BUDGET AND IT’S IMPACT ON INDIAN

ECONOMY

Submitted to

Dr. Eritriya Roy Ma’am

Assistant Professor, Economics

By

Aayushman Rawat

B.A. Ll.B. (Hons.) Student

Semester – I, Section- A, Roll No. – 7

Hidayatullah National Law University

Uparwara Post, Naya Raipur – 492002 (C.G.)

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 DECLARATION

I, the undersigned, solemnly declare that this project work titled, “Tourism Industry in India
with reference to contribution to the economy of Rajasthan” is based on my own research work,
carried out during the course of study, under the supervision and guidance of my faculty advisor.

I assert that the statements made and the conclusions drawn are the outcome of the said research
work. I further declare that, to the best of my knowledge and belief, proper references have been
given and it does not contain any part of any work that has been submitted for the award of any
other degree in this university or any other university.

Aayushman Rawat

Semester – I (A), Batch XIX

Roll No. -7

HNLU, Raipur

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 Acknowledgement

I, Aayushman Rawat, would like to take up this opportunity to thank all those who
helped me throughout the duration of the making of the project to complete it.

Firstly, I would like to thank my teacher and mentor Dr. Eritriya Roy Ma’am who showed faith
in me by giving me such topic to research. Her constant guidance was the most important thing
to complete this project successfully. Her keen attention helped us to deal with the each part of
the project carefully.

Role of college administration and staff was also very significant in the making of the project.
Their support cannot be expressed in mere words.

Finally, I would like to thank God for his benevolence and grace in enabling me to finish this
task. I express my heartfelt gratitude to all those who helped me to complete this project without
much problems.

Thank You.

Aayushman Rawat

B.A. LL.B. (Hons.)

Semester – I (A), Roll No. – 7

Batch XIX

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 TABLE OF CONTENTS

S. No. Topic Page No.

1 Declaration II
2 Acknowledgment III
3 Introduction 1
4 Objectives of Study 3
5 Research Methodology 3
6 Scope of Study 3
7 What is Budget? 4
8 Concept of Government Budget 6
9 Objectives of Budget 8
10 Components of a Budget 10
11 BUDGET 2019 21

12 Conclusion 33
13 References 35

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 INTRODUCTION

A budget is an estimation of revenue and expenses over a specified future period of time and is
usually compiled and re-evaluated on a periodic basis. Budgets can be made for a person, a
family, a group of people, a business, a government, a country, a multinational organization or
just about anything else that makes and spends money. At companies and organizations, a
budget is an internal tool used by management and is often not required for reporting by external
parties.

A budget is a microeconomic concept that shows the trade-off made when one good is
exchanged for another. In terms of the bottom line – or the end result of this trade-off – a surplus
budget means profits are anticipated, a balanced budget means revenues are expected to equal
expenses, and a deficit budget means expenses will exceed revenues.

A government budget is a document prepared by the government or other political entity

presenting its anticipated revenues and proposed spending for the coming financial year. In most
parliamentary systems, the budget is presented to the lower house of the legislature and often
requires approval of the legislature. The budget in itself does not appropriate funds for
government programs, which requires additional legislative measures.
In the 20th century a high proportion of economic activity is controlled, directly or indirectly, by
various levels of government (federal, or central, state, local, etc.). Thus the budget has taken on
a number of other functions as well as the simple monitoring of the overall revenue and
expenditure of government. Expenditure programs are now planned in considerable detail, but
the sheer scale of public spending raises major control problems, and varying systems of control
have been tried in different countries. Taxation is used not only to raise revenue but also to
redistribute income and to encourage or discourage certain activities. Government borrowing, in
order to finance recurring deficits or wars, is so substantial that budgetary policy has important
effects on capital markets and on interest and credit generally. Because the budget is now so
important to national economies, a number of different procedures for deciding on the structure
of the budget have been developed, and these vary considerably between countries. In some, the
United Kingdom, for example, most planning is carried out in secret by ministers and civil

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servants, and public and parliamentary debate is minimal; while in others, the United States, for
example, there is lengthy debate during which the budget can be changed significantly. The
different levels of government complicate the budgetary process with differing spheres of
influence and control over particular items of expenditure.
The budget has also come to be used to achieve specific goals of economic policy. It was long
recognized that government borrowing could have important effects on the rest of the economy.
As the scale of government activity increased, the levels of expenditure and taxation were seen to
have substantial direct effects on the total demand for goods and services in the economy. This
raised the possibility that by changing these levels the government could use its fiscal policy to
achieve full employment and reduce economic fluctuations. This stabilization function has been
used by many countries, with varying degrees of success, to expand the economy out of
recession and to control inflationary pressures. In the United Kingdom, for example, post-war
policy involved a sequence of “stop-go” moves by government for stabilization; unfortunately
these often occurred too late and had unintended destabilizing effects.

As well as affecting the overall economy, the budget may have significant (intended and
unintended) effects in specific areas. Taxes affect incentives to work or to consume, while taxes,
benefits, and expenditures all affect the distribution of income. In this manner, budgets,
particularly those that cause major changes, have considerable political as well as economic
impact.

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 OBJECTIVES OF STUDY
1. To study Budget.
2. To study the concept of Government Budget.
3. To study the Objectives of Government Budget.
4. To study the Structure of Budget.

RESEARCH METHODOLOGY

The mode of presentation is descriptive as the project is not empirical in nature. The project
employs secondary mode of data collection as the data is collected from different sources such as
internet, journals, articles, etc.

SCOPE OF STUDY

The scope of this study is limited to the impact of budget on India and no other country
whatsoever. The factors taken into consideration would only be applicable to the Indian
Economy.

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 WHAT IS BUDGET?

The origin of our word budget is the Latin bulga, a little pouch or knapsack, which may have
come from a Gaulish source that’s related to the Irish bolg, “bag”. The word turned up in English
in the fifteenth century, having travelled via the French bougette, a diminutive form of bouge,
“leather bag”. Its first meaning in English indeed was “pouch, wallet, bag”, and followed its
French original in usually implying something made of leather.

By the end of the sixteenth century, the word could refer to the contents of one’s budget as well
as to the container itself. People frequently used this in the figurative sense of a bundle of news,
or of a long letter full of news, and the word formed part of the name of several defunct British
newspapers, such as the Pall Mall Budget.

