Union Budget, Deficits, and GST

1. Fiscal Policy and the Union Budget

Fiscal policy deals with government revenue generation (taxation) and expenditure. The Union Budget (Annual Financial Statement under Article 112) presents estimated receipts and expenditures for the upcoming financial year.

• Revenue Receipts: Recurring income that creates no liability (Taxes, dividends).
• Capital Receipts: Funds that create liabilities or reduce assets (Borrowings, Disinvestment).
• Revenue Expenditure: Day-to-day running costs (Salaries, Subsidies, Interest payments).
• Capital Expenditure (Capex): Spending that creates assets (Roads, Hospitals) or reduces liabilities.

2. Understanding Deficits

When government expenditure exceeds revenue, it runs a deficit.

• Revenue Deficit: Revenue Expenditure minus Revenue Receipts. Indicates the government cannot meet its daily running costs from its regular income.
• Fiscal Deficit: Total Expenditure minus Total Receipts (excluding borrowings). It represents the total borrowing required by the government to fund its budget.
• Primary Deficit: Fiscal Deficit minus Interest Payments. It indicates the current year's borrowing requirement excluding the burden of past debt.

3. Taxation in India (Direct vs Indirect)

• Direct Taxes: Incidence and impact fall on the same person, cannot be shifted (e.g., Income Tax, Corporate Tax).
• Indirect Taxes: Imposed on goods and services; the burden is shifted to the final consumer (e.g., GST, Customs Duty).

4. Goods and Services Tax (GST)

Introduced in 2017 via the 101st Constitutional Amendment. It is a comprehensive, multi-stage, destination-based indirect tax that subsumed numerous cascading taxes (like Excise Duty, VAT, Service Tax).

• Structure: CGST (Central), SGST (State), and IGST (Integrated - for inter-state supply).
• GST Council: Headed by the Union Finance Minister. Decisions require a 3/4th majority.