Budget dictionary: From disinvestment to capital expenditure, key terms explained

Below is a list of some of the terminologies frequently used in government budgets. Let’s know about them.

financial year

Governments use the concept of a fiscal year – also called the fiscal year – to manage their budgets and keep track of their financial activities. Financial statements are made for a company or government for this one year period.

Companies around the world generally prepare their balance sheets and income statements for a period of one year. However, each country has a different starting date for this period.

In India, this 12-month period begins on 1 April and ends on 31 March.

inflation

Inflation suggests that as goods and services become more expensive, money loses some of its purchasing power.

For example, if you have specific goods and services you can buy today 2,000. However, a decade from now, that same amount of money will buy you fewer products and services. The country’s inflation rate determines the rate at which this purchasing power is losing value. 10 percent inflation means that after one year, will be equal to 100 90.

Monetary policy

The growth of an economy is directly affected by the flow of money in that economy. As a result, the government monitors the liquidity of the economy to ensure optimum growth. This is done through the central bank of the country.

A central bank, such as the Reserve Bank of India (RBI), uses monetary policy to control the money supply to keep the economy healthy. To meet these objectives, the RBI implements a variety of strategies, including open market operations, changing reserve requirements, and setting interest rates.

disinvestment

The act of selling or liquidating the government’s own interest in a public sector company or asset is known as disinvestment or disinvestment. This is done when Public Sector Undertakings (PSUs) start accruing liabilities and exhibit negative rates of return, putting a strain on the financial resources of the government.

Capital expenditure

By expanding or improving manufacturing facilities and increasing operating efficiency, capital expenditure, which results in the creation of assets, enables the economy to generate income for many years. Furthermore, it increases the economy’s capacity to generate more in the future, increases labor participation, and assesses the economy.

Government capital expenditure is money used to develop buildings, machinery, equipment, educational and health facilities, etc. Additionally, it covers the costs incurred by the government to make investments that will provide income or dividends in the future and to acquire fixed assets such as land. ,

Custom duty

Customs duty is levied when goods are exported or imported into the country. It is also a type of indirect tax that is collected from the buyer of goods at the end of the supply chain. The government uses it to increase income, control the flow of goods, and protect domestic businesses.

Excise duty

Excise duty is a type of indirect tax that is often collected from consumers by a retailer or an intermediary and then passed on to the government.

Many indirect taxes including excise duty are now subsumed in GST. This indicates that, in principle, there is no excise duty in India except on a few items such as alcohol and petroleum.

export promotion

The Government of India provides financial assistance to exporters in the form of, inter alia, low-interest loans, tax exemptions, subsidies and government-funded advertising campaigns. Exporters are better equipped to establish competitive pricing in the global market by reducing their overall export outlay.

All government incentives must comply with World Trade Organization (WTO) norms, which govern ethical and moral global business practices.