Every year in February, the entire country is hooked to their televisions as the budget is presented in the parliament. Citizens from all social and economic strata watch keenly the various benefits that are to come their way. Later, experts and economists analyze the key features of the budget and debates on TV and in homes continue for days. While everyone is aware of the budget presentation in parliament, very few are familiar with the procedure of budget in India. Presentation of a budget in the parliament is just one part of a humongous process.
Article 112 of the Indian Constitution states – 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, in this Part referred to as the annual financial statement.
This ‘annual financial statement’ is the budget. The term ‘budget’ as such is not mentioned in the constitution. It is thus a statement of estimated receipts and expenditures of the Government of India in a financial year, which begins on 1 April and ends on 31 March of the following year.
Earlier the General Budget and the Railway budget were presented separately. But after a decision in 2016, the railway budget was merged into the general budget.
The procedure of budget in India involves 4 steps.
• The preparation of the budget
• The enactment of the budget
• The execution of the budget
• The Parliamentary control of the budget
THE PREPARATION OF THE BUDGET
The preparation of the budget in India undergoes several stages before it is presented in the house. The work on budget preparation starts in September every year when the finance ministry sends circulars along with some skeleton forms to different ministries and departments asking them to start preparing in advance for the coming fiscal year. The Budget Division of the Department of Economic affair of the Ministry of Finance is in-charge for this purpose.
The ministries and departments pass on these forms to the disbursing officers. These are the heads of local offices tasked with preparing the preliminary estimates. While preparing the estimates the local officers are to fill in four columns of the prescribed form:
• Actual of the previous year
• Sanctioned estimates for the current year
• Revised estimates for the current year
• Budget estimates for next year.
The local heads then send their estimates to their controlling officers or Heads of Departments for scrutiny. These heads scrutinize administratively and have the option to accept or reject or revise these estimates. These estimates are then sent to the Budget Department of the Ministry of Finance. The Estimates Committee considers these estimates and after its approval sends them to the Finance Ministry. They are further scrutinized by the Finance Ministry. The scrutiny by the Finance Ministry is done keeping in mind the following questions:
• If the proposed expenditures are really necessary?
• How without this expenditure was done till now? How this expenditure would make difference?
• Is such expenditure done elsewhere?
• From where the funds would come?
• Who will go short as a consequence of it? And so on
The Ministry of Finance then prepares an estimate of income and expenditure of the Government of India. Once the budget estimates on the expenditure side are done; the Finance Ministry prepared the estimates of the revenue side with the help of the Central Board of Direct Taxes and Central Board of Excise and Customs. The decision of the finance ministry is final in determining the provisions. Many times, there might be differences between ministries over the inclusion of certain schemes or allocation of funds to a particular department. These disputes are then solved at ministerial level or at times through the mediation of PM.
The budget is then consolidated and sent to the Cabinet for the approval. When approved, the budget is ready to be presented in parliament.
THE ENACTMENT OF THE BUDGET
Once the budget is prepared, it goes to the parliament for enactment and legislation. The budget has to pass through the following stages:
• Presentation of budget
• General discussion
• Scrutiny by departmental committees
• Voting on demand for grants
• Passing of appropriation bill
• Passing of finance bill
There are some Constitutional provisions with regard to the enactment of the budget in India.
No demand for a grant shall be made except on the recommendation of the President.
No money shall be withdrawn from the Consolidated Fund of India except under appropriation by law.
Parliament can reduce or abolish a tax but cannot increase it.
No money bill shall be introduced in parliament except on the recommendation of the President.
A money bill cannot be introduced in the Rajya Sabha. It is the exclusive privilege of the Lok Sabha.
Presentation of the budget
The Budget is presented to the Lok Sabha by the Finance Minister. His presentation is referred to as the ‘budget speech’- one we are majorly aware of. It is then laid in Rajya Sabha. RS can only discuss it and has no power to vote on the demand for grants. The copies of the Budget together with the Financial Statement are printed and circulated to all the members for their reference.
According to Rule 130 of the Rules of Conduct of Business of Parliament, ‘no discussion of the budget shall take place on the day on which it is presented to the Parliament.’ The Speaker, therefore, fixes a date on which general discussion on the Budget is to take place. Such a date is generally fixed one week after the presentation of the Budget and about four days are allotted for the purpose.
During this stage, the Lok Sabha can discuss the budget as a whole or on any question of principle involved therein but no cut motion can be moved. The discussion is more political and less financial in nature. The FM has a general right of reply at the end of the discussion.
Scrutiny by Departmental Committees
After the general discussion is over, houses are adjourned for about three to four weeks. During this period, the 24 departmental standing committees (set up in 1993) discuss in detail the demand for grants of the concerned ministries and prepare reports on them. These reports are then submitted to the Houses of Parliament for consideration.
Voting on Demand for Grants
The demands are presented ministry-wise. Once demand is accepted, it becomes a grant. The Lok Sabha proceeds to the voting of demands for grants not charged on the Consoli¬dated Fund of India. The voting of demands is the exclusive privilege of the Lok Sabha and the Rajya Sabha does not take part in it. The members of parliament, thus, discuss the details of the budget. They can also move motions to reduce any demand for grant. These are the ‘cut motion’ and are of 3 types.
Policy cut motion- it represents the disapproval of the policy underlying. It states that the amount of demand be reduced to Re 1.
Economy cut motion- it represents the economy that can be affected in the proposed expenditure. It states that the amount of the demand be reduced by a specific number.
Token cut motion- It ventilates a specific grievance that is within the sphere of responsibility of the Government. It states that the amount of grant be reduced by Rs. 100.
26 days are allotted for voting of demands. The Speaker in consultation with the Leader of the House fixes a time limit for particular demands or group of demands and for the entire expen¬diture, part of the budget and as soon as the time-limit for any demand is reached, it is immediately put to vote irrespective of the fact whether the discussion on it is complete or not. Similarly, on the last day, all outstanding demands are put to vote. The House can only reject or reduce demand but cannot increase it. If more money is needed for expenditure, it is authorized by way of Supplementary grants or may be spent out of Contin¬gency Fund.
Passing of the Appropriation Bill
The constitution states in Article 114(1) 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 appropriation, out of the Consolidated Fund of India, all money required to meet:
The grants so made by the House of the People, and
The expenditure charged on the Consolidated Fund of India but not exceeding, in any case, the amounts shown in the statement previously laid before Parliament.
The Bill follows the same procedure in the House as any other Bill except in this that no amend¬ment to the grants as voted by the House previously or altering its destination, or to the Con¬solidated Fund Charges can be proposed in either House. After being passed by the Lok Sabha, it is certified by the Speaker as a money bill and sent to the Rajya Sabha, which can only make recommendations.
It is considered passed after President’s assent. Without it, the Government cannot incur any expenditure and the Comptroller and Auditor-General of India would hold a payment as unauthorized or illegal if it were made without authorization in the Appropriation Act Article 114(3) lays down that “no money shall be withdrawn from the Consolidated Fund except under appropriation” and hence the passage of the Appropriation Act constitutes an important process in Budget enactment.
Passing of the Finance Bill
The Finance Bill is introduced to give effect to the financial proposal of the Government of India for the following year. It is subjected to all conditions applicable to a Money Bill. Unlike the Appropriation Bill, the amendments (seeking to reject or reduce a tax) can be moved in the case of the finance bill. The financial proposal becomes operative as soon as the Budget is presented under the Provisional Collection of Taxes Act, 1931. The Finance Bill must be passed before the end of April and after having been passed, the Government is authorized to collect the taxes.
With the passage of the Appropriation Bill and the Finance Bill, the enactment of the Budget is complete.
In addition to the budget that contains the ordinary estimates of income and expenditure for one financial year, various other grants are made by the Parliament under extraordinary or special circumstances. These are:
Vote of Credit
THE EXECUTION OF THE BUDGET
After the enactment of the Budget, the next step in the budgetary process is its execution. The execution of the budget is the responsibility of the executive because the grants of money are made by the legislature to it. The two important principles involved in the execution of the budget are:
That it must conform to the terms of the Appropriation and Finance Acts; and
That there must be a high degree of honesty, integrity and efficiency.
The process of execution of the budget involves the following operations-
• Assessment and Collection of funds- Assessment means the act of determining as to how much amount is to be collected from different individuals according to the authority given by the legislature. Having made the necessary assessment, the officers of the Government proceed to collect the sum of money due to the Government from the various persons. The mode of collection varies according to the nature of the tax.
• Custody of Public funds- All revenue collected has to be placed in safe custody. This is done to ensure that there is no possibility of embezzlement or misappropriation. RBI and SBI are thus the treasuries of India.
• Disbursement of Funds- Disbursement is the process of withdrawal of money from the Treasury for payments of various liabilities.
• Accounting- Accounting means keeping a systematic record of financial transac¬tions. In the words of Dr. L.D. White, “The primary functions of a system of accounts are to make a financial record, to protect those handling funds to reveal the financial condition of the organisation in all its branches, to facilitate nec¬essary adjustments in rates of expenditure, to give information to those in responsible position on the basis of which plans for future financial and operating programmes can rest and aid in the making of an audit.”
• Auditing- Auditing the process of ascertaining whether the administration has spent or is spending its funds in accordance with the terms of the legislative instrument which appropriated the money. The Comptroller and Auditor-General is the head of the Audit Department.
PARLIAMENTARY CONTROL OVER THE BUDGET
There is a prescribed procedure by which the Finance Bill and the Appropriation Bill are presented, debated and passed. The Parliament being sovereign gives grants to the executive, which makes demands. These demands can be of varieties like the demands for grants, supplementary grants, additional grants, etc. The Lok Sabha has the power to assent to or to reject, any demand, or to assent to any demand, subject to a reduction of the amount specified. Formerly, all demands were introduced by the finance minister; but, now, they are formally introduced by the ministers of the concerned departments.
The Constitution provides that the Parliament may make a grant for meeting an unexpected demand upon the nation’s resources, when, on account of the magnitude or the indefinite character of the service, the demand cannot be stated with the details ordinarily given in the annual financial statement. An Appropriation Act is again essential for passing such a grant. It is intended to meet specific purposes, such as for meeting war needs. The Finance Ministry and the C&AG are the essential authorities through which financial control is exercised.
The Procedure of Budget in India albeit long is a very simple and efficient process. An insight into this process is essential to understand the system through which a nation is governed and its financial functions are undertaken. Kautilya rightly said ―”All undertakings depend upon finance. Hence, foremost attention shall be paid to the treasury”.‖