BUDGET TERMS AND DEFINITIONS
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We give below some of the most used budget terminologies for the benefit of our readers which will help them understand better the Union Budget. These are budget basics.
What is a Union Budget ?
In simple terms we can say that the Union Budget is a statement of financial position for a future period, setting out proposed expenditure and means of financing it.
In other words, Union Budget actually lays down the statement of the estimated receipts and expenditure of the Govt. of India for the coming financial year. It sets out exactly how the Govt. proposes to allocate the financial resources among the various agencies that make claim on it and how it proposes to raise the finances for this. Union Budget is undoubtedly the most extensive account of the government's finances, in which revenues from all sources and expenses of all activities undertaken are aggregated. It comprises the revenue budget and the capital budget.
Union Budget and Economic Survey :
Economic Survey in India is presented in the Parliament by the Finance Ministry just a day before the Union Budget. It is a flagship annual document of the Ministry of Finance, and reviews the developments in the Indian economy over the previous 12 months, summarizes the performance on major development programs, and highlights the policy initiatives of the government and the prospects of the economy in the short to medium term. It is the ministry's view on the annual economic development of the country.
Constitutional Provisions for Union Budget :
Union Budget is referred to as the Annual Financial Statement in Article 112 of the Constitution of India. It is usually presented on the last working day of February by the Finance Minister of India in Parliament. The Budget, presented as a Financial Bill and the Appropriation Bill is required to be passed by the House before it can come into effect on 1st April, when the financial year actually starts.
Time for Presentation of the Budget :
Continuing the practice inherited from the British era, till the year 2000, the Union Budget was presented in the Parliament at 5.00 PM on the last working day of February. It was in 2001 that NDA Government of Atal Bihari Vajpayee, decided to present the Budget at 11.00 AM.
Budget Speech :
The budget is preceded by the Economic Survey, which analyses trends industry, industrial production, money supply, prices, imports and exports and other important economic factors.
However, annual budget speech can be broadly divided into two parts i.e. Part A containing review of the prevailing economic situation and Part B containing specified proposals of tax pertaining to financial year etc.) apprises taxpayers about the state of the economy, the progress Govt. has made on various developmental measures and direction of future govt. policy.
The budget has following components:
a. Annual Financial statement – which sets the estimated revenue and capital account of the Govt. for the financial year.
b. Demands for grants – which details the requests for funds made by different govt. departments and ministries.
c. Finance Bill – containing the proposals for levy of new taxes and modification of the existing tax structure.
The other documents which are annexed to the budget are:
a. Budget at a glance – which presents a snap shot of the state of Govt. finances detailing plan and non-plan outlays, revenue, fiscal and primary deficit.
b. Receipts budget – which details tax, non-tax revenues and capital receipts
c. Expenditure budget – details tax, non – tax revenues and capital receipts
d. Explanatory memorandum – Which provides detailed item-wise break-up of the receipts and expenditure.
Compilation of the budget is a long exercise which is started much earlier than it is presented in the Parliament. In order to see as to what extent the budget is realistic, a budget is compiled and presented under 4 heads i.e. actual incurred for the previous-to-previous year (2003-04, if the budget is to be presented for 2005-06), budget estimates for the previous year (2004-05), revised estimates for the previous year (2004-05) and the budget estimates for the year (2005-06) for which the budget is presented.
An Interim Budge vs Vote on Account :
'Vote on Account' deals only with the expenditure side of the government's budget, where as an Interim Budget is a complete set of accounts, including both expenditure and receipts.
An Interim Budget gives the complete financial statement, very similar to a full Budget.While the law does not debar the Union government from introducing tax changes, normally during an election year, successive governments have avoided making any major changes in income tax laws during an Interim Budget.
Vote on Account : "Union Budget 2014 Highlights"
Who has presented Budget maximum number of times in India :
Mr. Morarji Desai presented the budget ten times, the most by any Finance Minister
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TERMS USED IN THE BUDGET
Budget can be divided in to two parts namely (a) Capital and (b) Revenue. The first one broadly pertains to one time expenditure, whereas the latter one pertains to recurring expenditure.
(A)Capital Budget : It consists of capital receipts and payments and also incorporates transactions in the Public Account.
· Capital receipts – Receipts by way of (a) loans raised from the market, (b) borrowing from RBI, (c) external assistance from foreign Govt., (d) recoveries of loans and advances.
· Capital expenditure – It is the expenditure incurred on (i) acquisition of assets and investments, (ii) loans and advances to State Govts.
(B) Revenue Budget :
· Revenue receipts – Receipts by way of (a) direct and indirect taxes, (b) interest, (c) dividends and (d) profits from investments, (e) fees and other receipts from services rendered by the Govt.
