1. What is a Government Budget?

A government budget is a financial statement that shows:

• How much money the government expects to earn, and
• How much does it plan to spend
  during a financial year (1 April to 31 March).

Trick: Think of it like a family’s monthly budget, but at the national level.

2. Union Budget in India

• The Union Budget is the annual budget of the Central Government.
• It is presented by the Finance Minister in Parliament.
• Constitutional basis:
  • Article 112 – Annual Financial Statement.

Why is the Budget important?

• Decides tax rates
• Determines government spending on:
  • Education, health, defence, infrastructure
• Influences:
  • Economic growth
  • Inflation
  • Fiscal discipline

3. Types of Government Budgeting (Explained Simply)

1. Line-Item Budgeting

• Oldest and simplest method.
• Money is allocated item-wise (salary, rent, fuel, stationery).
• Example: ₹100 crore for salaries, ₹50 crore for office expenses
• Focus is on how much is spent, not what result is achieved.

2. Performance Budgeting

• Introduced to improve efficiency.
• Links money spent with work done.
• Example: ₹200 crore spent → build 500 km of roads
• Focus is on performance and outcomes, not just spending.

3. Zero-Based Budgeting (ZBB)

• Introduced in 1987–88 in India.
• Every year, each scheme is reviewed from zero.
• No automatic continuation of old schemes.
• Example: A scheme must justify why it needs funds again.
• Helps remove wasteful and obsolete schemes.

4. Outcome Budgeting

• Introduced in 2005 (strengthened in 2017–18).
• Focuses on results achieved, not just money spent.
• Example: Spending on health → reduction in infant mortality
• Emphasis on measurable outcomes.

5. Gender Budgeting

• Introduced in 2005–06.
• Examines how budget allocations impact women.
• Example: Schemes for women’s education, health, and safety
• Focus is on Gender equality and women’s empowerment.

4. Types of Budget (Based on Receipts & Expenditure)

1. Balanced Budget

• Government income = Government expenditure.
• Ideal situation, but rare in practice.

2. Surplus Budget

• Income > Expenditure.
• Used to control inflation and reduce public debt

3. Deficit Budget

• Expenditure > Income.
• Most common in developing countries like India.
• Used to boost economic growth.

5. Types of Budget Deficit

1. Revenue Deficit

Meaning:

• When revenue expenditure > revenue receipts
• Formula: Revenue Deficit = Revenue Expenditure – Revenue Receipts
• Indicates the government is spending on consumption, not asset creation
• Example: Salaries, subsidies, interest payments

2. Effective Revenue Deficit (ERD)

• Introduced: 2012–13
• Revenue deficit after removing grants used to create assets.
• Formula: ERD = Revenue Deficit – Grants for Capital Assets
• Shows the actual consumption spending of the government.

3. Fiscal Deficit (Most Important)

• Total borrowing requirement of the government.
• Formula: Fiscal Deficit = Total Expenditure – (Revenue Receipts + Non-debt Capital Receipts)
• Indicates how much the government must borrow.
• High fiscal deficit → higher public debt.

4. Primary Deficit

• Fiscal deficit after removing interest payments.
• Formula: Primary Deficit = Fiscal Deficit – Interest Payments
• Shows the current government’s borrowing excluding past loan burden.

5. Monetised Deficit

• When the government borrows from the RBI.
• Leads to an increase in the money supply and possible inflation

6. Summary Table

7. Note

• Fiscal Deficit = Borrowing
• Revenue Deficit = Consumption spending
• Zero-Based Budgeting = No automatic funding
• Outcome Budget = Result-oriented
• Gender Budgeting = Women-focused planning