INTRODUCTION

The Union Budget of India, also referred to as the Annual Financial Statement in
Article 112 of the Constitution of India,[1] is the annual budget of the Republic of India
set by Ministry of Finance for the following financial year, with the revenues to be
gathered by Department of Revenue to identify planned government spending and
expected government revenue and the expenditures gathered by Department of
Expenditure of the public sector, to forecast economic conditions in compliance with
government policy.

The Government presents it on the first day of February so that it can be materialized
before the beginning of the new financial year in April. Until 2016 it was presented on
the last working day of February by the Finance Minister in Parliament. The budget
division of the Department of economic affairs (DEA) in the finance ministry is the
nodal body responsible for producing the budget.[2]

The budget reflects the government's policy priorities, development aspirations, and
commitment to various sectors.

Key points of interaction between the government budget

and the Indian economy include:
• Resource Allocation: The budget determines how financial resources are
distributed among various sectors such as infrastructure, education,
healthcare, agriculture, defense, and more. The allocation decisions have a
direct impact on sectoral growth and overall economic development.
• Economic Growth: The budget can act as a catalyst for economic growth by
investing in critical infrastructure projects, promoting industries, and
encouraging entrepreneurship. Capital expenditure in areas like
transportation, energy, and technology can stimulate economic activity and job
creation.
• Inflation Management: The budget's fiscal policy measures can influence
inflationary pressures in the economy. If the government spends more than it
collects in revenue (running a deficit), it could lead to higher money supply
and potential inflation. Conversely, prudent fiscal management can contribute
to price stability.
 • Social Welfare: The budget plays a vital role in addressing social inequalities
and improving the living standards of marginalized populations. Allocation to
social welfare schemes, poverty alleviation programs, and healthcare initiatives
directly impacts the well-being of citizens.
• Investor Confidence: A well-structured budget with a focus on fiscal
discipline, transparent policies, and growth-oriented measures can enhance
investor confidence. Foreign and domestic investors are more likely to invest in
a stable economic environment.
• Monetary Policy Coordination: The government budget and monetary policy
(controlled by the central bank) are intertwined. Coordination between the two
is essential to ensure macroeconomic stability and avoid conflicting policy
actions.
• Revenue Generation: The budget's revenue component is largely derived
from taxes, duties, and other sources. Changes in tax policies can influence
consumer behavior, business decisions, and overall economic activity.
• Infrastructure Development: Investment in infrastructure, including
transportation, energy, and communication networks, has a multiplier effect on
economic growth. Adequate funding in this area can improve productivity and
connectivity.
• Public Debt Management: The budget outlines borrowing requirements,
which can impact the level of public debt. Prudent management of debt
ensures that it remains sustainable and does not hinder future economic
prospects.
• Long-Term Vision: The budget can reflect the government's commitment to
long-term goals such as sustainable development, environmental protection,
and technology advancement.

THE OBJECTIVE OF THE STUDY

The objectives of this project “government
budget and economy” is to understand various
concepts such as:
• Government budget
• Classification of receipts
• Classification of expenditure
• Measures of government deficit
Presentation and analysis of the data

Presentation and analysis of data

• Government budget

The government budget of India is a comprehensive financial plan that outlines the
government's revenue and expenditure for a specific fiscal year. It serves as a
blueprint for the allocation of resources, funding of public programs, and
management of the country's economy. The Indian budget is presented annually by
the finance minister to the Parliament, typically in the month of February.

The Indian government budget is classified into three categories: the revenue
budget, the capital budget, and the fiscal deficit. The revenue budget accounts for
the government's revenue receipts and expenditure that do not result in the creation
of assets. It includes regular expenses like salaries, pensions, subsidies, and interest
payments. The capital budget, on the other hand, pertains to capital receipts and
expenditure that lead to the creation of assets. This includes investments in
infrastructure, industries, and development projects. The fiscal deficit represents the
excess of total expenditure over total revenue, excluding borrowings. It indicates the
government's borrowing requirement to meet its expenditure commitments.

