surplus funds of
Railway PSUs in infrastructure projects of Railways,
which can generate attractive returns for PSUs.
Private investment in Rail Infrastructure through
KEY PROPOSALS OF
THE RAILWAY BUDGET 2014-15
Domestic and Foreign Direct Investment (FDI):
Growth of Railways depends heavily on availability
of funds for investment in rail infrastructure.
Internal revenue sources and government funding
are insufficient to meet the requirement. Hence,
Ministry of Railways would seek Cabinet approval
to allow FDI in Rail Sector.
Public Private Partnership: Railways being a capital
intensive sector has not been successful so far in
raising substantial resource through PPP route.
Bulk of the future projects will be financed through
PPP mode, including the high-speed rail which
requires huge investments. There is also a need to
strategically manage railway planning and
administration suitably.
Passenger Amenities & Station
Management Amenities at Stations
It is envisaged to provide foot-over bridges,
escalators and lifts at all major stations including
through PPP route.
To make earnest attempt to provide sufficient water
supply, platform shelters and toilets at the Railway
Stations.
Passenger Amenities through private
entity
Indian Railways propose to extend service of
Battery-operated Carts to facilitate differently-
abled and senior citizens to reach any platform
comfortably at all major stations.
Reputed and willing NGOs, charitable institutions
and Corporate Houses will be encouraged to adopt
and maintain stations for better cleanliness and
upkeep.
Other Key Proposals
Railway will explore the possibility of building of
boundary walls around stations through PPP route.
Diamond Quadrilateral Network of High Speed Rail,
connecting major Metros and growth centers of the
country is proposed. A provision of Rs. 100 crore
has been made in this Budget for high Speed project
to RVNL / HSRC (High Speed Rail Corridor) for taking
further steps.
An effort will be made to increase the speed of trains
to 160-200 kmph in select sectors so as to
Materials Management Review 21 August 2014
significantly reduce travel time between major
cities.
It is proposed to set up an Innovations Incubation
Center. This Center will harness the ideas generated
from the staff of Indian Railways and convert them
into practical solutions to increase efficiency of
the system. Such innovations which result in cost
saving as well as revenue generation will be
suitably rewarded in the form of incentive.
With a large backlog of sanctioned projects, funding
continues to be the biggest challenge for the
Railways. The Govt. will interact with industry and
take further steps to attract investment under PPP
through BOT and Annuity route and 8 to 10 capacity
augmentation projects on congested routes will be
identified for this purpose. Zonal Railways will be
suitably empowered to finalize and execute such
projects.
Indian Railways has taken up port connectivity on
a priority through PPP mode of funding in tandem
with Sagar Mala Project of Port Development.
Railways will facilitate connectivity to the new and
upcoming ports through private participation. So
far, in principle approval has been granted for
building rail connectivity to the Ports of Jaigarh,
Dighi, Rewas, Hazira, Tuna, Dholera and Astranga
under Participative Model Policy of Indian
Railways, amounting to a total of over Rs. 4,000
crore.
Coal Connectivity: Railways will speed up
construction of critical coal connectivity lines in
Tori-Shivpur-Kathautia Area, Jharsuguda-Barpalli-
Sardega and Bhupdeopur- Raigarh-Mand Area. This
will bring nearly 100 Million Tonnes of incremental
traffic to railways and will also facilitate faster
transportation of coal to Power Houses.
Private Investment in Railway Logistics: It is
proposed to modernize logistics operations by
setting up Logistic Parks that provide for
warehousing, packaging, labeling, distribution,
door-to-door delivery and consignment tracking.
In order to achieve better efficiency, mechanization
of loading and unloading will be given top priority.
In the existing pattern of traffic movement of Indian
Railways, more than 33% of freight trains over the
system run empty since return traffic at existing
freight rates is not forthcoming. In order to garner
additional revenue by a suitable pricing
mechanism, it is proposed to launch a pilot project
whereby automatic rebate from the computerized
FOIS system will become available to customers
offering traffic over the present expected levels of
loaded movement. This would help reduce the
empty flows on the Indian Railway System apart
from garnering additional revenue.
A scheme for private participation in parcel
movement will be launched shortly whereby
procurement of parcel vans or parcel rakes by
private parties shall be facilitated.
Private Freight Terminals (PFT): To develop network
of freight terminals, policy of Private Freight
Terminals on PPP model is being further refined.
Movement of Agri-Products: It is proposed to give
a boost to rail movement of fruits and vegetables
in partnership with the Central Railside
Warehousing Corporation (CRWC) by providing
requisite facilities of temperature controlled
storages at 10 locations viz Vatva, Vishakhapatna,
Badagara, Cheriyanad, Bhivandi Road, Azara,
Navlur, Kalamboli and Sanand on Indian Railways
in the first phase. The aggregation and distribution
from Railway terminal points shall be organized
by the CRWC. Apart from avoiding national wastage
of these products, this would help producers of
fruits and vegetable in different parts of the country
in getting better prices for their produce.
