Union Budget of India

Why in News? 

Finance Minister Nirmala Sitharaman is set to present the Union Budget for the fiscal year 2025-26 on February 1. This will be her eighth budget, focusing on reforms and incentives in key sectors such as education, defense, industry, and welfare for women.

Introduction of the Union Budget

A budget is a financial plan that outlines the sources of income and the intended expenditures. It details where the money comes from (revenue, receipts, income) and where it is spent (expenditures, expenses).

• The Union Budget is a financial statement outlining the government’s estimated receipts and expenditures for a financial year (1 April to 31 March).
• Budget details the expected revenue and expenditure, providing a roadmap for the nation’s financial policies. 
• It acts as a blueprint for managing the nation’s finances, focusing on taxation and spending allocations across diverse sectors like infrastructure, healthcare, and education.
• Constitutional Basis:
  • The Union Budget of India, referred to as the Annual Financial Statement under Article 112 of the Constitution, is a vital document outlining the financial plans of the Government of India for the upcoming fiscal year. 
• Role of the Ministry of Finance:
  • The Ministry of Finance is responsible for preparing the Union Budget. 
  • The Department of Revenue handles the income aspects, while the Department of Expenditure manages the public sector’s spending allocations. 
  • The Budget Division of the Department of Economic Affairs is the main body coordinating the process.
• Presentation and Timing:
  • Traditionally, the budget was presented on the last working day of February. However, since 2017, the presentation has been moved to the first day of February to ensure it is materialized before the start of the new fiscal year in April.
  • The Union Budget is broadcast live from Sansad Bhawan on national channels like DD National, DD News, and Sansad TV. 

History of Union Budget with Timeline (1947-2025)

Since India’s independence in 1947, the budget has evolved significantly, reflecting the nation’s economic priorities, challenges, and aspirations. Here’s a detailed timeline of the key milestones in India’s Union Budget and its finance ministers.

• 1947–1950
  • R. K. Shanmukham Chetty was India’s first finance minister. He presented the first budget of Independent India on November 26, 1947, which was only for seven and a half months. The budget accounted for ₹171.15 crore in revenue and ₹197.39 crore in expenditure.
  • John Matthai succeeded Chetty. He became the first Railway Minister and then Finance Minister. He introduced India’s first Five-Year Plan but resigned in protest against the increasing influence of the Planning Commission.
• 1950–1960
  • C. D. Deshmukh played a critical role during India’s First Five-Year Plan. He increased corporation taxes and introduced surcharges on income taxes to fund development projects.
  • T. T. Krishnamachari introduced innovative measures like wealth tax and set up institutions like IDBI, ICICI, and the Damodar Valley Corporation. 
• 1960–1970
  • Morarji Desai, the longest-serving finance minister with 10 budgets. He emphasized agricultural R&D and laid the groundwork for the Green Revolution. He introduced the Gold Control Act and self-assessment for income tax.
  • Indira Gandhi served as Prime Minister and Finance Minister. She was the first woman finance minister. She implemented radical changes like bank nationalization and launched initiatives that led to the White Revolution.
• 1970–1980
  • Yashwantrao B. Chavan nationalized coal mines and general insurance companies. His tenure saw the economy slip into recession.
  • Chidambaram Subramaniam focused on social security. He introduced schemes like Employees’ Provident Fund (EPF) and family pension plans.
• 1980–1990
  • R. Venkataraman and Pranab Mukherjee emphasized remittances and private savings. Mukherjee introduced the Capital Investment Bond and mobilized resources from NRIs.
  • V. P. Singh initiated key reforms, which included MODVAT (Modified Value Added Tax) and pro-poor schemes.
• 1990–2000
  • Manmohan Singh, as Finance Minister in 1991, ushered in the era of economic liberalization, with reforms under the LPG (Liberalization, Privatization, Globalization) framework. His policies focused on foreign exchange reserves.
  • P. Chidambaram’s “Dream Budget” in 1997 lowered income taxes, removed surcharges, and proposed significant tax reforms, setting a roadmap for economic growth.
• 2000–2010
  • Yashwant Sinha introduced CENVAT (Central Value Added Tax), Special Economic Zones (SEZs), and debt market restructuring to boost industrial growth.
  • Arun Jaitley revolutionized India’s tax system with the implementation of GST (Goods and Services Tax) in 2017 and moved the budget presentation date to February 1. He also merged the Railway Budget with the Union Budget.
• 2010–2025
  • P. Chidambaram launched the Direct Benefit Transfer (DBT) scheme and established Bharatiya Mahila Bank, a PSU bank exclusively for women.
  • Nirmala Sitharaman, the first woman to present a full Union Budget in 2019. She emphasized the Atma Nirbhar Bharat (self-reliant India) vision. Her tenure has focused on digital currency, customs reforms, and new tax regimes. In 2025, she will present her 8th consecutive budget, marking a historic milestone.

