UPSC Issue at a Glance | Decoding Union Budget: 5 Key Questions You Must Know for Prelims and Mains

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What is the issue?

The monsoon session of the Parliament is currently going on. On 23rd July, Union Finance Minister Nirmala Sitharaman presented the Union Budget 2024-25. Earlier, in February, the government presented the interim budget as it was the election year. In the full budget presented on 23rd July, the finance minister provided an overview of the Indian economy and highlighted the main focus points of the first budget under the Modi 3.0 government. As Budget is a very essential part of the UPSC syllabus, therefore it is important to know about the Union Budget from a broader perspective.

UPSC Syllabus: 

Preliminary Examination: Current events of national importance and economic development

Mains Examination: GS-II, GS-III: Indian Economy and issues relating to planning, mobilisation of resources, growth, development and employment, Government budgeting; Government policies and interventions for development in various sectors and issues arising out of their design and implementation.

Other areas of relevance: UPSC Aspirants will find it useful in Essays, and Current affairs for their Personality tests.

Question 1: What is the Union Budget?

The Union Budget (called the Annual Financial Statement under Article 112 of the Constitution of India) provides an account of the government’s financial health. It shows details about a government’s finances by providing the estimated receipts and expenditures of the Government of India for the current financial year, along with revised estimates for the last financial year and actuals for the last to last financial year. 

Points to Ponder: 

— How is the interim budget different from the vote-on-account?

— Are there any constitutional provisions for the Interim Budget?

Question 2: What are the components of the Union Budget?

It is mandated in the Constitution of India that the budget should distinguish between revenue and non-revenue expenditures. Thus, the union budget combines the revenue and capital budgets. 

The estimates of receipts and expenditures included in the budget are net of refunds and recoveries, respectively. In the budget, the receipts and expenditures are presented under three parts in which government accounts are kept, viz., Consolidated Fund of India, Contingency Fund of India, and Public Account of India. 

Components of Union Budget

The union budget is majorly categorised into two categories, i.e., the revenue budget and the capital budget.

Revenue Budget: The Revenue Budget comprises the revenue receipts of the Government (Tax revenues and Non-Tax revenues) and the revenue expenditure.

Fiscal Deficit

The Union budget also provides an estimate of the fiscal deficit. The Union Budget’s “Budget at a Glance” document explains what fiscal deficit is. It states: “Fiscal Deficit is the difference between the Revenue Receipts plus Non-debt Capital Receipts (NDCR) and the total expenditure”. In other words, fiscal deficit is “reflective of the total borrowing requirements of Government”.

Points to Ponder: 

— Who prepares the Union Budget?

— What is the difference between the revenue deficit, the gross primary deficit, and the gross fiscal deficit of the Union Government?

— What is the significance of fiscal deficit?

— What is the acceptable level of fiscal deficit?

Question 3: What are the constitutional provisions and important documents related to the Union Budget? 

The Union Budget is not only a statement of the government’s financial health; it also presents the government’s broad policy objectives and provides a framework for financial reforms. The Union Budget reflects and shapes, and is, in turn, shaped by the country’s economic life. 

Constitutional Provisions Related to the Budget

The constitution of India lays out certain provisions concerning the Union Budget. Some important provisions are: 

Conduct of business of the Government of India: Article 77 (3) provides that “The President shall make rules for the more convenient transaction of the business of the Government of India, and for the allocation among Ministers of the said business.”

Annual Financial Statement: Article 112 of the Indian Constitution provide provisions with regard to the ‘Annual financial statement’. Art 112 (1) says, “The President shall in respect of every financial year cause to be laid before both the Houses of Parliament a statement of the estimated receipts and expenditure of the Government of India for that year, in this Part referred to as the “annual financial statement”.”

Demands for Grants: Article 113 of the Constitution mandates that the “estimates of expenditure from the Consolidated Fund of India included in the Annual Financial Statement and required to be voted by the Lok Sabha, be submitted in the form of Demands for Grants.” No demand for a grant shall be made except on the recommendation of the President.

Appropriation Bills: Article 114 of the constitution deals with the ‘Appropriation Bills’. It says, “As soon as may be after the grants under Article 113 have been made by the House of the People, there shall be introduced a bill to provide for the appropriation out of the Consolidated Fund of India of all moneys required to meet..”. Under Article 114(3) of the Constitution, no amount can be withdrawn from the Consolidated Fund without the enactment of such a law by Parliament.

