Few threads in the complex fabric of governance are as crucial as the formulation and approval of the annual government budget. This financial blueprint, officially known as the Union Budget, plays a pivotal role in shaping the economic trajectory of the nation.
Article 112 of the Constitution of India mandates the Annual Financial Statement, commonly referred to as the Union Budget. The Financial statement outlines the anticipated government expenditure and receipts for a specific fiscal year. The budget serves as a financial record for the government’s activities from April 1st to March 31st. (Note that Budget term is not used in the constitution)
Traditionally, the government presents the budget on the last working day of February; however, it was moved to February 1st starting in 2017. This adjustment aims to finalize it before the commencement of the new financial year on April 1st. This change ensures a smoother transition into the upcoming fiscal period. In a significant departure from a 92-year-old tradition, in 2017, the government amalgamated the railway budget with the Union Budget and presented them jointly.
Prior to the Budget presentation, the government releases the Economic Survey of India, providing valuable insights into the country’s economic landscape.
Components of Budget:
Capital Budget:
The Capital Budget deals with one-time transactions involving capital expenditures and earnings from asset sales. These transactions lead to a reduction in assets and an increase in financial liabilities for the government. Government capital spending contributes to asset creation and liability reduction. The capital budget serves as a record of the government’s changing liabilities and assets. Examples include market borrowings from the public, borrowings from the RBI, borrowings from commercial banks or financial institutions (e.g., through the sale of T-BILLS), loans from foreign governments or international financial institutions, post office savings, post office saving certificates, and disinvestment in PSUs.
Revenue Budget:
The Revenue Budget outlines the expected revenue receipts and expenditures of the government for a fiscal year. Focused on recurring and non-redeemable revenue items, this budget encompasses both tax and non-tax revenue. Moreover, it addresses various financial aspects concerning the government’s income and expenditure.Examples of revenue budget items include employee salaries, interest payments on past debts, and grants provided to state governments.
Components of Government Budget:
The government budget is divided into two main categories:
Budget Receipts:
This term refers to the government’s projected receipts from all sources during a fiscal year. It encompasses revenue from various streams, including taxes, duties, fees, and other sources of income. There are two types:
- Capital Inflows
- Revenue Receipts
Budget Expenditures:
This term refers to the government’s estimated spending on various developmental and non-developmental programs throughout the fiscal year. There are two types:
- Investing in Capital
- Revenue Expenditure
Impact of Government Budget:
The influence of the government budget on society can be outlined in three ways:
- Allocation of resources based on public welfare and social priorities.
- Micro-managing expenditures to establish fiscal discipline.
- Implementation of effective programs to ensure efficient distribution of products and services to the public.
Importance of Government Budget:
The significance of the government budget lies in several aspects:
- It serves as a foundation for policy development.
- Budgeting acts as a tool for implementing policies.
- It serves as a mechanism for legal oversight.
- It acts as a tool for holding individuals accountable.
- It functions as a management tool.
- It serves as a measure of economic policy.
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Preparation of Government Budget:
The Indian Union Budget is crafted through collaborative efforts involving the Ministry of Finance, NITI Aayog, and other relevant ministries. The Budget division within the Department of Economic Affairs (DEA) in the finance ministry serves as the central authority responsible for its formulation.
The process of developing the budget commences around August-September, approximately six months before its scheduled presentation. Subsequently, it is imperative for the budget to receive approval from both houses of Parliament before the commencement of the financial year on April 1.
Key Steps in Union Budget Preparation:
- The finance ministry issues a circular to all ministries, states, Union territories, and autonomous bodies, instructing them to prepare estimates for the upcoming year.
- This circular includes framework forms and guidelines for the ministries to follow as they present their demands.
- In addition to submitting estimates, ministries provide a detailed account of their revenues and expenditures from the preceding year.
- Top government officials scrutinize the received requests, and ministries along with the Department of Expenditures conduct extensive consultations. Approved data is then sent to the finance ministry.
- The finance ministry, following a comprehensive review, allocates revenues to various departments for their future expenditures.
- The finance minister conducts pre-Budget meetings with diverse stakeholders, including state representatives, bankers, agriculturists, economists, and trade unions, to gather insights into their proposals and demands.
- Upon completion of pre-Budget consultations, the finance minister makes final decisions on demands, discussing them with the Prime Minister before formalization.
Passing of Budget in Parliament:
Parliamentary Process of Budget Approval in India:
Budget Presentation:
The finance minister presents the General Budget in the Lok Sabha, usually in the first week of February. In an election year, budgets may be presented twice: first for a vote on account and later in full. After the finance minister delivers the budget speech, they lay it before the Rajya Sabha for discussion. However, the Rajya Sabha cannot vote on demands for grants.
General Discussion:
During this stage, the House discusses the budget as a whole or focuses on principles, but members cannot move motions. The scope is limited to an examination of the general scheme and structure of the budget, with the finance or railway minister having the right to reply.
After general discussion, the House adjourns, and the 24 departmental standing committees examine and discuss the demands for grants of ministries/departments.
These committees submit reports to both houses, offering separate assessments for each ministry’s demands.
Voting on Demands of Grants:
Following the presentation of standing committee reports, the House discusses and votes on demands for grants, leading to their formalization. Subsequently, this voting process, exclusive to Lok Sabha members, takes place, while both houses engage in discussions about the budget. During these discussions, members can propose cut motions, expressing disapproval or suggesting reductions in specific expenditures.
Appropriation Bill:
After passing demands for grants, the government introduces an appropriation bill to allocate funds from the Consolidated Fund of India for approved grants and charged expenditures.
No amendments can alter the amount or destination of grants. The bill becomes an act after receiving the president’s assent.
Passing of the Finance Bill:
The finance bill, introduced immediately after the budget presentation, gives effect to the government’s financial proposals for the next fiscal year.
The bill, considered and passed by Lok Sabha, must receive presidential assent within 75 days of introduction.
The Finance Act concludes the budget enactment process.
The Indian Union Budget undergoes a meticulous and multifaceted parliamentary process that encompasses various stages to ensure thorough scrutiny and approval. This comprehensive process ensures transparency, parliamentary oversight, and the lawful appropriation of funds, culminating in the effective implementation of the budgetary provisions for the ensuing fiscal year.