A History Of India's Budget Since 1947 | Explained In Numbers & Charts By Ankit Agrawal

Summary

This video discusses the evolution of India's Union Budget from 1947 to 2024-25, highlighting significant changes in government spending, income sources, and fiscal policies. The narrator provides insights into how expenditures, such as defense and subsidies, have shifted over time, and explains the fiscal deficit, tax revenues, and the impact of major historical events like the 1991 financial crisis. The video also touches upon key budget highlights, such as the allocation for women and children, and explores how the budget influences various sectors, including stock markets. Viewers are also given a glimpse into the challenges faced by the government in managing fiscal health.

Takeaways

• 😀 The first budget post-independence in 1947 had a major focus on defense spending due to the ongoing conflicts and refugee rehabilitation.
• 😀 In 1947, 57% of the government expenditure was allocated to defense, while today, around 20% of the budget is spent on interest payments.
• 😀 The majority of revenue in 1947 came from income tax (80%), whereas in modern times, borrowing (27%) is the largest source of revenue.
• 😀 Over the years, India's fiscal deficit has fluctuated, peaking during the global financial crisis and COVID-19, with an aim to reduce it to 4% by 2025-26.
• 😀 The Union Budget serves as a roadmap for India's fiscal and financial reforms, and it is eagerly awaited for its potential impact on the economy.
• 😀 Women and child welfare schemes now receive a larger share of the budget, with the latest allocation being about 6.8%.
• 😀 The budget directly impacts the stock market, with historical trends showing that the market has often reacted negatively on budget days.
• 😀 In 1947, the fiscal deficit was at 21% of the expenditure, while today, the government borrows extensively, contributing to fiscal imbalances.
• 😀 The government uses taxes like GST, corporation taxes, and income tax to generate revenue, with the focus shifting from tax revenue to borrowing and other liabilities over time.
• 😀 India's foreign exchange reserves have significantly improved since 1991, with the current reserves around $650 billion, a sharp contrast to the $1 billion in reserves in the early 1990s.

Q & A

What was the primary focus of the Union Budget in 1947?

In 1947, the primary focus of the Union Budget was on defense, as the country had just gained independence and was dealing with crises such as the refugee rehabilitation and conflict with Pakistan. The majority of the budget was allocated to defense spending.

How much of the 1947 budget was allocated to defense?

In 1947, approximately 57% of the budget was allocated to defense expenditures, reflecting the critical importance of national security in the aftermath of independence.

What percentage of India's revenue came from income tax in 1947?

In 1947, about 80% of the government's revenue came from income taxes. This was the largest source of revenue at that time.

How has the government’s revenue source changed over the years?

In more recent years, the revenue from income tax has decreased, while revenue from borrowings and liabilities has increased significantly. Currently, borrowing constitutes about 27% of the revenue, while income tax now contributes around 19%.

What is the current percentage of the budget allocated for interest payments?

Currently, around 20% of India's budget is allocated to paying interest on loans, which has increased due to rising borrowings over the years.

What is the fiscal deficit and why is it important?

The fiscal deficit represents the gap between the government's expenditure and its revenue. It is important because if it is too high, it can negatively affect investor confidence and the country's financial stability. The government aims to control the fiscal deficit to maintain economic stability.

How did the fiscal deficit situation change post-1991?

After 1991, following India's financial crisis, fiscal discipline was restored through reforms. The Fiscal Responsibility and Budget Management (FRBM) Act was introduced to reduce fiscal deficits, but global financial crises and the COVID-19 pandemic caused temporary setbacks.

What was the impact of the COVID-19 pandemic on India’s fiscal deficit?

The COVID-19 pandemic led to a significant drop in government revenue and an increase in borrowing, pushing the fiscal deficit to over 9% of GDP. The government is now working to reduce this to 4% by 2025-26.

What is the significance of the 1991 budget in India’s economic history?

The 1991 budget marked a turning point in India's economic history, as it introduced major reforms such as liberalization, privatization, and globalization. It helped stabilize the economy and improve foreign exchange reserves.

How did the government’s revenue structure evolve over time?

Over time, the share of revenue from taxes has decreased, with non-tax revenues, such as borrowings and penalties, gaining more importance. The tax-to-GDP ratio has declined from over 8% in 2009-10 to around 7% now.