In layman language, one can say any document which shows the ‘Money Receipt and Money Spend’ is known as Budget.
When it comes to the government of India Article 112 of the Indian constitution deals with Budget(or Annual Financial Statement). This article puts a responsibility on the President to laid down the Annual Financial Statement of Government of India before both the Houses of Parliament with respect to every financial year.
So President lay down Annual Financial Statement of Government of India every year in the first week of February through the Finance Minister.
Article 112(1): 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 Annual Financial Statement.
The budget presented before both the houses of parliament in the form of two Bill
- Appropriation Bill
- Finance Bill
Appropriation Bill is presented to withdraw Money from the Consolidated Fund of India.
Finance Bill is presented to impose taxes so to collect revenue.
Both these Bills are the Money Bill.
The government shows their Receipt and Expenditure in two accounts; Revenue Account and Capital Account.
So overall there are four types of account in the Budget
- Revenue Receipt: Revenue Receipts are money received by the government as a result of normal business. This account contains all the details related to the collection of revenue from sources like Taxes, profit, challan, interest
- Capital Receipt: Capital Receipts are non-occurring receipts that either increase a liability or decrease the assets. This account contains all the details of revenue collected from sources like Loan, Loan Recovery, Disinvestment, sale of property
- Revenue Expenditure: Revenue Expenditure is those, that are necessary for the normal business and are tied to earning the revenue in the same financial year. This account shows all the details of expenditure occurred on subsidy, salary, welfare schemes, interest payment.
- Capital Expenditure: It would involve outlays of cash to acquire assets like building, equipment. This expenditure would be for assets intended to last for longer than one year. This account contains all the details related to expenses that occurred on the following subjects Providing loans, Grants, Investment, Infrastructure building.
What is Charged Expenditure in Budget?
Article 112(3) of the Indian constitution defines certain types of expenditure as Charged Expenditure on the consolidated fund of India. The Charged expenditure is not voted in the parliament though presented in both houses of parliament and discussion also takes place on this.
Example of Charged expenditure is– salary, allowances, and pension of President, Vice-President, Lok Sabha Speaker and Deputy Speaker, Deputy Chairman of Rajya Sabha, Judges of Supreme Court, Pension of Judges of High Court, Any debt charges for which the Government of India is liable..etc.
What is the Consolidated Fund of India?
Article 266(1) of Indian constitutions talks about ‘The Consolidated Fund of India’. It contains the following proceeds: taxes and duties collected by the government, all revenue received by the government of India, all loan raised, money received in the repayment of the loan.
What is the Public Account of India?
Article 266(2): All public Money received by or on behalf of the Government of India shall be credited in the Public Account of India.
The money received in this account has to repay the public. So permission of Parliament is not required to withdraw money from the Public Account of India.
What is the Contingency Fund of India?
Article 267 of the Indian constitution authorizes the parliament to establish a fund entitled “the Contingency Fund of India”.
Money is reimbursed from time to time in the Contingency Fund of India by parliament. To reimburse the money in the Contingency Fund of India authorization of Parliament is required.
This fund is kept at the disposal of the president to meet any unforeseen expenditure. To withdraw money from the Contingency Fund of India permission of Parliament is not required.
Types of Budget
There are various types of BudgetZero Based Budgeting :
Zero Based Budgeting
It is a method of budgeting in which all expenses must be justified each year. The process of Zero-Based Budgeting starts from a ‘Zero Base’ for each function within the government is analyzed for its needs and costs.
This type of budget requires a specialized person and it is a time-consuming process.
Performance Budgeting/Outcome Budgeting
A performance budget is one that reflects both the input of resources and output of services for each unit of an organization. The goal is to identify and score relative performance based on goal attainment for a specific outcome.
This type of budget requires skilled personnel and it is also a time-consuming process. Some times performance can not be measured as in the case of a welfare scheme.
It means preparing a budget or analyzing the budget from the gender perspective. In this budget is analyzed on the basis that how much fund has been allocated for the welfare of women/girls.
Expenditure based Budgeting
In this type of budgeting mere fund is allocated to the various departments of the government. The output is not analyzed in this type of budget. It is an easy way to prepare a budget as there is no requirement to look at the performance of various programs of the government/different ministries.
Deficit Financing in Government Budgeting
Deficit Financing is a budgetary situation where expenditure is higher than the revenue.
