Decoding Union Budget

The Authors are Mr. Abhyudaya Raj Mishra and Ms. Shreya Chaursiya, who are pursuing BBA LLB and BA LLB Hons. respectively in the first year from Himachal Pradesh National Law University, Shimla.

Look at our society, everyone wants to be thin, but nobody wants to diet. Everyone wants to live long but nobody wants to exercise. Everyone wants money yet seldom anyone budget or control their spending….

                                                                                                                        John C. Marvel

It is an annual expenditure or an estimate of receipts and expenditure of the government of India. It is presented for the ensuing financial year which at present begins on the 1^st April every year. The budget includes the inflows and the outflows of the government for three years. It gives actual expenditure for the preceding year, revised estimates of the current year and budget estimate for the next year. The overall responsibility of preparing the budget rests with the budget division of finance ministry. It takes cognizance of the availability of funds and proposals to numerous departments and ministries. It also consults the CAG. The budget, however, needs the final approval of the prime minister before it can be presented in the Lok Sabha. The president decides on which date the budget is presented by convention, it is presented on the last day of February.

The budget speech is divided into two parts:

Part A- dealing with the general economic survey of the country and

Part B- containing the taxation proposals for the ensuing financial year. Following the budget presentation, the annual financial statement relating to the government of India is laid on the table. Also, the finance bill( Article 117 of the Indian constitution) is introduced at this time.

BACKGROUND/ BUDGET HISTORY

Budget references can be found in Arthashastra at Kautilya. This notes that the Emperor will first measure revenue under various heads of accounts from each location and sphere of operation and then arrive at a total. The total income will be determined by applying receipts for the current year to the treasury and collecting overdue payments due in previous years. The expenditure on the king, regular rations (extra supplies), other exemptions are given by King and allowed postponement of payments to the treasury are excluded from this. The remaining revenues are calculated from work under construction for which profits would earn on completion, unpaid penalties, unrecoverable fees, uncollectible amounts, advances to be repaid by officers, etc.

MODERN BUDGET

The history of the modern budget can be traced back to the Norman era, where two departments, the Treasury and the Exchequer (taxpayer), dealt with finance. The Treasury received and paid out money on behalf of the monarch. The Exchequer had a 'lower office' collecting money and a 'higher office' to control the accounts of the Kings.

The term ‘budget’ has been derived from the old French word ‘baguette’, which means a leather bag or wallet.

(FACT\FOOTNOTE)

The first use of the term 'budget' may date back to 1733 financial statements by Walpole as Prime Minister and Chancellor of the Exchequer. A cartoon of him opening a patent medicine seller's wares was published at the time, as a satirical comment with the caption 'The Budget Opened'. ('Budge' is an old word for a bag or small case).

(Conclude/ closing)Initially, “budget” referred solely to the Chancellor’s annual speech on the nation’s finances. Now, the term is used for an annual financial statement of income and expenditure of a government.

PREPARATION OF THE BUDGET/ MAKERS INVOLVED

1.      The budget is made through a consultative process involving the ministry of finance, NITI Aayog, and spending ministries. Finance ministry issues guidelines for spending, based on which ministries present their demands. The Budget division of the Department of Economic Affairs in the finance ministry is the nodal body responsible for producing the Budget.

2.      The budget division issues a circular to all union ministries, states, UTs, autonomous bodies, departments and the defense forces for preparing the estimates for the next year.

3.      After ministries & departments send in their demands, extensive consultations are held between Union ministries and the Department of Expenditure of the finance ministry.

4.      At the same time, the Department of Economic Affairs and the Department of Revenue meet stakeholders such as farmers, businessmen, FIIs, economists and civil society groups to take their views.

5.      Once the pre-Budget meetings are over, a final call on the tax proposals is taken by the finance minister. The proposals are discussed with the PM before the Budget is locked.

