Glossary of key terms used in Budget or Annual Financial Statement

There is a glossary of vital economic terms to comprehend the Budget or Annual Financial Statement introduced by the Government every year in Lok Sabha.

Glossary of Terms:

1. Fiscal Policy: It is what a Government does to influence the course of an economy through decisions on taxes and spending or expenditure.

2. Monetary Policy: It is what a Central bank of that country does to influence the course of an economy through decisions on money supply and interest rate. It gives a set of tool which helps the central bank to control inflation and maintain stable economic growth.

3. Fiscal deficit: It is the difference between the Revenue receipts plus Non-debt Capital Receipts
(NDCR) and the total expenditure (excluding borrowings). This indicates the total borrowing requirements of Government from all sources.

4. Revenue deficit: It refers to the excess of revenue expenditure over revenue receipts. It means government falls short its revenue collection as per estimation.

5. Effective revenue deficit: It is the difference between revenue deficit and grants for creation of capital assets.

6. Budget deficit: It is the difference between the budget estimated expenditure and budget estimated revenue. It shows the government’s spending in the financial year.

7. Primary deficit: It is measured by fiscal deficit minus interest payments paid by the government in the current year.

8. Financial year or fiscal year: It is the year for calculating annual financial statement of business. It is 1, April – 31, March for India.

9. Disinvestment Receipts: The term refers to the money raised by the Government through disinvestment, or the sale of its equity stake in companies it owns.  Like, government sells share of Coal India Ltd or NTPC or ONGC in the share market to raise money to lower fiscal deficit.

10. Gross Domestic Production (GDP): It is the monetary value of all finished goods and services produced within the country in a specified period of time. It includes export but excludes import done in a year.

11. Gross National Production (GNP): It is the measure of all goods and services produced by the citizens (within the country or outside) of that country in one year. GNP = GDP + income by citizens of that country – income produced non-citizens within the country.

12. Gross Value Addition (GVA): It is the measure of output(GDP) plus subsidies, minus taxes on products. It accounts the calculates the total value of output goods and services excluding the intermediate consumption.

13. Fiscal Responsibility and Budget Management Act, 2003: The Act is an attempt to make the Government adhere to a phased plan to reduce fiscal deficit, which denotes an excess of expenditure over revenue.It has been adopted on the line of European Union, binds the government to target fiscal deficit 3% and for State government also to 3%, total 6% can be maintained.

14. Dividend Distribution Tax: This is a tax levied on companies that pay out dividends to its shareholders, i.e. share a portion of earnings with them.

15. Venture Capital Funds: These are funds that invest in startups, a financially riskier proposition than investing in established companies.

16. Securities Transaction Tax: It is a tax on all transactions done over the stock exchanges involving securities such as shares, derivatives, and equity-linked mutual funds. It has been raised to 0.05% from 0.017% in Budget 2016-17.

17. Commodity Transaction Tax: It is similar to STT, levied on the trading domestic commodities applicable on both buyers and sellers of contract of commodity derivatives. The rate is 0.017%.

18. Wholesale Price Index (WPI): It is a measure of inflation, or price change, arrived at after regularly measuring the prices of a slew of wholesale goods.

19. Consumer Price Index (CPI): It is a measure of inflation, or price change, arrived at after regularly measuring the prices of a slew of household goods and services.

20. Capital Gains Tax: It is a tax on the gains that ensue when an asset is sold for a price higher than what it was bought for.

21. Value-Added Tax (VAT): It is a tax on the value added to a product at each stage of distribution, so that inputs that go into making the product aren’t taxed more than once.

22. Ad Valorem Tax: This is charged as a percentage of the value of a good or service, not at a specific rate per unit.

23. Advance Pricing Agreement (APA): It is an agreement between a taxpaying entity and the taxman that indicates how the former will price transactions with its associates.

24. Direct Tax: A tax such as the income-tax, which has to be borne by the person it or entity it is imposed on.

25. Indirect Tax: A tax on goods and services, typically, levied on an entity but paid by another.

26. Direct Taxes Code (DTC): India’s likely replacement to the long-standing Income Tax Act, the Direct Taxes Code is meant to make direct tax laws simpler and more efficient.

27. Goods and Services Tax (GST): Proposed to be rolled out in India from April 1, 2016, the GST seeks to make the indirect tax structure simpler and efficient by replacing a slew of levies such as octroi, central sales tax, State sales tax, entry tax and so on.

28. External Commercial Borrowing (ECB): ECBs refer to commercial loans with a minimum three-year maturity that can be raised from lenders from overseas where interest rates are lower than in India.

29. Fiscal Consolidation: The term refers to the things a Government does to maintain good fiscal health- cut debt and wasteful expenditure and improve revenue opportunities.

30. Current Account Deficit (CAD): It is a trade measure that shows the value of a country’s imports of goods and services to be higher than the value of its exports.

31. Balance of Payments (BOP): It is the payment made on country’s exports, imports of goods and services, financial capital and financial transfers.

32. Balance of Trade (BOT): It is defined as the difference between country’s export and import of goods and services only. BOT = BOP – financial capital- cash transfers- net borrowings from foreign.

33. Foreign Reserve: It is the foreign currency, usually US dollar held by central bank of that country for the international payments and hedge against exchange rate risks. At present, RBI has more $350 billion. 

34. Cess: It is an additional indirect tax levied on basic tax liability, imposed by the government to meet specific expenditure for specific period. It is levied till the money for specific schemes have not met. like Swachh Bharat cess, Education cess etc.

35. Surcharge: It is like extra tax or fee levied on the basic tax.

36. General Anti-Avoidance Rule (GAAR): GAAR is a concept which generally empowers the Revenue Authorities in a country to deny the tax benefits of transactions or arrangments which do not have any commercial substance or consideration other than achieving the tax benefit.

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