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Top 10 Budget Terms You Should Know

Wednesday, February 07, 2018

When the Union Budget speech is read out by the Finance Minister of India, many students, graduates, and professionals scramble to get a hang of what is being said. There is so much financial jargon being spewed by every industrialist, banker and investor, that often students find difficult to understand.

By Vibha Kagzi, Founder, Reachivy.com

If you have been struggling with understanding the Union Budget announced by the Finance Minister of India, here is a quick overview on what each of these top 10 budget terminology means:

GST (Goods and services tax)
GST is “one indirect tax” for the whole nation, which will make India one unified common market. The scheme was supposed to be implemented in India from 1st April 2016. In simple words, Goods and Service Tax is an indirect tax levied on the supply of goods and services. GST Law has replaced many indirect tax laws that previously existed in India. The government believes that the new tax is simple and transparent and it would end corruption and check black money.

Revenue Deficit
Revenue deficit arises when the government’s actual net receipts is lower than the projected receipts. Revenue deficit measures the inability of the government to meet its regular needs. For example: If you have income of say, Rs. 100000, but at the end of a financial year you just earn Rs. 75000. Thus the gap between expected earning and actual earning is called revenue deficit which is Rs 25000 in this case.

Repo Rate
This is an interest rate at which the RBI lends money to the banks for a short term. Repo Rate signifies the rate at which liquidity is injected in the banking system by RBI. By increasing the Repo Rate, the RBI can reduce the money supply in the economy and help in arresting inflation.

Gross Domestic Product
GDP is the final value of the goods and services produced within the geographic boundaries of a country during a specified period of time, normally a year. GDP growth rate is an important indicator of the economic performance of a country.

Gross Domestic Product (GDP) can be estimated in three ways which, in theory, should yield identical figures. They are:

  • Expenditure basis: how much money was spent,
  • Output basis: how many goods and services were sold, and
  • Income basis: how much income (profit) was earned.

Fiscal Policy
Fiscal policy is the means by which a government adjusts its spending levels and tax rates to monitor and influence a nation's economy. Fiscal policy reflects the priorities of individual lawmakers. They focus on the needs of their constituencies.

Finance Bill
In a general sense, any Bill that relates to revenue or expenditure is a Financial Bill. The Finance Bill is presented at the time of presentation of the Annual Financial Statement before Parliament, in fulfillment of the requirement of Article 110 (1)(a) of the Constitution, detailing the imposition, abolition, remission, alteration or regulation of taxes proposed in the Budget.

It is through the Finance Act that amendments are made to the various Acts like Income Tax Act 1961, Customs Act 1962, and other such.

Budget Period
The budget period is an important factor in developing a comprehensive budgeting program. This is the period for which forecasts can reasonably be made and budgets can be formulated.

Budget Estimate
Budget estimates are forecasts that are used to plan strategy and budgets. A budget is a plan to spend money to achieve objectives. Estimates are required to prioritize strategy based on factors such as return on investment and risk.

Monetary policy
Monetary policy is how central banks manage liquidity to create economic growth. The primary objective of central banks is to manage inflation. The second is to reduce unemployment, but only after they have controlled inflation.

Broadly speaking, there are two types of monetary policy, expansionary and contractionary. Expansionary monetary policy increases the money supply in order to lower unemployment, boost private-sector borrowing and consumer spending, and stimulate economic growth.

Contractionary monetary policy slows the rate of growth in the money supply or outright decreases the money supply in order to control inflation; while sometimes necessary, contractionary monetary policy can slow economic growth, increase unemployment and depress borrowing and spending by consumers and businesses.

Fiscal deficit
The gross fiscal deficit (GFD) is the excess of total expenditure including loans net of recovery over revenue receipts (including external grants) and non-debt capital receipts. The net fiscal deficit is the gross fiscal deficit less net lending of the Central government. A country’s fiscal deficit is usually communicated as a percentage of its gross domestic product (GDP).

Government spending, inflation and lower revenue are among some of the main factors that point to fiscal deficit. The cynical nature of fiscal deficit does not only jeopardize the growth of the country but also the government’s economic management abilities.

The writer is a study abroad and career advisory. Vibha holds an MBA from Harvard Business School and a Bachelors from Carnegie Mellon University.

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