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Budget Terms
You Must Know

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Budget Terms You Must Know

In a few days, the government will be releasing its Budget. The Union Budget of India is the annual (and most extensive) report of the country’s finances. It contains the government’s revenue and expenditure for a particular fiscal year (April 1 to March 31), a statement of next year’s tax and tariff provisions, and a projection of the receipts and disbursements in the next fiscal year.

The Finance Bill is that part of the Budget which is basically numbers and contains the tax and tariff provisions that have to be approved and passed by the parliament. Once approved, the Finance Bill becomes the Finance Act.

If you are confused with all the jargon flying around, here are 5 broad terms that will give you clarity.


Revenue expenditure, such as subsidies and interest payments, does not create any asset. Capital expenditure is what is spent on acquiring or creating an asset. Governments around the world may define capital in different ways. In the case of India, it is expenditure on acquisition of assets such as land, building, machinery or equipment, or the creation of assets such as a highway or dam. It could also include investments such as shares. Loans and advancements approved or sanctioned by the central government to the state governments, union territories and public sector undertakings are also considered.

Expenditure incurred by the central government in consultation with the Planning Commission is known as plan expenditure. It refers to the annual funds allocated to the Planning Commission for development schemes outlined in the 5-year plans. Non-plan expenditure is what is incurred by the central government for the day-to-day running of the country. It includes spending on defence, subsidies, administrative costs, interest payments, salaries and pensions.


Revenue deficit is the difference between the revenue expenditure and revenue receipts of the government during the financial year. It shows by how much the regular expenses are higher than the regular receipts.

The fiscal deficit is the difference between the total expenditure of the government in a year and the revenue receipts and the recoveries of loans. What this means is that the government will have to borrow to bridge the gap between income and expenditure. Finance Minister Arun Jaitley is widely expected to revise the fiscal deficit target for the current financial year upwards from the 4.1% target (of GDP).

The primary deficit is arrived at when the fiscal deficit is reduced by the interest payments for the year. It shows the amount of the deficit that arises on account of the activities other than the interest payments. A large difference between the fiscal and primary deficit is a sign that interest payments have ballooned.

Balance of Payments

The BoP records the country’s monetary transactions with the rest of the world. All trades conducted by the private and public sector are accounted for in the BoP to determine how much money is going in and out of a country.

Within the BOP there are three separate categories:

Current account records the inflow and outflow of goods, services and income. A current account is the sum of a nation's balance of trade, net factor income (interest, dividends), and net transfer payments (foreign aid). Balance of trade is the difference between the monetary value of exports and imports.

Capital account records all international capital transfers.

Financial account is the international monetary flows such as business or portfolio investments.


Direct taxes are levied on the income of individuals (income tax, inheritance tax) or organisations /companies / firms (corporate tax).

Indirect taxes are paid on manufactured goods, whether produced locally or imported (excise duty, customs duty).

Public Debt

The difference between borrowings and repayments during the year is the net accretion to the public debt. Public debt can be split into two heads, internal debt (money borrowed within the country) and external debt (funds borrowed from non-Indian sources).

Debt servicing is the amount that is spent in managing the debt of the country.

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