Union Budget Meaning, Characteristics, Objectives, Impact

Table of Contents:-

Meaning of Union Budget
Characteristics of Union Budget
Objectives of Union Budget
Union Budget as Instrument of Growth
Impact of Union Budget (2018-19) on Business

Meaning of Union Budget

Union budget is an all-inclusive presentation which reflects complete details about the financial aspects of government, especially regarding their expenditure. In India, the union budget is considered the most important fiscal and monetary affair. It is presented every year by the Finance Minister to reveal the government’s spending and earning plan. Before presenting the Union Budget, a comprehensive economic survey is carried out by the government, which helps in outlining the right direction of the budget and evaluating the country’s economic performance.

According to Article 112 of the Indian Constitution, “The Union Budget of a year, also referred to as the annual financial statement, is a statement of the estimated receipts and expenditure of the government for that particular year”.

The Planning Commission generally prepares the Union budget through discussion and consultation. Ministry of Finance, and Spending ministries. It is a hierarchical arrangement where the Finance Ministry and Planning Commission direct/instruct spending ministries about the allotment of funds. The financial year, for which a union budget is presented, starts on 1st April and ends on 31st March.

Characteristics of Union Budget

The following are the fundamental characteristics of the union budget:

1) Inclination towards Incrementalism

Inclination towards incrementalism is another characteristic of the union budget. The preparation of the new budget generally involves increasing the total budget amount compared to the last budget and making marginal changes in the previous year’s budget.

They make only a few minor changes in increasing and allotting funds from one fiscal year to another. Despite several advancements adopted in budget planning, the budget keeps on increasing every year due to its dynamic nature.

2) Emphasises Controlling Expenditure

The union budget in India emphasises strongly controlling the overall expenditure and setting limits on the amount of funds allocated by the government. Due to historical administrative reasons, the budgetary system in India involves a strong framework for controlling the government’s expenditure. After independence, the Indian budgetary system has allowed several plans that enable the allocation of powers and decentralization.

3) Prepared for a Specified Period

Usually, organizations plan budgets for one fiscal year. As budgeting is a part of planning having long-term budgeting objectives, it should be based on a longer time frame.

4) No Attempt to Relate Inputs to Outputs

In the budgetary system, hardly any attempt is made to compare the total input expenses) with prospective output (yield). In case efforts are made, they are confined to the financial aspects and the major portion of the government actions are directed only towards spending.

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Objectives of Union Budget

The objectives of the union budget are as follows:

1) Re-Distribution Activities

Developing countries like India generally need to resolve many co-economic corruptions and inequities surrounding them as soon as possible. Significant issues which need immediate attention include unemployment, poverty, unequal economic status, low literacy rate, etc. The Indian government is trying its best to resolve such issues. For this purpose, wealth is often re-distributed to reduce economic gaps and a lot of money is spent for providing social security and subsidised commodities to poor sections of the society.

2) Administration of Public Enterprises

To control domination or monopoly, businesses run by private sectors in heavy, primary and fundamental sections are established and run under public sectors. The profit-oriented nature of the private sector may lead them to not focus much on the welfare needs of society.

3) Allotment of Funds

The objectives of the government including socio-economic objectives are given due consideration while allotting funds through appropriate budgeting. In the context of India, the primary endeavour is to gear up the financial growth of the nation. The government allows huge amounts of funds for the welfare of various sectors of the country.

4) Economic Stability

From an economic perspective, both inflation and deflation are undesirable but any country. Hence, whenever a country faces a situation of inflation or deflation, budgetary amendments are made to control the problems caused by such situations. Periods of recession often lead to the problem of large-scale cyclical unemployment and create miserable financial conditions in the country. This type of situation demands the government to take various fiscal measures which would help in ensuring a stable economic system in the country.

Union Budget as Instrument of Growth

Budgeting is an important task as it enables the government to plan and manage its financial resources. It supports and implements a wide range of programs and projects that effectively foster the development of the country. Through the budget, the government can prioritise and put into action its programmes, plans and policies within the constraints of its financial capability as dictated by economic conditions.

The union budget frames the growth of a nation. The following points give the importance of the government budget:

1) Limit Expenditures

A major benefit of using a budget is the ability to control and restrict the amount of money allocated to specific operations. Budgets typically calculate expense accounts to ensure that capital is not wasted on unnecessary items or that the company does not overpay for the economic resources used in its operations. To limit the amount of capital spent by the business, business owners and managers may need to locate alternative vendors or suppliers to obtain business input, save money, and meet budget limits.

2) Creates a Financial Roadmap

Budgeting serves as a way for companies to create a financial roadmap for business operations, enabling them to conduct their business operations effectively. Many companies review their previous year’s budget to assess adherence to the guidelines. This exercise helps the organization to identify how well they have followed the guidelines and why budget variances occurred. Not all budget variances necessarily indicate a negative business situation. If budget variances occur due to unexpected growth in sales revenue, companies may find it necessary to augment their budget allocations to accommodate future sales expansions.

