The budgetary procedure in India involves four different operations that are
- Preparation of the budget
- Enactment of the budget
- Execution of the budget
- Parliamentary control over finance
Preparation of the budget
The exercise of the preparation of the budget by the ministry of finance starts sometimes around in the month of September every year. There is a budget Division of the Department of Economic affair of the ministry of finance for this purpose.
The ministry of finance compiles and coordinates the estimates of the expenditure of different ministers and departments and prepare an estimate or a plan outlay.
Estimates of plan outlay are scrutinized by the Planning Commission. The budget proposals of finance ministers are examined by the finance ministry who has the power of making changes in them with the consultation of the prime minister.
Enactment of the budget
Once the budget is prepared, it goes to the parliament for enactment and legislation. The budget has to pass through the following stages:
- The finance minister presents the budget in the Lok Sabha. He makes his budget in the Lok Sabha. Simultaneously, the copy of the budget is laid on the table of the Rajya Sabha. Printed copies of the budget are distributed among the members of the parliament to go through the details of the budgetary provisions.
- The finance bill is presented to the parliament immediately after the presentation of the budget. Finance Bill relates to the proposals regarding the imposition of new taxes, modification on the existing taxes or the abolition of the old taxes.
- The proposals on revenue and expenditure are discussed in the Parliament. Members of the Parliament actively take part in the discussion.
- Demands for grants are presented to the Parliament along with the budget These demands for grants show that the estimates of the expenditure for various departments and they need to be voted by the Parliament.
- After the demands for grants are voted by the parliament, the Appropriation Bill is introduced, considered and passed by the appropriation of the Parliament. It provides the legal authority for withdrawal of funds of what is known as the Consolidated Fund of India.
- After the passing of the appropriation bill, finance bill is discussed and passed. At this stage, the members of the parliament can suggest and make some amendments which the finance minister can approve or reject.
- Appropriation bill and Finance bill are sent to Rajya Sabha. The Rajya Sabha is required to send back these bills to the Lok Sabha within fourteen days with or without amendments. However, Lok Sabha may or may not accept the bill.
- Finance Bill is sent to the President for his assent. The bill becomes the statue after presidents’ sign. The president does not have the power to reject the bill.
Execution of the budget
- Once the finance and appropriation bill is passed, execution of the budget starts. The executive department gets a green signal to collect the revenue and start spending money on approved schemes.
- Revenue Department of the ministry of finance is entrusted with the responsibility of collection of revenue. Various ministries are authorized to draw the necessary amounts and spend them.
- For this purpose, the Secretary of minister’s acts as the chief accounting authority.
- The accounts of the various ministers are prepared as per the laid down procedures in this regard. These accounts are audited by the Comptroller and Auditor General of India.
Parliament Control over Finance
- There is a prescribed procedure by which the Finance Bill and the Appropriation Bill are presented, debated and passed.
- The Parliament being sovereign gives grants to the executive, which makes demands. These demands can be of varieties like the demands for grants, supplementary grants, additional grants, etc.
- The estimates of expenditure, other than those specified for the Consolidated Fund of India, are presented to the Lok Sabha in the form of demands for grants.
- The Lok Sabha has the power to assent to or to reject, any demand, or to assent to any demand, subject to a reduction of the amount specified. After the conclusion of the general debate on the budget, the demands for grants of various ministries are presented to the Lok Sabha.
- Formerly, all demands were introduced by the finance minister; but, now, they are formally introduced by the ministers of the concerned departments. These demands are not presented to the Rajya Sabha, though a general debate on the budget takes place there too.
- The Constitution provides that the Parliament may make a grant for meeting an unexpected demand upon the nation’s resources, when, on account of the magnitude or the indefinite character of the service, the demand cannot be stated with the details ordinarily given in the annual financial statement.
- An Appropriation Act is again essential for passing such a grant. It is intended to meet specific purposes, such as for meeting war needs.
Merging Railway budget into Union budget – Pros and Cons
After 92 years of seeing them separately, the year 2017 witnessed the Railway budget being merged into Union budget. This move is being lauded for it will be beneficial for the economy at large and there will be positive influence in the development in railways.
During the British reign, having a separate Railway budget made sense because a larger part of the country’s GDP depended on railway revenue. The tradition of having the budgets separately continued when India gained freedom even though the revenue from railway continued to go lower than most of the organizations in the public and private sector.
1. The scores: During the British rule Railways took up to 85 percent of the yearly budget while now it has gone down to about 15 percent only. Having separate railway budget stopped making sense long ago but the old tradition was not done away with. Scrapping the old for the renewed and better is always a positive change to look upon.
2. Better policies: Now that the Railway budget will be introduced along with the union budget, there will be less wastage of time when a new policy is to be initiated and implemented. Keeping them separate resulted in a lot of drawbacks and hindrances that had to be faced by the railway ministry before it could decide upon a solution.
