Union Budget

Why in News:- On July 23, Finance Minister Nirmala Sitharaman presented the first budget of the third consecutive government led by Prime Minister Narendra Modi.

UPSC Syllabus:

Prelims: Current Events of National Importance, Economic Development

Mains: GS-II, GS-III: Indian Economy and Government Budget.

Union Budget

• According to Article 112 of the Indian Constitution, the Union Budget of a year also called the annual financial statement, is a statement of the estimated receipts and expenditure of the government for that particular year.

• In which the government states the state of its finances such as income, expenditure, and borrowings before the Parliament and the public.

• The budget usually marks the end of one financial year and the beginning of another.

• It shows the amount of money raised, its expenditure, and borrowings in the previous year, and estimates income, expenditure, and borrowings for the upcoming financial year.

What is Interim Budget?

• The interim budget is the government’s financial statement that covers the period until a new government is formed.

• It is presented in an election year when the government needs approval for necessary expenditure until the new government presents a full budget

• The interim budget contains a full set of accounts, including income and expenditure, similar to a full budget, but does not outline any major policy changes or new schemes.

Constitutional Provisions Regarding Budget

The Indian Constitution provides a broad framework for preparing and presenting the Union Budget.

Article 112: Annual Financial Statement (Budget)

• Article 112 states that the President of India must lay before both Houses of Parliament an annual financial statement, commonly referred to as the Budget.

• This statement contains the estimated receipts and expenditure of the government for the forthcoming financial year

Article 113: Estimates of Expenditure

• Article 113 deals with estimates of expenditure.

• This article specifies that estimates should be included in the budget and presented as demands for grants.

• These demands are voted on by the lower house of Parliament, the Lok Sabha

Article 114: Appropriation Bill

• Article 114 deals with appropriation bills, which are required to withdraw money from the Consolidated Fund of India.

• After the Lok Sabha has voted on the demands for grants, an appropriation bill is presented to authorize the government to withdraw money from the Consolidated Fund to meet the expenditure specified in the budget.

Article 115: Supplementary, Excess, Surplus and Extraordinary Grants

• Article 115 provides for supplementary, excess, surplus, and extraordinary grants.

• These are required when the government needs additional money or incurs expenditure beyond what is estimated in the budget.

• Supplementary grants are also placed before the Parliament for approval.

Article 116: Vote on Account, Bonds, and Extraordinary Grants

• Article 116 deals with Vote on Accounts, Bonds and Extraordinary Grants

• Vote on Account is a provision that allows the government to withdraw money from the Consolidated Fund of India to meet expenditures until the full budget is passed.

• It is especially important in an election year when the new government needs time to present and pass a full budget.

Components of Union Budget

India’s Union Budget is divided into two main parts:

1. Revenue Budget

2. Capital Budget

Each part has different components that reflect the government’s financial activities and priorities for the financial year.

Revenue Receipts

Revenue receipts are the income earned by the government from various sources. They are classified into two main categories:

Tax Revenue: It includes income from various taxes such as income tax, corporate tax, goods and services tax (GST), customs duty, and excise duty.

Non-Tax Revenue: It includes income from sources other than taxes, such as interest receipts on loans given by the government, dividends and profits from public sector enterprises, fees, and fines.

Current Data (2024-25):

Total Revenue Receipts: ₹26.32 lakh crore (Budget Estimate)

Revenue Expenditure

Revenue expenditure refers to the expenditure incurred by the government for its day-to-day operations and maintenance of services. It includes:

• Salaries and pensions

• Interest payments on loans

• Subsidies

• Administrative expenses

• Revenue expenditure does not lead to the creation of assets.

Current data (2024-25):

Total revenue expenditure: ₹35.02 lakh crore (budget estimate)

Capital receipts

Capital receipts include funds that the government raises from various sources to finance its capital expenditure. These include:

Debts raised by the government: Borrowings from the public through bonds and other instruments.

Disinvestments: Proceeds from the sale of government stakes in public sector enterprises.

Borrowings from RBI and foreign governments: Loans taken from the Reserve Bank of India and foreign entities.

Current data (2024-25):

Total capital receipts: Will be met from the fiscal deficit, which is ₹17.86 lakh crore or 6.4% of GDP (budget estimate)

Capital expenditure

Capital expenditure involves spending on the acquisition of assets that provide benefits in the long term. This includes:

• Construction of buildings, roads and bridges.

• Purchase of machinery and equipment.

• Public Investments in shares of sector enterprises.

• Loans given by the central government to states and union territories.

• Capital expenditure leads to the creation of assets and helps in economic growth.

Current data (2024-25):

Total capital expenditure: Capital expenditure for the year 2024-25 is being increased by 11.1 percent to Rs 11,11,111 crore. This is 3.4 percent of the gross domestic product (GDP).

Importance of understanding budget components

• Understanding the components of the Union Budget is important as it provides information about the government’s priorities and economic strategies.