Indian Railways propose to facilitate
transportation of milk through rail by providing
special milk tanker trains in association with
National Dairy Development Board and Amul.
It is proposed to harness solar energy by utilizing
roof top spaces of Railway Stations, other Railway
buildings and land, including through the PPP
mode.
Transparency in administration, execution of
projects and procurement will be given top priority.
E-procurement will be made compulsory for
procurements worth Rs.25 lakhs and above.
Expansion of railways in Hill States & Northeast
regions: There are 23 projects underway in the
Northeast, of which 11 are National Projects. It is
proposed to allocate substantially higher funds for
these projects compared to previous years. In 2014-
15, an outlay of Rs. 5,116 crore is earmarked for
projects of North-East. This means a 54% jump over
allocations in the previous year. With higher
allocations and by close monitoring of works in
this region, it is hoped that Dudhnoi-Mendipathar
New Line; Lumding-Badarpur-Silchar Gauge
Conversion; Harmuti-Murkongselek and Balipara-
Bhalukpong sections will soon get commissioned.
These measures will also give a boost to the State
capital connectivity projects in the region.
Online Wagon Demand registration: Online
registration of demand for wagons will be launched
in the next 2 months. This will facilitate online
payment of Wagon Registration fee as well as
registering demand for wagons. Further a process
for ERR (Electronic Railway Receipt) will also be
initiated during the year.
Indian Railway will tie up with technical
institutions for introducing railway oriented
subject for graduation and skill development.
Possibility of setting up a Railway University is
being contemplated. Short duration courses of
technical and non-technical nature for staff is
proposed.
COMMODITY INDEX
Commodities Dayss Index Prev. Index Week Ago Month Ago
Index 2536.7 2534.2 2535.6 2522.2
Bullion 4926.5 4909.6 4981.6 4899.9
Cement 1838.1 1838.1 1858.5 1901.4
Chemicals 1987.6 1987.6 1987.6 1987.6
Edible Oil 1465.3 1463.1 1483.9 1420.3
Foodgrains 2157.1 2153.9 2144.6 2123.0
Fuel 2505.7 2505.7 2505.7 2473.4
Indl Metals 1800.1 1800.1 1817.1 1829.8
Other Agricom 2011.4 2011.4 2011.4 1981.5
Plastics 2421.8 2421.8 2316.3 2270.4
Source: ETIG Database dated 21st July 2014
Materials Management Review 27 August 2014
STATE OF THE ECONOMY AND PROSPECTS
Economy to grow in the range of 5.4 5.9 per cent
in 2014-15 overcoming sub-5 percent growth.
Growth slowdown was broad based, affecting in
particular the industry sector.
Aided by favourable monsoons, agricultural and
allied sector registered a growth of 4.7 per cent in
2013-14.
Industry and Service sectors also witnessed
slowdown.
ISSUES AND PRIORITIES
Reforms needed for long term-growth prospects
on 3 fronts- low and stable inflation regime, tax
and expenditure reform and regulatory framework.
Survey suggests removal of restriction on farmers
to buy, sell and store their produce to customers
across the country and the world.
Rationalisation of subsidies on inputs such as
fertilizer and food is essential.
Government needs to eventually move towards
income support for farmers and poor households.
PUBLIC FINANCE
The fiscal policy for 2013-14 was calibrated with
two-fold objectives; first, to aid growth revival; and
second, to reach the FD level targeted for 2013-14.
The Budget for 2013-14 followed the policy of
revenue augmentation and expenditure
rationalization to contain government spending
within sustainable limits.
The fiscal outcome of the central government in
2013-14 was achieved despite the macroeconomic
challenges of growth slowdown, elevated levels of
global crude oil prices, and slow growth of
investment.
PRICES AND MONETARY MANAGEMENT
High inflation, particularly food inflation, was the
result of structural as well as seasonal factors.
IMF projects most global commodity prices are
expected to remain flat during 2014-15.
HIGHLIGHTS OF ECONOMIC SURVEY 2013-14
The RBI with a view to restoring stability to the
foreign exchange market, hiked short term interest
rate in July and compressed domestic money
market liquidity.
FINANCIAL INTERMEDIATION
RBI has indentified five sectors -- infrastructure,
iron and steel, textiles, aviation and mining as the
stressed sectors.
Public sector banks (PSBs) have high exposures to
the industry sector in general and to such
stressed sectors in particular.
The New Pension System (NPS), now National
Pension System, introduced for the new recruits
who join government service on or after January
2004, represents a major reform of Indian pension
arrangements.
The next wave of infrastructure financing will
require a capable bond market.
