The much awaited Union Budget 2021 will be presented on Feb 1 , 2021. To help you understand the budget better, we have compiled a list of frequently used financial terms that you can expect to hear during the budget to help you understand the announcements better. Read on!

Union Budget

Here is the definition of the Union Budget according to Article 112 of the Indian Constitution:

Union Budget is the statement of estimated receipts and expenditure of the government called the Annual Financial Statement for a specific year.

A budget is a financial plan for a specific period. As individuals, we create a budget for our family to minimize costs and optimally utilize our income while saving something for the proverbial rainy day. Even a company creates a budget for all its costs like marketing, PR, etc. based on its estimated revenues over the coming year. Similarly, a country needs to create a financial plan managing its income and expenses too.

The Union Budget lays out the government’s plan of allocating finances to different projects and agencies. Since tax is the biggest source of income to the Indian Government, the Union Budget specifies any changes in the tax rates/rules. Also, the areas where the government plans to spend money in the coming year can offer an insight into the industries/sectors that can receive a boost.

Gross Domestic Product (GDP)

The Gross Domestic Product or GDP is the total market value of all the finished goods and services produced within a country in a specific period of time. 

In most countries, GDP is the standard for measuring the economic condition. GDP can be calculated on an annual or on quarterly basis. In India, the Central Statistical Office (CSO) under the Ministry of Statistics and Programme Implementation calculates the country’s GDP by accumulating data from both central government and state government-run agencies. The CSO uses one of these two methods for calculating GDP:

  1. Factor cost method
  2. Expenditure based method

Of these, the Factor Cost Method is the most commonly used method since it talks about how the industries are performing in the country. On the other hand, the Expenditure Based Model sheds light on the different areas of India’s economy and illustrates the trade and investment scenarios. The Government of India releases GDP numbers quarterly and the final number on May 31st. 

Direct and Indirect Taxes 

Tax is the primary source of income for the government. There are two broad-level taxes in India – Direct and Indirect. 

Direct tax is the tax paid by an individual directly to the government. This includes income tax and corporate tax. On the other hand, Indirect tax is paid by the people to a person/entity who has the burden of paying the tax to the government.

A simple example of an indirect tax is GST. When you buy a product/service, the vendor is liable to pay tax to the government on the sale. However, he is allowed to recover the tax amount from you in the form of GST. This amount is eventually deposited with the government. Hence, the vendor pays tax by collecting it from you, making you an indirect taxpayer. 

Goods and Services Tax (GST)

In India, GST or the Goods and Services Tax is levied on most goods/services sold in the country. It is a form of indirect tax, where the consumer pays the tax but the amount is remitted to the government by the business establishment. GST adds to the income of the government.

According to the GST Act, 2017,

“Goods” are defined as all kinds of movable property other than money and securities but includes the actionable claim, growing crops, grass, and things attached to or forming part of the land which is agreed to be severed before supply or under a contract of supply.

“Services” are defined as anything other than goods, money, and securities but include activities relating to the use of money or its conversion by cash or by any other mode, from one form, currency or denomination, to another form, currency, or denomination for which a separate consideration is charged.

Customs Duty 

When you import goods to or export goods from India, the government levies a tax on the transaction amount. While the economic burden of paying this amount lies with the importer/exporter, it is usually passed on to the consumer too. This is also a form of indirect tax in India.

Fiscal Deficit 

Fiscal means pertaining to the government’s revenues. Fiscal Deficit, in simple terms, means the deficit or shortfall that the government is facing in the non-borrowed receipts (income) with respect to its expenditure. If the expenditure is more than the receipts (non-borrowed), then the difference between the total expenditure and total non-borrowed receipts of the government is its Fiscal Deficit. It is usually denoted as a percentage of the country’s GDP.

Also Read : Understanding the concept if Fiscal Deficit.

Fiscal Policy 

When a country announces a budget, it has ramifications on the economy. For example, if the government changes the income tax rate, then it impacts the disposable income in people’s hands and influences their buying power. This, subsequently, affects businesses and the tax income of the government. Hence, the government uses its spending and tax policies in a manner that allows it to suitably influence the economic landscape of the country. This is the government’s Fiscal Policy. A budget is usually an indicator of the same.

Monetary Policy 

The flow of money in an economy has a direct impact on its growth. Hence, the government monitors the liquidity in the economy to ensure optimum growth. This is done via the central bank of the country – the Reserve Bank of India (RBI). Monetary Policy is the set of actions taken by the RBI to control liquidity (supply of money) in the economy to achieve sustainable growth.


There are many ways to define inflation. It is a sustained increase in the general price level in an economy. It is also the decline in the purchasing power of a currency over time. In simpler terms, if you have Rs.1000 today, then you can buy certain goods/services. However, after 10 years, the same amount will fetch you fewer goods/services. The rate at which this purchasing power declines is the inflation rate of the country. A 10% inflation rate means Rs.100 today will be worth Rs.90 after one year.

Capital Budget

The Capital Budget consists of capital receipts and capital expenditure. 

