Union Budget 2026-27 — The Government's Annual Financial Statement

The Union Budget is the government's Annual Financial Statement under Article 112 — a statement of estimated receipts & expenditure for the coming financial year, and the single most important instrument of fiscal policy. This topic covers the Budget's constitutional foundation, the key budget documents, the three government funds, the types of deficit, revenue vs capital & plan/non-plan classification, the full parliamentary budget process (from presentation through the demands for grants, cut motions, Appropriation & Finance Bills), and how to read a Budget's highlights & allocations for the exam. check for latest update or data

UPSC Prelims · Mains GS-II & GS-III Ramesh Singh Ch. 24 ~28 min read Art. 112 · AFS Deficits · Budget Process

Conceptual Clarity
1. What Is the Union Budget?
2. Constitutional Provisions
3. The Three Government Funds
4. Budget Documents
5. Receipts & Expenditure
6. Types of Deficit
7. The Budget Process
8. Special Budget Concepts
9. Reading Budget 2026-27 Highlights
10. Current Affairs Anchor (2026-27)
11. Prelims PYQs (2014–2026)
12. Mains PYQs (2014–2025)
13. Revision Box

Conceptual Clarity — Three Lenses

A statement, then a law — the Budget begins as an estimate (Annual Financial Statement) but becomes binding only after Parliament passes the Appropriation Bill (to draw money) & the Finance Bill (to levy taxes).
Receipts vs expenditure, revenue vs capital — the Budget's core logic is a two-way classification: where money comes from (receipts) vs where it goes (expenditure), each split into revenue (recurring) & capital (asset/liability-changing).
Deficit = the fiscal story — the various deficits (revenue, fiscal, primary, effective revenue) capture how much the government borrows & why; they are the exam's favourite Budget concept.

Fiscal Deficit = Total Expenditure − Total Receipts (excluding borrowings)
Revenue Deficit = Revenue Expenditure − Revenue Receipts
Primary Deficit = Fiscal Deficit − Interest Payments · Budget = Art. 112 Annual Financial Statement

1. What Is the Union Budget?

The Annual Financial Statement (AFS) — a statement of the estimated receipts & expenditure of the Government of India for a financial year (1 April–31 March).
Presented by the Finance Minister, usually on 1 February, in the Lok Sabha.
It is the government's principal instrument of fiscal policy — taxation, spending & borrowing (links to Ch. 19 Public Finance).

Prelims trap: The word "Budget" does not appear in the Constitution — the constitutional term is the "Annual Financial Statement" (Article 112). Also note the Budget moved to 1 February (from end-February) in 2017, when the Railway Budget was merged into it.

2. Constitutional Provisions

Article	Provision
Art. 112	Annual Financial Statement (the "Budget")
Art. 113	Demands for Grants — voted by Lok Sabha
Art. 114	Appropriation Bill — authorises withdrawal from the Consolidated Fund
Art. 110	Definition of a Money Bill
Art. 117	Financial Bills
Art. 265	No tax shall be levied/collected except by authority of law
Art. 266	Consolidated Fund & Public Account of India
Art. 267	Contingency Fund of India

Prelims trap: Art. 112 = AFS/Budget; Art. 114 = Appropriation Bill; Art. 110 = Money Bill; Art. 265 = no tax without law; Art. 266/267 = the funds. These article-matches are among the most-tested polity-economy overlaps.

3. The Three Government Funds

Fund	Article	Nature
Consolidated Fund of India	266(1)	All revenues, loans raised & loan-recoveries; all govt spending is from here (needs Parliament's authorisation)
Public Account of India	266(2)	Money where govt acts as a banker (provident funds, small savings); no parliamentary vote needed for withdrawals
Contingency Fund of India	267	Imprest at the disposal of the President for urgent unforeseen expenditure; later recouped from the CFI

Prelims trap: Withdrawals from the Consolidated Fund need Parliament's authorisation; the Public Account does not (govt is only a banker); the Contingency Fund is at the President's disposal for emergencies & is recouped later.

