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Tuesday, March 12, 2013

The Explainer: Understanding the Budget - Part I



In India, there is hardly any economic event that captures popular imagination as much as the Union Budget.  In a multi-part series, The Explainer will focus on the complex budget jargon that puts off even interested-in-budget souls.

I am writing this series of articles after receiving several requests from this blog’s readers and my friends on Facebook.

So, here we go!

What is a Fiscal Year?
Any twelve-month period that is used for submission of accounts, taxation purposes and to state financial reporting by private and public sector companies is called a Fiscal Year.

In India, the Government has laid down the provision that the 12-month starting on April 1 and ending on March 31 of next year will be treated as a Fiscal Year.

To put it in perspective, this article is being written on 12 March 2013, i.e., in Financial Year 2012-13. This is also called Fiscal Year ’13.

In the same way, the financial year for 2013-14 will start on 1 April 2013 and will end on 31 March 2014. So from 1 April 2013, we will enter Fiscal Year ’14.

Why is the Union Budget presented on the last day of February?
The Finance Minister of India presents the annual Union Budget in the Parliament of India. It is typically presented on the last day of February, for the following reasons: 

(a) After presentation, the Budget is tabled in the Parliament where members of both the Houses would debate the various provisions listed in the Budget. This would require a few days of debate and discussion. 

(b) Also, after such budget debate, any amendment to the original provision (like increasing or decreasing the allocation for a said ministry/program and rolling back any budget proposal) will have to be tabled, discussed, passed, and brought into law by the Parliament. 

(c) Also, the administrative system, especially in case of tax administration, would need to be geared up to reflect any change in the financial, taxation or any other system.

What is the Economic Survey?
The Finance Minister's Budget Speech contains two major components: Part A and Part B.

Part A of the Speech contains the Economic Survey while Part B comprises the Union Budget Speech. 

The Economic Survey is tabled by the Ministry of Finance in the Parliament along with the Union Budget. 

The Economic Survey is an assessment of the performance of the Indian economy in the fiscal year going by. For example, the Economic Survey 2012-13 presents an assessment of the performance of the Indian economy in that fiscal year (i.e., 2012-13).

So while the Economic Survey is an assessment of the performance of the Indian economy in the fiscal year gone by (i.e., the one that ends on March 31 this year), the Union Budget is a statement of revenues and expenditures for the coming fiscal year, i.e., the one that starts on April 1 of this year.

(To be continued)

2 comments:

bemoneyaware said...

Explained in layman terms. Looking forward to more such articles

CHAKRI_CHERI said...

Answers to the question "why is the union budget presented on the last day of the February?" are not so convincing. Could you please elaborate it in more details.