India expects an interim budget presentation on February 1, 2024, in the Lok Sabha. As the country is facing a general election most probably in April-May this year, a full budget is not the norm, but an interim budget.
The Finance Ministry releases the crucial Economic Survey on the eve of the budget presentation that summarises the performance of the economy in the ongoing financial year and sets the context for the Budget.
Here are key terms that can help an unversed budget enthusiast enjoy the budget speech better.
If a new government is forming as elections approach, an interim budget allows for essential spending until a new budget is drawn up after elections.
Till the financial year ends on March 31, the government has to meet the expenses, so to cover basic expenses until the Parliament approves a full budget for the year, the interim budget is released.
The Union Budget is an annual exercise that estimates the central government's revenue and expenses for the upcoming financial year. It comprises the Revenue Budget (encompassing tax and non-tax revenues such as interest receipts) and Capital Budget (consisting of capital receipts like borrowings and also investments).
Proposals in the Budget, if Parliament passes them, take effect from April 1 of each year and remain effective till March 31 of the next year.
The Budget will list the following key fiscal indicators that are essential in understanding the government's spending habits, its financial health and overall economic growth.
A fiscal deficit is the extent to which the government spends more money than it brings in, excluding money borrowed from markets. It's measured as a percentage of the GDP and represents the gap between government spending and receipts.
Budget 2023 aimed to bring down this deficit to 5.9 per cent of the GDP in 2024 and is yet to reach it. A high fiscal deficit can lead to inflation and currency devaluation, and signals an increase in debt burden.
If you take above mentioned gross fiscal deficit and minus gross interest payments on borrowings from it you get the gross primary deficit (abbreviated as Primary deficit in the budget).
When the government spends more than what it earns from taxes and other sources, excluding interest payments on debt, it creates a primary deficit. Debt and interest payments crossing a limit can adversely impact an economy's stability but neither do experts advocate keeping the primary deficit nil.
A revenue deficit is the extent to which the government spends over its regular income. It's a sign that the government is overspending from its regular revenue sources for its short-term expenses and not on lasting capital assets.
An increase in a revenue deficit, when the fiscal deficit remains the same, shows government’s planned expenditures can fail, as it is running short on finances.
Capital expenditure is the money the government spends on creating, and acquiring, long-lasting assets, infrastructure, or investments that can bring in revenue.
Essentially, it is the investment made for future revenue creation contributing to the development of the country.
The receipts and spending of government are shown under the three parts, in the accounts.
Consolidated Fund of India includes all government revenue such as market borrowings, or receipts from loans and also any expenditure out of this fund requires Parliamentary approval.
Contingency Fund serves for expenditure for unforeseen events and is refilled from the Consolidated Fund.
Public Account accounts for those transactions where the government acts merely as a banker such as provident funds or small savings schemes.