The connection with finance appeared first only in 1733, as the result of a scurrilous pamphlet
entitled The Budget Opened, an attack directed at Sir Robert Walpole: “And how is this to be
done? Why by an Alteration only of the present Method of collecting the publick Revenues ...
The Budget is opened; and our State Emperick hath dispensed his packets by his Zany Couriers
through all Parts of the Kingdom” (the anonymous writer is using zany in the sense of the
comical assistant of a fairground quack medicine salesman or mountebank, a decidedly
unflattering comparison). The allusion was that the government minister responsible for financial
affairs opened his budget, or wallet, to reveal his proposals. It probably also echoed the idiom to
open one’s budget, “to speak one’s mind”, which was current then and continued to be so down
into Victorian times (it turns up in Trollope, for example).

With the increasing importance of government expenditure in the economy, the annual budget is
an important instrument of the government’s macro economic policy. Fiscal changes have less to
do with planned expenditure and more to do with decisions to modify the budgetary deficit (or at
times surplus) in the interest of demand management (i.e., management of aggregate demand).
Economic conditions sometimes require interim budgets.

The central government budget is in balance when current receipts are equal to current
expenditure, that is to say, when taxes on income, expenditure, etc. are sufficient to cover

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payments for goods and services, interest on the national debt, etc. In practice, the Indian budget
has generally been in deficit throughout the plan period.

A budgetary deficit refers to excess of total budgetary expenditure (both on revenue and capital
accounts) over total budgetary receipts (both on revenue and capital accounts). (Budgetary
surplus is the opposite of the deficit, i.e., an excess of government receipts over expenditure in an
accounting year.)

Government receipts are primarily in the form of taxation of individuals, companies and
institutions but there are various other receipts such as the sale of goods and services or even
bonds. The operation of a budget deficit (deficit financing) as a tool of fiscal policy enables the
government to influence the level of aggregate demand (which is sum of consumption
investment and government spending on currently produced goods and services) and
employment in the economy.

The classical economists argued that the government should operate a policy of balancing the
budget, thereby allowing the economy to respond in its own way without government
intervention. Keynes, however, explained how budgetary deficits and surpluses could be used to
regulate the economy (i.e., to create employment as also to control inflation). More specifically,
he suggested that the government should intervene by deliberating incurring a deficit in the
budget in order to inject additional buying power into a depressed economy and vice-versa.

In the post-world war period most governments have tended to operate a budget deficit to keep
employment high and to promote long-term economic growth. That portion of deficit which
cannot be covered by borrowing (through the issue of Treasury Bills and long-term gifts) is
covered by borrowing money from the central bank against foreign exchange reserves.

And the central bank makes loan to the government by printing paper currency. This is known as
deficit financing (spending). This is acceptable as long as the economy is growing and the
interest payments on such borrowings do not become disproportionate to the overall level of
government expenditure. Government borrowing in excess of the amount required to promote
long-term growth and to control business (trade) cycles will ultimately result in inflation.

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 CONCEPT OF GOVERNMENT BUDGET

A government budget is a document prepared by the government or other political entity

presenting its anticipated revenues and proposed spending for the coming financial year.1 In most
parliamentary systems, the budget is presented to the lower house of the legislature and often
requires approval of the legislature. The budget in itself does not appropriate funds for
government programs, which requires additional legislative measures.

A government budget is an annual financial statement showing item wise estimates of expected
revenue and anticipated expenditure during a fiscal year.”

Just as your household budget is all about what you earn and spend, similarly the government
budget is a statement of its income and expenditure. In the beginning of every year, government
presents before the Lok Sabha an estimate of its receipts and expenditure for the coming
financial year.

The government plans expenditure according to its objectives and then tries to raise resources to
meet the proposed expenditure. Government earns money broadly from taxes, fees and fines,
interest on loans given to states and dividend by public sector enterprises. Government spends
mainly on (i) securing and providing goods and services to citizens, (ii) on law and order and (iii)
internal security, defence, staff salaries, etc. In India there is constitutional requirement to
present budget before Parliament for the ensuing financial year. The financial (fiscal) year starts
on April 1 and ends on March 31 of next year. For example, fiscal or budget year 2010-11 is
from April 1, 2010 to March 31, 2011. Obviously, the budget is the most important information
document of the government because government implements its plans and programmes through
the budget.

1
Public Budgeting and Financial Management, Florida International University, Retrieved November 21, 2013

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Main elements of the budget are:

(i) It is a statement of estimates of government receipts and expenditure.

(ii) Budget estimates pertain to a fixed period, generally a year.

(iii) Expenditure and sources of finance are planned in accordance with the objectives of the
government.

(Iv) It requires to be approved (passed) by Parliament or Assembly or some other authority

before its implementation.

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 OBJECTIVES OF BUDGET

Some of the important objectives of government budget are as follows: 1. Reallocation of

Resources 2. Reducing inequalities in income and wealth 3. Economic Stability 4. Management
of Public Enterprises 5. Economic Growth and 6. Reducing regional disparities.

Government prepares the budget for fulfilling certain objectives. These objectives are the direct
outcome of government’s economic, social and political policies.

The various objectives of government budget are:

1. Reallocation of Resources:
Through the budgetary policy, Government aims to reallocate resources in accordance with the
economic (profit maximisation) and social (public welfare) priorities of the country. Government
can influence allocation of resources through:

(i) Tax concessions or subsidies:

To encourage investment, government can give tax concession, subsidies etc. to the producers.
For example, Government discourages the production of harmful consumption goods (like
liquor, cigarettes etc.) through heavy taxes and encourages the use of ‘Khaki products’ by
providing subsidies.

(ii) Directly producing goods and services:

If private sector does not take interest, government can directly undertake the production.

2. Reducing inequalities in income and wealth:

Economic inequality is an inherent part of every economic system. Government aims to reduce
such inequalities of income and wealth, through its budgetary policy. Government aims to
influence distribution of income by imposing taxes on the rich and spending more on the welfare

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of the poor. It will reduce income of the rich and raise standard of living of the poor, thus
reducing inequalities in the distribution of income.

