How are Budgets prepared in India?

Published on: Fri Jul 28 2023

In India, the annual budget plays a pivotal role in shaping the country's economic policies and financial roadmap for the upcoming fiscal year. It serves as a critical tool for the government to allocate resources, prioritize spending, and achieve economic goals. The process of preparing the Indian budget is a meticulous and multi-layered endeavor that involves various stakeholders and incorporates numerous components. In this blog, we will delve into the intricacies of how Indian budgets are prepared, covering topics such as key participants, stages in the budgetary process, budget types, and the role of technology in modern budgeting.

1.The Players: Key Participants in the Budgetary Process

The Indian budgetary process is a collaborative effort involving different entities responsible for different aspects of the budget preparation. The primary players include:

a) Ministry of Finance: The Ministry of Finance is the central authority responsible for formulating and presenting the budget. Within the ministry, the Department of Economic Affairs, Department of Expenditure, and Department of Revenue play crucial roles in budget preparation.

b) Finance Minister: The Finance Minister is a key figure in the budgetary process. They are responsible for presenting the budget to the Parliament and are actively involved in making important policy decisions.

c) Finance Ministry Officials: A team of officials and experts from various departments within the Ministry of Finance assists the Finance Minister in preparing the budget.

d) Planning Commission/NITI Aayog: The Planning Commission, which has now been replaced by NITI Aayog, plays a role in formulating the government's five-year plans and providing inputs for the budget.

e) Other Ministries and Departments: Line ministries and departments submit their expenditure proposals to the Finance Ministry for consideration during budget preparation.

Stages in the Budgetary Process

The preparation of the Indian budget involves several distinct stages, each with its significance. These stages are as follows:

a) Budget Formulation: It is the initial phase where the Finance Ministry issues guidelines to all ministries and departments to prepare their budget estimates. These estimates consider both revenue receipts and expenditure requirements.

b) Budget Estimates: Line ministries and departments submit their detailed budget estimates to the Ministry of Finance, outlining their financial requirements for the upcoming fiscal year.

c) Revised Estimates: After reviewing the budget estimates, the Finance Ministry provides feedback, and ministries submit revised estimates based on actual performance and changing economic conditions.

d) Consolidation: The Finance Ministry consolidates all the estimates, including revenue projections and expenditures, to form the Union Budget.

e) Budget Speech: The Finance Minister presents the budget to the Parliament, which includes an elaborate budget speech highlighting the government's policy priorities and allocation of resources.

f) Parliamentary Approval: The budget is subjected to debates and discussions in both houses of Parliament before obtaining final approval.

g) Implementation and Monitoring: After the budget's approval, the allocated funds are released to various ministries and departments, and the government monitors their utilization throughout the fiscal year.

Types of Indian Budgets

The Indian budget can be broadly classified into three categories:

a) Revenue Budget: It comprises the government's revenue receipts and expenditures. Revenue receipts include taxes, non-tax revenue, and grants, while revenue expenditures cover the day-to-day expenses of the government, such as salaries, subsidies, and interest payments.

b) Capital Budget: The capital budget deals with capital receipts and capital expenditures. Capital receipts include borrowings and disinvestment proceeds, while capital expenditures pertain to investments in assets like infrastructure, land, and machinery.

c) Balanced Budget: Ideally, a balanced budget indicates that the government's total revenue equals its total expenditure, creating a balance between income and spending.

The Role of Technology in Modern Budgeting

As the world becomes increasingly digital, technology plays a crucial role in streamlining and modernizing the budgetary process. In India, several advancements have been adopted to enhance budget preparation and execution:

a) Online Budgeting Systems: The government has embraced online budgeting systems that facilitate the submission of budget estimates and streamline the consolidation process.

b) Outcome-Based Budgeting: Technology enables outcome-based budgeting, where the focus shifts from input-based budgeting to achieving specific outcomes and results.

c) Data Analytics: With the abundance of data, data analytics tools are used to derive valuable insights from past budget execution, enabling better decision-making and resource allocation.

d) Financial Management Information Systems (FMIS): FMIS integrates budget formulation, execution, and monitoring, offering real-time financial data to ensure effective financial management.

e) e-Procurement: Technology-driven e-procurement systems enhance transparency and efficiency in government spending by automating the procurement process.

Conclusion

The Indian budgetary process is an intricate journey that involves numerous participants and goes through multiple stages. From budget formulation to the parliamentary approval, each step is carefully orchestrated to set the nation's financial direction for the fiscal year. As technology continues to advance, its integration into the budgeting process further enhances efficiency, transparency, and accountability in financial management. By understanding the complexities and significance of the Indian budgetary process, citizens can actively engage in discussions about fiscal priorities and contribute to the nation's economic growth and development.

Do you also want to get BUY/SELL/HOLD recommendations on your favorite stocks with complete analysis?

Are you looking to accumulate wealth through stock market investing?

Receive quick responses to all your investment-related queries with our ‘NIVESHAK GPT’-delivering top-notch information and analysis in just seconds!

Visit https://newsletter.algonautsadvisory.com/niveshakGPT to get answers to your every investment query to help you earn MAXIMUM returns on your investments easily!

Returns are subject to market risk.

