Budget of Government of India| Objectives & Components of Govt. Budget UPSC CSE

Summary of Budget of Government of India

The government budget is a very important governance tool that aids in the implementation of public policies. In a developing country like India, it has acquired a special significance. Since the government’s financial resources are limited, it is important to formulate a carefully considered plan for the allocation of such resources. Thus, the government budget serves as a tool for maximising positive outcomes with limited resources. In India, both the Union and state governments pass an annual budget that enumerates government expenditure and sources of finance during the financial year. Various budgetary innovations have been introduced over the years to improve the socio-economic outcomes of the budget. This includes gender-based budgeting, performance budgeting, outcome budgeting, etc.

1) What is gender budgeting?

Gender Budgeting:

It is the preparation of a budget from a gender perspective. It does not mean a separate budget for each gender. Rather, it calls for the allocation of resources in a gender-sensitive manner.
It is a tool for achieving gender mainstreaming so that development gains reach both men and women equally.
It is not just an accounting process; rather, it is an ongoing process in which, at every step of planning, programme, policy-making, implementation, assessment, audit, and review, gender perspective is kept in mind.
The central idea of gender budgeting is to realise gender-based commitments through budgetary commitments so as to eliminate gender-centric inequalities in the country.
Gender Budgeting was first introduced in the 2005-06 Budget in India.
To institutionalise gender budgeting in India, the Ministry of Finance in 2007 mandated the setting up of Gender Budgeting Cells (GBCs) in each department/ministries.

2) What is Zero-Based Budgeting?

Zero-Based Budgeting:

In this system of budgeting, allocations to any programme or agency must be reviewed and justified, and approval for such funding shall be sought each year.
In this budgeting process, every plan starts from scratch or zero, unlike the conventional approach of incrementally increasing the budget every year.
So every department has to present reasons for funding the programmes and projects each year.
This type of budgeting was made compulsory in India in 1986.

3) What are Non-Debt Capital receipts ?

Non-Debt Capital Receipts: these are receipts that are received by the government through the sale of shares of Public Sector Undertakings (PSUs), or divestments, or from recoveries of loans granted by the government.

4) What is capital expenditure?

Capital Expenditures: these are expenditures made by the government that create assets or reduce financial liabilities. The purchase of land, equipment, or machinery, investment in shares, loans, and advances provided by the Union Government to the state government, PSUs, or others are included in the capital expenditure.

5) What is the fiscal deficit ?

Fiscal Deficit: The difference between the total expenditure of the government and its total receipts, excluding borrowings. It is a very important indicator of the financial health of the public sector and the overall stability of the economy.

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

Background of Budget of Government of India

Constitutional Provision:

Article 112 of the constitution deals with an ‘annual financial statement’ that is caused to be laid by the President before the Parliament every year. The term ‘budget’ is not mentioned anywhere in the constitution. Instead, the constitution refers to the budget as an ‘annual financial statement’.
Similar provisions are mentioned in Article 202 for a state government.
Other important provisions related to the budget are:
- Article 114: Appropriation Bill
- Article 265: No tax shall be levied or collected except by authority of law
- Article 266: Consolidated Fund
- Article 267: Contingency Fund

Introduction of Budget of Government of India

Union Budget: A budget is a future projection of government revenue and expenditure, generally for a one year period. In India, this budget document, which contains the government's proposed expenditures and revenue, is presented before the Parliament. Subsequently, it is passed in Parliament and then approved by the President. The Union Finance Minister presents the budget in Lok Sabha on February 1st every year.
The government budget contains the following information:

Financial sources
Receipts and expenditures for the previous financial year
Government plans, policies, schemes, etc. for the financial year
Data related to the performance of various government agencies

Objectives of the Government Budget

Budget is the most important policy tool that can provide direction to the economy. It has the following objectives:

Accountability: It enables citizens to hold the government accountable for the commitments made. This ensures effective utilisation of funds.
Outcomes: Budget sets targets and goals for various programmes. This not only ensures the accountability of public officials but also encourages them to work to achieve better outcomes.
Efficiency: Budgeting process and methods make sure that there is an efficient allocation of resources.
Reallocation of resources: Budget can ensure the reallocation of resources based on an objective evaluation. Based on budget estimates, the government can allocate more resources to certain areas to maximise social outcomes.
Evaluation of performance: overall budgeting process helps in the performance evaluation of various government policies and schemes.
Income redistribution: Government budget and policies can drive the process of redistribution of income. Government can adjust its taxation policies and steer this revenue in such a way that balanced economic development in the country can be achieved.
Economic growth and stability: Budget can act as a stimulus to the economy and drive robust economic growth. In addition to this, the government budget aims for economic stability by adopting sustainable fiscal policies.

