What Is Union Budget And Why Is It Important?

Browse through news channels and online news portals a couple of months before the beginning of a new financial year, and you are sure to come across news related to the union budget. But while most people have heard the term 'union budget' several times, they don't know much about it.So, what is the union budget? Why are news channels, businesses, and common taxpayers so concerned about it? Let us have a look-

In simple words, the union budget of India is our country's annual financial statement. As per Article 112 of the Indian Constitution, budget presentation is mandatory before a new fiscal year begins.Once presented, the budget will remain valid for the following fiscal year that starts on April 1 and ends on March 31 of the next year.

The union budget is divided into two parts-

1. Capital Budget- As the name suggests, the capital budget provides details with regards to the capital payments and capital receipts of the government. The capital payments can be the money spent on infrastructure, healthcare facilities, etc. The capital receipts account for the loans taken from the RBI or the general public.
2. Revenue Budget- The revenue budget comprises of the revenue expenditure and revenue receipts. The government is known to be suffering from a ‘revenue deficit’ in case if the revenue receipts are lower than the revenue expenditure.

Also Read: What is Tax?

India has a parliamentary democracy where the government cannot arbitrarily spend, borrow, or tax money. So, for the government to function effectively and help improve the economic and social framework of the country, budgeting and planning is a necessity.Some of the most important reasons that explain the importance of union budget are as follows-

• Resource Allocation As the resources are limited, it is with the help of a union budget that the government tries to employ them effectively so that the profits can be maximized.
• Control Prices One of the most important duties of the union budget is to handle and foresee inflation and deflation. Surplus policies and deficit policies are focused upon during inflation and deflation, respectively, to keep the economy stable.
• Reducing Economic Inequality No society is free from economic inequalities. It is with the help of budgetary policies that the government tries to bridge the gap between the rich and the poor.

Now that you know what union budget is, it shouldn’t be difficult for you to understand how it impacts the overall Indian economy.A union budget that considers all the different sectors of the Indian society is a must for the economic growth of the country, especially with India aiming to become a $5 trillion economy.

The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.