Top Stories From Planning to Presentation: How is the Union Budget Prepared? The Union Budget is prepared over six months, estimating revenues and expenses, consulting stakeholders, and setting priorities for the nation’s financial plan. Let’s discuss this in detail By Kavi Priya – On January 10, 2025 3:32 pm – 5 mins read Have you ever wondered what happens to the taxes you pay? Why do we still have poverty in India? Why am I paying taxes when the roads and infrastructure still need huge improvement? These are questions we all think about. The answer to these questions lies in a document presented every year “the Union Budget”. This budget is like a plan for the country’s money. Let’s understand it in simple terms. History of Budget The history of the Indian Union Budget is a story of how India’s financial planning evolved this far, shaping the country’s economy and development.

The word “Budget” comes from the Middle French word bougette, meaning a small leather bag, symbolizing a treasury. The first-ever budget in India was introduced in 1860 under British rule, but it wasn’t until November 26, 1947, that RK Shanmukham Chetty presented the first budget for independent India. Expert-Led PF & ESIC Course – Enroll Now & Get Certified This budget came at a struggling time, as the country was recovering from partition and laying the foundations of a new economy. Over the years, the Union Budget has grown into an important annual exercise that not only charts out government finances but also reflects the priorities and aspirations of the nation. Several landmark budgets have left a lasting impact on India. In 1957, Finance Minister TT Krishnamachari introduced the wealth tax, a shift toward taxing personal assets to address economic inequality.

The 1991 budget, presented by Manmohan Singh, was a game-changer as it ended the Licence Raj and opened up India’s economy to the world, laying the foundation for globalization and foreign investment. In 1997, P. Chidambaram introduced the “Dream Budget”, which simplified taxes and hugely relieved taxpayers. Yashwant Sinha’s 2000 budget focused on the IT sector, reducing customs duty on items like computers which helped India emerge as a global tech hub. A huge reform came in 2017, when Arun Jaitley merged the Union and Railway Budgets, ending a 92-year-old tradition and making the budgeting process more streamlined. Today, the Union Budget is more than just a financial plan that reflects India’s challenges, achievements, and ambitions for the future. The Process of Budget Preparation  Step 1: Estimating Nominal GDP The first step in the budget-making process is estimating the nominal GDP for the next financial year. Nominal GDP represents the total market value of goods and services produced in the economy at current market prices, including inflation. Since the budget is presented on February 1, before the current financial year ends in March, the Finance Ministry makes projections for the current and upcoming financial years based on economic trends and assumptions.

This GDP figure is the foundation for all revenue and expenditure estimates. Step 2: Determining the Fiscal Deficit Once the nominal GDP is estimated, the government calculates the fiscal deficit, which is the gap between its expenditure and revenue. The Fiscal Responsibility and Budget Management (FRBM) Act mandates that the fiscal deficit should not exceed 3% of nominal GDP, although exceptions are made during economic challenges. This step helps determine the maximum amount the government can borrow to fund its expenditures. Step 3: Estimating Revenue The next step is estimating how much money the government can raise from its own sources. This includes: Taxes: Revenue from direct taxes (e.g., income tax, corporate tax) and indirect taxes (e.g., GST, customs). Non-Tax Revenue: Dividends from public sector enterprises like LIC or public sector banks. Disinvestment: Income from selling stakes in public sector units or privatizing certain enterprises.

The revenue estimate is directly influenced by the projected growth of the economy, as higher GDP growth leads to higher tax collections and earnings. Step 4: Setting Expenditure Limits Based on the borrowing capacity and revenue estimates, the government establishes the total amount available for expenditure. This creates a budget constraint, ensuring that spending aligns with available resources. The expenditure is then allocated across various sectors and ministries, keeping in mind the country’s priorities for the financial year. Expert-Led PF & ESIC Course – Enroll Now & Get Certified Step 5: Allocating Funds The final step involves deciding how to distribute the available funds across different departments and programs. Priorities depend on the country’s current challenges and long-term goals.

For example, recent budgets under the Modi government have focused on infrastructure-led growth, emphasizing spending on transport, energy, and urban development projects. Stakeholder Consultations and Public Input In the lead-up to the budget, the Finance Ministry conducts extensive consultations with stakeholders, including industry representatives, economists, trade bodies, and social organizations. These discussions help gather input on expectations, challenges, and recommendations across various sectors. In recent years, public participation has been encouraged through platforms like MyGov, allowing citizens to contribute suggestions, making the process more inclusive Finalization and Approval of the Budget After consultations, the Finance Ministry prepares the draft budget. The Prime Minister and the Union Cabinet review and approve this draft. The process is highly confidential to prevent leaks and maintain the integrity of the budget.

The finalized document is printed under strict supervision. Halwa Ceremony The Halwa Ceremony is a symbolic tradition marking the beginning of budget printing. Held at the North Block of the Finance Ministry, it involves serving halwa (a sweet dish) to all officials and staff involved in budget preparation. After this ceremony, those involved in the budget process enter a lock-in period to maintain confidentiality until the budget is presented in Parliament. Economic Survey The budget presentation starts with the Economic Survey, released a day before. This survey provides an overview of the economy’s performance over the past year, including growth, inflation, trade, and loans. It outlines challenges, opportunities, and policy recommendations that often serve as a precursor to the budget’s focus areas. Presentation in Parliament and Its Structure The Union Budget is presented in Parliament on February 1st (since 2017. to allow sufficient time for legislative approvals before the new financial year starts on April 1st). Before 2017, the budget was traditionally presented on the last working day of February.

The Finance Minister delivers the Budget Speech in the Lok Sabha and a copy is shared with the Rajya Sabha. The speech is divided into two parts: Part A, which outlines the economic outlook and policy initiatives, and Part B, which details taxation proposals and revenue measures. Along with the speech, important documents like the Annual Financial Statement (AFS), Finance Bill, and Demand for Grants are tabled. The AFS, mandated by Article 112 of the Constitution, provides details of revenue and capital accounts, while the Finance Bill contains tax proposals that require parliamentary approval. Expert-Led PF & ESIC Course – Enroll Now & Get Certified The budget structure includes documents such as the Expenditure Budget, Receipts Budget, and the FRBM Report, which tracks fiscal targets. After the presentation, the budget is debated, scrutinized by committees, and passed through a Vote on Account and approval of the Finance Bill.

This process sets the government’s financial roadmap, detailing how funds will be raised and allocated to address national priorities and foster economic growth. Conclusion The budget is important because it shows where the government spends taxpayers’ money and how it plans to tackle the country’s problems. India’s budget always shows a deficit, meaning the government spends more than it earns. This gap is filled by taking loans, which adds to the debt burden. Understanding the budget helps us see how the country is run. It also allows citizens like us to hold the government accountable.