budget terminology

7/27/2019 Budget Terminology

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Budget TBudget TBudget TBudget TBudget T

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Eco Fundas for you

The term Budget refers to the financial

statement (or documents) placed by the

government before the legislature every

year on a specific date.

A budget sets forth the anticipated expenditure of

the government during the next financial year

(called the budget year) and the receipts for the

same period:

(a) under existing laws in force, and

(b) as a result of taxation proposals, if any,

contemplated by the government.

More often than not, the budget is the

manifestation of the political philosophy of the

party in power.

The primary objective of the budget is to reveal

comprehensive information in order to present a

complete picture of the financial position of the

government and thereby enable the legislature to

measure adequately the impact of such financial

programmes on the countrys economy.

The estimates included in the budget are simply

estimates; the actuals may not conform to the

original estimates. The budget must, however,

estimate revenues and expenditures as accurately

as possible. Accuracy becomes essential if

equilibrium established in the estimates is to be

maintained to the end and realised in actuals.

The budget comprises data for three years:

(a) actual figures for the preceding year;

(b) budget estimates for the current year;

(c) revised estimates for the current year, and

(d) budget estimates for the following year.

For example, the Union Budget for 200809

contains:

(a) actuals for 200809;

(b) budget estimates for 200809;

(c) revised estimates for 200809, and

(d) budget estimates for 20092010.

Classification of TClassification of TClassification of TClassification of TClassification of Taxaxaxaxaxeseseseses

(a) Direct and Indirect Taxes: Direct taxes are

defined as those taxes levied immediately on

the property and incomes of persons and

which are paid directly by the consumers to

the state. Thus, income and wealth taxes,

estate duties, and toll taxes paid directly to

the state form the group of direct taxes.All other taxes would be grouped as indirect,

i.e. those whose burden can be shifted (like

Jawaharlal Nehru was the first Prime Minister to

present the budget when he held the Finance

portfolio in 1958-59


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ECOFUNDASFOR YOU : BUDGETTERMINOLOGY

sales tax and excise duties). These are

imposed upon and collected from producers

and sellers. But producers and sellers can shift

the burden of these taxes on to the consumers.

However, when these taxes are passed on to

the consumers, they indirectly tax the income

of the consumers.

(b) Proportional, Progressive, and Regressive

Taxation: A tax may be proportional,

progressive or regressive according to the

relationship between its rate structure and the

income, wealth, and economic power of the

tax-payer.

A tax is proportional, progressive or

regressive according to the percentage of the

tax to the tax payers income.

Proportional Taxation: If the tax is the

same percentage on all incomes, large or

small, it is called proportional taxation.

Progressive Taxation: In this system, the

rate of tax goes on increasing with every

increase in income. In other words, lowerincome is taxed at a lower percentage,

whereas higher income is taxed at a higher

percentage.

Regressive Taxation: If the rate of tax

decreases with an increase in income, it is

called regressive taxation.

ReceiptsReceiptsReceiptsReceiptsReceipts

When you scan the budget document, you come

across terms like Revenue Receipts and Capital

Receipts. What do these terms mean?

(a) Revenue Receiptsmay be classified into two

major components: Tax Revenue and

Non-Tax Revenue.

Tax Revenue is one of the most important

resources of public revenue. It refers to

funds raised through taxation and implicit

in it is an element of compulsion. It is

compulsory in the sense that once the taxes

are imposed, the person liable to pay them

has to do so. Refusal to do so is treated as

a crime for which the law prescribes severe

punishment. Tax revenue is a steady source

and is always certain to come because taxes

are paid periodically. Some of the

important taxes are income tax, excise

duty, customs duty, sales tax, estate duty,wealth tax, and gift tax. In addition to these,

the term tax revenue also includes special

assessment and fees.

More often than not, the budget is the manifestation of the

political philosophy of the party in power

C. D. Deshmukh was the first Indian Governor of RBI to have

presented the Interim Budget for 1951-52


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ECOFUNDASFORYOU : BUDGETTERMINOLOGY

Non-Tax Revenue is raised by the

government in the form of the prices paidfor the use of specific services and goods

offered by it. It is purely voluntary in the

sense that the individual concerned has to

pay the price for a particular good or

service, in case he purchases it, otherwise

not. The revenue under this head comes

irregularly and is somewhat uncertain.

