The Union Budget is a financial statement presented by the Finance Minister of India every year, outlining the government's financial plans for the upcoming fiscal year.
It is a comprehensive document that includes various financial and economic policies, provisions for various sectors, and measures to boost revenue and control expenditure. (Click here to know more about the Indian Budget)
However, the language used in the budget document can be complex and difficult for the layperson to understand. In this blog, we will demystify some key terms used in the Union Budget and explain their significance.
Here we go...
Fiscal Deficit: Fiscal deficit refers to the difference between the government's total revenue and total expenditure. It is an indicator of the government's financial health and is expressed as a percentage of GDP. A high fiscal deficit means that the government is spending more than it is earning, which can lead to inflation and a weaker currency.
Revenue Deficit: Revenue deficit refers to the difference between the government's total revenue and non-developmental expenditure. It indicates the government's ability to generate revenue and is also expressed as a percentage of GDP. A high revenue deficit means that the government is not able to generate enough revenue to cover its expenses, which can lead to a higher fiscal deficit.
Gross Domestic Product (GDP): GDP is the total value of goods and services produced in a country in a given period of time. It is a measure of the country's economic growth and is often used to compare the economic performance of different countries.
Gross National Product (GNP): GNP is the total value of goods and services produced by a country's residents, including those living abroad. It is equal to the GDP plus the net income from foreign investments of residents. Similar to GDP, GNP is also a measure of the country's economic performance and is often used to compare the economic performance of different countries.
Subsidies: Subsidies are financial assistance provided by the government to certain sectors or groups of people. They are intended to promote social welfare and reduce economic inequality. Subsidies can be in the form of direct cash transfers, tax exemptions, reduced interest rates on loans, etc.
Direct Tax: A direct tax is a tax that is imposed directly on the income or wealth of individuals or businesses. Examples of direct taxes include income tax, corporate tax, and wealth tax.
Indirect Tax: An indirect tax is a tax that is imposed on goods and services. Examples of indirect taxes include goods and services tax (GST), central excise & customs duty.
Capital Expenditure: Capital expenditure refers to the money spent by the government on the acquisition of fixed assets such as land, buildings, and machinery as also investments in shares, etc. and advances granted by the Centre to states and union territories. Capital expenditure is intended to improve the country's infrastructure and promote economic growth.
Revenue Expenditure: Revenue expenditure refers to the money spent by the government on the day-to-day running of the government, such as salaries, pensions, and subsidies. It also includes interest payments on debt, subsidies, etc. These expenditures do not result in creation of any asset for the government.
Disinvestment: Disinvestment refers to the sale of government-owned assets, such as shares in public sector companies, to raise money for the government. It is intended to reduce the government's fiscal deficit and promote economic growth.
Nominal GDP: Nominal GDP is the value of goods and services produced in a country in a given period of time, measured at current prices. It does not take into account the effect of inflation on the economy.
Real GDP: Real GDP is the value of goods and services produced in a country in a given period of time, measured at constant prices. It takes into account the effect of inflation on the economy and is a better indicator of economic growth.
Fiscal Policy: Fiscal policy refers to the government's use of taxation and spending to influence the economy. It includes measures such as tax cuts, increased government spending, and changes to subsidies and transfer payments.
Public Debt: Public debt refers to the total amount of money borrowed (i.e. liabilities) by Union and state governments from various sources. It includes bonds, loans, and other financial instruments. High levels of public debt can lead to inflation and a weaker currency.
While the government appointed panel had pitched for a debt-to-GDP ratio of 60% (40% for centres and 20% for states), by 2022-23, the ratio peaked at 89% and 83.4% in FY21 and FY22, respectively. (Source: Financial Express)
Inflation: Inflation refers to the general increase in the price of goods and services over time. It is usually measured by the Consumer Price Index (CPI) or the Wholesale Price Index (WPI). High inflation can lead to a decrease in purchasing power and economic instability.
Budget Estimates: Budget estimates refer to the government's projected revenue and expenditure for the upcoming fiscal year. They are presented in the Union Budget and are used as a basis for the government's financial planning.
Revised Estimates: Revised estimates refer to the government's updated projections of revenue and expenditure for the current fiscal year. They are presented in the revised budget and take into account any changes in the economic or political environment.
Gross Primary Deficit: Gross primary deficit refers to the difference between the government's total revenue and total expenditure, excluding the interest payments on the public debt. It is an indicator of the government's ability to generate revenue and is also expressed as a percentage of GDP.
Annual Financial Statement: This document, as tabled in the Parliament under Article 112 of the Constitution, shows the estimated receipts and expenditure of the government for a financial year. These are net of refunds and recoveries, along with the revised estimates of the previous year and the actual figures for the year before that.
Finance Bill: The Finance Bill is a bill introduced by the government along with the Annual Financial Statement, which includes the legislative proposals and changes to the tax laws. It is passed by the parliament and becomes an act after the president's assent.
Consolidated Fund of India: The Consolidated Fund of India (CFI) is the account where the government keeps all its revenues and borrowings. Money can be withdrawn from this fund to meet the government's expenditure.
There are three parts shown under receipts and disbursements in which government accounts are kept. These are Consolidated Fund of India, Contingency Fund, and Public Account.
All expenditure of the government is incurred from the CFI and no amount can be drawn from it without authorisation from Parliament.
Contingency Fund of India: The Contingency Fund of India is a fund created by the government to meet unforeseen expenses, such as natural disasters or security threats. Money can be withdrawn from this fund without the prior approval of the parliament.
The authorised corpus of the Contingency Fund stands at Rs 30,000 crores at present.
Public Account: This fund was constituted under Article 266 (2) of the Constitution and it accounts for flows for those transactions where the government is merely acting as a banker. Examples of those are provident funds, small savings, receipts set aside for expenditure on specific objects such as road development, and so on. These funds do not belong to the government and they have to be paid back at some time to their rightful owners. Because of this nature of the fund, expenditures from it are not required to be approved by the Parliament.
So there we are with a few terms which can help you understand the budget announcements better.
Note that the Union Budget for 2023-24 will be presented on 1st February 2023 by the Finance Minister Nirmala Sitharaman. To know some interesting facts about the Budget and how it can affect your personal finances, check out the below blogs:
Stay tuned to Kotak Securities for all the Union Budget 2023 updates!
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