Budget Glossary: Key Terms and Definitions You Must Know
The Union Budget is a yearly event that holds great significance as it influences the daily lives of citizens. The Budget document contains various technical terms such as fiscal deficit, capital expenditure, and GDP growth, which may not be familiar to everyone. To simplify this for better understanding, here is an overview of some key Budget terminologies:
Key Budget Terms and Their Explanations
Union Budget
As per Article 112 of the Constitution, the Union Budget, also called the “Annual Financial Statement,” provides an estimate of the central government’s revenues and expenditures for the financial year (April 1 to March 31). It outlines how the government plans to generate income and allocate funds. Its primary goals are to ensure economic growth and uphold social justice. Additionally, the Budget typically includes announcements about tax reforms and investment plans, which are crucial for investors.
Interim Budget
An interim budget is introduced during years with general elections. It seeks approval for covering the government’s expenses for the remaining months of its term. Although it outlines income and expenditure for the entire year, the incoming government often revises these allocations. Major tax changes are generally avoided in interim budgets.
Gross Domestic Product (GDP)
GDP measures a nation’s economic health and reflects the total value of goods and services produced within a year.
- Nominal GDP: Measured using current market prices without accounting for inflation.
- Real GDP: Adjusted for inflation, offering a clearer picture of economic growth.
Direct and Indirect Taxes
Taxes are a major source of government revenue, funding public services like healthcare and infrastructure.
- Direct Taxes: Paid directly by individuals or corporations, such as income tax.
- Indirect Taxes: Levied on goods and services, like GST, and collected by sellers.
Goods & Services Tax (GST)
Introduced on July 1, 2017, GST is an indirect tax replacing multiple older taxes like VAT and excise duty. It follows the concept of “One Nation, One Tax.” However, essentials like milk, fruits, and vegetables are exempt from GST.
Fiscal Deficit
The fiscal deficit is the shortfall between government spending and revenue (excluding borrowings). It is often expressed as a percentage of GDP. A high fiscal deficit indicates economic stress and is usually addressed through borrowing or issuing government bonds.
Capital Budget
This includes capital revenue and capital expenditures.
- Capital Receipts: Liabilities or reduced financial assets, like disinvestment or public loans.
- Capital Expenditure: Investments in assets such as infrastructure and machinery.
Revenue Budget
The revenue budget comprises income generated through taxes, fees, and dividends, along with government expenses for routine operations like salaries and pensions.
Excess Grant
Under Article 115 of the Constitution, an excess grant allows the government to request additional funds when allocated amounts fall short. These grants are approved by Parliament.
Fiscal Policy
Fiscal policy involves the government using tools like taxes and public spending to achieve economic goals, such as inflation control or economic stimulation.
Finance Bill
The Finance Bill contains details about taxation, government expenses, and borrowing. Once approved, it becomes the Finance Act, as per Article 117 of the Constitution.
Vote on Account
Under Article 116, a Vote on Account allows the government to access funds from the Consolidated Fund of India for short-term expenses while awaiting Budget approval.
Budget Estimates
These are the allocations made by the government at the start of the financial year, subject to changes based on evolving needs.
Revised Estimates
Midway through the financial year, these estimates adjust for unforeseen changes in spending requirements.
Economic Survey
Presented before the Union Budget, the Economic Survey reviews the country’s financial progress and key economic indicators. It is prepared by the Chief Economic Advisor.
Disinvestment
Disinvestment refers to the government selling stakes in public sector companies to generate revenue.
This glossary provides a clearer understanding of essential Budget terms, helping citizens grasp the financial policies that shape the nation.
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