Union Budget 2022: Key Terms, Meaning

Parliamentary proceedings can be difficult to follow as is. Add financial jargon and complex economic terms to the mix, and it becomes all the more difficult to understand. Unfortunately, even as stakeholders in India’s economy, each year we find it difficult to make sense of the Union Budget speech delivered by the Finance Minister. 

This time around, however, we have curated a list of financial terms that are bound to come up during the speech and in the news after the announcement of the Union Budget. It will help you to better navigate the jargon and make sense of any developments that may affect you directly.

Important terms to know

GDP

The Gross Domestic Product (GDP) of a country refers to the total market value of all the goods and services produced within a specific time period, calculated quarterly or annually. GDP is considered a good standard to measure the economic conditions of a country. GDP can be calculated by using the equation –

GDP = Consumption + investment + government spending + (exports – imports)

Direct and Indirect taxes

Taxes are a source of revenue for the government, paid by individuals or other entities. Direct taxes include income tax and corporate tax that is directly paid to the government. Indirect taxes, on the other hand, are paid to an intermediary who then pays the amount to the government.

GST

The Goods and Services Tax (GST) is a type of indirect tax introduced by the government in 2017. It is paid by the consumer and delivered to the government by the business establishment.

Customs Duty

Customs duty is another type of indirect tax paid to the government. It is paid by importers and exporters when they sell goods to consumers in another country or buy from a seller abroad. While such a tax is paid by the business, the cost is often passed on to the end customer.  

Fiscal deficit

A fiscal deficit occurs when the government’s expenditure exceeds the revenue without taking into account external borrowings. When fiscal deficits of a number of years pile up, it is called debt. The fiscal deficit does not reflect negative economic conditions. In fact, if it occurs due to asset creation by the government, fiscal deficit can be viewed as a positive indicator.

Fiscal policy

The fiscal policy is the government’s adjustment of taxation and spending which has far-reaching ramifications on the country’s economic condition. Taxation has a direct effect on people’s purchasing power, which in turn has an impact on the demand and supply of goods and services.

Monetary policy

The fiscal policy works in conjunction with a country’s monetary policy. Monetary policy is the RBI’s control of the supply of money in the Indian economy by regulating interest rates  

refers to the RBI’s execution of the government’s directives on the supply of money. Through the central bank, the government controls liquidity, or the supply of money, in the economy.

Inflation

Inflation is the gradual increase in the prices of goods and services in an economy. This directly translates into a decrease in the purchasing power of individuals. Inflation refers to the rate at which the prices increase and purchasing power falls each year. 

Annual Financial Statement

The Union Budget document is also referred to as the Annual Financial Statement. Article 112 of the Constitution states that the Annual Financial Statement for every financial year (April 1 to March 31) should be tabled before Parliament. The Annual Financial Statement shows the government’s expenditure and receipts, along with estimates of various accounts for the upcoming year.

Divestment

Divestment or disinvestment refers to the sale of a public sector company’s majority stake. Such a sale of an asset is often carried out by the government to meet its expenditure. 

Excess Grants

When the allocated money for a particular financial year does not prove to be enough for the government’s expenditures, then extra money is given to meet those expenses. This is known as excess grant.

Consolidated Fund of India

The Consolidated Fund of India is an account of all the revenue received by the government and all the expenses made by it. The revenues could be tax revenues, non-tax revenues, excise duty and customs duty. 

Contingency Fund of India

The Contingency Fund of India is a fund allocated for dealing with emergency situations in the country, such as a disaster. 

Minimum Alternate Tax

A lot of companies evade taxes by showing zero to minimum income. The “Minimum Alternate Tax” is a provision that allows the government to tax such companies. A percentage of their book profit is seen as taxable income.

Subvention

Subvention is when the government grants money to support an institution financially.

This glossary of some basic budget terms will help you understand the announcements and how they impact you, personally.

 

Do check out our detailed analysis on ‘Budget 2022’ here –

FAQs

What is the Economic Survey in the Union Budget?

The Finance Ministry presents a document in each budget which is known as the Economic Survey. The Chief Economic Advisor has the primary responsibility of this document which contains the details of the performance of the economy in the previous financial year, outlooks for the upcoming year and the general financial health of the country. It is usually presented 1 day prior to the actual budget.

What is the current inflation rate of the country?

An increase in the inflation rate is a sign of rising prices and a decrease in the country’s purchasing power. As of Dec 2021, India’s retail price inflation rate stood at 5.59 %. The projected inflation rates for the new financial year will be shared in the Union Budget 2022.

What is the difference between a Union Budget and an Interim Budget?

The Union Budget is presented by the Finance Ministry on behalf of the government of India for the entire financial year. This is a constitutional requirement and requires its passing in the Lok Sabha after its presentation. The Interim Budget on the other hand is neither a constitutional requirement, nor does it require any discussion in the Lok Sabha. It is usually presented by the incumbent government in its last year of tenure before the national elections and covers a period of a few months only. 

What is Divestment and why is it important?

Divestment is the exact opposite of investment. It is the process of selling off assets to private firms or venture conglomerates. The main intention of a divestment policy is to bridge the fiscal gap by selling off large assets which have not been performing well. Selling Air India’s ownership by the government to the Tata Group is an example of divestment.