Authored By:

Shristi Kumari, Researcher & Renuka Sahu, Researcher

The 1st of February is not an ordinary day in any Indian Household. When Nirmala Sitaraman, our Finance Minister walks into the Parliament holding a Red Bahi Khata along with an iPad, it is all over the news. Families sit with their eyes glued to their TV Screens, while the news channels are flooded with news related to budget, live streams of the finance minister reading the budgetary provisions, the allocations and the subsequent debates there on. Even though it impacts every Indian household, little do we understand what the budget is all about.

Let us decode the budget and simplify it for every Indian’s understanding because it is your money that is being budgeted.

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 group of people, a business, a government, or just about anything else that makes and spends money.

Now I am definitely sure many of you wouldn’t even blink an eye at such a technical definition. To be very honest even I don’t give a flying kiss about such definitions. So let’s get to know what the budget is with the help of a story.

Once upon a time there was a guy named Tom who worked as a tailor in the countryside barely managing to survive with the little income he used to earn by stitching shirts. His wife Lily always complained that they are always struggling with money and have nothing saved for emergencies.

Tom decided to end this problem by listing all the possible money gains or payments he would get by stitching shirts that is what we call revenues and all the items he would spend money on which are his expenses.

He listed out all the sources he would receive income and all the expenses he has to make for buying groceries, clothes, security, etc. By making the list he made a budget that would better satisfy his revenues and expenses and would also save some money for unknown future contingencies.

He followed it from the very next month and managed all his expenses and revenues properly.

We need a budget to manage our monthly expenses, prepare for life's unpredictable events, and be able to afford big-ticket items without going into debt. Budgeting is important to keep a track of how much you earn and how to spend it wisely.

Now let us understand the same procedure with respect to the entire India. What really happens within the four walls of the Parliament?

  1. Presentment of Budget :

  • The Budget is presented on such a day as decided by the President of India.Since 2017,the budget has been presented on 1st of February every year.

  • Article 77 (3) of the Constitution confers the responsibility of preparing and presenting the Budget on the Finance Minister of India.

  1. Discussion :

  • Once the budget has been presented, it is discussed and debated in the houses of Parliament

  • It is followed by a detailed scrutiny by Parliamentary committee

  1. Voting on Demands for Grants :

  • Demand for grant - It is the estimated expenditure that the Government wishes to make from the Consolidated Fund of India

  • They have to be presented before the Lok Sabha for it’s approval.

  • The members of Lok Sabha can propose a reduction in the expenditure but they cannot increase it.

  1. Passing of Appropriation Bill and Finance Bill:

Appropriation Bill: It reflects the expenditure side of the Budget .It grants the power to the Government to take money out of the Consolidated fund of India

Finance Bill: It reflects the Income side of the Budget. It is a bill to give effect to the financial proposals of the Finance Minister normally by amending provisions of taxation laws.

Why do we need a budget?

Legal Requirement -

Article 112 of the Constitution of India mandates that the annual financial statements shall be presented before the Parliament. The "Annual Financial Statement" as mentioned above is known as Budget in common parlance.

Apart from the Constitution, there are certain reasons which necessitate the preparation of the Budget for India. For instance, since the resources are limited, the government uses the union budget for optimizing resource allocation. The Union Budget of India uses subsidies and taxes to influence income distribution. It helps guarantee that the wealthy pay a higher tax rate, lowering their disposable income

Effect of budget on stock market- The stock market is the pulse of the nation and is very volatile and sensitive to Government decisions and public policy. Same is the effect of the presentation of budget. A business friendly budget ushers optimism and trust in the market which is often witnessed by a rise in Sensex/Nifty. The chart below shows the change in basis points of Sensex post-budget every year.

Having read the blog, you must have obtained a fair insight about the budget. Every Indian is eagerly waiting for the budget. It never fails to surprise us. We hope that Budget 2022 brings in more relief to the nation. What is your budget checklist? Do let us know.