A Budget is not just a bunch of documents, but it is a comprehensive statement of the government's finances including spending, revenues, deficit and debt, etc for a financial year that runs from April 1 to March 31.
While tabling the Budget, the Finance Minister tells the country about government’s revenues and expenditures, besides showing how the government plans to use public resources to meet policy goals.
Anywhere in the world, the annual budgetary exercise is important for the government to maintain fiscal discipline. The Budget has to be passed by the Parliament before it can come into effect on April 1, the start of India's financial year.
On the Budget day, the Finance Minister tables a bunch of documents on the floor of the Parliament. To cope up with these documents and terminologies, it is very important to understand the basics standards of these words.
As the government prepares to present the Union Budget, slated for February 1, here we take a look at terminologies that will help the readers to understand the Budget file of the Finance Minister.
Besides the Budget speech, following documents are presented by the Finance Minister on the floor of the House:
Annual Financial Statement (AFS)
Under the Article 112 of the Constitution, the Government of India requires to present a statement of estimated receipts and expenditure in respect of every financial year in the Parliament. The receipts and disbursements are shown under three parts in which government accounts are kept. It also distinguishes the expenditure on revenue account from the expenditure on other accounts. This document is called the Annual Financial Statement.
Demands for Grants (DG)
Demand for Grants is a kind of form that is submitted in pursuance of Article 113 of the Constitution. The form carries estimates of expenditure from the Consolidated Fund, included in the AFS. It also requires a vote by the Lok Sabha. Generally, one Demand for Grant is presented in respect of each Ministry or Department. However, more than one Demand may be presented for a Ministry or Department depending on the nature of expenditure.
Appropriation Bill
It is a document that empowers the government to withdraw funds from the Consolidated Fund for meeting its yearly expenses. The passage of the Bill in the Lok Sabha is necessary. Under Article 114(3) of the Constitution, no amount can be withdrawn from the Consolidated Fund without the enactment of such a law by the Parliament. In most democracies, approval of the legislature is mandatory for the government to spend money.
Finance Bill
Finance Bill is presented at the time of presentation of the AFS in fulfilment of the requirement of Article 110 (1)(a) of the Constitution. The Bill details the imposition, abolition, remission, alteration or regulation of taxes proposed in the Budget.
Memorandum Explaining the Provisions in the Finance Bill
It deals with information to facilitate understanding of the taxation proposals in the Finance Bill. The provisions and their implications are also explained in this.
Macro-Economic Framework Statement
It is a statement presented under Section 3(5) of the Fiscal Responsibility and Budget Management Act, 2003. It comprises an assessment of the overall growth prospects of the economy with specific underlying assumptions. It emphasises the expected GDP growth rate, fiscal balance of the government and the external sector balance of the economy.
Fiscal Policy Strategy Statement
To comply with the rules under Section 3(4) of the Fiscal Responsibility and Budget Management Act, 2003, the government must present a statement in the Parliament outlining its strategic priorities relating to taxation, expenditure, lending and investments, administered pricing, borrowings and guarantees. It explains how the current policies are in conformity with sound fiscal management principles and gives the rationale for any major deviation in key fiscal measures.
Medium Term Fiscal Policy Statement (MTFP)
It is a statement that is presented in the Parliament under Section 3(2) of the Fiscal Responsibility and Budget Management (FRBM) Act, 2003. The document sets out three-year rolling targets for five specific fiscal indicators in relation to GDP at market prices. They are: revenue deficit, effective revenue deficit, fiscal deficit, Tax to GDP ratio and total outstanding debt as percentage of GDP at the end of the year.
It includes the underlying assumptions, an assessment of sustainability relating to balance between revenue receipts and revenue expenditure and the use of capital receipts including market borrowings for generation of productive assets.
Medium Term Expenditure Framework Statement
This document, tabled under Section 3 of the Fiscal Responsibility and Budget Management (FRBM) Act, 2003, is presented in the Parliament in the Session after the Budget session. It sets forth a three-year rolling target for the expenditure indicators with specification of underlying assumptions and risks involved. The statement provides an estimate of expenditure commitments for various items -- education, health, rural development, energy, subsidies and pension etc.
The objective is to provide a closer integration between budget and the FRBM Statements. This Statement is normally presented in the Monsoon Session of Parliament.
Expenditure Profile
Once the Budget is approved, by allocating costs to the activities in a schedule, a profile of expenditure is produced. The three major components are: base cost estimate, contingency and management reserve.
Expenditure Budget
It shows the revenue and capital disbursements of various Ministries and Departments and presents the estimates in respect of each under 'Plan' and 'Non-Plan'.
This document gives a detailed analysis of various types of expenditure and broad reasons for the variations in estimates. Demand for Grants of the government is also its part.
Receipts Budget
This provides an analysis of estimates of receipts included in the AFS. Besides, it gives details of tax and non-tax revenue receipts and capital receipts and explains the estimates. It also provides the arrears of tax revenues and non-tax revenues.
Budget at a Glance
It is a document that shows in brief, receipts and disbursements along with broad details of tax revenues and other receipts. This document also exhibits broad break-up of expenditure - Plan and Non-Plan, allocation of Plan outlays by sectors as well as by Ministries or Departments and details of resources transferred by the Centre to states and UTs.
It also shows the revenue deficit, the gross primary deficit and the gross fiscal deficit of the government.
