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Budget T Budget T
Budget T Budget T Budget Terminology erminology
erminology erminology erminology
Eco Fundas for you
T
he 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 T Classification of T Classification of T Classification of T Classification of Tax ax ax ax axes es es es es
(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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ECO FUNDAS FOR YOU: BUDGET TERMINOLOGY
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, lower
income 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.
Receipts Receipts Receipts Receipts Receipts
When you scan the budget document, you come
across terms like Revenue Receipts and Capital
Receipts. What do these terms mean?
(a) Revenue Receipts may 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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ECO FUNDAS FOR YOU: BUDGET TERMINOLOGY
Non-Tax Revenue is raised by the
government in the form of the prices paid
for 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 improvements
i.e. development charges, and
(5) voluntary gifts (such as donations to hospitals
and charitable institutions) received by state
authorities
(b) Capital Receipts include 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.
Expenditur Expenditur Expenditur Expenditur Expenditure ee ee
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 the
normal day-to-day running of the government
Who presented Indias first 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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ECO FUNDAS FOR YOU: BUDGET TERMINOLOGY
M & C E
is termed Revenue Expenditure. This includes
expenditure incurred on provision of services,
salaries, subsidies, interest payments made to
service debts, etc.
Capital Expenditure is incurred in the creation
of assets like land, plant & machinery, and
investments in securities. Also, loans and
advances 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.
Deficits Deficits Deficits Deficits Deficits
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 Deficit refers 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.