Union Budget - Important Economic Terms

Union  Budget  also  called  Annual  Financial  Statement  is  presented  by  the  Union  Finance  Minister  on  1st  of 
February  from  the  year  2016.  It  has  the  financial  bill  and  the  appropriation  bill  that  are  supposed  to  be 
passed  in  Indian  Parliament  before  April  1.  The Union Budget encompasses many economic terms that can 
be a bit difficult to understand for aspirants of ​IAS Exam​. 
This  article  will  bring  you  such  economic  terms  that  are  seen  in  Union  Budget,  the  meaning  of  those UPSC 
candidates  should  know.  Before  that,  a  basic  understanding  of  Union  Budget  will  also  be  provided. 
Alongwith  these  important  economic  terms  seen  in  Budget,  candidates  can  also  read  about  15 terms quite 
frequently seen in news related to Indian economy. 

What Union Budget means? 

According  to  Article  112 of the Indian Constitution, the Union Budget of a year, also referred to as the annual 
financial  statement,  is  a  statement  of  the  estimated  receipts  and  expenditure  of  the  government  for  that 
particular year. 
Aspirants  should  know  that  there  is  a  difference  between  Union  Budget,  Interim  Budget  and  Vote  on 
Account.  Read  how  the  ​interim  budget  is  different  from  a  regular  budget  and  vote  on  account  in  the  linked 
article. 
Union Budget 2020-21 
Union Budget 2020 will be presented by the Finance Minister on 1st February 2020. For detailed insights into 
the B
​ udget 2020​, click on the linked article. 
Union Budget 2019-20 emphasised on the points given in the table below: 

● Focus on Agriculture and Rural economy 

● GDP growth pegged at 7.6 percent 
● Focus on cutting plan expenditure to control fiscal deficit is not a good sign 
● Emphasis on rural economy is a positive step, as history has shown us that it was a rural 
economy that insulated India from the recession of 2009 

Important Economic Terms Related Union Budget & Their Meanings 

The  table  below  will  bring  to  you  a  list  of  all  the  important  terms  that  are  related  to  and  also  used in Union 
Budget: 

Economic  Meaning 
Term 

Annual  It encompasses the receipt and expenditure of the Indian government. The 
Financial  information on the Consolidated Fund of India, Contingency Fund of India and Public 
Statement  Accounts is provided. (Read about the t​ ypes of funds​ in India here.) 
Revenue –  ● Revenue Receipt: 
Receipt &  ● The receipts received which cannot be recovered by the government 
Expenditure  ● It comprises income amassed by the Government through taxes and 
non-tax sources like interest, dividends on investments. 
● Revenue Expenditure: 
● Expenditure incurred by the Union Government for purposes other 
than for the creation of physical or financial assets. 
● It includes those expenditures incurred for the usual functioning of the 
government departments, grants given to state governments and 
interest payments on the debt of the Union Government etc. 

Capital –  ● Capital Receipt: 

Receipt &  ● Receipts which generate liability or decrease the financial assets of 
Expenditure  the government 
● It includes borrowings from the Reserve Bank of India and commercial 
banks and other financial institutions 
● It also consists of loans received from foreign governments and 
international organization and repayment of loans granted by the 
Union government 
● Capital Expenditure: 
● Spending incurred by the government which results in the formation of 
physical or financial possessions of the Union government or 
decrease in financial liabilities of the Union Government. 
● It contains expenditure on procuring land, equipment, infrastructure, 
expenditure in shares. 
● It also includes mortgages by the Union government to Public Sector 
Undertakings, state and union territories 

Corporation  ● Tax on profits of companies 

Tax 

Direct Tax  ● Taxes which are imposed directly on individual and company 
● It comprises income tax and corporation tax 

Indirect Tax  ● Taxes which are imposed on goods and services 

● It comprises taxes like service tax, excise taxes, and customs duties 

Fiscal Policy  ● The policy of the government 

● Fiscal policy is the means by which a government adjusts its expenditure 
levels and tax rates to monitor and influence a country’s economy. 