Finance Bill: At the time of presentation of the Annual Financial Statement before the Parliament, a Finance Bill is also presented in fulfillment of the requirement of Article 110 (1)(a) of the Constitution, detailing the imposition, abolition, remission, alteration or regulation of taxes proposed in the Budget. A Finance Bill is a Money Bill as defined in Article 110 of the Constitution.

Points to Ponder: 

— What is the difference between a money bill and a finance bill?

— How does a Union Budget influence the economy?

Question 4: What are the recent reforms or changes in the Union Budget process?

In the last few years, various budgetary reforms have been undertaken by the Union government in the Union Budget Process. 

1. Merger of the Railway Budget with the General Budget: In 2017, the century-old practice of presenting a separate railway budget ahead of the general budget was scrapped and the railway budget was merged with the general budget.

Points to Ponder: 

— The Budget was traditionally presented on the last day of February. Why was it advanced to February 1?

Question 5: What are the key highlights of the Union Budget 2024-25?

Union Finance Minister Nirmala Sitharaman presented the Union Budget 2024-25 on 23rd July. She highlighted the four main focus points of the first budget under the Modi 3.0 government. It includes: ‘Garib’ (Poor), ‘Yuva’ (Youth), ‘Annadata’ (Farmer) and ‘Nari’ (Women).

KEY HIGHLIGHTS OF THE UNION BUDGET 2024-25

PART-A of Union Budget 2024-25

Budget Priorities

Union Budget 2024 envisages sustained efforts on nine priorities:

1. Productivity and resilience in Agriculture

2. Employment & Skilling

3. Inclusive Human Resource Development and Social Justice

4. Manufacturing & Services

5. Urban Development

6. Energy Security

7. Infrastructure

8. Innovation, Research & Development

9. Next Generation Reforms

Government’s revenue sources and expenditure plans

Agriculture

• Agriculture and allied sectors were allocated 1.52 Lakh Crore in the Union Budget 2023-24.
• The new 109 high-yielding and climate-resilient varieties of 32 field and horticulture crops will be provided to the farmers.
• In the next two years, 1 crore farmers across the country will be initiated into natural farming.
• The government will establish 10,000 need-based Bioinput research center.
• The government in partnership with states will facilitate implementation of Digital Public Infrastructure (DPI) in three years.
• The government will enable Jan Samarth-based Kisan Credit cards in five states.

Manufacturing and services

• Credit Guarantee Scheme for MSMEs in the Manufacturing Sector and a separately constituted self-financing guarantee fund.
• SIDBI will open new branches to expand its reach to serve all major MSME clusters within 3 years, and provide direct credit to them.
• E-Commerce Export Hubs will be set up in public-private-partnership (PPP) mode to enable MSMEs and traditional artisans to sell their products in international markets.
• Government to facilitate development of investment-ready “plug and play” industrial parks with complete infrastructure in or near 100 cities, in partnership with the states and private sector. 
• Rental housing with dormitory-type accommodation for industrial workers .
• Digital Public Infrastructure Applications are proposed in the areas of credit, e-commerce, education, health, law and justice, logistics, MSME, services delivery, and urban governance.
• Critical Mineral Mission for domestic production, recycling of critical minerals, and overseas acquisition of critical mineral assets to be set up.
• An Integrated Technology Platform for IBC eco-system will be set up.

Infrastructure

• The government has allocated 11,11,111 crore for capital expenditure which would be 3.4 per cent of our GDP.
• 1.5 lakh crore provision for long-term interest-free loans to support Infrastructure investment by state governments.
• Phase IV of Pradhan Mantri Gram Sadak Yojana (PMGSY) will be launched to provide all-weather connectivity to 25,000 rural habitations.
• The government through the Accelerated Irrigation Benefit Programme and other sources, will provide financial support for projects. 
• Vishnupad Temple at Gaya and Mahabodhi Temple at Bodh Gaya in Bihar will be developed on the lines of Kashi Vishwanath Temple Corridor.

• Industrial node at Gaya on Amritsar Kolkata Industrial Corridor to be developed
• Special financial support of ₹15,000 Cr provided for Andhra Pradesh Reorganization Act, in current FY.
• Purvodaya: A plan for the all-round development of the eastern region of the country covering Bihar, Jharkhand, West Bengal, Odisha and Andhra Pradesh. 
• Development of road connectivity projects, namely (1) Patna-Purnea Expressway, (2) Buxar–Bhagalpur Expressway, (3) Bodhgaya, Rajgir, Vaishali and Darbhanga spurs, and (4) additional 2-lane bridge over river Ganga at Buxar at a total cost of ` 26,000 crore.
• More than 100 branches of India Post Payment Bank in NER
• Andhra Pradesh Reorganization Act: Special financial support through multilateral development agencies. In the current financial year Rupees 15,000 crore will be arranged, with additional amounts in future years.