4. Budget Documents

Annual Financial Statement (AFS) — the core constitutional document (Art. 112).
Demands for Grants — ministry/department-wise expenditure estimates voted by the Lok Sabha.
Finance Bill — contains the taxation proposals (Art. 110/117).
Fiscal Policy Statements under FRBM — the Macro-Economic Framework Statement, the Medium-Term Fiscal Policy cum Fiscal Policy Strategy Statement.
Expenditure Budget, Receipt Budget, Budget at a Glance, Memorandum, Outcome Budget — supporting documents.

Mains anchor: The FRBM statements make the Budget a document of fiscal accountability, not just accounting — they force the government to state its deficit & debt path (links to Ch. 19 & the NK Singh review).

5. Receipts & Expenditure

5.1 Receipts

Type	Includes
Revenue Receipts	Tax revenue (direct + indirect) & non-tax revenue (interest, dividends, fees) — do NOT create a liability or reduce an asset
Capital Receipts	Borrowings, loan recoveries, disinvestment proceeds — create a liability or reduce an asset

5.2 Expenditure

Type	Includes
Revenue Expenditure	Recurring spending — salaries, interest, subsidies; does not create assets
Capital Expenditure	Asset-creating — infrastructure, loans by govt, acquisition of assets

Prelims trap: Disinvestment proceeds & borrowings are Capital Receipts; tax & interest/dividend income are Revenue Receipts. Capital expenditure (capex) is asset-creating — the quality-of-spending argument favours higher capex share.

6. Types of Deficit

Deficit	Formula	Meaning
Revenue Deficit	Revenue Exp. − Revenue Receipts	Govt's revenue shortfall; borrowing for consumption
Fiscal Deficit	Total Exp. − Total Receipts (excl. borrowings)	Total borrowing requirement of the govt
Primary Deficit	Fiscal Deficit − Interest Payments	Current-year fiscal gap net of past-debt interest
Effective Revenue Deficit	Revenue Deficit − Grants for capital assets	Revenue deficit adjusted for grants that create assets

Fiscal deficit is financed by borrowing — from the market (G-Secs), RBI & small savings; it drives public debt.
The FRBM Act targets a fiscal-deficit glide path; the NK Singh Committee recommended a debt-anchor approach (links to Ch. 19). check for latest update or data

Prelims trap: Fiscal deficit = total borrowing need; primary deficit = fiscal deficit minus interest payments (isolates the current year's fiscal action). A zero primary deficit means all borrowing is only to pay past interest.

7. The Budget Process in Parliament

Presentation of the Budget (Budget Speech + documents), usually 1 February.
General Discussion on the Budget as a whole (no voting).
Scrutiny by Departmental Standing Committees (a recess for detailed examination of demands).
Voting on Demands for Grants (Lok Sabha only) — here cut motions can be moved.
Appropriation Bill (Art. 114) — authorises withdrawal from the Consolidated Fund.
Finance Bill — enacts the taxation proposals; must be passed within 75 days.

7.1 Cut Motions

Cut Motion	Purpose
Policy Cut	Reduce demand to ₹1 — disapproval of the underlying policy
Economy Cut	Reduce demand by a specified amount — to effect economy
Token Cut	Reduce demand by ₹100 — to air a specific grievance

Prelims trap: Money bills (Budget, Finance Bill) can be voted only by the Lok Sabha; the Rajya Sabha can only recommend (within 14 days). Cut motions are moved during voting on Demands for Grants.

