finance
India’s budget history commenced in 1860 with the presentation of the first budget by the British Raj in the Legislative Council. Since that time, budget variations have been an integral part of India's economic landscape, reflecting significant growth and shifts over the decades. This article provides a succinct overview of India’s budgetary developments and the notable changes that have emerged over the years.
In 1860, the initial budget for colonial India concentrated on revenue and expenditure related to public services, infrastructure, and works. Notably, this budget reflected an opening surplus of Rs. 10 million. Over the years, the Indian government has continuously updated its budgetary framework to incorporate new taxes, spending patterns, and regulatory measures.
The British established the "Indian Finance System," which included protective measures for local industries, particularly for staple goods such as cotton, jute, food grains, wheat, and sugar. Early British taxation disproportionately affected lower-income groups, imposing levies on land, trade, and economic activities. Notable transformations in the pre-independence budget arose during World War I and World War II, where financing war efforts strained fiscal resources. The government resorted to borrowing, issuing debt instruments, raising excise duties, and increasing income taxes to address declining revenues.
To balance high expenditure with the necessity of reducing public debt, the Income Tax Act of 1944 focused on systematic tax collection and targeted Indian entrepreneurs who had previously evaded taxation. The Act also introduced a base rate system imposing taxes on incomes exceeding Rs. 10,000 at a flat rate of one-sixth, later evolving into a tiered tax rate structure last revised in 1955. Increased public financial focus facilitated infrastructure projects, particularly in railway development and irrigation systems.
Since gaining independence in 1947, India's budget has experienced numerous transformations driven by economic growth and a rising population. Priorities shifted towards defense, health, education, development, and infrastructure within the union budget framework. The independence of India led to the creation of a distinct budget, which evolved further after the Constitution was adopted in 1950. This transition established a parliamentary budget system, enhancing the collaborative involvement of both executive and legislative branches in the budgetary process.
In the initial decades post-independence, emphasis remained on taxation and government expenditures related to railways, irrigation projects, and public subsidies. From 1951 to 1991, central government revenues were categorized into direct and indirect revenue streams. The economic reforms of the 1990s introduced new taxes and revenue sources, including the Value Added Tax (VAT) for goods and services, the Goods and Services Tax (GST), alongside various direct and indirect taxes that collectively bolstered government revenue.
Over the years, various reforms have aimed to enhance the efficiency and effectiveness of the budget process. Significant developments include:
Currently, the budget is developed by the Department of Economic Affairs and presented by the Minister of Finance to Parliament at the end of February. Annually, the Public Finance Management Act is updated to integrate new budgetary provisions and modify existing policies. The budget is subject to discussion and debate in both Houses of Parliament prior to its passage.
India's budget history is characterized by significant changes, reforms, and advancements. The introduction of various new taxes and revenue sources has proven vital for economic growth and financial management. Furthermore, the evolution of the budgeting process has greatly improved its efficiency and effectiveness over time.