Test: Government Budget and the Economy- Case Based Type Questions - Commerce MCQ

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NEW DELHI: Finance Minister Nirmala Sitharaman on Monday announced plans to sell a stake in LIC as part of her disinvestment plans for F/Y 22. In her Budget speech, the FM said her government will complete divestment of BPCL, CONCOR and SCI in F/Y 22. She said that her government will privatise two public sector banks (PSBs) and one general insurance company as well. “LIC IPO may see the light of day soon,” said Jiger Saiya, Partner and Leader - Tax & Regulatory Services at BDO India.

Earlier, in an interview with ET, LIC Chairman M R Kumar had said the IPO is very much likely. “The point is that it is going to be big and we want to get the valuations right,” he had said, adding that the listing of an insurance company requires determining the embedded value of the business.

LIC has started the process and would soon announce the software, which will assist it determine the right valuation. “We have floated an RFP for the actuarial firm that will undertake the exercise. This calculation will take some time. Once this process is done, we will be ready,” Kumar said on January 11.

Last week, a Reuters report quoting sources suggested that the government was looking to sell 10-15 per cent in the country’s biggest insurer to improve public finances.

To facilitate the sale of the LIC stake, the government will need Parliament approval to amend the LIC Act.

As part of its divestment drive, four CPSEs – HAL, SAIL, Bharat Dynamics and IRCTC –have come out with offers for sale (OFSs) this financial year. They garnered ₹12,907 crore to the exchequer. In addition, IPOs of IRFC and Mazagon Dock Shipbuilders together fetched ₹1,984 crore.

Also, this year, the government sold shares worth about ₹1,837 crore in private companies, in which it holds stakes through SUUTI.

Four state-owned companies, NTPC, RITES, NMDC and KIOCL, completed share buybacks, adding ₹2,769 crore to the exchequer.

The government is also looking to sell its entire 26.12 per cent stake in Tata Communications (TCL), erstwhile VSNL, through an OFS and strategic sale this financial year. The process of privatisation of Air India, BPCL, Pawan Hans, BEML, Shipping Corp, Neelachal Ispat Nigam Limited and Ferro Scrap Nigam Limited (FSNL) is currently underway.

Q. What is the main reason for this disinvestment?

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MUMBAI: Investors were relieved as the finance minister Nirmala Sitharaman avoided an increase in the long-term capital gains tax on equity investments and securities transaction tax in the Union Budget for 2021-22 announced today.

Heading into the Budget, most investors were concerned that the government may look at increasing the long-term capital gains tax or the securities transaction tax in order to boost its revenues, especially as the stock market has witnessed a breakneck rally since the beginning of April.

In her Budget speech in July 2019, the finance minister had reintroduced the long-term capital gains tax after 15 years. Currently, individuals who make capital gains of more than `1 lakh on their equity investment after a holding period of more than one year have to pay a tax of 10 per cent on the capital gains. However, the capital gains tax for individuals in the highest bracket of earnings comes around 15 per cent inclusive of a cess.

Money managers had said that the government needed to bring out an equity friendly budget, implying no changes in taxations related to the stock market, in order to ensure that its divestment plans went smoothly in the next fiscal year.

Q. Why didn’t the government say anything about the capital gains tax?

Read the following news report and answer the question that follow:

MUMBAI: Investors were relieved as the finance minister Nirmala Sitharaman avoided an increase in the long-term capital gains tax on equity investments and securities transaction tax in the Union Budget for 2021-22 announced today.

Heading into the Budget, most investors were concerned that the government may look at increasing the long-term capital gains tax or the securities transaction tax in order to boost its revenues, especially as the stock market has witnessed a breakneck rally since the beginning of April.

In her Budget speech in July 2019, the finance minister had reintroduced the long-term capital gains tax after 15 years. Currently, individuals who make capital gains of more than `1 lakh on their equity investment after a holding period of more than one year have to pay a tax of 10 per cent on the capital gains. However, the capital gains tax for individuals in the highest bracket of earnings comes around 15 per cent inclusive of a cess.

Money managers had said that the government needed to bring out an equity friendly budget, implying no changes in taxations related to the stock market, in order to ensure that its divestment plans went smoothly in the next fiscal year.

Q. What type of tax is the Capital Gains Tax?

Read the following news report and answer the question that follow:

MUMBAI: Investors were relieved as the finance minister Nirmala Sitharaman avoided an increase in the long-term capital gains tax on equity investments and securities transaction tax in the Union Budget for 2021-22 announced today.

Heading into the Budget, most investors were concerned that the government may look at increasing the long-term capital gains tax or the securities transaction tax in order to boost its revenues, especially as the stock market has witnessed a breakneck rally since the beginning of April.

In her Budget speech in July 2019, the finance minister had reintroduced the long-term capital gains tax after 15 years. Currently, individuals who make capital gains of more than `1 lakh on their equity investment after a holding period of more than one year have to pay a tax of 10 per cent on the capital gains. However, the capital gains tax for individuals in the highest bracket of earnings comes around 15 per cent inclusive of a cess.

Money managers had said that the government needed to bring out an equity friendly budget, implying no changes in taxations related to the stock market, in order to ensure that its divestment plans went smoothly in the next fiscal year.

