Public Policy and Administration: DSC 306

Budget: Budgetary Cycle in India.

3rd Semester Hons.
Compiled by Sushila Baraily,
Asst. Professor,Political Science Department,
Sonada Degree College.
University of North Bengal

BUDGETARY CYCLE IN INDIA

In order to allow time for the executive and legislative processes to go through, budgeting is
geared to a cycle. The process of approval is very significant in a responsible form of
government. The cycle consists of four phases:

1. Formulation/Preparation and submission of Budget;

2. Approval or enactment of Budget by the Parliament.;

3. Execution of the Budget

4. Accounting and

5. Audit

1.Budget Preparation/Formulation:

In India, budget preparation formally begins on the receipt of a circular from the Department
of Economic Affairs, under Ministry of Finance sometime during September/October, that
is, about six months before the budget presentation. The circular prescribes the time-schedule
for sending final estimates separately for plan and non-plan, and the guidelines to be followed
in the examination of budget estimates to be prepared by the department concerned. The
general rule is that the person who spends money should also prepare the budget estimates.
Budget proposals normally contain the following information:

i) Accounts classification

ii) Budget estimates of the current year

iii) Revised estimates of the current year

iv) Actuals for the previous year; and

V) Proposed estimates for the next financial year (which is the budget proper).

Budget estimates normally involve :

a) Standing charges or committed expenditure on the existing level of service. This can easily
be provided for in the budget, as it is more or less based on a projection of the existing trends.

b) New expenditure which may be due to :

i) expansion of programmes involving expenditure in addition to an existing service or facility;
and

ii) new service for which provision has not been previously included in the grants.

While (b) (i ) can be estimated with reference to progress made and the likely expenditure
during the next financial year, budget provision for (b) (i) and (ii) cannot be made unless the
scheme relating to it is finally approved.

The budget estimates prepared by the ministries/departments according to budget and accounts
classification are scrutinised by the Financial Advisors concerned. The plan items of the
Central Budget are finalised in consultation with the Planning Commission and are based on
the Annual Plan.

2.Parliamentary Approval/Enactment of Budget:

The estimates of expenditure prepared by ministries/departments are transmitted to the

Ministry of Finance by December where these are scrutinised, modified where necessary and
consolidated. The estimates of revenue are also prepared by the Finance Ministry and thus the
budget is finalised. The budget is presented to the Parliament generally on the last working day
of February. In the first stage, there is a general discussion on the broad economic and fiscal
policies of the government as reflected in the budget and the Finance Minister's speech. This
lasts about 20-25hours.

In the second stage, there is a detailed discussion on the demands for grants, usually in respect
of specific ministries or departments. Each demand for grant is voted separately. At this stage
members of parliament may move motions of various kinds. Generally these are policy cuts,
economy cuts, and token cuts. The policy cut motion seeks to reduce the demand to rupee
one and is indicative of the disapproval of general or specific policy underlying the service to
which the demand pertains. The motion for economy cut is to reduce the proposed expenditure
by a specified amount. A token cut in a demand is moved to reduce it by a nominal amount
say Rs. 100 and may be used as an occasion to ventilate a specific grievance. Since it is never
possible to accommodate a detailed discussion on each demand for grant separately, the
demands that cannot be so discussed are clubbed together and put to the vote of the Parliament
at the end of the period allotted for discussion.

Though the budget is presented before both Houses of Parliament, the demands for grants are
submitted only to the lower house. Demands for grants, are the executive's requisitions for
sanction to spend, and only the lower house can have a say in the matter. While the legislature
can object to a demand for grant, reject it or reduce it, it cannot increase the same. It may also
be mentioned here that since no demand for a grant can be made except on the
recommendations of the President or the Governor (in the case of State), private members
cannot propose any fresh items of expenditure. If this were allowed it would necessitate
revision of receipts and consequently, the budget and sometimes may lead to improper
appropriation of public funds.

Even after the demands for grants have been voted by the Parliament, the executive cannot
draw the money and spend it. According to the Constitutional provisions, after the demands
for grants are voted by the Lok Sabha, Parliament's approval to the withdrawal from the
Consolidated Fund of the amount so voted and of the amount required to meet the expenditure
charged on the Consolidated Fund ,is sought through the Appropriation Bill. The
Appropriation Bill after it receives the assent of the President becomes the Appropriation Act.
Thus, without the enactment of an Appropriation Act, no amount can be withdrawn from the
Consolidated Fund.