To meet excess expenditure the government will have to from various sources.
Why Deficit Financing?
Deficit Financing is done by the government of the developing countries to meet the investment for the development of infrastructure and welfare of its people. So if Deficit Financing is done for Capital development then it is good. But if Deficit Financing is done to meet just regular expenditure like salary then it is not good for the economy.
Types of Deficit in budget
Deficits can be measured in various ways:
(a) Budget Deficit = Total Expenditure – Total Receipts
(b) Revenue Deficit = Revenue Expenditure – Revenue Receipts
(c) Fiscal Deficit = total Expenditure – Total receipts except borrowing
(d) Primary Deficit = Fiscal Deficit – Interest payment
Twin Deficit: If there is Fiscal Deficit as well as Current Account Deficit(international trade) then it is called the Twin Deficit.
FRBM Act 2003, and Budget Deficit Control
Fiscal Responsibility and Budget Management Act 2003, was made by the Indian parliament to lay guidelines before the central government to control the Fiscal Deficit.
But the target set by the FRBM Act was never met by the central government. The government has put on hold several times the implementation of this Act.
In May 2016 the government has set up a committee under N.K Singh to review the FRBM Act. The committee recommended that the government should target a Fiscal Deficit of 3% by March 2020, 2.8% in 2020-21, and 2.5% by 2023.
Present Situation: The Finance Bill 2018 states that the central government shall take appropriate measures to limit the Fiscal Deficit to 3% of GDP by March 2021 and endeavor to ensure that the central government debt does not exceed 40% of the GDP by the financial year 2024-25.
What is Vote on Account?
As per the provisions of the constitution, no money can be withdrawn from the Consolidated Fund of India without the permission of parliament.
But to present Budget and get Appropriation Bill passed in the parliament takes time, in the meantime, the government needs money in the new financial year(from 1st April).
So Article 116 of the Indian constitution permits parliament to allow the Executive to withdraw money from the Consolidated Fund of India, till the Appropriation Bill is pending in the parliament. It is done through Vote on Account[Article 116(1)(a)].
Vote of Credit
Vote of Credit is like giving Blank Cheque to the executive. There may be a situation (like war, natural disaster) where the government can not make an estimate of funds required to deal with it. Also in some cases, demand can not be stated in the Budget due to secrecy reasons.
So in this situation constitution allows the parliament to permit the executive to withdraw funds from the Consolidated Fund of India depending upon the situation[Article 116(1)(b)].
Steps involved in the budgetary process of government
Budget making and get passed in the parliament is a time taking process. It involves various steps
- Consultation with various ministries to discuss their demands.
- Presentation of Budget in both the houses of the parliament.
- Soon after the presentation of the budget in the parliament both the houses of the parliament get prorogued for certain weeks. During this period Estimate Committee of the parliament makes scrutiny of the demands made by various ministries and gives report to the Speaker of Lok Sabha.
- When houses of parliament reassemble vote on Demand for Grants takes place in Lok Sabha.
- Appropriation and Finance Bill gets passed in the parliament.
Motions moved during the vote on Demand for Grants
When voting takes place on the Demand for Grants by various ministries. Opposition or any member of the Lok Sabha can move various motions to cut the amount granted to various ministries. These motions are as follows:
- Policy Cut Motion: If this motion gets passed in the Lok Sabha then the amount granted to that ministry (for that policy )against whom this motion was moved gets reduced to Rs 1/. It this case the government has to discontinue this policy.
- Economic Cut: If this cut motion gets passed in the Lok Sabha then the amount granted for that policy gets reduced to some particular amount.
- Token Cut Motion: If this motion gets passed in the parliament then the amount granted for a particular policy will be reduced by Rs 1/. It is just a symbolic resistance for a particular policy.
The budget is the Annual Financial Statement of the government of India. The same applies to any organization. The article 112 deals with the annual financial statement of the government of India.
The Budget of Union is dealt in the article 112 of the Indian constitution.
The article 112(3) of the Indian constitution deals with the charged expenditure mentioned on the consolidated fund of India.
As per article 112 of the Indian constitution, it is the duty of the President of India to present the Annual Financial Statement in the Parliament of India.
Union Budget is prepared by the Union Finance Ministry . While preparing the budget it consults with the other ministries and departments of the central government.