Budget Dictionary: A one-stop guide for financial terms

Finance Minister Nirmala Sitharman will unveil the closely-watched Union Budget on February 1. With Sitharman vowing to present a Budget "like never before", stakes are high.

As the Budget comes amid an economic contraction of 7.7 per cent, all eyes are on the finance minister to see how she prioritises spending to get the pandemic-ravaged nation back to being the world’s fastest-growing major economy.

With just a couple more days to go for the Budget 2021, here's a one-stop guide for all the financial terms that will help you understand the contours of 'bahi-khata':

A

Atmanirbhar Bharat Abhiyan - Launched amid the Covid-19 lockdown on May 12, Atmanirbhar Bharat Abhiyaan is the Centre's flagship scheme aimed at cutting down the import of foreign goods and upping the volume of exports. 'Atmanirbhar' translates to self-reliant in English. Finance Minister Nirmala Sitharaman had earlier in 2020 stated that the Atmanirbhar Bharat Abhiyan will have an outlay of Rs 2.65 lakh crore over a five-year period. The 2021 Union Budget could provide a crucial insight into how the Narendra Modi-led government will utilise the funds.

Appropriation Bill - It is a known fact that the government cannot withdraw money from the Consolidated Fund of India unless the Parliament approves it. In order to withdraw the money, the government passes an Appropriation Bill, which gives the government the authority to withdraw funds from the Consolidated Fund of India to meet its expenses during the course of a financial year.

B

Banking Cash Transaction Tax - Banking Cash Transaction Tax is a tax levied on cash withdrawals that exceed the limit set by a given bank. Launched by the UPA government in 2005, the rate of taxation was initially fixed at 0.1 per cent. While it was eventually rolled back in 2009 by the late Pranab Mukherjee, there have been talks of reintroducing the tax in a bid to incentivise digital transactions and the usage of mobile payment apps like GPay, PhonePe, and PayTM. Since demonetisation in November 2016, the government through the National Payments Corporation of India (NPCI) has introduced various digital payment interfaces in the form of UPI and RuPay for credit and debit cards.

Balance of Payments - The Balance of payments or Balance of Trade is the difference in how much a country is importing versus exporting. The three components of the balance of payments are the current account, financial account, and capital account.

C

Capital Budget - The capital budget primarily deals with capital receipts and capital payments. Capital receipts include money a government gets through treasury bills, market loans, loans received from a foreign government, disinvestment receipts, or debt paid by Union Territories or state governments and other parties. On the other side, capital payments comprise expenditures on the acquisition of assets like land, buildings, machinery, equipment, as also investments in shares, and loans and advances granted by the central government to state and Union Territories, government companies and corporations, among others.

D

Direct Tax - Direct taxes are the one that falls directly on individuals and corporations. For example, income tax, corporation tax and wealth tax. The amount of direct tax that one pays depends on the nature and source of their earnings and the tax slabs that they fall in. Depending on the nature of the tax paid, the body collecting direct taxes varies, with one body overlooking all the activities related to taxes - the Central Board of Direct Taxes - that was set up in 1924.

E

Expenditure Budget - An expenditure budget provides complete information about the total expenditure of the Union government in a financial year. It shows the revenue and capital disbursements of various ministries/departments and gives a detailed analysis of various types of expenditure.

Excise duty - Excise duty is the opposite of Custom duty. Excise duty is levied on goods that are produced within the country. After the implementation of GST, excise duty in India is imposed only on petroleum and liquor.

F

Fiscal deficit - It is the difference between the government's total expenditure and its total revenues excluding money generated from borrowings. The fiscal deficit is an indicator of the overall strength in an economy.

Fiscal Responsibility and Budget Management (FRBM) - In 2003, India came up with the Fiscal Responsibility and Budget Management (FRBM) Act with an objective to reduce the fiscal deficit to 3 per cent of GDP by 2008-09 with an annual reduction of 0.3 per cent per year. It never happened and the government kept on relaxing the target year after year. In 2019, it amended the FRBM rules and extended the timeline of meeting the target of 3 per cent to 2020-21.

