Union Budget Of India – Why Is It So Important?

5-July-2021 |

A few months before the start of a new fiscal year, if you watch news channels or go to internet news portals, you will almost certainly see news about the union budget. However, though most individuals have heard the term "union budget", they do not know what it exactly means. So, what is the budget of the union? Why are news organizations, corporations, and ordinary taxpayers so concerned? Let us take a look.


According to Article 112 of the Indian Constitution, a budget must be presented to parliament before the start of each financial year. The union budget is allocated for the forthcoming fiscal year, which begins on April 1st and concludes on March 31st of the following year.

What Does the Union Budget Include?

The union budget offers information on the government's estimated receivables and payables for a certain fiscal year. The capital budget and the revenue budget are the two key sections of the budget statement.

Capital Budget

The capital budget, as the name implies, contains information on the government's capital expenditures and capital income. The money spent on infrastructure, healthcare facilities, and other items can be used to make capital payments. The capital revenues account for loans obtained from the RBI or the general public.

Revenue Budget

A revenue budget, as the name implies, accounts for all revenue expenditures and receipts. A revenue shortfall occurs when the government's revenue expenditures exceed its revenue receipts.

What is the Aim of the Union Budget?

The overall goal of the union budget is to achieve quick and balanced economic growth while ensuring social justice and equality. The primary objectives that illustrate the importance of the Union Budget of India are listed below.


  1. Resource Allocation

  2. It is critical to make optimum use of existing resources in the country's best interests. Allocating resources optimally aid the government's objective while promoting public welfare. Because resources are limited, the government uses the union budget for optimizing resource allocation.

  3. Unemployment and Poverty Reduction

  4. Another goal of the union budget is to eradicate poverty and provide employment possibilities. This would ensure that every person in the country has access to necessities such as food, shelter, clothes, and medical and educational services.Wealth and Income Inequality Reduction

  5. Wealth and Income Inequality Reduction

  6. The Union Budget of India uses subsidies and taxes to influence income distribution. It helps guarantee that the wealthy pay a higher tax rate, lowering their disposable income. The lower-income groups, on the other hand, pay a reduced tax rate to ensure they have enough money.


  7. Modifies Tax Structure

  8. The union budget also specifies any potential adjustments in the country's direct and indirect taxation. It affects the rates and brackets of income tax.


Why Do We Need a Union Budget?


Indian is a parliamentary democratic country. Here the constitution is the supreme document. It defines the roles for the government to function effectively. The government has a wide range of powers in administering a country, from maintaining law and order to ensuring national security, improving economic stability, and promoting social changes.


The government needs sufficient resources to successfully carry out these tasks and maintain the country's economic and social structure. The Government of India is not allowed to borrow, tax, or spend money at will. The union budget is required to plan the limited resources for the maximum benefit of the country. Furthermore, adequate earnings are required to be able to deploy resources in the country's best interests. These factors necessitate a well-planned union budget. The union budget is significant because it assures effective resource allocation, alters tax slabs (though not usually), puts a lid on the price of basic goods, and aids in the reduction of unemployment and poverty.


Annual Financial Statement

The AFS includes the Union Government's estimated revenue and expenditures for the next fiscal year. It also includes projections for the current fiscal year and actual spending for the previous fiscal year.

The following are the three portions of the revenue and disbursements kept in government accounts:

  1. CFI - The Consolidated Fund of India

  2. According to article 266 of the Indian Constitution, all the revenues received by the government should be formed into one fund entitled “The Consolidated Fund of India”.

  3. The Contingency Fund of India

  4. Article 267 of the Indian Constitution empowers the parliament to pass a law to form the contingency fund. This fund is placed at the disposal of the President of India. The Contingency Fund of India exists for disasters and related unforeseen expenditures

  5. The Public Account of India

It includes money held in trust by the government under Article. 266(2), such as money received as provident fund, small savings plan collections, and government revenue put aside for specific purposes such as road building, primary education, other reserves, special funds, etc.

Key Budget Documents

  1. AFS - Annual Financial Statement (AFS)

  2. DG - Demands for Grants (DG)

  3. Finance Bill

  4. Statements mandated under the Fiscal Responsibility and Budget Management Act

    I. Macro-Economic Framework Statement
    II. Medium-Term Fiscal Policy cum Fiscal Policy Strategy Statement

  5. Some other documents supporting the mandated documents presented in the budget are:

  6. Expenditure Budget Document.

  7. Receipt Budget Document.

  8. Expenditure Profile.

  9. Budget at a Glance.

  10. Memorandum Explaining the Provisions in the Finance Bill.

  11. Output Outcome Monitoring Framework.

  12. Key Budget Features.



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