10 Terms To Know Before Budget 2024

18 Jul 2024  Read 2745 Views

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.

Feature 

Interim Budget 

Union Budget 

Definition 

Temporary Financial Plan 

Annual Financial Statement

Purpose 

To cover short-term expenses until the main plan is ready

To plan income and spending for the year

When it's used

When the regular budget is delayed (e.g., elections)

Presented once a year, usually on 1 February

Duration

Short time 

Full Financial Year

Impact

Provides temporary funding

Affects everyone and businesses in the country

Example 

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.

The 2023 Union Budget gave a lot of money to healthcare and building roads and bridges to help the economy recover after the pandemic.


 

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.

Features 

Budget Estimate 

Revised Estimate 

Definition

The government's money guess for the year

Updated money guess made later

Purpose 

Predicts money coming in and going out

Adjusts original guess with real numbers

When it's made

At the start of the year

Usually halfway through the year

Example 

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.

If the government actually spends ₹32 crores on healthcare instead of the estimated ₹30 crores, the revised estimate will show this new figure.

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.

Features 

Current Expenditure

Capital Expenditure

Revenue Expenditure

Definition

Money spent on everyday operations and services of the government

Money spent on buying or improving long-term assets like buildings or equipment 

Money spent on running the government that doesn’t result in new assets

Purpose 

To cover the regular costs of operating the government

To invest in and build things that will benefit the future

To pay for routine costs

Impact on Assets

Doesn't create new assets

Creates new assets 

Doesn't create new assets

Budget Classification

Part of the everyday operational budget

Part of the investment budget

Part of the operational budget

Example 

Salaries, wages, pensions, office supplies, utility bills

Building schools, roads, buying machinery

Maintenance, administrative costs, subsidies
 

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: 

Features 

Capital Receipts

Revenue Receipts

Definition

Money the government gets that either creates a debt or sells an asset

Money the government gets from regular income sources like taxes

Nature 

Non-regular or one-time income

Regular or ongoing income

Purpose 

Used for big projects or to pay off debts

Used for daily expenses and running the government

Budget Classification

Part of the capital budget

Part of the revenue budget

Impact on Liabilities

Can increase debt or reduce government assets

Does not increase debt or reduce assets

Long-term Impact

Helps with long-term projects and debt repayment

Helps with everyday government operations

Example 

Loans, selling government property, recovering old loans

Taxes (income tax, sales tax), fees, fines

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.

Features

Fiscal Deficit

Revenue Deficit 

Primary Deficit 

Definition

The difference between how much money the government spends and how much money it earns (excluding loans)

The gap between what the government earns through its regular income sources and what it spends on daily needs

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. 

Example 

If the government spends ₹30 crores but earns only ₹25 crores, the fiscal deficit is ₹5 crores

If the government earns ₹20 lakhs but spends ₹22 lakhs on salaries and subsidies, there’s a ₹2 lakh revenue deficit

If the fiscal deficit is ₹5 lakhs and interest payments are ₹2 lakhs, the primary deficit is ₹3 lakhs

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:

Features

Consolidated Fund of India

Public Accounts of India

Contingency Fund of India

What it is

The main account where the government's money goes

An account for money held in trust by the government

The government's emergency fund for urgent expenses

Includes

Taxes, loans, and repayments

Savings deposits, provident funds, small savings schemes

Money set aside for emergencies

Approval needed

Parliament's approval is required to use this money

No need for Parliament's approval, but it follows regulations

It can be used quickly without Parliament's approval

Used for

Government salaries, defense, infrastructure, subsidies

Paying pensions, managing savings schemes

Natural disasters, urgent and unexpected expenses

Management 

Watched closely by Parliament to ensure proper use

Managed by the government for specific purposes

Acts as a quick financial safety net for emergencies

Example 

Building a new highway needs Parliament's approval

Paying retirement benefits from the Provident Fund

Providing immediate relief after a major flood
 

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.

About the Author: Kashvi Agrawal | 4 Post(s)

Hello, I am Kashvi Agrawal, a second-year law student at O.P. Jindal Global University in Sonipat studying B.Com LLB with a profound interest in corporate law. I take great pleasure in simplifying difficult legal topics to make them more approachable and engaging for others. Through my blogs, I aim to clarify complex legal principles, fostering a better understanding among readers.

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