Morung Classroom: Budget Talk

Annual Financial Statement: Article 112 of the Constitution requires the government to present to Parliament a statement of estimated receipts and expenditure in respect of every financial year ­ April 1 to March 31. This statement is the annual financial statement. It is divided into three parts, consolidated fund, contingency fund and public account. For each of these funds, the government has to present a statement of receipts and expenditure.


Capital Receipt/Expenditure: All receipts and expenditure that liquidate or create an asset would in general be under capital account. For instance, if the government sells shares (disinvests) in public sector companies, it is in effect selling an asset. The receipts from the sale would go under capital account. On the other hand, if the government gives someone a loan from which it expects to receive interest, that expenditure would go under the capital account.


CESS: This is an additional levy on the basic tax liability. Governments resort to cess for meeting specific expenditure.


Consolidated Fund: All revenues raised by the government, money borrowed and receipts from loans given by the government flow into the consolidated fund of India. All government expenditure is made from this fund, except for exceptional items met from the Contingency Fund or the Public Account. Importantly, no money can be withdrawn from this fund without the Parliament’s approval.


Contingency Fund: As the name suggests, any urgent or unforeseen expenditure is met from this fund. The Rs 500­crore fund is at the disposal of the President. Any expenditure incurred from this fund requires a subsequent approval from Parliament and the amount withdrawn is returned to the fund from the consolidated fund.


Current Account Deficit: It is a trade measure that shows the value of a country’s imports of goods and services to be higher than the value of its exports.


Direct Tax: A tax such as the income-tax, which has to be borne by the person it or entity it is imposed on. These are largely taxes on income or wealth.


External Commercial Borrowing (ECB): ECBs refer to commercial loans with a minimum three-year maturity that can be raised from lenders from overseas where interest rates are lower than in India.


Finance Bill: The proposals of 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 this bill. It is the key document as far as taxes are concerned.


Fiscal Consolidation: The term refers to the things a Government does to maintain good fiscal health — cut debt and wasteful expenditure and improves revenue opportunities.


Fiscal Deficit: When the government’s non­borrowed receipts fall short of its entire expenditure, it has to borrow money from the public to meet the shortfall. The excess of total expenditure over total non­borrowed receipts is called the fiscal deficit.


Fiscal Policy: It is what a Government does to influence the course of an economy through decisions on taxes and spending.


Goods and Services Tax (GST): Proposed to be rolled out in India from April 1, 2016, the GST seeks to make the indirect tax structure simpler and efficient by replacing a slew of levies such as OCTROI, central sales tax, State sales tax, entry tax and so on.


Indirect Tax: A tax on goods and services, typically, levied on an entity but paid by another. These are largely taxes on expenditure and include Customs, excise and service tax.


Monetary Policy: It is what a central bank does to influence the course of an economy through decisions on money supply and interest rate.


Non­-plan expenditure: This is largely the revenue expenditure of the government. The biggest items of expenditure are interest payments, subsidies, salaries, defence and pension. The capital component of the non­plan expenditure is relatively small with the largest allocation going to defence.


Non­-tax revenue: The most important receipts under this head are interest payments (received on loans given by the government to states, railways and others) and dividends and profits received from public sector companies. Various services provided by the government such as ­ police and defence, medical services, power and railways ­ also yield revenue for the government.


Plan expenditure: This is essentially the budget support to the central plan and the central assistance to state and union territory plans. Like all budget heads, this is also split into revenue and capital components.


Public Account: This fund is to account for flows for those transactions where the government is merely acting as a banker. For instance, provident funds, small savings and so on. These funds do not belong to the government. They have to be paid back at some time to their rightful owners. Because of this nature of the fund, expenditure from it are not required to be approved by the Parliament.


Public debt: Public debt receipts and public debt disbursals are borrowings and repayments during the year, respectively. The difference is the net accretion to the public debt. Public debt can be split into internal (money borrowed within the country) and external (funds borrowed from non­Indian sources). Internal debt comprises treasury bills, market stabilisation schemes, ways and means advance, and securities against small savings.


Revenue Deficit: The excess of disbursements over receipts on revenue account is called revenue deficit.


Revenue receipt/Expenditure: All receipts and expenditure that in general do not entail sale or creation of assets are included under the revenue account. On the receipts side, taxes would be the most important revenue receipt. On the expenditure side, anything that does not result in creation of assets is treated as revenue expenditure. Salaries, subsidies and interest payments are good examples of revenue expenditure.


Service Tax: It is a tax on services rendered. Telephone bill, for instance, attracts a service tax.


Value-Added Tax (VAT): It is a tax on the value added to a product at each stage of distribution, so that inputs that go into making the product aren’t taxed more than once.


Source: ET & The Hindu