2. The Union of India’s Budget

Article 112 of the Indian constitution refers to budget as the ‘annual financial statement.’ The

union budget has two purposes:

1. To finance the activities of the union government.

2. To achieve macroeconomic objectives such as employment, sustained economic growth, and price level stability, which forms a part of fiscal policy.

Considering limited resources at its disposal to fulfill multivariate responsibilities, financial planning, and the democratic maxim of ‘no taxation without representation’, the government has to bring financial statement annually before the Parliament. The Government is not free to tax, borrow and spend money the way it likes. Every item of expenditure has to be well thought out and the total outlay worked out for a specific period. Also, there must be the sanction of the people behind all these financial proposals, expressed clearly through their chosen representatives.

It is in this context that the Budget of the Government of India is presented before both the Houses of Parliament every year. The Budget contains the financial statements of the government embodying the estimated receipts and expenditure for one financial year, which at present commences on the 1st of April every year. In other words, it is a proposal of how much money is to be spent on what and how much of it will be contributed by whom or raised from where during the coming year.

The Budget gives estimates for the ensuing year and offers an opportunity to the government to review and explain its financial and economic policy and programmes besides enabling the Parliament to discuss and criticize it. Its importance is not limited to finances only as it also reflects government’s vision and signals the policies to come in future.

The essential features of the financial procedure followed in India are laid down in the Constitution, which ensures the supremacy of the Lok Sabha, at the Union, and that of Legislative Assembly at state level, in the financial matters. The Constitution provides that no tax shall be levied or collected except by authority of Parliament (Article 265) and that the President shall, in respect of every financial year, cause to be laid before both Houses, the Annual Financial Statement (Article 112).

Article 112 (in case of central government) and Article 202 (in case of state government) of the constitution requires the annual financial statement to be laid before the respective legislatures.

Since 1921, the union government has had two budgets – Railway budget and General budget. This separation has been done away with in 2017-2018 budget and the two have been merged into a single document, presented by the Union Finance Minister.

Any budget has the following three types of information:

♤ Actual figures of receipts and expenditure of the previous year

♤ Budget and revised figure for the current year

♤ Budget estimate for the upcoming year

For example, this year our finance minister presented the budget for the year 2018-19. Then previous year is 2016-17 and current year is 2017-18 at the end of which budget is presented and the coming year is 2018-19.

The receipts and disbursements are shown under the three parts, in which Government Accounts are kept viz. (i) Consolidated Fund (ii) Contingency Fund and (iii) Public Account. The estimated receipts and expenditures are essentially made into and out of these three funds.

(i) Consolidated fund - It is a fund to which all receipts are credited and all payments are debited, that is,

♤ All revenues received by the Government of India.

♤ All loans raised by the Government by the issue of treasury bills, loans or ways and means of advances.

♤ All money received by the government in repayment of loans forms the Consolidated Fund of India.

All the legally authorized payments on behalf of the Government of India are made out of this fund. For example - repayment of debt, giving loans to the state governments etc. No money out of this fund can be appropriated (issued or drawn) except in accordance with a parliamentary law. Money can be withdrawn only under appropriation made by law. Due to constitutional provisions, the expenditures are embodied in the Budget as:

♤ The sums required to meet the items of expenditure described by the Constitution as those charged on the Consolidated Fund of India.

♤ The sums required to meet other expenditures proposed to be made from the Consolidated Fund of India.

Expenditures contained in the first category can be discussed in both the Houses but are not submitted to vote of either House. In other words, they constitute the non-votable part of the Budget. The expenditures charged on the Consolidated Fund of India include:

♤ The emoluments and allowances of the President

♤ The salaries and allowances of the Chairman, Deputy Chairman of the Rajya Sabha and the Speaker and the Deputy Speaker of the Lok Sabha

♤ The salary and other allowances payable to the judges of the Supreme Court

♤ Pensions of the judges of high courts.

♤ Salary, allowances and pension of the Comptroller and Auditor General of India.

♤ Salaries, allowances and pension 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 and pensions 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 Constitution or by Parliament by law to be so charged

The expenditure falling in the second category is presented in the form of Demands for Grants to the Lok Sabha and is voted upon by this House. The Lok Sabha has the right to assent or to refuse any such demand or reduce the demand specified therein. No such demand shall be made except on the recommendation of the President. Since these demands are meant to fulfill the programmes and policies of the government, if any demand as a whole is voted down, it tantamounts to a defeat of the government.

(ii) Public accounts of India - All other public money (other than those which are credited to the Consolidated Fund of India) received by or on behalf of the Government of India shall be credited to the Public Account of India.

♤ This includes Moneys held by Government in Trust as in the case of Provident Funds, Small Savings collections, income of Government set apart for expenditure on specific objects like road development, primary education, Reserve/Special Funds etc.

♤ This account is operated by executive action, that is, the payments from this account can be made without parliamentary appropriation.

♤ Public Account funds do not belong to Government and have to be finally paid back to the persons and authorities that deposited them. Parliamentary authorization for such payments is, therefore, not required, except where amounts are withdrawn from the

Consolidated Fund with the approval of Parliament and kept in the Public Account for expenditure on specific objects, in which case, the actual expenditure on the specific object is again submitted for vote of Parliament for withdrawal from the Public Account for incurring expenditure on the specific object.

(iii) Contingency fund of India – Article 267 of The Constitution authorizes the Parliament to establish a ‘Contingency Fund of India’, into which amounts determined by law are paid from time to time. Accordingly, the Parliament enacted the Contingency Fund of India Act in 1950.

♤ This fund is placed at the disposal of the President, so that he can make advances out of it to meet unforeseen expenditure pending its authorization by the Parliament. The fund is held by the finance secretary on behalf of the president.

♤ Like the public account of India, it is also operated by executive action.

♤ Parliamentary approval for such unforeseen expenditure is obtained, post-facto, and an equivalent amount is drawn from the Consolidated Fund to recoup the Contingency Fund. The corpus of the Contingency Fund as authorized by Parliament presently stands at 500 crore and may be enhanced by the Parliament. Finance Ministry operates this fund on the behalf of the President.

Under the Constitution, Annual Financial Statement distinguishes expenditure on revenue account from other expenditure. Government Budget, therefore, comprises Revenue Budget and Capital Budget. The estimates of receipts and expenditure included in the Annual Financial Statement are for the expenditure net of refunds and recoveries, as will be reflected in the accounts.