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How is the Union Budget Prepared?

February 02, 2024 • 877 views
Author: Poonawalla Fincorp Team Category: Tax

On February 1, Nirmala Sitharaman, Union Finance Minister, presented the Union Budget 2024 - 25 to the Lok Sabha. As early next year, the elections for the Lok Sabha are due, it will be termed as an interim Budget. The Finance Minister will present the full Budget for FY25 after the formation of the new government following the elections.

This final budget is a reflection of the country's financial status and plays a vital role in shaping the economic policies of India. In this comprehensive blog, we will discuss how the Union Budget is prepared and its importance in the lives of Indian citizens. But first, let’s focus on who prepares the Union Budget. Read on! 

Who Prepares the Union Budget?

The formulation of Indian Union Budget is a collaborative effort involving the Ministry of Finance, Niti Aayog, and various concerned ministries. The budget division within the Department of Economic Affairs (DEA) at the Finance Ministry serves as the central coordinating body responsible for crafting the Budget.

To facilitate the budgetary process, the Finance Ministry issues circulars to Government departments, States and Union Territories, Autonomous bodies, Union Ministries, and Defence Forces. The budget Commissions mandate these entities to prepare financial estimates for their anticipated expenditures and revenues in the upcoming fiscal year. Additionally, they are required to furnish revised estimates from the previous year.

Commencing in August-September, approximately six months ahead of its scheduled presentation, the budget-making process unfolds. The proposed budget must secure approval from both houses of Parliament before the commencement of the financial year on April 1. This intricate procedure underscores a collaborative and meticulous approach undertaken by various entities in the preparation and approval of the Indian Union Budget.

How is the Union Budget Prepared?

Following are some of the most important steps the Ministry of Finance takes to prepare the Union Budget 2024:

Step 1: Initial Processes

The Finance Ministry initiates the budget preparation process by issuing circulars to ministries, states, Union territories, and autonomous bodies. The government instructs these entities to prepare estimates for the upcoming year, using skeleton forms and guidelines. Alongside estimates, ministries furnish details of their past-year revenues and expenditures.

Step 2: Accumulation and Authorisation of Data

Upon receiving requests, top government officials scrutinise them, engaging in extensive consultations between ministries and the Department of Expenditures. After the approval and revision, the commission sends the data and estimates to their respective ministries for further examination.

Subsequently, the Finance Ministry meticulously scrutinises and correlates all data with India’s current economic state and available resources to ensure feasibility.

Step 3: Composing the Budget

The finance minister conducts pre-budget meetings with various stakeholders to know about their demands and proposals. These stakeholders include bankers, agriculturists, state representatives, economists, trade unions, etc. The finance minister takes the final call on demands once the pre-budget consultations are over. The budget is also discussed with the Prime Minister before finalisation.

Step 4: Printing the Budget

Traditionally, the Finance Ministry hosts an event called 'Halwa Ceremony' a few days before presenting the Union Budget. This event marks the official start of budget-related activities. During this ceremony, the Finance Minister stirs a massive kadhai containing the sweet dessert and serves it to officials.

The ceremony initiates a 'lock-in' period for ministry staff to prevent leaks until the budget is officially out. The Budget Press, located inside North Block, houses all officials during this period.

Step 5: Presenting the Budget

The Finance Minister presents the Union Budget in Parliament, usually on a fixed date, notably February 1 in recent years. In election years, the Finance Minister presents the Budget twice. Initially, an interim budget, known as a vote on account, estimates expenditures and receipts for the next two to four months.

After the election, the new government presents the final budget for the remaining fiscal year. These steps form the essential process in the development of the Union Budget, a pivotal element in shaping the country's financial landscape.

Also Read - Importance and Impact of Yearly Union Budget

How Does the Union Budget Affect Your Finances?

The primary objective of the Union Budget 2024 is to facilitate rapid and balanced economic growth in our country, aligning with the principles of social justice and equality. The influence of the Union Budget on personal finances becomes apparent through various channels:

1. Taxation

The Union Budget is an important event that not only outlines the government's expenditure plans but also has a direct impact on the country's tax policies. It is a crucial tool that the government uses to bring about changes in both direct and indirect taxes.

One of the most significant changes that the budget brings is in the income tax rates and tax brackets.

For example, the ministry will announce the upcoming income tax slab for the financial year 2024-25 in this budget. The changes to the tax structure have a direct impact on the citizens and businesses, and hence, everyone waits for the Union Budget eagerly every year.

2. Loan Rates

The budget announcement often influences interest rates set by the Reserve Bank of India (RBI). A change in the bank's repo rate, which is the rate at which banks borrow from the RBI, can affect loan interest rates across the board.

Lower repo rates can lead to cheaper loans for mortgages, car loans, and personal loans, making borrowing more affordable. On the other hand, higher repo rates can make borrowing more expensive and potentially slow down economic growth.

3. Investments

The budget may introduce or modify tax benefits for specific investments, such as equity-linked saving schemes (ELSS), National Pension System (NPS), or infrastructure bonds. These incentives can make certain investments more attractive by offering tax deductions or exemptions on returns.

The overall tone and direction of the Union Budget process can impact investor sentiment and market performance. A stable and positive budget outlook can boost investor confidence and lead to a potential rise in stock prices. Conversely, an uncertain or negative budget outlook can trigger market anxieties and potentially lead to price fluctuations.

Also Read - Financial Planning Checklist for 2024

To Conclude

If you dive into the intricacies of the Union Budget 2024, you will understand the government's intentions, priorities, policies, and the distribution of financial resources across diverse regions, sectors, and industries. These allocations wield transformative power, instigating significant changes in the lives of the people of India.

In essence, budget analysis serves as a lens through which one can understand the intentions of the government and comprehend the intricacies of its developmental goals.

Disclaimer

This blog provides informational content on tax benefits and rules based on the current provisions of the Income Tax Act of India, 1961. The interpretations are subject to change as per amendments made by the Government of India. Applicable rates of GST and cess will be as per the current regulations. Readers must seek professional advice for accurate and up-to-date information.
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poonawalla fincorp team

Poonawalla Fincorp Team

Our team of expert writers and editors are passionate about providing authentic and valuable information on finance. Our aim is to simplify financial and finance-related concepts. We strive to help our readers become more aware and empowered to make informed financial decisions.

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