One of the crucial components of the Indian budget is tax revenue. The government
collects taxes in various forms, including direct taxes like income tax and corporate
tax, and indirect taxes like Goods and Services Tax (GST), excise duties, and customs
duties. Tax revenue constitutes a significant portion of the revenue budget and plays
a vital role in funding government programs and services.

Expenditure in the Indian budget is allocated across sectors such as education,

healthcare, defense, agriculture, infrastructure, and social welfare. The allocation
reflects the government's priorities and policies for the fiscal year. Subsidies, aimed at
supporting various sectors and marginalized communities, also form a substantial
portion of expenditure. Additionally, the government allocates funds for centrally
sponsored schemes, which are shared with state governments to implement projects
for development and social welfare.

The Indian budget also outlines the government's strategies for economic growth
and development. It often includes policy measures to boost economic activity,
attract investments, promote exports, and create job opportunities. The budget is a
critical tool for managing inflation, controlling public debt, and achieving a
sustainable fiscal deficit.

To ensure transparency and accountability, the budget undergoes a thorough review

process in Parliament. The finance minister presents the budget in two parts: the
General Budget and the Railway Budget. However, since 2017, both budgets have
been merged into a single Union Budget to streamline the process. The budget
presentation is accompanied by detailed documents, including the Annual Financial
Statement, Expenditure Budget, Revenue Budget, and Demand for Grants, providing
comprehensive information on government finances.

The budget presentation is followed by a general discussion in both houses of

Parliament. Members of Parliament have the opportunity to scrutinize the budget,
propose changes, and raise concerns. This process promotes transparency and
parliamentary oversight over government spending decisions.

In recent years, the Indian budget has aimed to address various challenges, including
inclusive growth, job creation, infrastructure development, and fiscal consolidation.
The budget also reflects the government's commitment to digitalization and the
promotion of a digital economy.

In conclusion, the government budget of India serves as a vital tool for fiscal planning,
resource allocation, and economic management. It outlines revenue sources,
expenditure priorities, and policy measures to achieve economic growth and
development while ensuring fiscal discipline. The budget presentation and
parliamentary discussions facilitate transparency, accountability, and public
participation in the governance process.

• Classification receipts
In order of importance, the classification of revenues and expenditures follows the
approaches to the dual budget and reflects, to an extent, the features pertaining to
the current and capital budgets. Revenues are first divided into two categories-tax
revenues reflecting the compulsory nature of the levy, and non-tax revenues that are
in the form of charges for services provided.

What are Receipts?

A receipt is a written acknowledgement of the transfer of something valuable from
one party to another. In addition to the receipts that are normally given to customers
by vendors and service providers, receipts are also given in business-to-business
entities as well as stock market transactions. However, receipts are classified into two
types. They are:

• Revenue receipts
• Capital receipts

The UN System of National Accounts classified revenues into direct and indirect
taxes, property income, fees, and related categories. Direct taxes are levied on
individuals and others by public authorities on income from property, employment,
or any other source and paid by individuals and others. Indirect taxes are assessed on
producers in respect of the production, sale, or use of goods and services that are
charged to the expenses of production

Revenue Receipts
Revenue receipts are those receipts that do not lead to a claim from the government.
They are hence termed non-redeemable. They are classified into tax and non-tax
revenues. Tax revenues, a vital component of revenue receipts, have been bifurcated
into direct taxes (personal income tax) and enterprises (corporation tax), indirect
taxes like customs duties (taxes imposed on commodities imported into and
exported out of India), excise taxes (duties levied on commodities manufactured
within the nation), and service taxes.

Other direct taxes such as gift tax, wealth tax, and estate duty (now eradicated) have
never brought a large amount of revenue, hence they are known as paper taxes.
Capital Receipts
The government also gets money in terms of loans or from the sale of its assets. Loans
must be given back to the agencies from which they have borrowed. Hence, they
establish liability. The sale of government assets, such as the sale of shares in Public
Sector Undertakings (PSUs) that is known as Public Sector Undertakings
disinvestment, minimizes the total amount of financial assets of the government.

Likewise, when the government sells an asset, it is understood that its earnings from
that asset will vanish in the future. Hence, these receipts can be debt establishing or
non-debt establishing. All the receipts of the government that establish liability or
minimize financial assets are known as capital receipts. When the government takes
loans, it means that these loans will have to be given back and interest will have to be
financed on these loans in the future.

