India has a tradition of eating something sweet before the start of good work. This tradition is also followed in the case of budget presentations. Ten days before the budget is tabled, there is a 'Halwa' ceremony held in the Ministry of Finance. 'Halwa is prepared and then served at the venue where the budget is printed. The ceremony marks the printing of the budget and is celebrated by Government officials involved in making the budget.
As Budget 2024 draws near, getting familiar with a few key economic terms can turn what seems like a dry topic into a fascinating story. By learning about these terms, you will uncover how the budget influences everything from your morning coffee price to nationwide infrastructure plans. Ready to decode the budget’s secrets? Let’s dive into some interesting economic concepts together!
1. Budget
A Budget is like a financial roadmap. It shows how much money is expected to come in and how it will be spent over a certain period, usually a year. It helps manage money effectively, ensuring that spending aligns with income and financial goals.
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Feature
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Interim Budget
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Union Budget
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Definition
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Temporary Financial Plan
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Annual Financial Statement
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Purpose
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To cover short-term expenses until the main plan is ready
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To plan income and spending for the year
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When it's used
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When the regular budget is delayed (e.g., elections)
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Presented once a year, usually on 1 February
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Duration
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Short time
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Full Financial Year
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Impact
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Provides temporary funding
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Affects everyone and businesses in the country
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Example
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The finance minister, Ms. Nirmala Sitharaman, gave a temporary budget on 1 February 2024. This budget provided money for the government for a short time until the full budget was made after the elections.
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The 2023 Union Budget gave a lot of money to healthcare and building roads and bridges to help the economy recover after the pandemic.
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2. GDP (Gross Domestic Product)
It is the final value of all goods and services produced within a specific period of time by a country. It is a primary indicator of a country's economic health and growth. Knowing about GDP helps us see how the economy is performing and if government actions are working.
A higher GDP means the economy is doing well, with lots of goods and services being produced and bought.
A lower GDP means the economy is struggling or not growing.
For example, if India's GDP grows by 6% in a year, it means the economy is expanding, producing more goods and services, and likely seeing higher employment and income levels.
3. Estimate
An estimate is an educated guess about the cost, time, effort, or resources needed to complete a project or specific task. It serves as a forecast made before starting work based on available information and assumptions.
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Features
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Budget Estimate
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Revised Estimate
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Definition
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The government's money guess for the year
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Updated money guess made later
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Purpose
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Predicts money coming in and going out
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Adjusts original guess with real numbers
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When it's made
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At the start of the year
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Usually halfway through the year
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Example
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The budget estimate might project ₹15 crores in tax revenue and ₹5 crores in non-tax revenue, with planned expenditure detailed across various sectors like healthcare, defence, and education.
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If the government actually spends ₹32 crores on healthcare instead of the estimated ₹30 crores, the revised estimate will show this new figure.
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4. Expenditure
Expenditure refers to the money spent by an individual, business, or government on various goods, services, and obligations. It's essentially the outflow of funds used to pay for different needs and activities.
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Features
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Current Expenditure
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Capital Expenditure
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Revenue Expenditure
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Definition
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Money spent on everyday operations and services of the government
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Money spent on buying or improving long-term assets like buildings or equipment
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Money spent on running the government that doesn’t result in new assets
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Purpose
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To cover the regular costs of operating the government
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To invest in and build things that will benefit the future
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To pay for routine costs
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Impact on Assets
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Doesn't create new assets
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Creates new assets
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Doesn't create new assets
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Budget Classification
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Part of the everyday operational budget
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Part of the investment budget
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Part of the operational budget
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Example
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Salaries, wages, pensions, office supplies, utility bills
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Building schools, roads, buying machinery
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Maintenance, administrative costs, subsidies
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5. Subsidies
Subsidies are financial help from the government to make things cheaper for people or businesses. Common subsidies include those for food, fuel, and fertilizers. It aims to make essential goods and services more affordable, support specific industries, or encourage desired behaviours, such as reducing carbon emissions.
While subsidies can be beneficial, they also represent a significant expenditure for the government and must be managed carefully to avoid budget imbalances.
For example, the government might provide a subsidy on cooking gas (LPG) to make it affordable for lower-income households or a subsidy on fertilizers to support farmers and agriculture.