3. Economic Stability:
Government budget is used to prevent business fluctuations of inflation or deflation to achieve
the objective of economic stability. The government aims to control the different phases of
business fluctuations through its budgetary policy. Policies of surplus budget during inflation and
deficit budget during deflation helps to maintain stability of prices in the economy.

4. Management of Public Enterprises:

There are large numbers of public sector industries (especially natural monopolies), which are
established and managed for social welfare of the public. Budget is prepared with the objective
of making various provisions for managing such enterprises and providing those financial help.

5. Economic Growth:
The growth rate of a country depends on rate of saving and investment. For this purpose,
budgetary policy aims to mobilise sufficient resources for investment in the public sector.
Therefore, the government makes various provisions in the budget to raise overall rate of savings
and investments in the economy.

6. Reducing regional disparities:

The government budget aims to reduce regional disparities through its taxation and expenditure
policy for encouraging setting up of production units in economically backward regions.

Conclusion:
It is not only desirable but necessary to formulate such a budget which may enable government
to allocate resources in a manner so that it may take care of its social and economic objectives.2

2
https://hscprojects.com/government-budget-components/

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 COMPONENTS OF A BUDGET

Two major components of the Budget are:

1. Revenue Budget:

This financial statement includes the revenue receipts of the Government i.e. revenue collected
by way of taxes and other receipts. It also contains the items of expenditure met from such
revenue. It has two components:

(I) Budget Receipts:

Budget receipts refer to the estimated money receipt of this Government from all sources during
a given fiscal year Budge receipt.

(II) Revenue Receipts:

Revenue receipts refer to those receipts which neither create any liability nor cause any reduction
in the assets of the Government. They are regular and recurring in nature and the Government
receives them in its normal course of activities.

A receipt is a revenue receipt if it satisfies the following two essential conditions:

 The receipt must not create a liability for the Government. For example, taxes levied by the
Government are revenue receipts as they do not create any liability. However, any amount
borrowed by the Government is not a revenue receipt as it causes an increase in the liability in
terms of repayment of borrowings.

 The receipt must not cause a decrease in the assets. For example, receipts from the sale of
shares of a public enterprise is not a revenue receipt as it leads to a reduction in assets of the
Government.

2. Capital Budget:

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 It deals with the revenue aspect of the Government budget. It explains how revenue is generated
or collected by the components of the budget.

Source of Revenue:

Revenue receipts of the Government are generally classified under two heads:

1. Tax Revenue:

Tax revenue refers to the sum total of receipts from taxes and duties imposed by the Government
companies of the Government without reference to any direct benefit in return. It means there are
two aspects of taxes.

(i) Tax is a compulsory payment. No one can refuse to pay it.

(ii) Tax receipts are spent by the Government for the common benefit of people in the country.

2. Non-Tax Revenue:

The non-tax sources of public revenue are as follows:

 Fees: The Government provides a variety of services for which fees have to be paid. Example-
fees paid for registration of property, births, deaths, etc.

 Fines and Penalties: Fines and penalties are imposed by the Government for not following
the rules and regulations.

 Profits from public sector enterprises: Many enterprises are owned and managed by the
Government. The profits received from them is an important source of non-tax revenue. For
example, In India, the Indian Railways, Oil and Natural Gas Commission, Air India, Indian
Airlines, etc. are owned by the Government of India.

1. Direct Taxes:

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 Direct Taxes are taxes that are imposed on the property and income of individuals and
companies and are paid directly by them to the Government.

They are imposed on individuals and companies.

The liability to pay the tax and actual burden of tax lie on the same person i.e. is burden cannot
be shifted to others.

2. Indirect Taxes:

Indirect Taxes refers to those taxes which affect the income and property of individuals and
companies through their consumption of expenditure.

How to classify a tax as Direct or Indirect?

A tax is a direct tax if its burden cannot be shifted. For example, income tax is a direct tax as its
impact and incidence are on the same person. A tax is an indirect tax, if it’s an actual burden of
the tax lie on different person i.e. its burden can be shifted to others. A tax is an indirect tax if its
burden can be shifted. For example- sales tax is an indirect tax.

 Items categorized as Direct and Indirect Tax:

It is a direct tax as its impact and incidence lie on the same person. It is a direct line on the
same person.

 Value Added Tax:

It is an indirect tax as its impact and incidence lie on two different people, its burden can be
shifted.

 Service Tax:
It is an indirect tax as its impact and incidence lie on a different person.

 Excise Duty:
It is a direct tax as its impact and incidence lie on the same person.

 Non-Tax Revenue:
Non-Tax Revenue refers to receipts of the Government from all sources other than those of tax
receipts. The main sources of non-tax revenues are:

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 Interest:
The government receives interest on loans given by it to State Government, Union Territories,
Private Enterprises and General Public.

 Fees:
Fees refer to charge imposed by Government to cover the cost of recurring services provided
by it. Court fees, registration fees, import fees, etc. are some examples of fees.

 License Fees:
It is a payment charged by the Government to grant permission of something’s license fees
paid for permission of keeping a gun or to obtain it.

National Permit for Commercial Vehicles:

 Times and Penalties:

They refer to that payment which is imposed on lawbreakers, fine for jumping light for non-
payment of tax. The latter is imposed to generate revenue.

 Escheats:
It refers to the claim of the Government on the property of a person who dies without leaving
behind a will.

 Gifts and Grants:

The government receives gifts and grants from foreign Government and International
Organisations. Sometimes, individuals and companies money to the Government received
during a national crisis such as war, food, etc.

 Forfeitures:
These are in the form if penalties which are imposed by the court for non-compliance of others
contract, etc.

 Special Assessment:
It refers to the payment made by Owners of these properties whose value has appreciated due
to developmental activities of the Government expenditure is recovered from owners.

Capital Receipts:

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 Capital receipts refer to those receipts which either create liability or cause a reduction in the
assets of the Government. They are non-recurring and non-routine in nature.

1. The receipts must create a liability for the Government Borrowings are capital receipts as they
Government. However, tax received is not a capital receipt as it does not result in the creation
of any liability.

2. The receipts must cause a decrease in the assets receipts from the scale of a share of public
enterprises is a capital receipt as it leads to a reduction in assets of the Government.