• Classification of expenditure

The purposes of expenditure classification have grown over the years and have
generally kept pace with the growth and increasing complexity of public
expenditures. Moving from accountability to management and to planning,
classifications were improved for several reasons. The need for uniformity in the
structures and better synchronization with other classifications, on one hand, and the
introduction of program budgeting, on the other, have contributed to major changes
in the classification of expenditures. Expenditures were originally classified in terms of
organizations and the objects of expenditure, i.e., the goods and services bought by
appropriated funds. Their primary purpose was to provide a basis for fund requests
and for controlling operations.

Expenditure definition
Expenditure is referred to as the act of spending time, energy or money on
something. In economics, it means money spent on purchasing any goods or
services.

There are two categories of expenditures which are:

1. Revenue Expenditures
2. Capital Expenditures
Revenue Expenditures
Revenue expenditures are the expenditures incurred for the basis other than the
creation of physical or financial assets of the central government. These are
associated with the expenses incurred for the normal operations of the government
divisions and various services, interest payments on debt sustained by the
government, and grants given to state governments and other parties (even though
some of the endowments might be meant for the creation of assets).

Non-plan expenditure, the more significant component of revenue expenditure,

covers a broad degree of general, economic, and social services of the government.
The main objects of a non-plan expenditure are interest payments, defense services,
subsidies, salaries, and pensions.

Capital Expenditures
There are the expenditures of the government that result in the creation of physical or
financial assets, or depletion in financial liabilities. This incorporates expenditure on
the investment of buildings, land, equipment, machinery, investment in shares, and
loans and advances by the central government to state and union territory
governments, Public Sector Undertakings (PSUs), and other parties.

Capital expenditure is also classified as plan and non-plan in the budget documents.
A plan capital expenditure, like its revenue equivalent, is associated with central plan
and central assistance for state and union territory plans. A non-plan capital
expenditure covers different general, social, and economic services furnished by the
government.

• Measures of government deficit

What is a government deficit?

A deficit is the sum through which the expenditures in a budget exceed the income. It
plays a vital role concerning the pecuniary stability of an economy.

A government Deficit is the amount of money in the set budget by which the
government expenditure exceeds the government income amount.
It has proved to be a bridge between the income and expenditure of the government
such as capital income and capital expenditures.

It helps improve the financial health of the system.

“Net lending” means that the government has a surplus and has come up with
financial resources for other sectors, while “net borrowing” means that the
government has a deficit and requires financial means from other sectors.

To minimize the deficit the government may reduce a few expenses and may increase
the search for initiating revenue.

Components of Budget Deficit

The two major components of the budget deficit can be understood as

Revenues
• The bulk of revenue comes from corporate taxes and income tax for the
government which is greater than half of the tax revenues.
• For various companies and NGOs, revenues come from the sale of goods and
services.

Expenses
• Government expenses include spending on healthcare, infrastructure,
defense, pensions, and other items that contribute to the health of the overall
economy.
• Non-governmental organizations can include the sum that is spent on a daily
basis for the growth of the company and its employees.

Measures of Government Deficit

There are few measures that fathom the government deficit, and they have their own
understanding of the economy. They are

Revenue Deficit
• A revenue deficit comes into play when the said net income is less than the
estimated net income.
• It happens when the legal and said amount of revenue and the actual number
of expenditures do not comply with the budgeted revenue and expenditures.
 • So, the excess of estimated government expenditure over receipts during a
fiscal year in the revenue account is a revenue deficit.

Fiscal deficit
• The difference between total revenue and total expenditure of the
government is termed a fiscal deficit.
• It signifies the total borrowings needed by the government and when the
total revenue is calculated the borrowings are not taken into consideration.
• The excess amount of the total government expenditure over receipts from tax
and non-tax sources except the borrowings, during a fiscal year in both
current and capital accounts, is a fiscal deficit.

Primary deficit
• A primary deficit is known as the difference between the current year’s fiscal
deficit and the interest payment on the previous borrowings.
• It indicates the sum of borrowing which is needed by the government without
an interest component.
• The primary deficit can be calculated by recouping interest payments for the
borrowings from the present year’s fiscal deficit.

