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Role of RBI

Union Budget

The Union budget of any particular nation consists of an estimation of revenue expenses and income over a specified future period of time. It is also called the “annual financial statement" as it is a statement of the estimated income and expenditure of the government for the upcoming annual year. It keeps a record of the government’s finances for the fiscal year that extends from 1st April to 31st March. The budget is presented before the people by the Union Finance Minister every year. It is usually formulated and re-evaluated over varying intervals of time. The Union budget is classified into two categories: 


1)Revenue budget 

It includes the government’s revenue receipts and expenditure. It is again of two types, tax and non-tax revenue. It refers to the expenditure incurred by the day-to-day functioning of the government and by the various services that are provided to the citizens. If the revenue receipts are lesser than the revenue expenditure, then a revenue deficit occurs.


2)Capital budget

It consists of capital receipts and payments of the government. Capital expenditure involves the money spent on the development of machinery, equipment, infrastructure, education facilities, health facilities and the like. Loans taken from the foreign governments, general public and the RBI all form a part of the government’s capital receipts. When the government’s expenditure is more than its total revenue, a fiscal deficit occurs.


Depending on the estimates of revenue and expenditure, budgets are classified into three broad categories:-


a)Balanced budget – In a balanced budget, the estimated government expenditure shall be equal to the estimated revenue in a given financial year. This type of a budget thwarts wasteful expenditure by the government. A balanced budget does not indicate financial stability in times of deflation due to the absence of any scope for extra expenditure. A balanced budget is not considered suitable for developing nations because it restricts the scope of government expenditure on schemes devised for the welfare of the public.


b) Surplus budget – In a surplus budget, the estimated government expenditure is less than the estimated revenue in a given financial year. This means that the government’s earnings generated from taxes is greater than the expenditure incurred on public welfare. This extra money can be used to pay dues which reduces the payable interest and helps economic growth in the long-run. Such a budget can be used in times of inflation. It is not an option during times of deflation, recessionary periods and during economic slowdowns.


c) Deficit budget – In a deficit budget, the estimated government expenditure exceeds the estimated revenue of the government in a given financial year. This type of a budget comes in handy at times of economic recessions and also helps in increasing the employment rate. It bolsters economic growth. The government usually covers the deficit amount by borrowing from the public or through government bonds. This type of a budget can cause excessive expenditure on the part of the government and also result in debt accumulation.


Since our independence in 1947, there have been a total of 73 annual budgets, 14 interim budgets and four special budgets, or mini-budgets. 


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