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Business
01 Feb 2017

Understanding the Union Budget

A few important budget concepts

The Union Budget is the annual financial statement mandated under Article 112 of India's Constitution. From this year, the Budget will be presented on Feb 1.

The Budget outlines the government's plan for the expenditure of its resources and is a comprehensive display of the Government's finances.

Let us understand some key concepts of the Budget and their significance.

In context

A few important budget concepts
What is an annual financial statement?

Annual Financial Statement

What is an annual financial statement?

Under Article 112 of the Constitution, the government is required to present before the Parliament, a document detailing all estimated revenues and expenditures for the respective financial year starting 1st April and ending 31st March.

This statement is called the Annual Financial Statement and is divided into three parts — consolidated fund, contingency fund, and public account.

GDP

What is national income?

National income is the total value of all final goods and services produced by a country.

There are several measures of national income like Gross Domestic Product (GDP), Gross National Product (GNP), Net Domestic Product (NDP) and so on.

The most widely used measure is GDP, which shows the value of all final goods and services produced within the geographical boundaries of a country.

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What is a revenue deficit?

Revenue deficit

What is a revenue deficit?

The excess of expenditure over receipts in the revenue account leads to a revenue deficit.

Ideally, all receipts (not including borrowing) on the revenue account should meet all revenue expenditures i.e. the revenue deficit should be zero.

In case of a revenue deficit, the government has to borrow.

Such borrowing is considered regressive as it doesn't create assets, and generates future interest payments.

Fiscal deficit

What is a fiscal deficit?

The difference between total expenditure and total revenue of the government is called fiscal deficit. It indicates the amount of borrowing needed by the government.

Fiscal deficits generally occur due to a hike in capital expenditure or due to a revenue deficit.

This deficit is met through borrowing from the central bank or by issuing bonds and treasury bills.

Direct & indirect taxes

What are direct and indirect taxes?

A direct tax is one in which the burden of the tax is carried by the individual (or company) on whom it is levied. It includes taxes like income tax, securities transaction tax etc.

An indirect tax is one in which the burden of the tax can be shifted to another party. It includes taxes like sales tax, import duties, VAT etc.

Countervailing duties

What are countervailing duties?

A tax that is imposed on imports, over and above basic import duty, is called a countervailing duty.

Countervailing duties are at the same level as excise duties paid by domestic manufacturers of similar goods.

This is done to ensure a level playing field between imported goods and locally manufactured goods, so as to protect domestic industries from getting disadvantaged.

What is public debt?

Public debt

What is public debt?

Public debt receipts and public debt disbursals show the amount borrowed and amount repaid respectively, by the government during a fiscal year.

Public debt can be split into internal debt or borrowing from Indian sources, and external debt or borrowing from non-Indian sources.

The difference between public debt receipts and public debt disbursals shows the net increase in public debt.

Current account deficit

What is a current account deficit?

A current account deficit occurs when the total value of goods and services imported by a country exceeds the total value of goods and services exported.

The current account also includes transfers, such as foreign aid, and net income, such as dividends, but these components make up a tiny percentage of the current account compared to exports and imports.

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