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Concepts of Union Budget

Broad Components of the Budget Speech
The entire budget speech (of the Finance Minister) is broadly classified under two parts, viz. Part A and part B. Part A of the speech covers the broad allocation of funds for various sectors and sub-sectors, initiation of new schemes, and focus areas of the government. This part is more concerned about the development issues at macro level. On the other hand, Part B covers the specific tax proposals in the economy. It has direct bearing over household and manufacturing/service providing unit. Therefore it deals with the micro aspects of the economy.

Budget
The budget is the outline of a governments planned receipts and expenditures for some future period, normally one year.

Revenue Expenditure
The revenue expenditure is akin to consumption expenditure. In addition to expenditure on salaries and administration of government departments, it includes subsidies, interest payments on past debts and pension.

Capital Expenditure
Unlike revenue expenditure, capital expenditure is on the creation of assets. It includes: government expenditure on roads, structures and equipments; government investment including shares; and loans to public sector undertakings (PSUs).

Plan Expenditure
The plan expenditure deals with the new initiatives of government. It includes: the central plan expenditure; and the central assistance to state and union territory plans. Plan expenditure has the budget heads of revenue plan expenditure and capital plan expenditure.

Non-Plan Expenditure
Unlike plan expenditure, non-plan expenditure deals with the past commitments of the government. Non-plan expenditure has the budget heads of revenue non-plan expenditure and capital non-plan expenditure. Compared to revenue non-plan expenditure, the share of non-plan capital expenditure is much lower. Within the capital component of non-plan expenditure, the largest allocation goes to defence.

Revenue Receipt
Governments revenue receipt is consisting of tax revenue (net to centre) and non-tax revenue. Tax revenue includes both direct and indirect taxes. Direct tax includes corporation tax, personal income tax and wealth tax. Direct taxes, by nature, cannot be passed on to other. It is based on the ability to pay principle. Indirect tax includes custom duty, excise duty and service tax.

Non-tax revenue

It is explained under Revenue Receipt.

Tax Revenue (net to centre)

It is explained under Revenue Receipt.

Direct Tax
It is explained under Revenue Receipt.

Indirect Tax
It is explained under Revenue Receipt. Custom Duties These are referred to duties charged on goods imported to or exported from the country. Accordingly, the importer or the exporter pays custom duties. It is being regulated by the Customs Act, 1962. Peak Rate Peak rate is the highest rate of custom duty applicable on an item. Excise Duties These are referred to duties imposed on goods produced or manufactured within the country.

Capital Receipt
The capital receipt is consisting of non-debt and debt receipt. The former consists of loan recovery, net grants, proceeds from PSUs disinvestments. The latter includes public borrowing from both internal and external sources, and other liabilities.

Revenue Deficit
The revenue deficit is defined as the difference between the government revenue expenditure and government revenue receipts. In fact, revenue receipt is not enough to meet revenue expenditure. However, as per the Fiscal Responsibility and Budget Management (FRBM) Act 2003, revenue deficit should not have been since 2008-09.

Budgetary Deficit
The budgetary deficit refers to the difference between government total expenditure (revenue expenditure and capital expenditure) and total receipts (revenue receipts and capital receipts).

Fiscal Deficit
The fiscal deficit is defined as the difference between the government total expenditure and the government total non-debt receipt. It is also defined as the combination of budgetary deficit and government debt receipt, i.e. borrowing from both internal and external sources, and other liabilities.

Primary Deficit
The primary deficit is measured by the difference between the fiscal deficit and interest payments (a component of non-plan revenue expenditure).

Current Account Deficit

The current account deficit refers to the difference between the countrys export and import.

Gross Domestic Product (GDP)

The gross domestic product (GDP) is defined as the money value of final goods and services produced within the countrys territory, irrespective of the ownership of the resources that produced it.

Gross National Product (GNP)

The gross national product (GNP) is defined as the money value of final goods and services produced by the countrys owned resources, irrespective of the place of production. [GNPF= GNPM Indirect Taxes + Subsidies]

Net Domestic Product (NDP)

The net domestic product (NDP) is measured as the difference between GDP and the capital consumption, i.e. depreciation.

