Budget Glossary 4
We concluded the previous instalment of the glossary with a discussion of central plan. We now take up concepts of plan and non-plan expenditure.
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Plan Expenditure:
This is the Budget support to the central plan and the central assistance to state and Union territory plans. Like all Budget heads, this is also split into revenue and capital components.
Non-plan Expenditure:
This is the revenue expenditure of the government. The biggest items of expenditure are interest payments, subsidies, salaries, defence and pension. The capital component of the non-plan expenditure is relatively small with maximum allocation going to defence. We will now take up the various deficits and the components of plan and non-plan expenditure.
Fiscal Deficit:
When the government���s non-borrowed receipts fall short of its entire expenditure, it has to borrow money from the public to meet the shortfall. The excess of total expenditure over total non-borrowed receipts is called the fiscal deficit.
Primary deficit:
The revenue expenditure includes interest payments on government���s earlier borrowings. The primary deficit is the fiscal deficit less interest payments. A shrinking primary deficit indicates progress towards fiscal health. The Budget document also mentions deficit as a percentage of GDP. This is to facilitate comparison and also get a proper perspective. Prudent fiscal management requires that government does not borrow to consume in the normal course.
FRBM Act:
Enacted in 2003, Fiscal Responsibility and Budget Management Act require the elimination of revenue deficit by 2008-09. Hence, from 2008-09, the government will have to meet all its revenue expenditure from its revenue receipts. Any borrowing would only be to meet capital expenditure. The Act mandates a 3% limit on the fiscal deficit after 2008-09.
Resources transferred to the states:
A part of the Centre���s gross tax collection goes to state governments. In the Budget 2007-08, the states were to receive nearly 27% of the gross tax collections. The Centre also transfers funds to states by way of support to their plans. It also gives large grants to manage centrally-sponsored schemes. The government counts small savings transfers to state governments, which are in the nature of borrowings, as resources transferred to states.
Before March 31, 1999, the Centre used to borrow net accretions to small savings and lend them to the states. From April 1, 1999, states started receiving 75% of net small savings directly; the balance was invested in special government securities during 1999-2000 to 2001-2002. The sums received in the NSS fund on redemption of special securities are being reinvested in special G-secs. From April 2002, the entire net collection under small saving schemes in each state and UT are advanced to the concerned state/UT government as investment in its special securities. The expenditure and receipts Budget take up the respective heads in greater detail.
Value-Added Tax (VAT) and GST:
VAT helps avoid cascading of taxes as a product passes through different stages of production/value addition. The tax is based on the difference between the value of the output and inputs used to produce it. The aim is to tax a firm only for the value added by it to the inputs it is using for manufacturing its output and not the entire input cost. VAT brings in transparency to commodity taxation.
This is the Budget support to the central plan and the central assistance to state and Union territory plans. Like all Budget heads, this is also split into revenue and capital components.
Non-plan Expenditure:
This is the revenue expenditure of the government. The biggest items of expenditure are interest payments, subsidies, salaries, defence and pension. The capital component of the non-plan expenditure is relatively small with maximum allocation going to defence. We will now take up the various deficits and the components of plan and non-plan expenditure.
Fiscal Deficit:
When the government���s non-borrowed receipts fall short of its entire expenditure, it has to borrow money from the public to meet the shortfall. The excess of total expenditure over total non-borrowed receipts is called the fiscal deficit.
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Primary deficit:
The revenue expenditure includes interest payments on government���s earlier borrowings. The primary deficit is the fiscal deficit less interest payments. A shrinking primary deficit indicates progress towards fiscal health. The Budget document also mentions deficit as a percentage of GDP. This is to facilitate comparison and also get a proper perspective. Prudent fiscal management requires that government does not borrow to consume in the normal course.
FRBM Act:
Enacted in 2003, Fiscal Responsibility and Budget Management Act require the elimination of revenue deficit by 2008-09. Hence, from 2008-09, the government will have to meet all its revenue expenditure from its revenue receipts. Any borrowing would only be to meet capital expenditure. The Act mandates a 3% limit on the fiscal deficit after 2008-09.
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Resources transferred to the states:
A part of the Centre���s gross tax collection goes to state governments. In the Budget 2007-08, the states were to receive nearly 27% of the gross tax collections. The Centre also transfers funds to states by way of support to their plans. It also gives large grants to manage centrally-sponsored schemes. The government counts small savings transfers to state governments, which are in the nature of borrowings, as resources transferred to states.
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Before March 31, 1999, the Centre used to borrow net accretions to small savings and lend them to the states. From April 1, 1999, states started receiving 75% of net small savings directly; the balance was invested in special government securities during 1999-2000 to 2001-2002. The sums received in the NSS fund on redemption of special securities are being reinvested in special G-secs. From April 2002, the entire net collection under small saving schemes in each state and UT are advanced to the concerned state/UT government as investment in its special securities. The expenditure and receipts Budget take up the respective heads in greater detail.
Value-Added Tax (VAT) and GST:
VAT helps avoid cascading of taxes as a product passes through different stages of production/value addition. The tax is based on the difference between the value of the output and inputs used to produce it. The aim is to tax a firm only for the value added by it to the inputs it is using for manufacturing its output and not the entire input cost. VAT brings in transparency to commodity taxation.
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