Decoding Union Budget Jargons

“The Budget prepared by Finance Minister is no different than what budget your mother prepares monthly for the house, Budget in simple term relates to future planning. It is a very tough task for the finance minister to plan for the entire year’s receipts that the government will generate and expenditure the government would incur so as to have growth oriented, healthy economy.

“The budget is full of Jargon with terms such as fiscal deficit, revenue deficit, planned expenditure, unplanned expenditure, revenue expenditure/receipts, capital expenditure/receipts etc.

Let us try to understand these jargons. As any budget would have, national budget also have 2 parts to it, Income and Expenditure. let us look at them one by one.

Revenue Expenditure

Revenue expenditure is for the normal running of the government's department and various services, interest charged on debt incurred by government, subsidies etc.

Capital Expenditure

Expenditure incurred to acquire, build assets, infrastructure or to upgrade existing infrastructure facilities.

Unplanned Expenditure

Unplanned Expenditure correspond to amount allocated for expenses required for activities other than one present as part of 5 year central plan.Non-plan revenue expenditure is accounted for by subsidies, and wage and salary payments to government employees, pensions, police, and economic services in various sectors, other general services such as tax collection, social services, and grants to foreign governments.Non Plan revenue expenditure also includes interest payments on the previous debt. These debt arises because India has been running fiscal deficit traditionally.

Planned Expenditure

Earlier India had a planning commission, which is now replaced by NITI (National Institute of Transforming India) Aayog which lays down the 5 year central plan for India. The planned expenditure allocation both in revenue as well as capital sector corresponds to amount allocated to implement various schemes detailed in the plan. The planned expenditure also corresponds to grant/assistance to state and union territories.

Revenue Receipts

Revenue receipts corresponds total tax and non-tax receipts collected by the central government.

Tax Receipt

Tax receipts can be income based which is known as direct tax or additional amount to be paid for availing a particular set of services at predefined rate known as indirect tax.

Direct tax are for Individual as well for the corporate. In last budget the finance minister had proposed to reduce the corporate tax from 30% to 25% over next four years by discontinuing the exemption present earlier which used to reduce 30% tax to effective 23%. 

Indirect Tax corresponds to different set of taxes such as excise duty, custom duty, service tax, value added tax etc. The indirect tax structure is very complex and government has announced all the different indirect taxes with a single tax known as Goods and Service Tax GST which is yet to be implemented..

Non Tax Receipt 
                              

Apart from Tax receipt, government can also generate revenues through means such as auctioning of Telecom Spectrum, Coal Mine Blocks etc.

Capital Receipt

Non Debt Capital Receipts

Capital receipts consists of Non Debt receipts which corresponds to recovery of loan by the Center to State governments & Union Territories and proceeds or by diluting part of (selling off) its stake in public sector companies.

Borrowing

The other part of capital receipts are required to fund the fiscal deficit. This is done by raising of loans the market by means of Bonds, government borrowings from the RBI (raises inflation) & other parties, and loans received from foreign governments.

Deficits

Fiscal Deficit

Fiscal deficit is total expected outflow (Revenue+ Capital Expenditure) minus total expected inflow (Total Non-debt Capital Receipt + Revenue Receipt for the center). It is important to note that the revenue receipt include those of the center only and revenue receipts for the states are not included. States would include these revenue receipts in their state budget.

It is also important to know that fiscal deficit is different than the Revenue deficit.

Revenue Deficit

Revenue deficit refers to the excess of revenue expenditure over revenue receipts and does not include capital expenditure and non-debt capital receipts.

Primary Deficit

Primary Deficit = Fiscal Deficit – Interest Payment on the loan raised due to previous deficits.

Primary deficit indicates the absolute deficit in the financial generate devoid the impact of the loans raised for funding fiscal deficits of the previous years.

Current Account Deficit

Current account deficit as we already know corresponds to different between imports and exports.

All the deficits i.e. current account deficit, revenue deficit and fiscal deficit are calculated as % of GDP ( Gross Domestic Product ). It is calculated as the total amount of goods and services produced in the country.

Hope this will help you to decode the Union Budget Finance Minister will present on 29th Feb 2016 for Financial Year 2016-17..