According to Article 112 of the Constitution, a statement of estimated income and expenses is called an “annual financial statement.” The nodal organization in charge of creating the budget is the Department of Economic Affairs (DEA) of the Ministry of Finance. Before it can come into effect on April 1 (the start of the Indian fiscal year), it must be introduced through the Finance Bill and passed by the Lok Sabha.
There are so many terms used during the presentation of the full budget that many people are not familiar with. So we are explaining a little about these terms for the convenience of the general public and students.
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1. Union Budget
According to Article 112 of the Constitution, for each financial year a statement of estimated income and expenditure, called the “Annual Financial Statement”, must be presented to Parliament.
This Declaration is the main budget document. It is an estimate of the Government’s income and expenses at the end of a fiscal year, which runs from April 1 to March 31.
A Union Budget is the most comprehensive report of the Government’s finances, which consolidates receipts from all sources and disbursements for all activities. The budget also contains estimates of the Government’s accounts for the next financial year, called budgeted estimates.
2. Capital budget
The capital budget is made up of capital receipts and payments. Capital receipts are government loans raised from the public, government borrowings from the Reserve Bank and Treasury bills, disinvestments of stakes in public sector undertakings, loans received from foreign governments and agencies, securities against small savings, government provident funds and special deposits.
Capital payments refer to capital expenditures on the construction of capital projects and the acquisition of assets such as land, machinery and construction equipment.
It also includes investments in shares and loans and advances given by the Central Government to State Governments, government undertakings, corporations and other players.
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3. Income budget
The revenue budget consists of the Government’s revenue and its expenditure. Revenue income is divided into tax and non-tax income. Tax revenues constitute taxes such as income tax, corporate tax, excise taxes, customs taxes, service taxes and other duties collected by the Government.
Sources of non-tax income include interest on loans, dividends on investments, etc.
Revenue expenditure is the expenditure incurred in the daily functioning of the Government and its various departments, and for the services it provides.
It also includes interest on your loans, grants and donations given to state governments and other parties.
This expense does not result in the creation of assets. In case the difference between revenue and income is negative, there is a revenue shortfall.
It shows the deficit of the Government’s current income with respect to current expenses. If capital expenditure and capital income are also taken into account, there will be a gap between income and expenses in a year. This gap constitutes the overall budget deficit and is covered by the issuance of 91-day Treasury Bills, mostly held by the Reserve Bank.
Surplus income is the excess of income over income and expenses.
4. Fiscal deficit
This is the gap between the government’s total spending and the sum of its revenues and its non-debted capital receipts.
It represents the total amount of borrowed funds that the Government needs to fully cover its expenses. The gap is covered by additional borrowing from the Reserve Bank of India, issuance of government securities, etc. The fiscal deficit is one of the main contributors to inflation.
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5. Primary deficit
The primary deficit is the fiscal deficit minus interest payments. Indicates how much of the government’s borrowing goes toward covering expenses other than interest payments. In other words, it is the difference between the current year’s fiscal deficit and the interest that had to be paid in the previous year’s budget.
The primary deficit is calculated by:
| Primary Deficit = Fiscal Deficit – Interest Payments |
6. Finance Bill
This bill presents to Parliament the Government’s proposals for the collection of new taxes, modifications to the current tax structure or the continuation of the current tax structure. The bill contains proposed amendments to direct and indirect taxes.
7. Direct and Indirect Taxes
Direct taxes are levied on the income of individuals and legal entities. For example, income tax, corporate tax, etc. Indirect taxes are paid by consumers when they purchase goods and services. These include excise taxes, customs duties, etc.
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8. Central plan disbursement: Refers to the allocation of monetary resources between the different sectors of the economy and government ministries. The different sectors include energy, transportation, social services, general economic services, communications, science and technology, rural development, agriculture, etc.
9. Public account: The Government acts as a banker for transactions related to provident funds, collection of small savings, etc. The Public Account of India was created by Article 266 of the Constitution of India.
Public account funds are not property of the government and must be returned to the people or organizations that deposited them.
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The funds that the Government thus receives from its banking operations are kept in the public account, from where the corresponding disbursements are made.
11. Balance of payments: The balance of payments is the difference between the demand and supply of a country’s currency in the foreign exchange market. In simple words, the Balance of Payments (BoP) is the difference between the total amount of money entering a country during a specific period of time and the total amount of money leaving the country to the rest of the world.
12. Budget Estimates: It is an estimate of the fiscal and income deficits for the year. The term is associated with the estimates of the Centre’s expenditure during the year and the income received through taxes. In simple words, budget estimates are the funds allocated for various occupations, activities and ministries.
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13. Capital Receipt: Loans obtained by the Center in the market. Government loans from the Reserve Bank and elsewhere, the sale of Treasury Bills and loans received from foreign governments form part of the receipt of capital.
Other items that also fall under this category include recovery of loans granted by the Center to state governments and income from disinvestment of government stakes in public sector undertakings.
14. Consolidated Fund: Within this framework, the Government pools all its funds.
It includes all Government revenues, loans obtained and recoveries on loans granted.
All Government expenditure is made from the consolidated fund and no amount can be withdrawn from the fund without the authorization of Parliament.
15. Contingency Fund: This is a fund used to deal with emergencies where the Government cannot wait for authorization from Parliament. The Government subsequently obtains parliamentary approval for the expenditure. The amount spent from the contingency fund is returned to the fund later.
16. Monetary Policy: It includes the actions taken by the central bank to regulate the level of monetary liquidity in the economy, or change interest rates.
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Source: ptivs2.edu.vn