Budget basics!!!

I.What is general budget and why we need it? 
Like we prepare our family, entrepreneurial or company budget, the government also needs to prepare its own budget. The financial resources for the government are derived through levying taxes, duties and surcharges etc. Often government also requires borrowing money to meet urgent needs. In a democratic country like India government being formed by public representatives (the Parliamentarians) is supposed to collect and spend financial resources in accordance to public opinion. Being difficult to accommodate views of all Indians, to seek vote of account from the Parliamentarians, every government needs to present annual financial statement along with proposed estimated receipts and expenditures for ensuing year to the Parliament for its approval. This financial statement is called as 'General Budget' which contains the following documents– 
1.Key to Budget 
2.Budget Highlights 
3.Budget Speech 
4.Budget at a Glance 
5.Finance Bill 
6.Memorandum 
7.Receipt Budget 
8.Expenditure Budget 
9.Customs and Central Excise 
10Implementation of Budget 
11Announcements 
12The Macro Economic Framework Statement 
13The Medium Term Fiscal Policy Statement 
14The Fiscal Policy Strategy Statement 
15The Outcome Budget 

II.What are sources of finance for the general Budget? 
Among three major accounts for the Government, the consolidated count is the main one where all receipts are intentionally mobilized for general budget. The second account is contingency fund where Rs. 500 crores is kept for unforeseen incidences and in case of any emergency, if any amount is used from this account, after approval from the Parliament the same should be transferred back to maintain the balance of contingency account. The third type of account is Public Fund where the Government keeps public funds like savings at Post offices, and EPF etc. Since Government is supposed to be custodian of such funds, there is no need to take any approval of the Parliament to use such fund. 


The Major sources of receipts for the Government may be categorized as revenue receipts and capital receipts. Revenue receipts can further divided into tax revenues and non – tax revenues receipts. All incomes generated by the government through tax, customs, excise and surcharges etc. fall under tax revenue, where as income generated through surplus of income over expenditures in public enterprises are main source of non-tax revenue receipts. The issue of securities, bonds, shares and borrowings are main sources of capital receipts. 

III.What are major heads of expenditures in general budget? 
The government proposes two types of expenses in the general budget i.e. plan expenditure and non-plan expenditure. Plan expenditures are proposed to meet the financial needs to carry the proposed plan by ministries whereas general running expenses fall under non plan expenditures. Both plan and non plan expenditure are further categorized into capital and revenue expenditures depending on nature of expenditures. All expenses which help create asset falls under capital expenses whereas the expenses which not create assets fall under revenue expenditures. The payment of interest over government borrowings is an example of revenue expenditure whereas purchase of automobile is an example of capital expenditure. 

IV.What about constitutional provision of general budget? 
Constitutionally under Article 112, the President is obliged to have the Annual Financial Statement for the ensuing financial year laid on the table of the House. But according to Article 77(3), the Finance Minister has been made responsible to prepare the Annual Financial Statement and pilot it through Parliament. The Finance Bill, Demands for Grants and Appropriation Bill are respectively provisioned under articles 110 (a), 113 and 114 (3) of the constitution. 

V.How the general budget is prepared? 
Though the Finance Minister is responsible to prepare the Union Budget and Budget of states under President Rule, following public organs are involved in budget making – 

1.The Planning Commission is responsible to set overall targets for the ministries. 
2.Comptroller & Auditor General is responsible to check the accounts. 
3.Administrative Ministries are responsible to submit their requirement and priorities. 
4.Each department in the Ministry of Finance is charged with a particular responsibility. 
a.Department of Expenditure evaluates & prepares Expenditure estimates. 
b.Department of Economic Affairs prepares the estimates for Non-Tax Revenue and Deficits budgets. 
c.Department of Revenue prepares the Tax Revenue estimates. 

The budget exercise starts in September when the Budget Division of the Department of Economic Affairs (DoE) issues budget circular to all union ministers, states and UTs, autonomous bodies and departments, and the three arms of the defence forces for preparing revised estimates for the current financial year and the estimated budget for the next financial year. 
After the line ministries submit relevant documents, pre-budget meetings begin. These involve extensive consultation between line ministries and the Department of Expenditure. Meanwhile the DoE and Department of Revenue engage in consultation with stakeholders such as farmers, labour unions, business enterprises, FIIs, chamber of commerce & industries, economists and NGO's etc. 

The demands for grants by the state governments are sent to the concerned finance ministry for evaluation. The Finance Ministry undertakes an intense internal assessment. The DoE finalizes the spending priority and align the expenditures with policy goals. The Department of Revenue finalizes estimates about revenue mobilization. 