Capital receipts are broadly classified into three groups:

 Borrowings:

Borrowings are the funds raised by the Government to meet excess expenditure.

1. Government Open Market

2. Reserve Bank of India

3. Foreign Government

4. International Institutions

5. Borrowings are capitals receipts as they create a liability for the Government.

 Recovery of Loans:

Government grants various loans to State Government or Union Territories, assets of the
Government.

 Other Receipts:

Disinvestment refers to the act of selling a part or the whole of shares of selected Public Sector
undertakings held by the Government. They are termed as Capital Receipts as they reduce the
assets of the Government. A part or whole of its shares, it leads to transfer of ownerships PSU to
the private enterprises.

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 Small Saving refers to funds raised from the Public in the form of Post office deposits, National
Saving Certificates, Kisan Vikas Patras, etc. They are treated as capital receipts as they lead to
increased liability.

Classification:

A receipt is capital if either creates a liability or reduces an asset.

Items categorized as Revenue and Capital Receipts:

1. Loan from the Word Bank:

It is a capital receipt as it creates liability for this Government.

2. Corporation Tax:
It is revenue receipt as it neither creates any liability nor reduces any asset.

3. Grants received from world bank:

It is a revenue receipt as it neither creates nor reduces the asset of the Government.

4. Profits of Public Sector Undertakings:

It is a revenue receipt as it neither creates reduces asset of the Government.

5. The scale of a Public Sector Undertaking:

It is a capital receipt as it reduces assets of the Government.

6. Foreign Aid against Earthquake Victims:

It is revenue receipt as it neither creates nor reduces any asset of the Government.

7. Dividends on Investments Made Government:

It is revenue receipt as it neither creates nor reduces any asset of the Government.

8. Borrowings from Public:

It is a capital receipt as it creates liability.

9. Fees of Government College:

It is revenue receipt as it neither creates any nor reduces any asset of the Government.

BUDGET EXPENDITURE:

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 Budget Expenditure refers to the estimated expenditure of the Government during a given fiscal
year. The budget expenditure can be broadly categorized as:

 Revenue Expenditure:

Revenue Expenditure refers to the expenditure which neither creates any asset nor causes a
reduction in any liability of Government.

 It is recurring in nature.

 It is incurred on the normal functioning of the Government.

 The Expenditure must not create an asset of the Government payment of salaries or pension is
revenue expenditure as it does not create an asset. Metro is not a revenue expenditure as it
leads to the creation of an asset.

Capital Expenditure:

Capital expenditure refers to the expenditure which either creates an asset or causes a reduction
in the liabilities of the Government.

 It is non-recurring in nature.

 It adds to the capital stock of the Economy and increases its productively through expenditure
on long periods like Metro or Flyovers.

 Examples: Loan to State and Union Territories expenditure on building roads, flyovers, etc.

The expenditure must create an asset for the Government. Example: Construction of Metro is a
capital expenditure as it leads to the creation of an asset. However, any amount paid as salaries is
not capital in the assets.

How to Classify Expenditure as Revenue or Capital Expenditure?

An expenditure is a capital expenditure if it either creates an asset or reduces a liability.

An expenditure is revenue expenditure if it neither creates an asset nor reduces any liability.

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1. Subsidies: It is a revenue expenditure as it neither creates an asset nor reduces any of the
Government.

2. Defense capital equipment purchased from Germany. It is a capital expenditure as it increases

asset of the government

3. Grants are given to State Governments. It is a revenue expenditure as it neither creates any
asset nor any reduces any of the government.

4. Construction of School buildings. It is a capital expenditure as it increases asset of the

Government.

5. Expenditure incurred on administrative is a revenue expenditure as it neither creates nor

reduces any liability of the Government.

6. Repayment of Loans: It is a capital expenditure as it reduces the liability of the Government.

7. Expenditure on building a bridge. It is a capital expenditure as it increases asset of the

Government.

8. Payment of salaries to the staff of Government. It is a revenue expenditure as it neither creates

any asset nor reduces any of the Government.

9. Purchase of 20 Cranes for the flyovers. It is a capital expenditure as it increases asset of the
Government.

Plan and Non-Plan Expenditure:

1. Plan Expenditure: Plan Expenditure refers to the expenditure that is incurred on the
Programmes detailed in the current five-year plan. For example Expenditure on Agriculture
and allied activities, irrigation, energy, transport, etc. (i) Projects covered under the Central
Plans. (ii) Central Assistance for State and Union Territory.

2. Non-Plan Expenditure: Non-Plan Expenditure refers to the expenditure other than the
expenditure related to the current five-year plan.

Difference between Plan and Non-Plan Expenditure:

1. Plan expenditure is spent on current development and investment outlays non-plan expenditure
is spent on the asset of the Government.

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2. Plan expenditures arise only when the plans provide for such expenditure but non-plan
expenditure is a must for every economy and the Government cannot escape from it.

How to Classify an Expenditure as Plan or Non-Plan?

Development expenditure refers to the expenditure which is directly related to economics and
social development of the country. Expenditure on such services is not a part of the essential
functions of the Government. Development expenditures added to the flow of goods and services
in the economy.

Non-Development Expenditure refers to the expenditure which is incurred on the essential

general services of the Government. It does not directly contribute to economic development but
it indirectly helps in the development of the economy. Such expenditure is essential from the
administration of view.

Difference between the two:

1. Development expenditure directly contributes to the development of the economy, whereas

non-development expenditure does not contribute directly to the development but it lubricates
the wheels of economic development.

2. Development expenditure is productive in nature as it adds to the flow of goods and services
whereas non-development expenditure is not covered with the productivity of working clash.

3. An Expenditure is a development expenditure if it directly adds to the flow of goods and

services.

Measures of Govt. Deficit:

Budgetary deficit is defined as the excess of total estimated expenditure over total estimated
revenue when the government spends more than it collects then it incurs a budgetary deficit with
reference to the budget of Indian Government. Can be of 3 types:

1. Revenue Deficit.
2. Fiscal Deficit.

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3. Primary Deficit.

Revenue Deficit:

Revenue deficit is concerned with the revenue expenditures and revenue receipts of the
Government. It refers to an excess of revenue expenditure over revenue receipts during the given
fiscal year.

