The Budget:
The term ‘Budget’ was originally derived from a French word- Bougette, meaning a leather bag or wallet.
In older times, such a bag was to be used for keeping the papers of accounts.
Definitions:
A budget is a financial statement prepared in advance of the opening of a fiscal year, of the estimated revenues and proposed expenditures of the given organization for the ensuing fiscal year. –Harold. R. Bruce.
Budget is a plan of financing for the incoming fiscal year. This involves an itemized estimate of all revenues on the one hand and all expenditures on the other. –Munro
Preparation of Budget in India
The responsibility of framing, the budget in India formally entrusted to the president of India. The president instructs his council of ministers to undertake the job and in fact, the job is performed by the ministry of finance with the approval of the cabinet.
Since the financial year begins on 1st April, the preparation of budget for the forth coming year starts in July of the preceding year.
The preparation of budget takes place in following stages.
1) Preparation of the preliminary estimates by the disbursing offices i.e. Heads of Dept
The finance ministry supplies skeleton forms to the administrative heads of dept for preparing estimates for their requirements of expenditure in the month of July. The skeleton forms call for details regarding
i) Actual for the precious year
ii) Sanctioned estimates for the current year,
iii) revised estimates for the current year and
iv) Body estimates for the next year.
2) The scrutiny and Review by the controlling officers:-
The skeleton information is scrutinized, reviewed, finalized and consolidated by the heads of administrative departments. Such estimates are forwarded to finance ministry in the month of November.
3) Scrutiny and review of the estimates by the Auditor General.
One copy of the departments preliminary estimates is forwarded to the Auditor general of India, who examines the various items with a view to ensure that all the sanctioned charges are included in the estimates and no unsanctioned charge is included.
The administrative heads of the various departments keeps in view the comments/observations/objections of the comptroller and Auditor General while preparing the revised estimate of their departments.
4) Scrutiny and review of the revised estimates by the ministry of finance.
The revised estimates are thereafter verified by the finance ministry, such budget estimates are usually divided into (i) standing charges ii) continuing schemes, and iii) new schemes.
5) Estimating the Revenue:
It is the responsibility of the finance ministry. The ministry compares the figures of income and expenditure with previous years figures and proposes charger in the existing rates, if necessary
The Budget Division in the ministry of finance prepares an estimate projection of revenue and expenditure of the Govt. of India for the ensuing year. On the basis of the estimated expenditure and proposals regarding fresh taxes or revision of the existing taxes the Draft Budget is prepared by the end of December.
6) The final consideration of the consolidated estimates by the Cabinet.
The draft budget is examined by the finance Minster in Jan. He consults the Prime Minister and prepares the financial policy, Particularly taxation proposals. At the end of Feb, the budget is finalized by the finance minister. The general or skeleton budget, not the details regarding taxation proposals are submitted to the cabinet for its consideration. After the budget is approved by the cabinet, it is presented to the parliament usually on the last working lay in the month of February.
Enactment of Budget in India:
‘Enactment of the budget’ means the passage or approval of the budget (i.e. the annual financial statement or 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 Government can neither collect money nor spend money without the enactment of the budget.
When the work of preparation of budget is over, it is submitted to the parliament for its approval. In India, the budget goes through six stages in course of its passage in the parliament.
- Introduction in the legislature
- The General discussion
- Scrutiny by departmental committees
- The voting of the demands for grants
- The consideration and passing of the Appropriation Bill
- The consideration and passing of the taxation proposals; the Finance Bill.
The essential features of the financial procedures followed in India are laid down in the Constitution which ensures the supremacy of Lok Sabha in financial matters.
v Constitution provides that no tax shall be levied or collected except by authority of law. (Art. 265)
v The President shall in respect of every financial year, cause to be laid before both the houses of Parliament a statement of the estimated receipts and expenditure of the Government of India for that year, this is known as the ‘Annual Financial Statement.” ( Art. 112)
v The Constitution provides for a ‘Consolidated Fund’ of India to which includes all revenue received by Government of India, loans raised by the Government of India by the issue of treasury bills, loans ways and means, advances and all money received by government of India in repayment of loans etc. are credited. (Art. 112 (3)
v No money can be withdrawn from the consolidated of fund of India except under an Appropriation Act passed by Parliament. (Art.114)
Hence the budget is submitted by the executive branch to the parliament for its consideration, scrutiny and approval during the budget session.
1) Introduction of the Budget:
In the month of February, the President of India convenes the Budget session of the Parliament. The President’s address is followed by the presentation of the budget, in the name of President of India. It is presented in two parts to the Union Parliament, the Railway Budget and the General Budget.
The Railway Budget exclusively deals with the receipts and expenditure of the railways and it is separately presented to the Parliament by the Union Railway Minister in the third week of February.
The General Budget deals with the estimates of all the departments of the Government of India excluding Railways and is presented to the Parliament by the Union Finance Minster on the last working day of February usually at 5pm.
