History of Union Budgets in India

India has come a long way from being a young, developing country to becoming a global economic powerhouse. The 2022 and 2024 Budgets were amongst the most crucial Union Budgets. It presents a blueprint for the Amrit Kal and numerous priorities for ‘Viksit Bharat’, enabling India to be among the top economies in the world.

 The Union budget of India is arguably the most essential tool in the arsenal of policymakers that has led us here. Let us have a look at the historical changes proposed in the Union Budgets of India since independence.

1951-1952: Constitution of the Planning Commission

This was Republic India’s first Budget, where Finance Minister John Mathai announced the creation of a Planning Commission. At the same time, then Prime Minister Jawaharlal Nehru was made the Planning Commission Chairperson.

Note: In 2015, the Planning Commission was replaced with the NITI Aayog, which the Prime Minister heads.

1957-1958: Introduction of Wealth Tax 

The wealth tax, introduced by T.T. Krishnamachari in the 1957-58 Union Budget, was levied on personal assets, with the last rate set at 1% on assets over Rs. 30 lakhs. Unlike income tax, which is applied to earned income, the wealth tax targeted personal assets, sparking criticism from the wealthy, especially since non-income-generating assets were also taxed. 

Note: In 2016, Finance Minister Arun Jaitley abolished the wealth tax due to poor revenue generation and negative impact on investor sentiment. It was replaced by a 2% super-rich surcharge on net income above Rs. 1 crore. Additionally, individuals with net income between Rs. 2-5 crore face a 25% surcharge, while those earning over Rs. 5 crore face a 37% surcharge.

1968: Excise reforms

Former Finance Minister Morarji Desai’s historical Budget, also known as the ‘People’s Budget’, focused on excise reforms.

The excise duty is a tax on the production, sale and licensing of goods domestically produced in India. This Budget simplified excise-related assessment of goods by abolishing stamping and assessment of goods at the factory gate. Further, a landmark self-assessment system for all manufacturers was implemented in a push to manufacturing.

1987: Introduction of Minimum Alternate Tax (MAT) 

In 1987, Prime Minister Rajiv Gandhi, also overseeing the Finance Ministry, introduced the Minimum Alternate Tax (MAT) to ensure companies paying zero tax despite profits would contribute. MAT mandates a minimum tax rate for such companies. As of 2021, the MAT rate is 15%. Since its introduction, MAT has become a major source of tax revenue for the Central Government.

1991: The Epochal Budget

The 1991 budget, presented by Dr. Manmohan Singh and Narasimha Rao, is considered India's most transformative budget. It introduced economic liberalisation, privatisation, and globalisation reforms, leading to increased foreign direct investment by reducing bureaucratic red tape. This helped put India on the global map and boosted economic growth. The budget also ended the industrial permit licence raj, facilitated banking sector privatisation, and liberalised foreign investment, addressing the balance-of-payments crisis and significantly impacting the economy.

It is interesting to note that this crucial Budget in the history of independent India was not presented on February 1, but on July 24. 

1993-94: Establishing the National Stock Exchange

The 1993-94 Union Budget paved the way for a major transformation in India's financial markets by announcing the National Stock Exchange (NSE) establishment. This move aimed to improve transparency, efficiency, and professionalism in the stock market. Over time, the NSE became India’s leading stock exchange, boosting investor confidence, promoting fair trade practices, and driving the modernisation of India’s capital markets.

1994-95: Introduction of Service Tax

In the 1994-95 Union Budget, Finance Minister Manmohan Singh introduced service tax, recognising the growing contribution of the services sector, which accounted for nearly 40% of India’s GDP at the time. Initially applied to a limited range of services, this tax aimed to create a more balanced taxation system that reflected the expanding role of services in the economy. 

Over time, the scope of service tax widened, generating significant revenue for the government. This taxation mechanism remained a key part of India’s indirect tax system until its integration into the Goods and Services Tax (GST) framework in 2017.

1997: The Dream Budget

In this budget, former Finance Minister P. Chidambaram lowered tax rates, which led to a boost in tax collections in the following years. The maximum tax rate for individuals was reduced from 40% to 30%, and for domestic companies, from 40% to 35%. The introduction of the Voluntary Disclosure of Income Scheme (VDIS) allowed individuals to disclose undeclared income without facing penalties, though it would be taxed at the highest rate.

2006: Laying the Foundation for Tax Reform

In the 2006-07 Union Budget, the government introduced a strategic plan to modernise and simplify India’s indirect tax system. The main goal of this initiative was to streamline multiple levies into a unified structure, paving the way for the future implementation of the Goods and Services Tax (GST).

2017: Merging of the Railway and General Budgets 

In the 2017 Union Budget, former Finance Minister Arun Jaitley ended the 92-year-old tradition of presenting a separate Railway Budget. This change allowed the Finance Ministry greater flexibility in managing funds across sectors and planning for multi-modal transport, including waterways, railways, and highways.

