Budget 2025: Key terms to know before February 1's presentation
What's the story
Finance Minister Nirmala Sitharaman will present the Union Budget 2025 on February 1, her eighth consecutive budget presentation.
This year's budget announcement will be the second full budget of the Modi government since its 2024 re-election.
The annual financial statement outlines the government's spending plans and revenue generation strategies for the coming year.
Understanding key terms and potential changes in the budget is crucial for businesses and individuals alike.
Budget terminology
Annual Financial Statement (AFS) is the most important document
The Annual Financial Statement (AFS) is the most important document which gives a detailed account of the government's receipts and expenditures for the upcoming financial year.
It basically serves as a blueprint for the budget, detailing how much money would be allocated and spent and how that will be done over the course of the financial year.
Appropriation Bill is a bill presented in Parliament to approve government expenditure for the financial year. It becomes law after getting Parliament's nod.
Fiscal forecasts
Budget estimate and capital expenditure: What do they mean?
The Budget estimate is the anticipated allocation of funds for different ministries, sectors, and schemes in the financial year. These estimates indicate expected levels of spending for each area and ensure that resources are allocated according to government priorities.
Borrowings are funds raised by the government through loans/bonds to bridge the fiscal deficit (total expenditure minus total revenue).
Meanwhile, Capital expenditure (Capex) is the government's spending on purchasing or developing long-term assets such as infrastructure projects, buildings, or machinery.
Revenue sources
Capital receipts and cess: Additional budgetary terms
Capital receipts are funds that the government receives through borrowing, sale of assets, or equity investments. They are are generally one-off transactions and not part of regular revenue generation.
Cess is additional tax levied on top of existing taxes to fund specific initiatives such as education, healthcare, or environmental conservation.
Deficit financing refers to funding a fiscal deficit by borrowing money or printing currency.
Disinvestment is the process of selling the government's stake in public sector enterprises to raise money.
Financial reserves
Consolidated Fund and Contingency Fund: Government's financial reservoirs
The Consolidated Fund is the main account where all government revenues are pooled, including taxes, borrowings, and loans. Most of the government expenditure is drawn from this fund, except for certain expenditures covered by the Contingency Fund.
Managed by the President of India, the Contingency Fund is a reserve for emergencies or unforeseen expenses. Any withdrawal from this fund needs Parliament's approval and withdrawn amounts must be reimbursed from the Consolidated Fund.
Taxation strategies
Direct taxes and Divestment: Revenue generation methods
Direct taxes are taxes collected directly from individuals or entities. For instance, income tax, corporate tax, or property tax. These taxes are usually levied on earnings, profits, and wealth.
Divestment is when the government sells its stake in public sector enterprises or assets to generate revenue while reducing its role in managing commercial enterprises.
Fiscal planning
Economic survey and Finance Bill: Pre-budget preparations
The Economic Survey is an annual report released ahead of the Union Budget, giving a detailed assessment of the country's economic performance in the last year. It also gives an outlook on the economic situation and paves the way for government's budgetary plans.
The Finance Bill proposes changes in government's tax policies, including introduction, amendment or continuation of tax laws for upcoming financial year. It is a key component of budget as it outlines fiscal policy changes.
Economic indicators
Fiscal deficit and fiscal policy: Indicators of financial health
Fiscal deficit is the gap between government's total expenditure and revenue receipts. As a percentage of GDP, it is usually bridged by borrowing and is a key indicator of government's financial health.
Fiscal policy is government's use of taxation and public spending to influence economy. By changing tax rates and government spending, fiscal policy seeks to achieve economic stability, control inflation, stimulate growth.
Surplus Budget refers to when the government's revenue exceeds its expenditure.