The journey of India’s money:How the government earns, allocates, and spends through the union budget to shape the nation’s future

India is preparing for its next Union Budget. The economy is growing fast, with growth expected at around 7.4 per cent in 2025–26. The services sector now drives the economy, while agriculture and manufacturing continue to play a key role. This explainer looks at what the Budget is, how it is prepared, its main components, and where government money comes from and how it is spent. How is the Union Budget prepared and passed? The Union Budget is prepared by the Budget Division in the Ministry of Finance and is presented annually under Article 112 of the Constitution for the financial year running from April 1 to March 31. The Budget passes through six stages in Parliament: Only after completing these steps does the Budget become operational. What financial tools does the Budget use to manage the economy? The Union Budget manages the economy using three main tools: Revenue Account, Capital Account, and Deficit Management. Together, these tools help the government run the country, grow the economy, and manage money wisely. What are the main components of the Budget document? The Budget document consists of two major parts: Revenue Budget and Capital Budget. Revenue Budget Example: Like a school collects fees from students (tax receipts) and sells old uniforms (non-tax receipts). This money is used to pay teachers’ salaries and maintain classrooms. Similarly, the government uses revenue receipts to meet regular operating expenses. Capital Budget Example: Like a school takes a loan (capital receipt) to build a new sports hall. The loan is used to construct the hall (capital expenditure), which benefits students for many years. Similarly, government capital spending creates long-term national assets. Where does government money come from? The government gets money through Budget Receipts, which are divided into Revenue Receipts and Capital Receipts. Revenue Receipts (How Money is Collected) Capital Receipts (Extra Money Sources) Like a school borrowing money to build a playground or selling old furniture. The government raises funds by borrowing from domestic and foreign sources, selling assets such as land or PSU shares (disinvestment), and recovering loans. Where does government money go? The government spends money through Budget Expenditure, which is divided into Revenue Expenditure and Capital Expenditure. Revenue Expenditure (Current Spending) Money spent on day-to-day running of the government. It includes salaries, pensions, subsidies, defence, interest on debt, government services, and grants to states.
Example: Like a school paying teachers, buying textbooks, and maintaining classrooms. This spending keeps things running but does not create long-term assets. Capital Expenditure (Long-Term Investment) Money spent on creating assets for the future. It includes infrastructure projects, buildings, land, machinery, loans to states, and loans to public sector companies.
Example: Like a school building a new library or playground. This spending benefits the economy over many years. When Spending Exceeds Income Fiscal Deficit – The total money the government needs to borrow.
Example: If the government needs ₹100 to cover all its spending but has only ₹60 in revenue, it borrows the remaining ₹40. Primary Deficit – Fiscal deficit minus interest payments. Example: If the fiscal deficit is ₹40 and interest payments are ₹10, the primary deficit is ₹30. This shows new borrowing excluding interest liabilities. Budget Surplus – Occurs when government revenue exceeds expenditure, allowing debt repayment or future investment. Example: A family saving money after covering all expenses. Balanced Budget – Occurs when revenue equals expenditure, maintaining financial stability. How does the government borrow money? The government borrows through several channels: