Union budget or State budgets provide funds to Ministries, government agencies and other bodies for various approved purposes, schemes, projects and programmes. No government expenditure can be incurred without approval of parliament or the concerned legislative assembly. Ministries or departments of government spend money either directly/departmentally or through other agencies to whom they transfer funds. The transferee agencies are often State governments or field level government agencies or Panchayati Raj institutions. In this mode, funds are utilized through government agencies. Government departments may also pass on money in the form of grants to non government organizations (NGOs). While transferring funds to state governments or their field level agencies, Central government departments issue detailed orders which attach several conditions governing the utilization of funds. Grants to NGOs also include numerous conditions on the use, accounting and audit of funds. Agencies which receive government funds have to submit periodic utilization certificates about fund utilization.
The fact that public funds ultimately flow from budget means that their utilization is governed by various procedures which are designed to regulate the manner of government spending and
enforce financial accountability. To get funds, departments have to follow the process for their inclusion in the budget. They include the requirements of various programmes and schemes in the departmental budget estimates which after normal processes of scrutiny are accepted, accepted with cuts or rejected. Normally, programmes and schemes, unless discontinued or radically restructured, continue from year to year. In fact, most of government expenditure is committed, and is spent on unavoidable payments like pay of government servants, pensions, interest and ongoing schemes.
After the Finance department accepts the budget proposals of a Ministry or department, they are consolidated and put in the form of demands for grants. The demands for grants of various departments go into the expenditure segment of the budget. The demands for grants of departments are discussed in legislature. Once all the demands for grants are passed in parliament or State assembly, an Appropriation Act is passed which signals the legislative authorization for incurring expenditure. Thereafter, Finance department passes orders placing grants at the disposal of concerned departments according to the budget on the approved programmes and schemes.
We need not examine the budget process in detail for our theme which is centred on utilization of public funds. It is sufficient if we grasp the essential implications of the budgetary process for fund utilization. The budget does not approve outlay to any scheme as a lump sum provision. No government approvals except ex-gratia payments such as those for victims of natural disasters take that form.
The expenditure on a scheme is approved for various individual items. Without getting into too many details, we may note some items for getting a flavour of things. Thus expenditure on non-recurring and recurring items is separately authorized. Non-recurring expenditure is a one time expenditure. Recurring expenditure is continuous expenditure which is needed every year. This distinction often reflects the one between capital and revenue expenditure. Revenue expenditure is for current or ongoing expenditure. Capital expenditure generally results in creation or acquisition for assets like buildings, sheds or factories. It may be with loans or contributing to share capital for various entities.
Besides, expenditure is separately shown for pay of officers, pay of staff, their dearness allowance, travelling allowance, office consumables, petrol and vehicle maintenance, office rent, telephone bill and a host of contingencies. All this is establishment or administrative cost of the scheme, and its direct inputs are also shown. To take a simple example, an agricultural demonstration programme for popularizing new crop varieties will contain items like agricultural input kits with seed packets, fertilizers and micronutrients and pesticides in recommended dosages, information brochures and so on.Detailedcalculationswithunitcosts,correspondingnumbers of personnel or materialinputs, along with detailed justification of such costs and numbers are presented and form the basis for financial approvals.
What is important to note is that in an approval to a scheme, expenditure limits are fixed for individual components. Generally, no diversion of expenditure from one component to another (except for marginal deviations) is permitted. In particular, no diversion from plan to non-plan items is allowed since expenditure booked under non-plan items usually represents administrative rather than programme costs. At one time, the plan and non-plan closely represented the distinction between development and non-development expenditure. But this is generally no longer the case. After
Rangarajan committee’s report on expenditure management, the plan versus non-plan distinction is being removed.
Thus, any financial sanction ties expenditure to various expenditure heads. There are accounting classifications which consolidate expenditures from narrow aggregates to broader aggregates. CAG has prescribed the accounting heads starting with the smallest units known as detailed heads (these are about 35) which are added together to form bigger accounting units for classifying expenditure. The purpose is to break down expenditure into its smallest items to know how money is being spent.