Current Affairs
Explained

‘Budget Preparation’

  • Posted By
    10Pointer
  • Categories
    Economy
  • Published
    2nd Feb, 2021
  • Context

    The Union Finance Ministry presented the Union Budget 2021-22 in Parliament. 

  • Background

    • The genesis of the central Budget in India goes back to 1860 when it was first introduced by then finance minister James Wilson, two years after the transfer of Indian administration from the East India Company to the British Crown.
    • The Budget is presented through 14 documents, some of which are mandated by the Constitution of India, while others are in the nature of explanatory documents.
    • Union Budget is an annual financial statement of estimated receipts and expenditures of Government of India in respect of each financial year.
    • According to Article 112 of the Constitution of India, the Union Budget of a year is a statement of the estimated receipts and expenditure of the government for that particular year.
  • Analysis

    Who makes the budget?

    • Budget is made through a consultative process involving ministry of finance, NITI Aayog and spending ministries.
    • Finance ministry issues guidelines to spending based on which ministries present their demands.
    • The Budget Division of the Department of Economic Affairs in the finance ministry is the nodal body responsible for producing the Budget.
  • How is the budget made?

    • Budget Division issues a circular to all Union ministries, states, UTs, autonomous bodies, depts and the defence forces for preparing the estimates for the next year.
    • After ministries & departments send in their demands, extensive consultations are held between Union ministries and the Department of Expenditure of the finance ministry.
    • At the same time, the Department of Economic Affairs and Department of Revenue meet stakeholders such as farmers, businessmen, FIIs, economists and civil society groups to take their views.
    • Once the, pre-Budget meetings are over, a final call on the tax proposals is taken by the finance minister.
    • The proposals are discussed with the PM before the Budget is frozen.
  • How is the budget presented?

    • The Secretary General of the Lok Sabha Secretariat seeks approval of President after the Speaker agrees to the date suggested by the government.
    • The finance minister presents the budget in the Lok Sabha outlining key estimates and proposals.
    • He briefs the cabinet on the budget proposals through a 'summary for the cabinet' just before he presents the budget.
    • The budget is tabled in the Parliament after the minister's speech.
  • What comprises the Budget?

    The union budget is divided into two parts-

    Capital Budget-

    • As the name suggests, the capital budget provides details with regards to the capital payments and capital receipts of the government. The capital payments can be the money spent on infrastructure, healthcare facilities, etc. The capital receipts account for the loans taken from the RBI or the general public.

    Revenue Budget-

    • The revenue budget comprises of the revenue expenditure and revenue receipts. The government is known to be suffering from a ‘revenue deficit’ in case if the revenue receipts are lower than the revenue expenditure.
  • Constitutional sanctity of the Budget

    • The preparation of the Budget for the approval of the legislature is a Constitutional obligation.
    • The control of Parliament over the finances of the country is exercised through legislative prerogative over taxation, and legislative control over expenditure.
    • To this effect, there are specific provisions in the Constitution consolidating these tenets.
    • Article 265 provides that no tax shall be levied or collected except by authority of law; Article 266 provides that no expenditure can be incurred from the Consolidated Fund of India and of the states, except with the authorisation of the legislature.
    • Here are the constitutional and legal bases of some other key aspects of the Budget:

    Annual Financial Statement

    • Interestingly, the Constitution of India does not specifically use the word Budget.
    • Article 112 of the Constitution provides for laying before Parliament an 'Annual Financial Statement' providing a statement of the estimated receipts and expenditure for the financial year. This statement evidences the receipts and expenditure of government in three separate parts under which accounts are maintained. These are:
      1. Consolidated Fund of India
      2. Contingency Fund of India
    • Public Account
    • According to constitutional provisions, the Annual Financial Statement has to distinguish expenditure on revenue account from other expenditure. It comprises:
      • Revenue budget: Proceeds of taxes and interest and dividend on investments made by government, fees, and other receipts for services rendered by government.
      • Capital budget: Capital receipts and payments, including loans, raised by government from public, borrowings from Reserve Bank, et al.

    Demand for Grants

    • The estimates of expenditure from the Consolidated Fund of India included in the Annual Financial Statement are required to be voted by the Lok Sabha and submitted in the form of Demand for Grants as mandated by Article 113.
    • These demands are arranged ministry-wise, and a separate demand for each of the major services is presented.

    Appropriation Bill

    • Pursuant to the Demand for Grants, the Appropriation Bill is introduced for appropriating monies out of the Consolidated Fund of India to meet the said grants as provided under Article 114.
    • The Appropriation Bill is intended to give authority to government to incur expenditure from and out of the Consolidated Fund of India.
    • The procedure for passing this Bill is the same as in the case of other Money Bills.

    Finance Bill

    • At the time of introduction of the Annual Financial Statement, a Finance Bill is also presented before Parliament - the Finance Bill satisfies the criteria of a 'Money Bill' as it provides for the imposition, abolition, remission, alteration or regulation of taxes proposed in the Budget.
    • A 'Money Bill' is defined under Article 110(1).
    • It is pertinent to note that every Finance Bill is a Money Bill but every Money Bill is not a Finance Bill.
    • A Bill is deemed to be a Money Bill if it contains provisions dealing with six specific matters provided under Article 110(1).
    • The Finance Bill, which provides for the imposition, abolition, remission, alteration or regulation of taxes proposed in the Budget, falls under Article 110(1) (a) of the Constitution.
  • Vote-on-account, vote of credit and exceptional grant

    • Pending the completion of the parliamentary procedure relating to the voting on the Demand for Grants, and passing of the Appropriation Bill, the Constitution under Article 116 grants power to the Lok Sabha to make a grant in advance for authorising the withdrawal of money from the Consolidated Fund of India in respect of the estimated expenditure for a part of any financial year, referred to as vote-on-account.
    • The Lok Sabha also has the power to make grants for meeting unexpected demands, referred to as vote of credit, or to make an exceptional grant.
  • Fiscal Responsibility and Budget Management Act, 2003

    • In addition to the Budget documents, the Fiscal Responsibility and Budget Management Act, 2003, mandate that certain additional documents shall be laid before Parliament.
    • This includes the macro-economic framework for the relevant financial year; fiscal policy strategy statement for the financial year; medium-term fiscal policy statement and medium-term expenditure framework statement.
    • Upon President's recommendation, obtained under Article 117(1) and 117(3) for introduction and consideration of the Budget, it is laid before the Lok Sabha by the finance minister.
  • Conclusion

    The Budget assumes great significance as it impacts the overall Indian economy. A Union Budget that includes and covers all the different sectors of the economy, is a must for the development of the country.

Verifying, please be patient.