The Hindu Business Line : Anatomy of the Budget

UNDER Article 112 of the Constitution, a statement of estimated receipts and expenditure of the Government of India has to be laid before Parliament in respect of every financial year which runs from April 1 to March 31. This statement titled `Annual Financial Statement' is the main Budget document. The Annual Financial Statement shows the receipts and payments of the Government under the three parts in which government accounts are kept: i) Consolidated Fund, ii) Contingency Fund; and iii) Public Account.

All revenues received by the Government, loans raised by it, and also its receipts from recoveries of loans granted by it, form the Consolidated Fund. All expenditure of the Government is incurred from the Consolidated Fund and no amount can be withdrawn from the Fund without authorisation from Parliament.

Occasions may arise when the Government may have to meet urgent unforeseen expenditure pending authorisation from Parliament. The Contingency Fund is an imprest placed at the disposal of the President to incur such expenditure.

Parliamentary approval for such expenditure and for withdrawal of an equivalent amount from the Consolidated Fund is subsequently obtained and the amount spent from Contingency Fund is recouped to the Fund. The corpus of the Fund authorised by Parliament, at present, is Rs 50 crore.

Besides the normal receipts and expenditure of the Government which relate to the Consolidated Fund, certain other transactions enter government accounts, in respect of which, the government acts more as a banker, for example, transactions relating to provident funds, small savings collections, other deposits, and so on. The monies thus received are kept in the Public Account and the connected disbursements are also made therefrom. Generally speaking, Public Account funds do not belong to the Government and have to be paid back some time or the other to the persons and authorities who deposited them. Parliamentary authorisation for payments from the Public Account is, therefore, not required.

In a few cases, a part of the revenue of the Government is set apart in separate funds for expenditure on specific objects such as sugar development, replacement of depreciated assets of commercial undertakings, and so on. These amounts are withdrawn from the Consolidated Fund with the approval of Parliament and kept in the Public Account for expenditure on the specific objects. The actual expenditure on the specific objects is, however, again submitted for vote of Parliament even though the monies have already been earmarked by Parliament for transfer to the funds.

Under the Constitution, Budget has to distinguish expenditure on revenue account from other expenditure. Government Budget, therefore, comprises i) Revenue Budget; and ii) Capital Budget.

Revenue Budget consists of the revenue receipts of Government (tax revenues and other revenues) and the expenditure met from these revenues. Tax revenues comprise proceeds of taxes and other duties levied by the Union.

The estimates of revenue receipts shown in the Annual Financial Statement take into account the effect of the taxation proposals made in the Finance Bill. Other receipts of Government mainly consist of interest and dividend on investments made by the Government, fees, and other receipts for services rendered by the Government. Revenue expenditure is for the normal running of Government departments and various services, interest charges on debt incurred by the Government, subsidies, and so on. Broadly, expenditure which does not result in creation of assets is treated as revenue expenditure. All grants given to State Governments and other parties are also treated as revenue expenditure even though some of the grants may be for creation of assets.

Capital Budget consists of capital receipts and payments. The main items of capital receipts are loans raised by the Government from public which are called market loans, borrowings from the RBI and other parties through sale of Treasury Bills, loans received from foreign governments and bodies and recoveries of loans granted by the Central Government to State and Union Territory governments and other parties. Capital payments consist of capital expenditure on acquisition of assets such as land, buildings, machinery, equipment, as also investments in shares, and so on, and loans and advances granted by the Central Government to State and Union Territory governments, government companies, corporations and other parties. Capital budget also incorporates transactions in the Public Account.

Accounting classification

The estimates of receipts and disbursements in the Annual Financial Statement and of expenditure in the Demands for Grants are shown according to the accounting classification prescribed under Article 150 of the Constitution. This classification is intended to allow Parliament and the public to make a meaningful appreciation of allocation of resources and purposes of government expenditure.

Under the Constitution, certain items of expenditure such as emoluments of the President, salaries and allowances of the Chairman and the Deputy Chairman of the Rajya Sabha and the Speaker and the Deputy Speaker of the Lok Sabha, salaries, allowances and pensions of judges of the Supreme Court and the Comptroller and Auditor-General of India, interest on and repayment of loans raised by Government and payments made to satisfy decrees of courts, and so on, are charged on the Consolidated Fund and are not required to be voted by the Lok Sabha.

The Annual Financial Statement shows the expenditure charged on the Consolidated Fund separately.

Demands for Grants

The estimates of expenditure from the Consolidated Fund included in the Annual Financial Statement and required to be voted by the Lok Sabha are submitted in the form of Demands for Grants in pursuance of Article 113 of the Constitution. Generally, one Demand for Grant is presented in respect of each Ministry or Department. However, in respect of large Ministries or Departments more than one Demand is presented. Each Demand normally includes the total provisions required for a service, that is, provisions on account of revenue expenditure, capital expenditure, grants to State and Union Territory governments and also loans and advances relating to the service.

In regard to Union Territories without Legislature, a separate Demand is presented for each of the Union Territories. Where the provision for a service is entirely for expenditure charged on the Consolidated Fund, for example, interest payments, a separate Appropriation, as distinct from a Demand, is presented for that expenditure and it is not required to be voted by Parliament.

Where, however, expenditure on a service includes both `voted' and `charged' items of expenditure, the latter are also included in the Demand presented for that service but the `voted' and `charged' provisions are shown separately in that Demand.

The Demands for Grants are presented to the Lok Sabha along with the Annual Financial Statement. Each Demand first gives the totals of `voted' and `charged' expenditure as also the `revenue' and `capital' expenditure included in the Demand separately and also the grand total of the amount of expenditure for which Demand is presented. This is followed by the estimates of expenditure under different major heads of account. The break up of the expenditure under each major head between `Plan' and `Non-Plan' is also given. The amounts of recoveries taken in reduction of expenditure in the accounts are also shown.

A summary of Demands for Grants is given at the beginning of this document, while details of `New Service' or `New Instrument of Service' such as formation of a new company, undertaking or a new scheme, and s on, if any, are indicated at the end of the document.

Finance Bill

The proposals of the Government for levy of new taxes, modification of the existing tax structure or continuance of the existing tax structure beyond the period approved by Parliament are submitted to Parliament through the Finance Bill.

The Budget documents presented in terms of the Constitution have to fulfil certain legal and procedural requirements and hence may not by themselves give a clear indication of the major features of the Budget.

To facilitate an easy comprehension of the Budget, certain explanatory documents are presented along with the Budget.

(Source: htpp://indiabudget.nic.in)

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