Union Budget, in the language of a financial analyst, is the estimated sources and application of funds for a particular fiscal year. It is normally placed before the House of Parliament in the last week of February.

To the common citizens, budget is all about rise or fall in the prices of goods and services due to change in rate of taxes and duties. The purpose of Union budget is, however, much broader. It is a plan of the central Government for optimal allocation of the country’s resources so as to achieve higher growth rates and make the economic development.

Two Broad Components

Two Broad Components of Union Budget are Revenue Budget and Capital Budget. Former is an estimate of short-term sources and applications of fund and the later is an estimate of long-term sources and application of funds.

Revenue budget comprises of revenue receipts and revenue expenditure. Sources of Revenue receipts are tax and non-tax revenues. Centre’s Net Tax Revenue is gross tax revenue net of the amount transferred to the National Calamity Contingency fund/ NDRF and State’s share. Gross tax revenue are collected from corporation tax, income tax, other taxes and duties (including wealth tax, securities transaction tax, banking cash transaction tax and wealth tax), customs dutes, union excise duties, service tax and taxes of the union territories. Non-tax revenue are collected from interest receipts, dividends and profits, external grants, other non-tax revenue and receipts of union territories.

Revenue expenditure is of two types – plan and non-plan. Plan revenue expenditure includes central plan, central assistance for State and Union territory plans. Non-plan revenue expenditure includes interest payments and pre-payment premium, defence services, subsidies, grants to state and union territory governments, pensions, police services, assistance to states from National Calamity Contingency Fund, economic services (including agriculture, industry, power, transport, communications, science and technology etc), other general services (education, health, broadcasting etc), postal deficit, expenditure of union territories without legislature, amount met for National Calamity Contingency fund, grants to foreign governments etc.

Capital budget comprises of capital receipts and expenditure. Capital receipt includes non-debt receipts and debt receipts. Non-debt part comprises of recoveries of loans and advances and miscellaneous capital receipts and the debt receipts include market loans, short-term borrowings, external assistance, securities issued against small savings, state provident funds (net) and other receipts (net).

Like revenue expenditure, capital expenditure is also of two types – plan and non-plan. Plan capital expenditure refers to expenses on central plan and central assistance for state and union territory. Non-plan part includes defence services, other non-plan capital outlay, loans to public enterprises, loans to state and union territory governments, loans to foreign governments and other non-plan capital expenditures.

To sum up, one could understand a budget if it is presented in horizontal form as: SHORT TERM SOURCES OF FUND (Revenue receipt) +LONG TERM SOURCES OF FUNDS (Capital receipt) = SHORT TERM APPLICATIONS OF FUND (Revenue expenditure) + LONG TERM APPLICATIONS OF FUND (Capital expenditure). Like accounting equation, sources of fund have to be equal to application of fund. If this is not so, it is balanced from ‘draw-down of cash balance’.