Know about all the information about Union Budget.

Union Budget, in the language of a financial analyst, is the estimated sources and application of funds for a particular fiscal year. It is normally placed before the House of Parliament in the last week of February.

To the common citizens, budget is all about rise or fall in the prices of goods and services due to change in rate of taxes and duties. The purpose of Union budget is, however, much broader. It is a plan of the central Government for optimal allocation of the country’s resources so as to achieve higher growth rates and make the economic development.

Two Broad Components

Two Broad Components of Union Budget are Revenue Budget and Capital Budget. Former is an estimate of short-term sources and applications of fund and the later is an estimate of long-term sources and application of funds.

Revenue Budget:

Revenue budget comprises of revenue receipts and revenue expenditure. Sources of Revenue receipts are tax and non-tax revenues. Centre’s Net Tax Revenue is gross tax revenue net of the amount transferred to the National Calamity Contingency fund/ NDRF and State’s share. Gross tax revenue are collected from corporation tax, income tax, other taxes and duties, customs duties, union excise duties, service tax and taxes of the union territories. Non-tax revenue are collected from interest receipts, dividends and profits, external grants, other non-tax revenue and receipts of union territories.

Capital Budget:

Capital budget comprises of capital receipts and expenditure. Capital receipt includes non-debt receipts and debt receipts. Non-debt part comprises of recoveries of loans and advances and miscellaneous capital receipts and the debt receipts include market loans, short-term borrowings, external assistance, securities issued against small savings, state provident funds (net) and other receipts (net).

Like revenue expenditure, capital expenditure is also of two types — plan and non-plan. Plan capital expenditure refers to expenses on central plan and central assistance for state and union territory. Non-plan part includes defense services, other non-plan capital outlay, loans to public enterprises, loans to state and union territory governments, loans to foreign governments and other non-plan capital expenditures.

Impact of Union Budget on the India

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.

How to understand and interpret Union Budget

Union budget can be analyzed in the same way as financial statement of a company is analyzed. Revenue receipts are real income generated from internal sources of the country during a particular year.

Revenue expenditures are those which a government is required to meet during the same year. In an ideal situation, there should be surplus of income over expenditure. This surplus could then be utilized either for increase in capital expenditure for long term development or for reduction of debt burden of the government.
In practice, it does hardly happen. What we see is ‘revenue deficit’ (revenue expenditure exceeds revenue receipts). To finance such a deficit, government needs an increase in capital receipts over capital expenditure by borrowings and from market loans. A revenue deficit thus causes more debt burden of the government.

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