Reading a Budget: The Noob Way

Preface

This blog is inspired by the "How to read and analyse Budgets" talk by Sarthak Pradhan from the Takshashila Institution as part of the 38th cohort of Graduate Certificate in Public Policy.

As inflation has a role to play in everything, I'd recommend building an understanding of what that is along with CPI and CFPI. To get you started, here's a 2 min video from The Guardian about Inflation and a press release from the Ministry of Statistics & Programme Implementation on India’s retail inflation in December 2023.

What you are going to read below is me diving into the past and present of the idea of India's budgets and trying to briefly analyse a smaller section of one of the budgets. I will be citing work of other people/organizations. As the name suggests, I am a complete noob at this, and none of the reasoning or the whys mentioned below are claimed by me to be 100% true.

Most importantly, make sure to visit the terminologies section at the end and use Google search, chatgpt or any of the other tools that spike your curiosity to deep dive into anything and everything you read here!

When did all the number games begin?

On November 26th, 1947, Finance Minister RK Shanmukham Chetty presented the first budget of a free and independent India. This covered a period of 7.5 months, from the 15th August, 1947, to the 31st of March, 1948. In his speech, he mentions,

"I have budgeted for a revenue of Rs. 171.15 crores and a revenue expenditure of Rs. 197.39 crores. The net deficit on revenue account in the period covered by these estimates will be Rs. 26.24 crores. But the final figure may be higher because the actual amount likely to be required for meeting the expenditure in connection with the relief and rehabilitation of refugees is still very uncertain and some help may also have to be given to the new Provinces of West Bengal and East Punjab for which, in the absence of any reliable data, no provision has been included."

Given the political situation, Rs. 92.74 crores out of Rs. 197.39 crores of expenditure was allocated to the Defence Services.

The budget has come a long way since. Speaking of numbers, in 2023-2024, the revenue expenditure was around Rs. 35,000 crores, whereas the revenue receipts were around Rs. 23,000 crores. The structure has also witnessed several changes including Integration of Princely States, Introduction to Five-Year Plans, VAT, GST, and most recently, the merger of rail budget.

The union budget is presented every year on February 1, and the documents are made available on indiabudget.gov.in. The state budget, which is even more closely related to you and I, is made available on the state government's website and should be just a Google search away. Read how to google search effectively.

Why should I bother?

I am sure most of what the working class of the country understands and looks forward to, in the budget, is taxation, and more specifically income tax.

"What if your morning chai began costing a ₹ more, the vegetable market bill ballooned, fuel costed ₹200 per liter, and the possibility of sending your child to college began shrinking?".

All of these, as mentioned by upstox.com are also questions whose answers would encourage you to develop an understanding of the budget.

Analysis

For this analysis, I'm going to use the Expenditure Profile of Centrally Sponsored Schemes (Statement 4A) for 2022-2023. Note: You can manipulate the URL to obtain the documents for other years.

But first, what is a centrally sponsored scheme? These schemes are designed and majorly/partially funded by the central government but run by the state government. In statement 4A for 2024-2025, there are a total of 56 entries (55 named schemes + others).

I found this document on Centrally sponsored schemes implemented by Directorate of Welfare of SC, Assam which mentions state and central share. There are also schemes that are/were 100% centrally funded. Check out the screenshot below from the program guidelines for Pradhan Mantri
Gram Sadak Yojana from August 2023 detailing the change of percentage share comparing PMGSY-I and PMGSY-II.

1. Ongoing schemes

Swachh Bharat Mission, introduced on 2nd October 2014, has been an ongoing effort from the Modi government to achieve the mission of clean India. The budget estimates for Swachh Bharat Mission [24] in 2022-23 was Rs. 2300 crore, which is the same as the budget estimates (BE) for the previous financial year. This decision maybe keeping in view the revised estimates of 2021-22 which were Rs. 300 crore less than the BE. If you compare the BE from 2021-22 or 2022-2023 with the actuals of 2020-21 (Rs. 994.90 crores), you will notice that the government has been heavily investing in this scheme.

However, I'd like to point out that all increases to the budget may not enough to communicate about intentions. If you notice a change of just around 2-4% in the BE of two consecutive years or a Actuals vs BE of two consecutive years, this could just be to account for inflation and doesn't really talk about the government being interested in investing more resources into something. It's also important to point out that you should be looking at the change in total percentage allocated to a sector before jumping to conclusions.

2. Introduction of new schemes

Here are two examples to display the dynamic nature of the budget:

a) In response to COVID, government prepared a package of Rs. 12359 crores which was part of the RE for 2021-22 which was dropped in 2022-23.

b) In 2021, a separate Ministry of Cooperation was established on July 6, 2021 which undertook 54 major initiatives (as mentioned in the press release by PIB Delhi). The Prosperity through Cooperatives [42] scheme was also a result of that.

3. Rebranding and changing scope

In 2021-22, the National Programme of Mid Day Meal in Schools [46] was rebranded to Pradhan Mantri Poshan Shakti Nirman (PM POSHAN) [41] as a result of which you will see the RE, Rs. 10233.75 crores, from the former been allocated as BE to the later. As a common man my thoughts tell me that, taking inflation and rebranding costs into consideration, keeping BE the same as RE wouldn't suffice and the name change also seems insignificant but I'd recommend reading the article - Midday meal scheme is now PM Poshan, but name change isn’t the only difference by Kritika Sharma from The Print, before you jump into conclusions.

Things to be mindful of while reading the budget

In the reading the budget tutorial, Sarthak brought the following things to our notice:

1. Don't restrict yourself to BE: BE is just a plan. Estimations can be improper and is fixed when calculating RE or reporting actuals. You also need to be skeptical of the state's capacity to implement those schemes. Make sure to compare actuals, BE and RE from previous year(s) with BE of the concerned year before making any conclusions.

2. Are all allocation increases worth considering?: Understand that inflation is not constant across sectors.

3. Don't restrict yourself to outlays: It's important to look at the Outlays, Outputs, Outcomes report. The Outcome Budget, as it's called, is part of the union budget and published by the Ministry of Finance. For a reason unknown, the Outcome Budget for 2024-25 was not published with the union budget.

You can take a look at the report for 2023-24 here.

4. Miscellaneous: Look at overall increase vs sectoral increase, absolute data vs relative data and it's alright to ignore smaller numbers.

Also as a next step, evaluate if this what the government(or this level of government) is supposed to do.

Terminologies

1. Budget: An estimate of all revenue and expenditures of an organisation or government.

2. Revenue Budget: Sum of day-to-day income and expenditures.

3. Revenue Receipts: Income through regular activities, such as taxes, fees, sales, or services.

4. Revenue Expenditures: Regular expenses incurred in running an organisation, such as salaries and other utilities.

5. Capital Budget: Long term investment and expenditure on assets.

6. Capital Receipts: Funds received from loans, investments, and the sale of fixed assets.

7. Capital Expenditures: Expense on acquiring, upgrading, or maintaining physical assets like buildings, machinery, and infrastructure.

8. Consumer Price Index: Measures the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services.

9. Consumer Food Price Index: A subset of the CPI that focuses specifically on the changes in the prices of food items.

10. Inflation: Percentage change in CFPI or CPI. In simpler terms, it's the rate of increase in prices over a given time.

11. Budged Estimate (BE): Amount estimated to be allocated for a financial year.

12. Revised Estimate (RE): Revised estimate for a financial year calculated half yearly.

13. Actuals: Actual budget allocated for a financial year.

14. Outlays: Budgetary allocations in crores

15. Outputs: Direct and measurable product

16. Outcomes: Long term benefits of the scheme