Union budget of India is the annual financial statement of the central government for the upcoming financial year—from April 1 to March 31—which is tabled before both houses of the parliament by the government. In other words, the budget of India is the statement of revenue and expenditure of the government. Under Article 112 of the Constitution of India, the government has to present the budget to inform both the houses about its projected income and expenditure. The budget of India is divided into two parts: Capital Budget and Revenue Budget. Apart from these, the budget of India also includes the fiscal estimates for the next financial year.
Capital Budget and Revenue Budget: Capital budget includes both capital payments and capital receipts. Capital payment means the expenditure of the union government on various heads like expenses on healthcare, education, development/maintenance of long-term assets and infrastructural facilities. Capital receipts are the payments received by the government through loans from the Reserve Bank of India (RBI) and those from the public.
Revenue Budget, on the other hand, includes the total of all revenue expenditures and revenue receipts. Revenue receipts include the revenue received from tax, fees received for various services and other receipts on government investments. Revenue expenditure includes the expenditure of the government for the day-to-day functioning of various departments, along with those incurred on providing various services and subsidies, and the expenses on the interest payment on loans. If the revenue receipts are less than revenue expenditure, it results in revenue deficit.
Time of budget announcement: The union government has to present the budget of India in February to ensure that the new budget will come into effect from April, the first month of India’s financial year.
Date of budget announcement: Generally, the budget is presented on February 1 by the union minister of finance. Before 2016, the date of budget announcement was the last working day of February. In 2019-2020, however, the union government presented only the interim budget on February 1, 2019, because of the impending Lok Sabha elections. The union budget, finally, was presented in June 2019. In 2020, the expected date of budget announcement is February 1. Earlier, the previous budgets for 2018-2019 and 2017-2018 were presented by the then finance minister: late Arun Jaitley on February 1.
Though the finance minister is entrusted with the process of preparing and presenting the budget, the budget is made through consultations involving the ministry of finance along with various ministries and the NITI Aayog. After the beginning of a new financial year, the ministry of finance issues guidelines for spending. In consonance with the guidelines, different ministries, Union Territories, departments and defence forces prepare their spending estimates. Comprehensive meetings are then held between the ministries/departments and the department of expenditure—a key body of the ministry of finance. The budget division in the finance ministry finally produces the budget. Along with these, pre-budget meetings are also conducted with stakeholders like economists, farmers, Federation of Indian Industries and others. After deciding the tax proposals, the finance minister holds a meeting with the Prime Minister. The finance minister, after briefing the cabinet, then presents the union budget of India. The finance minister’s budget speech in the Lok Sabha includes finance bill, appropriation bill, receipts budgets, expenditure budget, annual financial statement, macro-economic framework, medium term fiscal policy and others.
The first budget in independent India was passed by India’s first finance minister R K Shanmukham Chetty on November 26, 1947.
Pre-liberalization versus Post-liberalization budgets: The financial year 1992-1993 was a landmark year in the history of the country as this was the year which heralded liberalization, or opening of the economy in the form of encouraging foreign investments and drastic reduction in import duties. Before liberalization, Morarji Desai, Indira Gandhi, Pranab Mukherjee, Rajiv Gandhi, ND Tiwari and Manmohan Singh passed the union budget of India. Following the liberalization years, P Chidambaram, Yashwant Sinha, Pranab Mukherjee, Arun Jaitley, Piyush Goyal and Nirmala Sitharaman passed the union budgets in different financial years.
Traditions related to the budget: The National Democratic Alliance (NDA) changed the key traditions regarding the day and time of the union budget. The date of budget announcement was changed from last working day of February to February 1 by Arun Jaitley in 2017. This was also the year when the rail budget was merged with the union budget. Earlier, in 1999, the then finance minister, Yashwant Sinha, changed the time of announcement of budget from 5pm to 11 am. In 2019, finance minister, Nirmala Sitharaman changed the tradition of carrying the budget in a leather briefcase. She carried the budget in a ledger document or bahi-khata instead. An interesting tradition regarding the budget is the ‘Halwa Ceremony’ where halwa, an Indian dessert is served to officers and support staff of the North Block, a week before the printing of budget documents. The halwa ceremony is conducted in the parliament.
Objective of the budget: The union budget strives for a balanced economic development, which, in turn, would foster social justice and an egalitarian society. In 2019, finance minister Nirmala Sitharaman said that the objective of the budget was a strong nation along with strong citizens. Budget 2020, which will soon be presented on 1 February 2019, is likely to introduce some new fiscal policies that will give strong impetus to our staggered economy.
If the ruling government is about to end its term at the time when budget is to be passed, an interim budget is announced. In other words, the outgoing government presents an interim budget to fulfil its mandatory obligation, even while allowing the next government to pass a full-fledged union budget. An interim budget is similar to a union budget and comprises of both revenue receipts and revenue expenditures. For instance, in the wake of impending Lok Sabha polls, the then finance minister, Piyush Goyal, presented an interim budget in February 2019. After declaration of results, the new finance minister Nirmala Sitharaman presented the union budget for 2019-2020 on July 5, 2019. Earlier, late Arun Jaitley had presented an interim budget for 2014-2015 in February 2014. Likewise, in May 2004 an interim budget was presented by Jaswant Singh.
Importance of union budget: A union budget not only ensures a viable tax structure, but also provides for rapid economic development. The importance of union budget stems from the following factors:
Forming efficient fiscal policies: The union budget of India allows the government to implement the economic policies, which are in consonance with the country’s overall economic development.
Allocation of economic resources: The union budget of India allows for equitable distribution of economic resources. It allows the policymakers to reduce income disparities through taxation and the provision of subsidies.
Reducing unemployment: The goal of the budget of India is to create ample employment opportunities so that every citizen has access to basic facilities. An increase in employment opportunities not only tackles the issue of poverty, but also results in a productive workforce—a must for economic development.
Curbing inflation: The budget of India also strives to curb the sharp price rise during inflation. Surplus budget policies are implemented to maintain price stability.
Revising tax structure: A revision in tax structure, including changes in direct and indirect taxes, is essential for equitable distribution of income. Thus, a union budget provides for a viable income tax structure by revision of tax rates and tax brackets.
Propelling the economy towards sustainable growth: Through optimal distribution of resources, reduction in unemployment and poverty, curbing inflationary trends, and implementation of viable tax mechanism, the economy is propelled towards sustainable growth.