What’s a Budget and why does India need one?

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India’s Finance Minister, Arun Jaitley, will present this year’s Budget in Parliament tomorrow, 1 February, 2018. Here’s a little primer. Hopefully, after this, you will be able to make more sense of terms like the budget, taxes, expenditures, fiscal deficit, market borrowing and oil prices. Happy reading!

Why do families have budgets? So that they can ensure that their expenditures (how much they spend), are in line with their income or salaries (how much they earn).

Photo Credit: fiscaltimes.com

Savings = Income – Expenditure

When Income – Expenditure = 0, there are no savings.

Borrowing: Sometimes, when a family wants to make a big purchase like a house, a car, or even a TV, it doesn’t have all that money saved up, and has to borrow money from a bank and repay it at a later time. The same applies to governments.

Government Income: In the case of the government, their “income” is the tax that all of us pay.

Government Expenditure: The government spends its income on building better roads, providing electricity, cleaning our cities, helping the poor and farmers, building schools and hospitals, and paying government workers. They also use this money to buy oil which they import from other countries in the world. The oil is needed to run our cars and other engines. These are their expenditures.

Fiscal Deficit: Because the government has so much to spend on, its expenditures are typically higher than the taxes it collects. This is called a “fiscal deficit”. This is the extra amount the government must borrow from banks and others to fund its expenditures.

Fiscal Deficit: When Expenditure > Income

Arun Jaitley

Why is this year’s budget so important? It is the last budget of the Modi government. Many people were hurt by demonetisation and the GST. Farmers are also struggling because the income or money that they earn through selling the food that they grow, has fallen drastically.

So the government will want to spend more and help those people. But with oil prices also going up, the government must spend more to import oil from the rest of the world. So where will the government get all this money from? Their plan in in this year’s Budget!

That’s why there is so much interest in this year’s Budget, which the Finance Minister, Mr. Arun Jaitley, will present in Parliament at 11 am on Thursday, February 1st.

Happy viewing!

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