Revenue  ● It is the additional expenditure of government over revenue receipts 

Deficit 

Fiscal Deficit  ● It is the difference between the total expenditure of the government and its 
total receipts, not including the borrowing. 
 Primary  ● Fiscal deficit – interest payments = Primary Deficit 
Deficit 

Non-Tax  ● Government revenue not generated from taxes. 

Revenue  ● Examples of non-tax revenue: 
● Aid from another level of government ((intragovernmental aid): in the 
United States, federal grants may be considered non-tax revenue to 
the receiving states, and equalization payments; Aid from abroad 
(foreign aid) etc 

Gross  Monetary value of all finished goods and services made within a country during a 
Domestic  specific period 
Product 
(GDP) 

15 Terms related to Indian Economy which UPSC Aspirants should know 

Candidates  find it difficult to understand economic terms seen in the news. These terms are quite frequently 
read in the newspapers too. We are providing a list of top 15 terms which are recurring in current affairs. 

Important Economic Terms Seen in News (Important for IAS Exam) 

Economic  Meaning 
Terms 

Statutory  Reserve requirement that commercial banks are required to maintain in the form of 
Liquid Ratio  cash, gold reserves, Reserve Bank of India- approved securities before providing 
(SLR)  credit to the customers 

Cash Reserve  Cash Reserve Ratio (CRR) is a specified minimum fraction of the total deposits of 
Ratio (CRR)  customers, which commercial banks have to hold as reserves either in cash or as 
deposits with the central bank. CRR is set according to the guidelines of the central 
bank of a country 

Marginal Cost  Marginal Cost of Funds based Lending Rate (MCLR) is the minimum lending rate 
of Fund based  below which a bank is not permitted to lend 
Lending Rate 
(MCLR) 

Repo Rate  Repo rate is the rate at which the central bank of a country (Reserve Bank of India in 
(RR)  case of India) lends money to commercial banks in the event of any shortfall of 
funds. 

Reverse Repo  Reverse Repo rate is the rate at which the Reserve Bank of India borrows funds 
Rate (RRR)  from the commercial banks in the country 

Wholesale  An index that measures and tracks the changes in the price of goods in the stages 
Price Index  before the retail level – that is, goods that are sold in bulk and traded between 
(WPI)  entities or businesses instead of consumers. For more on WPI, click ​here​. 

Consumer  Measure that examines the weighted average of prices of a basket of consumer 
Price Index  goods and services, such as transportation, food, and medical care. For more on 
(CPI)  CPI, click ​here​. 

Foreign  An investor or investment fund registered in a country outside of the one in which it 
Institutional  is investing 
Investor 

Manufacturing  Manufacturing, processing, testing, packaging, storing and other activities 

Activity  undertaken or required to be undertaken by CRL or its suppliers in order to 
manufacture and supply Client with the Drug Product 

Foreign Direct  An investment in the form of a controlling ownership in a business in one country 
Investment  by an entity based in another country 

Monetary  Policy adopted by the monetary authority of a country that controls either the 
Policy  interest rate payable on very short-term borrowing or the money supply, often 
targeting inflation or the interest rate to ensure price stability and general trust in 
the currency 

Base Effect  Distortion in a monthly inflation figure that results from abnormally high or low 
levels of inflation in the year-ago month 

Liquidity  A tool used in monetary policy, primarily by the Reserve Bank of India (RBI), that 
Adjustment  allows banks to borrow money through repurchase agreements (repos) or for 
Facility (LAF)  banks to make loans to the RBI through reverse repo agreements. 

Marginal  The penal rate at which banks can borrow money from the central bank over and 
Standing  above what is available to them through the LAF window. 
Facility (MSF) 

Index of  Index for India which details out the growth of various sectors in an economy such 
Industrial  as mineral mining, electricity and manufacturing. 
Production 
(IIP)