The budget is an important event for the country; it has a far-reaching impact on the lives of millions of people in the country and around the world. It is a reflection of the government's intentions toward various parts of the economy. Let us brush up on a few basics regarding the same.
The word "budget" marks its evolution from the French word "bougette," meaning a bag or wallet. Interestingly, budget is nowhere mentioned in the Constitution of India; it mentions Article 112, "Annual Financial Statement." Budgeting is basically forecasting the management of funds in the country for a given period; it replicates how the government is earning revenues and how the earned revenue will be expended.
Important terminologies regarding budgets
a) Receipts: It is money received from various sources such as tax, fees, loans, etc.
b) Revenue receipts: It is recurring money received, such as income tax levied, GST levied, stamp duty taken on registering property, dividends earned from PSU's, etc.
c) Non-revenue receipts: It is non-recurring money received from different sources, such as loans from the World Bank, receipts from the IPO of LIC, disinvestment of PSUs, etc.
d) Expenditure: It is money applied for various purposes such as building infrastructure, payment of salaries of government . employees, grant of different subsidiary schemes, repayment of loans, etc.
e) Revenue expenditure: It is a recurring expenditure that is made, such as payment of salaries to government . employees, subsidies, grants, repayment of interest on loans, etc.; in simpler words, revenue expenditure doesn't lead to the creation of any asset.
f) Capital expenditure: It is a non-recurring expenditure that is made for the creation of an asset or reducing an outstanding liability, such as the construction of a bridge, the principal repayment of loans, etc.
Now, depending on the availability and application of funds, a budget is called a surplus or deficit budget. If receipts are more than expenditures, then it is called a surplus budget, and if expenditures are more than receipts, then it is called a deficit budget.
Different types of deficit
a) Fiscal deficit: It shows the difference in expenditure over receipt (excluding non-revenue receipts such as loans taken from the World Bank, etc.).
b) Revenue deficit: It shows the difference between revenue receipts and revenue expenditure.
c) Effective revenue deficit: It further expands the revenue deficit when grants for the creation of capital assets are removed from the revenue deficit.
d) Primary deficit: It shows a fiscal deficit exclusive of interest payments on loans.
The above discussion was an attempt to provide a summarized understanding of key terms in the upcoming budget and hopefully it will be helpful to you. Thanks for sparing your precious time on this article.
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