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Important points on Budget

The Budget process of India predates Independence. The Budget was first introduced on 7th April, 1860, two years after the transfer of Indian administration from the East-India Company to the British Crown.

The first Finance Member, who presented the Budget, was Mr. James Wilson.

After Independence, India's first Finance Minister, Mr. R.K. Shanmukham Chetty, presented the Budget on 26th November, 1947. Since then, the Union Finance Minister of India prepares the 'Annual Financial Statement' and presents it before the Parliament every year, usually on the last working day of February, in accordance with Article 112 of the Constitution of India.

This budget comes into effect on April 1, the start of the new financial year; and has evolved over the past six decades to reflect the strength of our democratic processes in shaping our economy.

1) In India, First Budget introduced in 1860.

2) India introduced Multi - budgetary system in 1921.

3) General Budget is prepared by Finance Minister and is submitted to Loksabha.

4) Vote on Account, also called as Adhoc Budget. Parliament allows to spend money for 2 to 3 months without approval of the budget is called vote on account.

5) Prominent features of Budget are  Income and Expenditure.

6) Balanced Budget = Expected money & the expenditure are equal.

7) Sufficient Budget = Income is more than expenditure.

8) Deficient Budget = Expenditure is more than income.

9) Revenue Deficit = Revenue Income - Revenue - Expenditure

10) Budget Deficit = Total Expenditure - Total Collection

11) Fiscal Deficit = Budget Deficit + Expenditure.
Shows how much money the government is needed to get debts.

12) Primary Deficit = Reducing interest payments from Fiscal Deficit.

13) Monitized Deficit = Reserve Bank debts to Central Govt.

The Union Budget

In India, Parliamentary control over public finances becomes operative primarily through the approval of the Union Budget.

This enormous responsibility of spending public funds falls upon the Government as well as the Parliament.

While the Government is responsible for planning how public money should be spent, the Parliament's duty as the people's representative body is, to observe and scrutinise the Government's proposals and policies.

The preparation of the Union Budget is an iterative process between the Ministry of Finance, the Planning Commission and the spending Ministries.

It is a combination of top down approach with the Ministry of Finance and the Planning Commission issuing guidelines or communicating instructions to spending Ministries, and a bottom-up approach, wherein the spending Ministries present requests for budget allocation.

Basic Structure of the Budget

The government is accountable to the Parliament in its financial management. With the constitutional supremacy of the bicameral Parliament, especially of the Lok Sabha  every single financial act is processed and passed by the representatives of the people.

However, proposals for the formulation of budget levying taxes, determining government accounts and expenditures, are prepared by the Government's Ministries and consolidated in the Ministry of Finance.

The Union Budget presented to the Parliament consists of the General Budget and the Railway Budget, the Demands for Grant, the Vote on Account, the Supplementary Demands for Grant, the Appropriation Bill and the Finance Bill.

The Annual Financial Statement is the main Budget document. It details the receipts and payments under which Government accounts  are kept, namely - Consolidated Fund, Contingency Fund, and Public Account.

All revenues received by the Government, loans raised, and receipts from recoveries, form the Consolidated Fund. All Government expenditures are acquired from the Consolidated Fund, and no amount can be withdrawn from the Fund without authorisation from the Parliament.

The Contingency Fund on the other hand is placed at the disposal of the President of India  for occasions that may arise when the Government may have to incur imperative and unexpected expenditure. Parliamentary approval for such expenditure and its reimbursement from the Consolidated Fund is subsequently obtained, and the amount spent is recouped to the Contingency Fund.

Besides the normal Government expenditures that relate to the Consolidated Fund, certain other transactions enter the Government accounts in respect of which, the Government acts more like a banker, overlooking transactions relating to provident funds, small savings collections, other deposits, etc.

The money thus received is deposited in the Public Account, and the related distribution is also made there from. Thus, funds in the Public Account do not belong to the Government, and have to be paid back to the persons and authorities depositing them.

Immediately after the Annual Statement, the Finance Bill is introduced in the Lok Sabha by the Finance Minister. The Finance Bill is presented in fulfillment of the requirement under Article 110 (1) (a) of the Constitution, detailing the imposition, abolition, remission, alteration or regulation of taxes proposed in the Budget.

After passing of the Appropriation Bill, the Finance Bill is considered and passed by the Parliament as a Money Bill.

The Economic Survey

The Economic Survey of the year is presented to the Parliament a few days before the presentation of the Annual Budget. The Survey is a detailed analysis of the economic situation of the country for the ensuing year.

It includes a Statement about the position of budgetary transactions of the Central and State Governments, and their overall surplus/deficit positions in the current year and the past trends.

In the Economic Survey, along with an analysis of the economic situation of the country, detailed analysis is given of the trends in the current year in agriculture, industry, infrastructure, employment, money supply, imports, exports, prices, foreign exchange reserves, balance of payment etc as compared to selected earlier years.

This document is helpful for a better appreciation of the proposals for resource mobilisation and budgetary allocation for the ensuing year, and is therefore presented to the Parliament ahead of the presentation of the Budget.

Please refer to Key highlights of Economic Survey 2019-20

State Budgets

Owing to the federal structure of governance in the country, in addition to the Union Budget, which is prepared at the Centre, each State Government of the country also prepares its own budget, separately.

The State Budget is prepared by the respective Finance Minister of the State through necessary consultations with related Central Government administrators. Similar norms are followed in regards to the execution of the financials, as at the Center, except that the matters of the State are looked after by the respective State Legislatures.

However, the Central Government still holds the reins of control over State finances through the Comptroller and the Auditor General .

The function of the Auditor General is to review State Government accounts on an annual basis, and report the assessment to the appropriate State Governor for submission to the state's Legislature.

Budget Analysis & Anticipation

Since 1957-58, the Economic Affairs Department  of the Ministry of Finance has been preparing an economic classification of the Central Government budgetary transactions to make the budget a more useful tool of economic analysis.

In view of the economic planning in the country, annual Plan outlays have been integrated with the budgetary outlays which called for a further analysis of budgetary outlays into functional categories. Such a functional classification helps in analysing how much the Central Government is allocating to different functions or purposes in accordance with the priorities laid down in the Five Year Plans.

Additionally, Outcome Budgets  have become an integral part of the budgeting process since 2005-06. These documents, prepared separately by each ministry/department, broadly indicate the physical dimensions of the financial budget and also the actual physical performance for the first nine months of the year & also the target for the next fiscal.

The economic recovery was driven by a deliberate fiscal expansion during and immediately after the global crisis and supported by an easing of monetary policy. With a broad-based recovery underway, the resilience that India has demonstrated in recent times reflects the maturing of economic management in the country and the growing competitiveness of our enterprises.



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