The Parliament has to place an estimated statement of receipts and expenditures of the Union Government before it in every financial year (1st April to 31st March) under Article 112 of the Indian Constitution. Apart from the main Union Budget, there could be an Interim as well as a vote on the account budget. The Union Budget deeply influences the stock market. We will cover the other two later. Here, a stepwise explanation will be provided of How to Understand Union Budget.
What is the Union Budget of India?
The Government of India lays out the Union Budget, an annual financial statement. It basically tells us how our country will be spending money and collecting taxes to fulfill its goals over a one-year period. Every February, when the Finance Minister announces the new budget, it provides important insights into decisions on taxation levels, public expenditure, and other key aspects of economic policymaking for the upcoming fiscal year. This document also helps citizens keep themselves informed about issues like education funding or infrastructure projects related to their constituencies or interests – allowing us all to make well-informed decisions if needed!
How to Understand Union Budget?
Let’s get into the main topic How to Understand Union Budget? In India, the budget comprises four distinct phases, The Annual Budget is formed by the Budget Division of the Department of Economic Affairs (DEA) which is headed by the Joint Secretary (Budget) of the Ministry of Finance. The phases are listed below:
Phase #1 Budget Formulation
In the first phase, the budget is formulated or prepared by the estimation of expenditure and revenue for the ensuing Financial year.
Phase #2 Budget Enactment
Here, the approval of the proposed budget by the legislature takes place through the enactment of the Appropriation and Finance Bill.
Phase #3 Budget Execution
This phase contains the enforcement of the provisions in the Finance and Appropriation Act by the Govt.
Phase #4 Legislative Review of Budget Implementation:
On behalf of the Legislature, audits of the financial operations.
Classifications of the Union Budget
Simply, Union Budget can be classified into two parts, one is Revenue Budget and the other one is Capital Budget.
The revenue budget consists of the Government’s revenue receipts and expenditures. Under revenue, there are tax and non-tax revenues. Revenue expenditure generates on day to day functioning of the Govt and on multiple services offered to citizens. Therefore, when revenue expenditure exceeds the receipts, this means Govt is running in a revenue deficit.
Just like the revenue budget, the capital budget is also formed by the receipts and payments of the Govt. Here, Govt capital receipts major part comes from the public, foreign Govt and, RBI loans. Capital expenditure generates from the development of machinery, equipment, building, health facilities, education, etc. If the capital expenditure is more than the total revenue, a fiscal deficit generates.
In order to make the subject clear, a list is given below. It contains the list of important documents which have to be presented before parliament.
List of Important Documents to be Presented before Parliament
- Annual Financial Statement
- Appropriation Bill
- DG or Demand for Grants
- Finance Bill
- Macroeconomic Framework for the Particular FY
- Fiscal Policy Strategy Statement for the FY
- Mid-term Fiscal Policy Statement
- Receipt Budget
- Expenditure Profile
- Expenditure Budget
What is Interim and Vote on Account Budget?
Before the general election, a temporary budget is placed before parliament, termed as the interim budget. As there is uncertainty as to who’d be in power to implement it, the budget is different from the “normal budget”. Hence, the interim budget does not propose any major changes in taxes and expenditures. Unlike the normal budget, it comes after 5 years, 2 months before the main budget. Vote on Account is almost similar to the Interim budget, the only difference is Interim budget deals with both revenues and expenditures while Vote on Account deals with only expenditures.
The main objectives of any type of budget are:
Minimize the Expenditure and Maximize the Revenue.
the Years of Interim Budget
Before the general election, the last Interim Budget was placed in FY 2015. After 4 years, today 1st Feb is the day of the Interim Budget again. Today Finance Minister Piyush Goyal will present the interim budget in the Lok Sabha.
You may check our previous post on the Budget Day trading strategy. Besides this, you can go through the post-budget stock picks of 2017 like India Cements. However, we will surely come up with other posts on trading the volatile events like a Budget Day.
From today’s article “How to Understand Union Budget in Simple Terms”, we can get a basic picture of our Indian Budget. An Indian citizen can easily get a detailed revenue-expenditure scenario of Govt from the budget system. Analyzing the budget will make you a better investor focussing on the top-performing sectors for the next financial year.