The Union Budget is a report of government’s finances, containing important details such as revenue and expenditure, outlays for social schemes, and projections for the coming period. Each year, the much awaited annual event is monitored closely for its possible impact on different sections of the economy. From economists to analysts to tax experts to the general public, all eyes are on the Budget announcements for any signs of changes in policy in the coming months, and how it may impact the system.
Finance Minister Arun Jaitley will present an Interim Budget in Parliament on February 1. Before the finance minister delivers his Budget speech this time around, it is prudent to have an elementary knowledge of some economic terms, in order to understand any changes proposed by the government.
Here are some of the important terms you need to know to understand the Budget:
This is a set of documents tabled in Parliament as part of Budget. They include Budget Speech, Annual Financial Statement, Demands for Grants (DG), Macro-Economic Framework and Fiscal Policy Strategy Statements, Expenditure Budget, Receipts Budget and Expenditure Profile.
This document shows the estimated receipts and expenditure of Government of India for the coming period in relation to the year gone by. It also contains details on actual expenditure for the year before past year. The financial statement has three parts: Consolidated Fund, Contingency Fund and Public Account.
Capital budget consists of capital receipts and payments, including investments in shares, loans and advances granted by Centre to states, government companies, corporations and other parties. Capital receipts and capital payments together constitute the capital budget.
Capital receipts comprise loans raised by government from the public – called market loans; borrowings from the Reserve Bank of India (RBI) through sale of treasury bills; loans received from foreign governments and bodies, and recoveries of loans granted by Centre to States, Union Territories and other parties. They also include the proceeds from disinvestment of government equity in public enterprises.
A government submits its proposals – in terms of imposition, abolition, remission, alteration or regulation of taxes – to Parliament through this document.
Estimates made with respect to the amount of money required for a scheme or programme are indicated in the Expenditure Budget. These estimates are shown on a net basis in terms of revenue and capital in this section.
It is the amount of money by which government expenditure in a year exceeds government collections (receipts). In other words, the excess of total expenditure over total non-borrowed receipts is called fiscal deficit. To meet the shortfall, government borrows money from the public.
Fiscal policy is a change in government spending or taxing designed to influence economic activity. A government can moderate aggregate demand in the economy by tweaking the pattern and magnitude of budgetary surpluses and the way they are financed.
It is the amount of money earmarked on projects, schemes and programmes announced in the Plan. In other words, it indicates how much money is required to achieve certain goals mentioned in the Plan.
A Budget is said to be balanced when receipts equal expenditure.
It is the projection of the cost of a programme or goal prepared for budgeting and planning purposes.
Revenue budget consists of revenue receipts and the expenditure met from these revenues. Tax revenues comprise proceeds of taxes and other duties levied by government.
Revenue expenditure is the expenditure which does not result in creation of assets for government is treated as revenue expenditure.
A revenue deficit occurs when revenue expenditure exceeds revenue receipts, and is determined as the amount of money by which the former exceeds the latter.
TAXES AND INTEREST RATES
Direct taxes are the taxes that are paid directly by individuals (income tax) and corporations (corporate tax) to government.
Indirect taxes, such as Goods and Services Tax, are paid to the government indirectly by the end-consumer.
The rate of increase in price. In other words, it is the pace at which prices of goods and services move higher.
Monetary policy and repo rate
It comprises actions taken by the Reserve Bank of India (RBI) to regulate the level of money or liquidity in the economy, such as changes in key lending rates. It is the key interest rate at which the central bank lends short-term funds to commercial banks against government securities.