• Why is the Budget so important?
  
• What is the Economic Survey all about ?
  
• Some people say that Budgets are not as important as they used to be ? True ?
  
• Are Budget announcements effective immediately ?
  
• How important is the stock market reaction to the Budget ?
  
• As an employee, what parts of the Budget could be of particular interest to me ?
  
• Why should I be concerned about the fiscal deficit?
  
• How concerned should I be about subsidies?
  
• How do changes in the rates of excise and customs duties affect me?
  

It gives a statement of the performance of the Government in the year gone by, and a snapshot of the economy.

In his speech, the Finance Minister defines the economic strategy of the Government for the coming year and then proceeds to announce major initiatives to combat poverty and stimulate growth.

Several changes in taxation rates are announced, both for indirect taxes like customs and excise and for direct taxes.

Since, the direction of the economy and the resulting effect on us all is signalled by the Budget, it is important to all sections of the population.

The Economic Survey has reviews of the economy as a whole, banking and capital markets, prices, industry, agriculture and infrastructure

It aims to give a summary of the economy's performance in the year gone by, with a view to enabling the formulation of a growth-oriented Budget.

The survey reveals the effectiveness of the previous year's Budget and gives an opportunity to the Government and its economic advisors to plan for the year ahead. The data collected is analysed carefully and the proposals in the upcoming Budget are prepared accordingly.

However, Budgets are still important as several important economic initiatives and announcements are made in the Budget. It also sets the tone for the economic policies announced by the Government during the year.

Several changes in taxation rates are announced, both for indirect taxes like customs and excise and for direct taxes.

Since the direction of the economy and the resulting effect on us all is signalled by the Budget, it is still important to all sections of the population.

Some important changes (increase in fuel rates, for example) are made effective soon after the Budget through the issue of an ordinance by the President. However, these need to be later passed in the Finance Bill.

The changes announced in the Budget which concern other Ministries are made effective when those Ministries issue notifications announcing them. For example, an initiative targeted at the textile industry will be taken up by the Ministry of Commerce and Industry.

The Government also makes some statements of intent, which give broad direction to policy and may not necessarily translate into developments on the ground.

An example of this would be the Government's intent to disinvest its stake in public sector units. This may or may not result in the sale of the Government's stake actually happening during the year.

Last year, the Government planned to bring down its stake in all non-strategic public sector units to 26 % or below. But due to bureaucratic wrangling, there has been not much progress in this regard, except for inviting bids from prospective investors for a few PSUs.

So, on the face of it, the stockmarket reaction to the Budget should serve as a good method of evaluation of the Budget. However, the market does tend to produce knee-jerk reactions, without fully understanding the implications of particular proposals.

This sudden reaction gets corrected in time, as market players comprehend the Budget proposals and these get reflected in the share prices.

Therefore, one must not go by the immediate reaction in stock prices to the Budget, but look at it over a longer time horizon.

In addition, modifications in investment-related taxes like capital gains, changes in tax rebates and deductions also affect most people.

The Railway Budget, which is presented before the Union Budget, contains announcements on alterations in the passenger and freight rates. Changes in the passenger rates obviously affect those who travel by train, but changes in the freight rates too indirectly affect the salaried class, as prices of goods are increased to compensate for increased transportation costs.

A budget with a fiscal deficit means that the Government will require to borrow funds to bridge the gap. This adds to the interest payments the Government has to make and reduces the funds available for productive use.

A high fiscal deficit snowballs into a lot of other problems. The Government borrowing it leads to means that interest rates in the country rise. When the Government borrows large sums from the market, the funds available fall and thus the rates charged on the funds (interest rates) go up.

High interest rates mean that industry has to borrow at higher rates and this means an increase in their costs, which may get passed on to you, the consumer.

So, a high fiscal deficit is not only a concern for the country's economy, but also for you, as an individual.

Subsidies are targeted at specific segments like agriculture in the form of fertiliser subsidies and poorer sections of society in the form of fuel and food subsidies.

You should be concerned when subsidies are doled out without any focus and the targeted section does not really benefit. The fertiliser subsidy is an example, where the target - the farmer, does not get much. Rather, the companies manufacturing fertiliser get a fixed return on their investments.

Another concern is when the subsidy encourages inefficiency, as the beneficiary tends to take things for granted.

A change in the rate of excise will make locally manufactured goods more or less expensive, depending on whether the manufacturer passes on the change to the customer.

For example, if the excise duty on cigarettes is increased and the manufacturer hikes the rate accordingly, smokers are directly affected.

When customs duties on imports change, imported goods become cheaper or costlier. In case they are items of common use, as a consumer, you feel the impact directly. When the imported goods form raw materials or capital goods (used to manufacture other items), the impact may be felt somewhere down the line.

For example, if the customs duty on computer hard disk drives is reduced, computers will cost less.

Similarly, if duties on exports change, the prices of Indian goods exported abroad change.