The Union Budget for a given year gives details of expenditures planned by the government and expected revenues from the government's tax machinery to finance them.
The Union Budget uses the term "receipts" for incomes. Both
receipts and expenditures are classified under two heads: Revenue
Account and Capital Account. While Revenue Receipts and Revenue
Expenditures are expected to occur in a given financial year, Capital
Acccount Receipts and Expenditures can happen over a longer time
Government's revenue incomes or receipts originate from two sources:
taxes, and returns on capital invested in public sector enterprises. The
government's tax income includes the income tax; service tax; the excise
levied on products and the customs duties charged on imports. Additional
income comes from taxes charged on company profits, besides taxes on
capital gains made while selling off assets like shares and houses
Capital receipts could come from within India or from foreign
governments and multilateral organisations like the International
Monetary Fund (IMF). When you buy an Indira Vikas Patra or open a PPF
account in the post office, you boost the government's capital receipts.
Repayment of loans by the government, say, to a PSU, also come under the
head of capital receipts.
Government's revenue expenditure includes money spent on normal running
of government departments and various services, interest charges on
government debt, subsidies. Grants to State governments and other
parties are also treated as revenue expenditure.
Capital expenditure includes payments made for acquisition of efforts
like land, buildings and machinery, as also investments in shares. Loans
and advances extended by the Centre to State governments and Union
Territories, PSU's and other parties also fall under this category.
Government expenditure is also classified into plan and non-plan
expenditure. Plan expenditure is money spent on new projects such as new
power plants or bridges, expected to commence in the financial year.
Non-plan expenditures emanate from projects that have already been
completed. For instance, maintenance and salaries of staff of primary
schools set up by the government would be classified under this
The Budget also has policy announcements. The Budget indicates the
government's economic thinking and determines activities such as exports
and foreign direct investment, which indirectly impact our finances.
The Budget has both short-term and long-term effects on finances.
Short-term effects take place via taxes and prices. Tax rates determine
disposable income. Income tax rates laid down in the budget make a big
difference to salaried people, who have fixed incomes. The indirect
taxes like excise and customs duties laid down in the Budget impact
product prices, and hence spending decisions.
In the long run, the direction inflation takes in response to the
budget influences money. Suppose, to balance the budget, the government
borrows heavily. It may then be forced to print more money. This
increases demand for goods and services without a commensurate increase
in supply, since higher supply requires new plants and greater manpower,
which take time. So there will be an inflationary price rise.
Inflation's greatest impact is on older people, especially those
retired or close to retirement. People in this category usually seek
stable returns and invest their savings accordingly. Rising inflation
erodes the benefits of fixed-return instruments.