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Budget Glossary
Aggregate Demand
This is the total quantity of goods and services demanded in an economy. .
Ad-valorem duty
Ad valorem is derived from the Latin ad valentiam, meaning "according to the value". It is a duty or tax
levied as a percentage of the value of a product. An ad valorem duty of say 8% on automobiles will attract
a duty of Rs4,000 (8% of Rs50,000) on a bike worth Rs50,000 but a higher Rs16,000 (8% of Rs40,000)
on a car worth Rs400,000. Compare with specific duty, which is a fixed sum imposed on a class
regardless of the individual value. A specific duty of Rs500 on computers will attract a duty of Rs500 only
whatever the value of a computer-- Rs25,000 or Rs1 lakh or even higher.
Compare with specific duty, which is a fixed sum imposed on a class regardless of the individual value. A
specific duty of Rs500 on computers will attract a duty of Rs500 only whatever the value of a computer-Rs25,000 or Rs1 lakh or even higher.
Appropriation bill
In democracies like India, the government cannot spend even a penny without the approval of the
parliament (legislature)-which represents the people of India. An appropriation bill is a bill/motion by the
government seeking approval of the parliament to spend money.
Balanced Budget
The Union Budget is in balance when current receipts are equal to current expenditure. That means that
taxes on income and expenditure etc are sufficient to meet payments for goods and services, interest on
the national debt etc. A balanced budget, however, need not be an ideal one because budget surpluses
and deficits can be used to stimulate or regulate the economy, by affecting the levels of demand and
prices.
Budget deficit
The amount by which a government's spending exceeds its income. If a country fails to correct budgetary
deficit it can lead to bankruptcy.
Budget estimates
Estimates based on government's expenses and income of a similar previous period, modified by any
expected changes.
Capital goods
Goods such as machinery, building and equipment that are used in making finished products.
Capital Budget
Capital budget comprises capital receipts and payments.
Capital payments
Expenses incurred on acquiring capital assets like equipment, machinery and building that aid in the
production of goods.
Capital Expenditure
Capital expenditure or payments consist of expenditure on acquisition of assets like land, building and
machinery, and also investments in shares etc;
Capital Receipts
This is the total quantity of goods and services demanded in an economy.
CENVAT
The central value added tax replaces the earlier modified value added tax (MODVAT) meant for reducing
the cascading effect of indirect taxes on finished products. Unlike MODVAT, Cenvat brings most of the
goods under its preview.
Consolidated Fund
All revenues received by the government, the loans raised by it, and receipts from recoveries of loans
granted by it, form the Consolidated Fund. All expenditure of the government is incurred from the
Consolidated Fund and no amount can be withdrawn from the fund without authorisation from the
parliament.
Contingency Fund
As the name suggests, this is the fund which the government resorts to in times of calamities,
emergencies etc, to meet urgent, unforeseen expenditures without having to wait for the parliament's
authorisation. The Contingency Fund is placed at the disposal of the president for such financial
exigencies. Of course the government subsequently obtains parliamentary approval for such expenditure
and for the withdrawal of an equivalent amount from the Consolidated Fund. The amount spent from the
Contingency Fund is recouped to the fund.
Corporate Tax
This is the tax paid by corporates or firms on their incomes.
Customs Duties
These are levies charged when goods are imported into, or exported from, the country, and these are
paid by the importer or exporter. Usually these are also passed on to the consumer.
Countervailing duties
Duties imposed to offset the negative effect of subsidies. They are imposed after an investigation finds
that a foreign country subsidises its exports and this is injuring the domestic producers. If paper exported
to India is subsidised by the Chinese government and if this is making Chinese paper cheaper than that
produced by the domestic players, India can impose a countervailing duty on the Chinese paper to
provide a level playing field to the domestic paper industry.
Current account deficit
If a country's total imports of goods, services and transfers is more than its total export of goods, services
and transfers it results in current account deficit. The current account deficit is not necessarily a bad thing
as some countries may get into current account deficit in the short term to increase local productivity and
exports in the future.
Central plan
The central government's budgetary support to the plan including the internal and extra budgetary
resources raised by the public sector undertakings.
Direct Taxes
These are the taxes that are levied on the income and resources of individuals or organisations. Normally
these are levied on wealth or income through income tax, corporate tax, capital gains tax, inheritance tax
etc.
