Prof. Jiban Mukhopadhyaya – Former Chief Economic Advisor for Tata Group and Retd. Professor of S.P. Jain Institute of Management Studies.
What is a Budget?
A budget is a financial plan made by the government to support economic growth and development. Its main purpose is to improve the standard of living of people by creating income opportunities and providing essential services.
In India, many people suffer from different kinds of deprivation — economic, social, health-related, educational, and infrastructural. A large number of people live in remote areas and lack basic facilities. The government uses the budget to allocate resources so that these problems can be reduced. Over the years, Indian budgets have tried to address these issues in various ways.
Beginning of Budgeting in India
India started its budgetary exercise in 1948. The early budgets were simple and mainly focused on collecting revenue and spending it.
A major turning point came on 28 July 1991, when Dr. Manmohan Singh presented a reform-oriented budget. This budget introduced a new industrial policy and ended the license–permit–quota system, which had restricted economic activity earlier. Before 1991, India followed a socialist model, where the government controlled most industries.
After 1991, India moved towards a market-oriented economy, though the government continued to play an important role. Since then, the nature of the budget has changed significantly.
Changing Nature of the Budget
In recent decades, budgets have focused heavily on announcing schemes, programs, and projects. This trend became more prominent during the budgets presented by Shri Pranab Mukherjee and has continued under Finance Minister Nirmala Sitharaman.
These schemes are generally well-intentioned and aimed at public welfare. However, the number of announcements has increased sharply, and not all projects are fully implemented. Many projects remain on paper, and their actual progress becomes clear only in the following year.
What Does a Budget Contain?
Preparing a budget is a complex task. In India, the budget consists of more than 12 documents.
The Finance Minister’s Budget Speech has two parts:
Part 1 reviews the previous year’s economic performance and future prospects, and announces new schemes.
Part 2 deals with changes in direct and indirect taxes.
One of the most important documents is “Budget at a Glance”, which gives a quick summary of revenue and expenditure.
Another key document is the “Statement on Project Implementation”, which reports how many announced projects have actually been implemented.
For example, if 94 projects were announced in a year, this document shows how many of them are progressing and how many are uncertain. In reality, only a few important projects get serious attention, while many others remain unclear or delayed.
Why Budgeting Is Difficult in India
India is a large and diverse country with over 1.4 billion people, and the population continues to grow rapidly. Every new child adds to the demand for food, healthcare, education, clothing, and housing.
Meeting these needs across such a vast population is extremely challenging. The budget tries to support growth and development continuously so that people’s incomes and living standards improve over time.
Inequality and Deprivation in India
India suffers from high levels of inequality:
The top 1% of the population owns over 40% of the country’s wealth.
The top 10% owns more than 65% of total wealth.
At the same time, many people face deprivation related to gender inequality, healthcare, education, transport, and social status. While budgets announce schemes to address these problems, their long-term and effective implementation remains uncertain.
Overall, budget-making in India often remains limited to allocating revenue and expenditure, rather than deeply addressing structural inequality.
Key Issues with India’s Budget
1. Narrow Tax Base
Less than 2% of India’s population pays income tax.
Just 1% of taxpayers contribute 50% of total personal income tax.
While 9% of the ITR fillers contribute 87% of total personal income tax.
This shows that many wealthy individuals are still outside the tax net, which reflects a long-term failure of the tax system.
2. Low Tax Revenue Compared to GDP
Gross tax revenue is around 11.2% of GDP (+- during the last three years).
Gross direct taxes contribute about 6–7% of GDP during these three years.
Gross indirect taxes contribute around 4–5% of GDP during these three years.
These numbers indicate that India’s revenue generation is weak, limiting the government’s ability to spend more on development. If revenue is increased then expenditure on both revenue and capital expenditure also can be increased. If this exercise is attempted, sprit of the budget making can be encouraged and as a result opportunities for growth and development, income generation, improving the standard of living of larger and larger number of Indian population could be addressed.
3. Imbalance in Spending
The need for budget making exercise for a highly populated and diverse country like India, this is yet to be fully addressed. In the 2026–27 budget:
Revenue receipts are expected to grow by 12% over the revised estimate of 2025-26.
Tax revenue is expected to grow by 8%.
On the other hand, the revenue expenditure has increased by 16% over the revised estimate of last year.
Capital expenditure has increased by only 1.3%.
Interest payments have risen sharply year over year by 20% to nearly ₹14 lakh crore.
While revenue expenditure (like salaries and subsidies) is necessary, capital expenditure (on infrastructure, education, and health) is crucial for long-term growth.
India’s budget plays a vital role in managing growth, development, and welfare in a highly populated and diverse country. Although budgets announce many welfare schemes with good intentions, implementation remains weak, tax collection is limited, and spending is often skewed toward short-term needs.
To truly improve living standards and reduce inequality, India needs to:
Expand the tax base
Increase tax revenue without excessive borrowing
Focus more on productive capital expenditure
Only then can the budget fully serve its purpose of inclusive and sustainable development.
