Budget

Budget

Introduction

• It is an Annual Financial Statement as mandated by Article 112 of the Indian Constitution.
• It is presented before the Parliament, an estimated receipts and expenditures of the government for a particular financial year, running from 1 April to 31 March.
• The Department of Economic Affairs is responsible for the preparation of the Union Budget that is presented to the Parliament.
• The Union Budget 2024-25, announced on 23rd July 2024, is a regular budget for the financial year 2024-25. It, being the first budget of the newly elected Central Government, holds particular significance and offers a crucial glimpse into the government’s focus areas and spending plans.

What is the Budget?

• The Budget is a statement of the estimated receipts and proposed expenditures of the Government for an upcoming financial year i.e. a period that runs from 1st April to 31st March of the ensuing year.
• It serves as a comprehensive financial plan that reflects the economic strategy and policy priorities of the Government.
• The Budget is formulated and enacted annually by the Union Government as well as State Governments.
• The Budget of the Union Government is called the Union Budget, and the Budget of the State Government is called the State Budget.

Types of Budget

The budget has been divided into three types 1) Balanced budget, 2) Surplus budget, and 3) Deficit budget.

Balanced Budget: A balanced budget is one in which the revenues match its expenditure. It is a balanced budget that the government seeks to come up with.

Surplus Budget: If the estimated government receipt is more than the estimated expenditure for a fiscal year, the budget is said to be surplus.

Deficit Budget: A budget is a deficit budget if the estimated revenue is less than the expenses to be made. India’s budget has mostly been a deficit budget, just like any other democracy in the world.

Components of Government Budget

The government budget has two major components:

• Revenue budget: The revenue budget is made up of revenue receipts and expenditures. Both tax revenue (excise duty, income tax) and non-tax revenue (profits, interest receipts) are reflected in these receipts.
• Capital budget: The capital budget comprises both short-term capital expenditures (such as disinvestment) and long-term capital expenditures (such as borrowing). Government liabilities or decreasing financial assets, such as loan repayments, market borrowing, and so on, are examples of capital receipts.

Measures of Government Deficit

There are a few methods to estimate the government deficit. They are as follows:

Revenue Deficit: Revenue deficit is the difference between revenue outflow and revenue receipts. It occurs when the government spends more on revenue expenditures than it earns through revenue receipts.

Revenue Deficit = Revenue Expenses - Revenue Receipts.

Fiscal Deficit: The term fiscal deficit refers to a situation in which a government's total expenditure exceeds its total receipts, excluding borrowings, throughout the course of a fiscal year. It's a way of calculating how much money the government needs to borrow to cover its expenses, especially when its cash reserves are depleted. It can be stated as follows:

Fiscal Deficit = Total Expenditure – (Revenue Earning + Non-Debt Creating Receipts)

Primary Deficit: Primary deficit is a given year's budget deficit without the interest payments on past borrowings. The Primary Deficit Calculator assists the government in determining how much money it needs to borrow to cover all expenses other than loan interest payments. Notably, when this form of government deficit is zero, it means the government just needs to borrow enough money to cover the interest payment. It can also be expressed as follows:

Primary Deficit = Fiscal Deficit – Loan Interest Payments.

Key facts about the Interim Budget

• The ruling government normally presents an Interim budget before the General Lok Sabha Elections, which are conducted every five years.
• A Union Budget is similar to an Interim Budget.
• The ruling government presents an estimate of its expenditure, revenue, fiscal deficit, financial performance, and expectations for the future fiscal year in the Interim Budget.
• At the conclusion of its time, the ruling government submits an interim budget for three to four months in order to keep the country functioning smoothly.
• If the current government returns to power, the Interim Budget would most likely explain its economic outlook for the following five years.
• It makes no substantial policy announcements during the Interim Budget, which may financially burden the future government when the full Union Budget is presented.

Key Facts about the Union Budget of India

• From the budget year 2017-18 and onwards, the Union Budget is presented by the Union Finance Minister on February 1 of every year.
• Prior to the budget year 2017-18, the Budget was presented in the last week of February as per the colonial practice.
• The Railway Budget was merged with the General Budget from the fiscal year 2017-18 based on the recommendation of the Bibek Debroy Committee.
• The Railway Budget was separated from the General Budget by the British in 1924 on the recommendations of the Acworth Committee.
• The nodal agency for the preparation of the Union Budget is the Budget Division of the Department of Economic Affairs (Ministry of Finance).

