On 1st February 2019, the government on India will present the interim budget. And if you wish to make any attempts at understanding the budget, you need to have some grasp over the concepts.
The Union Budget is one of the most important documents, not just for the Government but for us as well. Think of it as the nation’s financial planning for the next year. It determines how much money we’ll lose in taxes, whether or not our train and roads will get an upgrade, what will be the interest on my personal loan, etc.
So with this in mind, let’s jump straight into the fancy budget jargons that Piyush Goyal will be using tomorrow.
Gross Domestic Product (GDP)
The GDP is the starting and the ending point which is the final value of the goods and services produced in the market. The goal of the Government is to increase the GDP of our country. The Government earns income by the taxes which we pay and the tax is decided by the budget.
Capital Gains Tax
People who also make big investments and sell them off have to pay Capital Gains Tax. The Government makes money with the help of disinvestment too which is by selling the properties that they own.
Revenue and Capital Expenditure
The money that is made by the government is spent on Revenue and Capital expenditure. Revenue expenditure refers to the short-term expenses like salary and food. Capital expenditure on the other hand, are major investments or expenses made on welfare or purchase of properties.
The difference between the total revenue and expenditure should be equal, but that is never the case. The expenses are more and the fiscal deficit (aka budget deficit) is increasing to 3.5% which will create a problem. This leads to an increase in price of goods and services as the demand is more.
To solve budget deficit and price rise, the RBI either narrows the supply of money in the economy or just produces more. It will either increase interest and loan rates or make it easier to acquire loans. These are economic decisions that will directly impact the money system in the country.