government budgeting for 3 December 2025

Government Budgeting is the process by which the government plans, allocates and monitors the public fund. The process involves estimating revenues from taxes, fees, borrowings and planning the expenditures required to achieve policy objectives within a fixed fiscal period, generally one year.

Government Budgeting in India

The Government Budgeting in India is a comprehensive exercise undertaken by both the Central and the state levels. For the discussion, the focus is on the union budget, that is the annual financial statement of the Central Government. 

Union Budget of India

The Constitution of India has the following provisions when it comes to the Union Budget: 

• According to Article 112 of the Indian Constitution, the Union Budget refers to the Annual Financial Statement of the Central Government. This statement provides details of estimated receipts and expenditures for the financial year. 
• The Union Budget can be sub divided into three categories: 
  1. Budget Estimates (BE): Projections for the upcoming fiscal year.
  2. Revised Estimates (RE): Updated estimates for the current fiscal year.
  3. Provisional Actuals (PA): Actual receipts and expenditures of the previous fiscal year. 

Union Budget of India Important Facts

• The Union Budget is presented in the Parliament on 1st February every year since 2017-18. 
• Before this, the budget was always presented in the last week of February. 
• The Railway Budget, earlier presented separately since 1924 (Acworth Committee recommendation), was merged with the General Budget in 2017–18 (Bibek Debroy Committee). 
• The Nodal Agency managing the Union Budget is the Budget Division of the Department of Economic Affairs, Ministry of Finance. 

Government Budgeting Stages in India

Government Budgeting in India is divided into four phases: 

1. Budget Formulation: Preparation of estimates of receipts and expenditures.
2. Budget Enactment: Legislative approval through Finance Bill & Appropriation Bill.
3. Budget Execution: Collection of revenues and spending as per approvals.
4. Legislative Review: Post-budget audits and scrutiny by Parliament.

Procedure of Union Budget Enactment

The Union Budget is passed in the Parliament by by following procedure: 

• The President fixes the date of the budget presentation. 
• The Budget is laid down in the Lok Sabha by the Union Finance Minister, followed by  laying it before the Rajya Sabha. 
• The Budget is then put up for debate on the basis of principles and priorities without voting. 
• The Standing Committees examine Demands for Grants in detail and submit reports. 
• Voting on Demands for Grants (Lok Sabha only):
  • Lok Sabha votes on expenditure demands, converting them into Grants.
  • Rajya Sabha can only discuss, not vote.
  • Cut Motions:
    • Policy Cut Motion – reduce demand to ₹1 (policy disapproval).
    • Economy Cut Motion – reduce demand by a specific amount (suggest savings).
    • Token Cut Motion – reduce demand by ₹100 (raise a grievance). 
• The Appropriation Bill is passed after grants are approved. This bill authorises withdrawals from the Consolidated Funds of India. 
• The Finance Bill legalises tax proposals and revenue measures. 
• Finally with the Presidential assent to Appropriation and Finance Acts, the Budget is finally enforceable. 

Government Budget Components

The Government Budget is sub-divided into two main components- Revenue Budget and Capital Budget

1. Revenue Budget 

The Revenue Budget details the government’s revenue receipts and revenue expenditure. 

(a) Revenue Receipts

Income received by the government that is not repayable.

• Tax Revenue includes: 
  • Direct Taxes: e.g., Income Tax, Corporation Tax
  • Indirect Taxes: e.g., Customs Duties, Excise Duties, Service Tax, GST
  • Other Direct Taxes: Wealth Tax, Gift Tax, etc.
    
• Non-Tax Revenue
  • Interest receipts on loans
  • Dividends & profits from government investments
  • Fees & service charges
  • Spectrum revenue
  • Grants from foreign countries/institutions

(b) Revenue Expenditure 

Revenue Expenditure neither creates assets nor generates future returns.
Examples: Salaries, pensions, subsidies, interest payments, grants to states/UTs, and daily functioning of government departments.

2. Capital Budget 

The Capital Budget reflects the assets and liabilities of the government and funds required for long-term development. 

(a) Capital Receipts

Funds that either create liabilities or reduce assets.

• Debt-Creating: Fresh loans and borrowings
• Non-Debt Creating: Recovery of loans, disinvestment proceeds

(b) Capital Expenditure

Capital Expenditure is the spending that leads to creation of assets or investments.
Examples: Infrastructure (roads, schools, hospitals), equity in PSUs, loans to states/UTs, and repayment of loan principal.

Budget Types

The Union Budget is of the following types:

1. Balanced Budget – Receipts = Expenditure (rare in practice).
2. Surplus Budget – Receipts > Expenditure (used to control inflation).
3. Deficit Budget – Expenditure > Receipts (used during recession/depression). 

Budget Deficits 

The Deficits in Budget is of the following types: 

1. Budget Deficit = Total Expenditure – Total Receipts (rarely used now).
2. Revenue Deficit = Revenue Expenditure – Revenue Receipts (indicates non-asset spending).
3. Effective Revenue Deficit (ERD) = Revenue Deficit – Grants for Capital Assets (introduced in 2012–13).
4. Fiscal Deficit = Total Expenditure – (Revenue Receipts + Non-Debt Capital Receipts).
5. Primary Deficit = Fiscal Deficit – Interest Payments.
6. Monetized Deficit = Borrowings from RBI + Cash drawdown (leads to increase in money supply).

Government Budgeting Types

Government Budgeting is of the following types: 

1. Line-Item Budgeting : Lists expenditures by categories 
2. Performance Budgeting : Links spending to measurable performance.
3. Zero-Based Budgeting : Introduced in 1987-88 and every program reviewed afresh from "zero" each year.
4. Outcome Budgeting : Introduced in 2005 and consolidated in 2017-18, it focuses on results achieved rather than inputs.
5. Gender Budgeting : introduced in 2005-06, it examines budgets from a gender perspective to promote equality.