Budget as a Political Instrument | Public Administration Optional for UPSC (Notes) PDF Download

Introduction

The budget plays a crucial role in shaping the fiscal policy of the government. As an annual financial statement, it outlines anticipated expenditures, expected income, and other transactions for the upcoming fiscal year. In India, Article 112 of the constitution refers to the Union Budget as the Annual Financial Statement. The budget not only serves as a financial roadmap but also carries significant political weight. This article delves into the importance of the budget as an instrument of fiscal policy, its presentation, and the key components that constitute it.

Presentation of the Budget

The Finance Minister of India presents the budget on the first day of February. The Department of Economic Affairs (DEA) in the finance ministry is responsible for its formulation. This annual financial statement serves as a vital instrument for the government to implement its policies effectively.

Components of the Budget

The budget consists of three primary components: expenditure, receipts, and deficit indicators. These components provide insights into the government's financial activities and its fiscal position.

Expenditure in the Budget

Expenditure in the budget can be classified into two categories: capital expenditure and revenue expenditure.

• Capital Expenditure: Capital expenditure involves the creation of new assets that contribute to long-term development. Examples of capital expenditure include the construction of schools, hospitals, and infrastructure projects. These investments aim to enhance the nation's productive capacity and improve the overall quality of life.
• Revenue Expenditure: Revenue expenditure, on the other hand, encompasses expenditures that do not lead to the creation of new assets. This category includes items such as salaries, wages, subsidies, and other day-to-day operational expenses. Revenue expenditure is essential for the smooth functioning of government operations and the provision of essential services.

Receipts in the Budget

The budget also incorporates various sources of revenue, which are categorized into three types: revenue receipts, non-debt capital receipts, and debt-creating capital receipts.

• Revenue Receipts: Revenue receipts consist of funds generated through taxes and non-tax sources that do not contribute to increased liabilities. These receipts provide the government with regular income to finance its day-to-day activities and welfare programs.
• Non-debt Capital Receipts: Non-debt capital receipts encompass capital inflows that do not create additional liabilities for the government. Examples of non-debt capital receipts include the recovery of loans and income generated from disinvestment activities. These receipts contribute to the government's capital reserves and financial stability.
• Debt-creating Capital Receipts: Debt-creating capital receipts involve funds that require the government to take on higher liabilities and future payment commitments. These receipts often result from borrowing activities, such as issuing bonds or obtaining loans. While debt-creating capital receipts can provide a boost to economic growth, they also increase the government's debt burden.

Summary

In summary, the budget serves as a vital instrument of the government, encapsulating its annual revenue and expenditure estimates while guiding its fiscal policy. Presented in the parliament in February, the budget plays a pivotal role in shaping the nation's economic trajectory. Its components, including expenditure, receipts, and deficit indicators, offer valuable insights into the government's financial activities and the overall state of the economy.