Highlights of Budget
Outcome Budget
It is a budgeting technique that entails Ministries preparing their budget and submitting it to the Ministry of Finance before the Annual Budget is presented. Basically, it is a practice of suggesting and listing of estimated outcomes of each programmes or schemes designed.
BUDGET GLOSSARY
Aggregate economic data
Total expenditures and total production of goods and services related to the entire economy. For example, aggregate demand is the total spending on consumption, investment, government purchases, and net exports, while aggregate supply is the total amount of good and services produced in the economy.
Balanced budget
Budgets in which revenues are equal to expenditures are referred to as "balanced budget". It means there is neither a budget deficit nor a budget surplus.
Budget cycle
It consists of the major events or stages in making decisions about the budget, and implementing and assessing those decisions. The budget cycle usually has four stages: budget formulation, enactment, execution, and auditing and assessment
Budgetary deficit
Budgetary deficit is the difference between all receipts and expenses in both revenue and capital account of the government. It means the government has spent more money that it earned in a financial year.
Balance of payments
The term is used to denote the difference in total value between payments into and out of a country over a period.
Central Plan Outlay
It is the division of monetary resources among the different sectors in the economy and the ministries of the government.
Consolidated budget
Or “unified budget”, is the presentation of the budget in which revenues from all sources and spending for all activities are included. In countries where the budget is divided into pieces (for instance, where there are separate budgets for “current” and “capital” expenditures) the consolidated budget combines these pieces. It may also include extra-budgetary institutions.
Debt
Government debt is the outstanding amount that the government owes to private lenders at any given point in time.
Disinvestment
Disinvestment is the action of government selling or liquidating an asset or subsidiary. In most cases, it typically refers to sale from the government, partly or fully, of a government-owned enterprise.
Expenditure
The term refers to government spending (or outlays) made to fulfill a government obligation, generally by issuing a check or disbursing cash. Expenditures can be Capital and current. Capital expenditures are investments in physical assets such as roads and buildings that can be used for many years. Current expenditures are spending on wages, benefit payments and other goods and services that are consumed immediately.
Extra-governmental
Or “extra-budgetary”, term refers to government transactions that are not included in the annual budget.
Finance Bill
The proposals of the Government for levy of new taxes, modification of the existing tax structure or continuance of the existing tax structure beyond the period approved by Parliament are submitted to Parliament through the Finance Bill. The Budget documents presented in terms of the Constitution have to fulfil certain legal and procedural requirements and hence may not by themselves give a clear indication of the major features of the Budget.
Fiscal deficit
This is the gap between the government's total spending and the sum of its revenue receipts and non-debt capital receipts. It represents the total amount of borrowed funds required by the government to completely meet its expenditure.
Fiscal envelope
It refers to the aggregate level of expenditures and revenues (and the resulting deficit or surplus) in the budget.
Fiscal policy
Government actions with respect to aggregate levels of revenue and spending. Fiscal policy is implemented through the budget and is the primary means by which the government can influence the economy. An “easy” fiscal policy is intended to stimulate short-term economic growth by increasing government spending or reducing revenues. A “tight” fiscal policy restrains short-term demand by reducing spending or increasing taxes and is often intended to restrain inflation.
Fiscal Year
The government's 12-month accounting period; it frequently does not coincide with the calendar year. The fiscal year is named after the calendar year in which it ends.
Gross Domestic Product
This is the total value of final goods and services produced in a country during a calendar year. Economic growth is measured by the change in GDP from year to year.
Household income
This is money received by people that may or may not be earned from productive activities and, after adjusting for taxes, is saved or spent on consumption of goods and services.
Macro-economic
This term refers to the part of economics that studies the economy as a whole and particularly topics such as gross production, unemployment, inflation, and business cycles.
Micro-economic
The term is related to the part of economics that studies topics such as individual markets, prices, industries, demand, and supply.
Non-plan expenditure
Non-plan revenue expenditure is accounted for by interest payments, subsidies (mainly on food and fertilisers), wage and salary payments to government employees, grants to States and Union Territories governments, pensions, police, economic services in various sectors, other general services such as tax collection, social services, and grants to foreign governments. Non-plan capital expenditure mainly includes defence, loans to public enterprises, loans to States, Union Territories and foreign governments.
Opportunity cost
The highest valued alternative foregone in the pursuit of an activity.
Output/Outcomes
The performance of government programs is assessed by examining whether they have delivered the desired outputs and outcomes. Outputs are defined as the goods or services provided by government agencies. Outcomes are a broader concept and include the impact of the program on social, economic, or other indicators, such as whether an increase in hours taught improved student test scores, whether more immunizations reduced sickness, or whether higher welfare benefits increased social equity.
Plan expenditure
Plan expenditures are estimated after discussions between each of the ministries concerned and the Planning Commission. Plan expenditure forms a sizeable proportion of the total expenditure of the Central Government. The Demands for Grants of the various Ministries show the Plan expenditure under each head separately from the Non-Plan expenditure.
Resources
This term is often used in a budgetary sense to mean the amount of funds available to the government to spend. Resources generally will come either from revenues or borrowing.
Revenue
The annual income collected from taxes by the government as a result of its sovereign powers. Typical revenues include individual and corporate income taxes, payroll taxes, value-added taxes, sales taxes, excise taxes.