Advantages of Government Deficit

Advantages of Government Deficit

• Increased Economic Growth - It is said to be one of the plus points of deficit
spending.
• When a government spends in excess, it can afford to buy infrastructure for
the country which turns in the employment of labor and the workforce.
• As more money flows into the country, the overall economy rises, and it
becomes useful during emergencies.
• It can help attract jobs, increase business setups and startups, private
investment ventures, and the nation’s economy building.
• Controlled Deficit spending leads to a budget deficit.
• A budget deficit allows the government bodies to have thorough research
before making any unnecessary investments in order to generate assets.

Drawbacks of the Budget Deficit

Drawbacks of the Budget Deficit

• One of the major threats of a budget deficit is inflation.
 • In India, the budget deficit is met by borrowing from the central bank or the
international financial institutions which increases the money supply in the
economy resulting in inflation.
• The Government will have no savings during a deficit period which becomes
extremely problematic during emergencies.
• There remains no solution to go for and this results in too much borrowing
from other nations/governments at a high interest rate.
• Excessive debt continues to pile up and the government is left with no other
option except to increase taxes. There is an unusual increase in the prices,
which leads to high inflation.

CONCLUSION

The government budget of India holds a central position in the nation's fiscal
management, economic growth, and social development. It stands as a
comprehensive financial roadmap that outlines the government's revenue and
expenditure plans for a specific fiscal year. The Indian budget serves as a blueprint
for resource allocation, funding of public programs, and the overall economic
management of the country. This critical financial document is presented annually by
the finance minister to Parliament, usually in the month of February, marking a
significant event on the nation's economic calendar.

The Indian government budget is structured into three primary categories: the
revenue budget, the capital budget, and the fiscal deficit. Each category plays a
distinct role in shaping the country's financial landscape. The revenue budget
accounts for the government's day-to-day operational expenses, as well as its
revenue receipts. This includes regular outlays such as salaries, pensions, subsidies,
and interest payments. On the other hand, the capital budget deals with capital
receipts and expenditures that lead to the creation of assets. Investments in
infrastructure, industries, and development projects fall under this category. Lastly,
the fiscal deficit represents the shortfall between the government's total expenditures
and its total revenue, excluding borrowings. It indicates the extent to which the
government needs to borrow to meet its spending commitments.

At the core of the Indian budget are the revenue sources, primarily generated
through taxation. Tax revenue constitutes a significant portion of the revenue budget
and is derived from various sources. Direct taxes, including income tax and corporate
tax, contribute a substantial share. Indirect taxes such as the Goods and Services Tax
(GST), customs duties, and excise duties also contribute significantly. These revenues
are vital for funding government programs, public services, and welfare initiatives
that cater to the needs of citizens.

Expenditure in the Indian budget is allocated across diverse sectors, reflecting the
government's priorities and policies for the fiscal year. These sectors encompass
education, healthcare, defense, agriculture, infrastructure, and social welfare. The
allocation of funds in each sector reflects the government's vision for equitable
growth and development. Subsidies, aimed at supporting vulnerable sections of
society and specific sectors, constitute a substantial portion of expenditure. The
government also allocates funds for centrally sponsored schemes, which are
implemented in partnership with state governments to drive development and social
welfare initiatives.

The Indian budget is not just about financial numbers; it is also a reflection of the
government's strategies for economic growth and development. It often incorporates
policy measures aimed at stimulating economic activity, attracting investments,
promoting exports, and generating job opportunities. The budget is a crucial tool for
managing inflation, controlling public debt, and achieving a sustainable fiscal deficit.
It outlines the government's fiscal discipline and commitment to maintaining
macroeconomic stability.
The budget presentation process involves transparency and accountability to ensure
effective governance. The finance minister presents the budget in two parts: the
General Budget and the Railway Budget. However, since 2017, these budgets have
been merged into a single Union Budget to streamline the process. The budget
presentation includes detailed documents such as the Annual Financial Statement,
Expenditure Budget, Revenue Budget, and Demand for Grants. These documents
provide comprehensive information on the government's financial activities, enabling
lawmakers and the public to gain insights into the allocation of resources.