G

Goods and Services Tax (GST) - Introduced in 2017 by the Modi government, GST is a kind of an indirect tax that is either levied on the manufacturer or seller of goods and providers of services. The sellers usually add the tax expense into their costs, and the price the customers pay is inclusive of GST.

H

Halwa Ceremony - The Halwa Ceremony is a customary pre-budget event that formally flags off the printing of different documents associated with the Budget, the consummation of the long-drawn Budget-making process that stretches over months.

I

Income Tax - This is the tax that an individual pays on their income. It is one of two elements of the direct tax under the country's taxation system, the other being corporate tax. Everyone who earns an income in India is subject to filing income tax, but the quantum of tax paid depends on the taxpayer's annual income. Under the current Income Tax regime introduced in Budget 2020, an income of Rs 2.5 lakh and below attracts no income tax, while higher income tax rates are levied according to several tax rate slabs fixed by the government.

Indirect Tax - Indirect tax is levied on goods and services and not on the income or revenue of an individual or a company. It can be shifted from one taxpayer to another. Some examples of indirect taxes are custom duty (tax levied on goods coming from outside the country), central excise duty (tax payable by manufacturers who then shift this to retailers and wholesalers), and service tax (tax imposed on the gross or aggregate amount by a service provider).

J

Jal Jeevan Mission - Introduced in 2019, the Jal Jeevan Mission is the Modi government's flagship tap water supply scheme. Jal Jeevan Mission in partnership with states aims to provide potable water in adequate quantity of prescribed quality on a regular and long-term basis through tap connections to every rural home in the country by 2024. As of December, around 2.78 crore households have been provided tap water connections under the Jal Jeevan Mission. The Modi government plans to spend Rs 3 lakh crore to accelerate the programme, and specifics of the implementation may be announced at the Budget on February 1.

K

Kisan Rail, Krishi Udan - Union Finance Minister Nirmala Sitharaman had announced "Kisan Rail" and the "Krishi Udan" in her Budget speech for the fiscal year 2020-21. The initiatives are part of the government's plans to build a national cold supply chain for perishables, including milk, meat and fish. The government has said that these will serve beneficial as it will aid farmers in facilitating smooth and fast transport of perishable goods. The Railways’ "Kisan Rail" service, which was proposed to be set up through the public-private-partnership (PPP), began operating in August 2020. The service started as a pilot project from Deolali in Maharashtra to Danapur in Bihar. On the other hand, in order to promote agricultural exports, the Civil Aviation Ministry launched "Krishi Udan" scheme under which landing and parking charges are waived off by the AAI for each such cargo flight wherein agriculture product is more than 50 per cent of the total chargeable weight carried.

L

Loan waiver - It is the waiving off of the real or potential liability of a party who has taken a loan. Although economists consider the loan waivers as a risky measure and the RBI opposes it, the Opposition has been pitching for a national farm loan waiver in the upcoming Union Budget to provide relief to farmers.

M

Monetary Policy - This is the macroeconomic policy laid down by the central bank of the country, Reserve Bank of India. It involves the management of the money supply and interest rate. The policy helps the government of a country achieve macroeconomic objectives like inflation, consumption, growth and liquidity.

Macroeconomics - This is the branch of economics that studies the behaviour and performance of an economy as a whole.

Microeconomics - This is the study of individuals, households and firms' behaviour in decision making and allocation of resources.

Macroeconomic framework statement - This statement is presented before the Parliament at the time when the Union Budget is presented every year. This is under Section 3(5) of the FRBM Act, 2003. This Act instructs the government to assess the growth prospects for the economy with regards to specific underlying assumptions. The statement contains an overview of the economy including an assessment regarding the GDP growth rate, fiscal balance of the central government and the external sector balance of the economy.