1.Once the pre-budget meetings are over, the approved ceiling for expenditure as finalized in these meetings is communicated. It includes internal ceilings of revenue and capital expenditure. Based on these limits, each ministry / department prepares a final Statement of Budget Estimates (SBE) and send back to the budget division. 
2.The Revenue Department goes through all the demands and works out their revenue implications. A final call on the tax proposals is taken by the Finance Minister. The proposals are discussed with the Prime Minister before final decision is taken. 
3.Budget Division then gets on with the task of preparing all the budget documents and converts these documents into ready to print template formats in a CD. Finally around 24th of February, the Finance Minister hands over the CD to the press for printing of budget documents. 

VI.Where the budget documents get printed? 
Initially, budgets were printed in Rashtrapati Bhawan. From 1950s the printing venue was shifted to Minto Road located security press. And since 1980, the Union Budget is printed at the special printing press in the basement of the North Block of the Central Secretariat in New Delhi. The entire process of collecting data and preparation of the budget document is done by selected officials working on computers which are de-linked from all networks, including NIC hot link. Intelligence Bureau monitors every movement, phone calls and the security of all officials involved with budget preparation and production. All electronic storage devices are out of bounds. All officials, technicians, legal experts on taxation, Press Information Bureau officials who prepare press notes in English, Hindi and Urdu on the budget and other workers involved with the printing are quarantined in the North Block. They all need to sleep in North Block and are allowed to walk out only after the Budget is tabled in the Lok Sabha on the budget day. The Cabinet also gets budget summary only 10 minutes before the Parliament assembles for budget presentation. 

VII.How general budget is presented? 
The Budget session of the Parliament opens with the address by the President on a date fixed by the President. Since 1999, it is being presented at 11.00 am on the last working day of February. Finance Minister presents the Budget Speech in the Lok Sabha in two parts. Part A deals with the general economic survey of the country and policy statements while Part B contains receipts and expenditures proposal. 'Annual Financial Statement' is laid down on the table of Rajya Sabha after the Finance Minister's speech. 

The Railway Budget is presented to the Parliament by the Union Railway Minister, two days prior to the General Budget and the general economic survey of the economy is presented prior to the annual financial statement. The Railway Budget figures relating to the receipt and expenditure of the railways are also shown in the General Budget, since they are part and parcel of the total receipts and expenditures of the Government of India. 

VIII.How general budget is passed? 
Immediately no discussion is followed after the budget is presented in the Parliament. Few days later for 2 to 3 days the Lok Sabha discusses the budget as a whole and not in details. At the end of the discussion, the Finance Minister replies of the queries. A 'Vote of Account' for the expenditure in next two months of ensuing financial year is obtained form Parliament. The House is adjourned for a fixed period. During this period the Demands for Grants of various ministries / departments including Railways are considered by relevant standing committees. 

-Reports by various Standing Committees are presented to the House. In the house these are discussed Ministry-wise and votes on Demands of Grants. 
-The Speaker puts all the outstanding Demands to the Vote of the House. This device is known as the 'guillotine'. The Lok Sabha has the power to assent or refuse to any Demand or even to reduce the amount of grant sought by the government. 
-In the Rajya Sabha, there is only a general discussion on the budget. It does not vote on the Demands for Grants. 
-After general discussion on the budget proposals and voting on Demands for Grants have been completed, government introduces the Appropriation Bill. The Appropriation Bill is intended to give authority to the government to incur expenditure from and out of the consolidated fund of India. 

Considerably if the Budget proposals are defeated in the Lok Sabha, the Government has to resign. 

IX.What is the significance of the Finance Bill? 
The Finance Bill seeking to give effect to the government's taxation proposals, which is introduced in the Lok Sabha immediately after the presentation of the budget, is taken up for consideration after the Appropriation Bill is passed. However certain provisions in the Bill relating to levy and collection of fresh duties or variation in the existing duties come into effect immediately on the day the Bill is introduced by virtue of a declaration under the Provisional Collection of Taxes Act. Indirect tax proposals come into force as soon as they are announced; direct tax proposals await approval by the Parliament. Parliament has to pass the Finance Bill within 75 days of its introduction. 

So, the whole process of preparation to finalization of annual general budget around 7 months time where almost all public representatives like Member of Parliament, Secretariat and officials are involved. If general Indians intend to contribute in the budget process, they have better time in September to approach the concerned ministry. The concerned ministry will listen the views of general public and may incorporate their views if find genuine and worthy. The other way is that NGOs may submit their proposals / views to the Budget Division in the Department of Economic Affairs under Ministry of Finance for consideration. Planning commission may also be approached with genuine plans and proposals in this regard. But all submissions should be made before launch of the process instead after presentation of the budget in the Parliament. 

Be sure that every citizen of India duly participates in preparation and implementation of general budget because in a democratic country like India it is our socio – economic obligation. Only public participation can make our system better and negligence invites corrupt people to pervert the system. So be aware and active for general budget. Without public participation we cannot achieve the plan of inclusive growth.