updated on April 17th, 2019
An annual financial statement of income and expenditure is generally used for a government, but it could be of a firm, company, corporation etc. The ‘word’ has its origin in the British parliamentary exercise of preparing such statement way back in the mid-18th century from the French word ‘Bugeut’ meaning a leather bag out of which the financial statement was brought out and presented in the parliament. Today, this word is used to mean the annual statement in all economies around the world.
The Constitution of India has a provision (Art. 112) for such a document called Annual Financial Statement to be presented in the Parliament before the commencement of every new fiscal year—popular as the Union Budget. The same vision is there for the states, too.
Data In The Budget
The Union Budget has three sets5 of data for every concerned sector or sub-sector of the economy:
(i) Actual data of the preceding year (here preceding year means one year before the year in which the Budget is being presented. Suppose the Budget presented is for the year 2017–18, the Budget will give the final/actual data for the year 2015-16. After the data either we write ‘A’, means actual data/final data or write nothing (India writes nothing).
(ii) Provisional data of the current year (i.e., 2016–17) since the Budget for 2017–18 is presented at the end of the fiscal 2016– 17, it provides Provisional Estimates for this year (shown as ‘PE’ in brackets with the data).
(iii) Budgetary estimates for the following year (here following year means one year after the year in which the Budget is being presented or the year for which the Budget is being presented, i.e., 2017– 18). This is shown with the symbol ‘BE’ in brackets with the concerned data.).
One comes across certain other kinds of data, too in day-to-day government economic literature. There are three such data—
(i) Revised Estimate (RE)
Revised Estimate is basically a current estimation of either the budgetary estimates (BE) or the provisional estimates (PE). It shows the contemporary situation. It is an interim data.
(ii) Quick Estimate (QE)
Quick Estimate is a kind of revised estimate which shows the latest situation and is useful in the process of going for future projections for some sector or sub-sector. It is an interim data.
(iii) Advance Estimate (AE)
Advance Estimate is a kind of quick estimate but done ahead (in advance) of the final stage when data should have been collected. It is an interim data.
Developmental And Non-Developmental
Total expenditure incurred by the government is classified into two segments—developmental and non-developmental. All expenditures of productive nature are developmental such as on the heads of new factories, dams, bridges, roads, railways, etc.—all investments.
The expenditures which are of
This classification is not used in the Indian public finance management now (see Plan and Non-Plan Expenditure, in the next entry).
Plan And Non-Plan Expenditure
Every expenditure incurred on the public exchequer is classified into two categories—the plan and the non-plan. All those expenditures which are done in India in the name of planning is the plan expenditure and rest of all are nonplan expenditures. Basically, all asset creating, and productive expenditures are planned and all consumptive, non-productive, non-asset building are non-plan expenditures and are developmental and non-developmental expenditures, respectively.
Since the financial year 1987–88, there was a terminology change in Indian public finance literature when developmental and non-developmental expenditures were replaced by the new terms plan and non-plan expenditures, respectively. (It was suggested by the Sukhomoy Chakravarti Committee.)
Meanwhile, a high-power panel headed by Dr. C. Rangarajan (Chairman, Prime Minister’s Economic Advisory Council), in September 2011 suggested for redefining Plan and Non Plan expenditures as Capital and Revenue expenditures, as the former set of terms ‘blur the classification’ —this will facilitate linking expenditure to ‘outcomes’ and better public expenditure, the panels suggested. Major suggestions of the Panel are:
(i) Plan and Non-Plan distinction in the Budget is neither able to provide a satisfactory classification of ‘developmental’ and ‘non-developmental’ dimensions of government expenditure nor an appropriate budgetary framework. It has, therefore, become ‘dysfunctional’,
(ii) Suggests for redefining the roles of the Planning Commission (PC) and the Finance Ministry (FM). According to which the PC should be responsible for
(iii) The PC should dispense with the exercise of approving annual plans of states and it could hold a strategy or review meeting with representatives of the states.
(iv) Public expenditures should be split into capital and revenue expenditures.
(v) Public expenditure should have
Analysis of the Situation: While the need for looking beyond the budget is well accepted, there are many factors raising doubts on the ‘efficacy’ and ‘relevance’ of the five-year plans as the instrument. The division of expenditure between Plan and non-Plan is artificial and creates problems, such as:
(i) Plan expenditure tends to get priority especially when austerity and expenditure reduction has to be done periodically for fiscal consolidation. Non-Plan expenditure gets the cut even if it is vitally needed for economic development, an example is a budget provision for maintenance of assets such as hospitals, schools and irrigation dams already created under Plan, but whose maintenance is treated as non-Plan.
(ii) Review and implementation of schemes is another area of direct responsibility for the Ministry of Finance and the Ministry of Statistics and Programme Implementation. The Finance Minister himself had, in the budget speech for 2005–06, promised to ensure that programmes and schemes were not allowed to continue indefinitely from one Plan period to another without an independent and in-depth evaluation. The Planning Commission, serving as the focal point for Plan allocations, dilutes the role of the Finance Ministry in this case.
(iii) ‘Output’ and ‘Outcome Budgeting’ was introduced by the Central Government from the Budget for 2005–06. Non-Plan expenditure remains out of its purview. This means, for example, the outcome of expenditure on running schools and hospitals will not be evaluated. This again is another fallout of the artificial division into Plan and non-Plan.
This classification used to adversely affect the whole budget process, formulation and implementation. Looking at this anomaly, the Government switched over from the ‘plan’ and ‘non-plan’ classification of expenditure to ‘revenue’ and ‘capital’ since the fiscal 2017-18 (as announced in the Union Budget 2017-18).
Every form of money generated in the nature of income, earnings are revenue for a firm or a government which do not increase financial liabilities of the government, i.e., the tax incomes, non-tax incomes along with foreign grants.
Every form of money generation which is not income or earnings for a firm or a government (i.e., money raised via borrowings) is considered a non-revenue source if they increase financial
Every receiving or accrual of money to a government by revenue and non-revenue sources is a receipt. Their sum is called total receipts. It includes all incomes as well as non-income accruals of a government.
Revenue receipts of a government are of two kinds—Tax Revenue Receipts and Non-tax Revenue Receipts—consisting of the following income receipts in India:
Tax Revenue Receipts
This includes all money earned by the government via the different taxes the government collects, i.e., all direct and indirect tax collections.
Non-Tax Revenue Receipts
This includes all money earned by the government from sources other than taxes. In India they are:
(i) Profits and dividends which the government gets from its public sector undertakings (PSUs).
(ii) Interests received by the government out of all loans forwarded by it, be it inside the country (i.e., internal lending) or outside the country (i.e., external lending). It means this income might be in both domestic and foreign currencies.
(iii) Fiscal services also generate incomes for the government, i.e., currency printing, stamp printing, coinage and medals minting, etc.
