3.4.5 Public finance notes

1. 3.4.5.1Public finance basics: functions of government and public goods

   Public finance studies how a government raises money, spends it and borrows, and the budget does three jobs: it supplies what markets cannot (allocation), shares income more fairly (distribution) and steadies the economy (stabilisation).

   Advanced · 6 min · Full course
2. 3.4.5.2Union Budget: receipts and expenditure, budget documents and budgeting reforms

   The Union Budget is the Annual Financial Statement of Article 112: it estimates the Centre's receipts and expenditure for 1 April to 31 March, and nothing can be taxed or spent without Parliament's approval.

   Advanced · 8 min · Full course
3. 3.4.5.3Measures of deficit: revenue, effective revenue, fiscal and primary deficit

   A deficit measure tells you how far spending exceeds income and what kind of spending; the fiscal deficit is the headline measure because it equals the government's total borrowing need.

   Advanced · 6 min · Full course
4. 3.4.5.4Fiscal policy: deficit financing, crowding out, multipliers and automatic stabilisers

   Fiscal policy uses government spending and taxes to move aggregate demand: raise spending or cut taxes in a slump, and do the opposite in a boom.

   Advanced · 6 min · Full course
5. 3.4.5.5Public debt and the FRBM framework: the 2003 Act, 2018 amendments and the debt anchor

   The FRBM Act, 2003 put legal limits on the Centre's deficit and debt; the 2018 amendments added a debt target, and from 2026-27 the Centre follows a debt-to-GDP anchor of 50 ± 1% by 2030-31.

   Advanced · 6 min · Full course
6. 3.4.5.6Taxation: concepts, incidence, buoyancy, reform committees and abolished taxes

   A tax is a compulsory payment to the government with no direct return; India's tax system is split between the Union and States by the Constitution and has been reformed several times since 1991.

   Advanced · 6 min · Full course
7. 3.4.5.7Direct taxes: income tax, corporation tax, MAT, GAAR and the global minimum tax

   Direct taxes (income tax and corporation tax) are levied on income, are administered by the CBDT, and from 1 April 2026 are governed by the new Income-tax Act, 2025.

   Advanced · 6 min · Full course
8. 3.4.5.8GST: 101st Amendment, dual structure and taxes subsumed

   GST is a destination-based tax on supply of goods and services, introduced by the 101st Constitutional Amendment (2016), levied at the same time by the Centre and the States, and run through a GST Council.

   Advanced · 7 min · Full course
9. 3.4.5.9GST in operation: rate slabs, compensation, e-way bill and the 2025 rationalisation

   GST ran on four main slabs (5, 12, 18, 28%) from 2017; the 56th GST Council (3 September 2025) cut it to two main slabs, 5% and 18%, plus 40% for a few luxury and sin goods, effective 22 September 2025.

   Advanced · 6 min · Full course
10. 3.4.5.10Fiscal federalism: Finance Commissions, the divisible pool and state borrowing

    The Constitution gives the Centre the richer taxes and the States the larger spending duties, and the Finance Commission, appointed every five years, closes that gap by sharing taxes and giving grants.

    Advanced · 7 min · Full course
11. 3.4.5.11Fifteenth and Sixteenth Finance Commissions: devolution criteria and grants

    The 15th Finance Commission (chair N.K. Singh) set the States' share at 41% for 2021-26; the 16th (chair Arvind Panagariya) kept 41% for 2026-31 but added a new criterion based on a State's contribution to GDP.

    Advanced · 7 min · Full course

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