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The Budget is the annual fiscal exercise that attracts a huge amount of interest, as it is a plan that sets

goals, outlines resources to meet these goals, provides details of the government's receipts and payments,
and frames the taxation policies for the country.
The Budget is full of technical jargon that is pure mumbo jumbo to the uninitiated. Here's a financial glossary
of words and phrases linked to the budgetary exercise to help you maneuver your way through the mae
that is the Budget.
Assets with banking system include current account balances with other banks, advances to banks and
money at call and short notice of a fortnight or less.
Ad-valorem duties This is a !atin term and it used to refer to duties that are levied on
commodities"products as a certain percentage of their price. These are different from specific excise duties
that are levied on products.
Budgetary Deficit #uch a situation arises when the expenses exceed the revenues. Here the entire
budgetary exercise falls short of allocating enough funds to a certain area.
Budget Estimates These estimates contain an estimate of $iscal %eficit and the &evenue %eficit for the
year. The term is associated with the estimates of the 'enter's spending during the financial year and the
income received as proceeds of tax revenues.
Balance of Payment (n overall statement of a country's economic transactions with the rest of the world
over some period, often a year. ( table of the balance of payments shows amounts received from the rest of
the world and amounts spend abroad. The current account includes exports and imports, that is visible
trade, and receipts from and spending abroad on services such as tourism. )t also includes receipts of
property incomes from abroad and remittances of property incomes abroad, and receipts and payments of
international transfers, that is gifts. The capital account of the balance of payments includes inward and
outward foreign direct investment, and sales and purchases of foreign securities by residents and of
domestic securities by non*residents. The third element in the balance of payments is changes in official
foreign exchange reserves.
Bank credit )t includes loans, cash credit and overdrafts, and inland bills and foreign bills purchased and
discounted. Bills exclude those rediscounted with &B) and )%B).
Bank credit to commercial sector )t includes credit to commercial sector by &B) and commercial banks.
&B)'s credit includes advances to and investments in shares and debentures of financial institutions, and
land mortgage banks.
Bank Rate The rate at which the Bank of +ngland used at one tome to rediscount first*class bills for its
customers. )t has long been abolished. (t one time many other interest rates were specified in terms of their
margin above bank rate. )t directly affected other interest rates only when the market needed to borrow from
the Bank of +ngland, but changes in bank rate were announced as a means of informing the 'ity of the
Bank of +ngland's views on what commercial interest rates should be.
Borrowings by commercial banks from &B) constitute outstandings against refinance schemes, like
general refinance, and export credit refinance.
Cash balances with RBI indicates cash balances maintained by scheduled banks with &B) and include
these balances under cash reserve ratio ,'&&- re.uirements.
Caital Budget The word, capital, is long*term in nature. 'apital Budget keeps track of the government's
capital receipts and payments. This accounts for market loans, borrowings from the &eserve Bank and other
institutions through the sale of Treasury Bills, loans ac.uired from foreign governments and recoveries of
loans granted by the 'entral government to state governments and /nion Territories.
Caital Payments +xpenses incurred on ac.uisition of assets are termed capital payments.
CE!"A# This is a replacement for the earlier 01%2(T scheme and is meant for reducing the cascade
effect of indirect taxes on finished products. The scheme is a more extensive one with most goods brought
under its preview.
Custom Duties These duties are levied on goods whenever they are either brought into the country or
exported from the country. The importer or the exporter pays custom duties.
Countervailing Duties This is levied on imports that may lead to price rise in the domestic market. )t is
imposed with the intention of discouraging unfair trading practices by other countries.
Consolidated $und This is one big reservoir where the government pools all its funds together. The fund
includes all government revenues, loans raised and recoveries of loans granted.
Contingency $und )t is more or less similar to that extra little bit of savings that all mothers set aside in
case of an emergency. !ikewise, the government has created this fund to help it tide over difficult situations.
The fund is at the disposal of the 3resident to meet unforeseen and urgent expenditure, pending approval
from 3arliament. The amount that is withdrawn from the fund is recouped.
Caital E%enditure !ong*term in nature they are used for ac.uiring fixed assets such as land, building,
machinery and e.uipment. 1ther items that also fall under this category include, loans and advances
sanctioned by the 'enter to the #tate governments, union territories and public sector undertakings.