8. Special Budget Concepts

Vote on Account — advance grant to meet expenditure for part of the year until the full Budget is passed (does not deal with taxation).
Interim Budget — a full budget (receipts + expenditure) presented in an election year for a short period; convention is to avoid major policy changes.
Supplementary, Additional, Excess & Exceptional Grants — mechanisms for extra spending during the year.
Guillotine — the Speaker puts all remaining (undiscussed) demands to vote at once when time runs out.
Gender Budget & Outcome Budget — tools to track gender-linked spending & outcomes vs outlays.
Zero-Based Budgeting, Charged vs Voted Expenditure — charged expenditure (e.g., President's emoluments, judges' salaries, interest on debt) is non-votable.

Prelims trap: Vote on Account covers only expenditure (no tax changes); an Interim Budget is a complete budget for a short duration. "Charged" expenditure on the Consolidated Fund is non-votable (only discussed).

9. Reading Budget 2026-27 Highlights (for UPSC)

Fiscal-deficit target (% of GDP) & the glide path. check for latest update or data
Capital-expenditure allocation & the capex-to-GDP push. check for latest update or data
Tax changes — income-tax slabs/regime, customs, any GST-linked announcements. check for latest update or data
Sectoral allocations — agriculture, infrastructure, health, education, defence, welfare schemes. check for latest update or data
Flagship schemes/announcements & the Budget's signature theme/priorities. check for latest update or data
Disinvestment & borrowing programme figures. check for latest update or data

Note: Every number in this section changes with the actual Budget 2026-27 — fill in the fiscal-deficit target, capex figure, tax-slab changes & headline schemes from the Budget documents & Finance Minister's speech before the exam.

10. Current Affairs Anchor (2026-27)

Budget 2026-27 fiscal-deficit target & the return to the FRBM glide path check for latest update or data
Capex vs revenue-expenditure balance & the quality of spending check for latest update or data
Personal income-tax relief / new-regime changes check for latest update or data
Major scheme launches & the Budget's priority sectors check for latest update or data
Alignment with "Viksit Bharat 2047" & the Economic Survey's outlook check for latest update or data

Note: Read the Budget 2026-27 alongside the Economic Survey 2025-26 (Ch. 23) — the Survey diagnoses, the Budget acts. Verify all figures from the official Budget documents.

11. Prelims PYQs (2014–2026)

UPSC CSE 2023

The "Annual Financial Statement" is provided under which Article of the Constitution?
Answer: Article 112 — the constitutional term for the Union Budget; the word "Budget" itself does not appear in the Constitution.

UPSC CSE 2022

Consider the statements about the "primary deficit".
Answer: Primary Deficit = Fiscal Deficit − Interest Payments; it isolates the current year's borrowing need net of past-debt interest. A zero primary deficit means borrowing only to service past interest.

UPSC CSE 2021

Which of the following are Capital Receipts of the Government — disinvestment, borrowings, tax revenue?
Answer: Disinvestment proceeds & borrowings are Capital Receipts (create liability / reduce asset); tax revenue is a Revenue Receipt.

UPSC CSE 2019

Withdrawals from which fund require prior authorisation of Parliament?
Answer: The Consolidated Fund of India (Art. 266); the Public Account does not (govt as banker), & the Contingency Fund (Art. 267) is at the President's disposal for emergencies.

UPSC CSE 2018

Consider the statements about a "Vote on Account".
Answer: It is an advance grant to meet expenditure for part of the year until the full Budget is passed; it deals only with expenditure, not taxation.

UPSC CSE 2016

The "charged expenditure" on the Consolidated Fund of India is?
Answer: Non-votable (only discussed) — e.g., emoluments of the President, salaries of judges & the CAG, interest on debt.

UPSC CSE 2015

Which Article authorises the Appropriation Bill to withdraw money from the Consolidated Fund?
Answer: Article 114 — the Appropriation Bill; no money can be withdrawn from the Consolidated Fund except under an appropriation made by law.

12. Mains PYQs (2014–2025)

GS-III 2023

"The quality of a Budget matters as much as its size." Discuss with reference to the revenue-capital composition of expenditure.
Answer: Argue that capital expenditure (asset-creating, higher multiplier) is better quality than revenue spending; discuss the capex push, crowding-in of private investment & the trade-off with welfare/subsidy spending.

