Budget in Parliament UPSC Notes

The Budget is an annual financial statement giving an account of the expected revenue and expenditure of public money in a financial year, which starts on 1st April and ends on 31st March. It is a work plan that gives direction to the implementation of policies and programmes.

Note:

1. The Constitution does not mention the term ‘Budget’; it uses the term ‘Annual financial statement’ in Article 112.
2. The Finance ministry prepares the annual Budget in consultation with every other ministry.

 

Necessity of the Budget:

Even though the government is empowered to take any executive action in the country, it cannot be done irresponsibly. The Constitution empowers the Parliament to keep a check on the Executive. All the expenditure done by the government is checked through two mechanisms:

1. Prior approval of the Parliament: No expenditure can be made by the government unless the Parliament approves it, and no tax can be introduced unless the Parliament approves it.
2. Scrutiny of Financial decisions already taken: Through various Parliamentary committees and audit reports of the CAG, the members of Parliament are equipped with adequate resources to scrutinise all the previous financial decisions of the government.

In recent years, new mechanisms have been added by the Parliament to ensure fiscal responsibility and that the governments do not borrow too much.

A Lesson from History: Evolution of Budget in India

The first formal Budget was presented in 1860 by Sir James Wilson, the then finance minister of the Governor General Council. At that time, there was no elected legislature to scrutinise the Budget. 1. The discussion over the Budget by the members of the central Legislative council only started in 1892. 2. The Government of India Act 1919 separated the central Budget and provincial Budget. Further, in 1924, the Railway Budget was separated from the general Budget on the Ackworth’s committee’s recommendation. 3. Independent India’s first Budget was presented in November 1947 by then-finance minister R K Shanmukham Chetty. 4. In 2017, the railway budget and general Budget were merged as their relevance reduced significantly on account of their significantly shrunk size. Since 2017, the Union budget has been presented on 1st February; earlier, it was presented on the last day of February. It was shifted so that the Budget could be effectively implemented before the start of the financial year.

What constitutes the Budget?

The Budget essentially consists of two accounts:

1. Estimates of receipts (both revenue and capital) and ways and means to raise the revenue;
2. Estimates of expenditure;

Apart from these, the Budget also contains:

• Account of receipts and expenditures in the closing financial year. This is to ensure accountability before the Parliament, where members of Parliament can discuss about the prudence of previous expenditure.
• It also contains the vision behind the economic and financial proposals for the upcoming financial year, which include taxation proposals and reforms, the introduction of new welfare schemes, etc.

We shall discuss the Budget documents later in this article.

Annual Financial Statement:

The Union budget is technically known as the Annual Financial Statement, as addressed in Article 112 of the Constitution. It is a statement of the estimated revenues and expenses of the Government of India, which the President is bound to place before both Houses of Parliament each fiscal as per Article 112.

Thus, for its systematic understanding, we should also break the Budget into two parts:

1. Estimated Expenditure
2. Estimated Receipts

Here, it must be noted that all revenue receipts earned by the government through various means, such as taxes, form part of the Consolidated Fund of India, and all expenditure done by the Government of India is appropriated out of the Consolidated Fund of India.

1. Estimated Expenditure:

Article 112 mandates that the government should show two types of expenditure separately in the Annual financial statement:

1. Expenditures that are already “charged upon” the consolidated fund of India. It includes the salaries of all the constitutional authorities like the President, Vice-President, Speaker, Judges of the Supreme Court, CAG, etc. It can also include grants to the states and expenditure on certain government schemes as declared by Parliamentary law.
2. Expenditures that are “proposed to be made” from the consolidated fund of India must be shown separately.

This distinction is important because expenditures that are charged upon the consolidated fund of India, such as salaries of important constitutional offices, their pensions, statutory grants and schemes, etc., should run smoothly without the need for approval every year. Thus, Article 113(1) says that all the expenditures that are already charged upon the consolidated fund of India shall not be put to the vote of Parliament.

However, for all other expenditures, the government must be answerable to the Parliament. Thus, this creates a distinction between “Votable and Non-Votable expenditure”. The expenditure already charged upon is votable, and all other expenditures are non-votable.

Non-Votable expenditure	Votable Expenditure
The expenditure “charged upon” the consolidated fund of India is not put to the vote each year.	“Other expenditures” for which demand for the grant has to be put before the Parliament, and the Appropriation Act has to be passed.
It generally includes constitutionally mandated expenditures such as salaries of constitutional offices and grants-in-aid.	It includes all other types of expenditure that the government wishes to make, such as salaries of officers and employees and expenditure on schemes and government programs.

This appropriation for the votable expenditure is done in the following manner:

Step 1: The Government puts a Demand for a Grant

Step 2: These demands are introduced in the Parliament as Appropriation bills, along with the “Charged” expenditure.

Step 3: If passed by the Lok Sabha, these “Appropriation Acts” enable the government to appropriate the said amount out of the consolidated fund.