Caital Receit !oans raised by the 'enter from the market, government borrowings from the &B) 4 other
parties, sale of Treasury Bills and loans received from foreign governments all form a part of 'apital &eceipt.
1ther items that also fall under this category include recovery of loans granted by the 'enter to #tate
governments 4 /nion Territories and proceeds from the dilution of the government's stake in 3ublic #ector
Central Plan )t refers to the government's budgetary support to the 3lan and, the internal and extra
budgetary resources raised by the 3ublic #ector /ndertakings.
Consumer rice inde% ( price index covering the prices of consumer goods. This is contrasted with a more
general price index, such as the 5%3 deflator, which also includes investment gods and goods purchased
by the government.
Cororate #a% ( tax on the profits of firms, as distinct from taxation of the incomes of their owners. There
are strong arguments for having separate income tax schemes for firms and individuals the system of
allowances and progressive tax rates appropriate for a tax on individual incomes is .uite different from a
sensible scheme for taxing firms.
Crowding &ut The possibility that an increase in one form of spending may cause another form to fall. This
could happen in various ways. #uppose for example that government spending on public work rises. This
might use scarce resources, such as skilled engineers, diverting them from alternative investment projects,
which are thus delayed. (lternatively, if increased demand causes inflation, this might lead to tighter
monetary policy, thus cutting forms of spending. $inally, if private investors are made nervous by increased
government debt, a rise in public works might scare off private investment. Total crowding out occurs if other
spending falls by 677 per cent of the rise in public works. 3artial crowding out occurs if other spending falls,
but by less than spending rises. )t is possible that crowding in may occur, that is, other spending is actually
increased, if conditions are such that the 8eynesian multiplier works, or through favourable effects of an
overall rise in spending on the confidence of private investors.
The currency liability of 'entral government constitutes small coins and other commemorative coins
issued by the government mints.
Current Account Transactions where the payments are income for the recipient. ( country's balance of
payments on current account includes trade in goods, or visibles9 trade in services, or invisibles9 payments
of factor incomes, including dividends, interests, migrants remittances from earnings abroad9 and
international transfers, that is gifts. 'urrent account is contrasted with capital account, where transactions do
not give rise to incomes, but represent changes in the form in which assets are held.
Current Account Deficit (n excess of expenditure over receipts on current account in a country's balance
of payments.
Current Account 'urlus (n excess of receipts over expenditure on current account in a country's balance
of payments.
Direct #a%es Taxes imposed directly on the customers such as the )ncome Tax and the 'orporate Tax fall
under this category.
Divestment The dilution of the government's stake in 3ublic #ector /ndertakings is called as divestment.
Demand for grants )t is a statement of estimate of expenditure from the 'onsolidated $und. This re.uires
the approval of the !ok #abha.
Demand deosits )t include current deposits, demand liabilities portion of savings bank deposits, overdue
deposits and cash certificates, outstanding telegraphic and mail transfers and margins against letter of
Deosit money )t consists of demand deposits with commercial and cooperative banks. )t also includes
current deposits portion of savings bank deposits. These deposits do not earn any interest.
E%cise Duty ( tax levied on the consumption of particular goods. These may be levied to raise government
revenue, and are often levied at higher rates on goods whose consumption is believed to have adverse
effects on public health, public order, or the environment. +xcise duties on alcoholic drinks, tobacco, and
petrol are widely used for both purposes.
$ood credit by banks indicates bank credit to $ood 'orporation of )ndia, #tate governments and #tate
cooperative agencies for food procurement.
$oreign Direct Investment The ac.uisition by residents of a country of real assets abroad. This may be
done by remitting money abroad to be spent on ac.uiring land, constructing buildings, mines, or machinery,
or buying existing foreign business. )nward foreign direct investment similarly is ac.uisition by non*residents
of real assets within a country. 1nce a country has real assets abroad, if these make profits which are
ploughed back into expanding enterprises, this would ideally be shown in the balance of payments as
receipts on current account balanced by an outflow on capital account. )n fact balance*of*payments
accounts often show only net remittances of profits as a current account item, ignoring profits earned abroad
and ploughed back in both current and capital accounts.