Energy Security

• The government will partner with the private sector for setting up Bharat Small Reactors, research & development of Bharat Small Modular Reactor, and research & development of newer technologies for nuclear energy.
• The PM Surya Ghar Muft Bijli Yojana has begun to install rooftop solar plants, allowing 1 crore homes to get free power for up to 300 units per month.
• A strategy will be developed to promote pumped storage projects for electricity storage and to facilitate the smooth integration of renewable energy’s increasing share, notwithstanding its variable and intermittent character, into the overall energy mix.

• A joint venture between NTPC and BHEL has completed the development of indigenous technology for Advanced Ultra Super Critical (AUSC) thermal power plants.

Urban Development

• The PM Awas Yojana Urban 2.0 aims to fulfil the housing requirements of 1 crore urban poor and middle-class families through an investment of ₹10 lakh crore.
• A mechanism for interest subsidies to promote loans at affordable rates is also planned. 
• In collaboration with state governments and multilateral development banks, government will promote water supply, sewage treatment, and solid waste management projects and services for 100 major cities through bankable initiatives.
• The success of PM SVANidhi Scheme altered the lives of street vendors. The government plans to assist in the establishment of 100 weekly haats or street food hubs for the next five years.
• The states will be encouraged to continue to charge high stamp duty to moderate rates for all, as well as consider further lowering charges for properties purchased by women. It will form an essential component of urban development plans.

Social Sector

• Three Employment-linked Schemes will be launched. Based on enrolment in the Employees’ Provident Fund Organization (EPFO), these schemes aim to boost employment. 
• The government will provide education loans of Rs10 lakh for students for higher education in domestic institutions.
• E-vouchers for this purpose will be given directly to one lakh students every year for annual interest subvention of 3 per cent of the loan amount.
• One thousand industrial training institutes will be upgraded, and the model skill loan scheme will be revised to facilitate loans of up to Rs. 7.5 lakh. 
• Internship in 500 top Companies for 1 crore youth in 5 years.

• For promoting women-led development, more than Rs 3 lakh crore allocated for schemes benefitting women and girls.
• Pradhan Mantri Janjatiya Unnat Gram Abhiyan: To be launched for improving the socio-economic condition of tribal communities ( in tribal-majority villages and aspirational districts.)

Innovation and R&D

• The government has decided to operationalise the Anusandhan National Research Fund for basic research and prototype development. 
• To expand the space economy by 5 times in the next 10 years, the government has decided to set up a venture capital fund of 1000 crore.

Next Generation Reforms

• Assignment of Unique Land Parcel Identification Number (ULPIN) or Bhu-Aadhaar for all lands.
• Digitization of cadastral maps. 
• Survey of map sub-divisions as per current ownership and stablishment of land registry
• Land records in urban areas will be digitized with GIS mapping. 
• A comprehensive integration of e-shram portal with other portals will facilitate such one-stop solution. 
• Shram Suvidha and Samadhan portals will be revamped to enhance  ease of compliance for  industry and trade.  
• A taxonomy will be developed for climate finance to enhance the availability of capital for climate adaptation and mitigation.
• NPS Vatsalya: A plan for contributions by parents and guardians for minors will be started. On attaining the age of majority, the plan can be converted seamlessly into a normal NPS account.
• Jan Vishwas Bill 2.0.: The government is working on the Jan Vishwas Bill 2.0. to enhance the ease of doing business. States will also be incentivized for implementation of their Business Reforms Action Plans and digitalization.
• New Pension Scheme (NPS): The Committee to review the NPS has made considerable progress in its work. A solution will be evolved which addresses the relevant issues while maintaining fiscal prudence to protect the common citizens.

PART-B of Union Budget 2024-25

1. Simplifying New Tax Regime: In the new tax regime, the tax rate structure is proposed  to be revised.

2. Comprehensive review of Income Tax Act, 1961: Finance Minister Nirmala Sitharaman announced comprehensive review of Income Tax Act, 1961. The purpose is to make the Act concise, lucid, easy to read and understand. This will reduce disputes and litigation, thereby providing tax certainty to the tax payers. It is proposed to be completed in six months.

