5 min read • Published 28 Jan 25
What is Union Budget: Meaning and Importance
Table of Contents
The financial plan presented by the central government for the upcoming financial year is called a union budget. The union budget accounts for the expected revenue receipts and expenditures. The union budget informs citizens about important financial aspects like income tax filing through union budget income tax provisions.
Union Budget Meaning under Article 112
The best way to understand what is union budget is through Article 112 of the constitution. The article mentions that the annual financial statements containing the expected revenue and expenses of the government must be presented before the parliament with respect to every financial year.
This article of the constitution upholds the essence of the budget which sets the tone for the upcoming financial year.
Presentation of the Budget
The finance ministry presents the budget on behalf of the central government. The budget is presented in the parliament and provides a roadmap for the upcoming fiscal year (1st April to 31st March).
Since 2017, the Annual Financial Statements are announced on 1st February. The finance minister gives the budget speech. The speech aims to give an overview of the budget and set the motivations of the government.
Important Terms Used for the Union Budget
Certain terms are commonly used with the budget. Comprehending the budget terminology can help individuals understand what is union budget. Some of these terminologies are listed below.
- Blue Sheet
It refers to a blue-coloured bundle of sheets that contains several key numbers about the budget. This highly confidential document acts as a blueprint for the actual budget.
- Fiscal Deficit
A deficit means a lack of funds. It occurs when the expenses of the government are in excess of its earnings. A fiscal deficit can be met either by borrowing funds or by printing extra money.
- Revenue Deficit
A revenue deficit is a particular kind of fiscal deficit wherein the revenue expenditures exceed the revenue receipts. This indicates a shortage of funds for the day-to-day upkeep of the government.
- Finance Bill
It is a part of the union budget that focuses on taxation. If the government wishes to introduce, amend or even continue with the tax structure, they would have to use a finance bill to formulate union budget income tax provisions.
- Consolidated Fund of India
It is the national fund maintained by the country. All expenses are made from this fund and all receipts are collected in this fund. The government cannot withdraw funds from this without parliamentary approval.
- Disinvestment
The process by which the government sells its investment in any asset or subsidiary is called disinvestment. It adds liquidity to government funds.
- Appropriation Bill
It is also known as the supply bill or spending bill. It is the proposed law that enables the government to make withdrawals from India’s consolidated fund for approved expenditures.
Why is the Union Budget Created?
The union budget is integral to the union government’s performance. It determines the cash inflow and outflow of the country. The budget has serious implications for the economy. Listed below are the different reasons why union budgets are created.
- Determine the Objectives of the Government
The union budget lays out the various financial goals that the government looks forward to achieving over a set period.
- Optimum Allocation of Resources
Preparation of the union budget ensures that the scarce resources of a country are optimally allocated to various tasks and goals. Judicious allocation of resources ensures economic progress.
- Government Support
The budget provides government support to specific sectors. It also acts as an indicator to investors. Investors might opt to invest in industries that receive government push. It indicates the trajectory of the economy.
- Financial Plans for Citizens
The budget addresses key questions like direct and indirect taxes. While some aspects of a budget have direct implications for the life of a citizen, others have an indirect impact. The union budget enables citizens to make an optimum financial plan for the upcoming year.
- Union Budget Income Tax
The union budget determines the income tax slabs and rates. The budget also determines the deductions and the process of calculating income tax.
Types of Budget
The union budget is primarily categorised into two categories. They are listed below. Understanding these two types of budgets is integral to understanding what is union budget.
- Capital Budget
The capital budget lists the capital expenditures and capital receipts of the central government in the upcoming financial year. Capital expenditure refers to the non-recurring expenses incurred, like the sale of fixed assets. Similarly, capital receipts refers to non-recurring income generated.
- Revenue Budget
The government’s regular income and payments are mentioned in the revenue budget. It refers to the recurring expenses and incomes anticipated by the government.
Conclusion
The union budget determines the trajectory of the country for the fiscal year ahead. It not only gives a structured framework for the government but also enables citizens to plan their financial year. A thorough understanding of what is union budget might help investors plan their goals and roadmap according to the budget takeaways to optimise their investment and portfolio.
Investors can use a financial planning app to optimise their resource allocation and diversify their portfolios.
Q: What is a Halwa ceremony?
The process of making the union budget is a long-drawn process. It usually spans months. The Halwa ceremony is traditionally celebrated when the final draft of the budget goes for printing. It marks the end of the lengthy drafting process. The ceremony is attended by the finance minister and other officials. They celebrate by having Halwa.
Q: How can the union budget help in making an investment plan?
The union budget determines the roadmap for the economy. Decisions made during the budget impact individuals directly or indirectly. Budget takeaways enable individuals to formulate their financial strategy. Moreover, budget updates inform investors about the sectors that gain government support.
Q: Who approves the union budget?
The union budget must gain parliamentary approval. The finance minister presents the union budget in the parliament. The government can withdraw funds and make payments only after the parliament approves the budget.
Q: What is an interim budget?
The interim budget refers to the budget that is presented within a financial year. Unlike the annual budget, it is not presented annually. The interim budget is usually presented before the general elections to reflect on the state of the Indian economy.
Q: What is the contingency fund of India?
A pool of funds created and maintained by the Indian government to meet unforeseen and sudden expenditures is called the contingency fund of India. For instance, during a natural disaster, the government can make withdrawals from this fund.
