What is Union Budget? Characteristic, Purpose & Key Differences

As per Article 112 of the Indian Constitution, the Union Budget is a comprehensive statement of government expenditures, revenues, and capital. The Union Budget is an essential part of economic planning whereby funds are allocated to various sectors of the economy. It may affect the rate of economic growth, level of employment, and inflation through changes in tax rates, level of public spending, and borrowing. It contributes towards national development by aligning the public finances with the national goals, investing in infrastructure, implementing social welfare programmes, and ensuring sustainable growth. This article covers what is union budget in India, who presented the first union budget of independent India, when is union budget presented and more. 

Who Prepares and Presents the Union Budget? 

Budget Division of the Department of Economic Affairs (DEA), Ministry of Finance, prepares the Union Budget. It is finalised by the finance minister in the Union Government, who then presents it to the Parliament for discussion and approval. 

Who Prepares It? 

• Budget Division (DEA): This is the central body that is responsible for the budget preparation, compilation of budgetary information, coordination with the ministries, and management of government accounts. 
• Finance Minister: The finance minister is responsible for leading the budget preparation, fiscal policies, along with incorporating the inputs from the various departments. 
• Other Ministries & Stakeholders: Inputs are taken from various other ministries, NITI Aayog, Economists, & various other advisory bodies in pre-budget meetings. 

Who Presents It? 

Union Finance Minister: The Union Finance Minister presents the Union Budget in front of the parliament, beginning with the Lok Sabha, on Budget Day (generally February 1).. 

Having explained the union budget in India, along with who presents the union budget in the lok sabha, the article further explains types of union budget.  

Types of Union Budget 

The Union Budget provides a comprehensive overview of the government’s estimated payables and receivables for the fiscal year. It is divided into two main sections: capital and revenue budgets. 

1. Capital Budget 

The capital budget deals with the government's spending and income related to long-term investments. Capital receipts include money borrowed from the public or the Reserve Bank of India (RBI). In contrast, capital payments cover costs for things like health services, equipment development and maintenance, and educational facilities.  

2. Revenue Budget 

A revenue budget is a financial plan that outlines the expected income a company or government will receive over a specific period. It includes sources of revenue like sales, taxes, or investments. The goal is to estimate how much money will come in to cover expenses. 

Importance of the Indian Union Budget 

The main objectives of the India Union Budget are to promote fast and balanced economic growth in the country, while also ensuring social justice and equality. Let’s look into the importance of Union Budget in India. Following are the primary objectives that demonstrate the importance of the union budget of India. 

• Optimal Resource Allocation: Ensures resources are used effectively for public welfare. 
• Reducing Unemployment and Poverty: Aims to eliminate poverty and create job opportunities. 
• Reducing Wealth and Income Inequality: Balances income distribution through subsidies and taxes. 
• Economic Stability: Controls inflation and deflation, maintaining price stability. 
• Tax Structure Changes: Introduces modifications to direct and indirect taxes. 
• Driving Economic Growth: The Union Budget focuses on boosting economic growth while ensuring fairness and social justice for everyone. 
• Managing Fiscal Health: The fiscal deficit shows how much the government needs to borrow when it spends more than it earns. The government tries to balance its income and spending to avoid a large deficit. 

How is Union Budget Created?  

The preparation of the Union Budget involves an elaborate planning and consultation exercise regarding its compilation and preparation: 

Step 1: A Pre-budget Consultation 

Finance ministers hold sessions with economists, trade unions, industrialists, and various other sector representatives to receive union budget updates. 

Step 2: Budget Drafting 

Based on the learnings that emerge from the consultations, a balanced budget is then created that helps to stimulate economic growth, besides working to solve various pressing problems. 

Step 3: Presentation to Parliament 

As per Article 112 of the Indian Constitution, the budget, which is also known as "Annual Financial Statement," is placed before both the parliament house—the Lok Sabha and the Rajya Sabha. 

The union budget key points ensure that the budget reflects the needs of all segments of the society. 

Key Budget Terms & Concepts of Union Budget 

Understanding key terms and concepts is crucial: 

1. Fiscal Deficit: The term deficit refers to a shortage of funds. It occurs when the government's expenses exceed its earnings. The fiscal deficit can be met either by borrowing funds or by printing additional currency. 
2. Revenue Deficit: The revenue deficit is a type of fiscal deficit in which the revenue expenditures exceed the revenue receipts. In this instance, it indicates that there is a lack of funds to maintain the government on a day-to-day basis. 
3. Primary Deficit: Primary deficit is the fiscal deficit minus interest payments. It shows how much the government needs to borrow for current expenses only. 
4. Capital Expenditure: Capital expenditure is spending on long-term assets like roads, buildings, and infrastructure. It supports future growth. 
5. Revenue Expenditure: Revenue expenditure includes daily operational expenses like salaries, subsidies, and interest. It does not create long-term assets. 
6. Blue Sheet: This is a bundle of blue sheets containing several key numbers related to the budget. It serves as a blueprint for the actual budget and is highly confidential. 
7. Finance Bill: It is a component of the union budget that focuses on taxation. To formulate income tax provisions for the union budget, a finance bill would be necessary if the government wishes to introduce, amend or maintain the current tax structure. 
8. Consolidated Fund of India: It is the country's national fund. All expenses are paid from this fund, and all receipts are collected from it. This fund cannot be withdrawn by the government without parliamentary approval. 
9. Disinvestment: Disinvestment refers to the process through which the government sells its investment in any asset or subsidiary. This adds liquidity to the government's funds. 
10. Appropriation Bill: The bill is also referred to as the supply bill or the spending bill. This is the proposed law that would enable the government to withdraw funds from India's consolidated fund to meet approved expenditures. 
11. Direct Taxes: These are taxes that are imposed directly on citizens, such as income tax and corporate tax. 
12. Indirect Taxes: These taxes are imposed on suppliers or manufacturers and are passed along to consumers. An example is the Goods and Services Tax (GST) 
13. Non-Plan Expenditure: This includes expenditures on interest payments, defense, subsidies, police, pensions, and other services. 
14. Plan Expenditure: This refers to expenditures related to the Central Plan and Central Assistance for states and union territories. 

Conclusion 

The Union Budget is the government's annual financial statement. It affects the country's economic direction, fiscal policy, and development priorities. The union budget key points have an impact on a variety of factors, such as taxation, employment, infrastructure, prices, and the growth of the economy as a whole. People can make better financial and investment decisions by following Union Budget updates. Traders often use a stock market trading app to analyse market reactions and plan their trades more effectively after budget announcements.