The budgetary process in any country involves 5 different operations viz. –
- Formulation of the Budget by the executive.
- Enactment of the budget i. e. its approval by the legislature in the form of finance bills and appropriation bills;
- Execution of the budget i. e. enforcement of the finance and appropriation bills;
- Accounting and Auditing of the expenditure and revenue collection; and
- The legislative control of the budget in the form of its committees.
The preparation of the budget by the Disbursing officers of the department starts 6 to 8 months before the commencement of the next financial year. In August- September, the Accountant-General sends prescribed forms for the estimates of revenue and expenditure separately to the Heads of the various departments. The Heads of Departments send these forms to the disbursing officers who prepare the preliminary estimates. The task of taking preliminary estimates is not a simple arithmetic exercise, as the circumstances of no one year are exactly similar to the earlier ones and hence ground realities and the administrator’s judgement has to be taken into account. Therefore, in estimating the similarities and dissimilarities should make due allowance for each. While preparing the estimates, the local officers are required to fill in four columns of the prescribed form:
- Actuals of the previous year;
- Sanctioned estimates for the current year;
- Revised estimates for the current year; and
- Budget estimates for the next year.
These estimates are finally prepared by the HODs in 3 parts, namely, Part I, Part II A and Part II B. Part I of the estimates relate to the revenue and the standing charges e g. TA, charges on permanent establishment etc. Part II A relates to the charges required for the existing schemes on the continuing schemes i. e. such schemes for which the sanction has already been taken in the previous budgets. Part II B relates entirely to the new schemes of expenditure.
The second step in the budget preparation in India is the scrutiny and review of the estimates by the controlling officers of the concerned departments, who are generally the Integrated Finance Officers (or the HODs in case there are no IFO provided to the department). The scrutiny and review is purely of an administrative type and the relative importance of the proposals is judged in the light of the possible grant for the department as a whole. He, therefore, rejects some of the estimates and consolidates the estimates of the department by the beginning of October. I. F. O. also advises about the documental support that is required with the proposals and estimates in Part II B of the Budget estimates.
Part I of the estimates is now submitted directly to the Accountant General who then also adds to it the debt obligation deposits and remittances expected in the next year and consolidates it and sends it to the Finance Department of the Ministry of Finance. The Finance Department scrutinises the estimates from purely financial point of view i. e. economy, availability of funds etc. The Part IIA and Part II B of the budget estimates are sent directly to the Finance Department through the concerned administrative departments. The scrutiny of estimates regarding the new schemes by the Finance Ministry is of very elaborate nature. The following questions are asked for their complete satisfaction before including these parts into the budget:
- Is the proposed expenditure really necessary?
- If so, how have we so long done without it? Why do we need it now?
- What is done elsewhere, for example, in other departments?
- What will it cost and where from is the money to come?
- Which other item of expenditure will go short of funds as a consequence of it?
- Are new developments in the current future likely to render it unnecessary?
The Ministry of Finance then prepares the estimates of income and expenditure of the Government of India. Estimates of income i. e. of revenue are prepared by it in consultation with the Central Board of Direct Taxes (CBDT) and Central Board of Indirect Taxes (CBIT) alongwith the estimates sent by the respective departments. On the basis of the estimated expenditure, proposals regarding taxes are made in the budget. In other words, the entire budget is rearranged in 3 distinct parts, the contents of which are as follows:
- First Part. The first part of the proposed budget consists of the general economic survey giving the comparative review of the public expenditure of the current year, previous year and the projected expenditure for the next year. However, an overall view of the state of economy in the year that has just ended is given in detail in this part.
- Second Part. This part gives estimates of revenue at the current rates of taxation. It also gives the gap between the total income and total expenditure of the Government.
- Third Part. The third part of the budget contains the proposals to cover the budget deficit i. e. new taxes etc. that are proposed in this part of the budget. This third part of the Budget Draft is actually added by the Finance Minister in consultation with the Prime Minister, as explained in the next paragraph.
The budget consolidated in this form is ready by the month of December and the next step in the budgetary process is its approval by the Cabinet. The Finance Minister examines the budget estimates somewhere in January and in consultation with the Prime Minister prepares his financial policy with regard to taxation etc., which constitutes the Third Part of the Budget. After this exercise is over, the budget is submitted to the Cabinet for joint consideration. It is necessary to discuss the budget in the Cabinet meeting because it is the Cabinet which is responsible for laying down the general course of policy. The Cabinet hence ensures that the election manifesto of the political party in power and the policies of the Government are duly reflected in the budget. The Cabinet, hence, may recommend some adjustments in financial and taxation policies etc., when the Cabinet gives its approval to the budget, the budget then is ready for being introduced in the Parliament.
