Introduction to the Indian Budget

Imagine a household managing its expenses, planning for the future, and allocating resources judiciously. Now, expand that vision to an entire nation. This is where the Indian budget steps in, playing a pivotal role in the economic management of our vast and diverse country.

Significance of the Budget in Economic Management:

At its core, the budget is the financial blueprint that outlines the government’s fiscal plans and priorities. It is not merely a compilation of numbers but a comprehensive strategy that shapes the economic trajectory of the nation. Think of it as the master plan that guides how public money is earned, spent, and invested. The Union Budget is a financial statement of government estimated revenue and expenditure for that particular year, according to the Article 112 of the Indian Constitution. The Union Budget is prepared for a period between April 1 to March 31 each year and is classified into (a) revenue budget and (b) capital budget.

Just as a well-thought-out budget empowers a family to achieve its goals, the national budget empowers the government to steer the country towards growth, development, and social welfare. It is a powerful tool in the hands of policymakers, allowing them to allocate resources efficiently, address economic challenges, and respond to the evolving needs of the populace.

The Budget as a Financial Statement:

Now, let’s break down the budget into its fundamental components. At its most basic level, the budget is a detailed financial statement that accounts for the government’s income and expenditure over a specific period, usually a fiscal year.

1. Income comprises revenues generated by the government through taxes, duties, and various other sources. It reflects the financial inflow into the national treasury.

2. On the flip side, expenditure outlines how these funds are allocated across various sectors. It includes essential areas such as healthcare, education, infrastructure, defence, and social welfare programs.

Consider the budget as a reflection of the government’s priorities and commitments. A higher allocation to education signals a focus on nurturing future generations, while increased spending on healthcare underscores the importance of public well-being. In essence, the budget is a mirror that reflects the government’s vision for the nation’s development.

Conclusion of the Introduction:

In summary, the Indian budget is not a dry financial document but a dynamic roadmap that guides our nation’s economic journey. Its significance lies not only in managing finances but in shaping the very fabric of our society. As we explore the intricate details of budgetary allocations and policies, let’s remember that we are unravelling the story of our collective future.

History of the Union Budget

The Budget was first introduced in India on April 7, 1860 when Scottish economist and politician James Wilson from East India Company presented it to the British Crown when India was still under the British colonial rule.

The first Union Budget of Independent India was presented by the first Finance Minister of Independent India, Sir R.K. Shanmugham Chetty, on November 26, 1947. It is noteworthy that the first Union Budget was presented amidst widespread riots due to the partition of India. This budget was meant for seven and a half months, following which the next budget was to be implemented from April 1, 1948. It was the first Union Budget wherein it was decided that both India and Pakistan would share the same currency till September 1948.

Sir Chetty resigned as the Finance Minister of India, and the responsibility ultimately was passed on to John Mathai, who presented the subsequent Union Budgets of 1949-50 and 1950-51. The budget of 1949-50 was the first instance of a budget being prepared for a United India, including all princely states.

Budget: Printing, formalities, ceremonies and utmost secrecy:

There are some interesting facts related to printing and other formalities of Union Budget. The Union Budget documents are treated with utmost secrecy, because any leak in official figures can have catastrophic effects. These documents are treated with so much secrecy that even the finance minister is not authorized to keep the Blue Sheet. The Union Budget is prepared on the basis of data and key numbers in the Blue Sheet. Only the Joint Secretary (Budget) is allowed to keep this important sheet.

Until 1950, all important budget papers were printed inside the Rashtrapati Bhavan premises. However, an imminent data leak left the government with no option but to shift the process to a government-operated press in Minto Road till 1980. Post 1980, the printing of budget papers is done in a basement in the North Block, where the Finance Ministry is located.

The Halwa Ceremony is a famous ritual, which marks the start of the printing of the budget documents. Understandably, officials who are directly in contact with the budget papers and data are locked down in the basement of the North Block. The Halwa ceremony marks the lockdown of the Finance Ministry. In this premise, even the finance minister is not allowed to carry a mobile phone.

Evolution of Budget Pre-Independence Era:

During British rule, India experienced exploitative fiscal policies. The budgetary practices were largely colonial-centric, focused on extracting resources for the British Empire. Taxes were heavy on Indian subjects, leading to economic hardships. The impact of World War II exacerbated financial strain, with India contributing significantly to the war effort, resulting in economic challenges and a weakened economy.

Historical Context since Independence in 1947:

[Set the Historical Stage]

As the dawn of independence broke in 1947, the newly formed nation of India faced multifaceted challenges. The scars of partition, the need for reconstruction, and the imperative of nation-building demanded a robust fiscal framework. The Indian budget, in its nascent form, became the harbinger of economic policies that would shape the destiny of a burgeoning republic.