Structure & Components of Union Budget 

The Indian government budget is organised into two major components: Revenue Budget and Capital Budget. It also comprises Budget Receipts and Budget Expenditure.

• Revenue Budget: The Revenue Budget focuses on the government’s income (receipts) and expenditures that do not impact its assets or liabilities.
  • Revenue Receipts: These are the government’s earnings from various sources like taxes, fees, and interest income.
    • They do not create liabilities nor reduce the government’s assets.
    • Classified into:
      • Tax Receipts: Examples include Income Tax, Corporate Tax, GST, Excise Duty, etc.
      • Non-Tax Receipts: Sources include fines, grants, donations, and interest on loans.
  • Revenue Expenditures: These are the regular expenses incurred by the government for its functioning, such as salaries, pensions, grants, and expenses for public welfare. They do not create any new assets nor reduce government liabilities.
• Capital Budget: The Capital Budget accounts for the government’s assets and liabilities, focusing on long-term growth and investments.
  • Capital Receipts:
    • These are funds raised by the government that either create liabilities or reduce its assets.
    • Sources include:
      • Loans from domestic or foreign sources.
      • Recoveries of loans previously given.
      • Disinvestment proceeds from selling government-owned assets to the private sector.
  • Capital Expenditures: These are expenses aimed at creating or improving assets like infrastructure, machinery, equipment, and health services. Such expenditures may also reduce liabilities by repaying debt.

Union Budget Preparation Process in India

The budget preparation and enactment process is a structured approach that ensures the efficient allocation and utilization of government resources while maintaining transparency and accountability. Here’s a detailed account of its stages:

• Preparation of the Budget: The process begins with ministries and departments submitting their financial proposals and expenditure estimates to the Ministry of Finance. These inputs are carefully reviewed and consolidated into a single draft budget for further consideration.
• Presentation of the Budget: The next stage involves the Finance Minister presenting the budget in the Lok Sabha, usually on 1st February (as per the revised schedule since 2017). The budget speech highlights key economic strategies, policy initiatives, and financial proposals for the upcoming fiscal year.
• Economic Survey Presentation: A day before the budget presentation, the Economic Survey is laid before Parliament. This document provides a comprehensive review of the economy, outlining challenges, achievements, and future outlooks.
• General Discussion: Following the budget presentation, a general discussion takes place in both Houses of Parliament. Over 3–4 days, members deliberate on the overall budget without any voting or formal motions at this stage.
• Scrutiny by Committees: After the general discussion, the budget is referred to 24 Departmental Standing Committees, each tasked with examining the Demands for Grants of specific ministries. These committees submit detailed reports to Parliament, helping refine the budget’s components.
• Voting on Demands for Grants: In this stage, the Lok Sabha votes on each Demand for Grants, which are presented ministry-wise. The votable portion is debated, while expenditure charged on the Consolidated Fund of India is only discussed, not voted upon. Cut Motions (Policy, Economy, or Token) can be proposed to reduce or criticize specific grants.
• Guillotine Process: On the final day allocated for voting, any pending demands are put to vote by the Speaker of the Lok Sabha without further discussion. This ensures the timely passage of all grants.
• Passing of the Appropriation Bill: To enable the government to withdraw funds from the Consolidated Fund of India, the Appropriation Bill is introduced. It is passed by both Houses and becomes an Act after receiving the President’s assent.
• Vote on Account: If the budget process extends beyond 31st March, the Vote on Account allows temporary funding for government operations. It typically provides for two months’ expenditure or longer during election years.
• Passing of the Finance Bill: The final stage involves passing the Finance Bill, which implements the government’s tax proposals. It must be enacted within 75 days of its introduction, completing the budgetary process.

