Union Budget :A Festival Part 2

BUDGET CONCEPTS II

 

As in my previous post, I have discussed the Budget and Economic survey.
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So without further adieu lets dig a little deeper in Budget.
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So to start, Budget is a balance of Receipts and Expenditure. 
What the Finance Minister does is that he tries to take care of all aspects of the economy for the year and provide sufficient funds for the activity. Be it Judicial maintenance, Law and order maintenance, Building of roads and dams, Education for all, Natal and Neo-Natal schemes, vaccinations etc. The job is quite tedious and requires a long-term vision. Any imbalance may cause a catastrophic effect and economy may collapse.

So to simplify things there is classification of funds, receipts, expenditures. Let's see what it is:

The receipts and expenditure are  operated by three accounts:

1. Consolidated Funds:

Consolidated Fund of India is the most important of all government accounts. Revenues received by the government and expenses made by it, excluding the exceptional items, are part of the Consolidated Fund. Not a penny can be spent by Parliamentary approval.

2. Contingency Funds:

A contingency fund is a fund for emergencies or unexpected outflows, mainly economic crises and natural disaster. It is pre-facto approved by parliament and the same amount is kept reserved from consolidated fund as well. Current corpus is 500 crores.

3. Public Account:

Public Account of India accounts for flows for those transactions where the government is merely acting as a banker. These mainly are Provident funds, Small savings etc and they do not belong to the government. They have to be paid back at some time to their rightful owners. Because of this nature of the fund, expenditures from it are not required to be approved by the Parliament.


 

 

Types of Expenditure:

1. Revenue Expenditure: 

Revenue expenditures are the expenses required to maintain proper functioning of government, judiciary, police, army, subsidies, and salary etc. These expenses do not create any assets.

2. Capital Expenditure: 

These expenditures are used in asset creation i.e. Roads, Dams, Bridges, Industries. They determine the growth of the country.

Types of receipts:

1. Revenue Receipts:

These include receipts of Tax, Non-tax receipts like Stamp Duty, Dividends from Public Service Undertakings (PSUs)

2.Capital Receipts (Non Debt capital Receipts):

These include grants, loan recovered and receipts from disinvestment of PSUs.

 

3.Debt capital Receipts:

After accounting for both revenue receipts and capital receipts, govt may fall short of expenditure. In that case, it has to borrow from:

1. Central bank of country(RBI in India)

2. Financial Institution outside country(World Bank, New Development Bank, Fed Banks etc.)

3. Print Sovereign Bonds for public borrowing

What is deficit:

A deficit is an amount by which a sum falls short of some reference amount.
 In economics, a deficit is an excess of expenditures over revenue in a given time period.

Types of Deficits:

1. Revenue Deficit:

 It is the difference in the Revenue Expenditure and Revenue Receipts. A higher revenue deficit is not a good thing. It shows that the government needs to borrow for regular maintenance expenditure. This obviously does not have any effect on growth. 

Eg: If a family borrows money to pay the salary of maid, driver and security guard, Isn't it a stupid step?

2. Fiscal Deficit:

It is the difference between governments total expenditure and total nondebt receipts. Fiscal Deficit denotes that the government has exhausted all avenues and it needs to borrow money via steps defined earlier.

 A high fiscal deficit is again not good as it shows the government is not frugal in expenditure. It may further lead to Higher Trade Deficit*. (3% is the expected normal by the European Union and many Think Tanks though it is debatable!)

Trivia: Greece Economy Crisis occurred because it underreported fiscal deficit for several years and finally it ultimately turned out to be 120% of its economy.(IMF figures)

3. Primary Deficit: 

Its the government's lifeline to show that it has a pragmatic approach and long vision. It is used by the government to show that high fiscal deficit is not the problem made by the present government. It is the difference between fiscal deficit and loan serviced on previous borrowings.





So now you have basic knowledge about how budget needs to be analyzed.
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The government is going to announce the budget soon
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Do check these things this time to be an aware citizen:

1. Fiscal Deficit (Is it near 3%)

2. Revenue Deficit
 
3. Primary Deficit 

4. Change in Income tax slab

5. FDI inflows or change in norms

6. Change in indirect tax such as excise duty, customs duty etc.

7. Funds allotted to the various schemes (Startup India, AMRUT, NRHM etc.)
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Hope I have been successful giving a brief outline of what the budget is and what actually to look for in the budget.
. Next time we will look as to how taxation in India is regulated.
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Until then Take Care
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. Let me finally close this post on a funny note:



**
Trade Deficit:  The amount by which the cost of a country's imports exceeds the value of its exports.

Chao🙋
Prashant

 

 

Union Budget :A Festival

                                                     BUDGET CONCEPTS

 

  

 

Budget is an annual exercise and fascinates most of us. We always look as if our phones, vehicles, gadgets have become cheaper or expensive. But there is a larger picture to be seen. Fun fact is that discussions in India revolves around Cricket, Politics & Budget during a year. 
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We often see heated and deliberate discussions over budget before and after its announcement by Finance Minister (FM) of the country. But the fun part is most of the recommendations made by the experts never show up in his speech. There is always a pre-budget discussion and post-budget analysis. We see all stakeholders becoming some kind of economist throwing up their point of views on what to be done and what not. Editorials, Columns, Debates shows up various aspects of budget and they start a month before the announcements.
 