Past performance do not assure future returns.

Name: Algonauts Advisory Services Private Limited

Registration Number: INA000017277

Type: Non-Individual

Validity: Oct 28, 2022 - Perpetual

Contact Details (Principal Officer):

Mr.Sharad Sankaran:
(Principal Officer)
Algonauts Advisory Service Private Limited:
Email: principal.officer@algonauts.in
Contact Number: +91 8108832455
Address: 1, Dora Rose, I C Colony, Borivali West, Maharashtra, Mumbai 400103.

Contact details of SEBI office:

Office of Investor Assistance and Education, Securities and Exchange Board of India, SEBI Bhavan, Plot No. C4-A, 'G' Block, Bandra-Kurla Complex, Bandra (E), Mumbai - 400 051.

Disclaimer:

Algonauts Advisory Private Limited (Algonauts Advisory Private Limited) is an investment advisor engaged in the equity advisory business. Algonauts Advisory Private Limited is Sebi registered investment adviser. Algonauts Advisory Private Limited Research Analyst SEBI Registration Number - INA000017277. Algonauts Advisory Private Limited SEBI Registration INA000017277.
Recommendation in reports based on technical and derivative analysis centre on studying charts of a stock's price movement, outstanding positions, trading volume etc as opposed to focusing on a company's fundamentals and, as such, may not match with the recommendation in fundamental reports. Investors may visit www.algonautsadvisory.in to view Technical Research Reports.
The information and opinions in this report have been prepared by Algonauts Advisory Private Limited and are subject to change without any notice. The report and information contained herein is strictly confidential and meant solely for the selected recipient and may not be altered in any way, transmitted to, copied or distributed, in part or in whole, to any other person or to the media or reproduced in any form, without prior written consent of Algonauts Advisory Private Limited. While we would endeavour to update the information herein on a reasonable basis, Algonauts Advisory Private Limited is under no obligation to update or keep the information current. Also, there may be regulatory, compliance or other reasons that may prevent Algonauts Advisory Private Limited from doing so.
This report is based on information obtained from public sources and sources believed to be reliable, but no independent verification has been made nor is its accuracy or completeness guaranteed. This report and information herein is solely for informational purpose and shall not be used or considered as an offer document or solicitation of offer to buy or sell or subscribe for securities or other financial instruments. Though disseminated to all the customers simultaneously, not all customers may receive this report at the same time. Algonauts Advisory Private Limited will not treat recipients as customers by virtue of their receiving this report. Nothing in this report constitutes investment, legal, accounting and tax advice or a representation that any investment or strategy is suitable or appropriate to your specific circumstances. The securities discussed and opinions expressed in this report may not be suitable for all investors, who must make their own investment decisions, based on their own investment objectives, financial positions and needs of specific recipient. This may not be taken in substitution for the exercise of independent judgment by any recipient. The recipient should independently evaluate the investment risks. The value and return on investment may vary because of changes in interest rates, foreign exchange rates or any other reason. Algonauts Advisory Private Limited accepts no liabilities whatsoever for any loss or damage of any kind arising out of the use of this report. Past performance is not necessarily a guide to future performance. Investors are advised to see Risk Disclosure Document to understand the risks associated before investing in the securities markets. Actual results may differ materially from those set forth in projections. Forward-looking statements are not predictions and may be subject to change without notice.
Algonauts Advisory Private Limited or its associates might have received any compensation for products or services other than investment banking or merchant banking or brokerage services from the companies mentioned in the report in the past twelve months.
Algonauts Advisory Private Limited encourages independence in research report preparation and strives to minimize conflict in preparation of research report. Algonauts Advisory Private Limited or its associates or its analysts did not receive any compensation or other benefits from the companies mentioned in the report or third party in connection with preparation of the research report.
Accordingly, neither Algonauts Advisory Private Limited nor Research Analysts and their relatives have any material conflict of interest at the time of publication of this report.
Compensation of our Research Analysts is not based on any specific merchant banking, investment banking or brokerage service transactions. Algonauts Advisory Private Limited or its subsidiaries collectively or Research Analysts or their relatives do not own 1% or more of the equity securities of the Company mentioned in the report as of the last day of the month preceding the publication of the research report.
Since associates of Algonauts Advisory Private Limited and Algonauts Advisory Private Limited as a entity are engaged in various financial service businesses, they might have financial interests or actual/ beneficial ownership of one percent or more or other material conflict of interest various companies including the subject company/companies mentioned in this report.
Algonauts Advisory Private Limited may have issued other reports that are inconsistent with and reach different conclusion from the information presented in this report. Neither the Research Analysts nor Algonauts Advisory Private Limited have been engaged in market making activity for the companies mentioned in the report.
We submit that no material disciplinary action has been taken on Algonauts Advisory Private Limited by any Regulatory Authority impacting Equity Research Analysis activities.
This report is not directed or intended for distribution to, or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction, where such distribution, publication, availability or use would be contrary to law, regulation or which would subject Algonauts Advisory Private Limited and affiliates to any registration or licensing requirement within such jurisdiction. The securities described herein may or may not be eligible for sale in all jurisdictions or to certain category of investors. Persons in whose possession this document may come are required to inform themselves of and to observe such restriction.