The Finance Minister presents an annual statement to Parliament of how much money the union government expects to raise in the next financial year and how it will spend that money. This statement is called the union budget. The budget speech is also used by the government to propose other economic policy measures.
Budget Papers tabled in Parliament contain broadly, the budget speech, a breakdown of the detailed spending proposals of each ministry, as well as revenue raising proposals.
There are two different sets of classifications used – Plan versus Non-plan and Capital versus Revenue expenditure.
Expenditure used to create assets or to reduce liabilities e.g. building a road.
Expenditure not used to create assets e.g. expenses on salaries or other administrative costs.
Expenditure on schemes and projects covered by the five-year Plans.
Ongoing expenditure by the government not covered by the Plans. These include interest payments on government debt, expenditure on organs of the state such as the judiciary and the police and even expenditure on the maintenance of existing government establishments such as schools and hospitals.
Non-plan expenditure too, has revenue and capital components.
Funds allocated to schemes
The detailed expenditure allocated to different schemes are given in the ‘expenditure Budget’ documents.
The preparation of the Budget for the approval of the legislature is a Constitutional obligation. The control of Parliament over the finances of the country is exercised through legislative prerogative over taxation, and legislative control over expenditure. To this effect, there are specific provisions in the Constitution consolidating these tenets.
Article 265 provides that no tax shall be levied or collected except by authority of law; Article 266 provides that no expenditure can be incurred from the Consolidated Fund of India and of the states, except with the authorisation of the legislature.
Here are the constitutional and legal bases of some other key aspects of the Budget:
Annual Financial Statement:
Interestingly, the Constitution of India does not specifically use the word Budget. Article 112 of the Constitution provides for laying before Parliament an ‘Annual Financial Statement’ providing a statement of the estimated receipts and expenditure for the financial year.
This statement evidences the receipts and expenditure of government in three separate parts under which accounts are maintained. These are:
- Consolidated Fund of India.
- Contingency Fund of India .
- Public Account.
According to constitutional provisions, the Annual Financial Statement has to distinguish expenditure on revenue account from other expenditure. It comprises:
- Revenue budget:
Proceeds of taxes and interest and dividend on investments made by government, fees, and other receipts for services rendered by government.
- Capital budget:
Capital receipts and payments, including loans, raised by government from public, borrowings from Reserve Bank, et al.
Demand for Grants
The estimates of expenditure from the Consolidated Fund of India included in the Annual Financial Statement are required to be voted by the Lok Sabha and submitted in the form of Demand for Grants as mandated by Article 113.
These demands are arranged ministry-wise, and a separate demand for each of the major services is presented.
Pursuant to the Demand for Grants, the Appropriation Bill is introduced for appropriating monies out of the Consolidated Fund of India to meet the said grants as provided under Article 114.
The Appropriation Bill is intended to give authority to government to incur expenditure from and out of the Consolidated Fund of India. The procedure for passing this Bill is the same as in the case of other Money Bills.
At the time of introduction of the Annual Financial Statement, a Finance Bill is also presented before Parliament . The Finance Bill satisfies the criteria of a ‘Money Bill’ as it provides for the imposition, abolition, remission, alteration or regulation of taxes proposed in the Budget. A ‘Money Bill’ is defined under Article 110(1).
It is pertinent to note that every Finance Bill is a Money Bill but every Money Bill is not a Finance Bill. A Bill is deemed to be a Money Bill if it contains provisions dealing with six specific matters provided under Article 110(1). The Finance Bill, which provides for the imposition, abolition, remission, alteration or regulation of taxes proposed in the Budget, falls under Article 110(1) (a) of the Constitution.
Vote-on-Account, Vote of Credit and Exceptional Grant
Pending the completion of the parliamentary procedure relating to the voting on the Demand for Grants, and passing of the Appropriation Bill, the Constitution under Article 116 grants power to the Lok Sabha to make a grant in advance for authorising the withdrawal of money from the Consolidated Fund of India in respect of the estimated expenditure for a part of any financial year, referred to as vote-on-account.
The Lok Sabha also has the power to make grants for meeting unexpected demands, referred to as vote of credit, or to make an exceptional grant.
Fiscal Responsibility and Budget Management Act, 2003
In addition to the Budget documents, the Fiscal Responsibility and Budget Management Act, 2003, mandates that certain additional documents shall be laid before Parliament. This includes the macro-economic framework for the relevant financial year; fiscal policy strategy statement for the financial year; medium-term fiscal policy statement and medium-term expenditure framework statement.
Upon President’s recommendation, obtained under Article 117(1) and 117(3) for introduction and consideration of the Budget, it is laid before the Lok Sabha by the Finance Minister.
Expenditure charged upon the Consolidated Fund of India is non-votable by the Parliament. It can only be discussed by the Parliament.
Expenditure made from the Consolidated Fund of India has to be voted by the Parliament.
Article 112 (2) of Constitution of India prescribes estimates of expenditure embodied in the Annual financial statement.
Charged expenditure is imposed on the Consolidated fund instead of obtaining the approval of Parliament, because of the requirement of safeguarding the interest of constitutional bodies.
Examples of Charged expenditure:
- The salary, allowances and pension payable to or in respect of CAG of India.
- Any amounts required to satisfy any judgment, decree or award of any Courts or awards of Arbitrators where made into rule of court
- Any other expenditure declared by the Constitution or by Parliament by law to be so charged.
Presentation of the Budget
In India, the Budget is presented to Parliament on such date as is fixed by the President. The Budget speech of the Finance Minister is usually in two parts.
Part A deals with general economic survey of the country while Part B relates to taxation proposals.
Since 1999 the General Budget is being presented at 11 A.M. on the last working day of February, i.e. about a month before the commencement of the Financial year except in the year when General Elections to Lok Sabha are held.
