The next stage in the budgetary process is the passage of the Annual Appropriation Bills. All the demands voted by the Legislature and the expenditure charged on the Consolidated Fund of India are put together and incorporated in a Bill called the Annual Appropriation Bill [Art. 114(i)]. However, the amount shown in the Appropriation Bill should not exceed the amount shown in the Statement previously laid before the Parliament in the form of Demand for Grants. The point behind getting the Appropriation Act passed even though same amount has been granted by the parliament when it voted on the demand for grants, is that the approval of Demands for grants by the Parliament does not empower the Executive to appropriate the money. It only, means that the Parliament approves of the policies of the Executive which in turn does not mean that the Executive can draw the money and appropriate it also. After the bill is introduced a general debate follows in the House. The debate is restricted to those points only which have not been already discussed during the debates on estimates. The bill follows the same procedure in the House as any other Bill except that no amendments can be moved at this stage.
Also, at this time no cut motions can be introduced. The appropriation bill contains details like the extent of money being sanctioned and the year for which it is sanctioned; the purpose for which it is sanctioned and the authority in whose favour it is being approved. Generally, the practice in India is to present as many appropriation bills, as there are demands for grants. Hence there are 103 Appropriation Bills dealing with civil expenditure while 6 bills are there dealing with Defence Expenditure i. e. total 109 Appropriation Bills in all. Most of the times all these bills are passed in a single day.
After being passed by the Lok Sabha, it is certified by the Speaker as a money bill and sent to the Rajya Sabha. The Rajya Sabha has neither the power of amending, nor rejecting the Appropriation Bill. It can only discuss and make recommendations within 14 days to the Lok Sabha, which the Lok Sabha may or may not accept. Even if the Lower House rejects the suggestions made by the Upper House, the bill will be considered as passed by both the Houses in the form in which it was passed by the Lower House. In case the Upper House does not make any recommendations within the above specified period and remains silent, even then the bill will be deemed to have been passed by the Upper House on the expiry of that period. The appropriation bill is then sent to the President for his assent. It is just a formality because the President cannot return a money bill for reconsideration. The bill, after the assent of the President, becomes an Act.
The Appropriation Act authorises the Government to appropriate money from the Consolidated Fund but it has not so far been provided where from the money for expenditure would come. For this purpose, a Finance Bill is placed before the House, in which provisions are made for collecting the required money by way of taxation. This bill, hence, incorporates the financial proposals of the Government for the ensuing year and is placed before the Parliament at the same time as the budget. The procedure followed is that of money bill and it is only in the Select Committee of Parliament that the Bill is considered in detail and amendments are moved. After the presentation of the Committee Report, clause by clause consideration of the bill follows. The scope of amendments is restricted to proposals for the reduction or abolition of a tax. The financial/taxation proposals become operative as soon as the budget is presented under the Provisional Collection of Taxes Act, 1931. This is done in order to avoid the large- scale hoarding and cartelisation practices of the traders for the period of next one month i.e. 28th February to March 31st. The Finance Bill must be passed before the end of April and after having been passed, the Government is authorised to collect these taxes. With the passage of the Appropriation Bill and the Finance Bill, the enactment of the budget is complete.
The budget contains the ordinary annual estimates which constitutes the bulk of the annual receipts and charges. To meet the expenditure on circumstances unforeseen at the time of budget, there are 4 kinds of other grants which the Lok Sabha may be asked to make. These are –
- Supplementary Grants
- Vote on Account
- Exceptional Grants
- Vote on Credit
If the amount authorised by the Appropriation Act of the year is found to be insufficient or if expenditure on some new service becomes necessary in the course of time or if expenditure incurred on any service exceeds the amount provided for in the budget, the President is authorised under Article 115 of the Constitution to cause the supplementary financial statement embodying the supplementary demands for grants, to be laid before the Parliament. The supplementary grants are passed according to the usual procedure followed for the presentation and passage of the appropriation bill.