(iv) General Services also earn money for the government as the power distribution, irrigation, banking, insurance, community services, etc.
(v) Fees, Penalties and Fines received by the government.
(vi) Grants which the governments receives— it is always external in the case of the Central Government and internal in the case of state governments.
All expenditures incurred by the government are either of revenue kind or current kind or compulsive kind. The basic identity of such expenditures is that they are of the consumptive kind and do not involve the creation of productive assets. They are either used in running of a productive processor running a government. A broad category of things that fall under such expenditures in India are:
(i) Interest payment by the government on the internal and external loans;
(ii) Salaries, Pension and Provident Fund paid by the government to government employees;
(iii) Subsidies forwarded to all sectors by the government;
(iv) Defence expenditures by the government;
(v) Postal Deficits of the government;
(vi) Law and order expenditures (i.e., police & paramilitary);
(vii) Expenditures on social services (includes all social sector expenditures as education, health care, social security, poverty alleviation, etc.) and general services (tax collection, etc.);
(viii) Grants given by the government to Indian states and foreign countries.
If the balance of total revenue receipts and total revenue expenditures turn out to be negative it is known as revenue deficit, a new fiscal terminology used since the fiscal 1997–98 in India.
This shows that the government’s Revenue Budget (see the next topic) is running in losses and the government is earning less revenue and spending more revenues—incurring a deficit. Revenue expenditures are of immediate nature (this has to be done) and since they are consumptive/ non-productive they are considered as a kind of expenditure which sums up to a heinous crime in the area of fiscal policy. Governments fulfil the gap/deficit with the money which could have been spent/interested in productive areas.
A government might have its revenue expenditures less than its revenue receipts, i.e., having (revenue surplus) budget. Such fiscal policy is considered good where the government has been able to manage some money out of its revenue budget which could be spent on the creation of productive assets. Yes, another thing that should be kept in mind, as for how the government has managed this surplus and whether the policies which made this happen are judicious enough or not. In the Second Plan, India emerged as a revenue-surplus state, but experts did not appreciate it as it had many bad impacts on the economy—higher tax rates culminated in tax evasion, corruption, the creation of black money, etc.
Revenue deficit may be shown in the quantitative form (as how much the gross/total deficit is in currency terms) or in percentage terms of the GDP for that particular year (shown as the percentage of GDP). Usually, it is shown as a percentage of the GDP for domestic as well as international analyses.
Effective Revenue Deficit
Effective revenue deficit (ERD) is a new term introduced in the Union Budget 2011–12. Conventionally, ‘revenue deficit’ (RD) is the difference between revenue receipts and revenue expenditures. Here, revenue expenditures include all the grants which the Union Government gives to the state governments and the UTs— some of which create assets (though these assets are not owned by the Government of India but the concerned state governments and the UTs). According to the Finance Ministry (Union Budget 2011–12), such revenue expenditures contribute to the growth in the economy and therefore, should not be treated as unproductive in nature like other items in the revenue expenditures. And on this logic, a new methodology was introduced to capture the ‘effective revenue deficit’, which is the Revenue Deficit ‘excluding’ those revenue expenditures of the Government of India which was done in the form of GoCA (grants for the creation of capital assets).
The GoCA includes the Government of India grants forwarded to the states & UTs for the implementation of the centrally sponsored programmes such as Pradhan Mantri Gram Sadak Yojana, Accelerated Irrigation Benefit The programme, Jawaharlal Nehru National Urban Renewal Mission, etc., these expenses though they are shown by the Government of India in its Revenue Expenditures they are involved with asset creation and cannot be considered completely ‘unproductive’ like other items put in the basket of the Revenue Expenditures—the reason why a new ‘terminology’ was created.
The term was innovated by the Government of the time to show some rationale in its high revenue deficit by bringing the logic that all of it was not like a typical revenue expenditure (which are consumptive in nature) and some of it was used to create ‘capital assets’ also (though they cannot be shown in the ‘capital’ heads of expenditures). Though the new Government at the centre does not give the same significance to the term, it has been releasing data related to it.
The Union Budget 2017-18 has committed to reduce the effective revenue deficit to 0.7 percent in 2017-18 and 0.2 per cent in 2018-19 (it was estimated to be 1.2 per cent for 2016-17). While the revenue deficits for 2017-18 and 2018-19 have been set at 1.9 percent and 1.4 per cent by the budget.
The part of the Budget which deals with the income and expenditure of revenue by the government.
This presents the annual financial statement of the total revenue receipts and the total revenue expenditure—if the balance emerges to be positive it is a revenue surplus budget, and if it comes out to be negative, it is a revenue deficit budget.
The part of the Budget which deals with the receipts and expenditures of the capital by the government. This shows the means by which the capital is managed and the areas where capital is spent.
All non-revenue receipts of a government are known as capital receipts. Such receipts are for investment purposes and supposed to be spent on plan-development by a government. But the receipts might need their diversion to meet other needs to take care of the rising revenue expenditure of a government as the case had been with India. The capital receipts in India include the following capital kind of accruals to the government:
(i) Loan Recovery
This is one source of the capital receipts. The money the government had lent out in the past in India (states, UTs, PSUs, etc.) and abroad their capital comes back to the government when the borrowers repay them as capital receipts. The interests which come to the government on such loans are part of the revenue receipts.
(ii) Borrowings by the Government
This includes all long-term loans raised by the government inside the country (i.e., internal borrowings) and outside the country (i.e., external borrowings). Internal borrowings might include the borrowings from the RBI, Indian banks, financial institutions, etc. Similarly, external borrowings might include
(iii) Other Receipts by the Government
This includes many long-term capital accruals to the government through the Provident Fund (PF), Postal Deposits, various small saving schemes (SSSs) and the government bonds sold to the public (as Indira Vikas Patra, Kisan Vikas Patra, Market Stabilisation Bond, etc.). Such receipts are nothing but a kind of loan on which the government needs to pay interests on their maturities. But they play a role in capital raising process by the government.
All the areas which get capital from the government are part of the capital expenditure. It includes so many heads in India —
(i) Loan Disbursals by the Government
The loans forwarded by the government might be internal (i.e., to the states, UTs, PSUs, FIs, etc.) or external (i.e., to foreign countries, foreign banks, purchase of foreign bonds, loans to IMF and WB, etc.).
(ii) Loan Repayments by the Government
Again loan payments might be internal as well as external. This consists of only the capital part of the loan repayment as the element of interest on loans are shown as a part of the revenue expenditure.
(iii) Plan Expenditure of the Government
This consists of all the expenditures incurred by the government to finance the planned development of India as well as the central government financial supports to the states for their plan requirements.
(iv) Capital Expenditures on Defence by the Government
This consists of all kinds of capital expenses to maintain the defence forces, the equipment purchased for them as well as the modernisation expenditures. It should be kept in mind that defence is a non-plan expenditure which has capital as well as revenue expenditures in its maintenance. The revenue part of expenditure in the defence is counted in the revenue expenditures by the government.
