Budget Dictionary: From ‘disinvestment’ to ‘capital expenditure’, key terms explained

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

Fiscal Year

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

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

This 12-month period in India begins on April 1 and ends on March 31.

Inflation

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

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

Monetary Policy

An economy’s growth is directly impacted by the flow of money in that economy. As a result, the government keeps an eye on the economy’s liquidity to ensure optimal growth. This is carried out through the nation’s central bank.

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

Disinvestment

The act of the government selling or liquidating its interest in a company or asset of the public sector is known as disinvestment or divestment. This is carried out when Public Sector Undertakings (PSUs) begin to accrue liabilities and exhibit a negative rate of return, placing pressure on the government’s financial resources.

Capital Expenditure

By expanding or improving manufacturing facilities and increasing operational efficiency, capital expenditures, which result in the formation of assets, enable the economy to generate income for many years. In addition, it boosts the economy’s capacity to generate more in the future, increases labour participation, and assesses the economy.

Government capital expenditures are funds used to develop buildings, machinery, equipment, educational and healthcare facilities, etc. Additionally, it covers the costs incurred by the government to make investments that will yield earnings or dividends in the future and to acquire fixed assets like land.

Customs Duties

When goods are exported or imported into the country, customs duties are levied. It is also a form of indirect tax that is charged to the buyer of the goods at the end of the supply chain. The government uses this to increase income, control the flow of commodities, and protect domestic businesses.

Excise Duty

Excise Duty is a type of indirect tax that is often collected from consumers by a retailer or intermediary and then given to the government.

Several indirect taxes, including excise duty, are now included in the GST. This indicates that, theoretically, there is no excise duty in India other than on a small number of commodities like alcohol and petroleum.

Incentivised Exports

The Indian government offers financial assistance to exporters in the form of low-interest loans, tax exemptions, subsidies, and government-funded advertising campaigns, among other things. Exporters are better equipped to establish competitive pricing in the global market by reducing their overall export expenses.

All government incentives must comply with the norms of the World Trade Organisation (WTO), which polices moral and ethical global trade practices.

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