In an election year, Budget may be presented twice—first to secure Vote on Account for a few months and later in full.
The General Budget is presented in Lok Sabha by the Minister of Finance. He makes a speech introducing the Budget and it is only in the concluding part of his speech that the proposals for fresh taxation or for variations in the existing taxes are disclosed by him. The ‘Annual Financial Statement’ is laid on the Table of Rajya Sabha at the conclusion of the speech of the Finance Minister in Lok Sabha.
Along with the ‘Annual Financial Statement’, the Government presents the following documents:
- An Explanatory Memorandum briefly explaining the nature of receipts and expenditure during the current year and the next year and the reasons for variations in the estimates for the two years,
- The Books of Demands showing the provisions Ministry-wise, and
- A separate Demand for each Department and service of the Ministry.
The Finance Bill which deals with the taxation measures proposed by Government is introduced immediately after the presentation of Budget. It is accompanied by a memorandum explaining the provisions of the Bill and their effect on the finances of the country.
Vote on Account
The discussion on the Budget begins a few days after its presentation.
In a democratic set-up, Government is anxious to give Parliament full opportunity to discuss the budgetary provisions and the various proposals for taxation.
Since Parliament is not able to vote the entire budget before the commencement of the new financial year, the necessity to keep enough finance at the disposal of Government in order to allow it to run the administration of the country remains.
A special provision is, therefore, made for “Vote on Account” by which Government obtains the Vote of Parliament for a sum sufficient to incur expenditure on various items for a part of the year.
Normally, the Vote on Account is taken for two months only. But during election year or when it is anticipated that the main Demands and Appropriation Bill will take longer time than two months, the Vote on Account may be for a period exceeding two months.
The Budget is discussed in two stages in Lok Sabha. First, there is the General Discussion on the Budget as a whole. This lasts for about 4 to 5 days. Only the broad outlines of the Budget and the principles and policies underlying it are discussed at this stage.
Consideration of the Demands by Standing Committees of Parliament
After the first stage of General Discussion on both Railway as well as General Budget is over, the House is adjourned for a fixed period. During this period, the Demands for Grants of various Ministries/Departments including Railways are considered by concerned Standing Committees (Rule 331G).
These Committees are required to make their reports to the House within specified period without asking for more time. The system of consideration of Demands for Grants by the Standing Committees was introduced from the Budget for the year 1993-94. The Standing Committee consists of 45 Members, 30 from Lok Sabha and 15 from Rajya Sabha. The reports of the Standing Committees are of persuasive nature (Rule 331N). The report shall not suggest anything of the nature of cut motions.
After the reports of the Standing Committees are presented to the House, the House proceeds to the discussion and Voting on Demands for Grants, Ministry-wise.
The time for discussion and Voting of Demands for Grants is allocated by the Speaker in consultation with the Leader of the House. On the last day of the allotted days, the Speaker puts all the outstanding Demands to the Vote of the House. This device is popularly known as ‘guillotine’.
Lok Sabha has the power to assent to or refuse to give assent to any Demand or even to reduce the amount of Grant sought by Government.
In Rajya Sabha there is only a General Discussion on the Budget. It does not vote on the Demands for Grants. Only so much of the amount is subject to the vote of Lok Sabha as is not a “charged” expenditure on the Consolidated Fund of India.
The “charged” expenditure includes the emoluments of the President and the salaries and allowances of the Chairman and Deputy Chairman of Rajya Sabha and the Speaker and Deputy Speaker of Lok Sabha, Judges of Supreme Court, Comptroller and Auditor General of India and certain other items specified in the Constitution of India. Discussion in Lok Sabha on ‘charged’ expenditure is permissible but such expenditure is not voted by the House. Members have full opportunity to criticise the budgetary provisions during the course of discussion as also to make suggestions for improving the financial position of the country.
Motions for reduction to various Demands for Grants are made in the form of Cut Motions seeking to reduce the sums sought by Government on grounds of economy or difference of opinion on matters of policy or just in order to voice a grievance.
After the General Discussion on the Budget proposals and Voting on Demands for Grants have been completed, the Government introduces the Appropriation Bill.
The Appropriation Bill is intended to give authority to Government to incur expenditure from and out of the Consolidated Fund of India. The procedure for passing this Bill is the same as in the case of other money Bills.
The Finance Bill seeking to give effect to the Government’s taxation proposals which is introduced in Lok Sabha immediately after the presentation of the General Budget, is taken up for consideration and passing after the Appropriation Bill is passed.
However, certain provisions in the Bill relating to levy and collection of fresh duties or variations in the existing duties come into effect immediately on the expiry of the day on which the Bill is introduced by virtue of a declaration under the Provisional Collection of Taxes Act. Parliament has to pass the Finance Bill within 75 days of its introduction.
Budget of a State/Union Territory under President’s Rule
The Budget of a State under President’s rule is presented to the Lok Sabha. The procedure followed in regard to the Budget of the Union Government is followed in the case of the State Budget also, with such variations or modifications, as the Speaker may make.
No expenditure in excess of the sums authorised by Parliament can be incurred without the sanction of Parliament.
Whenever a need arises to incur extra expenditure, a Supplementary estimate is laid before Parliament.
If any money has been spent on any service during a financial year in excess of the amounts granted for that service and for that year, the Minister of Finance/ Railways presents a Demand for Excess Grant.
The procedure followed in Parliament in regard to Supplementary/Excess Grants is more or less the same as is adopted in the case of estimates included in the General Budget.
Additional grants are give only to the services not mentioned in the current budget, where as Exceptional grants are for special purpose not necessarily service but includes other things and if it is for service then that service does not have covered in any financial years before and also the present financial year.