Union Budget

Syllabus: GS3/Economy

Context

• The Budget, tabled in Parliament by the Finance Minister, is the Government’s blueprint on expenditure, taxes it plans to levy, which affect the economy and lives of citizens.

About

• The Union Budget of India, referred to as the annual Financial Statement in Article 112 of the Constitution of India, is the annual budget of the Republic of India, presented each year by the Finance Minister.
• The budget has to be passed by the House before it can come into effect on April 1, the start of India’s financial year.
• After being presented separately for 92 years, the Railway budget was merged in the Union Budget in 2017 and presented together on the recommendation of the Bibek Debroy Committee.
• In 2019, Nirmala Sitharaman became the second woman to have presented the budget after Indira Gandhi. 

Components of Budget

• There are three major components — expenditure, receipts and deficit indicators. 
• Total Expenditure can be divided into capital and revenue expenditure. 
  • Capital expenditure is incurred with the purpose of increasing assets of a durable nature or of reducing recurring liabilities.
    • Expenditure incurred for constructing new schools or new hospitals are classified as capital expenditure as they lead to creation of new assets. 
  • Revenue expenditure involves any expenditure that does not add to assets or reduce liabilities. 
    • Includes expenditure on the payment of wages and salaries, subsidies or interest payments.
• The receipts of the Government have three components — revenue receipts, non-debt capital receipts and debt-creating capital receipts.
  • Revenue receipts involve receipts that are not associated with increase in liabilities and comprise revenue from taxes and non-tax sources. 
  • Non-debt receipts are part of capital receipts that do not generate additional liabilities, it includes recovery of loans and proceeds from disinvestments. 
  • Debt-creating capital receipts are ones that involve higher liabilities and future payment commitments of the Government. 
• Fiscal deficit is the difference between total expenditure and the sum of revenue receipts and non-debt receipts.
  • It indicates how much the Government is spending in net terms. 
  • Positive fiscal deficits indicate the amount of expenditure over and above revenue and non-debt receipts, it needs to be financed by a debt-creating capital receipt. 

Implications of Budget on Economy

• Economic Growth: It stimulates growth through government spending on infrastructure, welfare, and reforms that boost private investment.
• Inflation Control: The budget’s fiscal policies influence inflation through subsidy changes, tax adjustments, and debt management.
• Fiscal Deficit and Debt: A high fiscal deficit leads to increased borrowing and higher debt, affecting inflation and interest rates, while efforts to reduce it help fiscal stability.
• Taxation and Reforms: Changes in taxes affect consumer behavior, business investment, and government revenue. Reforms like GST and direct tax changes improve efficiency.
• Employment: Budget allocations for infrastructure, skill development, and welfare programs create jobs and reduce poverty.
• Foreign Investment: Favorable policies attract Foreign Direct Investment (FDI) by improving the ease of doing business.
• Social Welfare: Increases in welfare spending and subsidies help reduce poverty and improve living standards.
• Stock Market Impact: The budget influences market sentiment based on policy changes related to taxation, industry incentives, and reforms.
• Sustainability: Investments in green infrastructure and renewable energy promote sustainable growth and address environmental concerns.

Source: TH