Revenue deficit signifies that the government own revenue is insufficient to meet expenditure on
the normal functioning of Government Departments.

Implications:

 It indicates the inability of the Government to meet its regular and recurring expenditure in the
proposed budget.

 It implies that the government is discussing i.e. Government is using up saving of other sectors
of the economy to finance its expenditures.

 It also implies that the government has to make up this deficit from capital receipts i.e. through
borrowings or reduces the assets through.

 Use of capital receipts for meeting the extra consumption expenditure leads to an inflationary
situation in the economy.

 A high revenue deficit gives a warning signal to the government to curtail its expenditure.

 Reduce Expenditure: Government should take serious steps to reduce its expenditure and
avoid unproductive or unnecessary expenditure.

Fiscal Deficit:

Fiscal deficit presents a more comprehensive view of budgetary imbalances. It is widely used as
a budgetary tool for explaining and understanding the budgetary development in India.

The extent of fiscal deficit is an indication of how far the government is spending beyond its
means.

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 Implications:
Fiscal deficit indicates the total borrowing requirements of the government borrowings not only
involve repayment of the principal amount but also required payment of interest.

Government mainly borrow from Reserve Bank of India to meet its fiscal deficit. The
government also borrows from the rest of the world which raises its dependence on their
countries. Borrowings increase the financial burden.

Sources of Financing Fiscal Deficit:

1. Borrowings:

Fiscal deficit can be met by borrowings from the internal sources on the external sources.

2. Deficit Financing:

The government may borrow from RBI against its securities to meet the fiscal deficit. RBI issues
new currency for this purpose.

Primary Deficit & Implications:

It indicates how much of the Government Borrowings are going to meet the expense. It indicates
payment the difference between fiscal deficit and primary deficit shows the amount of interest
payment on the borrowings made in the past.

In India, interest payment has considerably increased in recent years. High-interest payments on
past borrowings have greatly increased the fiscal deficit. To reduce the fiscal deficit interest
payment should be reduced through repayment of loans as early as possible.

Reasons for Selection of this Topic:

 To have an understanding of Government administration.

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 To know about the sources of Government Expenditure + Government’s Revenue.

 To know about how Government meets its deficit.

 To have an acquaintance of Government objectives, capital receipts, capital expenditure,

revenue receipts, and revenue expenditure.3

3
https://hscprojects.com/government-budget-components/

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 BUDGET 2019

Finance Minister Nirmala Sitharaman presented the Union Budget 2019-20 in the Parliament on
July 05, 2019. This was the maiden Budget speech of the Finance Minister Nirmala Sitharaman.
Finance Minister Nirmala Sitharaman became only the second woman in the history of
independent India to present the Union Budget.

About budget: • A government budget is an annual financial statement which outlines the
estimated government expenditure and expected government receipts or revenues for the
forthcoming fiscal year. • Union Budget is defined under the Article 112 of the Indian
Constitution. It is also referred to as the annual financial statement (AFS). Note: • Former Prime
Minister Indira Gandhi was the first and only woman till now to have presented the Union
Budget. In 1970, she presented the Union Budget of India for 1970-71, after she took over the
finance portfolio following the resignation of Morarji Desai as finance minister.

Key highlights – Following are the highlights of 'Mrs Sitharaman' Budget speech: • The
principles — reform, perform and transform — can work, says the Finance Minister. • The
people of India have validated their two goals for our country's future: national security and
economic growth. • It took us over 55 years to reach $1 trillion-dollar economy, but we added $1
trillion in just 5 years. • Now India is the sixth-largest economy in the world, up from 11th
position five years ago.

Finance Minister flagged ten points of the Government’s ‘Vision for the Decade’:

• Building physical and social infrastructure;

• Digital India reaching every sector of the economy;
• Pollution-free India with green Mother Earth and Blue Skies;
• Make in India with particular emphasis on MSMEs, Start-ups, Defence manufacturing,
automobiles, electronics, fabs and batteries, and medical devices;
• Water, water management, clean Rivers;

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• Blue Economy;
• Space programmes. Gaganyan, Chandrayan and Satellite programmes;
• Self-sufficiency and export of food-grains, pulses, oilseeds, fruits and vegetables;
• Healthy society – Ayushman Bharat, well-nourished women & children. Safety of citizens;
• Team India with Jan Bhagidari. Minimum Government Maximum Governance.

Economy & Finance

1. The FY20 fiscal deficit target has been cut to 3.3% from 3.4%.
2. The Indian economy will grow to become a 3 trillion-dollar economy this year itself.
3. Vision for the decade: From 1.85 trillion dollars in 2014, the economy has reached 2.7 trillion
US dollars in five years. The government’s commitment is to make India a $5 trillion economy
by 2024.
4. 100% FDI will be permitted for insurance intermediary.
5. Social Stock Exchange under SEBI proposed.
6. Credit Guarantee Enhancement Corporation will be set up in 2019-20, action plan to deepen
markets for long-term bonds with a specific focus on infra sector to be put in place.
7. SEBI to consider raising the current threshold of 25% to 35% - Minimum public shareholding
in listed companies can be increased from 25% to 35%.
8. Limit on foreign portfolio investment (FPI) in a company increased to 24%.
9. India saw a 6% y-o-y growth in foreign investment - Global FDIs fell to $1.3 billion from $1.5
trillion, but inflows in India remained strong at $54.37 billion, a growth of 6%.
10. Proposed to merge NRI portfolio scheme route with foreign portfolio investment route.
• NRI investments in Indian capital market is less when compared. To provide seamless, NRI
portfolio scheme route to merged with foreign portfolio investment route.
11. Electronic Fundraising Platform, a social stock exchange, to be set up to list social
enterprises and voluntary organizations working for social welfare objectives.
12. Investment by foreign institutional investors (FIIs) and foreign direct investments (FDI) in
debt securities in infrastructure debt funds to be allowed.
13. Government is also considering to increase FDI in aviation and media.

