The first Union Budget of the decade will be presented in the Lok Sabha by finance minister Nirmala Sitharaman. This also calls for brushing up and understanding a few terms related to the budget that will be frequently used throughout FM’s speech. Here is a glossary of commonly used terms when it comes to budget.
In this article
- Union Budget
- Gross Domestic Product
- Direct and Indirect Taxes
- Customs Duty
- Fiscal Deficit
- Revenue Deficit
- Primary Deficit
- Fiscal policy
- Monetary Policy
- Capital Budget
- Revenue Budget
- Finance Bill
- Vote on Account
- Excess Grants
- Budget Estimates
- Revised Estimates
- Outcome Budget
- Cut Motions
- Consolidated Fund of India
- Contingency Fund of India
- Public Account
- Corporate Tax
- Minimum Alternative Tax (MAT)
Union Budget Union Budget is the most comprehensive report of the Government’s finances in which revenues from all sources and outlays for all activities are consolidated. The Budget also contains estimates of the Government’s accounts for the next Fiscal year called Budgeted Estimates.
Union Budget actually lays down the statement of the estimated receipts and expenditure of the Govt. of India for the coming financial year. It sets out exactly how the govt proposes to allocate the financial resources among the various agencies that make claim on it and how it proposes to raise the finances for this.
Union Budget is undoubtedly the most extensive account of the government’s finances, in which revenues from all sources and expenses of all activities undertaken are aggregated. It comprises the revenue budget and the capital budget.
Gross Domestic Product
GDP or Gross Domestic Product is the total market value of all the finished goods and services produced within a country in a specific period of time. This value performs as a comprehensive outlook of a country’s economic condition or its economic health. GDP can be calculated on an annual or on a quarterly basis.
The CSO or Central Statistical Office is responsible for calculating GDP. They accumulate data from both central government and state government-run agencies, and then they use the following methods for calculation.
- Factor cost method.
- Expenditure based method.
- Nominal GDP method.
- Real GDP method.
Among these four methods, GDP at factor cost is the most commonly used figure. This number reveals how industries are performing. The expenditure-based model, on the other hand, sheds light on the different areas of the 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. Currently, India’s GDP growth rate stands at 4.5%, according to the last quarterly update.
Direct and Indirect Taxes
The government earns income by means of direct and indirect taxes paid by individuals and entities. A type of tax which is paid directly by an individual to the
Government is referred to as Direct Tax. Examples of direct tax include income tax and corporate tax. Indirect tax is tax which is levied on goods and services and not paid by individuals directly. Indirect tax is levied at the same rate for everyone irrespective of the income bracket they belonged to. GST is an example of indirect tax.
The Goods and Services Tax (GST) is a value-added tax levied on most goods and services sold for domestic consumption. The GST is paid by consumers, but it is remitted to the government by the businesses selling the goods and services. In effect, GST provides revenue for the government.
“Goods” means every kind 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” means anything other than goods, money and securities but includes 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.
These are levies charged when goods are imported into, or exported from, the country, and they are paid by the importer or exporter. Usually, these are also passed on to the consumer.
When the government’s non-borrowed receipts fall short of its entire expenditure, it has to borrow money from the public to meet the shortfall. The excess of total expenditure over total non-borrowed receipts is called the fiscal deficit.
The difference between revenue expenditure and revenue receipt is known as revenue deficit. It shows the shortfall of government’s current receipts over current expenditure.
The primary deficit is the fiscal deficit minus interest payments. It tells how much of the Government’s borrowings are going towards meeting expenses other than interest payments.
It is the government actions with respect to aggregate levels of revenue and spending. Fiscal policy is implemented through the budget and is the primary means by which the government can influence the economy.
This comprises actions taken by the central bank (i.e. RBI) to regulate the level of money or liquidity in the economy or change the interest rates.
A sustained increase in the general price level. The inflation rate is the percentage rate of change in the price level.
