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Terms about the Union Budget you should know

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January 16, 2020

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As the Finance Minister gets ready to present the budget in February 2020, we present a primer on the complex jargon that could pervade both the budget document and the speech of the finance minister.

Union Budget

The Union Budget of a year, also known as the annual financial statement, is defined in Article 112 of the Indian Constitution. It contains the estimated expenditure and receipts of the government for the given year. Traditionally, it also contains a statement of actuals for the last period.

Finance Bill

Any piece of legislation that is yet to be passed by the house of parliament is known as a bill. A bill that deals with the country's finances is called a Finance Bill. The budget presents the government's proposals about expenditure and revenue collection for the year. Therefore, it is presented as a finance bill.

Economic Survey

Before the budget, the government presents a detailed account of the various sectors of the economy in the past year including the overall economic scenario. It also provides an outline for the year ahead. The document that contains all these details is known as the Economic Survey. It is prepared by the Finance Ministry's Economic Division of the Department of Economic Affairs. Chief Economic Adviser provides overall guidance for this activity. The final version of the survey is scrutinized by the Finance Secretary. The Union Finance Minister provides the final approval on the same before it is tabled in the parliament.

Fiscal policy

Fiscal policy is one of the tools that the government can use to influence the country's economy. It involves the use of income tax slab rates and policy and expenditure of the revenue collected for the purpose. It works in conjecture with monetary policy – the use of interest rates to control the money supply in the economy. Union budget today has to strike the right balance between collecting enough revenues to meet expenditure while also providing tax relief to the common man to encourage private consumption.

Inflation

The rate of change in the average price level in the economy is known as inflation. For practical purposes, it is calculated based on the average price of a selected basket of goods and services. Very high inflation erodes the purchasing power of the nation's currency quickly, taking goods and services out of people's reach. Nevertheless, health inflation is needed for profitable economic activity and growth of the economy.Budget 2020 has to find the right balance to keep inflation under control while also encouraging growth.

Budget deficit

The difference between what a government earns and spends is known as the government budget balance or fiscal balance. If this value is positive, then it is called government budget surplus and if it is negative, then it is called a government budget deficit or fiscal deficit. The budget balance is made up of two primary components: the primary balance and interest payments of government debts accumulated over the past years.

Current account deficit

The current account represents all the foreign transactions made by a country. If the value of goods and services imported exceed the value of goods and services exported, the current account is said to be in deficit. Running a current account deficit is not necessarily bad as the external debt can be used by the government to make lucrative investments.

Revenue deficit

The shortfall in total revenue receipts of the government compared to the total revenue expenditure is known as revenue deficit. A revenue deficit indicates that the government's earnings are not sufficient to meet its regular expenses. In such a case the government uses capital revenues i.e. borrowing and sale of assets to meet the shortfall. The government cannot run a revenue deficit indefinitely as it results in high inflation due to borrowings or printing of money to meet the difference. In the long run, the government will have to remedy the situation by either increasing its tax revenue or decreasing the revenue expenditure.

Capital expenditure

Capital expenditure is any government expenditure whose benefits exceed one fiscal year. This includes expenditure to build assets including equipment purchase, building infrastructure and other fixed assets.Union budget 2020 is expected to include substantial layout on capital expenditure to help crowd in private investment.

Revenue expenditure

The expenditure used to meet the daily functioning of the government is called revenue expenditure. In other words, any expenditure that neither build assets nor reduces liability is revenue expenditure. This includes salaries of government employees, interest payments of debts, pension payouts, etc.

Non-plan expenditure

Any expenditure that the government makes on the routine functioning of the government is called non-plan expenditure. It includes all expenses other than those that arise from the proposals made in the current five-year plan and center's advances to the states for their plans.

ARN: ED/01/20/17521

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Francis Rodrigues Francis Rodrigues

Francis Rodrigues has a decade long experience in the insurance sector, and as SVP, E-Commerce and Digital Marketing, HDFC Life, manages the online sales channel, as well as digital and performance marketing. He has had hands-on experience in setting up sales channels and functional teams from scratch over a career spanning 2 decades.

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Vishal Subharwal heads the Strategy, Marketing, E-Commerce, Digital Business & Sustainability initiatives at HDFC Life. He is responsible for crafting and ensuring successful implementation of the overall organisation strategy.

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