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Thursday, February 2, 2017

The Explainer: Budget Basics

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

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 2 February 2017, i.e., in Financial Year 2016-17. This is also called Fiscal Year ’17.

In the same way, the financial year for 2017-18 will start on 1 April 2017 and will end on 31 March 2018. So on 1 April 2017, we will enter Fiscal Year ’18.

Why is the Union Budget usually presented in February?
The Finance Minister of India presented the annual Union Budget for 2017-18 in the Parliament of India on February 1. It is typically presented in 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 2016-17 presents an assessment of the performance of the Indian economy in that fiscal year (i.e., 2016-17).

What is the Budget?
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.

The second part of this Explainer will appear tomorrow.

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