A
budget is a financial plan that outlines an organization's or individual's
estimated revenues and expenses over a specified period, typically on an annual
basis. It serves as a roadmap for managing financial resources, allocating
funds to various activities, and achieving financial goals.
Budgets
are essential for financial planning, resource allocation, and performance
evaluation. For government, a budget reflects the allocation of public funds to
various sectors and programs, outlining priorities and policy objectives.
Key
elements of a budget include,
- Projected income:
Anticipated sources of revenue, such as sales, investments, or grants.
- Planned expenses:
Estimated costs for operations, production, marketing, personnel, and
other activities.
- Capital expenditures:
Funds allocated for long-term investments in assets like equipment,
property, or infrastructure.
- Contingency reserves:
Funds set aside for unforeseen expenses or emergencies.
- Budgetary controls:
Mechanisms to monitor and adjust spending to align with the budget.
The budget shows
receipts and payments under three parts,
- Consolidated
Fund
- Contingency
Fund
- Public
Account.
Budgeting process in India
The budgetary
process in India follows the procedure laid down in Articles 112 to 117 of the
Constitution. The budget-making process in India typically has five stages following specific procedures,
1)
Budget Preparation
2)
Estimates of Expenditure and Receipts
3)
Legislative Approval
4)
Implementation
5)
Audit
Budget Preparation
Budget-making
process typically starts in the third quarter of the financial year, by the department heads on the receipt of a circular from the
Department of Economic Affairs, under Finance Ministry. It
is a complex
and comprehensive exercise that involves a thorough analysis of economic
conditions, revenue projections, expenditure planning, and policy
considerations. It includes,
1.
Macro-Economic Assessment - The budget preparation process
begins with a comprehensive assessment of the macroeconomic environment by
evaluating macroeconomic indicators like economic growth, inflation,
fiscal deficit etc.,.
2. Revenue
Projections - The government assesses the potential
sources of revenue (direct and indirect taxes, non-tax
revenue, grants, and borrowings) based on economic
forecasts and policy decisions.
3.
Expenditure Planning - Departments and ministries submit their expenditure proposals
for their operational
requirements and policy objectives, which are reviewed and consolidated to
form the overall expenditure plan.
4.
Sectoral Allocations - Allocation of funds to different sectors based on the government's
priorities and developmental goals.
5.
Fiscal Consolidation - Managing the fiscal deficit, public debt, and other fiscal targets in
line with fiscal responsibility and budget management principles.
6.
Public Consultation - The government engage in public consultation and stakeholder
engagement for the inputs and feedback on budget priorities and allocations.
7. Budget Documentation - The budget is
documented in the form of Annual Financial Statement, detailing the
appropriation bill and the financial bill.
8. Presentation
to Parliament - The Finance Minister presents the budget
to the Parliament, outlining the government's fiscal policies, revenue and
expenditure plans, and policy measures.
Estimates
of Expenditures and Receipts
Departments and
ministries provide their budget proposals, consolidated to form the overall budget. Here the government
estimates its expenditures and receipts for the upcoming financial year. It plays a crucial
role in shaping the government's financial plans for the upcoming fiscal year.
It involves a detailed
analysis of economic trends, policy changes, and sectoral priorities. It forms the basis for
determining the government's fiscal policies, resource allocations, and deficit
management strategies. The
accuracy of estimates are critical for effective fiscal planning and management
and are subjected to periodic revisions.
Estimates
of Expenditure
1.
Plan and Non-Plan Expenditure
· Plan expenditure are
the funds allocated for specific development programs
and projects.
·
Non-plan expenditure covers items like salaries, pensions, subsidies, and debt
servicing.
2.
Departmental Budget Proposals - Each department
submits its budget proposals, detailing the funds required for its operational
needs, policy objectives, and developmental priorities, activities and
programs.
3. Consolidation of Expenditure Estimates -
The
Finance Ministry consolidates the budget proposals from
all the departments
and ministries to form the overall expenditure estimates for the upcoming
fiscal year. It involves reviewing, prioritizing, and rationalizing the expenditure
requests.