Net National Product (NNP)

The net national product (NNP) is measured as the difference between GNP and the capital consumption, i.e. depreciation. The net national product at factor cost (NNPF) is internationally referred to as national income.

Scope and interest of union budget

he Union Budget for FY 2012-13 has a lot of potential for Infrastructure & Real Estate sector. Finance Minister, Pranab Mukherjee stated clearly that lack of infrastructure is a major concern in India and there is grave need to remove infrastructure bottlenecks. I too, strongly feel the same. While we continue to be one of the fastest growing economies, our pace of development is unlikely to continue unless it is supported by an equally robust development of its infrastructure. There is a balanced scope of development in both Urban and Rural areas but more stress has been given to enhance & develop the Rural India. Budget at ET: Budget 2012 | Union Budget | Live Union Budget Blog | Railway Budget | Budget News | Economic Survey of India There are some critical challenges mentioned in the Budget, like lack of monitoring resulting in time and cost overruns or acquiring land for projects, the implementation gaps, leakages from public programmes and the final quality which pose a serious challenge to the industry & overall growth. There are a lot of crucial things which needs immediate attention like proper Master-planning, Transport connectivity, strengthening basic infrastructure on water, irrigation, sewage-system, power-electricity, etc. All this has been mentioned in this year's Budget and would be duly taken care of by the government by the Infra-investment fund of Rs. 50,000 Crores. The total investment in infrastructure including roads, railways, ports, airports, electricity, telecommunications, oil gas pipelines and irrigation is estimated to have increased from 5.7% of GDP in 2007 to around 8.0% in 2011. This year's budget aims for an increased growth rate between 9-10% with the fund-allocation of Rs. 10,000 crore on developing the National Highways alone. Budget 2012-13 gives major thrust on accelerating the pace of investment in infrastructure, as this is critical for sustaining and accelerating an overall growth. Efforts to attract private investment into infrastructure through thePublic-Private Partnership (PPP) route have met with considerable success, not only at the level of the Central Government, but also at the level of the individual States. A large number of PPP projects have taken off, and many of them are currently operational in both the Centre and the States. Since resource constraints continue to limit public investment in infrastructure, Public-Private Partnership (PPP) based development has been strongly emphasized in this year's Union Budget. Special attention has been paid to the financing needs of private sector investment in infrastructure. Infrastructure investment (defined as electricity, roads and bridges, telecommunications, railways, irrigation, water supply and sanitation, ports, airports, storage and oil-gas pipelines) would be increased from about 8% of GDP to about 10% of GDP. The total investment in infrastructure would have to be over Rs. 45 lakh crore or $ 1 trillion in the next five years. Financing this level of investment requires larger outlays from the public sector, and this has to be coupled with a more than proportional rise in private investment. The growth curve of Indian economy is at an all time high and contributing to the upswing is the real estate sector in particular. The Union Budget 2012-13 is very promising for the infrastructure sector and would fetch great results if implemented effectively.

For economic and financial policymakers, new incentives to attract capital and projects have emerged. The ambitious FDI policies provide greater access to global capital markets will further expand the mix and amount of resources available for development. Infrastructure challenged India represents a fertile opportunity for a new approach that would attract needed financial resources for sustainable development and allow even greater participation in the global economy. With major National & Global players making large-scale investments, the coming year would boost up the development of infrastructure and thus construct a developed Nation."

What is Union Budget?