Vote on Account
Under Article 116 of the Constitution, the Lok Sabha has power to make any grant in advance in respect of the estimated expenditure for a part of any financial year pending the passing of the Appropriation Act. At times, it happens that the passage of the budget is delayed and is not complete by the end of the March. Since, all the money spent by the Government after March 31st would become illegal in case no appropriation act exists, the Lok Sabha makes provision for the money to be spent during the period pending the passage of the Appropriation Act through the provision of Vote on Account. The Parliament usually passes one-twelfth of the whole year’s gross requirements, asked for in the budget, for each of the succeeding months after March 31st Once the budget is passed, such an amount is adjusted against the amount granted in the budget. It may, however, be mentioned that the amount sanctioned under Vote on Account is to be spent on such services as have received the sanction of the Parliament and usually it is not to be used for the new services unless specified by the Parliament.
The Parliament can also grant money in advance for meeting emergencies during the course of the year, when the amount sanctioned in the budget is not sufficient to meet the emergency efficiently and effectively. In this case, the Government presents an estimate to the Parliament which is passed by it.
Vote on Credit
Vote on Credit is granted to the Government under Article 116 according to which the House of People has the power to make a grant for meeting an unexpected demand upon the resources of India, when on account of the magnitude of operation or the indefinite character of the service, the demand cannot be stated with details ordinarily given in an Annual Financial Statement. However, proper accounts are later to be furnished and passed by the Parliament.
Preparation and Execution of Budget
After the enactment of the budget the next step in the budgetary process is its execution. The two important principles involved in the execution of the budget are-
- The budget execution must conform to the terms of the Appropriation and Finance Acts; and
- There must be a high degree of honesty, integrity and efficiency in the execution of the budget.
In other words, the successful execution of the budget is one in which all the financial rules and regulations are observed e. g. invitation of tenders for the contracts etc., and all the goals are achieved, maintaining a fine balance between administrative flexibility and the rigidity of the financial rules and regulations. What is more important at this stage is that the intent of the legislature behind the budgetary provisions is preserved alongwith the observation of economy while spending the money and allowing no misappropriation of the money. The process of execution involves following operations:
- Assessment and Collection of Funds.
- Custody of Public Funds.
- Disbursement of the Funds in the Departments.
Before the taxes are collected, they have to be assessed properly so that they do not cause unnecessary hardships and harassment of the individual tax-payers. Assessment, therefore, involves the preparation of a list of persons liable to pay the tax and also determination of the extent of tax each of them has to pay according to the prescribed rates. The assessment of taxes in India is done by the Department of Revenue in the Finance Ministry in consultation with the Central Board of Direct Taxes (CBDT), the Central Board of Indirect Taxes (CBIT). (CBIT is also known as Central Board of Excise and Customs), and other field agencies. The same machinery is also involved in the collection of taxes which is a very debatable issue. Arguments for the view that the task of assessment and collection of revenue should be entrusted to the same set of officials –
- Since these two tasks are very intimately connected, they should be entrusted to the same set of officials. It brings more of honesty and fair play in the assessment and collection of taxes, because the officials know before hand that it is useless to set unrealistic targets to please the political masters, since it is they, who have to ultimately collect the taxes. Setting up of unrealistic targets will hence be against their interests only.
- The fusion of the machinery for tax assessment and tax collection ensures greater control of the Government over money collection. The assessing officers and the collecting officers being the same, know about who has to pay the tax and how much he has to pay.
- The fusion also facilitates the work of audit, because when the same officers have the duty of assessment and collection of taxes, it becomes very easy to check one of these operations against the other.
Arguments Against the View
However the system of fusion of assessment and collection has the following defects:
- The two activities i. e. assessment and collection are pretty different in nature. Hence different agencies are needed to perform these jobs.
- The officials if they perform both the jobs simultaneously they become heavily overburdened. Instead of increasing the numerical strength of the staff to deal with the extra burden, it is better to bifurcate the two jobs and put it under the charge of different agencies.
- In the unified system, unnecessary duplication of records is there. The records are duplicated unnecessarily. Therefore, it would be advantageous to divide the two jobs under separate agencies.
- The unification of the assessment and collection of taxes is against the principles of natural justice. The principle of natural justice states that nobody should be the judge in his own case. However, in a unified system, this is precisely the case where the tax collectors often set low targets to ease the burden of the tax collection.
The best method, hence, is to have both the functions concentrated in a single service; but there may be two sections in the organisation to deal with the two entirely different phases of the taxation process. In India, it is this system which is in operation.
