The Budget is the government’s annual financial statement, presented under Article 112 of the Constitution. It contains estimates of income (receipts) and expenditure (spending) for the coming financial year. It guides resource allocation, reflects government priorities, and requires approval of Parliament. The Union Budget is a legal tool for efficient use of scarce resources.

The Budget is not only a financial statement but also a tool for planning, allocation of resources, and ensuring legislative control over government spending. It can be of different types – balanced, surplus, deficit, zero-based, and performance-based – depending on how revenue and expenditure are managed.

These are modern approaches to budgeting that go beyond just spending money. Outcome Budgeting links spending with actual results, Participatory Budgeting involves citizens directly in deciding priorities, and Gender Budgeting ensures that women’s needs are specifically addressed in financial planning.

Gender Budgeting in India was officially introduced in Union Budget 2005-06. It focuses on ensuring that women benefit directly from public spending. It divides allocations into women-specific schemes (100% for women) and pro-women schemes (where at least 30% of allocation is for women). Over time, India has significantly increased its gender budget, reflecting the government’s emphasis on women-led development.

The Government Budget is broadly divided into two accounts – Revenue Account and Capital Account. Revenue Account deals with one-way transactions such as taxes and salaries, while Capital Account deals with two-way transactions such as borrowings and asset creation. Budget receipts are further classified into Capital Receipts (which create liabilities or reduce assets) and Revenue Receipts.

Government receipts are broadly classified into Capital Receipts (Debt and Non-Debt) and Revenue Receipts (Tax and Non-Tax). Government expenditure is divided into Capital and Revenue Expenditure. This classification helps in understanding how the government earns and spends money, and whether it is for asset creation or routine administration.

Capital expenditure refers to government spending that creates assets or reduces liabilities. It includes infrastructure building, purchase of assets, loans to states, and repayment of loans. Unlike revenue expenditure, capital expenditure brings long-term benefits such as improved productivity, private investment attraction, and sustainable growth.

A budget deficit occurs when the government’s total expenditure exceeds its total receipts. It indicates that the government is spending more than it earns. There are different types of budget deficits such as Revenue Deficit, Effective Revenue Deficit, and Fiscal Deficit. Each type highlights different aspects of imbalance between government income and expenditure.

Primary Deficit measures the excess of current year’s expenditure over receipts excluding past interest payments, Monetised Deficit shows how much of deficit is financed by RBI’s money printing, and the FRBM Act, 2003 aims to control fiscal deficit and ensure financial discipline in India.

The FRBM Act aims to bring financial discipline by reducing deficits and debt. In FY 2024-25, India achieved a fiscal deficit of 4.8% of GDP, aligning with revised targets. The journey towards FRBM targets continues with updated metrics.

Deficit financing means meeting the government’s excess spending (expenditure > receipts) by using outside resources. India historically used central bank money creation (till 1997) and now mainly uses borrowing (market loans, small savings, external loans) and temporary cash support via Ways and Means Advances (WMA).

Monetization of deficit means financing the government’s fiscal deficit by printing new money (non-debt financing) rather than borrowing, so that public debt does not rise. In practice, this involves the central bank (RBI in India) creating money to meet government expenditure. It can be done either directly (RBI prints money and buys bonds directly from government) or indirectly (RBI buys bonds from secondary market via Open Market Operations).

Deficit financing refers to covering government expenditure by printing new money or borrowing, which can cause inflation, affect investments, increase inequalities but also support capital formation. Public debt is the total amount borrowed by the government, both internal and external, to meet its expenditure needs. While classical economists opposed it, Keynes argued that debt-financed spending can generate employment and growth.

Public debt is a double-edged sword. On one hand, it helps finance infrastructure, education, health, and technology, thereby supporting economic growth. On the other, excessive debt can fuel inflation, burden future generations with taxes, and reduce private investment. India’s debt-to-GDP ratio remains lower than global averages, showing resilience, though fiscal prudence is essential.

India’s public debt is high due to factors like bank recapitalisation, low tax-to-GDP ratio, and loopholes in the tax system. To ensure debt sustainability, India must privatise loss-making PSUs, improve tax collection through GST expansion, adopt public-private partnerships, and invest in infrastructure and human capital. The FRBM Act sets a long-term target of reducing debt-to-GDP ratio to 60% (40% Centre + 20% States).

In recent years, India has made important changes to the budgeting process such as advancing the Union Budget presentation to February 1 and merging the separate Railway Budget with the Union Budget. These reforms aim to improve efficiency, speed up infrastructure projects, and present a holistic financial picture of the government.

From 2017–18, the Government of India ended the distinction between Plan and Non-Plan expenditure. All expenditure is now classified as either Revenue or Capital spending. This reform was aimed at simplifying budgeting, improving transparency, and linking expenditure more directly to outcomes.

Centrally Sponsored Schemes (CSS) are those schemes where both the Central Government and the State Governments share the cost of implementation. They aim to supplement the efforts of state governments, ensure uniform development across regions, and address issues that fall under the State List but need central support. Rationalisation means reducing duplication, categorising schemes into Core, Core of Core, and Optional, and ensuring better cooperation under the spirit of Cooperative Federalism.

Centrally Sponsored Schemes (CSS) are programmes designed by the Central Government but implemented by States. Over the years, their number grew very large, leading to duplication, overlapping responsibilities, and wastage of money. To fix this, different committees (like the Chaturvedi Committee) and the 15th Finance Commission recommended reducing, merging, and simplifying these schemes. Recent Union Budgets have rationalised schemes into fewer umbrella schemes, so that resources are used more effectively and benefits reach people faster.

Central Sector Schemes are fully funded and implemented by the Union Government, while Centrally Sponsored Schemes are funded partly by the Centre and partly by the States, but implemented by State Governments. This division is based on the Union List and State List subjects of the Indian Constitution.

PFMS is a web-based financial management platform developed by the Controller General of Accounts (CGA) under the Ministry of Finance. It was created to track fund flows, ensure real-time reporting, and enable transparency in the use of public money, especially for government schemes. It is a key part of the Government of India’s Digital India initiative.

Fiscal policy refers to the use of government spending, taxation, and borrowing to influence the economy. It is a key tool for managing economic growth, controlling inflation, reducing inequalities, and stabilising the balance of payments. In India, fiscal policy has been shaped by both developmental goals and the need for macroeconomic stability.

Fiscal Policy refers to the use of government spending and taxation to influence a nation's economy. It is mainly of three types: Expansionary, Contractionary, and Neutral. These policies are used to manage growth, employment, and inflation.

Cyclicality of fiscal policy refers to how government adjusts its spending and taxation according to the ups and downs of the economy. It can be counter-cyclical (moving against the cycle to stabilize economy) or pro-cyclical (moving with the cycle, which may worsen fluctuations).