Four Components of the Budget

Four Components of the Budget

30 January, 2024

February is just around the corner and Indians around the country are preparing for “budget season”. On the 1st of February, the Indian Finance Minister presents the Union Budget in the parliament. The Union budget essentially comprises the Finance Ministry’s plans to boost the nation’s economic growth. It mainly contains the necessary information pertaining to the government’s estimated expenditures and expected revenue in the forthcoming financial year.

The Union Budget also serves as a platform for financial reforms. It allows the government to allocate resources efficiently to help boost the economy by reducing unemployment, poverty and income disparities. An important objective of the budget is to predict inflation and deflation by keeping an eye on surpluses and deficits. Besides financial data, the Budget also talks about the measures and policies the government plans to launch the following year that can potentially fast-track India’s positioning globally.

The Finance Minister presents a list of Budget documents to the parliament, including the Finance Minister’s Budget speech, the Annual Financial Statement (AFS), Finance Bill, Demands for Grants (DG), Key Features of the Budget, Budget at a Glance and expenditure and receipt budget, among others.

The Finance Minister categorises the budget into various sub-types and components. Let us understand a little more about the Union Budget and the 4 components of the budget in this article.

Decoding the Union Budget

Per Article 112 of the Constitution of India, the Union Budget is a financial statement or summary comprising the estimated revenue and expected expenditures of the government in a given fiscal year. It is a document that maintains an account of government’s financial plan for the Indian financial year lasting from 1 April to 31 March of each year. On 1 February 2024, the Finance Minister, Nirmala Sitharaman will announce the Union budget for FY 2024-25. Let us now break down the 4 components of the budget.

What are the 4 Components of the Budget?

The Union Budget of India is broadly categorised into two main components and each component is further classified into two sub-components.

The Revenue Budget

The first component of the budget is called the revenue budget. The revenue budget comprises the government’s financial statements pertaining to revenue receipts and revenue expenses for the upcoming fiscal year.

  1. Revenue Receipts

    Revenue receipts estimate the amount or revenue the government expects to receive from the citizens in the upcoming financial year. The government may accumulate the revenue in the form of various taxes imposed on individual tax payers and businesses. Income Tax, GST, corporate tax, excise duty, etc., are the various types of taxes through which the government receives revenue. The government also receives funds from non-taxable sources like interest payments, profits, fees accumulated from government services, penalties, etc.

  2. Revenue Expenditure

    The second sub-component under revenue budget is revenue expenses or revenue expenditures. It highlights the expenses the government expects to incur for the daily functioning of the economy and to provide citizens with the essential public services, facilities and amenities. Revenue expenses typically include the various operational expenses like maintaining government offices, paying salaries to government officials and providing subsidies to citizens, among various other things.

If, during a financial year, the revenue expenditure is higher than the revenue receipt, the government incurs a revenue deficit.

The Capital Budget

The capital budget is similar to the revenue budget in that it contains the two sub-components – capital receipts and capital expenditures of the government during a financial year.

  1. Capital Receipts

    Capital receipts typically enhance the government’s liabilities or decrease its financial assets. For the government, the most prominent sources of capital receipts include the various types of loans it procures from the public, Indian state governments and Union territories, foreign countries and, of course, the loans provided by the country’s central bank – The Reserve Bank of India (RBI). The government also receives funds by selling treasury bills and recovering debts.

  2. Capital Expenditure

    Capital expenditure, also known as capital payments, indicates the expenses the government incurs to create long-term assets and provide welfare facilities to the citizens. Common capital expenditure examples include the funds spent on developing and maintaining equipment, infrastructure and machinery, constructing roads, government schools and colleges, government hospitals, and granting loans to states and union territories.

    There is a lot to look forward to every year just before the budget and it is a strong indicator of which direction the country is heading in economically. Now that you have a better understanding of the subject, it should help you decode the budget shared by the Honourable Finance Minister Nirmala Sitharaman on February 1.

To Read More About Top 5 Budgets That Created A Lasting Impact In the Lives of Indians, Click Here!

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