The country is awaiting for the Union Budget to be held on February 1 with bated breath. This will be Finance Minister Nirmala Sitharaman's fifth Budget. It will the Modi government's final full Budget before the general elections in 2024.
Discussions are already on on what the government's financial plans and policies would be for the upcoming fiscal year. However, many find Budget a complex subject and are unaware of the many terms including the common ones used in discussions and presentation.
Below is a list of terms most used in a Union Budget:
The finance minister presents Union Budget in the Parliament on February 01 every year.
A statement of estimated receipts and expenditures, known as the “Annual Financial Statement”, must be presented to Parliament for each fiscal year under Article 112 of the Indian Constitution. The main Budget document is this Statement. Traditionally, it is presented in the Lok Sabha, the lower house of the Indian Parliament.
The Union Budget is divided into two parts: The Annual Financial Statement and the Demand for Grants. The latter is presented in the form of a vote-on-account. This is a provision that allows the government to withdraw funds from the Consolidated Fund of India (CFI) to cover expenses until the Appropriation Bill is passed.
A Union Budget is the most comprehensive report on the government’s finances, combining all sources of revenue and all expenditures for all activities. Budgeted estimates of the government’s accounts for the next fiscal year are also included in the Budget. A “mid-year review” in the form of a “half-yearly report” is also included in the Budget document to provide an update on the government’s financial performance apart from an economic survey prepared by the Chief Economic Advisor to the Government of India that lends an overview of the country’s economic performance.
Capital receipts (such as disinvestment, borrowing, and loans from public or foreign governments, the RBI, and so on) and capital expenditure (like expenditure on the development of machinery, health facilities, etc) make up the capital budget.
- Incoming cash flows are referred to as capital receipts. They can be both non-debt receipts and debt receipts. A large portion of capital receipts is accounted for by loans from the general public, foreign governments, and the Reserve Bank of India (RBI). Non-debt capital receipts include the repayment of loans and advances made to state governments and foreign governments, disinvestment proceeds, money accrued to the government from the issuance of bonus shares, and so on.
- Capital expenditure is defined as spending on machinery development, availing of necessary equipment, construction of buildings, and health care facilities, as well as acquiring assets such as land, research and development, and education.
A debt is an obligation by the government to repay. The total amount borrowed by the government to meet its development budget, including total liabilities, is referred to as public debt. It must be paid from India’s Consolidated Fund. This term is also used to refer to the total liabilities of the central and state governments, though the central government clearly distinguishes its debt obligations from those of the states.
The Union government has followed a deliberate strategy over the years to reduce its reliance on foreign loans in its overall loan mix. Internal debt accounts for more than 93 percent of total public debt. Internal loans, which account for the majority of public debt, are further classified as marketable and non-marketable debt.
Dated government securities (G-Secs), treasury bills, external assistance, and short-term borrowings are all sources of public debt. The RBI is the government’s banker and public debt manager. All money, remittances, foreign exchange, and banking transactions are handled by the RBI. In addition, the Union government deposits its cash balance with the RBI. The liabilities of the Union government account for slightly more than 46 percent of the country’s GDP. However, if the public debt is calculated as general government liabilities, which include state liabilities, it rises to 68 percent of the country's GDP.
Current Account Deficit
If the value of goods and services imported by the country exceeds the value of those exported, it is said to be in deficit, and the difference between the two values is called CAD. The current account includes both net income (interest and dividends) and transfers (foreign aid).
Its impact on a country may be positive or negative depending on to what extent its economy runs on a deficit. Many economies are using foreign capital to fund investments. A current account deficit may benefit a debtor country in the short run, but it may be problematic in the long run as investors question whether they are receiving a sufficient return on their investments.
If the current account deficit widens, foreign investment outflows could be significant, and the rupee could fall even further. It is critical to keep the current account deficit under control for the currency to remain stable. Typically, higher trade deficits cause the current account deficit to widen.
A cess is a type of tax levied by the government on certain taxes until the government receives sufficient funds for that purpose. In contrast to standard taxes and duties such as excise and personal income tax, a cess is imposed in addition to the existing tax (tax on tax). For example, the government levies the Swachh Bharat cess to fund cleanliness initiatives across India. The cess revenue is first credited to the Consolidated Fund, and after proper appropriation from Parliament, the government may use it for the specified purpose.
The government imposes various types of cesses. Here are a few examples:
- Education cess: A tax levied by the government in order to provide all citizens with free standard primary education.
- Health cess: Former Finance Minister Arun Jaitley proposed a health cess in 2018 to meet the health needs of low-income families.
- Road or fuel cess: For road and infrastructure maintenance.
- Clean energy cess: The clean energy cess is a carbon tax imposed on the production and import of coal, lignite, and peat, based on the “polluter pays” principle.
- Krishi Kalyan cess: The Krishi Kalyan cess was introduced in 2016 to provide farmers with additional support for agricultural activities.
- Swachh Bharat cess: The Swachh Bharat cess, which was introduced in 2014 with the goal of delivering a clean India, is levied at 0.5 percent on all taxable services to fund Swachh Bharat initiatives.
The Economic Survey highlights the country's economic trends and helps to understand resource mobilisation and allocation in the Union Budget. The Survey investigates trends in agricultural and industrial production, infrastructure, employment, money supply, prices, imports, exports, foreign exchange reserves, and other economic factors that affect the Budget. It is presented in Parliament before discussions on the Budget for the upcoming fiscal year.
The central government's Budget is more than just a list of receipts and expenditures. It has become a significant statement of government policy since independence, with the introduction of five-year plans. The Budget reflects and shapes the economy, and the economy shapes the Budget. To gain a better understanding of the impact of government receipts and expenditure on other sectors of the economy, it is necessary to categorise them in terms of economic magnitudes, such as how much is set aside for capital formation, how much is spent directly by the government, and how much is transferred by the government to other sectors of the economy through grants, loans, and so on.