6. Receipts
Receipts in a government budget are the money the government collects. They come from two main sources:
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Features
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Capital Receipts
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Revenue Receipts
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Definition
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Money the government gets that either creates a debt or sells an asset
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Money the government gets from regular income sources like taxes
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Nature
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Non-regular or one-time income
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Regular or ongoing income
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Purpose
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Used for big projects or to pay off debts
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Used for daily expenses and running the government
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Budget Classification
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Part of the capital budget
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Part of the revenue budget
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Impact on Liabilities
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Can increase debt or reduce government assets
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Does not increase debt or reduce assets
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Long-term Impact
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Helps with long-term projects and debt repayment
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Helps with everyday government operations
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Example
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Loans, selling government property, recovering old loans
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Taxes (income tax, sales tax), fees, fines
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7. Fiscal Policy
Fiscal policy is like a plan the government uses to manage the country's money. It involves two main things: spending money and collecting taxes.
When the economy is slow, the government can spend more money on things like roads, schools, or health care. This creates jobs and helps people have more money to spend. They might also lower taxes so people have extra cash to buy things and keep businesses busy.
When there’s too much spending and prices are rising too quickly (inflation), the government might try to slow things down. They can spend less money or raise taxes. This means people and businesses will have less money to spend, helping to keep prices from going too high.
In simple terms, fiscal policy is about finding the right balance. Spend too much, and the country could get into debt. Collect too many taxes, and people might not have enough money to spend. The goal is to keep the economy steady and healthy, with jobs for people and prices that don’t change too fast.
8. Deficit
A deficit happens when the government spends more money than it earns from taxes and fees. It means there's a gap that needs to be filled, often by borrowing money.
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Features
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Fiscal Deficit
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Revenue Deficit
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Primary Deficit
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Definition
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The difference between how much money the government spends and how much money it earns (excluding loans)
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The gap between what the government earns through its regular income sources and what it spends on daily needs
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The fiscal deficit minus the interest payments on past loans. A high primary deficit suggests that the government is spending beyond its means, while a low or negative primary deficit indicates better fiscal discipline.
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Example
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If the government spends ₹30 crores but earns only ₹25 crores, the fiscal deficit is ₹5 crores
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If the government earns ₹20 lakhs but spends ₹22 lakhs on salaries and subsidies, there’s a ₹2 lakh revenue deficit
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If the fiscal deficit is ₹5 lakhs and interest payments are ₹2 lakhs, the primary deficit is ₹3 lakhs
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9. Deficit Financing
Deficit financing occurs when a government spends more than it earns from taxes and other revenues, borrowing money to cover the gap. This borrowing can come from the public through government bonds, banks, or international organizations. The primary goal is to boost the economy by funding projects like roads, schools, or hospitals, aiming to create jobs and stimulate growth.
For example, during the Great Depression, the US government used deficit financing for New Deal programs to create jobs and revitalize the economy.
Sometimes, a government might print more money to finance its deficit, risking hyperinflation where money's value drops and prices soar uncontrollably.
While deficit financing offers immediate benefits, it also means accumulating debt that needs future repayment. If not managed, it can increase national debt, lead to higher interest payments, and strain future budgets. Excessive borrowing could also cause inflation and crowd out private investments by raising interest rates. Thus, it must be used wisely to avoid long-term financial challenges.
10. Funds of India
The Government of India has set up different funds to manage its money efficiently. These funds help in collecting taxes, handling public investments, and dealing with emergencies. The main types of funds are:
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Features
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Consolidated Fund of India
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Public Accounts of India
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Contingency Fund of India
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What it is
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The main account where the government's money goes
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An account for money held in trust by the government
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The government's emergency fund for urgent expenses
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Includes
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Taxes, loans, and repayments
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Savings deposits, provident funds, small savings schemes
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Money set aside for emergencies
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Approval needed
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Parliament's approval is required to use this money
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No need for Parliament's approval, but it follows regulations
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It can be used quickly without Parliament's approval
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Used for
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Government salaries, defense, infrastructure, subsidies
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Paying pensions, managing savings schemes
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Natural disasters, urgent and unexpected expenses
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Management
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Watched closely by Parliament to ensure proper use
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Managed by the government for specific purposes
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Acts as a quick financial safety net for emergencies
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Example
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Building a new highway needs Parliament's approval
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Paying retirement benefits from the Provident Fund
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Providing immediate relief after a major flood
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Read more about- Funds of the Government of India
Conclusion
As we get ready for Budget 2024, understanding these key terms can make following the budget more interesting and meaningful. From GDP and fiscal deficits to subsidies and the Consolidated Fund, each term helps explain how our country’s finances work. Whether you’re a student, a professional, or just curious, this knowledge will help you follow the budget discussions and see how government decisions impact our daily lives and the future of our country.