Budget terminologies – A crack down.
We all are aware that Budget is a documentation detailing the estimation of expected revenue and expected expenses. Budget is part of our daily life. From normal households to big corporates to nations it is important to plan the expenses according to expected revenue. Budget helps them to foresee the revenue(income) and be within the limit. In the light of the above I am trying to explain the basic fundamentals behind of India Budget. Indian Budget is called Union Budget.
Key terminologies in Union Budget.
To understand the budget of the India it is important to understand the key terminologies being used in the Union Budget.
Annual Financial Statement(AFS)
The Annual Financial Statement (AFS), is the document showing the estimated receipts and expenditure of the Government of India for the year in relation to estimates of previous year and also actual expenditure for the previous year. The Annual Financial Statement distinguishes the expenditure on revenue account from the expenditure of capital nature, as is mandated in the Constitution of India. The Revenue and the Capital sections together, therefore make the Union Budget. The estimates of receipts and expenditure included in the Annual Financial Statement are for expenditure net of refunds and recoveries. The Union Government Finance Accounts also reflect expenditure in a similar manner.
How the accounts are maintained for meeting the expenses of India
The receipts and disbursements are shown under three parts in which Government Accounts are kept viz. (i) The Consolidated Fund of India, (ii) The Contingency Fund of India and (iii) The Public Account of India.
a) Consolidated Fund of India.
This is the main account from which all major expenses of Government are being met. All revenues received by the Government, loans raised by it, and also receipts from recoveries of loans granted by it, together form the Consolidated Fund of India. All expenditure of the Government is incurred from the Consolidated Fund of India and no amount can be drawn from the Consolidated Fund without due authorization from the Parliament.
b) Contingency Fund of India
This account is like a petty cash account. All unforeseen and expenses of urgent nature are being met from this account. This account is at the disposal of President of India. The expenses met out of this account shall be placed before the Parliament for its ratification on periodical basis. The amount will be recouped on periodical manner.
c) Public Fund of India.
Moneys collected by Government from Public for specific purposes such as Provident Fund, Small savings account or moneys allocated for specific purposes such as road fund etc are being kept in this account. The money lying in this account are Public Funds and the same shall be utilised for paying back to the Persons or authorities who deposited that amount.
Division of Budget.
The Union budget is divided into (1) Revenue Budget (2) Capital Budget.
Revenue budget consists of revenue receipts and expenses met out of that revenue. The revenue comes mainly in the form of taxes and other duties. It also consists of non-tax receipts of the Government mainly consist of interest and dividend on investments made by the Government, fees and other receipts for services rendered by the Government. The expenses for operating the Government departments, giving subsidies , paying interest on debt of Government etc are being met out of this revenue. In general, the Government is not creating any assets out of this kind of revenue. All the grants and amount given to States, Union territories, other institutions etc are revenue expenditure.
This budget is mainly to create assets for the Government. The Government is acquiring assets such as land, buildings, equipment, machinery etc out of this budget. The Loans to States/Union territories , investment in shares etc are also made out of this fund. The revenue for meeting the capital expenses are coming out of loans raised by Government from the Public, borrowings from RBI and other parties such as Foreign Governments and bodies. The recovery of the loans given to the States shall also be credited to this account.
Finance Bill. The Finance bill is a money bill and the same consists of proposals for taxes. It forms part of the Budget and presented along with the Annual Financial Statements.
Fiscal deficit means the difference between the revenue receipts and the total expenditure. The Government is planning its borrowing strategies based on the Fiscal Deficit.
Knowing these terminologies will help you to understand the budget better.