Q. The capital gains in the highest bracket of earning comes around ________.

Read the following news report and answer the question that follow:

MUMBAI: Investors were relieved as the finance minister Nirmala Sitharaman avoided an increase in the long-term capital gains tax on equity investments and securities transaction tax in the Union Budget for 2021-22 announced today.

Heading into the Budget, most investors were concerned that the government may look at increasing the long-term capital gains tax or the securities transaction tax in order to boost its revenues, especially as the stock market has witnessed a breakneck rally since the beginning of April.

In her Budget speech in July 2019, the finance minister had reintroduced the long-term capital gains tax after 15 years. Currently, individuals who make capital gains of more than `1 lakh on their equity investment after a holding period of more than one year have to pay a tax of 10 per cent on the capital gains. However, the capital gains tax for individuals in the highest bracket of earnings comes around 15 per cent inclusive of a cess.

Money managers had said that the government needed to bring out an equity friendly budget, implying no changes in taxations related to the stock market, in order to ensure that its divestment plans went smoothly in the next fiscal year.

Q. What is the reason for the government to increase taxes?

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The Finance Minister Nirmala Sitharaman has proposed a sharp 34.5 per cent hike in capital expenditure to ₹5.54 lakh crore in the financial year 2022 in order to push growth. The massive increase comes at a time when the country is looking to recover from the Covid pandemic, as rising government spending is key to bringing the economy back on track.

The government will also provide an additional ₹2 lakh crore to states for capital expenditure over and above its own commitment. “We will also work out a specific mechanism to nudge states to spend more of their Budget on creation of infrastructure,” Ms. Sitharaman said.

The finance minister said that the government will launch a national asset monetisation pipeline which includes the sale of oil and gas pipelines, power transmission lines and operation of toll roads under the National Highway Authority of India.

This year’s budget, according to the government, rests on six pillars: health and well-being, physical and financial capital and infrastructure, inclusive development for aspirational India, reinvigorating human capital, innovation and research and development, and “minimum government, maximum governance,” the finance minister had asserted. And capital expenditure is an important component that drives the growth.

Q. Which objective of the Government Budget does the increase in capital expenditure serve?

Read the news report given below and answer the question that follow:

The Finance Minister Nirmala Sitharaman has proposed a sharp 34.5 per cent hike in capital expenditure to ₹5.54 lakh crore in the financial year 2022 in order to push growth. The massive increase comes at a time when the country is looking to recover from the Covid pandemic, as rising government spending is key to bringing the economy back on track.

The government will also provide an additional ₹2 lakh crore to states for capital expenditure over and above its own commitment. “We will also work out a specific mechanism to nudge states to spend more of their Budget on creation of infrastructure,” Ms. Sitharaman said.

The finance minister said that the government will launch a national asset monetisation pipeline which includes the sale of oil and gas pipelines, power transmission lines and operation of toll roads under the National Highway Authority of India.

This year’s budget, according to the government, rests on six pillars: health and well-being, physical and financial capital and infrastructure, inclusive development for aspirational India, reinvigorating human capital, innovation and research and development, and “minimum government, maximum governance,” the finance minister had asserted. And capital expenditure is an important component that drives the growth.

Q. Why has the Finance ministry hiked the Capital Expenditure?

Read the news report given below and answer the question that follow:

The Finance Minister Nirmala Sitharaman has proposed a sharp 34.5 per cent hike in capital expenditure to ₹5.54 lakh crore in the financial year 2022 in order to push growth. The massive increase comes at a time when the country is looking to recover from the Covid pandemic, as rising government spending is key to bringing the economy back on track.

The government will also provide an additional ₹2 lakh crore to states for capital expenditure over and above its own commitment. “We will also work out a specific mechanism to nudge states to spend more of their Budget on creation of infrastructure,” Ms. Sitharaman said.

The finance minister said that the government will launch a national asset monetisation pipeline which includes the sale of oil and gas pipelines, power transmission lines and operation of toll roads under the National Highway Authority of India.

This year’s budget, according to the government, rests on six pillars: health and well-being, physical and financial capital and infrastructure, inclusive development for aspirational India, reinvigorating human capital, innovation and research and development, and “minimum government, maximum governance,” the finance minister had asserted. And capital expenditure is an important component that drives the growth.

Q. What problem can the increase in this Capital Expenditure create?

Read the news report given below and answer the question that follow:

The Finance Minister Nirmala Sitharaman has proposed a sharp 34.5 per cent hike in capital expenditure to ₹5.54 lakh crore in the financial year 2022 in order to push growth. The massive increase comes at a time when the country is looking to recover from the Covid pandemic, as rising government spending is key to bringing the economy back on track.

The government will also provide an additional ₹2 lakh crore to states for capital expenditure over and above its own commitment. “We will also work out a specific mechanism to nudge states to spend more of their Budget on creation of infrastructure,” Ms. Sitharaman said.

The finance minister said that the government will launch a national asset monetisation pipeline which includes the sale of oil and gas pipelines, power transmission lines and operation of toll roads under the National Highway Authority of India.

This year’s budget, according to the government, rests on six pillars: health and well-being, physical and financial capital and infrastructure, inclusive development for aspirational India, reinvigorating human capital, innovation and research and development, and “minimum government, maximum governance,” the finance minister had asserted. And capital expenditure is an important component that drives the growth.

Q. ______________________ is an important component that drives the growth.