Union Budget 2023: Where Indian Economy Spends Money & How It Earns
Budget '23 will be watched closely for any policy-driven measures to ease pressures on the average person's pocket.
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Finance Minister Nirmala Sitharaman is set to table Union Budget 2023 in Parliament on 1 February, giving an outlay of the expenses incurred by the Indian economy, as well as the capital it earned.
Her Budget comes at a time when the global economy is crawling out of the slowdown caused by the COVID-19 pandemic and the Russia-Ukraine war, both of which disrupted the global supply chain, leading to a rise in commodity prices.
As the last full Budget presented by the Modi 2.0 government, it will be watched closely for any policy-driven measures to reign in inflation and ease pressures on the average person's pocket.
Last year, Sitharaman, in her Budget speech, remarked that spending would be upped to an estimated Rs 39.45 lakh, which will lead to further widening of the fiscal deficit.
As D-day approaches, The Quint breaks down how the government spends its money and what its sources of income are.
Where India Spends
Interest payments ~ 20%: Interest payments form a significant chunk, nearly one-fifth, of the government's expenditure. The government spends this money to pay off its debt on money that it had borrowed in the past and has not been paid back yet. The remaining parts are then utilised for transferring money to states, national security, subsidies, etc.
State's share of taxes and duties ~ 17%: The Centre transfers money to states so that it can be utilised for infrastructure development, among other things. The transfer comprises any type of loans or grants as well as devolution from the central pool of taxes. The recommendations of how proceeds of the taxes will be distributed from the Centre to the states (vertical) and among the states (horizontal) are given by the Finance Commission.
Central sector schemes ~ 15%: These schemes are entirely funded by the central government and are majorly seen as allocations given to programmes such as Crop Insurance Scheme, Namami Gange (National Ganga Plan), LPG connection to poor households, etc.
Centrally-sponsored schemes ~ 8%: These schemes are sponsored by either the central government, the state government, or both. They are divided into Core Schemes, which include Pradhan Mantri Gram Sadak Yojna, mid-day meals, Rural Drinking Water Mission, etc, and Core-of-Core Schemes, which include MGNREGA, Umbrella Programme for Development of Minorities, etc.
Defence ~ 8%: The money is spent on procuring defence equipment such as fighter planes, firearms, bulletproof vests, communication devices, as well as technology so as to modernise the country's defence arsenal.
Subsidies ~ 9%: Subsidies are provided on fertilisers, petroleum products such as LPG and kerosene, etc. but the maximum share, over 60%, goes towards providing food subsidies. Subsidies are also provided on loans taken under various government schemes as well as on procuring agricultural produce other than wheat or paddy.
Finance Commission grants and other transfers ~ 10%: The Finance Commission, set up by the President of India every five years, decides the share of the Union government and the states from the total tax revenue. The commission also recommends how much money shall be given to local bodies so as to help Panchayati Raj institutions to grow as units of self-governance. Further, it provides funds to the State Disaster Relief Funds and compensates those states that have incurred losses in revenue after the devolution of taxes. All this comes under Finance Commission Grants and Other Transfers.
Disbursal of pension ~ 4%: This is the money spent on providing pensions to central government employees working in railways, telecom, India Post as well as defence pensioners among others. Even though pensions have the least share in the government's spending, over Rs 2.54 lakh crore was spent in the 2021-22 fiscal on 70 lakh central government pensioners, Minister of State for Personnel Jitendra Singh told the Parliament in August last year.
Other Expenditures ~ 9%: These include money spent on building robust health infrastructure, improving education, and allocating funds to various ministries.
How India Earns:
Borrowings, liabilities ~ 35%: The Centre's borrowings from other economies bring a major share of money into the economy. However, the maximum, over 50%, comes from direct and indirect taxes.
GST Collections ~ 16%: Goods and Services Tax (GST) collections contribute 16% to India's income. In April last year, GST collection hit a record high of Rs 1.68 lakh crore and has been more than Rs 1.4 lakh crore for 10 months straight ever since.
Income tax ~ 15%: Income tax is a direct tax paid to the government by its citizens on the income that they earn or the profits that they make. It was expected to increase by 14% in the 2022-2023 financial year and amount to Rs 7 lakh crore.
Corporation tax ~ 15%: This is the tax levied on companies and enterprises for the profits that they earn from their business. It was expected to increase by 13% in 2022-23 to Rs 7.2 lakh crore.
Excise Duty ~ 7%: Excise Duty is the tax levied by the government on certain domestically-produced goods. It is an indirect tax levied on the production or sales of goods, and is also known as Central Value Added Tax.
Customs Duty ~ 5%: Customs Duty is the tax imposed on the import and export of goods. It is also an indirect tax.
Non-tax revenue ~ 5%: This is income earned by the government from sources other than direct and indirect taxes. These may include licence fees from telecom operators for spectrum usage, profits made by public sector units (PSUs), etc.
Non debt capital receipts ~ 2%: Non-debt capital receipts are those where the government loses its asset, but there is no increase in liabilities. These include recovery of loans, disinvestment proceeds from the sale of the government's stake in public sector enterprises (think Air India), the listing of PSUs in the stock market, etc.
(With inputs from PRS Legislative Research and The Times of India as per Budget estimates for the year 2022-2023.)
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