GS-II 2021

Examine the parliamentary control over public finance through the budgetary process.
Answer: Trace demands for grants (Art. 113), cut motions, the Appropriation (114) & Finance Bills, the role of Standing Committees, PAC/Estimates Committee & the CAG (post-audit); assess the limits (guillotine, Money-Bill route).

GS-III 2019

Distinguish between fiscal deficit, revenue deficit & primary deficit, & explain their policy significance.
Answer: Give the three formulas; argue revenue deficit is worst (borrowing for consumption), primary deficit shows current fiscal effort, fiscal deficit drives debt; link to FRBM & the quality-of-deficit debate.

GS-III 2017

Discuss the significance of the FRBM framework & the NK Singh Committee's recommendations for budget-making.
Answer: Explain the deficit glide path, the debt-anchor approach, escape clauses & the fiscal-council idea; assess counter-cyclical flexibility vs credibility; link to Budget deficit targets.

GS-III 2015

Evaluate the shift to a 1 February Budget & the merger of the Railway Budget into the Union Budget.
Answer: Discuss earlier implementation (full year before the monsoon), the end of the colonial-era separate Railway Budget, better planning & the removal of populist rail announcements; weigh the reform's benefits.

13. Revision Box — 15-Point Crisp Recap

Union Budget = Annual Financial Statement, Art. 112; "Budget" not in the Constitution.
Presented by the FM, usually 1 February; Railway Budget merged in 2017.
Key Articles: 112 (AFS), 113 (Demands for Grants), 114 (Appropriation Bill), 110 (Money Bill), 265 (no tax without law), 266/267 (funds).
Three funds: Consolidated Fund (266(1), needs vote), Public Account (266(2), no vote), Contingency Fund (267, President).
Receipts: Revenue (tax + non-tax) vs Capital (borrowings, disinvestment, loan recovery).
Expenditure: Revenue (recurring) vs Capital (asset-creating).
Fiscal Deficit = Total Exp − Total Receipts (excl. borrowings) = total borrowing need.
Revenue Deficit = Rev Exp − Rev Receipts; Primary Deficit = Fiscal − Interest.
Fiscal deficit financed by borrowing; FRBM glide path; NK Singh debt-anchor.
Budget process: presentation → general discussion → standing-committee scrutiny → voting on demands (cut motions) → Appropriation Bill → Finance Bill.
Cut motions: Policy (₹1), Economy (specified), Token (₹100).
Vote on Account = advance expenditure grant (no tax); Interim Budget = full budget for a short period.
Guillotine = all remaining demands voted at once; charged expenditure = non-votable.
Money bills voted only by Lok Sabha; Rajya Sabha only recommends (14 days).
Read Budget 2026-27 highlights (deficit, capex, tax, schemes) with the Economic Survey. check for latest update or data

Revenue	RevExp−RevRec
Fiscal	TotExp−(Rec−Borrow)
Primary	Fiscal−Interest

Art.	Provision
110	Money Bill
112	AFS / Budget
113	Demands for Grants
114	Appropriation Bill
266/267	The Funds

Union Budget 2026-27 — The Government's Annual Financial Statement

On this page

Conceptual Clarity — Three Lenses

1. What Is the Union Budget?

2. Constitutional Provisions

3. The Three Government Funds

4. Budget Documents

5. Receipts & Expenditure

5.1 Receipts

5.2 Expenditure

6. Types of Deficit

7. The Budget Process in Parliament

7.1 Cut Motions

8. Special Budget Concepts

9. Reading Budget 2026-27 Highlights (for UPSC)

10. Current Affairs Anchor (2026-27)

11. Prelims PYQs (2014–2026)

12. Mains PYQs (2014–2025)

13. Revision Box — 15-Point Crisp Recap