Here, we will discuss what exactly it is and the key terms you need to know.
1. What is the Budget?
The Union Budget is a yearly document the government comes out with, stating how much money it earns from taxes and how it was spent in the previous year.
It also outlines its strategy for raising money via taxes, and its plans for expenditure, in the coming year.
2. When is it presented?
Once every financial year (April 1 to March 31).
The actual date is fixed by the President of India.
By convention, it is presented in Parliament (Lok Sabha) on the last working day of February. This year, it will be on February 28, a Wednesday.
3. Who draws it up?
The Budget Division of the Finance Ministry.
All government ministries and departments send the division its proposals and requirement of funds. The government does not work in isolation but also interacts with players in the industry to ensure that their needs and grievances are addressed.
This Budget Division will then draw up allocations for the various ministries. In other words, how much money goes to each one.
This will then be approved by the finance minister and, finally, the prime minister.
Only then will it be presented in Parliament.
4. Is it the same as the Economic Survey?
No.
The Economic Survey is an annual commentary on the state of the economy. It is put together by the Finance Ministry. This is an important source of data for economists and academicians.
It is presented in Parliament just before the Union Budget and soon after the Railway Budget (targeted only for the railway ministry). The Railway Budget is presented a day or two before the Union Budget. This year, it was presented on February 26, 2007.
The Union Budget is an estimate of inflows (money to come in) and outflows (money to be spent) of the government during the year. Basically, a projection on how the government is going to get and spend money in the coming year.
So the Budget presented in February 2007 will be an estimate of the inflows and outflows of the funds for the period April 1, 2007 to March 31, 2008.
In other words, the Economic Survey will tell you how the economy performed the previous year, while the Budget will tell you what to expect in the coming year.
5. Where is the money kept that the government raises?
Consolidated Fund
All money raised by the government (taxes, loans repaid, loans given) is placed here.
Contingency Fund
This money is only to be used for disasters and crises and can only be used with the President's permission.
Public Account
Money raised from various government schemes (provident fund, small savings schemes) is kept here.
Technically, this money does not belong to the government for keeps (it has to return the money to the depositors some day).
6. What is the Revenue and Capital Budget?
Revenue Budget
Revenue spending (revenue expenditure) takes place from this budget.
Salaries of government employees and military staff, perks for ministers, office furniture, grants to state governments, subsidies, interest to be paid on loans taken and pensions for ex-defence staff are all accounted for here and referred to as revenue spending.
Any expenditure required for the normal running of the government.
This spending must be financed from the revenue that the government earns in the form of taxes (corporate, income), duties (excise, custom), receipts, fees, interest and dividends (if the government makes investments).
Capital Budget
Capital spending (capital expenditure) refers to the money spent on creating assets (roads, highways, dams), buying land or buildings, purchasing machinery and equipment.
This spending is financed from loans from the public (market loans), from the Reserve Bank of India (the country's central bank), from foreign governments or international organisations like the World Bank.
Also included are any investments made by the government in shares or other such instruments.
Loans the government earlier gave other states or Union territories and are now repaid find their way here.
7. What is Plan and non-Plan expenditure?
The word 'Plan' here refers to the government's five-year economic plans. The Planning Commission is responsible for coming out with plans every five years to determine the direction the country should move it and allocate resources efficiently.
The first Five Year Plan was launched in 1951; Jawaharlal Nehru was the first chairman of the Planning Commission. Currently, the 10th Five Year Plan is on (2002-2007).
You can view the earlier Plans on the Planning Commission's web site.
All Plan and non-Plan expenditure fits into the above categories of revenue and capital expenditure.
Non-Plan expenditure: Defence, interest payments on loans, grants to states. It can be divided into revenue spending and capital spending.
Plan expenditure: Pension, salaries and subsidies. This, too, can be divided into revenue spending and capital spending (though the bulk is revenue spending).
8. Is there a web site where one can look at previous Budgets?
Sure. Click on any of the below to see relevant previous and recent links.
This article was first published on February 24, 2006. We have updated it to make the information relevant to Union Budget 2007-08.