A day before the announcement of Union budget 2018-19, each and every section of the society anticipates something from the government’s financial plan.
It also means a flood of complex jargon-laced economic terms on your timelines. But do all the terms in the budget make sense to you? How often have you relied on others to explain the impact of budget on your life?
Not anymore. Here’s a simplified guide of the complex terms common to the budget.
Fiscal deficit: Think of the government as an individual. If your expenditure is Rs 150 and income is only Rs 120, it means a deficiency of Rs 30. There’s one difference though: The income referred here means all the revenues earned by the government excluding the revenue from loans. Though the deficiency can be filled with money from loans, it eventually doesn’t solve the problem as the loans become a liability for the government. Fiscal deficit reflects a simple picture: The difference between revenue earned and total expenditure.
Representational Image | Source: PTI
Capital expenditure: Any kind of expenditure governments make to increase its assets come under capital expenditure. These usually entail big projects like building roads, infrastructure, acquiring new technology and machinery etc. The idea is that all these expenditures will become a source of revenue for the government in the longer run. That’s why loans issued by the government also come under this category.
Revenue expenditure: It’s the opposite of capital expenditure. Expenses like salaries of employees, day-to-day expenses incurred by the government, payments of interests, subsidies for the poor etc., come under revenue expenditure.
Gross Domestic Product: It’s like a thermometer used to measure the health of the economy. Put simply, GDP indicates the value of all the goods and services produced in a country during a specific period of time. GDP includes all the economic activities – from buying a packet of milk to government’s purchase of fighter jets – carried out in a country. But there are things which don’t come under GDP like depreciation on assets, economic activities of firms owned by Indians but located outside the country, volunteer work, etc. Also, nuances like income equality, distribution of growth and negative economic indicators are not reflected through GDP.
Non-tax revenue: This includes revenue earned by the government which doesn’t come from taxes. Interests received on loans, international aid, revenue from the sale of obsolete assets and donations etc., form part of the non-tax revenue of the government.
Finance Minister Arun Jaitley in Parliament | Source: The Indian Express
Consolidated fund: It’s like a single account where all the money from all the sources – tax, interests, loans, grants – is consolidated by the government. All the expenditures earmarked by the government in the budget are met through this fund.
Finance Bill: It’s a proposal of changes that the government plans to carry out in the taxation system of the country in the following year. The bill can be only introduced in Lok Sabha and is usually accompanied by a detailed explanation of changes the government wants to introduce in the taxation system. Since the bill talks about changes in the tax structure, the bill is debated thoroughly in both the houses of parliament.
Indirect tax: Apart from the direct taxes like income tax, corporate tax or wealth tax, consumers also pay a whole range of taxes towards the government. These include taxes imposed on the purchase of goods and services, including imported goods. Common examples of indirect taxes are excise and custom duty.
Plan and non-plan expenditure: To understand this expenditure, it’s necessary to recall the policy of 5-year-plans followed by India since 1951. Planned expenditure in the budget means both revenue and capital expenditure carried out by the central government on the basis of a central plan. It also includes central assistance to states and union territories.
Prime Minister Narendra Modi during a Digital India event | Source: PTI
Non-plan expenditure includes revenue expenditure of the government to meet its day to day needs for the smooth functioning of the government. Since it doesn’t come under the central plan, this part of government’s expenditure is fluid. Even though non-plan expenditure also has a capital component, it’s usually small and most of the non-plan expenditure goes out in the form of interest payments, subsidies, salaries and pension etc. The highest non-plan expenditure is on defence.
Public account: The name is true to its meaning as the account represents the money of the public with the government. The most common example of a public account is Provident Fund where people pool in their money with the government to eventually withdraw it at some point of time. The government can use money from this account to meet its expenses.