Non-Tax revenue includes:(1) revenue from state monopolies and state

undertakings (like railways, electricity,

telecom, forests, and irrigation);

(2) revenue from social services (like education,

hospital receipts);

(3) revenue from public property (like lease / rent

from land);

(4) charges for specific benefits or improvementsi.e. development charges, and

(5) voluntary gifts (such as donations to hospitals

and charitable institutions) received by stateauthorities

(b) Capital Receiptsinclude loans raised by the

Government of India from the general public,

governments borrowings from the RBI as

well as other similar bodies (through sale of

treasury bonds), external loans (like from the

IMF), recoveries of loans granted to states /

UTs, and savings invested in PPF, etc.

ExpenditurExpenditurExpenditurExpenditurExpenditureeeee

Expenditure may be classified into (a) Revenue

Expenditure and Capital Expenditure, (b) Plan

and Non-Plan Expenditure, and (c) Development

and Non-Development Expenditure.

(a) Revenue Expenditure and Capital

Expenditure:All expenditure incurred in thenormal day-to-day running of the government

Who presented Indias fi rst budget?

R. K. Shanmukhan Chetty, who served as the Finance Minister in Jawaharlal Nehrus

Cabinet between 1947 and 1949, presented the first budget of independent India

on November 26, 1947.

Actually, it was a review of the economy and no new taxes were proposed as the Budget day for

1948-49 was just 95 days away. Mr. Chetty resigned in 1949 over differences with Mr. Nehru.

The 1991-92 interim and final budgets were presented by

Finance Ministers of two different political parties. While

Yashwant Sinha presented the interim budget, the final budget

was presented by Dr. Manmohan Singh.


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ECOFUNDASFOR YOU : BUDGETTERMINOLOGY

M &CE

is termed Revenue Expenditure. This includes

expenditure incurred on provision of services,

salaries, subsidies, interest payments made to

service debts, etc.

Capital Expenditureis incurred in the creation

of assets like land, plant & machinery, and

investments in securities. Also, loans andadvances granted to state governments and

PSUs by the Centre are treated as Capital

Expenditure.

(b) Plan and Non-Plan Expenditure:Any

public expenditure incurred on current

development and investment outlays that arise

due to plan proposals (five year plan

proposals) is termed Plan Expenditure.

DeficitsDeficitsDeficitsDeficitsDeficits

In a budget statement, there is a mention of four

types of deficits: (a) revenue, (b) budget, (c) fiscal,

and (d) primary.

(a) Revenue Deficit refers to the excess of revenue

expenditure over revenue receipts. In fact, it

reflects one crucial fact: what is the

government borrowing for? As an individual

if you are borrowing to pay the house rent, then

you are in a situation of revenue deficit, i.e.

while you are borrowing and spending, you

are not creating any durable asset. This implies

that there will be a repayment obligation

(sometime in the future) and at the same time

there is no asset creation via investment.

(b) Budget Deficit refers to the excess of total

expenditure over total receipts. Here, total

receipts include current revenue and net

internal and external capital receipts of the

government.

(c) Fiscal Deficitrefers to the difference between

total expenditure (revenue, capital, and loans

net of repayment) on one hand, and on the

other hand, revenue receipts plus all those

capital receipts which are not in the form of

borrowings but which in the end accrue to

the government.

(d) Primary Deficit refers to fiscal deficit minus

interest payments. In other words, it points to

how much the government is borrowing to

pay for expenses other than interest payments.

Also, it underscores another key fact: how

much the government is adding to future

burden (in terms of repayment) on the basis

of past and present policy.

R.Venkataraman was the only Finance Minister who later

became the President of India

Three interim budgets were presented in the 1990s. While Yashwant

Sinha presented the interim budgets for 1991-92 and 1998-99,

Dr. Manmohan Singh presented the 1996-97 interim budget.

budget terminology

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