Budget terms you should be familiar with

The government is in preparations of announcing its financial budget for 2019-20 on 1^st February 2019. This year’s budget is of utmost importance as it is the last one before the general elections. The budget is likely to be presented by the railway and coal minister Piyush Goyal who has been given additional charge of the finance ministry as the Finance Minister Arun Jaitley is on a medical leave.

Since the budget comes at a time when the elections are just a few months away, as has been the convention, only an interim budget should be presented. The Economic Survey too would not be presented. However, the budget is keenly awaited as perhaps this is the last opportunity before the NDA government to make some key announcements before the general elections due by May.

Earlier the budget used to be announced on 28 February but now it has been moved to 1^st of February since last couple of years in order to provide adequate time for all allocations and plans to be made before the start of the fiscal year on 1^st of April. It also helps corporates and institutions prepare according to the changes announced in the budget for the coming financial year.

As advisors, it is important for us that we are aware of the details and changes in the budget and also understand a few important concepts from the budget. So let us refresh our basics regarding the budget.

• Union budget: The Union budget is a statement which shows the estimates of the government's revenue and expenditure for the coming financial year which begins on 1 April and end on 31 March. It is the most comprehensive report of the government’s finances in which revenues from all sources and outlays for all activities are consolidated for a particular financial year. It is important for everyone since it gives an idea of the government’s expenditure on various areas and sectors like n subsidies, infrastructure development, social welfare, etc. The government also defines tax rates, subsidy rates, and new policies in the budget.

• Annual Financial Statement (AFS): This is the most important document in the budget. Under Article 112 of the Constitution, the government has to present a statement of estimated revenue and expenditure for every fiscal. This statement is called the Annual Financial Statement.

• The AFS distinguishes the expenditure on revenue account from the expenditure on other accounts. The Revenue and the Capital sections together, therefore make the Union Budget. This document is divided into three sections – consolidated fund, contingency fund and public account. For each of these funds, the central government is required to present a statement of revenue and expenditure.

• Consolidated fund: The consolidated fund is the most important fund for the government. All the revenue for the government from taxes, public sector units, also the money borrowed and the receipts from loans given out by the government. Basically, all the money that will be received by the government will be moved to the consolidated fund. Any withdrawal from the fund has to be approved by the Parliament.

• Contingency fund: As indicated by the name, the fund is allocated for the purpose of meeting any unforeseen expenditure. The fund is generally a Rs 500 crore fund and is at the disposal of the President. Any expenses incurred from the fund has to be approved by the Parliament subsequently and the amount used is returned to the fund from the consolidated fund.

• Public account: The public account is an account which holds the public money. For example, money for provident fund accounts, money from small savings instrument or from other investments with the government. For the public fund, the government only acts as a banker. The money in public account does not belong to the government and has to be paid back to the people at some point in time. Expenditure from this fund is not required to be approved from the Parliament.

• Revenue Budget: The revenue budget comprises of revenue receipts of the government as well as its expenditure. Revenue receipts are divided into tax and non-tax revenue. Tax revenues constitute taxes like income tax, corporate tax, excise, customs, service and other duties that the Government levies. The non-tax revenue sources include interest on loans, dividend on investments. Broadly, the expenditure which does not result in creation of assets for the Government of India, is treated as revenue expenditure. All grants given to the State Governments/Union Territories and other parties are also treated as revenue expenditure even though some of the grants may be used for creation of capital assets.

• Capital Budget: Capital receipts and capital payments together constitute the Capital Budget. The capital receipts are loans raised by the Government from the public (as market loans), borrowings from the RBI and other parties through the sale of Treasury Bills, the loans received from foreign Governments and bodies, disinvestment receipts and recoveries of loans from State Governments and other parties. Capital payments consist of capital expenditure on acquisition /creation of assets, investments in shares, loans and advances granted by the government.

• Finance Bill: At the time of presentation of the AFS before the Parliament, a Finance Bill is also presented as per the Constitution, detailing the tax proposals in the Budget. It also contains other provisions relating to Budget that could be classified as Money Bill. A Finance Bill is a Money Bill.

• Fiscal Deficit: The difference between total revenue and total expenditure of the government is termed as fiscal deficit. It is an indication of the total borrowings needed by the government. While calculating the total revenue, borrowings are not included. The government has to borrow money from the public to meet the shortfall by borrowing from the RBI or raising money from the capital markets by issuing different sovereign debt instruments.

• Revenue Deficit: It is the difference between revenue receipts and revenue expenditure. This deficit is the shortfall of the government’s current receipts over current expenditures. Ideally, the revenue deficit should be zero, however, generally that is not the case. The government has to borrow to meets its expenditure.

Sources: www.economictimes.com, www.timesofindia.indiatimes.com, www.indiabudget.gov.in

{s}
[[script type="text/javascript"]]
$(document).ready(function(){
new DiscussionBoard("divDiscussionBoard", "1220", "http://www.njwebnest.in/esaathi/index.php/discussion").load();
});
[[/script]]
{/s}