The vocabulary of India's Union Budget, and how fiscal policy tools are used to manage growth, inflation and equity.
The Union Budget splits into the Revenue Budget (revenue receipts like tax collections, and revenue expenditure like salaries/subsidies/interest — recurring, doesn't create assets) and the Capital Budget (capital receipts like borrowings/disinvestment, and capital expenditure on asset creation — infrastructure, defence equipment). Other key terms: plan vs non-plan expenditure (discontinued since 2017, replaced by revenue/capital classification), and vote on account (interim spending approval before the full budget passes).
The Fiscal Responsibility and Budget Management (FRBM) Act, 2003 mandates fiscal discipline by setting deficit reduction targets for the government, though it includes an 'escape clause' allowing deviation during exceptional circumstances (used during COVID-19).
Fiscal policy uses government taxation and spending to influence aggregate demand — expansionary fiscal policy (higher spending/lower taxes) boosts a slowing economy, while contractionary fiscal policy (lower spending/higher taxes) cools an overheating one. It works alongside — and sometimes in tension with — the RBI's monetary policy.
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