$inance Bill 'onsists the government's proposals for the imposition of new taxes, modification of the
existing tax structure or continuance of the existing tax structure beyond the period approved by the
$iscal Deficit )t is the difference between the &evenue &eceipts and Total +xpenditure.
(ross !ational Product Total market value of the finished goods and services manufactured within the
country in a given financial year, plus income earned by the local residents from investments made abroad,
minus the income earned by foreigners in the domestic market.
(ross Domestic Product )(DP* 1ne of the main measures of economic activity. '5ross' indicates that it is
calculated without subtracting any allowance for capital consumption9 'domestic' that it measures activities
located in the country regardless of their ownership. )t thus includes activities carried on in the country by
foreign*owned companies, and excludes activities of firms owned by residents but carried on abroad.
'3roduct' indicates that it measures real output produced rather than output absorbed by residents. 5%3 is
reported at both current and constant prices.
(ross Investment #pending on creating new capital goods, before making any allowance for capital
consumption. 5ross investment consists of gross fixed investment, plus net investment in stocks and work in
progress. 5ross investment is distinguished from net investment, which measures the change in the capital
stock after allowing for capital consumption. 5ross investment is in principle based on observable market
transactions9 by contrast, capital consumption is based on calculation about the rate at which capital goods
wear out or become obsolete. These calculations are not based on market transactions thus they, and
estimates of net investment based on them, are less reliable than measures of gross investment.
Income #a% ( tax on income. )ncome tax is normally ero on some bands of small incomes, both on e.uity
grounds and because of the expense of collecting tiny amounts of tax. )t is then normally proportional up to
some upper limit9 income beyond this is taxed at higher rates. Thus income tax is usually progressive. (n
individual's taxable income is calculated after deducting various allowances, in respect of assorted items
which may include mortgage interest payable, charitable donations, responsibility for dependents, age
allowances, medical insurance, and superannuation contributions. )ncome for tax purposes may include or
exclude imputed items such as the value of the services of owner*occupied houses. 'apital gains may be
included as income, excluded, or taxed separately from income. )ncome tax may be collected from
individuals in arrears, or by deduction at source through pay*as*you*earn ,3(:+- in the /8, or a withholding
tax on incomes from employment and payment of dividends net of tax by companies, in the /#.
Inflation ( persistent tendency for prices and money wages to increase. )nflation is measured by the
proportional changes over time in some appropriate index, commonly a consumer price index, or a 5%3
deflator. Because of changes in the type and .uality of goods available, measures of inflation are probably
not reliable to closer than a margin of 6 or ; per cent a year, but if prices rise faster than this there is no
doubt that inflation exists. +conomists have attempted to distinguish cost and demand inflation. 'ost
inflation is started by an increase in some elements of costs, for example the oil price explosion of 6<=>*?.
%emand inflation is due to too much aggregate demand. 1nce started, inflation tends to persist through an
inflationary spiral, in which various prices and wage rates rise because others have risen. The inflation tax is
the real cost to the holders of money due to its loss of real purchasing power during inflation. Hyperinflation
is extremely rapid inflation, in which prices increase so fast that money largely loses its convenience as a
medium of exchange.
Indirect #a%es Taxes imposed on goods manufactured, imported or exported such as +xcise %uties and
'ustom %uties.
+&D"A# )t stands for 0odified 2alue (dded Tax and is a way of giving some relief to the final
manufacturers of goods on +xcise %uties borne by their suppliers.
+oneti,ed Deficit 0easures the level of support the &B) provides to the 'entre's borrowing program.
+-. also called narrow money. includes currency with public ,notes and coins in circulation less cash in
hand with banks-, deposit money with public, and @other' deposits with &B).
+/. also called broad money, includes 06 plus time deposits with banks. Time deposits exclude inter*bank
+edium term loan )t is granted for 6*> years. !ong*term loans are for more than > years.
+erchandise Account The part of balance*of*payments accounts referring to visible trade, or merchandise
imports and exports.
!on-Plan E%enditure 'onsists of &evenue and 'apital +xpenditure on interest payments, %efense
+xpenditure, subsidies, postal deficit, police, pensions, economic services, loans to public sector enterprises
and loans as well as grants to #tate governments, /nion territories and foreign governments.