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 Banking & Finance

14. RBI to regulate Housing Sector - Govt proposes to return the regulation authority over
housing finance sector from National Housing Board to the RBI.
• RBI is also the regulator of NBFCs.
15. PSU Bank recapitalisation - The government has proposed to allocate Rs 70,000 crore for
PSU Bank recapitalisation.
16. Non-performing Assets (NPAs) of commercial banks have reduced by over Rs 1 lakh crore
over the last year.
17. Reducing the no. of PSBs to 8 – The government has smoothly carried out consolidation,
reducing the number of PSBs (Public sector banks) by 8.
18. 6 public sector banks out of Prompt Corrective Action (PCA).
19. Record recovery of over Rs 4 lakh crore due to IBC (Insolvency code) have been effected in
the last four years.
20. Provision coverage ratio is at its highest in 7 years and credit growth has improved to over
13%.
21. For purchase of high-rated pooled assets of financially sound NBFCs amounting to a total of
Rs 1 lakh crore, govt will provide a one-time six-month partial credit guarantee to PSBs for first
loss up to 10%.
22. India's sovereign external debt to GDP is among the lowest globally at less than 5%.
23. New coin series to be launched soon - A new series of coins for Re 1, Rs 2 Rs 5, Rs 10, Rs
20 to be minted so that the visually impaired can easily identify them.
24. Pension Fund Regulatory Authority to be separated from the National Pension Scheme Trust.
25. Divestment target - The FY20 divestment target has been hiked to Rs 1.05 trillion (1.05 lakh
crore) from Rs 90,000 crore.
26. Govt to continue with strategic divestment of select Central Public Sector Enterprises
(CPSEs).
27. Govt to modify present policy of retaining 51% stake in PSUs.

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 Taxation

28. Income Tax slabs remain unchanged: Taxation for low income groups remain unchanged.
29. Surcharge increased for high income groups - Those individuals in highest income bracket
need to contribute more to national development. Propose to enhance surcharge on individual
income of Rs 2-5 crore by 3 % and over Rs 5 crore by 7%.
30. To promote digital payments: 2% tax levied on cash withdrawal over Rs 1 crore per year -
The government has proposed to levy TDS of 2% on cash withdrawal exceeding Rs 1 crore a
year from a bank account.
31. Taxpayers with annual turnover of less than Rs 5 crore to have to file only quarterly.
32. Custom duty on gold and other precious metals increased by 2.5% from 10% to 12.5%.
33. Custom duty on imported books increased by 5%.
34. Business establishments with annual turnover of Rs 50 crore will offer low-cost digital mode
of payments to customers and no charges or merchant discount rates shall be imposed on
customers as well as merchants.
35. No change on digital payment: MDR charges waived on cashless payment - No charges or
merchant discount rates shall be imposed on customers or the merchants. RBI and banks will
absorb these costs.
36. GST to be further simplified to a single monthly return.
37. Customs duty being exempted on certain parts of Electric Vehicle (EVs).
38. Excise Duty on petrol, diesel hiked by 1% - FM proposed to increase special additional duty
and road and infrastructure cess on diesel and petrol by Re 1.
39. Direct tax revenue is increased by 78% -The direct tax revenue has increased by 78% to Rs
11.37 lakh crore to 201819 from 6.37 lakh crore from 2013-14.
40. Govt slashes corporate tax rates - Currently, only 25% tax rate is applicable to companies
with an annual turnover of Rs 250 crore. This has been extended to companies with turnover of
up to Rs 400 crore. • This will bring in 99.3 percent of all companies into the tax net and leave
out only 0.4 percent companies

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41. GST rate on electric vehicles already proposed to be lowered to 5%. Additional income tax
deduction of ₹1.5 lakh on interest on loans taken to purchase electric vehicles.
42. Propose to extend period of exemption of capital gains arising from sale of residential house
for investment in startups to 31 March 2021.
43. Affordable housing - Propose to allow an additional tax deduction of Rs 1.5 lakh on interest
paid on housing loans for self-occupied house owners. This means those purchasing affordable
house will get tax relief up to Rs 3.5 lakh on interest paid
44. Interchangeability of PAN and Aadhaar card to be allowed for ease and convenience to
taxpayers. ITR can be filed without PAN by quoting Aadhaar.
45. Incentives to National Pension System (NPS) subscribers. it is proposed to increase the limit
of exemption from the current 40% to 60% of payment on final withdrawal from NPS – - allow
a deduction for employer’s contribution up to 14% of salary from the current 10%, in the case of
Central Government employee - allow deduction under section 80C for the contribution made to
Tier II NPS account by Central Government employees.

Infrastructure

46. Rs 100 lakh crore investment for infrastructure over 5 years.

47. National Common Mobility Card was launched by PM Modi in March 2019.
• This will enable people to pay multiple transport charges across India.
• This card runs on RuPay card and allows users to pay bus charges, parking charges, etc.
48. One Nation, One Grid - for power availability to states at affordable rates.
49. 657 km of metro rail network has become operational in the country.
50. FAME II scheme aims to encourage faster adoption of electric vehicles by right incentives
and charging infra.
51. The ambitious programme of Bharatmala will help develop roads and highways, while
Sagarmala will enhance port connectivity. These along with other such initiatives such as Udaan
scheme will improve India's infrastructure and enable connectivity and bridge the rural and urban
divide
52. Power and LPG will be provided to all households by 2022.

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 53. The Finance Minister proposes a modern tenancy law. Loans of upto ₹1 crore to be given to
MSMEs for ease of access.
54. Govt plans to create MRO (Manufacturing, Repair and Operate) industry.
55. PPP (public private partnership) to be used to unleash faster development and the delivery of
passenger freight services.
56. The government is developing 17 iconic tourism sites as world-class tourist centres to
improve the flow of domestic and foreign tourists to these destinations.

Employment

57. Under ASPIRE to develop, 80 Livelihood business incubators and 20 technology business
incubators to be set up in 2019-20
58. 75,000 skilled entrepreneurs in agro-rural industries.
59. Increase focus on skill sets required by the youth to apply for job opportunities abroad like
language skills and artificial intelligence (AI).
60. A television programme Start on DD National, exclusively for startups, designed and
executed by startup's themselves.