(v) General Services
These also need huge capital expenditure by the government—the railways, postal department, water supply, education, rural extension, etc.
(vi) Other Liabilities of the Government
Basically, this includes all the repayment liabilities of the government on the items of the Other Receipts. The level of liabilities depends on the fact as to how much such receipts were made by the governments in the past. The amount of payment liabilities in the year also depends on the fact as to which years in the past the governments had other receipts and for what duration of maturity periods. As for example, the PF liabilities were not an item of such liabilities for almost the first three decades after Independence. But once the government employees started retiring, it went on increasing. Future India (especially 1960s and 1970s) saw the expansion of the PSUs and excessive employment generation in them (devoid of the logic of labour requirement). We see the PF liabilities expanding extensively throughout the 1990s—the governments had been under pressure to manage this segment either by cutting interest on PF or at present trying to make it a matter of market economy. Same thing happened with the element of pension and we have been able to devise a market mechanism for it once pension reforms took place and the arrival of a pension regulatory authority for the area.
There is no such term in public finance or in economics as such. But in
When the balance of the government’s total receipts (i.e., revenue + capital receipts) and total expenditures (i.e., revenue + capital expenditures) turns out to be negative, it shows the situation of fiscal deficit, a concept being used since the fiscal 1997–98 in India.
The situation of fiscal deficit indicates that the government is spending beyond its means. To be more simple, we may say that the government is spending more than its income (though in practice all receipts of the government are not income. Basically, receipts are all forms of money accruing to the government, be it income or borrowings).
Fiscal deficit may be shown in the quantitative form (i.e., the total currency value of the deficit) or in the percentage form of the GDP for that particular year (percentage of GDP). In general, the percentage form is used for domestic or international (i.e., comparative economics) studies and analyses.
India has been a country of not only regular but higher fiscal deficits. Moreover, the composition of its fiscal deficit has been more prone to criticism (we will see this in the forthcoming sub-title ahead).
The fiscal deficit excluding the interest liabilities for a year is the primary deficit, a term India started using since the fiscal 1997–98. It shows the fiscal deficit for the year in which the economy had not to fulfil any interest payments on the different loans and liabilities which it is obliged to—shown both in quantitative and percentage of GDP forms.
This is considered a very handy tool in the process of bringing in more transparency in the government’s expenditure pattern. Any two years, for example, might be compared and so many things can be found out clearly such as, which year the government depended more on loans, the reasons behind higher or lower fiscal deficits, whether the fiscal deficits have gone down due to falling interest liabilities or some other factors, etc.
The part of the fiscal deficit which was provided by the RBI to the government in a particular year is Monetised Deficit, this is a new term adopted since 1997–98 in India.11 This is shown in both the forms—in quantitative as well as a percentage of the GDP for that particular financial year.
It is an innovation in the fiscal management which brings in more transparency in the government’s expenditure behaviour and also in its capabilities concerning its dependence on market borrowings by the RBI. Basically, every
Deficit And Surplus Budget
When the budgetary proposals of a government for a particular year proposes higher expenditures than the receipts, it is known as a deficit budget. Opposite to this, if the budget proposes lesser expenditures than the receipts, then it is a surplus budget.
In practice, governments the world over usually, do not present a surplus budget as it symbolises the government’s lower concerns towards development. But at times as a political weapon, a government might come out with such a budget (for example the Uttaranchal Budget for 2006–07 was a surplus budget). How can a government proposal for a surplus budget in a developing state when even developed countries still need development and are going for deficit budgets? The Union Budget in India had never been presented as a surplus budget.
BUDGET IN PARLIAMENT
The Constitution refers to the budget as the ‘annual financial statement’. In other words, the term ‘budget’ has nowhere been used in the Constitution. It is the popular name for the ‘annual financial statement’ that has been dealt with in Article 112 of the Constitution.
The budget is a statement of the estimated receipts and expenditure of the Government of India in a financial year, which begins on 1 April and ends on 31 March of the following year.
In addition to the estimates of receipts and expenditure, the budget contains certain other elements. Overall, the budget contains the following:
- Estimates of revenue and capital receipts;
- Ways and means to raise revenue;
- Estimates of expenditure;
- Details of the actual receipts and expenditure of the closing financial year and the reasons for any deficit or surplus in that year; and
- The economic and financial policy of the coming year, that is taxation proposals, prospects of revenue, spending programme and the introduction of new schemes/projects.
The Government of India has two budgets, namely, the Railway Budget and the General Budget. While the former consists of the estimates of receipts and expenditures of only the Ministry of Railways, the latter consists of the estimates of receipts and expenditure of all the ministries of the
The Railway Budget was separated from the General Budget in 1921 on the recommendations of the Acworth Committee. The reasons or objectives of this separation are as follows:
- To introduce flexibility in railway finance.
- To facilitate a business approach to railway policy.
- To secure the stability of the general revenues by providing an assured annual contribution from railway revenues.
- To enable the railways to keep their profits for their own development (after paying a fixed annual contribution to the general revenues).
The Constitution of India contains the following provisions with regard to the enactment of budget:
- The President shall in respect of every financial year cause to be laid before both the Houses of Parliament a statement of estimated receipts and expenditure of the Government of India for that year.
- No demand for a grant shall be made except on the recommendation of the President.
- No money shall be withdrawn from the Consolidated Fund of India except under
the appropriation made by law.
- No money bill imposing tax shall be introduced in the Parliament except on the
recommendation of the President and such a bill shall not be introduced in the Rajya Sabha.
- No tax shall be levied or collected except by authority of law.
- Parliament can reduce or abolish a tax but cannot increase it.
- The Constitution has also defined the relative roles or position of both the Houses of Parliament with regard to the enactment of the budget in the following way:
(a) A money bill or finance bill dealing with taxation cannot be introduced in the Rajya Sabha—it must be introduced only in the Lok Sabha.
(b) The Rajya Sabha has no power to vote on the demand for grants; it is the exclusive privilege of the Lok Sabha.
(c) The Rajya Sabha should return the Money bill (or Finance bill) to the Lok Sabha within fourteen days. The Lok Sabha can either accept or reject the recommendations made by Rajya Sabha in this regard.
- The estimates of expenditure embodied in the budget shall show separately the expenditure charged on the Consolidated Fund of India and the expenditure made from the Consolidated Fund of India.
- The budget shall distinguish expenditure on revenue account from other expenditure.
The budget consists of two types of expenditure—the expenditure ‘charged’ upon the Consolidated Fund of India and the expenditure ‘made’ from the Consolidated Fund of India. The charged expenditure is non-votable by the Parliament, that is, it can only be discussed by the Parliament, while the other type has to be voted by the Parliament. The list of the charged expenditure is as follows:
- Emoluments and allowances of the President and other expenditure relating to his office.
