INTRODUCTION TO BUDGET

Prepared byGOPAKUMAR V SDeputy Director

CENTRE FOR TRAINING IN FINANCIAL MANAGEMENT

Constitutional Provisions

• Article 202 - makes it mandatory that the Annual Financial Statement, ie., the estimated receipts and expenditure of the State, to be placed before the Legislature for each Financial Year.

• Article 203 - Exempts ‘charged’ expenditure on the Consolidated Fund from the vote of the Legislature

• Article 204 - Stipulates that no money shall be withdrawn from the Consolidated Fund of the State except under appropriation made by law.

• Article 205 - Requires vote of the Legislature to incur supplementary or additional expenditure upon some ‘new service’ not contemplated in the budget for the year.

• Article 206(1) - allows to grant an advance to the Executive to meet expenditure for a part of the new financial year by way of ‘Vote on Account’, before the passing of the full budget.

Finance Secretariat prepares the Annual Financial Statement, commonly known as the Budget. The State Budget, which give the detailed statement regarding

the revenue and expenditure mainly comprises of the following documents.

• Budget Speech (delivered by the Finance Minister in the Legislative while presenting the Budget)

• Annual Financial Statement• Vote on Account• Detailed Budget Estimate - Volume I, II and III• Budget in Brief (Budget at a glance)• Budget Provision to Panchayati Raj / Nagarpalika Institutions (Appendix IV)• Works Budget – Volume I• Works Budget – Volume II• Details of Staff – Appendix I• Five Year Plan – Statements and Brief Descriptions of Programmes (Plan Write-up)• Detailed Budget Estimate of Revenue• Detailed estimate of Receipts and Disbursements under Debt Head• Explanatory Memorandum• Medium Term Fiscal Policy & Strategy Statement with Medium Term Fiscal Plan for Kerala

The budgetary cycle comprises of four stages

• Preparation of budget• Passing of the budget • Execution of the budget• Review of the budget

Preparation of Budget

• The Heads of Departments collects the requirements from their line offices and consolidates them. It is then moulded as the budget proposal of the department and forwards it to the respective Administrative Department in the Secretariat.

• The finalisation of budget of figures is made in Finance Department taking into account of each departments’ past years’ actual income and expenditure, the inputs from their respective Administrative Departments, Government policies regarding new projects and most importantly the availability of funds. Discussions will be held with heads of major departments by the Finance Secretary before finalising figures.

Presentation and Passing of Budget

• Presentation of Budget by Minister (Finance)• Presentation of Finance Bill• Discussion by the Legislature• Scrutiny by Subject Committees• Submission of explanation by Departments• Final discussion by the Legislature• Passing of Budget• Passing of Appropriation Bill

Appropriation Bill

Once the budget proposals are voted and passed by the Assembly, the Appropriation Bill is introduced and passed by the Assembly. The expenditure can be effected only after the Appropriation Bill comes into force (the Appropriation Act). Appropriation Act is the sole authority for withdrawal of funds from the Consolidated Fund.

Finance Bill

• Finance Bill is introduced along with the budget. This bill contains the various tax proposals for the coming financial year. Unlike the Appropriation Act, the proposals of the Finance Bill come to effect from the 1st April itself. This means that mere introduction of the Finance Bill is sufficient and the passing can wait, unlike the Appropriation Bill which should invariably be passed before the expenditure is effected.

Execution of Budget

• Once the Appropriation Bill is passed and the Appropriation Act comes into force, the budget is ready for execution. The Controlling Officers are able to make expenditure in their respective head of accounts. The Controlling Officers allots funds to their subordinate Drawing and Disbursing Officers. When there is shortage of funds, the same will be managed through procedures like re-appropriation, additional authorization, through supplementary demand for grants etc.

Review of Budget Utilisation

• Internal Audit Wings• Audit by C & AG / Accountant General• Concurrent scrutiny by Estimates

Committee• Final review by Public Accounts

Committee

Appropriation Control by Finance Department

• Finance Department has special responsibility of control over appropriation.

• Three devices employed by Finance Department for Appropriation Control are

• 1. Re-appropriation• 2. Supplementary Grant• 3. Resumption

Re-appropriation

• Re-appropriation is the transfer of funds from one unit of Appropriation to another.

• Re-appropriation is allowed subject to general policy and availability of funds

• Re-appropriation is prohibited between • 1. Voted and Charged Provisions• 2. Capital and Revenue Heads• 3. Between two Grants / Demands

Supplementary Demand for Grants

• Supplementary Grant means funds sanctioned by the Legislature over and above the amount already authorised during a financial year or to meet expenditure on some ‘New Service’.

Resumption

• Resumption is the formal surrender of unexpended funds by the Controlling Officers

• Resumption denotes formal acceptance of the savings by Finance Department

• Formal proposals for Resumption should reach Finance Department by the 25th February of every Financial Year

Excess Grants

• Despite regulations, checks etc, excess expenditure continues to be incurred especially on salaries, pension, wages etc, which are exempted from Appropriation Control. This is regularised by moving Demands for Excess Grants under the recommendation by PAC. The AG informs the Government of the excess both under Voted and Charged heads after finalising Appropriation Accounts.

• Finance Department, on the recommendation by PAC, will move for Demands for Excess Grants to regularise expenditure incurred in excess of budget provision

New Service

• Article 204 of the Constitution of India clearly says that no money can be withdrawn fro the Consolidated Fund of the State, except under Appropriation made by Law. Thus, implementation of projects not included in the Budget cannot be carried out.

• Article 205 allows to move for creation of a new head of account for meeting such expenditure and this procedure is called ‘New Service Procedure’

Contingency Fund

• For meeting expenditure of unforeseen and emergency nature, the Contingency Fund is used. The executive can seek advances from this fund, which is placed at the disposal of the Governor.

• Every advance from this fund needs to be recouped in the very next SDG moved after sanctioning of the advance.

• The mechanism of Contingency Fund, while fully taking care of the Administrative exigencies in no way dilutes the authority of the Legislature as its expost-facto approval is required.

Contingency Fund : 8000Public Account : 8001 to 8999(Small Savings, Provident Fund, Reserve Fund, Receipts

and Advances, Remittances, Suspense and miscellaneous)

REVENUE CAPITAL EXPENDITURE DEBT

Revenue Receipts0020 to

1999

Revenue Expenditu

re2011 to

3999

Public Debt

6001 to 6010

Loans & Advances etc6011 to 7999

CONSOLIDATED FUND

TYPES OF ACCOUNTS

4011 to 5999