Union Budget Explained: India's Annual Money Plan
Every year on February 1st, the whole country—from stock market traders to homemakers—glues their eyes to the TV. The Finance Minister presents the "Annual Financial Statement". But what is it really? And why does it shake the economy?
The "Household Budget" Analogy
Imagine you earn ₹50,000 a month. You plan how to spend it: ₹15,000 for rent, ₹10,000 for food, and ₹5,000 for savings. But wait, you want a new bike that costs ₹1 Lakh. You don't have enough cash, so you plan to take a loan.
The
Union Budget
is exactly this—but for the entire country. The Government estimates how much money it will earn (Taxes) and how much it will spend (Roads, Defense, Schemes). If spending > earning, it borrows money (Fiscal Deficit).
1. The Constitutional Requirement (Article 112)
Interestingly, the word "Budget" is nowhere mentioned in the Indian Constitution. Article 112 refers to it as the "Annual Financial Statement" .
Before the budget is presented, a "Halwa Ceremony" takes place in the North Block (Finance Ministry). It marks the beginning of the "lock-in" period where officials involved in budget-making are isolated from the world to prevent leaks.
2. Structure of the Budget
The Budget is split into two massive parts. Understanding this split is the key to decoding the Finance Minister's speech.
1. Revenue Budget
Think of this as "Daily Household Expenses".
- Revenue Receipts (Income): Tax money (GST, Income Tax) and Non-Tax money (Dividends from PSUs). This money doesn't create liability.
- Revenue Expenditure (Expense): Salaries of govt employees, pensions, subsidies, interest payments on loans. This spending does not create assets .
2. Capital Budget
Think of this as "Investment for Future".
- Capital Receipts (Income): Taking loans (borrowing) or selling assets (Disinvestment/Privatization). This creates liability or reduces assets.
- Capital Expenditure (Capex): Building roads, bridges, airports, buying fighter jets. This spending creates assets and jobs.
Which is better?
A good budget focuses on increasing Capital Expenditure (Capex) because building a road creates jobs and future growth. High Revenue Expenditure (like freebies) is often considered bad for the economy's long-term health.
3. Where does the Rupee Come From & Go To?
Every year, the government releases a pie chart showing the breakdown of every rupee. Typically (approximate trends for 2025-26):
Rupee Comes From (Income)
- Borrowings (Loans) ~34%
- GST ~17%
- Income Tax ~15%
- Corporate Tax ~15%
- Excise Duty ~7%
Rupee Goes To (Expense)
- Interest Payments ~20%
- Share to States ~18%
- Central Schemes ~17%
- Defense ~8%
- Subsidies ~7%
Notice that the biggest expense is paying Interest on old loans! This is why controlling the deficit is vital.
4. The Big Bad Wolf: Fiscal Deficit
You will hear news anchors shouting "Fiscal Deficit target missed!". What does it mean?
Fiscal Deficit = Total Expenditure - Total Income (excluding borrowings).
It basically tells us how much money the government has to borrow this year to survive.
- High Deficit (>5%): Bad. It means the govt is living way beyond its means. This leads to Inflation (printing more money) and higher interest rates.
- Low Deficit (<3%): Good. It means the govt is disciplined. The FRBM Act mandates India to aim for 3% eventually.
5. Impact on the Economy & Common Man
How does the budget affect your life?
- Inflation: If the govt increases indirect taxes (like Excise on petrol), everything becomes expensive.
- Interest Rates: If the govt borrows too much (High Fiscal Deficit), banks have less money left to lend to you. Home loan rates might go up.
- Stock Market: Markets love Capex (Infrastructure spending). If the FM announces new railways or defense projects, stocks in those sectors rally.
- Tax Savings: Changes in Income Tax Slabs (Direct Tax) directly put more or less cash in your pocket.
The Finance Bill
The Budget speech is just a speech. For the tax changes to become law, the Parliament must pass the Finance Bill . Once the President signs it, it becomes the Finance Act.
Frequently Asked Questions
What is the Fiscal Deficit? ▼
Fiscal Deficit is the gap between the government's total expenditure and its total income (excluding borrowings). In simple terms, it shows how much money the government needs to borrow to meet its expenses.
Why is the Budget presented on February 1st? ▼
Earlier, it was presented on the last day of February. The date was shifted to Feb 1st (since 2017) to ensure all parliamentary approvals are completed before the new financial year begins on April 1st, allowing funds to be released immediately.
What is the difference between Interim and Full Budget? ▼
A Full Budget is presented for the entire financial year. An Interim Budget (Vote on Account) is presented in an election year to cover expenses for a few months until the new government takes charge and presents the final budget.