- Salaries and allowances of the Chairman and the Deputy Chairman of the Rajya Sabha and the Speaker and the Deputy Speaker of the Lok Sabha.
- Salaries, allowances
andpensions of the judges of the Supreme Court.
- Pensions of the judges of high courts.
- Salary, allowances
andpension of the Comptroller and Auditor General of India.
- Salaries, allowances
andpension of the chairman and members of the Union Public Service Commission.
- Administrative expenses of the Supreme Court, the office of the Comptroller and Auditor General of India and the Union Public Service Commission including the salaries, allowances
andpensions of the persons serving in these offices.
- The debt charges for which the Government of India is liable, including interest, sinking fund charges and redemption charges and other expenditure relating to the raising of loans and the service and redemption of debt.
- Any sum required to satisfy any
judgement, decree or award of any court or arbitral tribunal.
- Any other expenditure declared by the Parliament to be so charged.
Stages in Enactment
The budget goes through the following six stages in the Parliament:
- Presentation of budget.
- General discussion.
- Scrutiny by departmental committees.
- Voting on demands for grants.
- Passing of appropriation bill.
- Passing of finance bill.
1. Presentation of Budget The budget is presented in two parts—Railway Budget and General Budget. Both are governed by the same procedure.
The introduction of Railway Budget precedes that of the General Budget. While the former is presented to the Lok Sabha by the railway minister in the third week of February, the latter is presented to the Lok Sabha by the finance minister on the last working day of February.
The Finance Minister presents the General Budget with a speech known as the ‘budget speech’. At the end of the speech in the Lok Sabha, the budget is laid before the Rajya Sabha, which can only discuss it and has no power to vote on the demands for grants.
2. General Discussion The general discussion on
During this stage, the Lok Sabha can discuss the budget as a whole or on any question of principle involved therein but no cut motion can be moved nor can the budget be submitted to the vote of the House. The finance minister has a general right of reply at the end of the discussion.
3. Scrutiny by Departmental Committees After the general discussion on the budget is over, the Houses are adjourned for about three to four weeks. During this gap period, the 24 departmental standing committees of Parliament examine and discuss in detail the demands for grants of the concerned ministers and prepare reports on them. These reports are submitted to both the Houses of Parliament for consideration.
The standing committee system established is 1993 (and expanded in 2004) makes parliamentary financial control over ministries much more detailed, close, in-depth and comprehensive.
4. Voting on Demands for Grants In the light of the reports of the departmental standing committees, the Lok Sabha takes up voting of demands for grants. The demands are presented ministry-wise. A demand becomes a grant after it has been duly voted.
Two points should be noted in this context. One, the voting of demands for grants is the exclusive privilege of the Lok Sabha, that is, the Rajya Sabha has no power of voting the demands. Second, the voting is confined to the votable part of the budget—the expenditure charged on the Consolidated Fund of India is not submitted to the vote (it can only be discussed).
While the General Budget has a total of 109 demands (103 for civil expenditure and 6 for defense expenditure), the Railway Budget has 32 demands. Each demand is voted separately by the Lok Sabha. During this stage, the members of Parliament can discuss the details of the budget. They can also move motions to reduce any demand for grant. Such motions are called as ‘cut motion’, which are of three kinds:
(a) Policy Cut Motion It represents the disapproval of the policy underlying the demand. It states that the amount of demand is reduced to Re 1. The members can also advocate an alternative policy.
(b) Economy Cut Motion It represents the economy that can be affected in the proposed expenditure. It states that the amount of the demand is reduced by a specified amount (which may be either a lump sum reduction in the demand or ommission or reduction of an item in the demand).
(c) Token Cut Motion It ventilates a specific grievance that is within the sphere of responsibility of the Government of India. It states that the amount of the demand be reduced by Rs 100.
A cut motion, to be admissible, must satisfy the following conditions:
(i) It should relate to one demand only.
(ii) It should be clearly expressed and should not contain arguments or defamatory statements.
(iii) It should be confined to one specific matter.
(iv) It should not make suggestions for the amendment or repeal of existing laws.
(v) It should not refer to a matter that is not primarily the concern of the Union government.
(vi) It should not relate to the expenditure charged on the Consolidated Fund of India.
(vii) It should not relate to a matter that is under adjudication by a court.
(viii)It should not raise a question of privilege.
(ix) It should not revive discussion on a matter on which a decision has been taken in the same session.
(x) It should not relate to a trivial matter.
The significance of a cut motion lies in (a) facilitating the initiation of concentrated discussion on a specific demand for the grant; and (b) upholding the principle of responsible government by probing the activities of the government. However, the cut motion does not have much utility in practice. They are only moved and discussed in the House but not passed as the government enjoys majority support. Their passage by the Lok Sabha amounts to the expressions of want of parliamentary confidence in the government and may lead to its resignation.
In total, 26 days are allotted for the voting of demands. On the last day, the Speaker puts all the remaining demands to vote and disposes of them whether they have been discussed by the members or not. This is known as ‘guillotine’.
5. Passing of Appropriation Bill The Constitution states that ‘no money shall be withdrawn from the Consolidated Fund of India except under appropriation made by law’. Accordingly, an appropriation bill is introduced to provide for the appropriation, out of the Consolidated Fund of India, all money required to meet:
(a) The grants voted by the Lok Sabha.
(b) The expenditure charged on the Consolidated Fund of India.
No such amendment can be proposed to the appropriation bill in either house of the Parliament that will have the effect of varying the amount or altering the destination of any grant voted, or of varying the amount of any expenditure charged on the Consolidated Fund of India.
The Appropriation Bill becomes the Appropriation Act after it is assented to by the President. This act authorizes (or legalizes) the payments from the Consolidated Fund of India. This means that the government cannot withdraw money from the Consolidated Fund of India till the enactment of the appropriation bill. This takes time and usually goes on till the end of April. But the government needs money to carry on its normal activities after 31 March (the end of the financial year). To overcome this functional difficulty, the Constitution has authorized the Lok Sabha to make any grant in advance in respect to the estimated expenditure for a part of the financial year, pending the completion of the voting of the demands for grants and the enactment of the appropriation bill. This provision is known as the ‘vote on account’. It is passed (or granted) after the general discussion on the budget is over. It is generally granted for two months for an amount equivalent to one-sixth of the total estimation.
6. Passing of Finance Bill The Finance Bill is introduced to give effect to the financial proposals of the Government of India for the following year. It is subjected to all the conditions applicable to a Money Bill. Unlike the Appropriation Bill, the amendments (seeking to reject or reduce a tax) can be moved in the case of finance bill.
According to the Provisional Collection of Taxes Act of 1931, the Finance Bill must be enacted (i.e., passed by the Parliament and assented to by the president) within 75 days.
