Types of budget

What is the Union Budget?

The Union Budget is the annual report of India as a country. It contains

the government of India's revenue and expenditure for the end of a
particular fiscal year, which runs from April 1 to March 31. The Union
Budget is the most extensive account of the government's finances, in
which revenues from all sources and expenses of all activities
undertaken are aggregated. It comprises the revenue budget and the
capital budget. It also contains estimates for the next fiscal year.

What is a revenue budget?

The revenue budget consists of revenue receipts of the government

(revenues from tax and other sources), and its expenditure.

Revenue receipts are divided into tax and non-tax revenue. Tax
revenues are made up of taxes such as income tax, corporate tax, excise,
customs and other duties that the government levies.

In non-tax revenue, the government's sources are interest on loans and

dividend on investments like PSUs, fees, and other receipts for services
that it renders. Revenue expenditure is the payment incurred for the
normal day-to-day running of government departments and various
services that it offers to its citizens.

The government also has other expenditure like servicing interest on its
borrowings, subsidies, etc.
Types of budget
Usually, expenditure that does not result in the creation of assets, and
grants given to state governments and other parties are revenue
expenditures. The difference between revenue receipts and revenue
expenditure is usually negative. This means that the government spends
more than it earns. This difference is called the revenue deficit.

What is a capital budget?

The capital budget is different from the revenue budget as its

components are of a long-term nature. The capital budget consists of
capital receipts and payments.

Capital receipts are government loans raised from the public,

government borrowings from the Reserve Bank and treasury bills, loans
received from foreign bodies and governments, divestment of equity
holding in public sector enterprises, securities against small savings,
state provident funds, and special deposits.

Capital payments are capital expenditure on acquisition of assets like

land, buildings, machinery, and equipment. Investments in shares, loans
and advances granted by the central government to state and union
territory governments, government companies, corporations and other
parties.

What are direct taxes?

These are the taxes that are levied on the income of individuals or
organisations. Income tax, corporate tax, inheritance tax are some
instances of direct taxation.

Income tax is the tax levied on individual income from various sources
like salaries, investments, interest etc.
Types of budget
Corporate tax is the tax paid by companies or firms on the incomes they
earn.

What are indirect taxes?

Indirect taxes are those paid by consumers when they buy goods and
services. These include excise and customs duties.

Customs duty is the charge levied when goods are imported into the
country, and is paid by the importer or exporter.

Excise duty is a levy paid by the manufacturer on items manufactured

within the country. Usually, these charges are passed on to the
consumer.

What is plan and non-plan expenditure?

There are two components of expenditure - plan and non-plan.

Of these, plan expenditures are estimated after discussions between

each of the ministries concerned and the Planning Commission.

Non-plan revenue expenditure is accounted for by interest payments,

subsidies (mainly on food and fertilisers), wage and salary payments to
government employees, grants to States and Union Territories
governments, pensions, police, economic services in various sectors,
other general services such as tax collection, social services, and grants
to foreign governments.

Non-plan capital expenditure mainly includes defence, loans to public

enterprises, loans to States, Union Territories and foreign governments.
Types of budget
What is the Central Plan Outlay?

It is the division of monetary resources among the different sectors in

the economy and the ministries of the government.

What is fiscal policy?

Fiscal policy is a change in government spending or taxing designed to

influence economic activity. These changes are designed to control the
level of aggregate demand in the economy. Governments usually bring
about changes in taxation, volume of spending, and size of the budget
deficit or surplus to affect public expenditure.

What is a fiscal deficit?

This is the gap between the government's total spending and the sum of
its revenue receipts and non-debt capital receipts. It represents the total
amount of borrowed funds required by the government to completely
meet its expenditure.

What is the Finance Bill?

The government proposals for the levy of new taxes, alterations in the
present tax structure or continuance of the current tax structure beyond
the period approved by Parliament, are laid down before Parliament in
this bill.

The Parliament approves the Finance Bill for a period of one year at a
time, which becomes the Finance Act.
Types of budget
What impact does the Budget have on the market and
economy?

The Budget impacts the economy, the interest rate and the stock
markets. How the finance minister spends and invests money affects the
fiscal deficit. The extent of the deficit and the means of financing it
influence the money supply and the interest rate in the economy. High
interest rates mean higher cost of capital for the industry, lower profits
and hence lower stock prices.

The fiscal measures undertaken by the government affect public

expenditure. For instance, an increase in direct taxes would decrease
disposable income, thus reducing demand for goods. This decrease in
demand will translate into a decrease in production, therefore affecting
economic growth.

Similarly, an increase in indirect taxes would also decrease demand.

This is because indirect taxes are often partially or completely passed on
to consumers in the form of higher prices. Higher prices imply a
reduction in demand and this in turn would reduce profit margins of
companies, thus slowing down production and growth.

Non-plan expenditure like subsidies and defence also affect the economy
as limited government resources are used for non-productive purposes.