Economically Equipped

The Budget Plan drawn by the Government of India every year, interests me a lot. It may be because of a Chartered Accountant father who used to come home, early in the afternoon, to watch the proceedings of the Budget on DD National. But as life got busier and probably, more advanced, it converged into following it on the internet. But, the trend always continued. I would still watch the TV, either the news or the proceedings. I would relentlessly follow the life-changing decisions-scrapped surcharge, fertiliser subsidies and the like, with the same impassive expression, whether or not I really understood those finance words.

A Budget is a financial plan that the Government makes every year (according to a mandate in an Article in the Constitution) where it details out the country's income and expenditure for the year ahead. The Finance Ministry comsists of some 100-200 ministers who may be economists, financiers.,et cetera. There are three different kinds of funds that the Government allocates the money into.

--> Consolidated Fund comprising revenues in and out of the Govt., loans it gives and receives, tax collected. etc. Transactions involving money in this fund always require parliamentary authorisation before implementation.

--> Contingency Fund comprising of some amount of money allocated for emergency purposes, say war, flood, drought which does not require parliamentary authorisation (which means the President can use it directly).

--> Public Accounts Fund comprising all the service schemes like National Service Schemes, Prime Minister Fund and other schemes.

Now, acquainting with how the budget works, procedures followed, loop-holes, coverups, ministry woes and how the united efforts spill out in the undeniably soothing words of P.Chidambaram or from the heavily accented words of Pranab Mukherjee, it's Macroeconomy. Studying the system, that's what it is!

But, when I asked my father, "So, tell me something about the budget!". He promptly began, "Surcharge has been removed, Fringe Benefit Tax has also been scrapped,..." and so on, an explanation ensued. Detailing the budget nittigritties at an individual level, about how it affects you and me (Fine, fine, even if I don't pay tax, I exercise my freedom to the use of the phrase non literally.), is Microeconomy.

So, once the Government lays out the Budget plan, it tallies it income and expenditure, but despite all efforts, there's always a Budget Deficit. When the proposed expenditure leaps ahead of the proposed income, the amount by which the income falls short is the budget deficit. And, after hushing questions regarding how to deal with this, one possible solution comes out to be, literally, "Mint Money". Oh yea, the Finance Minister telephones the RBI Chairman and says, "Hey buddy, print about 15 lakh crores, budget deficit. Catch ya then." And that's where aam aadmi is affected. More money spells Inflation.

So, more money in the markets. Each of us has more money than before. But, the market situation, in terms of supply has not changed. I have more money and I want to buy a car. My neighbour has more money and he also wants to buy a car. And, so the story extends to every other guy and his neighbour who all want to buy cars. The car seller is mobbed. His company does not manufacture as many cars as people mobbing him. So, now there is an imbalance between the market forces of demand and supply. More demand, but not enough supply.

The car seller is confused as to what to do. How can he get the company to manufacture 500 cars when they have been giving an output of 100, in the same timeframe? A problem intitally, but eventually he evens it out. He increases the price of the car. Now, he has the same car output from the manufacturer, but he wards away sections of the mob by introducing a pseudo selection screen on the basis of money. Now the buyer (the final one) ends up paying more for a car that was not even worth his final bill. So, when "too much money chases too little 'items'", we all are struck by price rise. An artificial increase in prices. There is no value for the increase. The money that we use becomes a dummy. It's just a piece of paper after all.

Yours