[Initial Budgetary Landscape]

In the initial post-independence years, the budget primarily focused on immediate necessities such as rehabilitation and reconstruction. The government sought to stabilize the economy and address the urgent needs of a nation in transition. Fiscal policies were directed towards laying the foundations for key sectors like agriculture, industry, and education.

Post-Independence Era:

In the early post-independence years, India faced economic reconstruction challenges. Budgets focused on agrarian and industrial development, emphasizing self-reliance. Economic challenges included partition fallout, resource constraints, and a predominantly agrarian economy. The government adopted socialist policies, aiming for equitable growth and poverty alleviation.

[The Economic Planning Era]

The early 1950s witnessed the inception of economic planning in the form of Five-Year Plans. The budget, in alignment with these plans, began to play a more strategic role in steering the trajectory of economic growth. It became a dynamic instrument to channel resources into priority areas outlined in the plans, marking a paradigm shift in budgetary practices.

[Introduction of Indirect Taxes]

One significant milestone was the introduction of indirect taxes. In the 1950s and 1960s, taxes like excise duty and customs duty became instrumental in generating revenue for the government. These taxes were designed to support industrialization and economic development.

[Economic Liberalization in the 1990s]

The 1991 economic reforms marked a watershed moment. A seismic shift occurred in 1991 with economic liberalization. Liberalization measures included dismantling licensing, fostering foreign investment, and encouraging private sector participation. The Indian economy opened its doors to globalization, and the budget evolved to accommodate market-oriented reforms. This era saw a departure from the traditional command and control approach, with an increased emphasis on private sector participation and foreign investments. This departure from a socialist framework aimed to enhance competitiveness, efficiency, and global integration, transforming India’s economic landscape.

[Introduction of Value-Added Tax (VAT)]

In the early 2000s, the introduction of Value-Added Tax (VAT) marked another pivotal moment. This tax reform aimed to streamline the taxation system, enhance transparency, and promote a more uniform and efficient method of tax collection across states.

[Goods and Services Tax (GST) in 2017]

Arguably one of the most significant changes occurred in 2017 with the introduction of the Goods and Services Tax (GST). This comprehensive tax reform replaced a complex web of indirect taxes, creating a unified and harmonized national market. The GST represented a bold move towards simplification, transparency, and ease of doing business. GST streamlined tax processes, reduced tax cascading, and promoted ease of doing business. Its impact was felt across sectors, fostering transparency, and improving tax compliance.

[Shift in Expenditure Priorities]

Throughout this evolution, there has been a continual shift in expenditure priorities. While the early budgets focused on basic needs and infrastructure, contemporary budgets reflect a nuanced approach, incorporating social welfare, healthcare, and sustainable development.

[Conclusion of Evolutionary Journey]

In tracing the evolution of the Indian budget, we witness not just changes in numbers but a reflection of India’s journey - from post-independence struggles to a global economic player. Each milestone in budgetary practices represents a chapter in our economic history, a testament to our adaptability and resilience.

Let’s know some historic though interesting facts about Indian Budgets.

• LONGEST BUDGET SPEECH: Current FM, Mrs. Sitharaman holds the record for delivering the longest speech when she spoke for 2 hours and 42 minutes while presenting the Union Budget 2020-21 on February 1, 2020. With two pages still remaining, she had to cut short her speech as she felt unwell. She asked the Speaker to consider the remaining part of the speech as read. During the course of this speech, she broke her own record of July 2019 - her maiden Budget - when she had spoken for 2 hours and 17 minutes.

• MOST WORDS IN BUDGET SPEECH: At 18,650 words, Manmohan Singh delivered the longest Budget speech in terms of words in 1991 under the Narasimha Rao government. In 2018, then finance minister Arun Jaitley’s speech with 18,604 words was the second longest in terms of word count. Jaitley spoke for 1 hour and 49 minutes.

• SHORTEST BUDGET SPEECH: 800 words was all that the then finance minister Hirubhai Mulljibhai Patel delivered in 1977.

• MOST NUMBER OF BUDGETS: Former Prime Minister Moraraji Desai holds the record of presenting the most number of budgets in the history of the country. He had presented 10 budgets during his stint as finance minister during 1962-69, followed by P Chidambaram (9), Pranab Mukherjee (8), Yashwant Sinha (8) and Manmohan Singh (6).

