The budget is not merely a statement of financial receipts and expenditure of the government. It is a significant political statement of government policy and its priorities for the economy. The budget reflects the country's economy and shapes the direction in which the government of the day wants to take it as per its policies and priorities.

It is also a government's plan for raising revenues through taxation, borrowing and incurring expenditure under the relevant heads. The government channelizes its financial resources thus raised in the various sectors of the economy and government. Given the finite nature of financial resources, budget making is an exercise in achieving a fine balance between competing objectives and priorities of the government, within the budgetary constraint.

The Constitution of India does not use the term ‘budget' but only refers to Annual Financial Statements. As per Articles 112 and 202, the Union Government and State governments are constitutionally mandated to prepare and present ‘budgets', which are financial statements of receipts and expenditure, both current and capital.