Budget 2022: Key financial terms you should know

Finance
Minister Nirmala Sitharaman will present the Union Budget 2022-23 on February
1, 2022. The budget will be presented in Parliament at a time when India’s economic
recovery is facing hurdles due to rising inflation and Covid restrictions. The
finance minister is expected to make several announcements and speak about
financial indicators like the fiscal deficit, inflation, capital expenditure,
revenue receipts, bad loans and more.

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Understanding the
budget can be a challenging task because it contains several complex terms that
many people are unfamiliar with. So, ahead of Nirmala Sitharaman’s budget
presentation, take a quick read on key financial phrases and terms.

Union Budget: The
government presents the budget to highlight its expenditures and receipts
during the financial year. It is also known as the annual financial statement
(AFS) for a particular fiscal year. Under Article 112 of the Constitution, a
budget has to be tabled before Parliament in respect of every financial year
which starts from April 1 to March 31.

The budget highlights the government’s vision for the next financial year and it must be
approved by Parliament. When revenue
collections are equal to the revenue spending in a year, the budget is said to
be ‘balanced’. When the government’s spending exceeds its income it is called a
‘revenue deficit’.

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Gross Domestic Product
(GDP): It refers to the value of all officially recognized products and
services produced in a certain period. It’s used to determine a country’s
standard of living.

Revenue expenditure:
It refers to non-capitalized short-term cost-related assets. These are ongoing
expenses that the government incurs regularly to pay workers and maintain fixed
assets. It is also known as income statement expenditure.

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Capital expenditure:
It refers to funds spent by the government to acquire, maintain, or upgrade
assets such as property, infrastructure projects, or buying new equipment. When
the government spends money on big projects, the costs are typically classified
as capital expenditure. It is a non-recurring expense. 

Aggregate demand: The
total amount of goods and services demanded in an economy.

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Balance of payments:
In the foreign exchange market, the gap between demand and supply for a
country’s currency refers to the balance of payments.

Budget
estimates: Funds allocated for various activities and ministries set forth
while presenting the budget are referred to as budget estimates.

Direct tax: It is a
tax imposed on an individual’s or a corporation’s earnings. Direct taxes
include income tax, corporate tax, inheritance tax, and more.

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Indirect
tax: It is paid by consumers when they purchase products and services. One such
tax is  GST.

Goods and
Services Tax (GST): This was implemented on July 1, 2017, to bring several
indirect taxes under one head. GST is imposed on the provision of goods and
services. Changes to GST are not announced in the budget. The GST Council
decides on any changes in GST slabs and structure.

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Customs
duty: It is levied when specific items are imported into or exported out of the
country. These costs are passed on to the final consumer. Customs duty is
outside the purview of GST.

Revenue deficit: When
the government’s income or revenue falls short of the projected net income, a
revenue deficit occurs. This is a situation in which the actual amount of
revenue or expenditure differs from the budget revenues and expenditure. It is
a key indicator to determine whether the government is spending more than its
regular income.

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Revenue
surplus: This is the opposite of a revenue deficit. When the government’s net
realized income or revenue generation exceeds the predicted net income it is
called the revenue surplus. The actual revenue and expenditures are higher than
the budget estimates.

Fiscal deficit: It
occurs when the government’s expenditures have exceeded its revenue. It is
calculated in both absolute and percentage terms of the country’s GDP.

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Disinvestment: This is
a process in which the government sells or liquidates an asset. It is the
opposite of investment.

Inflation: This is a
quantitative measure of the rise in the overall prices of goods and services in
an economy over time. It is usually expressed in percentages. A rise in
inflation indicates a decrease in the country’s currency value and purchasing
power. 

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Minimum Alternative
Tax (MAT): MAT is a minimum tax that a company is liable to pay, even if it is
under zero limits.

Repo rate: The rate of
interest paid by commercial banks to the RBI for short-term loans it lends
against government securities. ‘Repo’ means repurchase of securities.