Unfortunately, there is a lack of awareness among  general public about what a budget actually is and what to be taken out of it?

So the first question:

What is a Budget?

Now every middle class household has some earning members (Income), spending prospects(Expenditure). Every month, suppose on day 1, the man of the house (although its a lady generally) checks his/her previous month income and expenditure and then plans his upcoming income and expenditure.




Now see this exercise in a bigger perspective i.e. monthly becomes annually and house hold becomes a country. This is annual budget building exercise.

Further, Budget speech of the finance minister consist of two parts:

A. Economic Survey of India

B. Budget for upcoming year

Also the Budget word comes from "bougette" which means a leather bag. We always see the finance minister posing with the leather brief case pretending the countrys future lies in hand.  Every one sees him with hopes and aspirations.

Trivia: The printing of budget documents starts roughly a week ahead of presenting in the Parliament with a customary 'Halwa ceremony' in which halwa (a sweet dish) is prepared in large quantity and served to the officers and support staff involved.

 

  

What is Economic Survey?

Remember, we talked about the man of the house preparing previous months financial reports. Economic surveys does the same thing on an annual basis i.e. reviews the developments in the Indian economy over the previous 12 months, summarizes the performance on major development programmes, and highlights the policy initiatives of the government and the prospects of the economy in the short to medium term. This document is presented to both houses of Parliament during the Budget Session. It is prepared by Chief Economic Advisor and Secretary of Economic Affairs. The data is collected from Central Statiscal Organisation (CSO).

It usually tells about:

1. Previous and expected Gross Domestic Product (GDP)*
 2. Per-capita GSDP (Gross State Domestic Product)
3. Industrial Growth.
4. States’ performance
5.  Non Performing Assets (NPA)
6. Job creation 
etc.

So next time you see discussion on economic survey, try to look for these figures and analyze these to get a good idea how the government is performing.
   



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1. GDP: GDP is the total value of goods and services produced over a specific time period; you can think of it as the size of the economy. Usually, GDP is expressed as a comparison to the previous quarter or year. For example, if the year-to-year GDP is up 3%, this is thought to mean that the economy has grown by 3% over the last year.The gross domestic product (GDP) is one of the primary indicators used to gauge the health of a country's economy.

2. NPAs: A Nonperforming Asset (NPA) refers to a classification for loans on the books of banks that are in default or are in arrears on scheduled payments of principal or interest. In most cases, debt is classified as nonperforming when loan payments have not been made for a period of 90 days.

 Thats it for now. Do read Part 2 for more insights.


Chao🙋
Prashant

Eco Concepts Part1

                                           TEASER

Ever wonder what  Economics is and how it works? How those fancy headlines of "The Economist" or "Financial Express" mesmerize us to an extent where we start thinking that its a sanctum science just for the elite and privileged class.
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Worry Not...
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You have landed in the right place to understand the nuances of the economic activities and become a rookie economist. Though I am also one.

So, without further adieu lets start with the understanding of economics..

What is Economics?

Economics refers to activities related to production, consumption, and transfer of wealth, goods or services.

Sounds simple.... It is !!! But indeed there are some strings attached...But let's just keep it simple for now.....
  

Eg:

1. Ramu, a security guard in an apartment receives his monthly salary and with that, he buys groceries, pays his daughter's school fee, pays rent etc. All his activities are a component of economics.





2. Shriram, a software engineer takes his car to a service station for annual service is also contributing to the economy by using service of the service station. His demand for service has given birth to need of labor, spare parts etc.


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Ok, so now we have a basic understanding of economics, let's move forward to understand the classification of economics. There are two broad classifications:

1. Micro-Economics: 

Microeconomics answers the question related to an individual, family, a firm, a particular industry etc.

Eg :

1. How does the rise in the price of petroleum products affect the monthly bills of Mohanty?
 


2. How the increase in demand for cars affect the steel industry?

2. Macro-Economics:

Macroeconomics answers question related to larger dimensions i.e. the problem of a country as a whole. It looks into the broader dimensions of an economy.

Eg: 

1. How an increase in taxes affect household savings of the country?


2. How decrease in cash supply affect the borrowing trends in a country?






So this was just a brief introduction of the subject.

We will learn more concepts in the next session. Be aware this blog is not for seasoned economists but the common learner. 

Keep watching this space ...

Chao🙋
Prashant