Memorandum Explaining the Provisions in the Finance Bill - This memorandum accompanies the Finance Bill submitted to the Parliament for approval as part of the Union Budget. The Finance Bill is a Money Bill according to the definition in Article 110 of the Indian Constitution. It contains tax proposals of the government explaining new taxes, changes in rates of existing taxes. This Bill could be about expenditure, revenues, and government borrowings.

Minimum Alternate Tax (MAT) - There are ways for companies to reduce their tax liability under the Income Tax Act, but some resort to questionable manners to escape tax burden. Some ‘zero-tax paying companies’ show zero taxable income even though they make significant profits. The tax provision of MAT was created to bring these companies under the ambit of income tax and make them pay a minimum amount to the government.

Monetised Deficit - Also known as debt monetisation, this is the monetary support the Reserve Bank of India (RBI) extends to the Centre as part of the government's borrowing programme. In other words, the term refers to the purchase of government bonds by the central bank to finance the spending needs of the government.

N

Non-Tax Revenue - This is the recurring income earned by the government from sources other than taxes. Non-tax revenue is charged against services provided by the government. The most important receipts under this head are interest receipts, received on loans given by the government to states, railways and others. This also includes dividends and profits received from public sector companies.

Non-planned expenditure - Non-planned expenditure is what the government spends on the so-called non-productive areas and is mostly obligatory in nature. It includes salaries, subsidies, loans and interest.

Non-debt Capital Receipts - Non-debt capital receipts a type of capital receipt. Taxes and duties levied by the government are its biggest source of revenue. There are two main sources for this income – revenue receipts and capital receipts. Non-debt capital receipts are recoveries of loans and advances given to state governments, Union territories and foreign governments, disinvestment proceeds and money accrued to the Union government from listing of central government companies and issue of bonus shares.

O

Outlay - Outlay is the division of money or resources into the different sectors or ministeries, basic framework of the Budget. The total outlay or expenditure for Union Budget 2020-21 was set at Rs 30,42,230 crore, up 12.7% from the year before that. The Ministry of Defence received the highest allocation at Rs 4,71,378 crore, followed by the Ministry of Home Affairs (Rs 1,67,250 crore) and the Ministry of Agriculture and Farmers’ Welfare (Rs 1,42,762 crore). The Health Ministry had received Rs 67,112 crore and was on the 11th spot. With the Covid-19 pandemic ravaging the economy, it’ll be interesting to see how the Budget changes the allocation priority.

P

Privatisation - Privatisation is the process of transferring a public sector enterprise to the private sector. This is majorly done when PSUs start turning into liabilities and start showing a negative rate of return, which in turn, add pressure on the government resources. Finance Minister Nirmala Sitharaman is likely to unveil a blueprint of a new privatisation policy for PSUs in the upcoming Budget. The process of privatisation of Air India, BPCL, Pawan Hans, BEML, Shipping Corp, Ferro Scrap Nigam Ltd (FSNL), among others is ongoing. Privatisation of only some part of a PSU is known as divestment. It helps the government raise money to meet its expenditure.

Q

Quarterly Report - This refers to the series of consolidated financial statements issued by any firm every three-month, regarding the financial status, net sales and outcomes like profits and losses. A quarter refers to one-fourth of a year (or 3 months) and each quarter of the fiscal year is denoted as Q1, Q2, Q3 and Q4. The results of the stocks listed in BSE and NSE are crucial for the companies and investors to determine returns, fund exchanges and liquidation.

Quarantined expenditure - This term, according to the Income Tax Act 2007, Dg 16 and 17, applies when the gross income output from an asset is less than 2% of its total value in the fiscal year. It is also when an asset for an income year yields negative return i.e expenditure on the asset is more than the income generated from it.

R

Revenue Budget - Speaking in terms of Union Budget, the approximate amount required for the growth, development and infrastructure of the country is called Revenue Budget. It comprises of the government's revenue receipts i.e the returns they get from tax and other sources, and also their expenditure like servicing interest on its borrowings, subsidies, etc in the fiscal year.