The dictionary meaning of budget is a systematic plan for the expenditure of a usually fixed resource during a given period. Thus, Union Budget, which is a yearly affair, is a comprehensive display of the Governments finances. It is the most significant economic and financial event in India. The Finance Minister puts down a report that contains Government of Indias revenue and expenditure for one fiscal year. The fiscal year runs from April 01 to March 31. The Union budget is preceded by an Economic Survey which outlines the broad direction of the budget and the economic performance of the country. The Budget is the most extensive account of the Government`s finances, in which revenues from all sources and expenses of all activities undertaken are aggregated. It comprises the revenue budget and the capital budget. It also contains estimates for the next fiscal year called budgeted estimates. Barring a few exceptions -- like elections Finance Minister presents the annual Union Budget in the Parliament on the last working day of February. The budget has to be passed by the Lok Sabha before it can come into effect on April 01. What is revenue budget? The revenue budget consists of revenue receipts of the government (revenues from tax and other sources) and the expenditure met from these revenues. Revenue receipts are divided into tax and non-tax revenue. Tax revenues are made up of taxes such as income tax, corporate tax, excise, customs and other duties which the government levies. Non-tax revenue consist of interest and dividend on investments made by government, fees and other receipts for services rendered by Government. Revenue expenditure is the payment incurred for the normal day-to-day running of government departments and various services that it offers to its citizens. The government also has other expenditure like servicing interest on its borrowings, subsidies, etc. Usually, expenditure that does not result in the creation of assets, and grants given to state governments and other parties are revenue expenditures. 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. The difference between revenue receipts and revenue expenditure is usually negative. This means that the government spends more than it earns. This difference is called the revenue deficit. What is a capital budget? It consists of capital receipts and payments. The main items of capital receipts are loans raised by Government from public which are called Market Loans, borrowings by Government from Reserve Bank and other parties through sale of Treasury Bills, loans received from foreign Governments and bodies and

recoveries of loans granted by Central Government to State and Union Territory Governments and other parties. Capital payments consist of capital expenditure on acquisition of assets like land, buildings, machinery, equipment, as also investments in shares, etc., and loans and advances granted by Central Government to State and Union Territory Governments, Government companies, Corporations and other parties. Capital Budget also incorporates transactions in the Public Account. What are direct taxes? These are the taxes that are levied on the income of individuals or organisations. Income tax, corporate tax, inheritance tax are some examples of direct taxation. Income tax is the tax levied on individual income from various sources like salaries, investments, interest etc. Corporate tax is the tax paid by companies or firms on the incomes they earn. What are indirect taxes? These are the taxes paid by consumers when they buy goods and services. These include excise and customs duties. Customs duty is the charge levied when goods are imported into the country, and is paid by the importer or exporter. Excise duty is a levy paid by the manufacturer on items manufactured within the country. These charges are passed on to the consumer. What is plan and non-plan expenditure? There are two components of expenditure - plan and non-plan. Of these, plan expenditures are estimated after discussions between each of the ministries concerned and the Planning Commission. Plan expenditure forms a sizeable proportion of the total expenditure of the Central Government. The Demands for Grants of the various Ministries show the Plan expenditure under each head separately from the Non-Plan expenditure. Non-plan revenue expenditure is accounted for by interest payments, subsidies (mainly on food and fertilisers), wage and salary payments to government employees, grants to States and Union Territories governments, pensions, police, economic services in various sectors, other general services such as tax collection, social services, and grants to foreign governments. Non-plan capital expenditure mainly includes defence, loans to public enterprises, loans to States, Union Territories and foreign governments.

What is the Central Plan Outlay? It is the division of monetary resources among the different sectors in the economy and the ministries of the government. What is fiscal policy? Fiscal policy is a change in government spending or taxing designed to influence economic activity. These changes are designed to control the level of aggregate demand in the economy. Governments usually bring about changes in taxation, volume of spending, and size of the budget deficit or surplus to affect public expenditure. What is a fiscal deficit? This is the gap between the government`s total spending and the sum of its revenue receipts and non-debt capital receipts. It represents the total amount of borrowed funds required by the government to completely meet its expenditure. What is the Finance Bill? The proposals of the Government for levy of new taxes, modification of the existing tax structure or continuance of the existing tax structure beyond the period approved by Parliament are submitted to Parliament through the Finance Bill. The Budget documents presented in terms of the Constitution have to fulfil certain legal and procedural requirements and hence may not by themselves give a clear indication of the major features of the Budget. To facilitate an easy comprehension of the Budget, certain explanatory documents are presented along with the Budget.

References:
Budgetsify.com www.moneycontrol.com/budget2012

Newspaper:
Times of India Gujarat Samachar