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Indian Economy

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high importance~2 Q in Tier 16 formulas⚡ 20 shortcuts8 subtopics
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Budget and fiscal policy

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⏱ 4 min read🧩 5 question types🎯 14 practice Q
The idea in one minute

The Budget is the government's yearly plan of income and spending. The Constitution calls it the Annual Financial Statement (Article 112). The main test topics are the four deficits, the three funds and the Budget dates. Budget 2026-27 put the fiscal deficit at 4.3% of GDP.

01

The Budget and the Constitution

The word "Budget" is not in the Constitution. Article 112 calls it the Annual Financial Statement. Article 265 says no tax can be levied without the authority of law.

Since 2017 the Budget is presented on 1 February. The Railway Budget was merged into it in the same year. The Economic Survey comes a day before, from the Department of Economic Affairs.

Spending goes through Demands for Grants and the Appropriation Bill. Taxes go through the Finance Bill.

02

The three funds

FundArticleKey point
Consolidated Fund266(1)All revenues and loans; Parliament must approve each withdrawal
Public Account266(2)Money held in trust (provident funds, small savings); no vote needed
Contingency Fund267At the President's disposal for unforeseen spending; corpus ₹30,000 crore (2021)
03

Revenue and capital

  • Revenue receipts: taxes, interest, dividends.
  • Capital receipts: borrowings, disinvestment, loan recoveries.
  • Revenue expenditure: salaries, subsidies, interest.
  • Capital expenditure: roads, buildings, defence equipment.
04

The deficits

Rule: Fiscal deficit = total expenditure - total receipts excluding borrowings.

DeficitFormula
RevenueRevenue expenditure - revenue receipts
Effective revenueRevenue deficit - grants for capital assets
FiscalTotal expenditure - receipts excluding borrowings
PrimaryFiscal deficit - interest payments

The fiscal deficit is the year's total borrowing need. The primary deficit removes interest on past debt. Interest payments are the largest expenditure head. Subsidies and defence follow.

Example: Expenditure ₹45 lakh crore, receipts without borrowing ₹39 lakh crore. The fiscal deficit is ₹6 lakh crore.

05

FRBM Act

The FRBM Act, 2003 sets legal limits on deficits. It was amended in 2018 to add debt targets. Budgets announce a fiscal glide path, a year-by-year route for the deficit as a share of GDP.

06

Budget 2026-27 at a glance

Nirmala Sitharaman presented it on 1 February 2026. These are budget estimates.

ItemFigure
Total expenditure₹53.47 lakh crore
Receipts (excluding borrowings)₹36.52 lakh crore
Borrowings₹16.96 lakh crore
Fiscal deficit4.3% of GDP (RE 2025-26: 4.4%)
Revenue deficit1.5% of GDP
Primary deficit0.7% of GDP
Capital expenditure₹12.2 lakh crore
Central debt55.6% of GDP
Disinvestment target₹80,000 crore

New in the Budget: Biopharma SHAKTI (₹10,000 crore), SME Growth Fund (₹10,000 crore), Semiconductor Mission 2.0 and MAT cut from 15% to 14%.

07

Question types you will see

Each type: how to recognise it, the method step by step, and one question to try.

Type 1very common4 practice Q

Deficit arithmetic

How to spot it:

Expenditure, receipts and interest figures are given. One deficit is asked.

Method

  1. Write the formula for the deficit asked.

  2. Fiscal = total expenditure - receipts excluding borrowings.

  3. Primary = fiscal deficit - interest payments.

  4. Check the units (lakh crore).

Why it works:

One subtraction gives the answer once the formula is right.

Try this

Total expenditure is ₹45 lakh crore. Receipts excluding borrowings are ₹39 lakh crore. What is the fiscal deficit?

Show solution

  1. Fiscal deficit = expenditure - receipts excluding borrowings.

  2. 45 - 39 = 6.

Answer

₹6 lakh crore

Type 2common2 practice Q

Budget structure, articles and funds

How to spot it:

'Which article is the Annual Financial Statement', 'the Contingency Fund is at whose disposal', or a fund-and-article match.

Method

  1. 112 is the Annual Financial Statement.

  2. 266(1) is the Consolidated Fund. 266(2) is the Public Account.

  3. 267 is the Contingency Fund, at the President's disposal.

  4. Only the Consolidated Fund needs Parliament's vote for withdrawals.

Why it works:

Each fund has one article and one rule.

Try this

The Contingency Fund of India is placed at whose disposal?

Show solution

  1. It is for unforeseen spending.

  2. Article 267 sets it up.

  3. The President controls it.

Answer

The President

Type 3common2 practice Q

Revenue versus capital, effective revenue deficit

How to spot it:

'Which is a capital receipt', 'effective revenue deficit excludes', or a list with disinvestment, borrowings and grants.

