From fiscal deficit to tax slabs: Key figures to watch out for in Union Budget 2021

Fiscal deficit is the difference between total revenue and total expenditure of the government and it is an indication of the total borrowings that are needed by the government. Here are some key figures/elements to look out for in Union Budget 2021

Finance minister Nirmala Sitharaman is set to present the Union Budget in Parliament on Monday, February 1. The budget comes at a time when the economy is facing its worst contraction since 1952 owing to the coronavirus pandemic. The finance minister has increased hopes ahead of the budget saying it will "be a budget like never before".

Finance minister Nirmala Sitharaman has increased hopes ahead of the budget saying it will "be a budget like never before". (ANI)

Here are some key figures/elements to look out for in Union Budget 2021:

Fiscal deficit

There are four deficit numbers present in the budget document: revenue deficit, effective revenue deficit, fiscal deficit and primary deficit. But the most important one is fiscal deficit. Fiscal deficit is the difference between total revenue and total expenditure of the government and it is an indication of the total borrowings that are needed by the government. The more the fiscal deficit, the more market borrowings the government needs, which means lower funds available for the private sector to borrow.

Market borrowings

When the government runs a fiscal deficit, it borrows money to meet the difference by raising funds from the market through securities and treasury bills. Net borrowing is the amount borrowed during the fiscal year and gross borrowing includes net borrowing for the year and the repayment of past loans. This number is watched because it helps to understand the way the government plans to balance the fiscal deficit.

Capital expenditure

Capital expenditure is the expenditure which increases government assets or reduces liabilities and includes loan payment, loan disbursal and expenditure on infrastructure or developmental works. This number is important as higher growth in capital spending has a multiplier effect on the economy.

Tax revenue

Growth in tax revenue means lower deficit for the government. Therefore, this number helps to understand the position the government is at in terms of financing the deficit. Between April-November 2020, tax revenue growth has been lower at 2.6%.

GST and compliance

Goods and Services Tax (GST) accounts for almost one-fifth of total government revenue. The states which are supposed to be compensated for the revenue loss for switching to GST will look at both budgeted collections and transfers. The ease of GST compliance is another important cue to look at in the budget.

Changes in tax slabs

Raising the income tax slab to benefit individual taxpayers is often an expectation of the general public. Therefore changes in the tax slab, increase in income tax deductions like 80C (from current ₹150,000), standard deductions (from current ₹50,000) or deduction on interest paid on housing loans can be watched out for.

Disinvestment

Disinvestment is the process by which the Union government either sells its stakes in a PSU–fully or partially–or lists it on the stock market. Last year, finance minister Sitharaman had announced a disinvestment target of ₹2.1 lakh crore. Although owing to the pandemic, the government is unlikely to meet this target. Disinvestment is an important part of the government’s strategy to keep the fiscal deficit in check and is, therefore, an important number to look at.

Welfare schemes

Given the economic slowdown, it is important for the government to spend more on various schemes to ease the pain of the general public. But at the same time, the government also has to balance its welfare schemes with the fiscal deficit and therefore, the spending on the welfare schemes will be an important indicator of government policy.