BALANCE OF PAYMENTS
The Indias balance-of-payments position
improved dramatically in 2013-14 with current
account deficit at US $ 32.4 billion as against US$
88.2 billion in 2012-13.
Indias foreign exchange reserves increased from
US$ 292.0 billion at end March 2013 to US$ 304.2
billion at end march 2014.
Indias external debt has remained within
manageable limits due to the external debt
management policy with prudential restrictions
on debt varieties of capital inflows.
INTERNATIONAL TRADE
World trade
World trade volume which decelerated to 2.8 per
cent in 2012 has shown signs of recovery in 2013,
albeit slow with a 3.0 per cent growth.
The sharp fall in imports and moderate export
growth in 2013-14 resulted in a sharp fall in India's
trade deficit by 27.8 per cent.
In April-May 2014, trade deficit declined by 42.4
per cent.
Materials Management Review 28 August 2014
AGRICULTURE AND FOOD MANAGEMENT
Record food grains and oilseeds production of
264.4 million tonnes (mt) and 32.4 mt is estimated
in 2013-14.
Horticulture production estimated at 265 mt in
2012-13 has exceeded the production of foodgrains
and oilseeds for the first time.
Due to higher procurement, stocks of foodgrains
in the Central Pool have increased to 69.84 million
tonnes as on June 1, 2014.
The net availability of foodgrains increased to
229.1 million tonnes and that of edible oils to 12.7
kg per year in 2013.
INDUSTRIAL PERFORMANCE
The latest gross domestic product (GDP) estimates
show that industry grew by just 1.0 per cent in
2012-13 and slowed further in 2013-14, posting a
modest increase of 0.4 per cent.
SERVICES SECTOR
India ranked 12th in terms of services GDP in 2012
among the worlds top 15 countries in terms of
GDP (at current prices).
India has the second fastest growing services
sector with its CAGR at 9.0 per cent, just below
Chinas 10.9 per cent, during 2001 to 2012.
In 2013-14, FDI inflows to the services sector (top
five sectors including construction) declined
sharply by 37.6 per cent to US$ 6.4 billion
compared to an overall growth in FDI inflows at
6.1 per cent resulting in the share of the top five
services in total FDI falling to nearly one-sixth.
ENERGY, INFRASTRUCTURE AND COMMUNICATIONS
Major sector-wise performance of core industries
and infrastructure services during 2013-14 shows
a mixed trend. While the growth in production of
power and fertilizers was comparatively higher
than in 2012-13, coal, steel, cement, and refinery
production posted comparatively lower growth.
Crude oil and natural gas production declined
during 2013-14.
The performance of the coal sector in the first two
years of the Twelfth Plan has been subdued with
domestic production at 556 MT in 2012-13 and
566 MT in 2013-14.
A total length of 21,787 km of national highways
has been completed till March 2014 under various
phases of the NHDP. In spite of several constraints
due to the economic downturn, the NHAI
constructed 2844 km length in 2012-13, its highest
ever annual achievement. During 2013-14 a total
of 1901 km of road construction was completed.
From the infrastructure development perspective,
while important issues like delays in regulatory
approvals, problems in land acquisition &
rehabilitation, environmental clearances, etc. need
immediate attention, time overruns in the
implementation of projects continue to be one of
the main reasons for underachievement in many
of the infrastructure sectors.
SUSTAINABLE DEVELOPMENT & CLIMATE CHANGE
Human- induced Greenhouse gas (GHG) emissions
are growing and are chiefly responsible for climate
change.
The world is not on track for limiting increase in
global average temperature to below 2?C, above
pre-industrial levels. GHG emissions grew on
average 2.2 per cent per year between 2000 and
2010, compared to 1.3 per cent per year between
1970 and 2000.
There is immense pressure on governments to act
through two new agreements on climate change
and sustainable development, both of which will
be global frameworks for action to be finalized
next year.
The cumulative costs of Indias low carbon
strategies have been estimated at around USD 834
billion at 2011 prices, between 2010 and 2030.
HUMAN DEVELOPMENT
Indias Human Development Rank and performance
According to HDR 2013, India has slipped down in
HDI with its overall global ranking at 136 (out of
the 186 countries) as against 134 (out of 187
countries) as per HDR 2012. It is still in the medium
human development category.
The poverty ratio (based on the MPCE of ` 816 for
rural areas and `1000 for urban areas in 2011-12
at all India level), has declined from 37.2 per cent
in 2004-05 to 21.9 per cent in 2011-12.
In absolute terms, the number of poor declined
from 407.1 million in 2004-05 to 269.3 million in
2011-12 with an average annual decline of 2.2
percentage points during 2004-05 to 2011-12.
During 2004-05 to 2011-12, employment growth
[CAGR] was on.