Estimates
of Revenue
1.
Tax Revenue: it is influenced by economic
growth, tax policy changes, and compliance trends.
·
Direct taxes (such as income
tax and corporate tax)
·
Indirect taxes (such as goods
and services tax, customs duty, and excise duty).
2.
Non-Tax Revenue - It
includes dividends from public sector enterprises, interest receipts, fees
and fines, and other non-tax sources of income.
3. Grants and Borrowings -
From international agencies, state governments, and
borrowings from domestic and international sources.
Legislative
Approval
The Finance Minister presents the budget proposals in the Parliament for approval, the entire process ensures that the budget is
subjected
thorough scrutiny, debate, and oversight by the elected representatives before
it is implemented. This plays a vital role in ensuring the accountability and
transparency of the government's fiscal policies and expenditure plans.
1.
Presentation of the Budget - By the Finance Minister in the Lok Sabha outlining the government's fiscal policies, revenue and
expenditure plans, and policy measures for the upcoming fiscal year.
2.
General Discussion - By the Lok Sabha on
the budget proposals, when the Members of Parliament (MPs) have the opportunity to debate and
deliberate on the various aspects of the budget.
3.
Scrutiny by Parliamentary
Committees - The budget is scrutinized in detail on proposals related to specific
ministries and departments by Parliamentary Standing Committees and
Departmental-Related Standing Committees, which examine the budget. These
committees make recommendations on the budget allocations.
4.
Voting on Demands for Grants - They are the detailed
estimates of expenditure for various ministries and departments. MPs discuss and vote
on these demands.
5.
Passage of Appropriation Bill
and Finance Bill:
·
The Appropriation Bill authorize the government to withdraw funds from the Consolidated Fund
of India for its expenditure.
·
The Finance Bill containing taxation proposals,
is taken up for discussion and approval.
6.
Approval by Rajya Sabha - The
Appropriation Bill and the Finance Bill, are sent to the Rajya Sabha after Lok Sabha’s approval, for suggestions in amendments. A joint session of both houses can be
convened to resolve the differences.
7.
President's Assent - After the approval by both the houses, budget
is sent to the President for assent, upon which it becomes effective for the upcoming fiscal year.
Implementation
The government starts
implementing the budgetary provisions by allocating the funds to departments and
ministries as per the approval. It involves allocation and utilization of funds for various government programs,
projects, and initiatives, by departments and ministries in their respective areas. The implementation process includes,
1.
Release of funds
2.
Monitoring of expenditure
3.
Evaluation of the outcomes
4.
Evaluation of the impact of the
budgetary allocations
5.
Ensure transparency and
accountability in the implementation
Audit
Auditing
of the budget helps to ensure transparency and accountability in the utilization of
funds. It is undertaken to assess whether government programs have achieved their
objectives efficiently and effectively, and at the lowest cost, every two to three years.
The
Comptroller and Auditor General (CAG) of India, audits the budget, assess the implementation of
funds ensuring proper utilization
of budgetary provisions and if the implementation
comply with financial rules and regulations.
India
has a comprehensive and well-developed system of budgeting and audit, based on
the British pattern. The auditing process includes,
1.
Examining the financial
statements
2.
Verifying the accuracy of the
budget figures
3.
Assessing the effectiveness of
the budgetary allocations.
The
audit reports are submitted to the Parliament for further scrutiny.
Constitution
The constitution of India provides the framework
for the budgeting process in India,
· Article 112 deals with the
annual financial statement (Union Budget). It states that the President for every
financial year, shall lay a statement of the estimated receipts and expenditure
of the Government before both the Houses of Parliament.
· Article 114 deals with the
form in which the Annual Financial Statement is to be laid before Parliament and
the related procedures.
- Article 265 states that, no tax shall be levied or
collected except by the authority of law.
- Article 266 lays down the provisions regarding the
withdrawal of money from the Consolidated Fund of India and the public
account.
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