Budget Glossary: Key Terms to Know About the Budget

Budgets delineate the funds set aside by the government to fulfil its schemes during a full electoral tenure. If you get overwhelmed by the economic jargon you get to hear during the Union Budget, we are here to explain its meaning. Read on to understand the key terms, relate to government policies, and navigate through complex articulations of economic decisions.

• The Union Budget discusses pressing financial issues and publishes its financial policies as a response to these challenges.
• GDP (Gross Domestic Product) is the total market value of all goods and services produced within a country over one year.
• Disinvestment is a government policy where the government sells or reduces its ownership stakes in public sector companies by selling shares.

Let us begin with the most basic terms so that you have a comprehensive understanding of the UnionBbudget.

Union Budget

The Indian constitution codifies the Union Budget under Article 112 and defines it as a statement of the approximate expenditures and receipts of the government during a financial year. Think of it as a financial plan laid out for the smooth functioning of the state, just as you would prepare a monthly budget for your expenses, only on a large scale. One look at the Budget will inform you of the areas the government plans to spend money on. Also, since the government carries out these investments through funds collected from taxes, you will also get a fair idea of how expensive or cheap products will be for the foreseeable future.

Gross domestic product (GDP)

This term is probably the most used among the ones related to the Union Budget. Simply put, the GDP refers to the total value of products produced by a country during a given period of time, typically 1 year. The Central Statistical Office (CSO) makes GDP calculations using the factor-cost and the expenditure-based methods. While the former reaches its conclusion by examining industry performance nationwide, the latter illustrates the recent trade scenario.

Direct and indirect taxes

Governments need taxes to function; thus, in every Union Budget announcement, you will see a detailed design of how taxes will be levied for the next financial year. Taxes are of two broad types: direct and indirect. Direct taxes are those that you need to pay to the government if your salary or revenue exceeds a certain limit, albeit these taxes are only paid by salaried people and businesses. However, indirect taxes, like the goods and services tax (GST), are levied on everyone irrespective of their financial status. This remarkable feat is achieved by structuring goods and services into different tax slabs so that every transaction has to automatically apply these taxes and pay the revenues to the government.

Customs duty

Customs duty is the tax that the government imposes on imported and exported goods. These decisions could affect you if you are an importer, exporter, or consumer of imported goods.

Fiscal deficit

‘Fiscal’ refers to the revenues earned by the government. A deficit, by definition, occurs when there is a shortfall in revenues. A fiscal deficit occurs when the expenditure of the government is seemingly more than the non-borrowed receipts (transactions for which the government does not have any liabilities, such as disinvestment).

Fiscal and monetary policy

In its fiscal policy, the government regulates taxes so that it can control the buying power of the common people. Through its monetary policy, the government decides the liquidity of the market to match the optimum growth it has projected.

Inflation

Inflation is the term often used in Union Budgets, and it refers to a decline in the purchasing power of people, leading to widespread price hikes and disruptions in the normal functioning of the market. It demands immediate responses from the central bank so that the bank interests are hiked and loans discouraged.

Capital budget and revenue budget

The capital budget has two components: capital receipts and capital expenditure. Similarly, the revenue budget comprises revenue receipts and revenue expenditure. Capital receipt is the total valuation that the government will not be liable for due to measures like disinvestment. Revenue receipt refers to government income from sources like taxes. Expenditure for both categories means the cost that the government has to bear for public welfare and running its own internal affairs (public offices).

Disinvestment

Disinvestment refers to the process of selling or liquidating government subsidiaries and public sector investments so that the capital receipts can be made more robust. Although a strategic decision for the government, it might have serious implications on the lives of the general public.

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