The Finance Act legalizes the income side of the budget and completes the process of the enactment of the budget.
In addition to the budget that contains the ordinary estimates of income and expenditure for one financial year, various other grants are made by the Parliament under extraordinary or special circumstances:
Supplementary Grant It is granted when the amount authorized by the Parliament through the appropriation act for a particular service for the current financial year is found to be insufficient for that year.
Additional Grant It is granted when a need has arisen during the current financial year for additional expenditure upon some new service not contemplated in the budget for that year.
Excess Grant It is granted when money has been spent on any service during a financial year in excess of the amount granted for that service in the budget for that year. It is voted by the Lok Sabha after the financial year. Before the demands for excess grants are submitted to the Lok Sabha for voting, they must be approved by the Public Accounts Committee of Parliament.
Exceptional Grant It is granted for a special purpose and forms no part of the current service of any financial year.
Token Grant It is granted when funds to meet the proposed expenditure on a new service can be made available by reappropriation.
Supplementary, additional, excess and exceptional grants and vote of credit are regulated by the same
Budget: Concepts And Forms
Financial administration is an important facet of public administration. It operates through the instrument of ‘Budget’ and encompasses the entire ‘budgetary cycle’, that is, formulation of the budget, enactment of the budget, execution of the budget, accounting and auditing.
According to C.P. Bhambhri, “the term ‘budget’ was used in its present sense for the first time in 1773, in a satire entitled ‘Opening the Budget’ directed against Walpole’s financial plan for that year”.
The term ‘Budget’ is derived from an old English word ‘Bougett’ which means a sack or pouch.
The budget is a statement of the estimated receipts (revenue or income) and expenditure of the government with respect to a financial year. In other words, it is a financial document of the government as presented to the legislature and as sanctioned by the legislature.
The following points highlight the functions or purposes of budget.
- It ensures the financial and legal accountability of the executive to the legislature.
- It ensures the accountability of subordinates to superiors in the administrative hierarchy.
- It is an instrument of social and economic policy to serve the functions of allocation, distribution, and stabilization.
- It facilitates the efficient execution of the functions and services of government.
- It facilitates administrative management and coordination as it unifies the various activities of the government departments into a single plan.
The principles of sound budgeting are:
The budget should be on an Annual Basis This means that the legislature should grant money to the executive for one year only. This principle of annuality of budget is considered ideal because: (a) a year is the optimum period for which the legislature can afford to give financial authority to the executive; (b) a year is the minimum period needed by the executive to implement the budget effectively; and (c) a year corresponds with the customary measure of human estimates. Presently, the financial year in India is from 1st April to 31st March. However, the Administrative Reforms Commission of India (ARC) recommended that the financial year should be from 1st November to 31st October.
Estimates should be on Departmental Basis This means that the expenditure and revenue estimates of the budget should be prepared by the department directly dealing with them, irrespective of the fact that such expenditure or revenue is on account of another department. The observance of this principle is suggested because: (a) it gives a clear picture of the programmes and activities of every department; and (b) it ensures the financial solvency of every department. However, to avoid any confusion in this regard, the department preparing the estimates should give footnotes indicating the expenditure or revenue of that department dealt by another department.
Budget should be a Balanced One This means that the estimated expenditure should not exceed the estimated revenue. In other words, a ‘balanced budget’ is one in which the estimated expenditure matches the estimated revenue. If the estimated revenue is more than the estimated expenditure, it is called a ‘surplus budget’, and if the estimated revenue is less than the estimated expenditure, it is called a ‘deficit budget’.
Estimates should be on a Cash Basis This means that the expenditure and revenue estimates of the budget should be prepared on the basis of what is expected to be actually spent or received during the financial year. The opposite of ‘cash budgeting’ is called ‘revenue budgeting’, under which the budgeting estimates are prepared on a demand and liability basis, that is, the revenue and expenditure accrued in a financial year are included in the budget of that financial year regardless of whether they are actually real realized incurred in that financial year. The USA, UK and India have cash budgeting, while France and some other continental countries have revenue budgeting. Cash budgeting facilitates an early closure of public accounts than revenue budgeting. The delayed accounts lose much of their value for purposes of financial control.
One Budget for all Financial Transactions This means that the government should incorporate all its revenues and expenditure (of all the departments) in a single budget. The opposite of ‘single budget’ is ‘plural budget’ under which separate department-wise budgets are prepared. The single budget system reveals the overall financial position of the government as a whole, that is, overall surplus or deficit. The UK and USA have a single budget, while France, Switzerland, and Germany have plural budgets. India has two budgets, viz. general budget and railway budget.
Budgeting should be Gross and not Net This means that all transactions of receipts and expenditure of the government should be fully and separately shown in the budget and not merely the resultant net position. The practice of deducting receipts from expenditure or vice versa, and preparing the budget for net receipts or expenditure is not a sound principle of budgeting. This is because it reduces legislative control over finances due to incomplete accounts.
Estimating should be Close This means that the budgetary estimates should be as exact as possible. This is because overestimating leads to excessive taxation and underestimating leads to ineffective execution of the budget. ‘Close budgeting’ also means that particular items of expenditure should be specified and there should be no demand for the lumpsum grant.
Rule of Lapse The budget should be on an annual basis, that is, the legislature should grant money to the executive for one financial year. If the granted money is not spent by the end of the financial year, then the balance would expire and should be returned to the treasury. This practice is known as the ‘rule of lapse’. The financial year in India and the UK is from 1st April to 31st March, in the USA it is from 1st July to 30th June, and in France, it is from 1st January to 31st December.
The rule of lapse facilitates effective financial control by the legislature as no reserve funds can be built up without its authorization. However, the observance of this rule leads to the heavy rush of expenditure towards the close of the financial year. This is popularly called as ‘March Rush’ in India.
Revenue and Capital Portions should be Separated This means that the current financial transactions of the government should be distinguished from the transactions of a capital nature and the two must be shown in two separate parts of the budget called the ‘revenue budget’ and the ‘capital budget’. This necessitates the separation of operational expenditure from that of investment expenditure. The revenue budget is financed out of the current revenue while the capital budget is financed out of the savings and borrowings.
Form of Estimates should Correspond to form of Accounts This means that the form of budgetary estimates should correspond to the form of accounts to facilitate effective financial control. For example, the budgetary heads, and accounting heads are same in India, that is, major head, minor head, subhead
Forms or Systems
The forms (systems) of budgeting which have evolved over a period of time are explained below.
Line-item Budgeting This is also called as traditional budgeting or conventional budgeting. This system of budgeting developed in the 18th and 19th century. It emphasizes on the items (objects) of expenditure without highlighting its purpose and conceives budget in financial terms. In other words, it presents a budget in terms of objects (line-item) classification. Under this system, the amount granted by the legislature on a specific item should be spent on that item only. The objectives of this budgeting are to prevent wastage, over-spending, and misuse of money granted by the legislature to the executive. This system of budgeting facilitates maximum control of public expenditure. In fact, the sole object of line-item budgeting has been the accountability of funds, that is, ensuring legality and regularity of expenditure. This system is also called as ‘incremental budgeting’ as the funds are allotted on an incremental basis after identifying the existing base.
