Union Budget of India: What is it and Why is it So Important?

What is the Union Budget?

 

As stated above, the Union Budget is an annual financial statement presented by the Government of India in the Parliament. It is an outline of all expected expenditures and revenue for the upcoming financial year (which runs from April 1 to March 31)².

The Union Budget includes every precise detail and a plan for expenditure, taxation, borrowing, and allocations for different sectors in the Indian economy. It is prepared by the Ministry of Finance and is presented by the finance minister. It is required under Article 112 ³of the Indian Constitution and is divided into two key parts:

 

• Revenue Budget

  Entails the government’s revenue and spending.

• Capital Budget

  Gives the government’s capital receipts and payments.

 

Key Components of the Union Budget

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Next up comes the key components of the Union Budget. Here are a few that help understand the Union Budget's importance:

 

A. Revenue Account

 

The revenue account includes revenue receipts and revenue expenditures.

 

a. Revenue Receipts

 

These are government earnings that do not create liabilities or reduce assets. They are classified into:

• Tax Revenue

  Income from taxes and duties imposed by the government.

  • Direct Tax

    
    Paid directly by individuals or entities, with no option to shift the burden. Examples: Income Tax, Securities Transaction Tax.

  • Indirect Tax

    
    Levied on goods and services, but the burden is passed on to others. Examples: Goods and Services Tax (GST), Excise Duty on Petrol.

• Non-Tax Revenue

  Earnings from sources other than taxes. Examples: Interest receipts, dividends, profits, fees, and other charges.

 

b. Revenue Expenditure

 

This refers to the government's spending on its daily operations and administration, without leading to asset creation. Previously classified into plan and non-plan expenditure, this distinction was removed in the 2017-18 budget.

 

B. Capital Account

 

The capital account records the assets and liabilities of the Union Government and consists of capital receipts and capital expenditures.

 

a. Capital Receipts

 

These receipts either create liabilities or reduce assets. They include government borrowings, loan recoveries, and the sale of assets. Capital receipts are classified into:

• Debt Capital Receipts

  Receipts that create debt or liabilities for the government.

  • Market Borrowing (Public Debt)

    
    Borrowings backed by the Consolidated Fund of India, raised either domestically (e.g., treasury bonds) or from foreign institutions.

  • Other Liabilities

    
    Funds drawn from the Public Account of India, including money from public provident funds, small savings schemes (e.g., National Savings Certificate, Post Office Savings).

• Non-Debt Capital Receipts

  Receipts from sources that do not create debt, such as the sale of Public Sector Undertaking (PSU) shares, divestments, or loan recoveries.

b. Capital Expenditure

 

Spending by the government that results in asset creation or liability reduction. This includes the purchase of land, equipment, and machinery, investments in shares, and loans or advances provided to state governments, PSUs, or other entities.

 

What does the Budget Preparation Look Like?

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The preparation of the Union Budget is a precise, thorough, and extremely detailed process that begins 6 months in advance. Here’s what it looks like:

 

 

1. Consultation

   
   

   First things first, the finance ministry consults with several stakeholders, including economists, industry bodies, and ministries. This way, they gather input.

    

2. Accumulation and Authorization of Data

   
   

   At this stage, each department offers its individual estimates of expenditures and revenues. These estimates are based on data collected by ground-level officials and scrutinized by seniors of the department. It further goes to the relevant ministry for analysis and is then sent to the Finance Ministry for allocation of resources.

    

3. Composing

   
   

   This is the most crucial stage. The budget is drafted after considering all the inputs, making sure that it aligns well with the government’s goals by allocating budget to various ministries and developing new public welfare schemes.

    

4. Authorization

   
   

   The Cabinet will then approve the budget before it is presented in Parliament.

    

5. Presentation

   
   

   Next up, the finance minister presents the budget to parliament.

    

6. Execution

   
   

   Once the finance and appropriation bill is passed, the executive department can collect revenue and spend money on approved schemes.

    

What is the Importance of the Union Budget?

 

The Union Budget is important for multiple reasons that impact individuals, businesses, and the entire country⁵. Here’s a quick brief:

 

• Resource Allocation

  
  

  The budget plays a role in distributing available funds to priority sectors, including weaker areas. It also helps identify challenges and direct resources accordingly.

   

• Development and Growth

  
  

  The budget creates room for job opportunities, innovation, and economic growth through encouraging savings and investments by providing subsidies and tax rebates.

   

• Financial Inclusion

  ⁸
  

  Programs like Kisan Credit Card (KCC), India Post Payment Bank, and Ayushman Bharat (PMJAY) often receive budgetary support. This ensures that marginalized communities are also included in economic progress.

   

• Global Perspective

  ⁹
  

  The Union Budget reflects India’s economic vision, directly impacting both foreign investment and trade relations.

   

Summing Up

 

The Union Budget is not just about fiscal targets or tax changes but the government’s vision for the country. It bridges present challenges with future opportunities, addressing people’s needs while charting a path for economic stability and growth.

All in all, the Union Budget plays a major role in shaping India's future and driving progress, equity, and prosperity for all.

 

FAQs

 

• What is the meaning of Union Budget?

  
  

  The word "budget" comes from the old French term "Bougette," meaning bag or wallet. Article 112 of the Indian Constitution defines the Union Budget as the yearly financial report detailing the government’s capital, revenue, and expenses.⁶

• What is the importance of the Union Budget?

  
  

  For India, the Union Budget helps manage the country’s spending and income. It ensures financial stability, keeps finances under control, and promotes accountability.