Budgetary Process

Preparation of Budget: It is a consultative process among the NITI Aayog, Finance Ministry, and other ministries. The Budget division of the Department of Economic Affairs, Ministry of Finance, is the nodal body responsible for making the budget.
Presentation and Enactment of the Budget:
- Presentation of Budget by the Union Finance Minister in Parliament (Lok Sabha)
- General Discussion on Budget in both the Houses of Parliament
- Scrutiny of demand for grants by standing committees by individual ministries
- Further detailed discussion on demand for grants followed by voting on them by Lok Sabha
- Voting on the demand for grants combined together for the remaining ministries
- Passing of the appropriation and finance bills
Implementation of Budget: After passing of the appropriation and finance bill, various departments collect and spend the money earmarked for different schemes and programmes.
Review and Audit of Budget: In India, there is Parliamentary oversight for ensuring prudent and effective utilisation of funds. Parliament exercises control over government expenditure through the following Parliamentary Committees:
- Department Related Standing Committees (DRSCs): They were introduced in 1993. DRSCs look into the expenditures proposed by various ministries.
- Estimates Committee: It examines the budget estimates and suggests economies in public expenditure.
- Public Accounts Committee (PAC): The Comptroller and Auditor General (CAG) prepares a detailed audit and report on the expenditures by the government. The main function of the PAC is to examine this report. PAC is assisted by the CAG in fulfilling its function.

Components of Government Budget

Article 112, demands that revenue expenditure must be distinguished from other expenditure. The Union budget has two broad components: Revenue Budget and Capital Budget.

Revenue Account	Capital Account
It consists of revenue receipts and revenue expenditures.	It consists of capital receipts and capital expenditures. This is an account of the assets and liabilities of the Union Government.
Revenue Receipts: It consists of government income from all sources that does not create liability or lead to a decrease in assets. They can be broadly divided into two categories: Tax revenue: It comprises the income generated and received due to the tax and duties levied by the government. Taxes can be of two types: Direct Tax: It is levied on and paid by the individual or an entity, and they cannot shift the burden on any other individual or entity. For example, income tax, securities transaction tax, etc. Indirect Tax: These taxes are imposed on a product or service. But, the burden of this tax is shifted to others. For example, Goods and Services Tax (GST), excise duty on petrol, etc. Non-Tax Revenue: These are revenue receipts received from sources other than tax. These include interest receipts, dividends and profits, fee and other receipts.	Capital Receipts: these are receipts that generate liability or decrease assets. It includes government borrowings, loan recoveries, and the disposal of an asset. They can be broadly divided into two categories: Debt Capital Receipts: these are receipts that create debt or other liabilities on the government. They can be: Market borrowing or Public Debt: It is the borrowings by the government on the security of the Consolidated Fund of India. The government can raise money from either within the country (for example, the sale of treasury bonds) or from abroad (for example, loans from foreign institutions). Other Liabilities: Instead of borrowing from the market, the government can withdraw money from the Public Account of India and pay it back in time. This includes money available to the government from public provident funds, small savings schemes (National Savings Certificate, Post Office Savings Scheme and others), etc. Non-Debt Capital Receipts: these are receipts that are received by the government through the sale of shares of Public Sector Undertakings (PSUs), or divestments, or from recoveries of loans granted by the government.
Revenue Expenditure: The expenditure incurred by the government for day-to-day functioning and administration. This expenditure does not result in the creation of any assets. Earlier, this expenditure was categorised into plan and non-plan expenditures but since the 2017-18 budget, this practice is abolished.	Capital Expenditures: these are expenditures made by the government that create assets or reduce financial liabilities. The purchase of land, equipment, or machinery, investment in shares, loans, and advances provided by the Union Government to the state government, PSUs, or others are included in the capital expenditure.

Budgetary Deficits

Revenue Deficit: It refers to the excess of the government's revenue expenditure over its revenue receipts. If the government incurs revenue expenditure, then it implies that the government is dissaving and is using its savings in other sectors of the economy to finance a part of its consumption expenditure.
- Revenue Deficit = Revenue Expenditure - Revenue Receipts
Fiscal Deficit: The difference between the total expenditure of the government and its total receipts, excluding borrowings. It is a very important indicator of the financial health of the public sector and the overall stability of the economy.
- Fiscal Deficit = Total Expenditure - (Revenue Receipts + Non-Debt Creating Capital Receipts)
Primary Deficit: The Fiscal Deficit minus the interest payment is known as the primary deficit. It is an indicator of the difference between the government's expenditure and its receipts, excluding the expenditure incurred on interest payments on loans.
- Primary Deficit = Fiscal Deficit - Interest Payment