Performance Budgeting The system of performance budgeting (earlier called as functional budgeting or activity budgeting) originated in the USA. The term ‘performance budget’ was coined by the First Hoover Commission (1949). This commission recommended the adoption of performance budgeting in the USA to make an effective management approach to budgeting. Accordingly, it was introduced in 1950 by President Truman.
Unlike the line-item budgeting, the performance budgeting emphasizes the purpose of expenditure rather than the expenditure itself. It presents a budget in terms of functions, programmes, activities, and projects. It establishes a correlation between the physical (performance or output) and financial (input) aspects of each programme and activity. Hence, it necessitates a functional classification of the budget.
In India, the adoption of performance budget was recommended first by the Estimates Committee of Parliament in 1956. In 1964, the Government invited Frank W. Krause, an American expert, to study the suitability and feasibility of this system of budgeting in India. Finally, the Central Government introduced performance budgeting in 1968 on the recommendation of the Administrative Reforms Commission. According to this commission, the advantages (benefits/objectives) of the performance budgeting are as follows:
(i) It presents more clearly, the purposes and objectives for which the funds are sought by the executive from the Parliament.
(ii) It brings out the programmes and accomplishments in financial and physical terms.
(iii) It facilitates a better understanding and better review of the budget by Parliament.
(iv) It improves the formulation of the budget.
(v) It facilitates the process of decision-making at all levels of government.
(vi) It increases the accountability of the management.
(vii) It provides an extra tool of management control of financial operations.
(viii) It renders the performance audit more purposeful and effective.
In 1968, the performance budgeting was introduced in four ministries of the Government of India. Later in 1977–78, it was extended to about 32 developmental departments.
Programme Budgeting Like performance budgeting, programme budgeting (also known as a planning-programming-budgeting system—PPBS) also originated in the USA. It was introduced in 1965 by President Johnson. However, it was abandoned in 1971. This system of budgeting integrates the planning, programming and budgeting functions. It incorporates a scheme of planning in the budgeting process. In the words of K.L. Handa, “Programme budgeting or PPBS emphasizes the planning aspect of budgeting for selecting the best out of a number of available programmes and for
Zero-based Budgeting (ZBB) The ZBB also originated and developed in the USA. It was created in 1969 by Peter A. Pyhrr, a manager of private industry. It was introduced in the USA by President Jimmy Carter in 1978.
Like the performance budgeting or PPBS, the ZBB is also a rational system of budgeting. Under this system, every scheme should be reviewed critically and rejustified totally from zero (or scratch) before being included in the budget. Thus, the ZBB involves a total re-examination of all schemes afresh (from base zero) instead of following the incremental approach to budgeting which begins with the estimation of the current expenditure. In the words of K.L. Handa, “The basic feature of a zero-based budget is that the departments, while preparing their budgets, should not take anything for granted and, therefore, should start on a clean slate. The budget making for the ensuing year should be started from zero instead of treating the current budget as the base or the starting point.”
The advantages/benefits of ZBB technique are:
(i) It eliminates or minimizes low priority programmes.
(ii) It improves programme effectiveness dramatically.
(iii) It makes high impact programmes to obtain more finances.
(iv) It reduces the tax increase.
(v) It facilitates a critical review of schemes in terms of their cost-effectiveness and cost benefits.
(vi) It provides for quick budget adjustments during the year.
(vii) It allocates scarce resources rationally.
(viii) It increases the participation of the line personnel in the preparation of the budget.
In India, the ZBB was first introduced in the Department of Science and Technology in 1983 and in all the ministries during 1986–87 fiscal year.
Sunset Legislation It is a formal process of a policy review for eliminating the undesired, outdated, redundant and irrelevant programmes. In the words of K.L. Handa, “It embodies the concept of self-retiring government programmes by providing for the termination of statutory authorization of programmes. This is achieved by placing time limits on government programmes in the legislative enactments themselves and providing for their automatic termination on the prescribed dates unless affirmatively recreated by the legislature after conducting a detailed review.”
The advantages or benefits of the sunset legislation are as follows:
(i) It ensures the economy in government expenditure.
(ii) It avoids unnecessary expansion of government activities.
(iii) It makes the financial resources available for new programmes.
(iv) It ensures administrative rationality by facilitating the reallocation of limited funds on a continuous basis.
(v) It helps in overcoming the resistance met within the executive for eliminating an ongoing programme by shifting the major responsibility for its evaluation to the legislature.
Top-Down Budgeting The system of Top-Down Budgeting was introduced in the USA in 1981 during the Reagan era. It is also known as ‘Target Base Budgeting’. It has the elements of earlier systems of budgeting, that is, performance budgeting, PPBS, Management by Objectives (MBO), ZBB and Sunset Legislation.
Nicholas Henry has defined Top-Down Budgeting as “a method of allocating public revenues to the agencies in which agency spending limits (and, often, agency goals, too) are set by the chief executive officer of the government, while agency heads are permitted to attain their goals in the manner that they deem to be most effective within these centrally set spending limits”. He further observed, “Top-Down Budgeting clearly empowers the central administration to set expenditure and programmatic goals; therefore, it is a complete reversal of the traditional budgetary process in government, which is bottom-up. The real system of budgeting now is from the top downward.”
The institutions of financial administration originated and developed in modern India during the period of British Rule. The following points can be noted in this regard:
(i) In 1753, the Indian Audit and Accounts Department was created.
(ii) In 1860, a system of the budget was introduced.
(iii) In 1870, financial administration was decentralized by Lord Mayo. Consequently, provincial governments were made responsible for the management of local finances.
(iv) In 1921, the Railway Budget was separated from the General Budget on the recommendation of the Acworth Committee.
(v) In 1921, the Public Accounts Committee was created at the Centre.
(vi) In 1935, the Reserve Bank of India was established by an Act of Central legislature.
FORMULATION OF BUDGET
Formulation of the budget’ means the preparation of the budget estimates, that is, preparing the statement of estimates of expenditure and receipt (income) of the Government of India in respect of each financial year. The financial year in India is from 1st April to 31st March.
The Constitution refers to the budget as the ‘annual financial statement’. In other words, the term ‘budget’ has nowhere been used in the Constitution. It is the popular name for the ‘annual financial the statement’ that has been dealt with in Article 112 of the Constitution.