Introductory and Passage of the Budget in the Parliament
So far, upto this stage, the approval of the budget was done by various authorities from technical and financial view point only. Policy-approval of the budget was, however, only partially done at the time of its passage by the Cabinet. Now onwards the approval of the budget is done mainly from the point of view of policy – approval and political approval. The legislature can reject some of the policies contained in the budget by the use of various cut motions which will be explained later in the text.
The provisions of the Constitution dealing with the budget procedure in the Parliament are as follows:
- Article 112. It is the President who has to get the annual financial statement prepared and causes it to be laid down before both the Houses of the Parliament. It also gives the list of expenditure that shall be charged on the Consolidated Fund of India.
- Article 113. Deals with the demands for grants. No demands for grants can be made except on the recommendation of the President.
- Article 114. Deals with the appropriation bills related to the budget. It states that ‘No money can be withdrawn from the Consolidated Fund except under an Appropriation Act’.
- Article 110. It gives the definition of the money bills. The passage of the budget in the Parliament is the same as the procedure described for the money bills i. e. budget also is a money bill.
- Article 117. It deals with the definition of the finance bills.
- Article 265. Deals with the revenue collection. According to it no tax shall be levied or collected except by the authority of law i. e. Executive cannot impose any tax without legislative authority.
- Article 266. Deals with the creation of Consolidated Fund of India and Public Account of India. All revenues received by the Government of India (except for those taxes that are assigned to the States), all loans raised by the Government and all moneys received by the Government in repayment of loans shall form one Consolidated Fund to be called “the Consolidated Fund of India”. All the other Public Moneys received by or on behalf of the Government of India shall be credited to the “Public Account of India”. (This includes fee for services, for example).
- Article 267. It empowers Parliament and the Legislature of a State to create a “Contingency Fund” for India or for a State, as the case may be. Accordingly the Contingency Fund of India has been constituted by the Contingency Fund of India Act, 1950. The Fund will be at the disposal of the executive to enable advances to be made, from time to time, for the purpose of meeting unforeseen expenditure, pending authorisation of such expenditure by the Legislature by supplementary, additional or excess grants. After such authorisation, the amount spent out of the Contingency Fund is transferred from Consolidated Fund of India to Contingency Fund of India. The reason for doing so is that executive is not empowered to spend money out of Consolidated Fund of India till he is authorised by an appropriate act, which may not be possible at times due to various reasons e. g. Parliament may not be in Session. Hence to meet exigencies, he can utilise Contingency Fund of India.
The introduction and passage of the budget by the Parliament is a very important activity of the Parliament and hence one full session of the Legislature is devoted exclusively for this activity, because the budget proposals cannot be put into execution until they get political approval from the representatives of the people. Till then, no expenditure can be done out of the Consolidated Fund of India and also no fresh tax can be levied. The Budget Session of the Parliament starts with the presentation of the Railway Budget in the Parliament which is about one week before the presentation of the budget. The budget, before the presentation of the budget, before being presented in the Parliament is sent for the signatures of the President by the Government so that it can be presented in the Parliament as a Governmental Bill (and not as a Private Members Bill).
The budget in India is usually presented on the last working day in the month of February. This offers to the House a period of one full month to debate, discuss and pass the budget document. The presentation of the budget is preceded by the speech of the Finance Minister which gives information relating to the general economic conditions of the country, the financial policy to be followed by the Government, the explanation for the difference between the budget estimates and the revised estimates of the current year and explanatory memoranda which explains the new demands in short as well as some of the new schemes proposed in the budget. There is a convention that a large number of documents, reports and surveys, for example economic survey etc., are also presented alongwith the budget documents. The purpose of doing so is to enable the MPs to by in a better position to discuss the budgetary provisions. The budget speech of the Finance Minister is of great importance and is eagerly awaited not only by the business community but also by almost every section of the community.
The budget estimates are now discussed in the Parliament. This stage of “General Discussion” on the budget involves a very general nature of discussion specific discussion on allocations and demands for grants etc. is not done at this stage Only the impact of the budget on the economy, society etc., is discussed. The days allocated to this activity, according to the rules and procedures of the Parliament are, 4 days in the Lok Sabha and 3 days in the Rajya Sabha. The budgetary estimates for the sake of convenience are grouped separately into two parts i. e. estimates for the expenditure charged on the ’’Consolidated Fund of India”, and expenditure charged on the “Public Accounts of India”. Article 112 mentions the following expenditures as charged on the Consolidated Fund of India:
- The emoluments and allowances of the President and other expenditure relating to his office.
- Salaries and allowances of the Chairman and the Deputy Chairman of the Rajya Sabha and the Speaker and the Deputy Speaker of the House of the People.
