Budget & Fiscal Policy

Hold the budget as one grid: two columns (Revenue and Capital) crossed with two rows (Receipts and Expenditure). Revenue means it neither creates an asset nor a liability — taxes in, salaries and interest out. Capital means it changes the balance sheet — borrowing and disinvestment in, roads and loans out. The three deficits then fall out of the grid mechanically: Revenue deficit = revenue expenditure minus revenue receipts. Fiscal deficit = total expenditure minus total receipts other than borrowing, so it equals the government's borrowing for the year. Primary deficit = fiscal deficit minus interest payments, so it is this year's fresh imbalance stripped of the cost of past borrowing. Learn the grid once and never confuse the deficits again.

• Fiscal minus interest equals primary.

  Fiscal deficit is total expenditure minus total receipts excluding borrowings — the government's total borrowing need. Subtract interest payments from it and you get the primary deficit, which shows the gap created by this year's decisions rather than by past debt. Revenue deficit is a separate thing: revenue expenditure minus revenue receipts.

• GST is one tax, two Acts, one Council.

  The 101st Amendment created the goods and services tax, split into central and state components on intra-state supply and an integrated levy on inter-state supply. Rates are decided by the GST Council under Article 279A, chaired by the Union Finance Minister with state finance ministers as members.

• 1The budget is presented as the Annual Financial Statement under Article 112 of the Constitution.
• 2Fiscal deficit equals total expenditure minus total receipts excluding borrowings.
• 3Primary deficit equals fiscal deficit minus interest payments.
• 4The Fiscal Responsibility and Budget Management Act of 2003 set statutory targets for reducing deficits.
• 5A vote on account allows the government to draw funds for a short period before the full budget is passed.
• 6Income tax and corporation tax are direct taxes; GST and customs duty are indirect taxes.

• The Annual Financial Statement, which is what the Constitution calls the budget, is laid before Parliament under Article 112; money can be withdrawn from the Consolidated Fund of India only after Parliament passes an Appropriation Act, and taxes are levied through the Finance Act.
• Fiscal deficit equals total expenditure minus total receipts excluding borrowings, so it is exactly the amount the government must borrow in that year; primary deficit is fiscal deficit minus interest payments.
• Direct taxes are paid by the person on whom they are levied and cannot be shifted (income tax, corporation tax); indirect taxes can be passed on to the consumer (GST, customs duty). Direct taxes are progressive by design, indirect taxes tend to be regressive.
• GST was introduced from 1 July 2017 by the 101st Constitutional Amendment; it is a destination-based consumption tax and the GST Council, chaired by the Union Finance Minister with state finance ministers as members, decides rates.
• The FRBM Act of 2003 commits the government to fiscal discipline targets and to laying statements on its fiscal position before Parliament; the Finance Commission, appointed by the President under Article 280, separately recommends how central taxes are shared with the states.

• Fiscal deficit is not the same as revenue deficit. Revenue deficit ignores capital receipts and capital expenditure entirely.

• NCERT Class XII — Introductory Macroeconomics
• Indian Economy by Ramesh Singh
• Economic Survey, published annually by the Ministry of Finance
• Public Finance in Theory and Practice by H L Bhatia

• NCERT textbooks (free PDFs)
• Union Budget
• Reserve Bank of India
• NITI Aayog