Government budget

Also called: Union Budget, budget, Annual Financial Statement · Topic: Government Budget, Fiscal Policy and FRBM · NCERT: Class 9, Ch 8 "Building Blocks in Economics: The Problem of Choice"; Class 12, Ch 5 "Government Budget and the Economy"

Meaning

A government budget is the government's statement of how much money it expects to receive and spend in one financial year (1 April to 31 March). Art. 112 of the Constitution requires the President to have it laid before both Houses of Parliament every year. The Constitution calls it the Annual Financial Statement (AFS). The word "budget" does not appear anywhere in the Constitution.

It matters for two reasons. First, it is Parliament's main tool to control public money: the government cannot spend without Parliament's approval. Second, it is the main tool of fiscal policy (the use of taxes and government spending to guide the economy).

Explanation

How the budget is organised: three funds

The AFS shows receipts and spending under three separate parts: the Consolidated Fund, the Contingency Fund and the Public Account [2][3].

Fund	Article	What goes in	How money comes out
Consolidated Fund of India (CFI)	266(1)	All revenues, loans raised, loan recoveries	Only through an Appropriation Act passed by Parliament
Public Account of India	266(2)	Money held as banker or trustee: provident funds, small savings, deposits	No parliamentary vote (the money belongs to others)
Contingency Fund of India	267	A fixed corpus at the President's disposal	For urgent, unforeseen spending, later recouped from the CFI

• CFI: the government's main account. All government spending is paid from it. No money can leave it without Parliament's approval [2].
• Public Account: money the government only holds in trust, such as Provident Funds and small savings [2].
• Contingency Fund: an imprest (a fixed cash advance kept ready for quick use) for emergencies [2].

How the budget is split: revenue account vs capital account

Some budget decisions affect later years too, so the budget has two accounts.

• Revenue account (revenue budget): transactions of the current year only. They create no assets and no liabilities.
• Revenue receipts: taxes, fees, dividends, interest the government earns.

• Revenue expenditure: salaries, pensions, subsidies, interest payments.

• Capital account (capital budget): transactions that change the government's assets or liabilities.

• Capital receipts: borrowings, recovery of loans, disinvestment (selling a government share in a company).

• Capital expenditure: building roads, buying machinery, giving loans to states.

• Worked example: how to classify

Transaction	Class	Test
₹500 crore paid as salaries	Revenue expenditure	No asset created
₹2,000 crore spent on a highway	Capital expenditure	An asset is created
₹3,000 crore borrowed from the market	Capital receipt	A liability goes up
₹4,000 crore collected as GST	Revenue receipt	No liability created

• Quick rule: ask "does this create an asset, or does it add to or reduce a liability?" If yes, it is capital. If no, it is revenue.

How Parliament approves spending

• Demands for Grants: requests for money, ministry by ministry. The Lok Sabha votes on them (Art. 113).
• Appropriation Bill: once the Demands for Grants are passed, they are put together in one bill. This bill allows money to be taken out of the CFI [5].
• Finance Bill: the bill that brings in the year's tax proposals.
• Vote on account: if the Appropriation Bill is not passed before the year begins, Parliament gives a separate interim approval so the government can keep spending [5].
• Charged vs voted expenditure:
• Charged expenditure is "charged" on the CFI. Parliament may discuss it but does not vote on it [5].
  • Examples: the President's emoluments, the CAG's salary, the UPSC's expenses, salaries and pensions of Supreme Court judges, pensions of High Court judges, and debt charges. Interest payments are the largest charged item [5].
  • Why: it protects key constitutional offices. A ruling majority cannot cut a judge's salary to punish a judgment.
• Voted expenditure is everything else. The Lok Sabha must pass it as Demands for Grants [5].

How emergency spending works: Contingency Fund example

• A cyclone hits in July and ₹1,200 crore is needed at once.
• The President releases ₹1,200 crore. The fund falls from ₹30,000 crore to ₹28,800 crore.
• Parliament later approves the spending afterwards (ex-post-facto) through a supplementary demand.
• ₹1,200 crore moves from the CFI back into the fund. The balance returns to ₹30,000 crore [2].