Scheme

61. Swach Bharat Mission - 9.6 crore toilets have been constructed since October 2014.
• 5 lakh villages are now open-defecation free.
• To make India open defecation free by October 2, on 150th birth anniversary of Mahatma
Gandhi.
62. Jal Jeevan Mission - JalShakti Mantralaya will work with states to ensure Har Ghar Jal for all
rural houses by 2024, under JalJeevan Mission.
• To all rural households by 2024, water will be supplied

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. 63. Pradhan Mantri Gramin Digital Saksharta Abhiyan - Over 2 crore Indian made digitally
literate under PMGDISHA (Pradhan Mantri Gramin Digital Saksharta Abhiyan).
64. Bharat net to connect every panchayat in the country.
65. Pradhan Mantri Karma Yogi Maan Dhan Scheme - A pension scheme for small retail
traders.
• The pension benefits will be extended to 3 crore retail traders and shopkeeper with annual
turnover of less than Rs 1.5 crore will cover under the scheme.
66. Pradhan Mantri Shram Yogi Maan Dhan Yojana – Nearly 30 lakh workers have joined the
scheme. • The Prime Minister Narendra Modi launched the Pradhan Mantri Shram Yogi Maan-
dhan (PM-SYM) Yojana at Vastral in Gujarat on 5 March 2019. Key points – • It guarantees a
monthly pension amount of Rs. 3,000 from the age of 60 years. • The unorganised sector
workers, with income of less than Rs 15,000 per month and who belong to the entry age group of
18-40 years, will be eligible for the scheme.
67. Ujjwala scheme - 35 crore LED bulbs distributed under the Ujjwala scheme, leading to a cost
saving of Rs 18,341 crore annually.
68. Under Pradhan Mantri Grameen Digital Saksharata Abhiyan, Bharat Net is targeting internet
connectivity in local bodies in every panchayat in the country; this will be speeded under
Universal Service Obligation Fund
69. Pradhan Mantri Matsya Sampada Yojana (PMMSY) - to establish a robust fisheries
management framework. • The department of fisheries will address critical gaps in the value
chain, including production, quality control, post-harvest management.
70. Pradhan Mantri Gram Sadak Yojana – Under phase three of PM Gram Sadak Yojana, 1.25
lakh kms of road to be built in the next five years. Project cost estimated cost of nearly Rs 80,200
crore.
71. Pradhan Mantri Awas Yojana (PMAY) - Under PMAY Garmin, in the 2nd phase 1.95 crore
houses are proposed to be provide to eligible beneficiary with facilities like toilet and LPG
connection. • Urban, over 80 lakh houses have been sanctioned under PMAY. • The completion
of houses that required 314 days in 2015-16, it has now come down to 114 days since 2017.
72. Two mega initiatives Ujjwala and Saubhagya scheme have dramatically improved ease of
living, easy access of clean cooking gas, and electricity supply to the needy.

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 Education

73. National Research foundation (NRF) –National Research Foundation has been proposed to
established to fund and coordinate research in India. This will help fund research ecosystem
among universities across the country, without any external funding.
74. 'Study in India' initiative - India will be soon a hub of higher education. 'Study in India'
initiative will be started for the exchange of foreign student. • The government proposes
allocation of Rs 400 crore for world-class higher education institutions in the country.
75. None of our technological institutions were in top 200 in 2014. But now, there are five in the
list
76. Gian initiative - To upgrade level of teaching, Gian initiative was started. It was a roadmap to
counter challenges.

Railways

77. Railways infrastructure needs ₹50 trillion (50 lakh crore) between 2018 and 2030.
78. A new PPP model will usher the new dawn of Indian railway.
79. Railways to be encouraged to invest more in suburban rail network via SPVs

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 MSME

80. CBDT will set up mechanism to alleviate issues with pending cases regarding angel tax.
81. To resolve the angel tax issue, startups will not be subject to any scrutiny in respect to
valuation. Funds raised by startups will not require any scrutiny by the I-T department.
82. 350 crore rupees allocated for 2% interest subvention for all GST-registered MSMEs on
fresh or incremental loans.
83. Propose to commence television channel for start-ups
84. Stand Up India' Scheme to continue till 2025.

Agriculture & Farmers

85. Revolutionising Gramin Bharat with 'zero budget farming' - Finance Minister Nirmala
Sitharaman said that although zero budget farming is not a new thing, but she would like to shift
focus on going back to the roots and reassess the implementation of zero budget farming. • She
said that ten thousand new farmer producer organisations (FPOs) to come up for ensuring
economies of scale to farmers. About Zero-Budget farming • It is a natural farming which is
neither chemical-loaded nor organic with its reliance on manure. • It’s a form of gardening as a
self-sustainable practice with minimum external intervention. • This concept of zero budget
natural farming (ZBNF) was first propagated 25 years ago by Subhash Palekar as a movement
for farmers who were in debt due to the Green Revolution and is now being used by a large
number of farmers across the country.
86. e-NAM - On agricultural marketing, the Finance Minister said “The Government will work
with State Governments to allow farmers to benefit from e-NAM.
87. Ease of doing business and ease of living should apply to farmers.

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 Rural

88. By 2022, every single rural family except those who are unwilling to take the connection,
will have an electricity and a clean cooking facility.
89. Over 2 crore rural Indians have been made digitally literate.
90. To strengthen Gramin Bharat - Rural India - This year India mark the 150-birth anniversary
of Mahatma Gandhi. Gaav, Garib aur Kisan will remain at the centre of all our initiatives.
91. SFURTI envisions 100 new clusters in 2019-20 to help 50,000 artisans economically.

Women empowerment

92. Nari tu Narayani: Women SHG Interest Subvention Programme to be expanded to all
districts in India.
93. Rs 1 lakh loan to be provided for SHG women members.
94. Every verified woman SHG member having a Jan Dhan account can avail Rs 5,000 rupees
overdraft facility.

Defence

95. Defence sector needs modernization. Import of defence equipment is being exempted from
basic customs duty.
96. New Space India Limited – The Indian Space Research Organisation’s (ISRO) new
commercial arm called NewSpace India Limited (NSIL) was officially inaugurated in Bengaluru.
• The Department of Space (DoS) registered its second commercial entity called NSIL in ISRO.
• The NSIL was incorporated for commercially utilising research and development (R&D)
activities carried out by ISRO in area of space.
• NSIL is provided an authorised share capital worth Rs.100 crore and initial paid up capital of
Rs.10 crore.
• NSIL’s main objective is to scale up industry participation in Indian space programmes.

