Union Budget of India: Key Components, Process

Union Budget is much more than just a dry list of numbers; it is the most important financial document of the Indian government. Think of it as a massive "annual report card" and "future plan" combined into one, where the government explains how it collected money and how it plans to spend it on things like schools, roads, and hospitals. Prepared every year, this document guides the nation's growth and directly affects the daily lives of every citizen.

What is Union Budget?

Union Budget is the Indian government's annual financial report. It presents estimated receipts and expenditures for the upcoming fiscal year, running from April 1 to March 31. This document reflects economic policy and financial planning. Article 112 of the Constitution refers to it as the "Annual Financial Statement." This outlines the government's economic strategy and priorities.

The Union Budget serves as the blueprint for the nation's economic trajectory, outlining the government's financial roadmap for the coming year. As the most anticipated economic event in India, it balances the needs of various sectors from infrastructure and defense to social welfare and tax reforms ensuring sustainable growth and fiscal stability.

Last 10 Year Budget Date of India

Since 2017, the Government of India shifted the budget presentation to the first day of February to ensure the proposals are implemented by the start of the new fiscal year on April 1.

Note: In election years, an Interim Budget is presented in February, followed by a Full Budget after the new government is formed.

Components of Union Budget

The Union Budget of India presents financial data in three categories:

• Budget Estimates: Expected receipts and expenditures for the upcoming fiscal year. This is also called the Budget Year.

• Revised Estimates: Updated projections of receipts and expenditures for the current fiscal year.

• Provisional Actuals: Finalized figures for receipts and expenditures from the previous fiscal year.

For example, the Union Budget for 2024-25 includes budget estimates for 2024-25, revised estimates for 2023-24, and provisional actuals for 2022-23.

Key Facts About Union Budget

Some key facts about Union Budget are as follows:

• The Union Budget is presented by the Union Finance Minister on February 1 each year. This practice started from the 2017-18 budget year.

• Earlier, the budget was presented in the last week of February.

• The Railway Budget merged with the General Budget in 2017-18. This was based on the Bibek Debroy Committee's recommendation. The Railway Budget was separated in 1924 following the Acworth Committee's advice.

• The Budget Division of the Department of Economic Affairs (Ministry of Finance) prepares the Union Budget Article 112.

Types of Budget Components

The government budget divides into two main parts:

Revenue Budget

This part covers current income and expenses.

• Revenue Receipts: These are government incomes not to be repaid. They do not affect assets or liabilities.

• Tax Revenue: Income from taxes. Includes direct taxes (income tax, corporation tax) and indirect taxes (excise duties, customs duties, service tax).

• Non-Tax Revenue: Income from sources other than taxes. Examples include interest receipts, dividends, fees for services, and revenue from spectrum auctions. Also, grants from foreign countries are part of this.

• Revenue Expenditure: Money spent for daily government operations. It does not create assets. Examples include salaries, pensions, subsidies, and interest payments on debt. Grants to states can also be revenue expenditure.

Capital Budget

This part details the government's assets and liabilities. It shows funding for long-term infrastructure.

• Capital Receipts: Funds received that are not regular income. These create liabilities or reduce financial assets.

• Debt Creating: New loans and other liabilities.

• Non-Debt Creating: Money from asset sales and loan recoveries.

• Capital Expenditure: Spending to create long-term assets. This includes infrastructure development, investments in government companies, and loans to states or foreign agencies. Repayment of loan principal is also capital expenditure.

Types of Budget Balance

Government budgets can be classified based on their financial position:

• Balanced Budget: Total expected receipts equal total proposed expenditures. This moderately increases economic demand. It is suitable when the economy nears full employment.

• Surplus Budget: Receipts exceed expenditures. More money comes in than goes out. This reduces aggregate demand. It is suggested during high inflation.

• Deficit Budget: Expenditures exceed receipts. The government spends more than it earns. This increases aggregate demand. It is recommended during an economic downturn.

Types of Deficit

A deficit is the gap between government receipts and expenditures.

• Budget Deficit: Total expenditure minus total receipts. It usually equals zero, so it lacks major significance.

• Revenue Deficit: Revenue expenditure exceeds revenue receipts. A high revenue deficit means the government borrows to fund non-asset-creating expenses. This can lead to debt.

• Effective Revenue Deficit (ERD): Revenue Deficit minus grants for capital asset creation. This shows the actual revenue shortfall. It was introduced in the Union Budget 2012-13.

• Fiscal Deficit: Total expenditure minus total receipts (excluding borrowings). It shows how much the government needs to borrow.

• Primary Deficit: Fiscal Deficit minus interest payments on past debt. It measures current financial operations, excluding old debt burdens.

• Monetized Deficit: Part of the fiscal deficit financed by the central bank (RBI). This increases money supply.

Types of Government Budgeting Approaches

Different methods exist for government budgeting:

• Line-Item Budgeting: Expenditures are listed by object. It offers centralized control but less insight into unit activities.

• Performance Budgeting: Focuses on outcomes and efficiency. Funds are allocated based on specific work or services provided.

• Zero-Based Budgeting (ZBB): All programs are reviewed from scratch annually. Every expense must be justified each year.

• Outcome Budgeting: Shifts focus from inputs to measurable outcomes. Defines desired results and then estimates required spending.

• Gender Budgeting: Analyzes budgets to understand gender-specific impacts. Aims to ensure development benefits reach both men and women. 

Key Rules of Union Budget

The enactment of the Union Budget in India follows a structured parliamentary procedure:

• Budget Formulation : The process begins with preparing expenditure and receipt estimates for the next financial year.
• Budget Enactment: This involves parliamentary approval through the Finance Bill and Appropriation Bill.
• Budget Execution: The government enforces the Finance Act and Appropriation Act. It collects receipts and disburses funds as approved.
• Legislative Review: Audits of government financial operations are conducted on behalf of the legislature.

Procedure for Budget Enactment

The stages of Union Budget enactment are:

President’s Recommendation: The President recommends the budget's introduction in Lok Sabha.

Presentation of Budget: The Finance Minister presents the Union Budget in Lok Sabha with a Budget Speech. The budget is then laid before the Rajya Sabha.

General Discussion: Both Houses discuss the budget as a whole. No motions or votes are allowed at this stage.

Scrutiny by Departmental Committees: Parliament adjourns. 24 Departmental Standing Committees examine demands for grants. They submit reports to both Houses.

Voting on Demands for Grants: Lok Sabha debates and votes on demands based on committee reports. Once voted, a demand becomes a grant. Rajya Sabha cannot vote on these demands.

Cut Motions: MPs can move motions to reduce grants.

• Policy Cut Motion: Reduce demand to Re. 1. Shows disapproval of policy.

• Economy Cut Motion: Reduce demand by a specific amount. Suggests cost savings.

• Token Cut Motion: Reduce demand by Rs. 100. Ventilates a specific grievance.

Guillotine: On the last day, the Speaker puts all remaining demands to vote, whether discussed or not.

Passing of Appropriation Bill: This bill authorizes withdrawals from the Consolidated Fund of India for approved grants. After Presidential assent, it becomes the Appropriation Act.

Vote on Account: Interim grant allowing the government to spend money before the full budget is passed. It is for a portion of the financial year. This is often used in election years when an Interim Budget is presented.

Passing of Finance Bill: This bill contains the government's tax proposals. It legalizes the income side of the budget. It must be enacted within 75 days.