• TIME: Until 1999, the Union Budget was presented at 5 pm on the last working day of February as per British era practice. Former Finance Minister Yashwant Sinha in 1999 changed the budget presentation timing to 11 am. Arun Jaitley started presenting the Union Budget on February 1 in 2017, departing from the colonial-era tradition of using the last working day of that month.

• LANGUAGE: Until 1955, the Union Budget was presented in English. However, the Congress-led government later decided to print the Budget papers in both Hindi and English.

• PAPERLESS: Covid-19 pandemic turned the Budget for 2021-22 was paperless - a first in Independent India.

• FIRST WOMAN: In 2019, Sitharaman became the second woman to have presented the budget after Indira Gandhi, who had presented the budget for the financial year 1970-71. That year, Sitharaman did away with the traditional budget briefcase and instead went for a traditional ‘bahi-khata’ with the National Emblem to carry the speech and other documents.

• RAILWAY BUDGET: Till 2017, railway budget and Union Budget were presented separately. After being presented separately for 92 years, the Railway budget was merged in the Union Budget in 2017 and presented together.

ICONIC BUDGETS: -

The Black Budget: The 1973-74 Budget presented by Yashwantrao B Chavan in the Indira Gandhi government was called the Black Budget as the fiscal deficit during that year was Rs 550 crore. It was a time when India was going through acute financial distress.

Carrot & Stick Budget: The Union budget presented by VP Singh for the Congress government on February 28, 1986, was the first step towards dismantling licence raj in India. It was called the ‘Carrot and Stick’ budget as it offered both rewards and punishment. It introduced MODVAT (Modified Value Added Tax) credit for lowering the cascading effect of tax that consumers had to pay while also launching an intense drive against smugglers, black marketers, and tax evaders.

Epochal budget: Manmohan Singh’s landmark 1991 budget under the PV Narasimha Rao government that ended licence raj and began the era of economic liberalisation, is known as ‘Epochal Budget’. Presented at a time when India was on the brink of an economic collapse, it among other things slashed customs duty from 220 per cent to 150 per cent and took steps to promote exports.

Dream Budget: P Chidambaram in the 1997-98 budget used the Laffer Curve principle to lower tax rates to increase collections. He slashed maximum marginal income tax rate for individuals from 40 per cent to 30 per cent and that for domestic companies to 35 per cent besides unleashing a number of major tax reforms including a voluntary disclosure of income scheme to recover black money. Referred to as the ‘Dream Budget’, it also slashed customs duty to 40 per cent and simplified excise duty structure.

Millennium Budget: Yashwant Sinha’s Millennium Budget in 2000 laid the road map for the growth of India’s Information Technology (IT) industry as it phased out incentives on software exporters and lowered customs duty on 21 items such as the computer and computer accessories.

Rollback Budget: Yashwant Sinha’s 2002-03 budget for the NDA government headed by Atal Bihari Vajpayee is popularly remembered as the Rollback Budget as several proposals in it were withdrawn or rolled back.

Once-in-a-Century Budget: Nirmala Sitharaman on February 1, 2021 presented what she called was ‘once-in-a-century budget’ as it looked to revive Asia’s third-largest economy via investing in infrastructure and healthcare while relying on an aggressive privatisation strategy and robust tax collections.

Summary of Key Historical Developments and Trends:

In tracing the historical journey of the Indian budget, several pivotal developments and trends emerge. The pre-independence era witnessed colonial fiscal practices, imposing economic burdens on India. Post-independence budgets navigated challenges of reconstruction, prioritizing agrarian and industrial development. The economic reforms of 1991 ushered in a market-oriented economy, signalling a departure from socialist policies. Significant tax reform came with the introduction of GST in 2017, streamlining the tax system and promoting transparency. Budgetary policies evolved to focus on inclusive growth, infrastructure development, and efficient fiscal management.

Reiterating the Importance of Understanding the History of the Indian Budget:

Understanding the history of the Indian budget is akin to reading the economic narrative of a nation. Each historical juncture reflects the strategic decisions made by policymakers, shaping the economic trajectory of India. It provides insights into the evolution of fiscal policies, the rationale behind economic shifts, and the responses to global and domestic challenges. This historical context is crucial for comprehending the roots of current economic structures, allowing for informed analyses and strategic planning. The Indian budget, as a historical document, is not just a financial statement; it’s a chronicle of the nation’s resilience, adaptability, and aspirations. To navigate the present and envision the future, it is imperative to grasp the nuances of how the Indian budget has evolved over time, influencing the economic landscape in profound ways.

So, let’s remain vigilant, inquisitive, and engaged. Continue exploring the economic landscape, questioning, and learning. Our understanding today paves the way for a more economically literate and resilient India tomorrow.