Key Budget Terms

 

Budget preparation is a comprehensive and intensive process, involving weeks of planning and deliberation. The Union Budget, presented annually, contains numerous essential terms, numbers, and definitions critical for understanding India’s economic planning and development. This article breaks down key concepts and terminologies to simplify the complexities of the Budget.

Importance of Key Budget Terms

Several terms are central to understanding the Union Budget, including GDP Growth, Fiscal Deficit, Capital Expenditure, Gross or Net Borrowings, and Subsidies (e.g., food and fertilizer subsidies). These elements are vital for gauging the government’s fiscal health and policy direction. Key Terms and Definitions used in Union Budget are:

  • Finance Minister

The Finance Minister is a senior member of the Union Cabinet, alongside ministers for Home, Defence, and External Affairs. Appointed by the Prime Minister, the Finance Minister leads the Ministry of Finance, supported by state ministers and key secretaries such as the Finance Secretary, Expenditure Secretary, Revenue Secretary, and others.

  • Union Budget

The Union Budget is an annual statement of the government’s receipts and expenditures for the financial year (April 1 to March 31). Presented in Parliament as the Finance Bill, it requires Lok Sabha’s approval to become law. It includes details of revenue sources (e.g., taxes, dividends) and expenditures (e.g., salaries, infrastructure, subsidies).

  • Interim Budget

An Interim Budget is presented when the government is not in a position to present the full Budget. It usually happens when it’s the last Budget of the government before elections. Since, the same party may or may not return to power, it is thought best to present an Interim Budget to seek Parliamentary approval for next few months’ expenditure (usually first 2-3 months of the new financial year). While the estimates of income and expenditure that the government presents in the Interim Budget are for the full year, they can always be and are often changed when the government presents the full Budget. While nothing stops the government from introducing major tax-related measures in the Interim Budget, the governments refrain from doing so.

  • GDP (Gross Domestic Product)

GDP represents the total value of goods and services produced within a country’s borders in a year. It is classified as:

  1. Real GDP: Adjusted for inflation to reflect true growth.
  2. Nominal GDP: Includes inflation and reflects current market prices.
  • Taxes

  1. Direct Taxes: Levied on income, such as income tax and corporate tax.
  2. Indirect Taxes: Levied on goods and services, such as GST and customs duty.
  • Goods and Services Tax (GST)

GST is an indirect tax that is levied on most goods and services in the country. The tax is charged to the customer by the seller of goods and service and the seller in turn deposits the tax with the government. On some goods and services, the government allows the business establishment to claim input tax credit. This is allowed on items which are further used for business purposes and not for personal use. Some items which don’t come under GST in India are crude, alcohol, items of daily consumption like milk, fruits and vegetables. Exports also do not attract any GST since the country is earning precious dollars and the government’s doesn’t want to make them uncompetitive by imposing GST which will increase the cost of the goods and services being sold abroad.

  • Customs Duty

Customs duty is an indirect tax that is imposed on imports and exports of goods and services. While it is a crucial source of revenue for the government and is levied by all countries, at times, customs duty is also used to as a tool to discourage exports and imports, as the case may be. Say for example, government may want to discourage export of wheat to keep domestic prices in check but at the same time, it may not want its exporters to lose the export market. In such a case, it may impose custom duty in the hope that the exporter finds it cheaper to sell the same in the local market. It may also reduce the import duty on a certain important component that goes into a machine so that it is cheaper for the manufacturer. At the same time, it may impose import duty to protect domestic manufacturers.

  • Fiscal Deficit

Fiscal deficit is an important element in the Union Budget and is always expressed as a percentage of the GDP – a high fiscal deficit is not good for the economy. It is the difference when the government’s expenditure exceeds its revenue. The government ‘funds’ the fiscal deficit through borrowings. High government borrowings tend to stoke inflation due to hardening of interest rates. High government borrowings can crowd out private borrowings, making cost of capital more expensive for private companies and individuals.

  • Fiscal Policy

Fiscal policy involves government decisions on taxation and expenditure to influence economic growth. It complements Monetary Policy, which is administered by the Reserve Bank of India to regulate money supply and interest rates.

  • Inflation

Inflation refers to a rise in prices due to demand-supply imbalances or increased production costs. It is managed through fiscal and monetary measures.

Key Budget Components and Definitions

Term

Definition

Finance Bill

Covers all tax-related changes presented in the Budget.

Vote on Account

Temporary approval for government expenditure until the full Budget is passed.

Excess Grants

Additional funds sought for projects exceeding initial estimates.

Budget Estimates

Projections of government allocations at the start of the financial year.

Revised Estimates

Adjusted figures based on actual spending during the financial year.

Outcome Budget

An assessment of fund utilization and project efficiency.

Special Terms

  • Guillotine- A Parliamentary procedure to expedite Budget approval when time is limited.
  • Cut Motion- Allows Lok Sabha members to oppose specific allocations in the Budget. Adoption signals no-confidence in the government.

Conclusion

Understanding the terms and definitions in the Union Budget is crucial for grasping its impact on the economy and public welfare. From resource allocation and taxation to fiscal policies and deficit management, the Budget reflects the government’s priorities and strategies for economic growth.