Once presented, the budget undergoes rigorous scrutiny and discussion in both
houses of Parliament. Members of Parliament have the opportunity to analyze the
budget, propose amendments, and raise concerns. This process facilitates
transparency, parliamentary oversight, and public participation in shaping
government spending decisions.

In recent years, Indian budgets have aimed to address multifaceted challenges,

including fostering inclusive growth, job creation, infrastructure development, and
fiscal consolidation. Moreover, the budget reflects the government's commitment to
digitalization and the promotion of a digital economy, aligning with the nation's
aspirations for technological advancement and innovation.

In conclusion, the government budget of India is a paramount instrument for fiscal

planning, efficient resource allocation, and strategic economic management. It
delineates revenue sources, expenditure priorities, and policy measures to drive
economic growth, development, and social progress. The budget presentation and
subsequent parliamentary discussions foster transparency, accountability, and public
involvement in the governance process. While the government deficit has both
advantages and drawbacks, the overall framework of the Indian budget empowers
the nation to navigate economic challenges, implement effective policies, and
promote sustainable development. Through prudent financial management and
robust budgetary practices, India continues its journey toward economic prosperity
and social well-being.
Suggestions

Today, with the use of technology and the overall ongoing transparency in data from
the government, a lot of critical numbers can be broadly estimated even before the
Budget is presented. Also, the government doesn’t wait for the annual Budget to
announce critical policy initiatives and rather implements them all through the year.

The first suggestion is regarding Dispute Resolution Mechanism (DRM). We are a

growing economy with scarce capital. Every resource, particularly capital, is very
important for us and our Endeavor should be to utilize it to its fullest. At times, when a
project gets stuck in dispute, resolution of the same takes inordinate time through
our legal system. This not only puts significant strain on project execution, but also
delays the project leading to cost escalation and sometimes making the project
unviable. To speedily dispose of such disputes, the government should consider
expanding the present Vivad se Vishwas (VsV) scheme, which is today meant to
resolve tax disputes, and enhance its scope to cover all kinds of commercial disputes.

Apart from making a huge difference to project execution and costs, this will also
reduce the load of our judiciary and enable it to take up other important matters
more expeditiously.

The third expectation from the Budget is a greater focus on innovation, without which
no economy today can progress. At present, our share of new patents filed annually is
less than 1%. China accounts for approximately half of the world’s total patents.
Innovation is an investment for the future and not focusing on it today would be like
not educating your child. There is a need to make a serious commitment to
innovation, not only financially but also in terms of creating an entire ecosystem of ..
partnerships with industry, academia, and government.

The fourth point is regarding privatization. A lot has been written about it over time
and the current government has done brilliantly on privatization by selling Air India
last year. This was nothing short of a miracle. It would be useful for the Hon. Finance
Minister to pull out the chapter on privatization from the economic survey of 2020
wherein a clear strategy and roadmap was indicated for privatization. We can follow
the Singapore model of transferring all our Public Sector Undertakings ( psu)
from govt to a new entity like NIIF, which can manage this investment professionally.
The improvement in the efficiency of our public sector can significantly add to the
efficiency of our country.

QUESTIONAIRE

Question 1: What is the main purpose of the government budget of India?

A) To determine the salaries of government officials.

B) To outline the allocation of resources and manage the country's economy.

C) To provide funding for public programs.

D) To calculate the total population of the country.

Question 2: When is the Indian budget typically presented to the Parliament?

A) In the month of April.

B) In the month of March.

C) In the month of February.

D) In the month of January.

Question 3: Which of the following is NOT a category of the Indian government

budget?

A) The revenue budgets.

B) The capital budgets.

C) The expenditure budgets.

D) The fiscal deficit.

Question 4: Which component of the Indian budget is responsible for creating

assets? A) Revenue budget.

B) Capital budget.

C) Fiscal deficit.

D) Expenditure budget.

QUESTION 5:

How are receipts classified based on their nature?

A) Direct and indirect receipts.

B) Financial and non-financial receipts.

C) Business and personal receipts.

D) Revenue and capital receipts.

Question 6: What are "capital receipts" in the context of the government's finances?