The Capital Budget consists of capital receipts and payments. It includes investments in shares, loans and advances granted by the central Government to State Governments, Government companies, corporations and other parties .
The revenue budget consists of revenue receipts of the Government and its expenditure. Revenue receipts are divided into tax and non-tax revenue. Tax revenues constitute taxes like income tax, corporate tax, excise, customs, service and other duties that the Government levies. The non-tax revenue sources include interest on loans, dividend on investments.
The Bill produced immediately after the presentation of the Union Budget detailing the Imposition, abolition, alteration or regulation of taxes proposed in the Budget.
Vote on Account
The Vote on Account is a grant made in advance by the parliament, in respect of the estimated expenditure for a part of new financial year, pending the completion of procedure relating to the voting on the Demand for Grants and the passing of the Appropriation Act.
If the total expenditure under a Grant exceeds the provision allowed through its original Grant and Supplementary Grant, then, the excess requires regularization by obtaining the Excess Grant from the Parliament under Article 115 of the Constitution of India. It will have 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.
Amount of money allocated in the Budget to any ministry or scheme for the coming financial year.
Revised Estimates are the mid-year review of possible expenditure, taking into account the rest of expenditure, New Services and New instrument of Services etc. Revised Estimates are not voted by the Parliament, and hence by itself do not provide any authority for expenditure. Any additional projections made in the Revised Estimates need to be authorized for expenditure through the Parliament’s approval or by Re-appropriation order.
Re-appropriations allow the Government to re-appropriate provisions from one sub-head to another within the same Grant. Re-appropriation provisions may be sanctioned by a competent authority at any time before the close of the financial year to which such grant or appropriation relates. The Comptroller & Auditor General and the Public Accounts Committee reviews these re-appropriations and comments on them for taking corrective actions.
From the fiscal year 2006-07, every Ministry presents a preliminary Outcome Budget to the Ministry of Finance, which is responsible for compiling them. The Outcome Budget is a progress card on what various Ministries and Departments have done with the outlays in the previous annual budget. It measures the development outcomes of all Government programs and whether the money has been spent for the purpose it was sanctioned including the outcome of the fund usage.
Parliament, unfortunately, has very limited time for scrutinising the expenditure demands of all the Ministries. So, once the prescribed period for the discussion on Demands for Grants is over, the Speaker of Lok Sabha puts all the outstanding Demands for Grants, Whether discussed or not, to the vote of the House. This process is popularly known as ‘Guillotine’.
Motions for reduction to various Demands for Grants are made in the Form of Cut Motions seeking to reduce the sums sought by Government on grounds of economy or difference of opinion on matters of policy or just in order to voice a grievance.
Consolidated Fund of India
All revenues raised by the Government, money borrowed and receipts from loans given by the Government ?ow into it. All Government expenditure other than certain exceptional items met from Contingency Fund and Public Account are made from this account. No money can be appropriated from the Fund except in accordance with the law.
Contingency Fund of India
A fund placed at the disposal of the President to enable him/her to make advances to the executive/Government to meet urgent unforeseen expenditure.
Under provisions of Article 266(1) of the Constitution of India, Public Account is used in relation to all the fund flows where Government is acting as a banker. Examples include Provident Funds and Small Savings. This money does not belong to the government but is to be returned to the depositors. The expenditure from this fund need not be approved by the Parliament.
This is the tax paid by corporations or firms on the incomes they earn.
Minimum Alternative Tax (MAT)
The Minimum Alternative Tax is a minimum tax that a company must pay, even if it is under zero tax limits.
By disinvestment, we mean the sale of shares of public sector undertakings by the Government. The shares of government companies held by the Government are earning assets at the disposal of the Government. If these shares are sold to get cash, then earning assets are converted into cash, So it is referred to as disinvestment.
Hope these terms are now clear to you and will help you follow up with the budget in a better way.
Disclaimer: The views expressed in this post are that of the author and not those of Groww.