In addition to the estimates of receipts and expenditure, the budget contains certain other elements. Overall, the budget contains the following:
- estimates of revenue and capital receipts,
- ways and means to raise the revenue,
- estimates of expenditure,
- details of the actual receipts and expenditure of the closing financial year and the reasons for any deficit or surplus in that year, and
- the economic and financial policy of the coming year, that is taxation proposals, prospects of revenue, spending programme and introduction of new schemes/projects.
The four different organs involved in the formulation of the budget are:
The Finance Ministry It has the overall responsibility for the formulation of the
The Administrative Ministries They have a detailed knowledge of administrative requirements.
The Planning Commission It facilitates the incorporation of plan priorities in the budget. In other words, the Finance Ministry remains in close touch with the Planning Commission in order to incorporate the plan priorities in the budget.
The Comptroller and Auditor-General He provides the accounting skills which are necessary for the formulation of the budget estimates.
The various stages involved in the formulation of the budget are explained below:
Preparation of Estimates by the Drawing and Disbursing Officers In September—October (i.e. 5–6 months before the commencement of the financial year), the Finance Ministry dispatches circulars and forms to Administrative Ministry inviting their estimates of expenditure for the ensuing financial year. The Administrative Ministry in turn pass on these forms (in which the estimates and other requisite information have to be filled in) to their local/field offices, that is, to the disbursing officers. Each such form contains the following columns:
- Actual figures of the previous year
- Sanctioned budget estimates for the current year
- Revised estimates of the current year
- Proposed estimates for the next year (with explanation for any increase or decrease)
- Actuals of the current year available (at the time of preparation of the estimates)
- Actuals for the corresponding period of the previous year
Scrutiny and Consolidation of Estimates by the Departments and Ministries Head of the department, after receiving the estimates from the drawing officers, scrutinizes and consolidates them for the entire department and submits them to the Administrative Ministry.
The Administrative Ministry also scrutinizes the estimates in the light of its general policy and consolidates them for the whole ministry and submits them to the Finance Ministry (Budget Division of the Department of Economic Affairs).
Scrutiny by the Finance Ministry The Finance Ministry scrutinizes the estimates received from the Administrative Ministry from the point of view of economy of expenditure and availability of revenues. Its scrutiny is nominal in case of ‘standing charges’ and more exacting in case of ‘new items’ of expenditure.
Settlement of Disputes If there is a difference of opinion between the Administrative Ministry and the Finance Ministry on the inclusion of a scheme in the budget estimates, the former can submit such estimates to the Union Cabinet. The decision of the Cabinet in this regard is final.
Consolidation by the Finance Ministry After this, the Finance Ministry consolidates the budget estimates on the expenditure side. Based on the estimated expenditure, the Finance Ministry prepares the estimates of revenue in consultation with the Central Board of Direct Taxes and the Central Board of Indirect Taxes. It is also assisted in this regard by the Income Tax Department and the Central Excise and Customs Department.
Approval by the Cabinet The Finance Ministry places the consolidated budget before the Cabinet. After the approval of the Cabinet, the budget can be presented to the Parliament. It must be mentioned here that the budget is a secret document and should not be leaked out before it is presented to the Parliament.
ENACTMENT OF BUDGET
‘Enactment of budget’ means the passage or approval of the budget (i.e. the annual financial statement or the statement of the estimated receipts and expenditure of the Government of India in respect of each financial year) by the Parliament and ratification by the President. This legalizes the receipts and expenditure of the government. This means that the government can neither collect money nor spend money without the enactment of the budget.
Stages in Enactment
The budget goes through the following six stages in the Parliament:
- Presentation of budget
- General discussion
- Scrutiny by departmental committees
- Voting on demands for grants
- Passing of Appropriation Bill
- Passing of Finance Bill
Presentation of Budget Rule 213 of the Lok Sabha provides for the presentation of the budget to the Lok Sabha in two or more parts, and when such presentation takes place, each part shall be dealt with in the manner as if it were the budget. Accordingly, the budget is presented in two parts— Railway Budget and General Budget. Both are governed by the same procedure.
The introduction of Railway Budget precedes that of the General Budget. While the former is presented to the Lok Sabha by the Railway Minister in the third week of February, the latter is presented to the Lok Sabha by the Finance Minister on the last working day of February.
The Finance Minister presents the General Budget with a speech known as the ‘budget speech’. At the end of the budget speech in the Lok Sabha, the budget is laid before the Rajya Sabha which can only discuss it and has no power to vote on the demand for grants.
The documents that are also presented to the Lok Sabha along with the budget are:
- An explanatory memorandum on the budget
- An Appropriation Bill
- A Finance Bill containing the taxation proposals
- Annual reports of the ministries
- Economic classification of the budget
Earlier, the economic survey report prepared by the Finance Ministry also used to be presented to the Lok Sabha along with the budget. Now, it is presented a few days before the presentation of the budget.
General Discussion The general discussion on the budget begins a few days after its presentation. It takes place in both the houses of Parliament and lasts usually for three to four days. It is a British legacy.
During this stage, the Lok Sabha can discuss the budget as a whole or on any question of principle involved therein but no cut motion shall be moved nor shall the budget be submitted to the vote of the House. The Finance Minister shall have a general right of reply at the end of the discussion.
Scrutiny by Departmental Committees After the general discussion on the budget is over, the Houses are adjourned for about three to four weeks. During this gap period, the 24 departmental standing committees of the Parliament examine and discuss in detail the demands for grants of the concerned ministries and prepare reports on them. These reports are submitted to both the Houses of Parliament for consideration.
The standing committee system established is 1993 makes parliamentary financial control over the ministries much more detailed, close, in-depth and comprehensive.
Voting on Demands for Grants In the light of the reports of the departmental standing committees, the Lok Sabha takes up voting of demands for grants. The demands are presented ministry-wise A demand becomes a grant after it has been duly voted.
Two points should be noted in this context. One, the voting of demands for grants is the exclusive the privilege of the Lok Sabha, that is, the Rajya Sabha has no power of voting the demands. Second, the voting is confined to the votable part of the budget—the expenditure charged on the Consolidated Fund of India is not submitted to the vote (it can only be discussed).
While the General Budget has totally 109 demands (103 for civil expenditure and 6 for defense expenditure), the Railway Budget has 32 demands. Each demand is voted separately by the Lok Sabha. During this stage, the members of Parliament can discuss the details of the budget. They can also move motions to reduce any demand for a grant. Such motions are called as ‘cut motions’ which are of three kinds:
Disapproval of Policy Cut Motion It represents the disapproval of the policy underlying the demand. It states that the amount of demand is reduced to ` 1. The members can also advocate an alternative policy.
Economy Cut Motion It represents the economy that can be affected in the proposed expenditure. It states that the amount of the demand
Token Cut Motion It ventilates a specific grievance which is within the sphere of responsibility of the Government of India. It states that the amount of demand is reduced by ` 100.
The significance of a cut motion lies in two things:
(a) It facilitates the initiation of concentrated discussion on a specific demand for the grant; and
(b) It upholds the principle of responsible government by probing the activities of the government.
