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:



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

Chao🙋
Prashant