Different Types of Budgeting

Performance Budgeting:
- The conventional approach to budgeting views the process as just the allocation of finance for expenditure.
- Performance budgeting links the process of budgeting to functions, programmes, activities, and projects.
- A Performance Budget is an extensive document that is formulated, presented, and implemented in terms of projects, activities, and programmes such that the financial and physical aspects are closely interlinked.
- This approach was introduced in India in 1968.
Outcome Budgeting:
- This budget is formulated with a focus on outcomes rather than output. Output implies the physical quantity of a good or infrastructure. Whereas outcomes measure the impact or effect of that physical quantity or output on society.
- For example, if there is money allocated to the construction of a school, then the output of this budget will be the physical infrastructure of the school that is created, whereas the outcome of this may be better learning outcomes for students in that area.
- Outcome budgeting was introduced in India in the 2005-06 Budget.
Zero-Based Budgeting:
- In this system of budgeting, allocations to any programme or agency must be reviewed and justified, and approval for such funding shall be sought each year.
- In this budgeting process, every plan starts from scratch or zero, unlike the conventional approach of incrementally increasing the budget every year.
- So every department has to present reasons for funding the programmes and projects each year.
- This type of budgeting was made compulsory in India in 1986.
Gender Budgeting:
- It is the preparation of a budget from a gender perspective. It does not mean a separate budget for each gender. Rather, it calls for the allocation of resources in a gender-sensitive manner.
- It is a tool for achieving gender mainstreaming so that development gains reach both men and women equally.
- It is not just an accounting process; rather, it is an ongoing process in which, at every step of planning, programme, policy-making, implementation, assessment, audit, and review, gender perspective is kept in mind.
- The central idea of gender budgeting is to realise gender-based commitments through budgetary commitments so as to eliminate gender-centric inequalities in the country.
- Gender Budgeting was first introduced in the 2005-06 Budget in India.
- To institutionalise gender budgeting in India, the Ministry of Finance in 2007 mandated the setting up of Gender Budgeting Cells (GBCs) in each department/ministries.

Evolution of Budgeting Process in India
	Year
Performance Budget introduced	1968
	1983	Zero-Based Budgeting adopted
FRBM Act for responsible fiscal policy	2003
Gender Budgeting introduced	2005	Outcome Budgeting introduced
	2014	Planned and Non-Plan expenditure distinction abolished
Merger of Railway Budget with the General Budget and Budget presentation on February 1st every year (1 month advancement of budget cycle)	2016
	2017	Rationalisation of Centrally Sponsored Schemes (CSS) and related expenditure
Statement of Off-Budget Borrowings provided along with the budget	2019

Issues with Indian Budget Making

Lack of Parliamentary scrutiny: there is very little discussion and debate in Parliament over the allocations made in the budget towards various government programmes. Only a few demands for grants are taken under discussion, while others are clubbed together and put to vote without any discussion.
Stagnation in Gender Budgeting: Since its introduction in 2005, the allocation in gender budgeting has remained low (below 5%). This is due to capacity and resource constraints, a lack of gender-related data, and a lack of ingenuity in crafting gender specific programmes that can deliver desired outcomes.
Lack of expertise in Parliamentary Committees: members of such committees do not possess any technical or specialised knowledge required to analyse government expenditure.
Skewed pattern of expenditure: Although the capital expenditure has increased since the 2019-20 Budget, it is still meagre as compared to the revenue expenditure.
Shifting goal post of fiscal deficit: the FRBM Act had proposed a timeline to bring down the fiscal deficit of both the Union and the state governments. But there have been several amendments to the act, and the target years have been postponed. Thus, the credibility of the government to exercise fiscal restraint is harmed.
Insufficient allocation to key sectors: allocation to some of the critical sectors such as health, education, and defence, has consistently been below expectations. For example, allocation to education has remained in the vicinity 3-4% of the GDP, as against the recommended target of 6% of GDP.

Conclusion of Budget of Government of India

A Budget is not merely a statement of revenue and expenditure; rather, it is a financial blueprint of actions and reflects the aspirations of the people of the country. In India, the budget has served as a vehicle for accomplishing developmental goals. Over the years, various budgetary innovations have been operationalised that have helped in achieving specific objectives. However, many challenges still remain that have contributed to the underwhelming performance of budgets. Overcoming these challenges will be key to achieving desired socio-economic goals.

Prelims PYQS of Objectives & Components of Govt. Budget

Which of the following is/are included in the capital budget of the Government of India? (2016)
1. Expenditure on acquisition of assets like roads, buildings, machinery, etc.
2. Loans received from foreign governments.
3. Loans and advances granted to the States and Union Territories.
Select the correct answer using the code given below:

(a) 1 only
(b) 2 and 3 only
(c) 1 and 3 only
(d) 1, 2 and 3

Show Answer

Correct Answer :(d) 1, 2 and 3

There has been a persistent deficit budget year after year. Which of the following actions can be taken by the government to reduce the deficit? (2015)
1. Reducing revenue expenditure
2. Introducing new welfare schemes
3. Rationalising subsidies
4. Expanding industries

Select the correct answer using the code given below:

(a) 1 and 3 only
(b) 2 and 3 only
(c) 1 only
(d) 1, 2, 3 and 4

Show Answer

Correct Answer :(a) 1 and 3 only

With reference to the expenditure made by an organisation or a company, which of the following statements is/are correct ? (2022)
1. Acquiring new technology is capital expenditure.
2. Debt financing is considered capital expenditure, while equity financing is considered revenue expenditure.
Select the correct answer using the code given below :

(a) 1 only
(b) 2 only
(c) Both 1 and 2
(d) Neither 1 nor 2

Show Answer

Correct Answer :(c) Both 1 and 2

Budget of Government of India

Objectives & Components of Govt. Budget UPSC CSE