• It helps citizens understand how the government plans to generate revenue, allocate resources, and manage public finances

Key points:

• The revenue budget focuses on the day-to-day financial activities and operating costs of the government.

• The capital budget emphasizes long-term investment and asset creation to boost economic growth

Fiscal Deficit:

• The fiscal deficit is the difference between the government’s total expenditure and its total revenue (excluding borrowings).

• It shows the amount of money the government needs to borrow to meet its expenses.

Current data (2024-25)

Fiscal deficit: ₹17.86 lakh crore, or 6.4% of GDP.

Significance

• A high fiscal deficit can lead to inflation and higher interest rates, affecting economic stability.

• However, controlled borrowing can fund projects that boost growth.

Union Budget 2024-25 Highlights

Focus Areas

Poor: Increase in social security and welfare schemes.

Example:- PM Kisan Samman Nidhi: Under this scheme, small and marginal farmers are provided ₹6,000 annually in three installments. The budget of this scheme has been increased to ₹75,000 crore for the financial year 2024-25.

Yuva: Focus on education, skills, and employment generation.

Example:- Pradhan Mantri Kaushal Vikas Yojana (PMKVY): This scheme aims to skill one crore youth in the next four years. The budget allocation for PMKVY has been increased to ₹12,000 crore.

Annadaata: Increase in investment in agricultural infrastructure and support.

Example:- Agriculture Infrastructure Fund: Fund allocation has been increased to ₹20,000 crores to promote agricultural infrastructure including cold storage, warehousing, and food processing units.

Naari: Initiatives for women empowerment and protection.

Example: Mahila Shakti Kendra: Allocation increased by ₹4,000 crore to support women empowerment programs at the grassroots level.

Priority Sectors

Agriculture: Enhancing productivity and resilience.

Employment and Skills: Training programs and job creation initiatives.

Human Resource Development: Inclusive growth and social justice.

Manufacturing and Services: Industrial development and boosting the service sector.

Urban Development: Infrastructure and Smart City Projects.

Energy Security: Investment in renewable energy.

Infrastructure: Flagship projects to improve connectivity and logistics.

Innovation and R&D: Support for research and technological advancement.

Next Generation Reforms: Policies to enhance ease of doing business and attract investments.

Impact of Union Budget on the Economy

The Union Budget is an important tool for shaping the economic policies of a country and influencing its economic trajectory.

It affects the economy in various ways:

1. Tax policies

• The budget determines who to tax and how much, which affects disposable income and consumption patterns.

• For example, lower income taxes can increase consumer spending, thereby boosting economic growth.

2. Government spending

• Allocations in the budget for various sectors (such as infrastructure, education, health) can boost economic activity and create jobs.

• For example, increased spending on infrastructure can stimulate related industries and increase overall economic productivity.

3. Fiscal deficit and borrowing

• The budget reflects how much the government plans to borrow.

• A high fiscal deficit can lead to higher interest rates, which can reduce private investment.

• However, strategic borrowing can fund essential development projects that boost long-term growth.

4. Economic Reforms and Incentives

• The budget may introduce reforms and incentives to boost specific sectors.

• For example, tax incentives for startups can promote innovation and entrepreneurship.

Important Budget Documents

The Union Budget of India contains several important documents that provide a comprehensive overview of the government’s financial plans, policies, and economic health.

It is essential to understand these documents to understand the government’s detailed financial strategies

1. Annual Financial Statement (AFS)

The Annual Financial Statement (AFS) is the primary document of the Union Budget

It provides a detailed account of the government’s revenues and expenditures for the previous financial year and estimates for the upcoming financial year.

The AFS is divided into three parts:

• Consolidated Fund of India (Article 266)

• Public Account of India (Article 266 (2)) 

• Contingency Fund of India (Article 267) 

2. Demand for Grants (DG)

• The Demand for Grants (DG) document contains the estimated expenditure of each ministry and department.

• Each ministry presents its demands for approval by the Parliament • It presents the budget of the government, which includes both revenue and capital expenditure. 

• This document is important for ensuring that each department receives the funds it needs to carry out its functions. 

3. Finance Bill

• The Finance Bill is a major component of the Budget, which contains provisions for changes in taxes and other fiscal measures proposed by the government.

• It includes amendments to tax laws, imposition of new taxes, and changes in existing tax rates.

4. Expenditure Budget

• The expenditure budget outlines the government’s expenditure plans, classified by various ministries and sectors.

• It provides details on the allocation of funds for various schemes, projects, and administrative expenses, highlighting the government’s spending priorities.

5. Receipts Budget

• The receipts budget provides detailed information about the government’s revenue and capital receipts.

• It includes data on tax and non-tax revenues, borrowings, and other forms of capital receipts. It helps in understanding the sources of government income.

6. Economic Survey

• The Economic Survey is presented before the Budget and reviews the state of the economy over the previous year.

• It provides information on economic trends, challenges, and opportunities, and makes recommendations for policymaking. 

• The Economic Survey is an important tool for understanding the macroeconomic context in which the Budget is prepared.