Today, February 1st, 2021, India was waiting for Union Finance Minister Nirmala Sitharaman to present her third union budget for the fiscal year starting from April 1st, 2021.
The budget is an annual financial statement prepared for India's Union that contains the details of the government's revenues and expenditures for a fiscal year. The Union Budget is a massively comprehensive and complicated document. It is prepared using technical terms and jargon that, for a layman, is sometimes difficult to understand.
In the discussion, we will try to de-jargonize the budget's complex terms and help you understand it easily.
Let's get started.
Budget 2021 Glossary : Key terms to know about
The Union Budget is a budgetary statement of the government's finances, i.e., revenues and expenditures. Incomes/revenues and expenses from all the sources are consolidated into the budget. The budget also provides details of estimates of the government's accounts for the next fiscal year. These estimates are known as Budget Estimates.
Gross Domestic Product (GDP):
The total market value of all the finished goods and services produced in a country within a specific period is referred to as the gross domestic product (GDP). It is the standard for measuring the economic conditions in most nations. The Central Statistical Office (CSO) under the Ministry of Statistics and Programme Implementation is responsible for calculating India's GDP.
Direct and Indirect Taxes:
Direct taxes draw a direct charge on individuals, business entities, companies, and corporations. Income tax and corporate taxes are examples of direct taxes. On the other hand, indirect taxes are charged on goods and services. The burden of payment is on the customers when they purchase the goods and services. GST, customs duty, excise duty are some of the examples of indirect taxes.
Fiscal policy refers to government actions regarding the aggregation of revenue and expenses. It is implemented through the budget and acts as the primary means by which the government can influence the economy.
Unlike fiscal policy, which refers to governmental actions, monetary policy refers to the country's Central Bank's activities, i.e., RBI. The monetary policy regulates the level and supply of money or liquidity in the economy or changes the interest rates.
A fiscal deficit is when the country's unborrowed receipts fail to compensate for its entire expenditure, and the country has to borrow funds from the citizens to meet the shortfall.
Fiscal deficit = Total Expenditure – Total Unborrowed Receipts
Revenue deficit refers to the difference between the revenue receipts and revenue expenditures. Revenue deficit is when the government's current income falls short of the government's current spending.
Revenue deficit = current revenue expenditure – current revenue receipts
The primary deficit is when the interest payments are subtracted from the fiscal deficit. Primary deficit indicates how much of the government's spending comprises the total expenditure other than the borrowings.
Primary deficit = Fiscal Deficit – Interest Payments
Inflation refers to the situation of an increase in the general price levels. Inflation is usually expressed as a percentage rate of change in the price level.
The capital budget is the budget of capital receipts and capital payments. Investments in shares, loans, and advances granted by the central and state governments, government companies, corporations, and other parties are included.
The revenue budget is the budget of revenue receipts and revenue expenditure. Revenue receipts are further classified into tax and non-tax revenue. Revenues from taxes include taxes like income tax, corporate taxes, excise, customs, GST, and other government levies of duties and taxes. Interest on loans and dividend on investments constitute the non-tax revenues.
The finance bill is the bill that's produced immediately after the presentation of the Union Budget. The finance bill details the imposition, abolition, alteration, and regulation of taxes and duties proposed in the budget.
Vote on Account:
Vote on account refers to the grant made in advance by the Parliament regarding the estimated expenses for a portion of the new financial year, pending the completion of procedure relating to demand for grants' voting and the appropriations act's passing.
Budget estimates refer to the amount of money allotted to various ministries or schemes in a financial year.
A mid-year review is conducted to assess possible revisions to be made to the expenditures, considering any new spending, services, and instruments of services, etc. There is no voting on revised estimates by the Parliament.
Any revised/additional projections in the revised estimates have to be authorized for spending by the Parliament or by a reappropriation order.
The reappropriation of provisions from one sub-head to another within the same grant is permitted to the government through reappropriation. Appropriate authorities sanction reappropriations prior to the closure of a financial year to which the grant or the appropriation relates.
The Comptroller & Auditor General (CAG) of India and the Public Accounts Committee review the reappropriations and comment on the same if any corrective action is required.
Every ministry submits a preliminary outcome budget to the finance ministry, which then compiles them. This practice began from the fiscal year 2006-07. The outcome budget, essentially, is a progress report detailing what the ministries did with the funds allotted to them in the previous budget.
The government assesses the development outcomes with outcome budgets and reviews if the funds allocated were used for the stated purpose.
The Parliament always has a time crunch to discuss the expenses demand of all the ministries. If there are pressing political matters to be addressed, the time for these discussions is further compromised, and the ministries do not get ample time to get their demands vetted.
This is when the House speaker applies the guillotine and puts up all the requests for grants to vote irrespective of whether they were vetted or not.
The Parliament launches a cut motion when it decides to reduce the amount of the grant demanded by the ministries.
Consolidated Fund of India:
One of the essential government accounts, the consolidated fund of India, comprises all the revenues received and expenses incurred by the government. The majority of the government expenses are met through this fund, except some are met through the contingency fund. Withdrawals from this fund require parliamentary approval.
Contingency Fund of India:
As the name suggests, contingency funds caters to national emergencies. The fund is at the President of India's disposal and is used in times of crisis. The Union Government has a contingency fund of Rs. 500 crores.
The government acts as a banker for a plethora of transactions like the provident fund, small savings, etc., where the funds have to be returned to the depositors. Such funds flows are managed through the Public Account under Article 266(1) of India's Constitution.
The process of selling shares of a public sector company by the government is known as divestment. The government is the shareholder in these companies and can sell its shares to procure cash to manage its expenditure.
The Union Budget has just come in, and this year, owing to the tensed economic situations of 2020, a lot of people were anticipating what it was going to bring. However, despite wanting to understand it from end to end, it's natural for a lot of us to not be able to comprehend the various technical aspects of the budget.
And so, in order to make this less of an ordeal, we brought you this little glossary to get you acquainted with some of the technical terms used in the budget. Knowing what these terms mean will certainly help you understand the Union budget loud and clear.
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