3) Reduce Time and Complexity

Using an annual budget process also limits the amount of time the government spend creating and managing capital resources. In the absence of a good budget, government officials will have to struggle hard in developing processes for the same.

4) Blueprint for Overall Funds

Budgeting is all about making a blueprint of the overall funds that the concerned government will spend on various sectors, the kinds of taxes that would be levied and how the prices of essential commodities would increase or decrease in the months ahead.

5) Plan for Future Growth

Companies often use budgeting as a strategic tool to forecast and facilitate future business growth and expansion. They can save from regular business expenses by keeping funds in a dedicated reserve account, particularly for exploring new business possibilities. Budgeting for future growth opportunities ensures that companies have readily available capital while making quick decisions to expand their business operations. During slow economic times, businesses may also use this capital to cover regular expenses.

Impact of Union Budget (2018-19) on Business

The Union Budget, presented by Finance Minister Arun Jaitley in February 2018, had much to offer to sectors across the board.

Here is a look at the impact on different sectors:

1) Finance Sector

The fact that projected net market borrowings of 14,62 lakh crore remain at almost the same level as in the present fiscal is likely to make up for the higher fiscal deficit envisaged in the Budget. Moreover, if the central bank reviews the investment limit of foreign portfolio investors (FPIs) in Indian bonds, it would also neutralize some part of the supply overhang.

The tax exemption applies only to senior citizens who already prefer bank deposits, making it unlikely that the increase in exempted interest income will significantly improve the deposit base. However, the proposal to provide insurance and pension benefits to the underprivileged population through Jan Dhan accounts has the potential to enhance the deposit base of banks to a certain extent.

2) MSMEs

The budget spoke of the massive formalisation of the businesses of MSMEs, especially after demonetisation and the introduction of GST. This in turn is generating an enormous financial information database of Micro, Small, and Medium Enterprises (MSMEs) and their finances. They will use this big database to improve the financing of MSME capital requirements, including working capital.

The Government also plans to outline a series of measures aimed at establishing a strong alternative investment framework within the country. Venture capital funds and angel investors will achieve this through their utilization. The government through its budget plans to roll out a taxation regime designed for the special nature of venture capital funds and angel investors. This boost will certainly help the Indian-grown venture capital funds and angel investors, thereby opening possibilities for them to grow and invest in the Indian Fintech sector.

3) FMCG Sector

The focus on agriculture, MSMEs (Micro, Small, and Medium Enterprises), education, healthcare, infrastructure, and employment will directly impact the fast-moving consumer goods (FMCG) sector. In addition, the focus on digital transformation is a significant step forward, providing a unique opportunity to engage with a wider audience more effectively and economically. The initiatives if executed well, will improve livelihood and disposable income in the hands of the masses, especially in rural India. This, in turn, will help the consumer goods sector acquire new consumer franchises in the long run.

4) Automobile Sector

The Budget 2018 presented by Union Finance Minister Arun Jaitley, has had a negligible impact on the automotive industry. However, several important developments emerged in the automotive industry, including fuel prices, luxury car pricing, urban infrastructure, and highways. The union government in its budget in 2018 has cut the basic excise duty on petrol and diesel by 32. It also has abolished additional excise duty on fuel, reducing it by 6 rupees.

While this might be a welcome change, it is important to refrain from rejoicing prematurely, petrol prices are expected to remain the same as a new road cess has been introduced in the 2018 budget at 8 rupees per litre. While the automobile industry was looking forward to a cut in the Goods and Service Tax (GST) on luxury cars, the announcement in the budget for 2018 has led to an increase in luxury car prices. The union budget for 2018 did not explicitly mention any price hikes for luxury cars. However, the government has implemented an increase in customs duty on luxury items.

5) Information Technology Sector

The Technology sector will also see many emerging opportunities arising out of Government reliance on technology-driven development, e.g., web-based Government Integrated Financial Management Information Systems, E-courts, E-assessments, etc. Startups and industries have a unique opportunity to capitalize on these potentials and actively contribute to national objectives.

6) Power

The Union Budget for 2018-19 is likely to have an overall positive impact on the power sector with the thrust towards expanding electricity access through flagship schemes seen boosting demand and a proposed mechanism for uptake of solar power likely to spur capacity creation.

The budget allocates 13,800 crores for Deendayal Upadhyaya Gram Jyoti Yojna (DUGJY) and 74,900 crores for the Integrated Power Development Scheme (IPDS). To bridge the electricity gap in rural areas, the government has also allocated 16,000 crore for the Sahaj Bijli Har Ghar Yojana (Saubhagya) initiative. This initiative aimed at providing last-mile connectivity to rural households.

7) Real Estate

The Union Finance Minister, Arun Jaitley, has made an announcement regarding the establishment of a specialized Affordable Housing Fund (AHF) within the National Housing Bank. The funding will come from the priority sector lending shortfall in priority sector lending, as well as through the issuance of fully serviced bonds authorized by the CENTRE. It seems that the budget is heading to have a minimal direct impact on the real estate industry.