However, the cut motions do not have much utility in practice. They are only moved and discussed in the house but not passed as the government enjoys majority support. Their passage by the Lok Sabha amounts to the expression of want of parliamentary confidence in the government and may lead to its resignation.
In total, 26 days are allotted for the voting of demands. On the last day (i.e. 26th day) the Speaker puts all the remaining demands to vote and disposes of them whether they have been discussed by the members or not. This is called as ‘Guillotine’.
Passing of Appropriation Bill The Constitution states that “no money shall be withdrawn from the Consolidated Fund of India except under appropriation made by law.” Accordingly, an Appropriation Bill is introduced to provide for the appropriation out of the Consolidated Fund of India all money required to meet:
(i) The grants voted by the Lok Sabha.
(ii) The expenditure charged on the Consolidated Fund of India.
No such amendment can be proposed to the Appropriation Bill in either house of the Parliament which will have the effect of varying the amount or altering the destination of any grant voted, or of varying the amount of any expenditure charged on the Consolidated Fund of India.
The Appropriation Bill becomes the Appropriation Act after it is assented to by the President. This Act authorizes (or legalizes) the payments from the Consolidated Fund of India. This means that the Government cannot withdraw money from the Consolidated Fund of India till the enactment of the Appropriation Bill. This takes time and usually goes on till the end of April. But the government needs money to carry on its normal activities after 31st March (the end of the financial year). To overcome this functional difficulty, the Constitution has authorized the Lok Sabha to make any grant in advance in respect to the estimated expenditure for a part of the financial year, pending the completion of the voting of the demands for grants and the enactment of the Appropriation Bill. This provision is known as the ‘Vote on Account’. It is passed (or granted) after the general discussion on the budget is over. It is generally granted for two months for an amount equivalent to one-sixth of the total estimation.
Passing of Finance Bill Under Rule 219 of the Lok Sabha, the ‘Finance Bill’ means the Bill ordinarily introduced in each year to give effect to the financial proposals of the Government of India for the next following financial year, and includes a bill to give effect to supplementary financial proposals for any period. It is subjected to all the conditions applicable to a Money Bill. Unlike the Appropriation Bill, the amendments (seeking to reject or reduce a tax) can be moved in the case of Finance Bill.
According to the Provisional Collection of Taxes Act of 1931, the Finance Bill must be enacted (i.e. passed by the Parliament and assented to by the President) within 75 days.
The Finance Act legalizes the income side of the budget and completes the process of the enactment of the budget.
EXECUTION OF BUDGET
‘Execution of budget’ means the enforcement or implementation of the budget after its enactment by the Parliament. In other words, it means the implementation of the Appropriation Act (dealing with the expenditure) and the Finance Act (dealing with the revenue).
The budget is executed by various administrative ministries/departments under the overall control and direction of the Finance Ministry. In other words, the overall responsibility regarding the execution of the budget lies with the Finance Ministry—the central financial agency of the Government of India.
The financial control exercised by the Finance Ministry has been very tight due to the excessive concentration of financial authority in it. However, this control has been relaxed in the course of time through various schemes of the delegation of powers by which the administrative ministries are granted some operational freedom and flexibility in managing their expenditure.
The Finance Ministry controls the expenditure of administrative ministries/departments in the following ways:
(i) Approval of policies and programmes in principle.
(ii) Acceptance of provision in the budget estimates.
(iii) Sanctioning expenditure, subject to the powers which are delegated to the spending authorities (i.e. ministries).
(iv) Providing financial advice through the Integrated Financial Advisor.
(v) The reappropriation of grants (i.e. transfer of funds from one subhead to another).
(vi) Internal audit system.
(vii) Prescribing a financial code to be followed by the spending authorities.
The composition of the machinery devised by the executive government for discharging its responsibility is:
(i) A system of controlling officers (i.e. usually the head of the ministry/department).
(ii) A system of competent authorities who issue financial sanctions.
(iii) A system of drawing and disbursing officers.
(iv) A system of payments and accounts (pay and accounts offices are created in various departments of the Central Government to make payments and compile accounts).
Reappropriation, which is an executive act, requires the formal approval of the Finance Ministry or the Administrative Ministry/Department to which the required powers are delegated. Reappropriation is permissible within the same grant only and is not permissible in the following cases:
(i) As between voted and charged items of expenditures.
(ii) To meet the expenditure on a new service not provided for in the budget.
(iii) As between different grants voted by the Lok Sabha.
(iv) To meet any expenditure which was not sanctioned by the Lok Sabha or any other competent authority.
(v) To meet any expenditure which involves outlay in the future financial year (except the contingent expenditure)
(vi) As between the revenue and the capital parts of the budget.
The scheme of Integrated Financial Advisor was introduced first in the Ministry of Shipping and Transport in 1974 on an experimental basis and then extended to all the ministries of the Central Government during 1975–1976. Under this scheme, the Integrated Financial Advisors are appointed in the administrative ministries.
The Integrated Financial Advisor is of the rank of Joint Secretary or Additional Secretary. He is selected jointly by the Administrative Ministry and Finance Ministry and his confidential report is written jointly by both the ministries. He is under the dual control of both the ministries and also answerable to both. He assists the Administrative Ministry in the exercise of enhanced delegated financial powers and his advice can be overruled by the Secretary of the Ministry (in the case of delegated powers and functions). But outside the scope of delegated powers, the functions under the general direction of the Finance Ministry and has direct access to the Finance Secretary. He has the following powers and functions:
(i) Preparation of the budget.
(ii) Scrutiny of projects and programmes for the approval of the Finance Ministry.
(iii) Post-budget vigilance.
(iv) Formulation of the performance budget of the ministry and monitoring of the progress of schemes.
(v) Assisting the Secretary in the discharge of his responsibility as the chief accounting authority of the ministry.
Execution of the budget on the revenue side involves proper (a) collection of revenues; (b) custody of the collected funds; and (c) distribution of funds.
The collection of revenues involves the following stages:
(i) Devising suitable machinery for tax administration and determination of procedure.
(ii) Assessment of tax, that is the preparation of a list of persons liable to pay tax and determining the amount to be paid by them.
(iii) Making provisions for hearing of objections and appeals.
(iv) Collection, that is, the realization of the amount due from the various assessees.
(v) Following up and realization of arrears, that is, dealing with the defaulters.
The Department of Revenue of the Finance Ministry exercises overall control and supervision over the machinery charged with the collection of taxes through the Central Board of Direct Taxes and the Central Board of Excise and Customs.
The Reserve Bank of India, the State Bank of India, the district treasuries (about 300) and subtreasuries (about 1,200) are engaged in the custody and distribution of funds. The Constitution of India provides for the following three kinds of funds for the Central Government:
Help us by contributing and making this site better by commenting below or