3. Party politics: Minority parties fighting to meet their intentions and ministers of certain states arguing new railways and trains for their region has always been known to result in an everlasting brawl. There will be less of political pressure on the Railway budget and the centre will have the ultimate hold of the decision making.
4. Goodbye to annual dividend: When Rail budget had to be introduced separately, the railways needed to pay an annual dividend to render its budgetary support to the government. The railways will be free of this now and the same fund could now be used in better ways for development the conditions of Indian railways.
5. The huge loss: Our railways are running on loss. There are lesser funds for development plans and most of them are wasted in wrongful manner when there emerges a demand from the regional MLA who promised new trains and stoppages for their location during the time of election. When it goes into the hands of finance ministry, it would mean and absolute end to this and a more commercialized distribution of resources.
1. The rise and fall: Henceforth, the distribution and allocation of funds to various departments will all go under the finance ministry, which will take decisions according to rise and fall of budget. A fall in the annual budget will mean a similar cut in the railway and other budgets. This will be something unusual for the railways and they might not react supportively to that.
2. Conditions of government departments: The depleting conditions of the various departments under the government have always been prominent. There is lesser attention paid to the responsibilities and everyone is busy sorting out their own means. Railways might see drastic disadvantage if the merging doesn’t reap the desired result.
3. Goodbye to privatization: There have previously been talks of privatization of Indian railways in order to improve and develop them with world class facilities and cleanliness. It was not well received earlier and after the merging, there will a complete end to any future chances of privatization. At the efficient hands of government employees, nothing big could be expected.
4. Loss for the railways: We know how much our parties love making promises and then reducing price to earn the favor of the voters. Not in their wildest dreams would they want to hike the railway prices and lose the vote bank that flows from commuters. Lesser hikes in price might pose loss for the railways department.
There have been mismanagement of the highest order in Indian railways and if there are chances of seeing it improve, merging it with the Union budget is just the solution that could help. The falling revenue and more projects for new trains and stoppages have been a difficult project for the railway ministry which took the right step by merging the two budgets.
The objective behind this move is to have the Budget constitutionally approved by Parliament and assented to by the President, and all allocations at different tiers disseminated to budget-holders, before the financial year begins on April 1.
- The proposal for a change in the budget presentation date was first mooted by some of the government’s senior most bureaucrats as part of a ‘Transforming India’ initiative in January 2016.
Presenting the budget earlier comes with both advantages and disadvantages.
- In the existing system, the Lok Sabha passes a vote on account for the April-June quarter, under which departments are provided a sixth of their total allocation for the year. This is done by March. The Finance Bill is not passed before late April or early May. If the Budget is read in January and passed by February-March, it would enable the government to do away with a vote on account for the first three months of a financial year.
- Retired and serving officials say the biggest plus would be that the Finance Bill, incorporating the Budget proposals, could be passed by February or March. So, government departments, agencies and state-owned companies would know their allocations right from April 1, when the financial year begins.
- It would also help the private sector to anticipate government procurement trends and evolve their business plans. And, civil society could deliberate on and give feedback in time for the parliamentary discussions.
- One big disadvantage of advancing the Budget preparations is lack of comprehensive revenue and expenditure data. Currently, work on the Budget begins in earnest by December. By the time it is finalised in mid-February, data on revenue collections and expenditure trends is available for the first nine months of the financial year, i.e April-December. Based on which, projections for the full year can be made.
- To read the Budget in January, the centre will have to start preparing it by early October. To go by less than six months of data and making projections for the full year and the next year, based on such an incomplete picture, will be an impossible task.
- Advancing the Budget dates would be fraught with practical difficulties. Effective Budget planning also depends on the monsoon forecasts for the coming year, making the advancing the whole exercise even more difficult.
- Besides, whether the chambers of Parliament and its standing committees will get adequate time to deliberate on the budget is a moot point. The standing committees of Parliament, whose charter is to examine the justification of the ministry-wise allocations and funding needs of concomitant programmes included in the Budget, undertake their scrutiny during a two to three-week gap within the budget session period, when the houses are adjourned. This scrutiny is an essential element in the parliamentary budget approval system.
Advancing the presentation of the Budget, so as to allow Parliament to vote on tax and spending proposals before the beginning of the new financial year on April 1, is a good idea. It would do away with the need for a vote on account and allow new direct tax measures to have a full year’s play. Members of Parliament now will have to work hard over two months to vet Budget proposals, for this to work.
These reforms make sense, but Budget reform has to go further, to incorporate a multi-year time horizon and shift to outcome-linked expenditure management, as had been recommended by a committee headed by C Rangarajan in 2011.
Doctoral Scholar in Economics & Senior Research Fellow, CDS, Jawaharlal Nehru University