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Home / IAS Preparation / Important Economic Terms Related To Union Budget

Important Economic Terms Related To Union Budget - Everything You Need to Know!

Last Updated on Jul 21, 2022
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The Union Budget summarizes the government’s estimated receivables and payables for a certain fiscal year. This budget statement is split into two parts: the Capital Budget and the Revenue Budget. According to Article 112 of the Indian Constitution, a budget must be presented to Parliament before the start of each fiscal year. Study major topics of the Indian Economy from the perspective of UPSC Exams.

What is the Union Budget?
  • The Union Budget accounts for the government’s finances during the fiscal year that runs from April 1 to March 31. The Union Budget is divided into two parts: revenue budget and capital budget.
  • According to Article 112 of the Indian Constitution, the Union Budget of a year, also known as the annual financial statement, is a statement of the government’s estimated receipts and expenditures for that year.
  • The Union Budget summarizes the government’s estimated receivables and payables for a certain fiscal year. This budget statement is split into two parts: the capital budget and the revenue budget.
  • The capital budget accounts for all government-related capital expenditures and receipts. Capital revenues include public or Reserve Bank of India (RBI) loans, whereas capital payments comprise costs made for health facilities, equipment development and maintenance, and educational facilities.
  • A revenue budget, as the name implies, accounts for all revenue expenditures and receipts. If the revenue cost exceeds the revenue receipts, the government has a revenue deficit.

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Union Budget 2021-22
  • Smt. Nirmala Sitharaman, Union Minister of Finance and Corporate Affairs stated that India’s fight against COVID-19 will continue into 2021 and that this moment in history, when the political, economic, and strategic relations in the post-COVID world are changing, marks the beginning of a new era – one in which India is well-positioned to truly be the land of promise and hope.
  • The six pillars of the Union Budget 2021-22 are as follows:
    • Health and Wellbeing
    • Physical & Financial Capital, and Infrastructure
    • Inclusive Development for Aspirational India
    • Reinvigorating Human Capital
    • Innovation and R&D
    • Minimum Government and Maximum Governance

Union Budget 2020-21
  • Finance Minister Smt. Nirmala Sitharaman today released the first Union Budget of the third decade of the twenty-first century, aiming at stimulating the Indian economy via a combination of short-, medium-, and long-term initiatives.
  • The Union Budget is organised on the overarching idea of “Ease of Living.”
  • The Budget promises more than 20,000 impaneled hospitals for poor people under the PM Jan Arogya Yojana, as well as the extension of the Jan Aushadhi Kendra Scheme to all districts, giving 2000 medications and 300 surgical by 2024.
  • Infrastructure is being expanded with the addition of 100 new airports by 2024 to serve the Udaan project, as well as the operation of 150 passenger trains using the PPP model.
  • Other key aspects are the establishment of an Indian Institute of Heritage and Conservation and the implementation of apprenticeship integrated courses via 150 higher education institutions by March 2021.
  • According to the Finance Minister, the Union Budget Aims:
    • To create seamless service delivery through digital governance
    • Through the National Infrastructure Pipeline, physical quality of life will be improved.
    • Disaster Resilience as a Risk Mitigation Strategy
    • Pension and insurance penetration provide social security.

Check the details on the Economy Notes Here.

Important Economic Terms Related to Union Budget

Gross Domestic Product

  • Gross Domestic Product (GDP) is the sum of the market values of all the finished products and services produced within any country’s borders during a certain time period.
  • GDP is only the total of the final prices of all the goods and services produced over a given period of time in an economy.
  • GDP is defined as “Consumption + Investment + Government Spending + Net Exports,” or more simply as

(GDP = C + I + G + NX)

 Annual Financial Statement

  • The annual financial statement is a statement of estimated receipts and expenditures for the fiscal year beginning April 1 and ending March 31. Every year, the government is required by Article 112 of the Constitution to present the annual financial statement to Parliament.
  •  The annual financial statement is split into three sections: the consolidated fund, the contingency fund, and the public account.
  •  During the budget presentation, the government must provide a statement of expenditures and receipts for each of these funds.

Inflation

  • Inflation is defined as the gradual rise in the prices of goods and services in a given economy. This directly translates into a decrease in people’s purchasing power.
  •  Inflation is the annual rate at which prices rise and purchasing power falls.
  • Inflation, expressed in percentage terms, is the rise in the general price of goods and services in the country, resulting in a higher cost of living. Inflation indicates a decline in the rupee’s purchasing power as goods and services become more expensive.

Personal Income Tax

  • Income tax is one of the reasons why everyone is concerned about the Budget.
  • Income tax is a direct tax levied by the government on the earnings of its citizens. The Income Tax Act of 1961 requires the central government to collect this tax. Every year, the government can change the income levels and tax rates in its Union Budget.
  • The slab in which a person falls determines their income tax. The government has created slabs such as — up to Rs 2,50,000, — between Rs 2,50,000 and Rs 5,00,000, — between Rs 5,00,000 and Rs 1 crore, and — above Rs 1 crore. On this basis, the tax is calculated.

