Union Budget of India – Meaning, Process, Components, Bills, and Key Concepts Explained Simply

 

The Union Budget is one of the most important annual events in India’s financial system. It determines how the government earns money and how it plans to spend it for the development of the country. While the budget may appear complex, understanding the basics is actually very straightforward.

This article simplifies every important concept from the Union Budget—deficit, halwa ceremony, budget documents, types of expenditure, types of receipts, and the entire approval process.

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1. What Is the Union Budget?

The Union Budget is a yearly financial statement that shows:

1. Estimated income (receipts) of the Government of India
2. Estimated expenses (expenditure) of the Government of India

This is required under Article 112 of the Indian Constitution.

👉 In simple words:

The budget tells how much the government will earn and how much it will spend in the upcoming financial year.

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2. Budget = Income & Expenditure Statement

Government income includes:

• Income Tax
• GST
• Customs Duty
• Dividends from PSUs
• Interest receipts
• Borrowings (if needed)

Government expenditure includes:

• Salaries and pensions
• Roads (PMGSY)
• Subsidies (Ujjwala, food, fertilizers)
• Railways
• Defense
• Healthcare
• Education

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3. What Is Fiscal Deficit? (Very Important)

Fiscal deficit = Total expenditure – Total revenue

Always expressed as a percentage of GDP.

It simply means:

Government is spending more than it earns → so it must borrow.

Example:

If fiscal deficit = 6% of GDP → Government needs to borrow that 6%.

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4. The “Halwa Ceremony” – A Famous Budget Tradition

Before the budget is printed, the Finance Ministry holds a symbolic celebration called the Halwa Ceremony.

• Halwa is served to all staff in the ministry
• Printing of budget documents begins after this
• Staff involved in budget printing stay in a “lock-in” environment until presentation day

This tradition marks the beginning of the final stage of budget preparation.

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5. How Budget Is Prepared? (Step-by-Step)

Step 1: Departments send estimates

Every ministry (Railways, Defence, Education etc.) sends its spending requirements.

Step 2: Finance Ministry analyses

It evaluates:

• Revenue estimates
• Expenditure needs
• Fiscal deficit targets

Step 3: Finance Minister consults with the Prime Minister

Both finalize key numbers and policies.

Step 4: Final Budget Speech prepared

Step 5: Printing of budget begins (after Halwa Ceremony)

Step 6: Budget is presented in Parliament

Finance Minister delivers the budget speech in:

• Lok Sabha
• Then Rajya Sabha

Step 7: Bills are passed

Two major bills are necessary:

• Finance Bill
• Appropriation Bill

Step 8: President gives approval

After approval → Budget becomes law.

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6. Finance Bill vs Appropriation Bill

Finance Bill

• Contains all tax proposals
• Income tax changes
• GST changes (if any)
• Other financial amendments

Lok Sabha can suggest changes.

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Appropriation Bill

• Grants permission to withdraw money from the Consolidated Fund of India to spend
• Required for schemes like PMGSY, health spending, education spending

Lok Sabha cannot change taxation here. Only spending approvals.

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7. Capital vs Revenue Concepts

Government receipts & expenditure are divided into two categories:

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A. Revenue Receipts

These come regularly:

• Income Tax
• GST
• Corporate Tax
• Customs Duty
• Dividends
• Interest

Revenue Expenditure

Recurring expenses:

• Salaries
• Pensions
• Subsidies
• Grants
• Interest payments

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B. Capital Receipts

One-time or long-term receipts:

• Borrowings
• Disinvestment proceeds
• Loan recoveries

Capital Expenditure

Long-term investment:

• Roads
• Bridges
• Railways
• Schools
• Hospitals
• Infrastructure

Creates assets for the nation.

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8. Types of Budgets

1. Balanced Budget

   • Income = Expenditure

2. Surplus Budget

   • Income > Expenditure
     (Rare for developing countries)

3. Deficit Budget

   • Expenditure > Income
     (Most common in India)

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9. Why Is the Union Budget Important?

• Decides taxation (income tax slabs, GST updates)
• Affects cost of living
• Determines government’s development priorities
• Impacts stock market sentiment
• Influences jobs, subsidies, infrastructure

Whether you’re a citizen or an investor, budget announcements directly affect you.

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10. Conclusion

The Union Budget may appear complicated, but at its core, it is just a structured plan of:

• How the government earns
• How the government plans to spend
• How much it needs to borrow

Understanding its components—receipts, expenditures, deficit, Finance Bill, Appropriation Bill, and capital vs revenue—helps you see how the economy functions.