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Budget Terms and Definitions – A Glossary of Important Terms

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Union budget 2019-2020 will be presented in the Parliament on 1st of February 2019. Questions related to various schemes announced in the budget and allocations to these schemes by the Government is mostly asked in various Banking and Government Exams like RBI Grade B, SBI PO, IBPS PO, NABARD, SEBI etc. But before you go on to read and learn about the Budget 2019-20, it is very important to understand the basic budget terms and get acquainted with their definitions so that when you go on to read the budget, its terminology doesn’t seem unfamiliar to you. The Budget Terms should be very clear to you after reading this blog of Budget Terms and Definitions – A Glossary of Important Terms. Let us go on to learn the Budget terms and definitions below.

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What is Union Budget – Definition

The Union Budget is an annual financial report of India. It contains the Government’s revenue and expenditure for a fiscal year, which runs from April 1 to March 31. According to Article 112 of the Indian Constitution, the Union Budget, also referred to as the annual financial statement, is a statement of the estimated receipts and expenditure of the government in respect of every financial year. It is presented by the government every year before the start of the financial year. It is the most extensive account of the Government’s finances, in which revenues from all sources and expenditures on all activities undertaken are enumerated. It comprises of the revenue budget and the capital budget. It also contains estimates for the next fiscal year.

Budget Terms and Definitions

  • Annual Financial Statement – It is a statement of estimated receipts and expenditure of government in respect of every financial year (April 1-March 31). It is divided into three parts, Consolidated Fund, Contingency Fund and Public Account. The government must present a statement of receipts and expenditure for each of these funds.
  • Appropriation Bill – It is bill that gives power to the government to withdraw funds from the Consolidated Fund of India for meeting the expenditure during the financial year.
  • Bearish Trend It is defined as a downward trend in the prices of an industry’s stocks or the overall fall in broad market indices in financial markets. Bearish trend is characterized by heavy investor pessimism about the declining market prices scenario. A fall in the prices of about 20% is identified as a bearish trend.
  • Budgetary Deficit – It is the difference between all receipts and expenses in both revenue and capital accounts of the government. If revenue expenses of the government exceed revenue receipts, it results in revenue account deficit. Similarly, if the capital disbursements of the government exceed capital receipts, it leads to capital account deficit. Budgetary deficit is usually expressed as a percentage of GDP.
  • Bullish Trend – A trend in financial markets can be defined as a direction in which the market moves. ‘Bullish Trend’ is an upward trend in the prices of an industry’s stocks or the overall rise in broad market indices, characterized by high investor confidence. A bullish trend for a certain period of time indicates recovery of an economy.
  • Capital Account – Capital account can be regarded as one of the primary components of the balance of payments of a nation. It gives a summary of the capital expenditure and income for a country. This account comprises foreign direct investments, portfolio investments, etc. It gives a summary of the net inflow of both private and public investment into an economy.
  • Capital Budget – It consists of capital receipts and payments. It also incorporates transactions in the Public Account. Capital receipts are loans raised by the government from the public, borrowings by the government from the Reserve Bank and other parties through sale of treasury bills, loans received from foreign bodies and governments, and recoveries of loans granted by the 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, and equipment, as also investments in shares, loans and advances granted by the Central government to state and Union Territory governments, government companies, corporations and other parties.
  • Capital Market – It is a market where buyers and sellers engage in trade of financial securities like bonds, stocks, etc. The buying/selling is undertaken by participants such as individuals and institutions. Capital market consists of primary markets and secondary markets. Primary markets deal with trade of new issues of stocks and other securities, whereas secondary market deals with the exchange of existing or previously-issued securities.
  • Consolidated Fund – Consolidated Fund of India is the most important of all government accounts. Revenues received by the government and expenses made by it, excluding the exceptional items, are part of the Consolidated Fund.
  • Consumer Price Index – It is a comprehensive measure used for estimation of price changes in a basket of goods and services representative of consumption expenditure in an economy. Inflation is measured using CPI. The percentage change in this index over a period of time gives the amount of inflation over that specific period, i.e. the increase in prices of a representative basket of goods consumed.
  • Contingency Fund – It is created as an imprest account to meet some urgent or unforeseen expenditure of the government. This fund is at the disposal of the President.
  • Core Inflation – An inflation measure which excludes transitory or temporary price volatility as in the case of some commodities such as food items, energy products etc. It reflects the inflation trend in an economy.
  • Corporation Tax – It is a tax imposed on the net income of the company.
  • Countervailing Duty – Duties that are imposed in order to counter the negative impact of import subsidies to protect domestic producers are called countervailing duties.
  • Credit Rating – It is an analysis of the credit risks associated with a financial instrument or a financial entity. It is a rating given to a particular entity based on the credentials and the extent to which the financial statements of the entity are sound, in terms of borrowing and lending that has been done in the past.
  • Customs Duty – It is a tax imposed on imports and exports of goods.
  • Deflation – When the overall price level decreases so that inflation rate becomes negative, it is called deflation. It is the opposite of the often-encountered inflation. Deflation is different from disinflation as the latter implies decrease in the level of inflation whereas on the other hand deflation implies negative inflation.
  • Demand for Grants – It is the form in which estimates of expenditure from the Consolidated Fund, included in the annual financial statement and required to be voted upon in the Lok Sabha, are submitted in pursuance of Article 113 of the Constitution. The demand for grants includes provisions with respect to revenue expenditure, capital expenditure, grants to State and Union Territory governments together with loans and advances. Generally, one demand for grant is presented in respect of each ministry or department. However, for large ministries and departments, more than one demand is presented.
