After the helicopter shot of PM Modi on Nov 8, Finance Minister Arun Jaitley is on strike. All eyes in the stand are on the bat of Jaitley, hoping for some good news in this budget.
Now since the budget is just a few days away, the financial advisors must refurbish their basics, you can expect a bombardment of questions from your clients. After Demonetisation, the citizens of the country are expecting a liberal budget from tax point of view. People will be planning their investments and taxes according to the new policies and procedures. There can be queries on general budget terms and various other technicalities.
Whenever you read about the Budget, you will come across a number of standard terminologies. This article is presented with the view to simplify the lingo and acquaint our advisors with the basic budget terms, so as to enable you understand and explain the budget better.
The Budget 2017 has made many key changes to the previous budgets in many respects:
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Firstly, the budget date has been preponed by a month. The budget was always presented on the last date of February every year, and the Parliamentary approval process took the budget till May end. This year, the budget will be presented on 1st February, with the view that the budget exercise is over before the beginning of the next fiscal year.
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Another major modification this year is the 92 year old practice of presenting a separate Railway Budget will also retire. This time the Railway Budget will be merged with the Union Budget.
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And Thirdly, with the Niti Aayog replacing the Planning Commission, the bifurcation between Plan and Non Plan Expenditure has also come to an end. India since Independence, segmented its development goal into five year plans and all expenditure pertaining to programmes listed in the five year plans is called the Plan expenditure and all other disbursement is the Non-Plan Expenditure. March 2017 will be the end of the twelfth five year plan as well as it will put a period on 'five year plans' altogether. The Niti Aayog has presented a 15 year vision documenting the action plan of India for the next 15 years. The new classification of expenditure will be 'Capital' and 'Revenue' Expenditure.
Coming to the terminologies,
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Finance Bill: A Finance Bill is a Money Bill as defined in Article 110 of the Constitution and it carries the government proposals for implementation of new tax rules or continuance of the existing rules. It is to be introduced only in the Lok Sabha and is accompanied by a Memorandum containing explanations of the provisions included in it. The Rajya Sabha can recommend amendments in the Bill which has to be passed by the Parliament within 75 days of its introduction.
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Revenue Receipts / Expenditure: The income earned or expenses incurred in the day to day running of the country, the government departments and services are called Revenue Receipts and Expenditures. Tax is the most important component of Revenue Receipts. Salaries of Government employees, subsidies and grants given are examples of Revenue Expenditure.
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Capital Receipts / Expenditure: Capital Receipts and Expenditure on the other hand are not routine in nature. Capital receipts increase a liability or decrease an asset. Disinvestment in ONGC is a Capital Receipt, borrowing from the World Bank is also a Capital Receipt. Capital expenditure decreases a liability or increase an asset. Repayment of a loan is a Capital expenditure. Expenditure on Infrastructure development is a Capital expenditure.
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Fiscal Policy: It is the Policy which lays down the use of government's revenue towards meeting the government expenditure with the view to influence the aggregate demand, savings and investment and income distribution in the economy.
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Monetary Policy: Implemented by RBI, the Monetary Policy controls the money supply in the economy by managing the interest rates with the view to target inflation and economic growth in the country.
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Fiscal Deficit: When the total expenditure of the government exceeds the total receipts, excluding borrowings, is called Fiscal Deficit. Simply put, it is the difference between total revenue and total expenditure.
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Revenue Deficit: Revenue Deficit is the excess of Government's total Revenue Expenditure over Revenue Receipts. It shows that the government's routine earnings are insufficient to meet its day to day expenditure.
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Primary Deficit: Primary Deficit is part of Fiscal Deficit and is calculated by deducting the interest payments on borrowings by the government from the Fiscal Deficit.
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Revenue Breakup: Revenues of the government are divided into 3 parts – Tax, Non-Tax & Grant-in-aid & contributions. We can guess that the Tax revenues stand for revenue collected from Direct & Indirect taxes. The government also earns Non-Tax Revenues from say interest payments on loans given, bonus & profits received from PSU companies and from public services provided by government. Grant-in-aid & contributions are a small part consisting of pure transfers to the government without any repayment obligation.
