When you watch finance minister P Chidambaram deliver the final budget of the United Progressive Alliance or UPA II government's final budget, you would hear a lot about various terms.
Here is a listing of five most important ones:
Fiscal deficit happens when governments spend more than they earn in terms of tax and other sources of income. This is not unique to India and most countries have a fiscal deficit. The government meets this requirement for money through borrowing from the market and Reserve Bank of India. A high fiscal deficit is not good for the economy. We will tell you why in a bit but this is an important term you must take note of in the budget.
Direct tax is the tax paid directly by you and me or companies. So, the income tax paid by us or corporations along with other taxes on assets form a part of the direct tax kitty. This is nearly half of the government's revenue through taxation. In a high growth phase, direct tax revenue improves. It falls when the economy witnesses a slowdown.
When you buy a product or a service, you usually pay something as tax. The maximum retail price is inclusive of all taxes, says any product you buy. This is a tax paid by manufacturers or service providers on your behalf. The government imposes excise, sales and other tax on services to generate more income.
When you buy fuel like diesel, you pay prices that are lower than market prices. This is because the government pays for the difference. This difference is called a subsidy. Similarly, government pays for low prices of food for the poor and fertilizer for farmers.
The money used to build and manage railways, express highways, airways, canals and dams, purchase of land, machinery and equipment, loans to state governments and others forms a part of capital expenditure. This spending is an important indicator and is a major part of the planned expenditure. If capital expenditure is increased, it can trigger more economic activity and stimulate growth.
Courtesy: Kotak Securities