  • Depreciation – The monetary value of an asset decreases over time due to use, wear and tear or obsolescence. This decrease is measured as depreciation.
  • Direct Tax – It is a type of tax where the incidence and impact of taxation fall on the same entity. These are largely taxes on income or wealth. Income tax, corporation tax, property tax, inheritance tax and gift tax are examples of direct tax.
  • Education Cess – It is an additional levy on the basic tax liability.
  • Excess Grants – It is the grant in excess of the approved grants for meeting the requisite expenses of the government. The Demand for Excess Grants is made after the actual expenditure is incurred and is presented to the Parliament after the end of the financial year in which the expenses were made.
  • Expenditure Budget – It shows the revenue and capital disbursements of various ministries/departments.
  • External Debt – It refers to money borrowed from a source outside the country. External debt has to be paid back in the currency in which it is borrowed.
  • Finance Bill – It is a Money Bill as defined in Article 110 of the Constitution. 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 this bill.
  • Fiscal Deficit – The difference between total revenue and total expenditure of the government is termed as fiscal deficit. It is an indication of the total borrowings needed by the government. While calculating the total revenue, borrowings are not included.
  • Gross Domestic Product – GDP is the final value of the goods and services produced within the geographic boundaries of a country during a specified period of time, normally a year. GDP growth rate is an important indicator of the economic performance of a country.
  • Index of Industrial Production – The Index of Industrial Production (IIP) is an index which shows the growth rates in different industry groups of the economy in a stipulated period of time. The IIP index is computed and published by the Central Statistical Organisation (CSO) on a monthly basis.
  • Indirect Tax – It is a type of tax where the incidence and impact of taxation does not fall on the same entityCustoms duty, central excise, service tax and value added tax, GST are examples of indirect tax.
  • Non-Tax Revenue – It is the recurring income earned by the government from sources other than taxes.The most important receipts under this head are interest receipts (received on loans given by the government to states, railways and others) and dividends and profits received from public sector companies.
  • Primary deficit – Gross Primary Deficit is Gross Fiscal Deficit minus interest payments. Net Primary Deficit is Net Fiscal Deficit minus net interest payments. Net interest payment is interest paid minus interest receipt.
  • Privatization – The transfer of ownership, property or business from the government to the private sector is termed privatization. The government ceases to be the owner of the entity or business.
  • Property Tax – It is the annual amount paid by a land owner to the local government or the municipal corporation of his area. The property includes all tangible real estate property, his house, office building and the property he has rented to others.
  • Public Account – Public Account of India accounts for flows for those transactions where the government is merely acting as a banker.
  • Public Debt – Public debt receipts and public debt disbursal are borrowings and repayments during the year, respectively, by the government.
  • Purchasing Power Parity – The theory aims to determine the adjustments needed to be made in the exchange rates of two currencies to make them at par with the purchasing power of each other. The expenditure on a similar commodity must be same in both currencies when accounted for exchange rate. The purchasing power of each currency is determined in the process. Purchasing power parity is used worldwide to compare the income levels in different countries. PPP thus makes it easy to understand and interpret the data of each country.
  • Real Economic Growth Rate – It is the rate at which a nation’s Gross Domestic product (GDP) changes/grows from one year to another. GDP is the market value of all the goods and services produced in a country in a particular time period. Real Economic Growth Rate takes into account the effects of inflation.
  • Receipts Budget – It shows a detailed summary of the revenue and capital receipts of the government. Receipts Budget forms a part of the Annual Financial Statement. It gives a summary of tax revenue, non-tax revenue and capital receipts. It also gives a detailed analysis of tax and non-tax receipts together with the trends.
  • Regressive Tax – Under this system of taxation, the tax rate diminishes as the taxable amount increases. In other words, there is an inverse relationship between the tax rate and taxable income. The rate of taxation decreases as the income of taxpayers increases.
  • Securities Transaction Tax – It is a kind of turnover tax where the investor has to pay a small tax on the total consideration paid or received in a share transaction.
  • Subsidy – It is a transfer of money from the government to an entity. It leads to a fall in the price of the subsidised product. The objective of subsidy is to bolster the welfare of the society.
  • Subvention – It  refers to a grant of money in aid or support, mostly by the government. The term finds a mention in almost every Budget.
  • Supplementary Grants –  The additional grant required to meet the required expenditure of the government is called Supplementary Grants.When grants, authorised by the Parliament, fall short of the required expenditure, an estimate is presented before the Parliament for Supplementary or Additional grants. These grants are presented and passed by the Parliament before the end of the financial year.
  • Surcharge – Surcharge is an additional charge or tax.
  • Tax Revenue – Tax Revenue forms part of the Receipt Budget, which in turn is a part of the Annual Financial Statement of the Union Budget. It gives a detailed report on revenue collected from different items like corporation tax, income tax, wealth tax, customs, union excise, service, taxes on Union Territories like land revenue, stamp registration etc. Taxes collected from both direct and indirect tax are considered in Tax Revenue.
  • Union Excise Duty – It is a type of indirect tax on goods manufactured in India.
  • Ways and means advance (WMA): One of RBI’s roles is to serve as banker to both central and state governments. In this capacity, RBI provides temporary support to tide over mismatches in their receipts and payments in the form of ways and means advances.

This was all from us in this blog of Budget Terms and Definitions. Budget terms should now be clear to you and you should be able to comprehend the upcoming Budget well. We hope that you like it and proves to be helpful in understanding and learning when you read the upcoming budget 2019-2020.

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