Union budget is the most watched event in India for retailers, manufacturers, investors, stockbrokers and common man. It is very important to everyone so let’s understand what the Union budget is all about?

Budget is the nation’s annual financial statement presented by the finance minister; it gives us a detailed account of the government’s expenditure and income. All the government ministry’s bodies, union territories, states put their plans together for the year including their expenses and their income and present it to the finance minister. The Finance Minister then meets various financial bodies, businessmen and stakeholders including economists on whose advice the budget is prepared for the year.

So how does the government earn its revenue?

There are various ways that the government can earn its money as part of its budget presentation the government presents a receipts budget which lays down its source of earnings. The primary source of the government’s revenues are taxes, there is a direct tax which is paid by people and companies from their income, then there is indirect tax.

An indirect tax is paid by the consumers as part of the purchase price of goods or services like customs excise and the GST (Goods and Service Tax) apart from tax revenue the government also earns revenue from a few other sources, asset sale or Disinvestment is one way for the government to earn money. The other way is dividend from RBI and dividends from public sector.

Once the government writes down its estimate of earnings for the year it starts to decide where it will spend. All the government spending has been categorized as revenue expenditure and capital expenditure.

Revenue expenditure is the short-term expense and the day-to-day running of the economy such as paying salaries and Pensions to its employees, manufacturing expenses, insurance, etc.

Then there is capital expenditure which is spent on creating assets and investments in land machinery and projects to generate long-term growth and returns.

Apart from expenditure on things like salaries, infrastructure, Social Welfare and economic programs the government also splits up spending on different ministries to run their operations. It also spends on different schemes and important areas of focus for the country. The government subsidizes petrol, food and fertilizer costs.

The union budget comprises capital budget and revenue budget. Capital budget accounts for the government’s capital payments and capital receipts, include loans from the public or loans from the Reserve Bank of India. On the other hand capita payments include expenses incurred towards building long-term assets and facilities such as health facilities, development and maintenance of equipment as well as educational facilities. Revenue budget records all the revenue receipts and expenditure such as that earned or spent on running the operations for that particular year. If the revenue expenses more than that of the receipts, it indicates that there is a revenue deficit.

So why is budget so important?

Apart from the fact that it informs the public as to how the government plans to earn and spend the budget also reflects the current state of the country’s economy.The Union budget aids in controlling the economic fluctuations as well as ensures proper handling of inflation and deflation thus bringing about economic stability.

Unlike a calendar year the budget is presented for the financial year that runs from 1st of April to 31st of March. In an election year the budget may be presented twice first to secure vote on account for a few months and later in full. Since the government of the day would not have enough time in hand to vote for a full budget before commencement of the new financial year a word on account would ensure that sufficient funds are at the disposal of the government to allow it to run the administration of the country until a new government takes over.



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