Disinvestment
In the Indian context, disinvestment is divestment or the liquidation or sale of part or the whole of
government's stake in public sector undertakings. It is generally done to bring in private management to
improve the company's performance and to add to the government's revenue.
Disposable Income
Income less income tax.
Demand for grants
The estimate of expenditure by each ministry (say education ministry, ministry for forests and
environment etc) is included in the budget in the form of Demand for Grants.
Excise Duties
These are levies paid by manufacturers on items manufactured within the country. Usually these are
passed on to the consumer.
Fiscal Deficit
This is the gap between the government's total spending and the sum of its revenue receipts and nondebt capital receipts. It represents the total amount of borrowed funds required by the government to fully
meet its expenditure.
Fiscal Policy
Fiscal Policy is a change in government spending or taxing designed to influence economic activity. By
fine-tuning the level and pattern of budgetary surpluses and how these are financed, governments can
control the level of aggregate demand in the economy. Governments usually focus on three areas to
manage public expenditure and raise the revenue to pay for it: forms of taxation, the volume of spending
and the size of the budget deficit or surplus.
Finance bill
A bill presented in the parliament to give effect to government's financial proposals like imposing new
taxes, modifying the existing tax structure or continuing the existing tax structure for a financial year.
Gross domestic product
Total value of the goods and services produced by economic resources located in a country in a year
regardless of their ownership (compare gross national product).
Gross national product
Total value of all the goods and services produced by resources owned by a country's residents, whether
located in the country or elsewhere in a year.
Implied GDP Growth Rate
The rate at which the economy is projected to grow, and the expected rate of inflation. From this flow the
estimates of tax collections.
Income Tax
This is the tax imposed on individual income from various sources like salaries, interest, investments etc.
Indirect Taxes
These are the taxes paid by consumers when they purchase goods and services. They include sales tax,
excise and customs duties.
Inflation
A sustained rise in the general price level. The inflation rate is the percentage rate of change in the price
level.
Market Borrowing
How much the government is borrowing from the public, indirectly. It's indirect as scheduled commercial
banks have to hold 24% of their deposits in government securities.
MAT
This is the Minimum Alternative Tax, a minimum tax that a company must pay, even if it is under zero tax
limits.
MODVAT
The Modified Value Added Tax (MODVAT) is an excise duty scheme introduced in 1986. It applies to
certain specific items and is meant to limit the cascading effect of duty incidence on a number of goods
where the MODVAT credit can be claimed on the purchase of raw materials on which excise has been
paid. This MODVAT credit can be used to set off the excise duty payable on subsequent manufacture of
goods.
Monetary Policy
This comprises actions taken by the central bank (the RBI) to change the supply of money and the
interest rate, and thereby affect economic activity. Governments hope that by regulating the level of
money or liquidity in the economy, they will achieve policy objectives like controlling inflation, improving
the balance of payments, raising the growth of the gross national product, or maintaining a certain level of
employment.
Monetised deficit
In India, the government does not have the power to issue new currency to pay for its expenses. It must
instead pay for expenses by issuing new bonds and selling them to the public. The only other alternative
is for them to be purchased by the Reserve Bank of India. This process of financing government spending
is called deficit monitisation
National Debt
The total outstanding borrowings of the central government Exchequer. It is the debt owed by the
government as a result of earlier borrowing to finance budget deficits. That part of the debt not held by the
central bank (RBI) is the publicly held national debt.
Non-plan Expenditure
Non-plan expenditure covers all expenditure of government not included in the Plan. It includes both
development and non-development expenditure. Part of the expenditure is obligatory in nature, for
instance, interest payments, pensionary charges, defence and internal security, transfers to states etc.
Expenditure on maintaining the assets created in previous Plans is also treated as Non-plan expenditure.
Peak Rate
This is the highest rate of customs duty applicable to an item.
Plan Outlay
Plan Outlay is the amount for expenditure on projects, schemes and programmes announced in the Plan.
The money for the Plan Outlay is raised through budgetary support and internal and extra-budgetary
resources. The budgetary support is also shown as plan expenditure in government accounts.
Plan Expenditure
The government's expenditure can be broken up into Plan and Non-plan Expenditure. Money given from
the government's account for the central Plan is called Plan Expenditure. This is developmental in nature
and is spent on schemes detailed in the Plan.