The custody of funds so collected in most of the countries is entrusted to the Central Bank of the country. The Central Bank carries out all the money transactions on behalf of the Government. However, in a large country like ours, where the banking facilities are not sufficient, it is not possible to have, such a centralised system for receiving money and for making payments on behalf of the Government. However, wherever a branch of Reserve Bank of India exists, there it performs the functions of the treasury. In case, where the branch of RBI does not exist, the treasury functions are carried out by the State Bank of India (SBI). In a district where there is no SBI or RBI branch, or for historical reasons, a District Treasury exists, there it performs the functions of custody of funds. The Government of India maintains about 300 district treasuries and 1200 sub treasuries to ensure safe custody of funds.
Disbursement of the funds is the process of withdrawal of money from the treasury for the payments of various liabilities. The legislature makes the grants to the Government as a whole technically to the President and not to the individual departments. The Ministry of Finance designates the head of each administrative department as the controlling officer in respect of the expenditure occurring in the department. After the passage of the budget, an intimation is sent to the Head of the Department from the Ministry of Finance, listing the amount sanctioned for various quarters in the year. Heads of the Departments distribute these funds to the disbursing authorities i. e. DDO (Drawing and Disbursing Officer) in the departments. DDO is the person who is authorised by the various administrative departments to draw cash from the treasuries and distribute it in the department according to the budget sanctioned. The accounts of the money so withdrawn by the DDO are kept by both the officers i. e. DDO and the Officer in-charge of the Treasury. The treasury officer compiles these accounts on a monthly basis and sends them to the Accountant General on the other hand, a quarterly review of the accounts maintained by DDO is done by the Head of the Department. The quarterly review of the accounts is done by the Head of the Department. The quantity also done by the Ministry of Finance before releasing the amount for the next quarter. The quarterly review of the accounts in the Ministry helps the Ministry to prepare the revised estimates which are to be presented in the next year’s budget as the revised estimates of the current year. Although, at the time of budget execution, the Executive is empowered to change the destination of a particular grant from one minor head to another minor head, the Executive authority to allow for such changes in destination is vested in the officials of the Ministry of Finance i. e. any change of appropriation from one minor head to another minor head requires the concurrence of Ministry of Finance.
The process of Accounting and Auditing will be discussed in the later parts of this article when a discussion on Control Over Expenditure is taken up. First we shall be discussing the latest Budgetary techniques in the field of financial administration.
New Budgetary Techniques
The need for new budgetary techniques suited to the special needs of the rapidly developing modern world, were being increasingly felt in the administrative quarters during 1930s. At the same time, the following inadequacies of the Traditional Budget (or Line-item Budget) were also being pointed out:
- The Line-item budget (or traditional budget) is not suitable for the process of development because of the fact that it is largely inflexible and hence in the emerging scenario of Development Administration it is like an outdated concept.
- The traditional budget is suitable from the concept point of view of legality of the expenditure point of view. Since it is very simple to comprehend, it can be easily understood by the legislators, who are often laymen in respect of financial maters. At the same time, because of the detailed provisions relating to the budgetary grants in the appropriation act, e. g. how much money is sanctioned, for what purpose it has been sanctioned, to whom it has been sanctioned i. e. appropriating authority etc.; it is very easy to fix responsibility, while audit is being performed. At the same time, it is also very easy to check the legality of the expenditure.
- Traditional budget does not outline the objectives and the resources allocated towards the achievement of that objective specifically. Hence, often, the money sanctioned in the budget is spent but the objectives are left unachieved, while it is very much desirable that the objectives are achieved and that too in time for rapid pace of development.
- The traditional budget does not establish the input-output relationship i. e. the clear demarcation of objectives (i. e. outputs) alongwith the resources allocated for that (i. e. inputs). Therefore, the legislators do not have any control over the actual performance of the Government.
Hence with the change in the nature and variety of functions of the Government from the “Police State” to the Modern “Administrative State” where the administration touches every facet of the human life, the Traditional Budget is not suitable in the changed scenario. The need to relate the achievement of physical targets with the available finance has given rise to the adoption of the concept of Performance Budgeting.