What is Budget?
Indian constitution defines Budget as “The annual statement containing an estimate of all anticipated revenue and expenditure of the government for the coming financial year.”
In the hands of administration, the Budget is a record of the past performance, a method of current control, and a projection of future plans.
“Budget is a financial document of the government as presented to the Legislature and sanctioned by the Legislature.”
According to Dimock - “A Budget is a financial plan, summarizing the financial experience of the past, stating a current plan and projecting it over a specified period of time in future.”
Tayler says, “Budget is a financial plan of government for a definite period.”
G.Jeze “A forecast and an estimate of all public receipts and expenses, for certain expenses and receipts, an authorisation to incur them and to collect them.”
Remo Storm “A document containing a preliminary approved plan of public revenues and expenditure.”
Origin of the term ‘Budget’ has been derived from a French word “Bougette” meaning a leather bag used for carrying official papers. The Story goes that the term was used in its present sense for the first time in 1733 in a satire “Opening of the Budget” directed against Walpole’s financial plan for that year. In England the chancellor of the Exchequer used to carry to the House of Commons a leather bag containing papers, on financial plans. He
used to open his Budget i.e. the bag. Since then the term has been used for a financial statement of annual income and expenditure of the government.
In conclusion : The Budget is a statement of expected revenue and proposed expenditure for a year. It sets forth the procedure and manner in which the revenue is to be collected and the administration of expenditure is to be carried out.
IMPORTANCE OR PURPOSE OF BUDGET
1. It helps administrative management and co-ordination.
2. It is an instrument of social and economic policy.
3. Budgetary system is the most important technique of parliamentary control over administration.
4. It ensures the financial and legal accountability of the executive to the legislature.
If a government desires to achieve through its public administration certain socio-economic goals, it has to make arrangements for the requisite finance. In the absence of proper financial resources, the governmental programmes would become a mere paper execise.
When public money is sent for public purposes, the important task before public administration is to have efficient management of public money. Budgeting is one of the major processes by which the use of public resources is planned and controlled.
The Budgetary process in a modern state consists of the following stages :-
1. Preparation of the Budget.
2. Enactment of the Budget.
3. Execution of the Budget.
4. Legislative control of the Budget
PREPARATION OF THE BUDGET IN INDIA
A) Which agency make the Budget?
The responsibility for framing the budget in India is entrusted to the President of India. Under Article 112 of the Indian constitution, the President shall cause to lay before both the Houses of parliament every financial year a statement of the estimate receipts and
expenditure of the Government of India for the year.
In practice, the president instructs the council of Ministers to undertake the job and the job is performed by the Ministry of Finance.
B) Stages :
1) Preparation of the preliminary estimates by the Heads of Department :- The Finance Ministry Supplies skeleton forms to the administrative heads of departments of expenditure in the month of July. The skeleton forms call for details regarding :
1. Actual for the previous year.
2. Sanctional estimates for the current year.
3. Revised estimates for the current year.
4. Budget estimates for the next year.
2) The scrutiny and Review by the controlling officers :-The skeleton information is scrutinised, reviewed, finalized and consolidated by the Heads of administrative departments Such estimates are forwarded to finance Ministry in the month of November.
3) Scrutiny and Review of the estimates by the Auditor General : One copy of the department’s preliminary estimates is forwarded to the Auditor General of India. The Auditor General scrutinize the estimates from an accountants angle to ensure compliance of technical requirements. The administrative heads of the various departments keeps in view the comments of the comptroller and Auditor General while preparing the revised estimates of their departments.
4) Scrutiny and review of the Revised Estimates by the Ministry of Finance : The revised estimates are thereafter verified by the Finance Ministry.
5) Estimating the Revenue : The work of estimating the revenue is the responsibility of the Finance Ministry. The Ministry compares the figures of income and expenditure with previous year’s figures and proposes changes in the existing rates if necessary. At this stage the Budget Division in the Ministry of Finance prepares an estimate projection of revenue and expenditure of the Government of India for the ensuing year. On the basis of the estimated expenditure and proposals regarding fresh taxes the ‘Draft Budget’ is prepared by the end of December.
