India’s Union Budget: Definition and Types

India’s Union Budget: Definition and Types

Written by Alison Lurie, In finance, Published On
October 29, 2022

A Union Budget is an estimate of the Central Government’s income and expenses for a given time period, often one year. Let’s look at the definition and several sorts of Indian budgets before the introduction of the Union Budget 2022–2023.

The Union Budget for 2022 will be presented to Parliament shortly by Union Finance Minister Nirmala Sitharaman. Due of the pandemic fear, it is anticipated that the Budget would be paperless. Let’s look at the definition and several sorts of Indian budgets before the introduction of the Union Budget 2022–2023

What is Union Budget?

The budget may be defined as an estimate of revenue and expenses for a specific time period. A budget, or a plan for income and spending, is a methodical list of revenues and expenses in the field of economics. Union budget states that the tax can be paid as advance tax or postpaid tax.

The English term “Bowgette,” which derives from the French word “Bougette,” is the source of the word “budget.” The name “Bougette” is derived from “Bouge,” which refers to a leather bag.

Why does the government create an annual budget?

The government creates a budget each year to fulfill two crucial tasks:

  1. The Indian government makes an estimation of the estimated costs for development projects in several economic sectors, such as industry, manufacturing, education, health, and transportation.
  2. The government strives to identify revenue streams in order to cover the expenses for the upcoming fiscal year. (i.e., by enacting new taxes, raising or lowering the existing tax rates, or eliminating or enacting subsidies on any item.

In other words, how will the money be allocated for these expenditures, and which commodities will be the focus of government spending decisions? Budget refers to the specifics of such revenue and expense figures. Every budget is created for a specific time period.

Budget Types 1: Traditional or General Budget:

The Traditional Budget is the original format of the current general budget. Establishing financial control over the Executive and the Legislature is the primary goal of the General Budget.

The government of India’s expenditures in several areas are described in depth in this budget. However, this Budget does not explain the outcome of this expenditure. As a result, the conventional budget’s fundamental purpose, which was to address independent India’s concerns and advance development goals, was not realized.

The necessity and significance of creating a “Performance Budget” was afterwards acknowledged, and it was presented as an addition to the prior “Traditional Budget.”

  • Performance Budget:

A budget is referred to be a “Performance Budget” when the results of any activity are used as its foundation. The performance budget was created in the US for the first time ever. Under Sir Hooper, an Administrative Reforms Commission was established in America in 1949. This panel advised the United States to create a “Performance Budget.”

The government is required to report “what is done” and “how much is done” for the benefit of the people in the Performance Budget. The Performance Budget is sometimes referred to as the “Outcome Budget” in India.

  • Zero Based Budget:

India adopted this style of budget for two main reasons.

  • The ongoing income shortfall in the national budget.
  • Ineffective Performance Budget implementation.
  • In the zero-based budget, neither expenditures from prior fiscal years nor those utilized to fund current fiscal years’ spending are taken into account.
  • Every activity in a zero-based budget is chosen based on a zero basis, meaning that prior expenses are not taken into account.
  • The finance department must submit the zero-based budget before the end of the fiscal year, which is why this budget is often referred to as the “Sun Set Budget.”
  • Outcome Budget:

Every year, India introduces new development-related programs like MGNREGA, NRHM, Mid Day Meal, PMGSY, Digital India, Prime Minister Skill Development Council, etc., on which a significant amount of money is spent. The government does not, however, currently have any metrics to gauge the success of these programs.

The cost of these projects might occasionally rise as a result of delays in their implementation. The Indian government thus developed the Outcome Budget in 2005 in an effort to lower this expense.

  • Gender Budget:

A budget is referred to be a gender budget if it outlines strategies and goals for the welfare of girls and children. The government specifies a budgetary amount to be used for female empowerment, welfare, and development initiatives through the Gender Budget.

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