Revenue Deficit - This refers to the difference between revenue expenditure and revenue receipt, denoting the shortcoming or 'deficit' of government’s current receipts over current expenditure.

Resources - This term, in the Union Budget, refers to the funds available from revenues, loans and other sources, for the government to use in the fiscal year. They can include manual resources like labour as well as monetary or non-human resources like financial resources, capital goods, land and technology, etc.

Real Estate Investment Trust: Real Estate Investment Trusts or REITs refers to corporations that direct investible funds towards financing income-producing, ownable, operable real estate to generate income. It manages high-value real estate properties and mortgages. The trust enables anyone to invest in portfolios of real estate assets, by either acquiring the company’s stock or via a mutual funds or exchange traded fund. The assets can be data centres, infrastructure, healthcare units, apartment complexes, etc. These firms help small investors to collate their resources to invest into large commercial real estate projects.

S

Sin Tax - Sin Tax is a heavy-duty tax applied on tobacco products and liquor to discourage their consumption among the public. India has always been among the countries that have levied huge taxes on products like cigarettes, liquor, and paan masala substances. These taxes serve two purposes: one, they are enforced as a way to increase their price in the market to deter people from consuming what are seen as undesirable substances. Secondly, the companies manufacturing these products end up paying a big chunk of tax. Overall, Sin Tax is seen as a win-win from the government's pov.

T

Trade Deficit - The trade deficit of a country is when it is importing more goods and services than it is exporting. A trade deficit is also known as a negative trade balance. The trade deficit is often seen as a double-edged sword. Economists rooting for a freer market say that the drawbacks of a trade deficit often balance out in the long run. However, a trade deficit may result in losses for the demand of the nation's currency. For instance, a rising trade deficit with the US may result in Rupee struggling to keep up with Dollar.

U

Unemployment - Various policies in the Budget could help improve the unemployment rate in India including job creation. It is often said that tax cuts and direct incentives to industries can help ease a difficult economic situation, but, people with money in hand, could also help bring the economy back on track.
Since the expected tax revenue would be low, due to the economic slowdown, some targetted spending in labour-intensive sectors could help boost job creation.

V

Vote on account - It is the process where in an outgoing government seeks interim permission from the Parliament to withdraw funds from the Consolidated Fund of India and spend money on expenditures and crucial government schemes for a few months until a new government is formed soon after the election.

W

Wealth tax - Wealth tax is imposed on the richer section of the society, mostly, with an intention to bring parity amongst the taxpayers. The wealth tax, introduced in Budget 1957-58 by T T Krishnamachari, was abolished in the Union Budget 2015.

X

Xenocurrency - Xenocurrency is a currency that circulates or trades in markets outside of its domestic borders. It is a fairly infrequently used term for foreign currency/foreign exchange. In the Budget, the government decides how much tax would be levied on foreign remittances or overseas tour packages.

Y

Yield - Yield is the dividend and/or interest a person or company earns on security or investment over a period of time. Yield is both a function of time and face value of the investment. It is calculated as the annual dividend/ face value and is expressed as a percentage. Yields are usually used in reference to government bonds, which are debt instruments that can be bought and sold in financial markets like equities. Governments create bonds to be sold to the public, entities for a period of time to raise capital for growth and development work. Bonds are considered safer investments but the yields they give might be far lesser than riskier investments. Sale and purchase onb government bonds is one of teh key ways in which the government raises money to finance its expenses.

Z

Zero-based Budget - Zero-based Budget refers to planning and preparing of the Budget from scratch or ‘zero base'. Balances are not carried forward, and there are no pre-committed expenses. Simply put, it is a procedure for preparing a Budget with zero prior bases. The main objective of the process is to constantly refocus finance on business objectives, and dismiss or scale back any activities no longer related to those objectives. Thee Indian government adopted ZBB in 1986 as a technique for determining expenditure budget.