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Note: • In September 1992, the first commercial venture of DoS was Antrix Corporation Limited,
which was set up in September 1992 to market products and services of ISRO.
Miscellaneous

97. Propose to consider issuing Aadhaar to NRIs with Indian passports after their arrival in India
without the mandatory wait of 180 days.
98. Highest women MP in the 17th Lok Sabha 2019 - The newly elected 17th Lok Sabha has 78
women Members of Parliament (MPs), the highest since independence. • Out of the 716 women
candidates who contested elections, 78 have been elected, which is 14% of the house. This is
higher than 2014 where there were 62 women MPs in the house.
99. National Sports Education Board would be set up under Khelo India Scheme.
100. A Gandhipedia is being developed to sensitize youth and society at large on positive
Gandhian values.
101. Rashtriya Swachhta Kendra to be inaugurated at Raj ghat on Oct 2, 2019.
102. Labour laws to be streamlined into four basic labour codes.
103. Average amount spent on food security approximately doubled in 2014-19, number of
patents tripled in 2017-18. “Mazboot desh ke liye mazboot nagrik.”
104. India to open new diplomatic missions, including 18 in Africa - We have approved 18 new
Indian diplomatic missions in Africa. • Five embassies have already been opened in Rwanda,
Djibouti, Equatorial Guinea, Republic of Guinea and Burkina Faso in 2018-19. • The
government intends to open 4 more embassies in the year 2019-20.4

4
https://gradeup.co/liveData/f/2019/7/highlights_of_union_budget_2019-20_english-28.pdf

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 CONCLUSION

The union budget is perhaps the most watched event in economic policy making in India. The
core fiscal issues like taxation, expenditure and fiscal deficit are quite important for macro-
economics. In addition, the government has chosen the budget speech as a mechanism for
announcing new policy initiatives, and for outlining some plans for economic policy in the
coming months.5

Casual empiricism reveals that stock market is greatly influenced by the budget. The stock
market response to a budget is considered to be an important summary statistic measure of the
quality of the budget in terms of improving macro-economic prospects.

The research was carried out in the form of Event Analysis and 45 days before and after the
budget, were considered to measure the volatility in the stock market.

The results may be summarised as follows:

 The stock market appears to be fairly efficient at information processing about the Union
Budget.
 Union Budgets add 10% to the stock index, on average, and yield elevated volatility
starting from the Budget date for the following 30 trading days or so.6

This finding is only a first examination of a wide range of questions on the interplay between the
Union Budget and the stock market. Other areas which merit further exploration include:

The stock market receives some budgets well and others badly. It would be useful to test
whether, ex-post, it the case that the budgets which were well-received were actually followed by
strong GDP growth.

5
UK Essays. November 2018. The impact of Union Budget on Indian Economy. [online]. Available from:
https://www.ukessays.com/essays/economics/the-impact-of-union-budget-on-indian-economy-economics-
essay.php?vref=1 [Accessed 22 October 2019]
6
"The impact of Union Budget on Indian Economy." UKEssays.com. 11 2018. All Answers Ltd. 10 2019
<https://www.ukessays.com/essays/economics/the-impact-of-union-budget-on-indian-economy-economics-
essay.php?vref=1>.

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When the Finance Minister reads out the budget speech, the efficient stock market should react
within seconds to each sentence that is read out, in terms of a direct impact on stock prices of
firms and industries that are either positively or negatively affected. Given that intra-day stock
price information is now available, it should be possible to test whether such impacts do take
place, and whether there is overreaction or under-reaction in these immediate responses.7

The Indian economy has seen major changes in the role of Government, and hence the Union
Budget, in the economy from 1991 onwards. The stock market has seen major improvements in
liquidity from 1995 onwards. The technologies and institutional mechanisms for transferring and
processing information, which are the foundation of information processing by financial markets,
have been transformed over the years.8

7
All Answers ltd, 'The impact of Union Budget on Indian Economy' (UKEssays.com, October 2019)
<https://www.ukessays.com/essays/economics/the-impact-of-union-budget-on-indian-economy-economics-
essay.php?vref=1> accessed 22 October 2019
8
Essays, UK. (November 2018). The impact of Union Budget on Indian Economy. Retrieved from
https://www.ukessays.com/essays/economics/the-impact-of-union-budget-on-indian-economy-economics-
essay.php?vref=1

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 REFERENCES

 All Answers ltd, 'The impact of Union Budget on Indian Economy' (UKEssays.com,
October 2019) <https://www.ukessays.com/essays/economics/the-impact-of-union-
budget-on-indian-economy-economics-essay.php?vref=1> accessed 22 October 2019
 Essays, UK. (November 2018). The impact of Union Budget on Indian Economy.
Retrieved from https://www.ukessays.com/essays/economics/the-impact-of-union-
budget-on-indian-economy-economics-essay.php?vref=1
 "The impact of Union Budget on Indian Economy." UKEssays.com. 11 2018. All
Answers Ltd. 10 2019 <https://www.ukessays.com/essays/economics/the-impact-of-
union-budget-on-indian-economy-economics-essay.php?vref=1>.
 "The impact of Union Budget on Indian Economy." All Answers Ltd. ukessays.com,
November 2018. Web. 22 October 2019.
<https://www.ukessays.com/essays/economics/the-impact-of-union-budget-on-indian-
economy-economics-essay.php?vref=1>.
 UKEssays. November 2018. The impact of Union Budget on Indian Economy. [online].
Available from: https://www.ukessays.com/essays/economics/the-impact-of-union-
budget-on-indian-economy-economics-essay.php?vref=1 [Accessed 22 October 2019].
 UKEssays. The impact of Union Budget on Indian Economy [Internet]. November 2018.
[Accessed 22 October 2019]; Available from:
https://www.ukessays.com/essays/economics/the-impact-of-union-budget-on-indian-
economy-economics-essay.php?vref=1.
 Government of India Budget: Meaning, Elements, Objectives and Types. April 2019.
Available from: <http://www.economicsdiscussion.net/budget/government-of-india-
budget-meaning-elements-objectives-and-types/755>

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