Union Budget 2024 Highlights

The Finance Minister presented the Union Budget for 2024-25 on July 23, 2024. Earlier, the interim budget 2024 was presented in February 2024.

Process of Government Budgeting in India

The process of government budgeting in India comprises four distinct phases:

• Budget Formulation: It involves preparation of estimates of expenditure and receipts for the ensuing financial year.
• Budget Enactment: It involves approval of the proposed Budget by the Legislature through the enactment of Finance Bill and Appropriation Bill
• Budget Execution: It involves enforcement of the provisions in the Finance Act and Appropriation Act by the government. Roughly, it comprises collection of receipts and making disbursements for various services as approved by the legislature.
• Legislative Review: It refers to audits of government’s financial operations on behalf of the legislature

Procedure for Budget Enactment

The enactment of the Union Budget forms the most crucial part of the government budgeting process. The whole process of enactment of the Union Budget is described in chronological order as follows:

• President’s Recommendation: As per Rule 204 (1) of the Rules of Procedure and Conduct of Business in the Lok Sabha, the Budget is presented to the Parliament on such date as is fixed by the President. Thus, the recommendation of the President of India is taken for introduction and consideration of the budget in the Lok Sabha.
• Presentation of the Budget: The Union Finance Minister presents the Union Budget in the Lok Sabha with a speech known as Budget Speech.
  • In the Budget Speech, the Union Finance Minister summarizes the key points of the budget and explains the thinking behind the proposals.
  • At the end of the Budget Speech, the budget is laid before the Rajya Sabha as well.

• General Discussion on the Budget: A few days after the presentation, the general discussion on the budget begins in both houses of the Parliament.
  • During the general discussions, the House is at liberty to discuss the budget as a whole or any question of principle involved therein, but no motion can be moved nor can the budget be submitted to the vote of the House.

• Scrutiny by Departmental Committees: After the general discussion on the budget is over, the Houses are adjourned for some period, during which the demands for grants are scrutinized thoroughly by the Departmental Standing Committees. The committees, then, submit their reports to the Parliament.
• Voting on Demands for Grants: In the light of the reports submitted by the departmental standing committees, the Lok Sabha debates and votes on the demands for grants. Once duly voted upon and passed by the Lok Sabha, a demand becomes a grant.
  • The Rajya Sabha can discuss the budget but has no power to vote on the demands for grants. This is the exclusive privilege of the LS.

• Cut Motion: During the stage of Voting on Demands for Grants, the MPs can move cut motions to reduce any demand for grant.

Types of Cut Motion

There are three types of cut motion.

1. Disapproval of policy cut: A disapproval of policy cut demand seeks the amount of the demand be reduced to Re 1, representing the disapproval of the policy undermining the demand. However, if a member moves the cut, they have to indicate in precise terms the details of the policy which they want to discuss and should be confined to the specific points mentioned in the cut notice.

2. Economic cut: The economic cut motion calls for a reduction in the allocation of the demand to a specific amount. It represents the economy that can be affected. Such a specified amount may either be a lump-sum reduction in the demand or omission or reduction of an item in the demand. The notice has to indicate briefly and precisely the particular matter on which a discussion is sought to be raised.

3. Token cut: A token cut motion is moved so that the amount of the demand is reduced by Rs 100. This is to ventilate a specific grievance that is within the sphere of the responsibility of the Government of India.

Conclusion

• Budget provides a structured framework for organizing budgetary data, and facilitating analysis, planning, and decision-making by policymakers and managers.
• By grouping transactions into distinct categories such as revenue, expenditure, assets, and liabilities, it offers transparency, accountability, and comparability in budgetary processes.
• Overall, the classification of budget accounts serves as a cornerstone for effective fiscal management and oversight within governmental and organizational contexts.

What do you understand by interim budget? How is it different from the annual budget?

Distinguish between Capital Budget and Revenue Budget. Explain the components of both these Budgets.