6) The final consideration of the consolidated estimates by the cabinet :The draft budget is examined by the Finance Minister in January. He consults the Prime Minister and prepares his financial policy. At the end of February the budget is finalised by the Finance Minister. The skeleton budget are submitted to the cabinet for its
consideration and are usually approved ‘as it is’ by the cabinet. After the budget is approved by the cabinet, it is presented to the parliament usually on the last working day in the month of February by the Finance Minister.
ENACTMENT OF THE BUDGET :
Enactment of the Budget is the second stage of Budgetary process. It means approval of the Budget by the parliament and ratification by the president.
Article 265 of the Indian constitution provides that “No tax shall be levied or collected except by authority of law.”
Article 266 provides that, “No moneys out of the consolidated Fund of India shall be appropriated except in accordance with law and for the purposes and in themanner as passed by the Legislature.”
Consideration :
The Stages in the enactment of the budget are as follows : These stages are five -
1. Presenting the Budget.
2. General discussion.
3. Voting of Demands for Grants.
4. Consideration and passing of Appropriation Bill.
5. Consideration and passing of Finance Bill.
1. Presenting the Budget. The President of India convenes the Budget session of the parliament, usually in the month of February. The Budget session commences with the President’s address and followed by the presentation of the Budget.
The Budget is presented in two parts. one is Railway Budget and other is General Budget. The Railway Budget is presented in the third week of February by the Union Railway Minister which contains proposals of expenditure and revenue pertaining to the Railway. The General Budget is presented on the last working day of February by the Union Finance Minister.
The Budget speech of the Finance Minister gives information relating to general economic conditions of the country. 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. It highlights the taxation proposals, new schemes launched by the government.
The Finance Minister, along with the Budget submits a number of documents to parliament. Finance Minister submits the Budget and concludes his Budget speech. After that there is no discussion on the Budget in the House. Budget is presented only in the Lok-Sabha.
2. General discussion on Budget The speaker of LokSabha fixes the date on which general discussion on the Budget take place. Such discussion usually takes place one week after the presentation of the Budget. Four days are allotted for the general discussion on the Budget. Such general discussion on the Budget takes place in both the Houses of
Parliament simultaneously. At the time of general discussion “the House shall be at liberty to discuss the Budget as a whole or any question of principle involved therein. The Finance Minister gives reply to the issues raised in the course of discussion.”In this stage Budget is not submitted to the vote of Parliament.
3. Voting of Demands for Grants. The next stage in the enactment of the budget is voting of Demands for grants. It means voting on the expenditure part of the budget. These demands are presented ministrywise. The speaker in consultation with the leaders of the Various political parties allots time for discussion. The discussion on the voting of demands
continues for 26 days and within this period all the demands are supposed to be discussed and passed, A demand duly voted becomes a grant. It should be noted that the House can only reduce a demand, but cannot increase it. The voting of demands is the exclusive privilege of the Loksabha. Rajya Sabha has no role to play except discussing the demands for grants.
This stage of enactment of budget gives the members of the parliament an opportunity to criticise the working of the Ministry whose demands are voted by the House. They can move cut motions such as policy cut motion, economy cut motion and concentrate discussion on specific issues. Such motions, when put to vote, are usually defeated but such motions enable the members of Parliment to expose the inefficiency, unsatisfactory working and other deficiencies.
4. Consideration and passing of Appropriation Bill.
After voting of demands is over, the budget enters into the stage of enactment. i.e. the consideration and approval of the Appropriation Bill. All the demands for grants voted by the Loksabha and the expenditure charged on the consolidated fund of India are put together and incorporated in the Annual Appropriation Bill.
The Appropriation Bill is introduced in the Loksabha. The Bill follows the same procedure in the House as any other money bill. After the Bill is passed in the House, it is certified by the speaker as a money bill and it is sent to the Rajyasabha. Rajyasabha is empowered to discuss the bill and make recommendations within 14 days to the Loksabha. The latter may or may not accept the recommendations. In case the Rajasabha does not return the bill within the 14 days, the bill is deemed as passed by that House.
After the Bill is passed by both Houses of parliament it is sent to the President of India for his formal assent.
5. Consideration and passing of Finance Bill
Finance Bill means taxation proposals. It contains the proposals for revenue for the ensuing financial year. It embodies the proposals for imposing raising or renewal of taxes. The procedure for the enactment of the financial Bill is the same as in passing of money bill. When this bill is enacted by parliament and receives the formal assent of the President, the government is authorised to collect taxes as provided in the Finance Bill.
