What is Union Budget? Understanding the Union Budget

The Indian Union Budget grabs major public interest every year, yet people struggle to understand its actual impact on their daily lives. The budget functions as a straightforward financial strategy.

Let’s understand with an example: The Khanna family earns ₹5,00,000 annually but spends ₹5,35,000. The family needs to borrow the extra ₹35,000 because they cannot cover their expenses. The family creates a budget for the upcoming year by planning their income and expenses, and savings. That means- a budget is a financial spending plan.

The government follows a similar approach on a national scale. The Government of India presents its annual financial plan through the Union Budget, which shows projected tax revenues and other income sources and planned expenditures on infrastructure, welfare, healthcare and education.

It shows all the government's financial aspects, including its deficits and total public debt. The Union Budget establishes economic priorities that guide national development across the country.

Union Budget of India

The Indian Constitution's Article 112 establishes the Union Budget of India as the annual financial statement which the Government of India presents. The budget document shows all government revenue and spending plans for the next financial year.

The term "budget" is derived from the French word bougette, meaning a small bag that serves as a wallet. In practice, it refers to a comprehensive financial plan based on projected revenues, such as tax and non-tax income and planned spending across various sectors of the economy.

The Union Budget presents revenue and capital accounts information, which shows the government's funding priorities and financial condition and its upcoming policy initiatives for the next year.

The Blueprint Of The Union Budget

The Union Budget of India functions as the government's financial plan covering the period from 1 April to 31 March of each fiscal year. The document presents anticipated income along with scheduled spending.

The budget is presented by the Finance Minister in Parliament, and this year it is scheduled for 1st February 2026, Sunday. The budget presentation process has evolved in recent years, moving to a digital, paperless format that allows online access to documents while reducing paper consumption.

The Union Budget consists of two sections which include the Revenue Budget for ordinary financial operations and the Capital Budget for capital income and spending activities.

Components of the Union Budget

The Union Budget is structured around the government's expected revenue and planned expenses for the entire financial year. The budget consists of two primary sections: Revenue Budget and Capital Budget.

The Revenue Budget includes both tax revenue and non-tax revenue together with regular expenses including employee salaries, subsidies and interest payments.

The Capital Budget covers all financial activities, including long-term loans, disinvestment revenue, infrastructure development, and asset creation expenditures.

The two components together present the complete government plan, showing how it will gather resources and allocate funding across different areas.

The Budget Preparation Process

The Union Budget process involves multiple steps that take several months to complete before the budget is presented. The Ministry of Finance receives expenditure estimates and funding requirements from various ministries and departments. The authorities conduct economic assessments to inform revenue expectations and policy priorities when evaluating proposals.

Stakeholders, experts and state government consultations help identify the needs of the various sectors. The Ministry of Finance finalises the budget based on these inputs and maintains a balance between fiscal discipline, welfare commitments, and growth objectives.

Key Budget Documents Explained

• Budget Speech: The finance minister delivers this speech to present the government's main priorities, policy goals, and upcoming financial-year announcements.

• Annual Financial Statement: The statement delivers complete financial projections, which the government expects to receive and spend according to Article 112 of the Constitution.

• Finance Bill: The document includes tax-related proposals that Parliament must approve to implement changes in tax rates and duties, as well as other fiscal policies.

• Expenditure Budget: The budget presents a complete account of government financial distribution, which covers all ministries, departments and programs.

Key Budget Terms & Concepts

• Fiscal Deficit: This is the shortfall between the government's income and expenditure.
• Direct Taxes: These are the taxes imposed directly on citizens, such as income tax and corporate tax.
• Indirect Taxes: These are the taxes imposed on suppliers or manufacturers that are passed on to consumers, such as the Goods and Services Tax (GST).
• Non-Plan Expenditure: Includes expenditure on interest payments, defence, subsidies, police, pensions, and other services.
• Plan Expenditure: These are the expenditures on the Central Plan and Central Assistance to states and union territories.

Understanding Different Types of Deficits

• Fiscal Deficit: The fiscal deficit measures the difference between total government spending and total government revenue, excluding borrowing. The government requires this amount which it needs to borrow throughout the financial year.

• Revenue Deficit: A revenue deficit occurs when revenue expenditure exceeds revenue receipts, necessitating borrowing to cover regular operational costs.

• Primary Deficit: The primary deficit is the difference between total fiscal deficit and interest payments. The current fiscal status of the government shows its financial position at this moment, excluding its previous debt obligations.

Budget’s Objective: Balanced Growth

The primary objective of the Union Budget is to promote rapid and balanced economic growth, social justice, and equality.

The budget aims to efficiently allocate resources, reduce unemployment, and address income disparities.

By understanding the Union Budget and how it is balanced, we as citizens can better grasp how the government is planning to improve the economic growth.

An important aspect of the Union Budget is the concept of fiscal deficit. Fiscal deficit is the amount by which the government's expenditure exceeds its revenue.

In other words, it represents the extent to which the government has to borrow in order to finance its operations. The government aims to maintain a balance between its expenditure and revenue, in order to avoid a fiscal deficit. This is why the government may choose to promote economic growth, increase taxes or reduce spending in order to balance its budget.

Another important aspect of the Budget is the concept of direct and indirect taxes. Direct taxes are taxes that are imposed directly on citizens, such as income tax and corporate tax. Indirect taxes, on the other hand, are taxes that are imposed on suppliers or manufacturers and are passed on to consumers. The Goods and Services Tax (GST) is an example of an indirect tax. Understanding the difference between these two types of taxes is important for understanding how the government raises revenue and how it impacts citizens.

Conclusion:

In conclusion, the Union Budget is a crucial financial event that impacts the lives of every citizen. It is the blueprint of the government's revenue and expenditure for a fiscal year and is presented every year in the month of February.

By understanding the basics of the budget, such as the fiscal deficit, direct and indirect taxes, and plan and non-plan expenditure, we can better grasp how the government manages its finances and how it plans to drive economic growth and social justice for a particular year.

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