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Union Budget of India: Definition and Types

Hemant Singh

Definition of Union Budget

In simple words, the budget is an estimate of income and expenditure for a definite duration. In economics, budget is a systematic list of revenue and expenditure or we can say it's a plan for income and expenditure. 

The word ‘budget’ has been borrowed from the English word "Bowgette" which traces its origin from the French word “Bougette”.  Word “Bougette” has arrived from the word, ‘Bouge’ which means a leather bag.

Why the Government works out a budget every year?

The Government performs two important functions by making a budget every year-

1. The Government estimates the expected expenditures for developmental works in different sectors of the economy e.g. Industry, Manufacturing, Education, Health, Transport, etc.

2. To meet the expenditures for the coming financial year, the Government tries to work out the sources of revenue. ( i.e. by imposing new taxes or increasing or decreasing the previous rates of taxes, or to remove or impose subsidy on any commodity.

In other words, the Governments decide about the expenditure to be incurred on which commodities primarily and how the money is going to be arranged for these expenditures? The details of such income and expenditures statements are known as ‘Budget’. Each budget is made for a specified duration.

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Types of Budget

1. Traditional or General Budget: The initial structure of the present-day general budget is known as the Traditional Budget. The main aim of the General Budget is to set up financial control over the Executive and the Legislative. This budget contains the details of income and expenditure of the Government.

This budget contains the details of the expenditure in different sectors done by the Government. However, the result of this expenditure is not explained in this budget. Thus the main idea behind the traditional budget that is to solve the problems of independent India and to achieve the developmental targets was defeated. 

As a result, the need and importance of drafting a ‘Performance Budget was accepted and it was presented as a complimentary budget to the earlier Traditional budget.


2. Performance Budget: When the outcome of any activity is taken as the base of any budget, such a budget is known as ‘Performance Budget’. For the first time in the world, the performance budget was made in the USA. An Administrative Reforms Commission was set up in 1949 in America under Sir Hooper. This commission recommended for making a ‘Performance Budget’ in the USA. In the Performance Budget, it is the compulsion of the government to tell that 'what is done', 'how much done' by it for the betterment of the people. In India, the Performance Budget is also known as the ‘Outcome Budget’.


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 3. Zero Based Budget:  There are two primary reasons for adopting this type of Budget in India.

(i) The continuous revenue deficit in the budget of the country.

(ii) Poor implementation of the Performance Budget.

In the zero-based budget, neither expenses incurred during the previous financial years are not considered nor the expenditure of the last financial year used for the coming years.

Under Zero-based budgets, every activity is decided based on Zero basis i.e. the previous expenditures are not considered. This budget is also known as ‘Sun Set Budget’ which means the finance department has to present the zero-based budget before the end of the financial year.

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Peter Pyre is known as the father of ‘Zero Based Budgeting’ who presented this sort of budget in 1970. This system of budgeting was first used in the Georgia State of USA by its Governor Jimmy Carter.  Later in 1979, The National Budget of America adopted this strategy.

In India, the Zero Based Budgeting was introduced by the mainstream Research organization, Council of Scientific and Industrial Research and the Central Government adopted the same in 1987-88.

Outcome Budget: In India, development-related schemes such as MGNREGA, NRHM, Mid Day Meal, PMGSY, Digital India, Prime Minister Skill Development Council, etc. are started every year. The large sum of money is spent on these schemes every year. However, at present, the government doesn’t have any parameters to measure the results of these schemes.

Sometimes, the delay in implementation of the schemes causes an increase in the cost of these schemes.  Therefore, in order to reduce this cost, the Government of India introduced the Outcome Budget in 2005.

Outcome Budget acts as a pathfinder for all the Ministries and Departments which helps in improving Services, the performance of the programmes.

Gender Budget: If a budget describes the schemes and plans for the welfare of children and females, it is known as Gender Budget. Through Gender Budget, the Government declares an amount to be spent over the development, Welfare, Empowerment schemes and programmes for Females.

So it can be concluded that the government has made all the necessary steps to utilised every penny of the taxpayers.

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