Conclusion : Thus Enactment of the Budget consists of approval of the parliament to the Finance and Appropriation Bills.
EXECUTION OF THE BUDGET
It means the implementation of the Budget. After the enactment of
the Budget by the parliament, ministries and attached offices of the
Government are authorised to incur expenditure.
Control of the Finance Ministry :
Parliament sanctioned the grants as a whole and not to individual
ministers. The Finance Ministry exercised control on the spending
of Ministries. The control of Finance Ministry is continous. At the
time the money is actually spent, the Finance Ministry exercises
stringent control. It is based on the notion that the parliament
makes the grants to the Government as a whole and not to
individual Ministries. The Finance Ministry, as the agency managing
the finance, has to be convinced about the desirability and
prudence of the proposed expenditure before it lets the spending
Ministry involved to proceed with it. The concurrence of the Finance
Ministry is not required for the normal existing expenditure, but new
expenditure must have the prior approval of the Finance Ministry.
The Budget division of the Ministry of Finance applies broad checks
and determines gross amount for the various schemes.
Various principles of budget.
1 Publicity. Publicity is the essential feature of modern budget. Today budget is no longer an estimate of bare statement of proposed government revenues and expenditure. It is a vehicle of social reconstruction and the public welfare. The government budget passes through various stages e.g.., Recommendation of the budget by the executive to the legislature, consideration and approval by the legislature etc. It should be given every possible publicity. In India, the government has recently decided to telecast the presentation of the budget on the National Network of Doordarshan.
2 Clarity. The budget is a complex document. however, it should be framed in such a way as to be clearly understood by the common man. At least its language should be clear and easy to be understood. The more clear it is, easier it would be to implement it.
3 Comprehensiveness. The budget must comprise the entire fiscal program of the government. It should be able to give a complete picture of government revenues and expenditures. It should give a clear picture of all new debts or borrowings to be incurred by the government. There should be a detailed specification of receipts and appropriations. One can have a total financial picture of the government from the budget.
4 Unity. All government receipts should be consolidated in one common fund for financing all expenditures.
5 Periodicity. There should be a fixed period for which the expenditure demands of the government should be authorised. If money is not utilised within the specific period, it should either lapse, or should be reappropriated.
Generally, in most of the countries, the budget grants are on the annual basis. For this period the legislature sanctions all government grants, and permits the levy of taxes.
6 Accuracy. Accuracy and reliability of budget estimates is essential for any sound financial system. The estimates of budget must be based on accurate information. It should be detailed and pertinent to permit rational evaluation. No intentional under-estimating or concealment of fact should be there.
7 Integrity. Once budget is approved by the legislature, it should be carried out substantially. If it is not executed as it was enacted, there is no point in having a budget at all.
8 Prior Authorisation. Another feature of a budget should be that all funds to be spent during a period, must be sanctioned beforehand. If the approval of the Legislature is sought after having spent the money, it is most irregular.
9 Balanced. The budget should be balanced- that is, the income and expenditure must be equal. Both deficit and surplus budget are faulty. However, in all developing countries today, the deficit budgeting is a fashion.
10 Executive Type Budget. Usually there are three types of budget: (i) Legislative type of budget (ii) Executive type of budget (iii) The Board or Commission type of budget.
(i) Legislative type of budget. When the budget is prepared by a committee of Legislature it is called legislative type of budget. This budget strengthens the bonds of cooperation and affinity between the legislature and the executive. But the competence of the Legislature to do so is doubtful. Legislature cannot be familiar with the requirements and needs of various executive departments to prepare a successful budget.
(ii) Executive type of budget. In this system the budget is prepared by the executive, and after it has been approved by the legislature, the responsibility for its implementation just on the executive. Today it is the universal accepted principle of budget preparation and its execution.
(iii) The Board or Commission type of budget. In this type, budget is formulated by a board or a commission which consists of only administrative officers or both administrative and legislative offices jointly. This is practised in USA. The purpose of this arrangement is to associate a board of competent officers with the budget making process.
In modern times the executive type of budget is a common fashion. It is a right conclusion that the executive type of budget is the best instrument to serve all purposes. Thus, the executive should be allowed to prepare the estimates of income and expenditure, and get it approved by the legislature. The executive budget is prepared by experts, for example, the treasury of Britain and finance department in India are the expert agencies to prepare the executive budget.
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