Capital Receipts include disinvestment, loans taken from the public, loans received from foreign Governments and bodies, borrowings from the RBI, recoveries of loans from State/UT Governments and other parties, etc.

Capital Expenditure includes the costs incurred by the government in developing health facilities, machinery, roads, acquisition of land, buildings, etc., loans granted by the Central Government to State and Union Territory Governments, Government companies, Corporations, and other parties.

Revenue Budget 

The Revenue Budget consists of revenue receipts and revenue expenditure.

Revenue Receipts include tax-related revenues, dividends/interest on the investments made by the government, receipts for services provided by the government, etc.

Revenue Expenditure includes the costs associated with the normal running of the government departments, interest paid by the government on debt, subsidies, etc. Any expenditure that does not result in the creation of an asset for the government is a revenue expenditure.

Finance Bill 

In India, a Bill is produced to pass legislation as a law by the houses of the Parliament. A Finance Bill, as the name suggests, is a Bill regarding the country’s finances and could include taxes, revenues, government borrowings, etc.

When the Union Budget is announced, several changes are proposed to the government’s revenue and expenditure, tax rules/rates, etc. Hence, immediately after the presentation of the Union Budget, all financial changes recommended are produced to both the houses of the Parliament in the form of a Finance Bill.

Vote on Account 

Once the Union Budget is announced, the government needs to start the Parliamentary approval process. This is a time-consuming process and while the Budget is presented two months before the end of the financial year, sometimes, the approvals are not in place by March 31st. However, the government needs funds to run its daily operations. Hence, a special provision is made called ‘Vote on Account’, where the government obtains permission from the Parliament for a sum sufficient to carry on daily functions until the required legislations are passed.

Excess Grants 

Every year, a certain amount of money is allocated to the government for expenditure. If the allocated money turns out insufficient, then the government can seek additional funds. Article 115 of the Constitution of India provides an Excess Grant option to the government for managing such times. The request for additional funds needs to go through the whole process as in the case of the Annual Budget, i.e. through the presentation of Demands for Grants and passing of Appropriation Bills.

Budget Estimates 

When the Union Budget is announced, the Finance Minister allocates funds for different tasks and ministries. These allocations are Budget Estimates. They are called Estimates because they are not the final commitment made by the government. They denote the upper limit of the expenditure that the government is willing to make for the said task/ministry/sector, etc.

Revised Estimates 

When the government announces Budget Estimates, it indicates the maximum amount it is willing to spend on a particular aspect of the economy. However, as the year begins, some ministries/tasks might need more funds than estimated. These reviews of the estimates made during the course of the year are called Revised Estimates. They need to be approved by the Parliament or through a Re-appropriation Order. 


Sometimes, the government needs to re-appropriate provisions from one unit to another within a specific Grant or Appropriation. This is allowed under the Re-appropriation provisions and needs to be sanctioned by a competent authority before the close of the financial year. The responsibility of reviewing and commenting for taking corrective actions lies with the Comptroller & Auditor General and the Public Accounts Committee.

Outcome Budget 

While a budget provisions for various purposes, there needs to be a way to monitor if the allocated funds were used for their intended purposes. Since the financial year 2006-07, it has been made mandatory for every ministry to present a preliminary Outcome Budget to the Ministry of Finance for compiling them together. 

The Outcome Budget is a kind of report card that describes the progress made by various ministries and departments with the allocations from the previous budget. The Outcome Budget measures the development outcome of various programs and determine if the funds were used for their intended purpose.


The Parliament has limited time for discussing the expenditure demands of each ministry. However, if there are other pressing political matters, then this time can be compromised. Hence, sometimes, the ministries do not get enough time to get all their demands scrutinized. This is when the Speaker of the House can apply Guillotine and put all the demands for grants to vote regardless of whether they are discussed or not.

Cut Motions

While the Demand for Grants during the Budget is made for each ministry, the Parliament has the authority to check the expenditure of the government and can decide to deny or make changes to the demands. If the Parliament decides to reduce the amount of the demand, then it launches a Cut Motion. 

Consolidated Fund of India 

This is one of the most important government accounts. The Consolidated Fund of India includes the revenues received and expenses made by the government. Most government expenditure is met from this fund except some items that are met from the Contingency Fund. Withdrawal from this fund can only happen with the Parliament’s approval.

Contingency Fund of India

Contingency Fund, as the name suggests, is the fund for tackling national emergencies. It is at the disposal of the President of India and is used when there is a crisis in the country. The Union Government has a Contingency Fund of Rs.500 crore.

Public Account

There are various transactions where the government acts as a banker like provident funds, small savings, etc. These funds don’t belong to the government and have to be returned to the depositors. In such cases, a Public Account is used to manage the fund flows. This is under the provisions of Article 266(1) of the Constitution of India.


Disinvestment means selling the shares by the government of a public sector company. The government is the shareholder in public sector companies. They can sell these shares to get cash to manage expenditure.

We hope that these terms are clear now. Keep this article handy while listening to the Budget announcement if needed.