Primary Deficit
The primary deficit is the fiscal deficit minus interest payments. It tells us how much of the government's
borrowings are going towards meeting expenses other than interest payments.
Progressive Tax
A tax in which the rich pay a larger percentage of income than the poor, in contrast to Regressive Tax.
Proportional Tax
A tax taking the same percentage of income regardless of the level of income.
Pump Priming
A stimulating monetary or fiscal policy to set in motion an expansionary multiplier process.
Public Account
Occasionally the government acts more like a banker, eg in transactions concerning provident funds,
small savings collections and other similar deposits. These are unlike the normal receipts and
expenditure of the government that relate to the Consolidated Fund. The funds that the government thus
receives from its bank-like operations are kept in the Public Account, from which also the related
disbursements are made. These funds do not belong to the government and have to be paid back, some
time in the future, to the persons and authorities who deposited them. Since these funds do not
technically belong to the government, parliamentary authorisation for payments from the
Public Account is not needed.
Performance budget
The budget that attempts to make the financial administration performance-oriented in order to bring
about efficiency and economy in the implementation of plans, programmes and activities.
Regressive Tax
A tax in which the poor pay a larger percentage of income than the rich. Contrast with Progressive Tax.
Resources Transferred To States & Local Bodies
The percentage of Centre's funds transferred to the states. Thanks to successive finance commissions
recommending higher share in taxes collected by Centre, the states' claim on central resources rose by
50% in the last three years. Another reason is the spurt in socialsector schemes sponsored by the Centre
and implemented by the states
Revenue Budget
The Revenue Budget consists of revenue receipts of government (revenues from tax and other sources)
and the expenditure met from these revenues. Tax revenues comprise taxes and other duties that the
central government levies. The other receipts are made up of interest and dividend on investments made
by the government, fees, and other receipts for services rendered by the government.
Revenue expenditure is the for the normal day-to-day running of government departments and various
services, servicing interest charges on debt incurred by the government, subsidies etc. Usually revenue
expenditure covers all the expenditure that does not create assets. However all grants given to state
governments and other parties are also clubbed under revenue expenditure, although some of them may
go into the creation of assets.
Revenue Deficit
The difference between revenue expenditure and revenue receipt is called revenue deficit. It shows the
shortfall of the government's current receipts over current expenditure. If the capital expenditure and
capital receipts are taken into account too, there will be a gap between the receipts and expenditure of a
year. This gap constitutes the overall budgetary deficit and is covered by the issue of 91-day treasury
bills, mostly held by the RBI.
Revenue Expenditure
Revenue expenditure is for the normal running of the government's department and various services,
interest charged on debt incurred by government, subsidies etc. Expenditure that does not result in the
creation of assets is treated as revenue expenditure. All grants given to state governments and other
parties are also deemed as revenue expenditure, even though some of the grants may be for creation of
assets.
Revenue Receipts
Revenue receipts comprise tax collected by the government and other receipts consisting of interest and
dividend on investments made by the government, fees and other receipts for services rendered by the
government.
Revised estimates
When the actual spending overshoots the estimates provided in the budget, the government comes up
with revised estimates in the following budget.
Revenues Foregone
Notional amount of revenues given up by government because of fiscal sops. If the government looks to
raise taxes, it will look here.
Revenue surplus
The condition when the government's revenue receipts exceed its revenue expenditure.
Sales Tax
A tax imposed as a percentage of retail sales.
Social Sector Spending
The amount spent by the government on social schemes. While the government wants to spend more,
some argue it is throwing good money after bad
Subsidies
Financial assistance direct or indirect given by government to a person or group of persons to promote a
public objective.
Tariff
A tax applied to imports.
Tax Collections
By how much the government expects its tax collection to grow from various avenues. Gives a snapshot
of growth expectations.
Tax Arrears
The amount of tax payments pending, including those under dispute. It's a good indicator of how efficient
the tax authorities are in collection of taxes and in disposing of appeals
Twin Deficits
The trade deficit and the government budget deficit.
Value Added
The value of a firm's output less the value of intermediate goods bought from other firms.
Value-Added Tax (VAT)
This tax is levied on a firm as a percentage of its value added, to avoid the multiplying effect of taxes as
the product passes through different stages of production. The tax is based on the difference between the
value of the output and the value of the inputs used to produce it. The aim is to tax a firm only for the
value added by it to the inputs it is using for manufacturing its output.