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Budget Basics 101: Understanding The Budget

By Sahil Mehta

In this series of articles, I hope to take you over everything you ever need to know about the union budget. As an economics student, I feel a sense of excitement every time the budget is about to be presented. My aim with these articles is to pass on that excitement to you, and encourage you to understand why the budget is important to you. 

The first few articles will hopefully give you some of the basics of what a budget it is and familiarize you with some of the terminology associated with them. Then I shall try and decode the budget itself and what its impact will be. So you can pick and choose what you wish to read

 What is a budget?

There is no better place to start than here. Budget in technical terms is a financial statement and plan of the proposed revenues and expenditures for the coming fiscal year. A fiscal year in India runs from April – March.

It is not too different from what you, I or anyone else does every single month. We plan how to spend our money constraint on our income. The government of the country does much the same, only it does it for the entire year in one go.

In India, the Union Budget is presented by the Finance Minister on a day as directed by the President. By convention, that day is almost always the last working day of February. However, considering the state assembly elections, this time the budget shall be presented on 16th of March 2012 by our Mr. Pranab Mukherjee.

What’s really in the budget?

The budget, while put simply, is a plan for how and where the govt. plans to spend money, there is nothing simple about the budget. Every budget consist of actual figures for preceding years, budgeted figures for the current year, budget estimates for the following years. It lists out in painful detail the sources of income for the government for eg. the various taxes, disinvestment proposals, income from trade, borrowings etc.

On the expenditure side, the budget is where the government lists out all the “welfare” schemes that it will implement. There is also detailed sector wise allotment of funds towards the defence sector, for agriculture and industry etc.

But wait there is more to it. Apart from all the numbers and statistics that are crunched out, the budget showcases the long term vision and plan the government has for the development of the country. It spells out the key areas which need special attention. The Union Budget 2011-12 focused on infrastructure.

The budget is also the government’s chance to re-impose some faith in the hearts of the populous.  The stock markets and industrialists certainly watch the budget in great anticipation. Common men like us also occasionally read about it :)

"So what’s in it for me?"
Not everything in the budget will interest you. But the proposals relating to tax structure, raising or lowering of certain indirect taxes, subsidies are some of them things that will directly impact your lifestyle, or at least that of those who support you financially. It never hurts to know a little more though and you should make it a point to go through the newspaper articles analysing the budget if not the specific proposals themselves.

The Economic Survey
There are two final things you should know about the budget. The budget gives only estimates. There are no guarantees that the estimates will be met. Much changes over the course of the year especially the world economic environment.

The budget does not list out the performance of the previous year. The details of the outgoing fiscal year are published in a document called the Economic Survey. This book, published a day before the Union Budget, contains detailed reports on how the economy fared and how many of the previously set budget estimates were met.

Alright, that’s a wrap for this one. In the next one, we shall familiarize you with some key terms which are useful not only for budgets but in general as well.


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