- Debt charges for which the Government of India is liable including interest, other expenditure relating to the raising of loans abroad and the service and redemption of debt.
- The salaries, allowances and pensions payable to the Judges of the Supreme Court, Comptroller and Auditor-General of India, Chief Election Commission etc.
- The Pensions payable to, or in respect of, judges of any high court which exercises jurisdiction in relation to any area included in the territory of India.
- Any sums required to satisfy any judgement, decree or award of any court or arbitral tribunal.
- Any other expenditure declared by the Constitution or by the Parliament by law to be so charged.
The items mentioned above are not-votable i. e. Legislators can discuss them but cannot reduce or reject them. The sources of the Consolidated Fund of India, have already been discussed in the text.
The Public Account of India includes ‘funds like the state provident funds, depreciation and other reserve funds of the Government departments, Postal Savings Bank, Post Office cash and other savings certificates, postal life insurance funds and adhoc funds created by the Government by appropriation from revenue or otherwise, miscellaneous deposits and remittances etc. It is worth- noting that none of the money lying in the Public Account belongs to the Government because it has to be paid back at some time or the other. In other words, appropriation can be done out of this fund without an appropriation act but the money so drawn has to be replenished by the Government from Consolidated Fund of India through an appropriate appropriation act.
The General discussion on the budget, which takes place one week after the presentation of budget, has been criticised for being more of a political nature than of financial nature and a major part of the time is used by the opposition to review the work of the Government for the year and ventilate the grievances of the people. The General discussion takes place almost simultaneously in both the Houses of the Parliament and the Finance Minister makes a general reply at the end of the discussion.
The next stage in the budgetary process is the Debate and Discussion on Demands for Grants. The Debate is followed by voting on demands for grants. The voting of demands is the exclusive privilege of the Lok Sabha and the Rajya Sabha does not take part in it. The total number of days allotted for the voting of demands is about 16 days. The Speaker in consultation with the Leader of the House fixes a time limit for discussion on a particular demand or on a group of demands and for the entire expenditure part of the budget and as soon as the time limit for any demand is reached, it is immediately put to vote irrespective of the fact whether the discussion on it is complete or not. At this stage, a full discussion on demands for grants takes place, item by item, department by department. Usually the annual report of the department forms the basis of the discussion on demands for grants. Various cut motions are introduced by the members. The purpose of cut motions is to initiate the discussion on the various heads of expenditure. This opportunity is used by the members generally to ventilate the grievances against the administration, of particular departments of the Government.
Various cut motions introduced in the legislature are –
As each head of the expenditure comes up for discussion, some member rises and moves a token-cut of one rupee or a hundred rupees in its estimates. Then the members proceed to criticise the administration of the department to which the demand for grant relates. The proposed cut of Re. 1/- or Rs. 100/- does not mean that the legislators disagree with the proposed demand. It, however, conveys to the executive that the legislators disagree with the way the administration of the department is being carried out. The proposed cut hence gives them the opportunity to discuss the administration of the department.
The policy cut motion is introduced by a member by stating that he disagrees with the demand for grant of the department and that it should be reduced to Re. 1/- (or Rs. 100/- say) i. e. to a very small and negligible amount as compared to the demand of a few crore of rupees stated in the budget. This cut motion is called as the Policy Cut motion, because the reduction of the amount demanded by the executive to just one rupee amounts to the rejection of the policy of the executive. Hence, even if one rupee is granted to him, the executive will not be able to carry out the proposed policy. Hence passage of a policy cut tantamount to a vote of no confidence and the Government has to seek a fresh vote of confidence in the legislature.
The economy cut motion is introduced by a member if he feels that the finances are not being managed properly by the department for which the demand for grant is being discussed. The member hence proposes the cut by stating that “Let the demand be reduced to Rupees ……. ”. Then the member proceeds to criticise the administration of the department to which it relates.
After one of these motions is raised and the discussion on demand for grant has taken place, the Minister concerned has to defend the administration against the onslaught of the members at the end of the discussion of each demand. Before the demand for grant is to be put to vote, if the opposition members are not satisfied with the reply of the Minister, the concerned Minister often agree to the demands of the opposition members and hence accommodate their views. Once this is done, the demand for grant is put to vote. A demand when duly voted, becomes a grant. It needs to be pointed out at this stage that the House can only reject or reduce a demand but cannot increase it. The logic behind not allowing the House to increase the demand is that the Executive cannot be held responsible for the money which he did not demand and yet the additional money was sanctioned by the House out of its choice. In future, if more money is needed for expenditure, it is authorised by way of supplementary grants or may be spent out of Contingency Fund.
Continued to :- Passing of Appropriation and Finance Bill