Budget terms

Subject: Economy

Section :Fiscal Policy

Concept:

Budget and Revised Estimate

Budget Estimates represent the idea of upcoming government projects and their progression. The revised Estimate explains the expenses that are going to happen.
Budget estimates work like a critical process and show the transparency work and budget fund of the government. The budget estimates session committee asks every finance minister and public services about their action decisions and advice for upcoming projects for public benefit.
Revised estimates only get sanction permission if the previous original sanctioned estimates go more than 5% due to material quality matter and rates. It also covers the fact of material quantity.
It is an evaluation that is presented in the middle of the year.

Deficits in the budget

Fiscal deficit by definition is the difference between total expenditure and the sum of revenue receipts and non-debt receipts. It indicates how much the Government is spending in net terms.
Since positive fiscal deficits indicate the amount of expenditure over and above revenue and non-debt receipts, it needs to be financed by a debt-creating capital receipt.
Primary deficit is the difference between fiscal deficit and interest payments.
Revenue deficit is derived by deducting capital expenditure from fiscal deficits.

FRBM Act and amendment

It was enacted in August 2003.
It aims to make the Central government responsible for ensuring inter-generational equity in fiscal management and long-term macro-economic stability.
The Act envisages the setting of limits on the Central government’s debt and deficits.
It limited the fiscal deficit to 3% of the GDP and mandates that the revenue deficit should be brought down to zero.
To ensure that the States too are financially prudent, the 12th Finance Commission’s recommendations in 2004 linked debt relief to States with their enactment of similar laws.
The States have since enacted their own respective Financial Responsibility Legislation, which sets the same 3% of Gross State Domestic Product (GSDP) cap on their annual budget deficits.
It also mandates greater transparency in fiscal operations of the Central government and the conduct of fiscal policy in a medium-term framework.
The Budget of the Union government includes a Medium Term Fiscal Policy Statement that specifies the annual revenue and fiscal deficit goals over a three-year horizon.
The rules for implementing the Act were notified in July 2004.

Amendment in 2018

The rules were amended in 2018, and most recently to the setting of a target of 3.1% for March 2023.
The NK Singh committee (set up in 2016) recommended that the government should target a fiscal deficit of 3% of the GDP in years up to March 31, 2020 cut it to 2.8% in 2020-21 and to 2.5% by 2023.

Expenditure

Capital expenditure:
- Capital expenditure is incurred with the purpose of increasing assets of a durable nature or of reducing recurring liabilities.
- Consider the expenditure incurred for constructing new schools or new hospitals. All these are classified as capital expenditure as they lead to creation of new assets.
Revenue expenditure:
- Revenue expenditure involves any expenditure that does not add to assets or reduce liabilities.
- Expenditure on the payment of wages and salaries, subsidies or interest payments would be typically classified as revenue expenditure.

Receipts

The receipts of the Government have three components —revenue receipts, non-debt capital receipts and debt-creating capital receipts.
Revenue receipts involve receipts that are not associated with increase in liabilities and comprise revenue from taxes and non-tax sources.
Non-debt receipts are part of capital receipts that do not generate additional liabilities. Recovery of loans and proceeds from disinvestments would be regarded as non-debt receipts since generating revenue from these sources does not directly increase liabilities, or future payment commitments.
Debt-creating capital receipts are ones that involve higher liabilities and future payment commitments of the Government.