2021: Pandemic Budget

The 2021 Union Budget, India's first pandemic budget after COVID-19, focused on healthcare, wellness, and reviving the economy post-lockdowns. Healthcare allocation rose by 137%, from Rs 94,452 crore in 2020-21 to Rs 2,23,846 crore in 2021-22, with an additional Rs 35,000 crore allocated for the COVID-19 vaccine, with more funds promised if needed. The government also proposed setting up an asset reconstruction company to handle bad loans, enabling banks to support economic recovery. Additionally, this was India’s first paperless budget.

2022: Digital & Technology Focussed Budget

The 2022 Union Budget, India's second pandemic budget, focused on digital technology and key sectors like health, infrastructure, education, and e-services. It also outlined a roadmap for economic growth during the 'Amrit Kal', the 25-year period from India's 75th to 100th Independence anniversary. That year, India recorded a 9.2% GDP growth, the highest globally. The budget included several changes to direct and indirect taxes and prioritized areas such as education, agriculture, MSMEs, electric vehicles, digital banking, internet connectivity, defence, and healthcare.

2024: A Themed Budget for Skills,  Employment & More

The 2024 Union Budget of India focused on skilling, employment, MSMEs, and the middle class. It featured one update on taxation and outlined nine priorities under the Viksit Bharat mission, aimed at transforming India into a developed country by its 100th Independence anniversary. Key areas expected to benefit include agriculture, infrastructure, employment and skilling, manufacturing, urban development, and next-generation reforms. The budget also reduced customs duties on items like solar panels, medicines, mobile phones, and precious metals, making them more affordable for the middle class.

Impact of Union Budget on Indian Stock Market Over Last 10 Years

Over the last decade, Union Budget announcements have significantly influenced stock market trends.

• 2014: Two budgets were presented. The interim budget in February saw that the BSE Sensex climbed 97.20 points to 20,464.06, and the Nifty 50 rose 24.95 points to 6,073.30. On the other hand, the July budget saw a minor decline in the market where the Sensex dipped by 0.28% and the Nifty 50 fell by 17.25 points.
• 2015: The budget emphasized investment growth while maintaining fiscal discipline. Key measures included corporate tax reductions and the deferral of GAAR. The Sensex gained 141.38 points to 29,361.50, and the Nifty rose by 57 points to 8,901.80, though the Nifty declined by 4.6% over the following month.
• 2016: Despite measures focused on rural development and fiscal discipline, the market remained unimpressed. The Sensex dropped 0.66%, closing slightly above 23,000, largely due to no major tax changes and an increase in STT on options trading.
• 2017: The budget shifted to February 1, merging the Railway Budget with the Union Budget. Key reforms, such as reduced long-term capital gains tenure and tax relief for middle-class taxpayers, drove market optimism. The Sensex surged 485.68 points to 28,141.64, marking the highest budget-day gain since 2010, while the Nifty rose 155.10 points to 8,716.40.
• 2018: The introduction of long-term capital gains tax and higher dividend tax led to cautious market reactions. The Sensex declined by 0.16%, marking the eighth budget-day fall in ten years.
• 2019: Two budgets were presented. The interim budget in February, which provided tax relief for low-income taxpayers and benefits for farmers, led to a Sensex gain of 212 points and a Nifty increase of 62.7 points. However, the final budget in July saw an initial 980-point drop in the Sensex, recovering slightly to close 394.67 points lower due to concerns over higher income tax for HNIs and increased public shareholding requirements.
• 2020: The budget introduced new tax slabs but lacked major industry-boosting measures. The market reacted negatively, with the Sensex plummeting 2.43%, closing below 40,000—its worst budget-day performance since 2009.
• 2021: A recovery-focused budget amid the pandemic resulted in a record rally. Announcements on infrastructure, digital payments and capital outlays drove a Sensex surge of 2,314.84 points to 48,600.61 and a Nifty jump of 646.60 points to 14,281.20, the best budget-day performance in two decades.
• 2022: Measures supporting 5G, digital currencies and infrastructure uplifted market sentiment. The Sensex gained 849.40 points to 58,862.57 and the Nifty rose 237 points to 17,576.85. However, fiscal deficit concerns led to rising bond yields, affecting PSU bank stocks.
• 2023: The market had mixed reactions. The Sensex surged over 1,100 points intraday but closed just 158.18 points higher at 59,708.08. The Nifty ended 45.85 points lower at 17,616.30.
• 2024: The proposal to increase taxes on capital gains and derivatives trading led to a market downturn. The Sensex and Nifty both declined by around 1%, while the rupee hit a record low against the US dollar. Analysts cautioned that the higher LTCG tax could discourage savings and investments, dampening market sentiment despite reductions in customs duties.

To Wrap Up

Prime Minister Narendra Modi launched a new mission, ‘Viksit Bharat, ' to transform India into a developed country by its 100th independence in the year 2047. As India looks toward its 100th independence, India's Union budget will continue to play a pivotal role in shaping its economic future.