· Revenue expenditure –These are expenses incurred for the (i) normal running of the Govt. departments, (ii) interest charges on debt and subsidies.
Central Plan : This refers to the government’s budgetary support to the plan and, the internal and extra budgetary resources raised by the public sector undertakings.
· Plan expenditure – It is the outlay on schemes and programmes formulated by various Ministries under the 5-years plan.
· Non- plan expenditure - It is the expenditure outside that incurred in keeping with the programmes formulate under the 5-years plan.
Types of Deficits :
· Revenue deficit – It is the excess of Govt. revenue expenditure over revenue receipts.
· Budgetary deficit: It is excess of total expenditure (capital and revenue) over total receipts, bridged through borrowings from the market and RBI.
· Fiscal deficit : It is excess of total expenditure over revenue receipts and capital receipts after excluding borrowing
· Primary deficit – it is the fiscal deficit reduced by expenditure on interest payment.
· Current Account Deficit : This deficit shows the difference between the nation’s exports and imports
Types of Government Accounts :
· Consolidated Fund: It is made up of all revenues received by the government, loans raised by it, and also its receipts from recoveries of loans granted by it. All expenditure of the government is incurred from the Consolidated Fund and no amount can be withdrawn from the Fund without authorisation from Parliament.
· Public Account: There are certain receipts and expenditure which are beyond the normal receipts and expenditure of the government relating to the Consolidated Fund. Such transactions come to Government’s account mostly as the government acts more as a banker rather than on permanent basis, for example, transactions relating to provident funds, small savings collections, other deposits etc. Such money is kept in the Public Account and the disbursed as per rules. Thus, it is an account in which money received through transactions not relating to the Consolidated Fund is kept.
· Contingency fund : This fund is similar to the savings which normally ladies in Indian households keep for emergencies. There are occasions when government may have to meet urgent unforessen expenditure pending authorization from Parliament. The contingency fund is similar to an imprest account, and the same is available at the disposal of the President to incur such unforeseen expenditure. Parliamentary approval for such expenditure and for withdrawal of an equivalent amount from the fund is subsequently obtained and the amount spent from the fund is recouped to the Fund.
Zero based Budget (ZBB) ; begins with decision units that are the lowest levels in the organization for which a budget is prepared. A set of decision package is prepared for each unit, which basically describes various levels of service, that may be rendered by the decision unit. The frequently mentioned benefits of ZBB is the increased participation of managers in the budget-making process.
Demands for grants : It is a statement of estimates of expenditure from the Consolidated Fund It is voted by Lok Sabha. Generally one demand for grant is presented in respect of each ministry of department.
Appropriation bill : This is introduced in Parliament for approval after the general discussions on budget proposals and completion of the voting on grants. Its approval is required so that government can withdraw from the Consolidated Fund of India, the amounts required for meeting the expenditure.
Some Other Glossory Relating to Finance Used During Budget Period
I. Corporate Tax : This is the tax paid by corporate or firms on the incomes they earn
II. Countervailing Duties : This duty is levied on imports that may lead to price rise in the domestic market. It is imposed with the intention of discouraging unfair trading practices by other countries.
III. Customs Duties : These duties are levied on goods whenever they are either brought into the country or exported from the country. The importer or the exporters pay customs duties. In case of such imported items, the cost to the domestic buyer goes up, and for exporters they prove as discouragement for exports as they become less viable for people abroad because of additional costs.
IV. Direct Taxes : These are taxes that are levied on the income and resources of individual or organizations. Normally they are levied on wealth or income. Examples of direct taxes are income tax, corporate tax, capital gains tax or inheritance tax
V. Indirect Taxes : These are taxes that are imposed on goods manufactured, imported or exported, Examples of indirect taxes are Excise Duties; Custom Duties
VI. Gross Domestic Product (GDP) : This is the total market value of the goods and services manufactured within the country in a financial year
VII. Gross National Product (GNP) : This is the total market value of the fiished goods and services manufactured within the country in a given financial year, plus income earned by the local residents from investments made abroad, minus the income earned by foreigners in the domestic market.
VIII. CENVAT : The full form is Central Value Added Tax. It is an excise duty levied on manufacturers. It was originally introduced in the 2000-01 Budget with a single rate of 16% across the board with special excise duty (SED) on various goods. It is designed to reduce the cascading effect of indirect taxes on final products. As a scheme CENVAT is more liberal and extensive than the erstwhile MODVAT, with mot goods being brought under its ambit and no declarations or statutory records needed.
IX. Disinvestment : In India, it is used to denote the liquidation or sale of part or the whole of government’s stake in public sector undertakings. This is used to bring in private management so as to improve the compnay’s performance, and it also adds to the government’s revenue.
X. Ad Valorem Duties : These duties are calculated as a certain percentage of the price of the product.