!et bank credit to government includes total net credit to 'entral and #tate governments by &B) and
commercial banks. 'redit to government by commercial banks indicates investments by banks in
government securities.
!et foreign e%change assets with banks include net foreign exchange with &B) and commercial banks.
$oreign exchange assets of commercial banks include net foreign currency balances with authorised foreign
exchange dealers.
!et non-monetary liabilities of the banking sector indicate net non*monetary liabilities, other than time
deposit liabilities of commercial banks, and net non*monetary liabilities of &B). These include capital and
reserves, branch adjustments, and bills payables9 the liabilities are net of investments in fixed assets, and
branch adjustments.
0&ther0 deosits held with &B) are deposits other than balances held in )0$ (ccount Ao.6, &B) employee
provident and superannuation funds, and '%# deposits. The balances under these accounts are excluded,
as they are non*monetary liabilities of &B).
Peak Rate )t is the highest rate of 'ustom %uty applicable on an item.
Performance Budget )t is a compilation of programs and activities of different ministries and departments.
Public Account )t is an account where money received through transactions not relating to consolidated
fund is kept.
Plan E%enditure 'onsists of both &evenue +xpenditure and 'apital +xpenditure of the 'enter on the
'entral 3lan, 'entral (ssistance to #tates and /nion Territories.
Primary Deficit $iscal %eficit minus )nterest payments.
Per Caita Real (DP ( country's real 5%3 per member of the population. This may be calculated using the
total population, adults only, or 'adult' e.uivalents', giving children of various ages weighs e.ual to a fraction
of an adult. 3er capita real 5%3 is lower than per capita income in a country with net external assets which
yield an income, and greater than per capita income in a country with a lot of inward investment, so that net
property income payments have to be made abroad.
Purchasing ower arity 333s are the rates of currency conversion which e.ualise the purchasing power
of different currencies. This means that a given sum of money, when converted into different currencies at
the 333 rates, will buy the same basket of goods and services in all countries. )n other words, 333s are the
rates of currency conversion which eliminate the differences in price levels between countries.
333s also appear in international trade theory in the context of e.uilibrium exchange rates * that is the
underlying rates of exchange to which actual exchange rates are assumed to converge in the long term.
Reserve money refers to money supplied by &B) and 'entral government. This indicates monetary liability
of &B) and the government of )ndia to public including banks. The reserve money, or currency notes and
coins, is held by public and banks in their currency chests and as deposits with &B). )t also includes BotherB
deposits with &B).
Revenue Deficit )t is the difference between &evenue +xpenditure and &evenue &eceipts.
Revenue 'urlus 1pposite of &evenue %eficit, it is the excess of &evenue &eceipts over &evenue
Revised Estimates /sually given in the following budget, it is the difference between the Budget +stimates
and the actual figures.
Revenue Budget 'onsists of &evenue &eceipts and &evenue +xpenditure of the government.
Revenue Receit 'onsists of duties imposed by the 'entre, interest and dividend on investments made by
the government.
Revenue E%enditure +xpenditure incurred for the normal functioning of the government departments and
various other services such as interest charges on debt incurred by the government.
'cheduled banks are banks, which are included in the second schedule to the &eserve Bank of )ndia (ct
6<>?. These banks enjoy certain privileges such as free concessional remittance facilities and financial
accommodation from the &B). They also have certain obligations like minimum cash reserve ratio ,'&&- to
be kept with the &B).
'ubsidies $inancial aid provided by the 'enter to individuals or a group of individuals to be competitive.
The grant of subsidies is also aimed at improving their skills of those who benefit from the subsidies.
#erm deosits are deposits with a fixed maturity of not less than 6C days. This would also include cash
certificates, and cumulative or recurring deposits, but would exclude interest accrued and payable on these
"alue Added #a% )t is based on the difference between the value of the output over the value of the inputs
1holesale Price Inde% The prices of goods, which are dealt with, wholesale, mainly bulk goods, which are
mostly inputs to production rather than finished commodities. ( wholesale price index, for example, includes
wheat and sheet steel, where a retail price index includes bread and cars. Because they involve goods that
are dealt in before the production of final goods, and are held as stocks of inputs, wholesale price indexes
tend to be leading indicators, moving earlier in trade cycles than the retail price index.