Significance of Union Budget

• Economic Growth: The budget influences national economic growth by strategically allocating funds to essential sectors such as infrastructure. These investments drive job creation, business opportunities, and investment, contributing to overall economic development.
• Social Welfare: The budget is crucial for fostering social welfare. It provides funding for subsidies and programs aimed at helping marginalized and economically disadvantaged groups, ensuring inclusive development.
• Income Distribution: Through taxation policies, the budget plays a pivotal role in shaping the distribution of wealth. Adjustments in tax slabs aim to make the tax burden more equitable across different income groups, promoting a fairer economic environment.

Interim Budget Vs Union Budget

An Interim Budget and a Union Budget differ primarily in their purpose, scope, and timing.

• Purpose and Scope:
  • Interim Budget: Designed as a temporary financial statement to cover government expenses until elections and the formation of a new government. It focuses primarily on essential expenditures and provides estimates for the short term.
  • Union Budget: A comprehensive financial plan for the entire fiscal year, detailing both revenues and expenditures, with a focus on long-term policies and schemes.
• Tax Changes and Policy Adjustments:
  • Interim Budget: Generally avoids major tax changes or introducing new schemes due to the short tenure of the current government and the restrictions set by the Election Commission.
  • Union Budget: Allows the introduction of tax reforms and policy changes for the entire year, often aiming at long-term economic goals and growth.

Balanced Vs Unbalanced Budget

• Balanced Budget: A balanced budget refers to a situation where the government’s total income equals its total expenditures. This balance ensures financial stability and indicates that the government is not borrowing excessively.
• Unbalanced Budget: In an unbalanced budget, government receipts and expenditures are not equal. This could manifest as either a Surplus Budget or a Deficit Budget:
• Surplus Budget: This occurs when the government’s receipts exceed its expenditures. Such a budget helps reduce inflation and supports economic stability.
• Deficit Budget: When the government’s expenditures exceeded its receipts, a deficit budget is created. This approach is typically used in times of economic downturns to stimulate growth and development. 

Facts about India’s Budget Ceremony

• The Briefcase Tradition: The iconic briefcase carries the budget documents and represents the presentation of the financial statement. Introduced during British rule, it was replaced in 2019 by a bahi-khata (traditional ledger) by Finance Minister Nirmala Sitharaman.
• Red Cloth Wrapping: Traditionally, budget documents were wrapped in a red cloth, symbolizing their confidential nature before the briefcase became the norm.
• Budget Printing Process: The budget printing process is highly secure, with staff working in isolation within the North Block to prevent leaks until the budget is presented.
• Halwa Ceremony: The Halwa Ceremony marks the start of the budget process. Halwa, a sweet dish, is prepared and shared among the finance ministry staff as a tradition for good luck.
• Length of the Budget Speech: Budget speeches can vary widely in length. The shortest budget speech was delivered by H.M. Patel in 1977, consisting of just 800 words, while the longest was over 2 hours in 2020 by Nirmala Sitharaman.
• Presentation in Two Parts: The budget speech is divided into two parts: the first addressing the economic survey and policies, and the second focusing on taxation and financial regulations.
• Economic Survey Release: The Economic Survey, released a day before the budget, provides insights into India’s economic performance and serves as a precursor to the budget proposals

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