Importance of a Union Budget
The term Union Budget came to the fore because India is the Union of States. The Constitution of India has established the federal form of Government in India. Therefore, it is called the Union of States. In India, a federation has been established consisting of 28 States and 7 Union Territories.
The Union Budget of India, also referred to as the Annual Financial Statement in the Article 112 of the Constitution of India, is the annual budget of the Republic of India.
The word ‘budget’ has its origin in the French word Bougette, which means leather briefcase. Finance Ministers in the past have used leather bags to unveil the budget. In 2019, when Sitharaman presented her first Budget, she replaced the budget briefcase with the ‘bahi khata’.
The country has left its colonial past to create a new identity of being an economic powerhouse. The Union Budget also provides the required framework for the government to introduce policies and reforms for the betterment of the common taxpayers.
Importance of a Union Budget
The Union Budget is more than just an accounting document. It also reveals the broad policy positions of the government and serves as a platform for financial reforms.
The general objective of the Union Budget is to bring about a rapid and balanced economic growth of our country coupled with social justice and equality. The objective is to ensure efficient allocation of resources, reduce unemployment and poverty level, reduce wealth and income disparities, keep a check on prices and change tax structure.
Indian constitution under Articles 112-117 enshrines powers of parliament in the enactment of the budget. According to article 112-117, any proposal for expenditure and demand for a grant can be made only on the recommendation of the President.
According to Article 112 of the Indian Constitution, the President is responsible for presenting the budget to the Lok Sabha. According to Article 77(3), the Union Finance Minister has been made responsible by the President to prepare the budget also called as the annual financial statement and pilot it through the parliament.
Ministries, Bodies, Union Territories and States put plans together and present to the finance minister who after thorough deliberation presents it in the Parliament.
Budget classification
The Union Budget contains details about the projected receivables and payables of the government for a particular fiscal year (April 1 to March 31). This budget statement is divided into two major parts-capital budget and revenue budget.
Capital budget
Capital budget accounts for government-related capital payment and receipts. Capital receipts include loans from the public or that from the Reserve Bank of India (RBI), while capital payment includes expenses incurred towards health facilities, development and maintenance of equipment, as well as educational facilities.
Revenue budget
As the name suggests, a revenue budget accounts for all the revenue expenditure and receipts. If the revenue expense is in excess of the receipts, the government suffers a revenue deficit.
What is the role of an RBI chief in the Union Budget?
Union Budget is the annual financial statement of a government which lays out fiscal roadmap for the country for the next one year. It is prepared by the ministry of finance in consultation with Niti Aayog and other concerned ministries. The Ministry of finance conducts Pre-Budget meetings and listens to various stakeholders before framing the annual budget.
There is no direct role of the Reserve Bank of India (RBI) in the Union Budget. However, inputs from the RBI relating to macro-economic parameters are critical in shaping fiscal policies and measures incorporated in the budget. RBI
Governor finalises and announces the report on the fiscal position which helps finance ministry to draft the budget and later RBI also reviews the budget and accordingly frames monetary policies.
RBI regulates overdrafts sanctioned to the Government. It is a secret document which is placed in both Houses of the Parliament. It is prepared by the Finance Ministry officials only in line with policy directions of the Government.
It is to be kept in mind that RBI deals with the Monetary Policy of the country and decides on issue of notes, changes in interest rates and regulation of foreign currency. Budget making or fiscal policy is determined by the Government and RBI has no say in fiscal policy of the country.
Analyses fiscal position
RBI publishes two statutory reports, its Annual Report and the Report on Trend and Progress of Banking in India. RBI brings out an annual publication entitled “State Finances: A Study of Budgets” which analyses the fiscal position of state governments on the basis of primary state level data.
Categorically there are two broad dimension of economic policies, Monetary and Fiscal.
RBI’s sole responsibility is to work on monetary policy to check on the inflation in the market by regulating money supply through various polices like Reserve Ratio, Repo rate and Open Market Operations (OMO).
While the Government keeps eye on deficit, revenue and expenditure part, put in other words, it goes for capacity building and growth of the economy (GDP).