The finance minister presents the General Budget with a speech known as the “Budget Speech” which is, in fact, one of the most important speeches in Parliament. The speech of the Finance minister gives information relating to the general economic conditions of the country, the financial policy to be followed by the government, the explanation for the difference between the budget estimates and the revised estimates of the current year and the explanatory memoranda which explain the reasons for variations in the current years original estimates and new demands.
The documents that are presented to the Lok Sabha along with the Budget are:
- An explanatory memoranda on the Budget
- An appropriation Bill
- A Finance Bill containing the taxation proposals
- Annual reports of the ministries
- Economic classification of the Budget.
After the finance Minster submits the budget and concludes his budget speech there is no discussion on the budget in the house on the same day according to Rule 130 of the rules of conduct of Business of parliament.
2) General discussion:
The speaker of Lok Sabha fixes the date for general discussion on the budget. Four days are allotted for the general discussion on the budget. During this period discussion is held on all items of expenditure including those which are charged on the Consolidated Fund of India and are excluded from the voting of parliament. Again, discussion is confined to the general principles or policy underlying the budget, and involves review and criticism of administration and ventilation of grievances of the people.
During no motion can be moved nor is the budget submitted to the vote of parliament. Such general discussion on the budget takes place in both the Houses of Parliament simultaneously. The finance minister gives reply to the issues raised in the course of discussion 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 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 in 1993 makes parliamentary financial control over the ministries much more detailed, close, in-depth and comprehensive.
4) The Voting of demands for grants:
The next stage is voting for demands for grants i.e. voting of the expenditure part of the budget. The demand is made in a motion.
In the light of the reports of the departmental standing committees, the Lok Sabha takes up voting of demands for grants. These demands are presented ministry wise.
The voting of demands is the exclusive privilege of the Lok Sabha and Rajya Sabha has no rule to play except discussing the demands for grants. Secondly, 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).
The Consolidated Fund Charges.
The Consolidated Fund Charges is the one part of the estimates of expenditure which is not submitted to the vote of the House, though it can be discussed by it.
It includes- the salaries of the President Of the Republic, of the judges of the Supreme Court, of the Chairman and the Speaker (and their deputies) of the two Houses, and Auditor- General of India, Charges in respect of Public Debt of India (interest, sinking funds, etc.), certain pensions; sums required to satisfy any judgement or decree of a court or arbitral tribunal, and any their expenditure declared by law or Parliament to be apart thereof.
There are 109 demands in the General budget, out of which 103 are related with civil expenditure and with defence expenditure. The Railway Budget has 32 demands. The speaker in Consultation with the leaders of the various political parties allots time for discussion.
This stage is vital in enactment of budget which gives the members of the parliament an opportunity to criticize the working of the ministry whose demands are voted by the house. They can move cut motions such as policy cut motion, economy cut-motion or token cut-motion and concentrate discussion on specific issues. If the cut motion is adopted by the house, it signals lack of confidence and the opposition demands resignation of ministry.
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 the whether they have been discussed by the members or not. This is called as ‘Guillotine.’
A demand duly voted becomes a grant. It should be noted here that the house can only reject or reduce a demand, but cannot increase it. For more money, supplementary grants are submitted in the month of July or the expenditure can be met from contingency fund.
4) Consideration & passing of Appropriation Bill:
The next stage is the Annual Appropriation Bill. Voting of the demands for grants by itself does not empower the government to withdraw money from the public fund. Hence, all the expenditure charged on the consolidated fund of India are put together and incorporated in the Annual 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.
The bill includes all the grants for the year Votable and non-votable. The bill follows the same procedure in the house as any other money bill except in this that no amendment to the grants as voted by the house previously or to the consolidated fund charged can be proposed. After the Annual Appropriation Bill is passed in the House of people, it is certified by the speaker as a money bill and it is sent to the council of states.
The Council of States or the Rajya Sabha is empowered to discuss the bill and make recommendations within 14 days to the Lok Sabha. The latter may or may not accept the recommendations. In case the Rajya Sabha does not return the bill within the specified period of 14 days, the bill is deemed as passed by that house also. After the Appropriation Bill is passed by both the Houses of parliament, it is sent to the president of India for his formal assent. The President cannot return a money bill for reconsideration and his approval to it follows a matter of Course.
This Act authorizes 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 Financial year). To overcome this financial 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 budget is over. It is generally granted for two months for an amount equivalent to one-sixth of the total estimates.
5) Consideration and passing of the finance bill i.e. taxation proposals:
Consideration & passage of the finance bill is the exclusive right of the House of People. Art. 219 (1) of the constitution makes a provision for introducing a finance bill for raising revenue to meet the expenditure through the means of taxation. For this purpose, a finance bill is placed before the house of people. The procedure for the enactment of the finance bill is the same as in passing of money bill and when this bill is enacted by parliament and receives the formal assent of the President the govt. is authorized to collect taxes as provided in the finance bill.
The Finance Act legalizes the income side of the Budget and completes the process of the enactment of the Budget.
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