6.      The finance ministry collects information about receipts and expenditures from various departments to prepare the revised estimates for the budget. The government also holds pre-budget consultations with stakeholders such as state representatives, bankers, agriculturists, economists and trade unions to understand their demands, which includes tax incentives and fiscal support.

INDIAN BUDGET PROCESS

The budget is prepared by the Minister of Finance with the support of the number of advisors and bureaucrats. Before planning, the Finance Minister seeks out the opinions of the business leaders and economists. Various organizations related to accounting and finance give their views and recommendations. The budgeting exercise in India remains mainly the domain of bureaucrats to participate and influence the outcome. Normally, the budget-making process starts in the third quarter of the financial year.

The budget has four stages:

 (1) estimates of expenditures and revenues,

(2) the first estimate of the deficit,

(3) narrowing of deficit and

 (4) presentation and approval of the budget.

Stage 1: Estimates of expenditures and revenues

Part A: Estimates of expenditure

The cycle starts with different ministries presenting initial estimates of both plan and non-plan spending. The ministries negotiate with the Planning Commission the costs for the program. The Planning Commission allocates funding for existing plan projects and decides on the new initiatives that can be implemented based on a preliminary estimate or available resources offered by the Ministry of Finance. The financial advisors of the ministries prepare the non-plan expenditures. The expenditure secretary consolidates them and after intensive discussion with financial advisors, budget estimates are set for the ensuing fiscal year.

Part B: Estimates of revenue

Apart from calculating the expenditure, an analysis of expected revenues likely to flow into the govt. treasury has done as a concurrent exercise. Revenue receipts are of two forms - capital and current receipts.

STAGE 4

·         Budget submission for the following fiscal year (beginning April 1) is usually performed on the last working day of February. In financial affairs, the Indian constitution declared the Parliament supreme. The Union government, under Article 112 of the constitution, is required to lay an annual financial statement of estimated receipts and expenditure before both Houses of Parliament.

·         It can levy taxes or disburse funds only on approval in both houses of Parliament. However, the proposal for taxation or expenditure has to be initiated within the Council of Ministers--specifically by the Minister of Finance.

·         The Finance Minister presents before the Parliament, a financial statement detailing the estimated receipts and expenditures of the central government for the forthcoming fiscal year and a review of the current fiscal year.

·         Under Article 114 of the Constitution, the government can withdraw money from the Consolidated Fund of India only on approval from Parliament and so it has to get the Appropriation Bills approved by Parliament. This authorizes the executive to spend money.

·         Article 265 of the Constitution prohibits the government from collecting any taxes without the authority of law. Therefore, the government comes up with the Finance Bill. The Bill may levy new taxes, modify the existing tax structure or continue the existing tax structure beyond the period approved by Parliament earlier.

·         The proposals in the budget come into force on April 1. Between the presentation and effective date, there is a gap of 1 month during which the Lok Sabha can review and modify the government's budget proposals. This does not happen most of the time and the Parliamentary scrutiny of proposals and the passage of the budget gets completed in May, well after the commencement of the new fiscal year. Since the proposed budget has to be effective from April 1, the government usually seeks an interim approval to meet emergent expenditures that have to be incurred pending the approval of the budget.

(This is called the vote-on-account and the limitations levied by the vote-on-account passage will be overridden automatically until Parliament passes the budget.)

UNION BUDGET DOCUMENTS (important)

CATEGORIES OF GOVERNMENT ACCOUNT

There are three major categories of government accounts:

·         CONSOLIDATED FUND:  The Consolidated Fund under Article 266(1) is what is usually known as the budget

·         CONTINGENCY FUND: The Contingency Fund is constituted under Article 267 of the Constitution of India and is a Rs 500 crores fund which is at the disposal of the President of India. It is for urgent or unforeseen expenditures that do not require prior legislative approval as opposed to the Consolidated Fund.

·         PUBLIC ACCOUNT: The Public Account was constituted under Article 266(1) of the Constitution of India.