Check out the Article Goods and Service Tax here!

Short Term and Long Term Capital Gain Tax

  • Capital gains are the profits made by an individual on the sale of assets such as stocks, real estate, bonds, commodities, and so on.
  • There is a long-term capital gains tax and a short-term capital gains tax in India.
  • The Income Tax Act of 1961 defines the terms long term and short term. According to the law, a period of one year for equities and two years for real estate is considered long term.

Fiscal Policy

  • Fiscal policy choices are made by the government to modify the amount of expenditure and income collection. The policy is an important tool for monitoring and achieving the country’s economic goals.
  • Fiscal policy is essential because it emphasises changes in expenditure levels and tax rates. It also refers to how government expenditure is used to alter economic circumstances such as employment, inflation, and economic growth.

Fiscal Deficit

  • The fiscal deficit describes how the government’s total expenditure surpassed receipts, excluding money borrowed. This is distinct from debt, which might be the result of a series of deficits. Economists frequently claim that the budget deficit is not a poor indication of the economy because the money is used to support infrastructure development. In an ideal world, the budget deficit should not exceed 4% of GDP (GDP).

    • Capital Revenue and Expenditure

    • The money spent by the government to buy, maintain, or enhance its assets is known as capital expenditure (CAPEX). It covers the government’s long-term investments in development and infrastructure. These costs are one-time in nature.
    • The sum obtained by the government through the sale of assets is referred to as capital revenue. The government creates a revenue budget, which details revenue revenues and revenue spending, and a capital budget, which details capital receipts and capital expenditure.

    Revenue Deficit

    • When the government’s net revenue expenditure exceeds revenue receipts, a revenue deficit occurs. This is one of the key indicators that show whether the government is spending too much of its regular revenue.

    Study about the Cut Motions here

    Direct Tax (Income Tax)

    • Direct taxes, which include income tax and corporation tax, are one of the most essential components of the budget. These are charged on the earnings or wealth of businesses and people. Income tax includes the tax on fringe benefits, the tax on securities transactions, and the tax on banking cash transactions.

    Public Debt

    • Simply put, public debt is the total amount borrowed by the government to meet its development budget, including total liabilities.
    • Internal public debt (money borrowed within the country) and external public debt (funds borrowed from non-Indian sources). Internal debt consists of treasury bills, market stabilisation schemes, means of advance, and securities against small savings.

    Current Account Deficit

    • This is the difference between the money generated from selling items to other nations via exports and the money spent on purchasing goods and services from other countries via imports. The Canadian dollar is a component of the country’s balance of payments (BoP).

Know more about the Prevention of Money Laundering Act (PMLA)

Few other important Terms related to the Indian Economy for UPSC Aspirants

Revenue Budget

  • The revenue budget details the government’s revenue and expenditure. Tax revenue and non-tax revenue are the two types of revenue receipts.
  • Revenue expenditure refers to the costs of running the government on a daily basis and providing various services to citizens. The government incurs a revenue deficit when revenue expenditure exceeds revenue receipts.

Capital Budget

  • The capital budget includes the government’s capital receipts and payments. Loans from the government, foreign governments, and the RBI account for a large portion of the government’s capital receipts.
  • Capital expenditure is defined as spending on the development of machinery, equipment, buildings, health facilities, education, and so on. When the government’s total expenditure exceeds its total revenue, a fiscal deficit is created.

Cess

  • Cess is a levy on top of the basic tax liability. Cessation is used by governments to fund specific expenditures. For example, the government levies the Swachh Bharat cess to fund cleanliness initiatives across India.
  • A cess, which is generally paid by the general public, is added to their basic tax liability as part of the total tax paid.
  • Cess differs from taxes in two ways: For one thing, it is levied in addition to the existing tax. Second, the proceeds of a cess may or may not be shared with state governments, whereas the proceeds of taxes must be shared.
  • The government imposes various types of cess, including an education cess, a health cess, a fuel cess, a clean energy cess, and a Krishi Kalyan cess.

Divestment

  • The process through which the government sells a stake in its current assets is known as divestment. To raise funds, the government sells interests in state-owned enterprises. The government has also used this strategy in recent years to leave loss-making companies and raise non-tax income.

In this article, we analyze the structure and terms of the Union Budget in India. To study more topics from the Indian Economy for UPSC, download the Testbook App now!

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Union budget FAQs

The Union Budget is the government's declaration of expected receipts and expenditures known as the Annual Financial Statement for a certain fiscal year. A budget is a financial plan for a set period of time.

The yearly financial statement is split into three sections: the consolidated fund, the contingency fund, and the public account. All government income, borrowings, and earnings from government loans are deposited in the Consolidated Fund of India.

The Union Budget also helps to control economic swings. It guarantees that inflation and deflation are handled properly, resulting in economic stability. Surplus budget policies are adopted during inflation, whereas deficit budget policies are established during deflation.

Financial statements are written documents that describe a company's commercial activity and financial performance.

here are three sorts of budgets: balanced budgets, surplus budgets, and deficit budgets.
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