In India

• Who prepares it: the Ministry of Finance. It publishes the budget documents on indiabudget.gov.in. For example, the Demands for Grants for 2026-27 are published there [5].
• Legal basis: Art. 112 (AFS), Art. 113 (Demands for Grants), Art. 266(1) (CFI), Art. 266(2) (Public Account), Art. 267 (Contingency Fund).
• Budget documents:
• Required by law: the AFS, Demands for Grants, the Appropriation Bill and the Finance Bill.

• Explanatory: Receipt Budget, Expenditure Budget, Budget at a Glance, the FRBM statements, Gender Budget Statement, Outcome Budget, and the statement on extra-budgetary resources.

• Current example: Budget 2026-27 covers 1 April 2026 to 31 March 2027.

• Contingency Fund corpus: ₹30,000 crore [2][3]. It was raised from ₹500 crore in Budget 2021-22, through the Finance Act 2021 [4].
• National Small Savings Fund (NSSF):
• Set up on 1 April 1999 inside the Public Account [6].
• All small-savings collections go into it (PPF, NSC, post-office deposits). Its money is invested in Central and State Government securities [6].

• From 2000-01, 80% of net collections went into special state securities and 20% into Central securities [6].

• The 2017 reforms:

• Budget date moved to 1 February (it was the last working day of February). The budget is now passed before 1 April, so ministries have money from day one without a vote on account.
• Railway Budget merged into the Union Budget on the advice of the Bibek Debroy panel. A separate railway budget had been presented since 1924.
• Plan/non-plan split ended from 2017-18. Spending is now classified only as revenue or capital.

Don't confuse with

• Annual Financial Statement vs "budget": they mean the same document. But only "Annual Financial Statement" (Art. 112) appears in the Constitution. "Budget" is the everyday name.
• Consolidated Fund vs Public Account: money leaves the CFI only through an Appropriation Act. Money leaves the Public Account with no parliamentary vote, because it belongs to depositors. Borrowings and loan recoveries go into the CFI. PPF and small savings go into the Public Account (NSSF).
• Appropriation Bill vs Finance Bill: the Appropriation Bill allows the government to spend from the CFI. The Finance Bill brings in the year's tax proposals.
• Vote on account vs full budget approval: a vote on account is only an interim approval to keep spending until the full Appropriation Bill is passed [5]. It does not approve the whole year's budget.

Prelims Hooks

• The word "budget" does not appear in the Constitution. Art. 112 calls it the Annual Financial Statement, laid before both Houses.
• CFI = Art. 266(1); Public Account = Art. 266(2); Contingency Fund = Art. 267. The Contingency Fund is an imprest at the President's disposal, with a corpus of ₹30,000 crore (raised from ₹500 crore in 2021) [2][4].
• Charged expenditure can be discussed but not voted. Trap: High Court judges' salaries are charged on the state's Consolidated Fund. Only their pensions are charged on the CFI.
• Classification trap: borrowing and disinvestment are capital receipts. Interest payments and subsidies are revenue expenditure. Loans to states are capital expenditure.
• 2017 reforms: budget on 1 February, Railway Budget merged (Bibek Debroy panel), plan/non-plan split ended.
• Demands for Grants are voted only in the Lok Sabha (Art. 113).

Mains Points

• Parliamentary control vs executive flexibility:
• The CFI needs a vote, so Parliament keeps control.
• The Contingency Fund lets the government spend quickly in an emergency.

• The 60-fold rise in the corpus in 2021 (₹500 crore → ₹30,000 crore) helps the government act faster in disasters and pandemics. But more spending now happens before Parliament examines it [2][4].

• Charged expenditure and fiscal discipline:

• Keeping the pay of judges, the CAG and the UPSC out of the yearly vote protects their independence.
• But interest payments are also charged, so a large part of the budget is never voted on.

• This makes fiscal rules (the FRBM Act 2003) the main check on the growth of debt.

• Budget transparency and hidden deficits:

• NSSF money comes from household savings but is lent to governments. It is a quiet source of deficit financing.
• It also funded extra-budgetary resources (borrowing by agencies such as FCI that does not appear in the budget itself). This is why the separate statement on extra-budgetary resources matters [6].
• Merging the railway budget in 2017 gave one complete picture of Union finances. Critics say railway finances now get less separate attention in Parliament.

Related concepts

• Financial year
• Consolidated Fund of India
• Public Account of India
• Contingency Fund of India
• National Small Savings Fund
• Charged expenditure

Read more

• Constitutional framework: the Annual Financial Statement and the three funds