Jargon Busters - Economy 28th February 2015
Why is Budget day so important?

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Today, Finance Minister Arun Jaitley will present the Modi Government's first full Union Budget - an event that has fuelled huge anticipation in financial markets and the corporate world. What is it that makes the Budget so vital? What's in the Budget that is a make or break for financial markets? After all, its only a P&L statement of the Government, isn't it?

Budget fever has gripped financial markets. Today, the Finance Minister will unveil the NDA Government's first full year Budget - which many hope will pave the way for rapid growth in the years ahead. Today, more than any other day, financial markets will look for evidence that acche din are finally here. What is it that makes the Budget so important? Why is this one speech so critical?

Funnily, the Budget actually is a pretty mundane affair. According to Article 112 of the Indian Constitution, the Union Budget of a year, also referred to as the annual financial statement, is a statement of the estimated receipts and expenditure of the government for that particular year.

The Economic Times made a short animated video which explains to a layman what the Union Budget is: https://www.youtube.com/watch?v=neEZQCt2Y5k

So, what's the fuss about?

So, what's the big fuss about a Budget, if it only gives us a sort of a P&L account of the Government for the year gone by? You can say its equivalent to the unaudited annual financials that a company discloses periodically. When companies make these mandatory disclosures, equity analysts pore over the numbers, look at estimates vs actual, and more importantly, participate in analyst calls where the management answers their queries about the year gone by and provides guidance for the next year. It is the guidance which most analysts pay close attention to - because it gives them a sense of what lies ahead for the company, rather than only what lies behind it.

Likewise, what markets look for in the Budget is not just original forecast vs latest estimate for the year that is nearing completion. Markets look keenly towards guidance for the next year. How much does the Government hope to earn next year from taxes? How much does it hope to get as inflows on capital account? And how does it propose to spend this revenue? What new projects is it going to start? Which existing projects are getting a fillip with generous doses of funding support? Is the Government staying on course to reduce fiscal deficit or has fiscal prudence been given a go by? What is the Government going to do with subsidies? What is the gap between revenue and expenses and how does the Government plan to finance the gap? There are a lot of answers that markets will seek when reviewing the projected P&L statement of the Government for the next year.

In the corporate world, companies with a new management use the analyst call after disclosure of financials to not just give guidance for the next quarter, but also spell out a longer term guidance and a strategy that will make the guidance come good. Likewise, now that our economy has a new management, we are looking towards this Budget, not just for forecasts of revenue and expenses for the next financial year, but for a credible roadmap that the new management will lay out to make their acche din promise come good.

Some Budget trivia, in case it interests you

While today will be spent hearing the FM and then hearing an array of experts dissect every word of the Budget speech and decode every number in the Budget document, here are some Budget trivia, to lighten what promises to be a heavy day:

Halwa ceremony: The printing of Budget documents starts roughly a week ahead of presenting in the Parliament with a customary 'Halwa ceremony' in which halwa (a sweet dish) is prepared in large quantity and served to officers and support staff involved. They remain isolated and stay in the North Bock office until the Budget is presented. The Budget is printed in the Finance Ministry's own printing press. One can only hope that after Mr. Jaitley finishes his speech today, we have reason to rejoice and feast on halwa ourselves!

Timing: Until the year 2000, the Union Budget was announced at 5:00 pm on the last working day of the month of February. This practice was inherited from the Colonial Era, when the British Parliament would pass the budget in the noon followed by India in the evening of the day. It was Mr.Yashwant Sinha, the then Finance Minister of India in the NDA government (led by BJP) of Atal Bihari Vajpayee, who changed the ritual by announcing the 2001 Union Budget at 11 am. It took us 53 long years to realize that we don't need to wait for the Queen's Budget to be announced, before we can announce ours!

Lone woman: Finance ministers in India have almost always been men, and thus, the prerogative of presenting the Union Budget has been heavily male dominated. The only woman who held the post of Finance Minister, was Mrs.Indira Gandhi, who in 1970-71, took additional charge of the FM position (she was already the Prime Minister) due to the resignation of Morarji Desai. Mrs. Gandhi continues to hold the distinction of being the only woman so far to present the Union Budget. We hope she will not remain the only one for much longer!

Well, that's it for the trivia - now, lets get down to the serious business of hearing Mr. Jaitley and how he proposes to bring in acche din for the economy.

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