— A beginning is being made in the Finance Bill by simplifying the tax regime for charities, TDS rate structure, provisions for reassessment and search provisions and capital gains taxation.

3. Angel Tax Abolished: Union Minister Nirmala Sitharaman announces the abolishment of angel tax on investors in India, in a bid to boost startups.

— While the angel tax was first introduced in 2012 to deter the generation and use of unaccounted money through the subscription of shares of a closely held company at a value that is higher than the fair market value of the firm’s shares, its scope was widened even to non-resident investors from April 1, 2024 during last year’s Union Budget that saw strong opposition by startups.

4. Litigation and Appeals: To dispose of the backlog of first appeals, the Government plan to deploy more officers to hear and decide such appeals, especially those with large tax effect.

— For resolution of certain income tax disputes pending in appeal, the government proposed Vivad Se Vishwas Scheme, 2024. 

— To reduce litigation and provide certainty in international taxation, the Government will expand the scope of safe harbour rules and make them more attractive.

5. Deepening the tax base: For deepening the tax base Security Transactions Tax on futures and options of securities is proposed to be increased to 0.02 per cent and 0.1 per cent respectively.

6. Other Major Proposals

— Withdrawal of equalization levy of 2 per cent;

— Expansion of tax benefits to certain funds and entities in IFSCs

— Immunity from penalty and prosecution to benamidar on full and true disclosure so as to improve conviction under the Benami Transactions (Prohibition) Act, 1988.

— Changes in custom duty.

— Simplification and Rationalisation of Capital Gains Tax

Points to Ponder: 

— What are the initiatives taken by the government to boost the demand in economy?

— What steps have been taken to promote private investment in infrastructure?

— How Union budget 2024-25 reflect the relevance of India’s neighborhood policy?

Post Read Questions

Prelims

(1) What is the difference between “vote-on-account” and “Interim Budget”? (UPSC CSE 2011)

1. The provision of a “vote-on-account” is used by a regular Government while an “interim budget” is a provision used by a caretaker Government.

2. A “vote-on-account” only deals with the expenditure in Government’s budget, while an “interim budget” includes both expenditures and receipts.

Which of the statements given above is/are correct?

(a) 1 only 

(b) 2 only 

(c) Both 1 and 2 

(d) Neither 1 nor 2

(2) Consider the following statements:

1. Revenue expenditure does not result in the creation of assets for the Government of India.

2. Capital expenditure reduces the government’s liability or increases the government’s assets.

Which of the statements given above is/are correct?

(a) 1 only

(b) 2 only

(c) Both 1 and 2 

(d) Neither 1 nor 2

(3) Along with the Budget, the Finance Minister also places other documents before the Parliament which include ‘The Macro Economic Framework Statement’. The aforesaid document is presented because this is mandated by (UPSC CSE 2020)

(a) Long-standing parliamentary convention 

(b) Article 112 and Article 110(1) of the Constitution of India 

(c) Article 113 of the Constitution of India 

(d) Provisions of the Fiscal Responsibility and Budget Management Act, 2003 

(4) With reference to the Union Government, consider the following statements: (UPSC CSE 2015)

1. The Department of Revenue is responsible for the preparation of the Union Budget that is presented to the Parliament.

2. No amount can be withdrawn from the Consolidated Fund of India without the authorization from the Parliament of India.

3. All the disbursements made from Public Account also need the authorization from the Parliament of India.

Which of the statements given above is/are correct?

(a) 1 and 2 only

(b) 2 and 3 only 

(c) 2 only

(d) 1, 2 and 3

(5)  There has been a persistent deficit budget year after year. Which action/actions of the following can be taken by the Government to reduce the deficit? (UPSC CSE 2016)

1. Reducing revenue expenditure

2. Introducing new welfare schemes

3. Rationalizing subsidies

4. Reducing import duty

Select the correct answer using the code given below:

(a) 1 only

(b) 2 and 3 only 

(c) 1 and 3 only

(d) 1, 2, 3 and 4

Mains

(1) Distinguish between Capital Budget and Revenue Budget. Explain the components of both these Budgets. (UPSC CSE 2021) 

(2) What were the reasons for the introduction of Fiscal Responsibility and Budget Management (FRBM) Act, 2003? Discuss critically its salient features and their effectiveness. (UPSC CSE 2013) 

(Sources: Interim Budget 2024: Key highlights for UPSC Prelims exam, indiabudget.gov.in/doc/Key_to_Budget_Document_2024.pdf, http://www.indiabudget.gov.in, Constitution of India)

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