A) Revenues generated from taxes and duties.

B) Receipts from the sale of government assets and loans borrowed.

C) Receipts from the sale of goods and services.

D) Receipts from non-tax sources.

Question 7: Why are direct taxes like income tax considered a significant component
of revenue receipts?

A) They are collected from businesses only.

B) They are paid by individuals and corporations directly.

C) They are associated with the sale of assets.

D) They are classified as capital receipts.

Question 8: Why does the government taking loans result in the establishment of
liability?

A) The loans are non-redeemable and do not have to be paid back.

B) The loans are a form of revenue for the government.

C) The government is obligated to repay the loans along with interest.

D) The loans lead to the creation of financial assets for the government.

Question 9: What is the primary meaning of "expenditure" in economics?

A) The act of using energy or time on an activity.

B) The act of earning money from goods or services.

C) The act of saving money for future use.

D) The act of spending money on purchasing goods or services.

Question 10: Which two categories of expenditures are mentioned in the

paragraph?

A) Personal and Business Expenditures.

B) Direct and Indirect Expenditures.

C) Current and Capital Expenditures.

D) Essential and Non-essential Expenditures.

Question 11: What is the main distinction between revenue expenditures and capital
expenditures?

A) Revenue expenditures are associated with normal operations, while capital

expenditures lead to the creation of assets.

B) Revenue expenditures lead to the creation of assets, while capital expenditures are
associated with normal operations.

C) Revenue expenditures are only related to interest payments, while capital

expenditures cover various government services.

D) Capital expenditures are only associated with grants to state governments, while
revenue expenditures cover various services.

Question 12: What is the key characteristic of capital expenditures in the context of
the government budget?

A) They cover expenses related to interest payments and subsidies.

B) They result in the depletion of financial assets.

C) They only involve the creation of physical assets.

D) They are classified as plan and non-plan in the budget documents.

Question 13: What is a government deficit in financial terms? A) The excess of

government income over expenditures. B) The excess of government expenditures
over income. C) The total government revenue collected during a fiscal year. D) The
total government borrowings from international institutions.

Question 14: What is the significance of a primary deficit in the context of

government finances? A) It represents the total government revenue. B) It indicates
the excess of estimated government expenditures. C) It signifies the borrowing
needed by the government without interest. D) It reflects the difference between
revenue and capital accounts.
Question 15: What is one of the advantages of a government deficit, according to
the paragraph? A) Reduced economic growth due to controlled spending. B)
Decreased job opportunities and business growth. C) Increased money supply
leading to inflation. D) Enhanced economic growth and infrastructure development.

Question 16: What is one of the drawbacks of a budget deficit, as mentioned in the
paragraph? A) Reduced money supply leading to economic stagnation. B) Limited
borrowing from international financial institutions. C) Increased savings for the
government during a deficit period. D) Excessive borrowing leads to high inflation
and debt accumulation.

Methodology

The methodology employed in this project is predominantly secondary in nature,

given that the data has been sourced from various secondary sources. These sources
encompass a wide range of references including Wikipedia, books, and articles from
reputable newspapers. Some of the data have been collected from the Indian
government websites. Secondary data collection involves the utilization of existing
information that has been previously gathered by others. In this context, the project
relies on established and well-documented sources to acquire relevant data.

BIBLOGRAPHY

Introduction-https://en.wikipedia.org/wiki/Union_budget_of_India
Presentation and analysis of data- government budgeting and
expenditure controls-by A.premchad

Suggestions - Union Budget 2023: 5 ideas for Nirmala Sitharaman that can make us
happier by Sunil Shanghai in economic times

Statement of problem

We faced a big problem while working on this project. We couldn't find enough information
that was important for our project. The data we needed was very hard to come by. This
made it difficult for us to fully understand and study the topic.

Additionally, we had trouble taking the information from books and magazines and putting
it into our project. There was a lot of information in these sources, and we had to pick out
the most important parts. This was a tough job, and we had to make sure we didn't change
the meaning of the original information.

Dealing with these two challenges - finding the right data and summarizing information
from books and magazines - was really tough. We need to find smart ways to solve these
problems so that our project can be successful and we can get the important insights we
need.