Method

  1. Capital receipts: borrowings, disinvestment, loan recoveries.

  2. Capital expenditure builds assets: roads, buildings, defence equipment.

  3. Revenue expenditure: salaries, subsidies, interest.

  4. ERD = revenue deficit - grants for capital assets.

Why it works:

Sort each item as revenue or capital by asking if it creates a liability or an asset.

Try this

Which of these is a capital receipt?

Show solution

  1. Borrowings and loan recoveries are capital receipts.

  2. Selling government shares also counts.

  3. That sale is called disinvestment.

Answer

Disinvestment proceeds

Type 4occasional2 practice Q

FRBM and the glide path

How to spot it:

'The FRBM Act was passed in', 'a glide path means', or a statement on deficit targets.

Method

  1. FRBM Act is 2003.

  2. A 2018 amendment added debt targets.

  3. A glide path is a year-by-year deficit route.

  4. Interest is the largest expenditure head.

Why it works:

The Act and the glide path are fixed facts.

Try this

In which year was the FRBM Act enacted?

Show solution

  1. FRBM stands for Fiscal Responsibility and Budget Management.

  2. It set legal deficit limits.

  3. It dates from 2003.

Answer

2003

Type 5common2 practice Q

Budget process, dates and documents

How to spot it:

'Since which year is the Budget on 1 February', 'the Economic Survey is tabled when', or Demands for Grants questions.

Method

  1. From 2017 the Budget is on 1 February.

  2. The Railway Budget merged the same year.

  3. The Economic Survey comes a day before, from the DEA.

  4. Spending goes through the Appropriation Bill. Taxes go through the Finance Bill.

Why it works:

The dates and the two bills are fixed.

Try this

When is the Economic Survey presented?

Show solution

  1. It reviews the economy.

  2. The Department of Economic Affairs prepares it.

  3. It comes a day before the Budget.

Answer

A day before the Union Budget

08

Formula sheet

Fiscal deficit
FD=Total Expenditure−Total Receipts (excl. borrowings)FD = \text{Total Expenditure} - \text{Total Receipts (excl. borrowings)}

equals government borrowing requirement

Revenue deficit
RD=Revenue Expenditure−Revenue ReceiptsRD = \text{Revenue Expenditure} - \text{Revenue Receipts}

revenue items only

Primary deficit
PD=FD−Interest PaymentsPD = FD - \text{Interest Payments}

strips out past borrowing costs

09

Shortcuts that save time

⚡ Number sheet 2026-27

Spend 53.5, receipts 36.5, borrowing 16.9 (₹ lakh crore). Fiscal deficit 4.3%, revenue deficit 1.5%, primary deficit 0.7%. Capex 12.2. Debt 55.6%.

Example

What is the fiscal deficit in Budget 2026-27?

Show solution

  1. Recall the deficit trio: 4.3, 1.5, 0.7.

  2. Fiscal deficit is the largest of the three.

  3. It equals ₹16.96 lakh crore of borrowing.

Answer

4.3% of GDP

⚡ Article trio for money

112 is the Budget. 266 is the Consolidated Fund and Public Account. 267 is the Contingency Fund.

Example

Which article covers the Annual Financial Statement?

Show solution

  1. The Budget is the Annual Financial Statement.

  2. Recall the trio 112, 266, 267.

  3. The first one is the Budget.

Answer

Article 112

10

Mistakes to avoid

Where most students lose marks on this subtopic.

Mistake 01

Quoting 4.4% as the 2026-27 fiscal deficit.

4.4% is the 2025-26 revised estimate. The 2026-27 budget estimate is 4.3%.

Mistake 02

Confusing primary deficit with revenue deficit.

Primary = fiscal deficit - interest. Revenue = revenue expenditure - revenue receipts.

Mistake 03

Thinking the Railway Budget is still separate.

It merged with the Union Budget in 2017.

Mistake 04

Saying Article 112 defines the word 'Budget'.

Article 112 uses the term Annual Financial Statement.

Mistake 05

Saying the Contingency Fund is at Parliament's disposal.

It is at the President's disposal (Article 267).

11

Quick revision

Read this the night before the exam.

  • Budget = Annual Financial Statement (Article 112). Presented 1 February since 2017.

  • Railway Budget merged in 2017. Economic Survey comes a day before.

  • Funds: Consolidated 266(1), Public Account 266(2), Contingency 267.

  • Contingency Fund is with the President; corpus ₹30,000 crore.

  • RD = revenue exp - revenue receipts. FD = total exp - receipts excluding borrowings. PD = FD - interest.

  • ERD = revenue deficit - grants for capital assets.

  • FRBM Act 2003, amended 2018. Interest is the largest expenditure head.

12

Practice: 14 questions

Sets of 10, mixed across the question types above. Every answer has a step-by-step explanation.

Topic test · 10 questions

Suggested time 4 min · wrong answers go to your mistake notebook automatically.

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