Union Budget

What Union Budget means?

According to Article 112 of the Indian Constitution, the Union Budget of a year, also referred to as the annual financial statement, is a statement of the estimated receipts and expenditure of the government for that particular year.

Aspirants should know that there is a difference between Union Budget, Interim Budget and Vote on Account.

Important Economic Terms Related Union Budget & Their Meanings

The table below will bring to you a list of all the important terms that are related to and also used in Union Budget:

Economic Term	Meaning
Annual Financial Statement	It encompasses the *receipt and expenditure of the Indian government. The information on the Consolidated Fund of India, Contingency Fund of India and Public Accounts is provided.*
Revenue – Receipt & Expenditure	Revenue Receipt: The receipts received which cannot be recovered by the government It comprises income amassed by the Government through taxes and non-tax sources like interest, dividends on investments. Revenue Expenditure: Expenditure incurred by the Union Government for purposes other than for the creation of physical or financial assets. It includes *those expenditures incurred for the usual functioning of the government departments, grants given to state governments and interest payments on the debt of the Union Government etc.*
Capital – Receipt & Expenditure	Capital Receipt: Receipts which *generate liability or decrease the financial assets of the government* It includes borrowings from the Reserve Bank of India and commercial banks and other financial institutions It also consists of *loans received from foreign governments and international organization and repayment of loans granted by the Union government* Capital Expenditure: Spending *incurred by the government which results in the formation of physical or financial possessions of the Union government or decrease in financial liabilities of the Union Government.* It contains expenditure on procuring land, equipment, infrastructure, expenditure in shares. It also includes mortgages by the Union government to Public Sector Undertakings, state and union territories
Corporation Tax	Tax on profits of companies
Direct Tax	*Taxes which are imposed directly on individual and company* It comprises income tax and corporation tax
Indirect Tax	Taxes which are *imposed on goods and services* It comprises taxes like *service tax, excise taxes, and customs duties*
Fiscal Policy	The policy of the government Fiscal policy is the means by which a government adjusts its expenditure levels and tax rates to monitor and influence a country’s economy.
Revenue Deficit	It is the additional expenditure of government over revenue receipts
Fiscal Deficit	It is the *difference between the total expenditure of the government and its total receipts, not including the borrowing.*
Primary Deficit	Fiscal deficit – interest payments = Primary Deficit
Non-Tax Revenue	Government revenue not generated from taxes. Examples of non-tax revenue: Aid from another level of government ((intragovernmental aid): in the United States, federal grants may be considered non-tax revenue to the receiving states, and equalization payments; Aid from abroad (foreign aid) etc
Gross Domestic Product (GDP)	Monetary value of all finished goods and services made within a country during a specific period

15 Terms related to Indian Economy which UPSC Aspirants should know

Important Economic Terms Seen in News (Important for IAS Exam)
Economic Terms	Meaning
Statutory Liquid Ratio (SLR)	*Reserve requirement that commercial banks are required to maintain in the form of cash, gold reserves, Reserve Bank* of India- approved securities before providing credit to the customers
Cash Reserve Ratio (CRR)	Cash Reserve Ratio (CRR) is a *specified minimum fraction of the total deposits of customers, which commercial banks have to hold as reserves either in cash or as deposits with the central bank.* CRR is set according to the guidelines of the central bank of a country
Marginal Cost of Fund based Lending Rate (MCLR)	Marginal Cost of Funds based Lending Rate (MCLR) is the *minimum lending rate below which a bank is not permitted to lend*
Repo Rate (RR)	Repo rate is the *rate at which the central bank of a country (Reserve Bank of India in case of India) lends money to commercial banks in the event of any shortfall of funds.*
Reverse Repo Rate (RRR)	*Reverse Repo rate is the rate at which the Reserve Bank of India borrows funds from the commercial banks in the country*
Wholesale Price Index (WPI)	An index *that measures and tracks the changes in the price of goods in the stages before the retail level* – that is, goods that are sold in bulk and traded between entities or businesses instead of consumers.
Consumer Price Index (CPI)	Measure that *examines the weighted average of prices of a basket of consumer goods and services, such as transportation, food, and medical care.*
Foreign Institutional Investor	An investor or investment fund registered in a country outside of the one in which it is investing
Manufacturing Activity	Manufacturing, processing, testing, packaging, storing and other activities undertaken or required to be undertaken by CRL or its suppliers in order to manufacture and supply Client with the Drug Product
Foreign Direct Investment	An investment in the form of a controlling ownership in a business in one country by an entity based in another country
Monetary Policy	Policy adopted by the monetary authority of a country that controls either the interest rate payable on very short-term borrowing or the money supply, often targeting inflation or the interest rate to ensure price stability and general trust in the currency
Base Effect	Distortion in a monthly inflation figure that results from abnormally high or low levels of inflation in the year-ago month
Liquidity Adjustment Facility (LAF)	A tool used in monetary policy, primarily by the Reserve Bank of India (RBI), that allows banks to borrow money through repurchase agreements (repos) or for banks to make loans to the RBI through reverse repo agreements.
Marginal Standing Facility (MSF)	The *penal rate at which banks can borrow money from the central bank over and above what is available to them through the LAF window.*
Index of Industrial Production (IIP)	*Index for India which details out the growth of various sectors in an economy such as mineral mining, electricity and manufacturing.*

Frequently Asked Questions related to Government Budget

What is meant by a Government’s budget?

A government budget is an annual financial statement which outlines the estimated government expenditure and expected government receipts or revenues for the forthcoming fiscal year. Depending on the feasibility of these estimates, budgets are of three types — balanced budget, surplus budget and deficit budget.

What are components of the government budget?

The Government budget has two components: The Revenue Account: which includes Revenue Receipts (Tax and Non Tax Revenue) and Revenue Expenditure (Plan Revenue Expenditure and Non- Plan Revenue Expenditure).

What is the main objective of the government budget?

The main objective of a government budget is Economic growth – to promote rapid and balanced economic growth so as to improve the living standard of the people.

What is the importance of the Government Budget?

One of the primary purposes of budgeting is to provide control over the revenues and expenditures of the government. The budgets are an important part of maintaining control of a government’s finances and are a means of achieving the financial reporting objective of accountability.