Since the financial year of the government is from 1st April to 31st March, it follows that no
expenditure can be incurred by the government after 31st March unless the Appropriation Act
has been passed by the close of the financial year. This is generally not possible as the process
of discussion of the budget usually goes on up to the end of April or the first week of May.
Thus, in order to enable the government to carry on its normal activities from 1st April till such
time as the Appropriation Bill is enacted, a Vote on Account is obtained from Parliament
through an Appropriation (Vote on Account) Bill.

The proposals of government for levy of new taxes, modification of the existing tax structure
or continuance of the existing tax structure beyond the period approved by Parliament are
submitted to Parliament through the Finance Bill. The members can utilise the occasion of
discussion on the Finance Bill to criticise government policies, more specifically the proposals
regarding the taxation and tax laws. In certain cases, taxation proposals take effect
immediately. Since, however, passing of the Finance Bill may entail a time lag, a mechanism
under which the taxation proposals take effect immediately pending the passing of the Finance
Bill exists in the form of Provisional Collection of Tax Act, 1931, which empowers the
government to collect taxes for a period of 75 days till the Finance Bill is passed and comes
into effect.

The budget of the Central Government is not merely a statement of receipts and expenditure.
Since Independence, with the launching of five year plans, it has also become a significant
statement of government policy. The budget reflects and shapes, and is in turn shaped by, the
country's economic life. A background of the economic trends in the country during the current
year enables a better appreciation of the mobilisation of resources and their allocation as
reflected in the budget. A document, Economic Survey, is prepared by the government and
circulated to the members of Parliament a couple of days before the budget is presented. The
Survey analyses the trends in agricultural and industrial production, money supply, prices,
imports and exports and other relevant economic factors having a bearing on the budget.

3. Execution of the Budget:

The execution of the budget is the responsibility of the executive government. The procedures
for execution of the budget depend on the distribution and delegation of powers to the various
operating levels. As soon as the Appropriation Act is passed, the Ministry of Finance advises
spending Ministries/ Departments about their respective allocation of funds. The controlling
officers in each ministry/department then allocate and advise the various disbursing officers.
The expenditure is monitored to ensure that the amounts placed at the disposal of the spending
authorities are not exceeded without additional funds being obtained in time.

Thus the financial system broadly consists of the following levels :

a) controlling officers; normally the head of the ministry/department acts as the

controlling officer;

b) a system of competent authorities who issue financial sanction;

c) a system of drawing and disbursing officers; and

d) a system of payments, receipts and accounts

.
The Department of Revenue in the Ministry of Finance is in overall control and supervision
over the machinery charged with the collection of direct and indirect taxes. Such control is
exercised through the Central Board of Direct Taxes and the Central Board of Indirect Taxes.
These Boards exercise supervision and control over the various operational levels which
implement different taxation laws. The Reserve Bank of India is the central banker of the
government. The nationalised banks and the network of treasuries are also performing the
service of collection (receipts) and disbursement of funds.

4. Accounting:
Accounting means keeping a systematic record of financial transactions. A good accounting
system is indispensable for adequate budgetary control. It is only through systematic accounts
supported by vouchers and receipts that the legality and honesty of the transactions as also the
fidelity of the officers handling the funds can be determined.

It is through accounts only that it can be ascertained whether provisions of the budget as voted
by the legislature have been properly implemented or not, i.e., how much has been spent and
for what purpose and whether within the budgetary limits or not.

Accounts furnish the valuable information needed regarding financial conditions and
operations for policy determining and programme making. The early and accurate accounting
reports are necessary in order to direct the course of work and future expenditures. They also
provide the essential record to demonstrate the appropriate and legal use of funds making
certain that each sub-division of an organisation is actually using money for the purpose for
which it was appropriated.

The accounts and the supporting financial documents provide the evidence on the basis of
which spending officer justifies his expenditure either to finance Director or to the auditor.

5. Audit:

The last stage in the execution of the budget is audit. The term, audit, has been defined as “the
process of ascertaining whether the administration has spent or is spending its funds in
accordance with the terms of the legislative instrument which appropriated the money” It is a
means of enforcing accountability. Therefore ,the executive spends public funds as authorised
by the legislature. In order to ensure accountability of the executive to the legislature, public
expenditure has to be audited by an independent agency. The Constitution provides for the
position of the Comptroller and Auditor General of India to perform this function. It is his/ her
duty to ensure that the funds allocated to various agencies of the government have been made
available in accordance with law; that the expenditure incurred has the sanction of the
competent authority; that rules, orders and procedures governing such expenditure have been
duly observed; that value for money spent has been obtained and that records of all such
transactions are maintained, compiled and submitted to the competent authority. This is the last
stage in completing the budgetary cycle.

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