What you need to know before the Union Budget 2021!
Do you know an average Indian spends 40% of his monthly income on food?
What impact will today’s budget have on it? Even we are very curious to know about it! But first, let us help you with a brief about the budget.
Today, that is, the 1st of February 2021, the Union Budget 2021 will be presented by Finance Minister Nirmala Sitharaman. The circumstances and the state of the economy at which this budget will be presented this year are not like any other year and this budget is going to be very crucial in chalking out how India’s economy will be shaped in the year to come.
But a basic question here, why should you be concerned about this budget?
The Budget becomes essential for all of us as it impacts the interest rates, the economy, and the markets. For example, after the budget is announced, if stock markets investors perceive that the economy is going to perform well with the new schemes then the major market indices rise and the stocks of companies impacted will depict the market sentiment towards the budget.
Also, there are direct and indirect taxes that the government recalibrates every budget. For example, if the direct taxes (taxes passed onto end consumer) are increased, then consumer demand will fall as people will have comparatively less income for spending, which we call the disposable income. Sometimes, the indirect taxes are greater and they are passed onto the consumer via high prices and so the consumer demand again falls. Another point worth noting here is that the amount of deficit and how the government seeks to finance it significantly going to impact the money supply and interest rates in the economy.
Looking back into the Union Budget history of India, it was the budget of 1991 when Dr. Manmohan Singh announced in his Budget that India’s economy was to be liberalized. There are many such landmark budgets that India has seen ever since the first budget was announced in 1948 for independent India. Another example is the Union Budget in the year 2006 when the GST was introduced and it completely changed the way taxation was viewed in India for years to follow.
Currently, India is at a crucial juncture where the country is grappling with a pandemic along with stark issues of unemployment and wealth inequalities, there is a general expectation that this budget will be discussing these issues and hence the significance of what is to follow for India’s economy through this budget is huge.
Understanding what the Budget today holds for India will really give us insights into the thought process of the decision-makers as to how they want to get the economy in order. So before listening to the speech today, why not a quick revision of important terminologies so that understanding the Union Budget 2021 will be a piece of cake!
Let’s help you with some of the Budget jargons-
Annual Financial Statement
The annual financial statement is a document that is presented to the parliament every year. It contains a statement of the estimates and receipts for the year.
Fiscal Deficit
The fiscal deficit is the difference between the country’s revenue (total) and its revenue (total). This number is indicative of the borrowing the government needs to undertake to overcome the deficit.
Public Account
There are various instances that the government undergoes transactions in which the funds are to be returned back to their rightful owners and they do not belong to the government. The account overlooks the transfer of such funds, for example, provident funds, etc.
Inflation
Inflation is a rise in the prices of goods and services of daily use such as food, clothing, housing, etc. Inflation looks at the average change in the price of a basket of goods and commodities with respect to a time frame. We get the inflation number from the Consumer Price Index which is an index measuring changes in prices of a basket of goods and services of daily use.
Capital Budget
This comprises capital receipts and expenditure. Capital receipts include disinvestments and loans from internal and external sources of funds of the country. Capital expenditure comprises payment towards the development of machinery and health infrastructure in the country, for example.
Budget Estimates
The budget is a plan on the funds that would flow through the economy. At the beginning of the financial year, estimates are calculated with respect to how the funds would be allocated to different government activities and ministries.
Revised Estimates
These are a review in the course of the year, of the estimates for any changes in the pre-decided estimates for the remaining part of the year.
Public Debt
This includes money borrowed by the government, both, from within the country, and from external sources of funds from outside the country. It can be seen as a total outstanding debt of a country’s government.
Majorly, the S&P BSE Sensex has either fallen or stayed within a range in the previous years in the month to follow after the budget and very few times has it risen. It will be interesting to see how the markets perceive the Union Budget 2021!
Now that you finally understand the budget jargons, why not share it with your friends and family?
