Union Budget, Interim Budget & Vote on Account

• According to Article 112 of the Indian Constitution, the Union Budget for a Year is referred to as the Annual Financial Statement (AFS).

• It is a statement of the estimated receipts and expenditure of the Government in a financial year (which begins on 01 April of the current year and ends on 31 March of the following year). In addition to it, the Budget contains:
  • Estimates of revenue and capital receipts
  • Ways and means to raise the revenue,
  • Estimates of expenditure,
  • Details of the actual receipts and expenditure of the closing financial year and the reasons for any deficit or surplus in that year, and
  • The economic and financial policy of the coming year, i.e., taxation proposals, prospects of revenue, spending program, and introduction of new schemes/projects.

• In Parliament, the Budget goes through six stages:
  • Presentation of Budget.
  • General discussion.
  • Scrutiny by Departmental Committees.
  • Voting on Demands for Grants.
  • Passing of Appropriation Bill.
  • The passing of the Finance Bill.

• The Budget Division of the Department of Economic Affairs in the Finance Ministry is the nodal body responsible for preparing the Budget.

There are 4 Components of the Budget

The Union Budget of India is broadly categorized into two main components and each component is further classified into two sub-components.

The Revenue Budget

The first component of the budget is called the revenue budget. The revenue budget comprises the government’s financial statements pertaining to revenue receipts and revenue expenses for the upcoming fiscal year.

Revenue Receipts

Revenue receipts estimate the amount or revenue the government expects to receive from the citizens in the upcoming financial year. The government may accumulate the revenue in the form of various taxes imposed on individual tax payers and businesses. Income Tax, GST, corporate tax, excise duty, etc., are the various types of taxes through which the government receives revenue. The government also receives funds from non-taxable sources like interest payments, profits, fees accumulated from government services, penalties, etc.

Revenue Expenditure

The second sub-component under the revenue budget is revenue expenses or revenue expenditures. It highlights the expenses the government expects to incur for the daily functioning of the economy and to provide citizens with the essential public services, facilities, and amenities. Revenue expenses typically include the various operational expenses like maintaining government offices, paying salaries to government officials and providing subsidies to citizens, among various other things.

If, during a financial year, the revenue expenditure is higher than the revenue receipt, the government incurs a Revenue Deficit.

The Capital Budget

The capital budget is similar to the revenue budget in that it contains the two sub-components – capital receipts and capital expenditures of the government during a financial year.

Capital Receipts

Capital receipts typically enhance the government’s liabilities or decrease its financial assets. For the government, the most prominent sources of capital receipts include the various types of loans it procures from the public, Indian state governments and Union territories, foreign countries, and, of course, the loans provided by the country’s central bank – The Reserve Bank of India (RBI). The government also receives funds by selling treasury bills and recovering debts.

Capital Expenditure

Capital expenditure, also known as capital payments, indicates the expenses the government incurs to create long-term assets and provide welfare facilities to the citizens. Common capital expenditure examples include the funds spent on developing and maintaining equipment, infrastructure, and machinery, constructing roads, government schools and colleges, government hospitals, and granting loans to states and union territories.

Balanced, Surplus and Deficit Budget

• Balanced Budget – A government Budget is assumed to be balanced if the expected expenditure is equal to the anticipated receipts for a fiscal year.
• Surplus Budget – A Budget is said to be surplus when the expected revenues surpass the estimated expenditure for a particular business year. Here, the Budget becomes surplus, when taxes imposed, are higher than the expenses.
• Deficit Budget- A Budget is in deficit if the expenditure surpasses the revenue for a designated year.

Measures of Government Deficit

There are various measures that capture Government Deficit:

Revenue Deficit

• It refers to the excess of the government’s revenue expenditure over revenue receipts.
• Revenue Deficit = Revenue expenditure – Revenue receipts
• The revenue Deficit includes only such transactions that affect the current income and expenditure of the government.
• When the government incurs a revenue deficit, it implies that the government is dissaving and is using up the savings of the other sectors of the economy to finance a part of its consumption expenditure.

Fiscal Deficit

• It is the gap between the government’s expenditure requirements and its receipts. This equals the money the government needs to borrow during the year. A surplus arises if receipts are more than expenditures.
• Fiscal Deficit = Total expenditure – (Revenue receipts + Non-debt creating capital receipts).
• It indicates the total borrowing requirements of the government from all sources.
• From the financing side: Gross fiscal deficit = Net borrowing at home + Borrowing from RBI + Borrowing from abroad
• The gross fiscal deficit is a key variable in judging the financial health of the public sector and the stability of the economy.

Primary Deficit

Primary deficit equals fiscal deficit minus interest payments. This indicates the gap between the government’s expenditure requirements and its receipts, not taking into account the expenditure incurred on interest payments on loans taken during the previous years.

Primary deficit = Fiscal deficit – Interest payments

What is an Interim Budget?

• An Interim Budget is presented by a government that is going through a transition period or is in its last year in office ahead of general elections.
• The purpose of the interim budget is to ensure the continuity of government expenditure and essential services until the new government can present a full-fledged budget after taking office.

What is a Vote on Account?

A vote on account is the process by which an incumbent government obtains votes from Parliament to draw money from the Consolidated Fund of India to meet its expenses until the elections are done.

Difference Between an Interim Budget and a Vote on Account?

Related Links: