New Delhi: Next week, Finance Minister Nirmala Sitharaman is going to present the first budget of Prime Minister Narendra Modi’s third term. It will be a full budget for the financial year 2024-25 as the interim budget for the year was already presented in February this year, just before the general election. India’s union budget size has grown significantly in recent years, from nearly Rs 27 lakh crores in FY 2019-20 to an estimated Rs 47.66 lakh crores by the end of this financial year, a growth of over 76 per cent in just five years.
This huge amount of the Union budget alone translates into 15 per cent of the country’s estimated nominal GDP for the current financial year which has been estimated at Rs 327 lakh crores as per the data given by the finance minister in the interim budget for 2024-25.
An analysis of the budget data by ETV Bharat shows that the compound annual growth rate of the Union Budget has been higher than the country's nominal GDP growth rate during the five-year period. Under Article 112 of the Constitution, the Union government presents an Annual Financial Statement of its estimated receipts and expenditures for a financial year to the Parliament which is usually referred to as the Union Budget.
So how does the government arrange such a massive fund?
There are three main sources to fund such a massive budget. These are revenue receipts (tax revenue and non-tax revenue) and capital receipts (borrowings and recovery of loans) of the government, which are essentially borrowing by the government to meet the shortfall in its overall budgeted expenditure and its revenue collections.
Revenue Receipts
Government revenue receipts are divided into two parts – tax revenue receipts which is basically the Centre’s share in taxes and duties collected such as income tax, corporate tax, customs duty, excise duty, and GST among others. Non-tax revenue receipts include dividends and profits paid by public sector companies and banks, among other such receipts.
Tax revenue
Tax revenue collected by the government is the biggest of all three sources of money collected by it. In 2019-20, the net revenue to the centre accounted for 13.57 lakh crore, which was 50.5 per cent of the total budget of 26.86 lakh crores in that year. So tax revenue accounted for little over half of the government’s total receipts in that year.
However, this year, tax revenue (net to the centre) is expected to increase to Rs 26 lakh crores. In other words, it is expected to almost double in the five-year period.
As a percentage of the total receipts of the Union government, the tax revenue alone accounts for nearly 55 per cent of the total expenditure this year.
Given the trends, it is clear that the share of taxes in the government’s overall receipts and expenditure has increased from 50.5 per cent to nearly 55 per cent in the five-year period.
Non-tax revenue
Centre’s non-tax revenue receipts include interest receipts, dividends and profits, other non-tax revenue and receipts of union territories.
While non-tax revenue was Rs 3.27 lakh crores in FY 2019-20, it is expected to increase to 3.99 lakh crores in the current financial year, which is just a little over 8 per cent of the total budget of the year.
Capital Receipts
Capital receipts include the loans to be taken by the government in a financial year to meet its expenditure and it also includes the recovery of loans earlier given by the government and other receipts as well.
For example, in FY 2019-20, of the total capital receipts of Rs 10 lakh crores in that year, fresh loans or borrowings accounted for Rs 9.33 lakh crore whereas the rest of the amount was other receipts and recovery of loans, which was less than 7 per cent of the capital receipts that year.
For the current financial year, the capital receipts have been estimated at Rs 17.64 lakh crore of the total budget of 47.66 lakh crores, of which 16.85 lakh crores are fresh loans to be raised by the government this year.
Fresh loans, which make up most of the capital receipts (95.5 % of total capital receipts), will account for over 35 per cent of the government’s total receipts this year. After the tax-revenue receipts, which account for 55 per cent of the total receipts, fresh loans are the second biggest source of government funding at 35 per cent of the budget.
Growth trends over the years
In just five years, between FY 2019-20 to FY 2024-25, the Union Government’s budgeted expenditure is expected to grow from nearly Rs 27 lakh crores to Rs 48 lakh crores.
In other words, the Union budget has grown at a compound annual growth rate of over 12 per cent in the five year period. If the Union government’s budgeted expenditure grows at the same rate in the next financial year as well, which is FY 2025-26, then in six years, the size of the Union budget will double, from Rs 26.86 lakh crores to Rs 54 lakh crores, a compound annual growth rate of 12.25 per cent per year.
It is significant as during this period, India’s nominal GDP is expected to grow from Rs 204 lakh crore in FY 2019-20 to Rs 327 lakh crore in FY 2024-25, at a compound growth rate of 9.9 per cent.
It means the growth in the size of the Union budget has been much faster than the country’s nominal GDP growth rate during this period.
*Some numbers have been rounded off in the story.
