INTRODUCTION TO INTRODUCTION TO BUDGETBUDGET

LEARNING OBJECTIVESLEARNING OBJECTIVES

• Constitutional mandate

• Process of Budgetary Control

• Budget Documents

• FRBM Act

Constitutional MandateConstitutional Mandate

• (i) Article 112

• (ii) Article 113

• (iii) Article 114

• (iv) Article 115

• (v) Article 116

Article 112Article 112Annual Financial StatementAnnual Financial Statement

-President-Every financial year (1st April to 31st March)-Both Houses of Parliament-Statement of estimated receipts and Expenditure of GOI

What estimate of expenditure consists of:--What estimate of expenditure consists of:--

-Charged and Voted Expenditure - Revenue and Capital Expenditure

Article 112 (contd.)Article 112 (contd.)

What are Charged Expenditure?What are Charged Expenditure?-Emoluments and allowances of President and his office-Salaries and allowances of Chairman/Deputy Chairman, Speaker/Deputy Speaker-Interest payment-Salaries, allowances and pensions of Judges of Supreme Court-Pensions payable to Judges of High Court-Administrative expenses of the office of CAG, including salaries,Allowances and pension payable to CAG

Revenue ExpenditureRevenue Expenditure

-Expenditure for normal running of Government dept. and various services-Interest Charges on Debt, Subsidies-Does not result in creation of asset-All grants given to State Governments even though some of which may be for asset creation

Capital ExpenditureCapital Expenditure

-Expenditure on acquisition of assets like land, buildings, machinery, equipment, investment in shares-Loans and advances granted by Central Government to State and Union Territory-Expenditure on concrete asset of a material and permanent character

Article 113Article 113Procedure in Parliament with respect to Procedure in Parliament with respect to EstimatesEstimates

Charged Expenditures:--Charged Expenditures:--

-Shall not be submitted to vote of Parliament-Nothing prevents discussion of estimates in either House

Voted Expenditures:-- Voted Expenditures:--

-Submitted in the form of Demands for Grants to Lok Sabha-LS have power to assent, refuse, reduce the amount- No demand except on recommendation of President

Article 114Article 114

Appropriation BillsAppropriation Bills

-Bill for appropriation out of CFI moneys required to meet voted grants and expenditure charged on CFI-No amendment either varying the amount or altering destination once the bill is passed.-No money shall be drawn from CFI except appropriation made by law passed in accordance with provisions of this article

Article 115Article 115

Supplementary, additional, excess grantsSupplementary, additional, excess grants

-If the amount for a particular service is insufficient-Additional expenditure on a new service not contemplated-Money spent in excess of amount granted for that service

Article 116Article 116Votes on account, votes of credit and exceptional grantVotes on account, votes of credit and exceptional grantVotes on account:---An advance in respect of estimated expenditure-For a part of any financial year-Pending the completion of procedure prescribed in Article 113 and 114.

Votes of credit:---Meet unexpected demand on account of magnitude or indefinite character which cannot be given in AFS.

Exceptional grant:---Exceptional grant which forms no part of the current service of any financial year.

Process of Budgetary ControlProcess of Budgetary Control

(i) Preparation

(ii) Enactment

(iii) Execution

(iv) Parliamentary ControlExercise No. 1

PreparationPreparationSubmission of estimates by estimating auth.

Scrutiny of estimates of HOD

Consolidation of grants for all Min. by FD

Budget DocumentsBudget Documents• (i) Budget speech – Finance Minister• (ii) Annual Financial Statement• (iii) Receipt Budget• (iv) Expenditure Budget• (v) Demands for Grants• (vi) Detailed Demands for Grant• (vii) Finance Bill• (viii) Appropriation Bill• (ix) Budget at a Glance

Annual Financial StatementAnnual Financial StatementAFSAFS

CFI PACoFI

Rev Cap

Rec. Dis.

Voted Charged

Rec. Dis.

Statements

AFS (Contd.)AFS (Contd.)

Major Head

Actuals

2009-10

BE

2010-11

RE

2010-11

BE

2011-12

Parliament

Elections

Audit

What the Statements consist of?What the Statements consist of? Amount (in crore Rupees)

Receipt BudgetReceipt Budget

• Details of Revenue and Capital receipts with explanations

• Trend of receipts over years• Details of external assistance• Eg. :-- Corporation Tax:--

– (a) Ordinary collection– (b) Advance tax collection– (c) Surcharge– (d) Miscellaneous receipts

Expenditure BudgetExpenditure BudgetExpenditure Budget Volume-I:--

-Revenue and Capital disbursement of Ministries-Gives break up of Plan and Non-Plan exp.-Analysis of various types of expenditure

Expenditure Budget Volume-II:--

-Provisions for a scheme or programme- Break up of Plan and Non Plan exp.

Demands for GrantsDemands for Grants

• In pursuance of article 113

• One demand for grant in respect of each Ministry or Department. Large Min. more than one demand

• Provisions on account of Revenue and Capital, Charged and Voted, Plan and Non Plan

Detailed Demands for GrantsDetailed Demands for Grants

• Tabled after presentation of budget before discussion of demands for grants commences

• Details of provisions

• Break up of estimates of programmes under number of objects of expenditure like salaries, wages, etc.

Finance BillFinance Bill

Proposal for levy of :--

• New taxes

• Modification of existing tax structure

• Continuance of the existing tax structure

Appropriation BillAppropriation Bill

• In pursuance of Article 114

• Withdrawal from Consolidated Fund amounts voted and amounts required to meet charged expenditure

Budget at a GlanceBudget at a Glance

In brief:--Receipts and DisbursementsBroad break up of Plan and Non Plan

allocations

Revenue Deficit, Fiscal Deficit, Primary Deficit

Fiscal Responsibility and Budget Management Act

• What is FRBM Act?– FRBM Act was enacted by Parliament in 2003 to bring

fiscal discipline.– FRBM rules framed in July 2004

• How will it help in redeeming the fiscal situation?– FRBM rules impose limits on Fiscal and revenue deficit– Revenue Deficit should be reduced to nil in five years

beginning 2004-05. Each year reduce by 0.5% of GDP.– Fiscal Deficit to be reduced to 3% of GDP by 2008-09.

Reduction of fiscal deficit by 0.3% of GDP every year.

Fiscal Responsibility and Budget Management Act

• How are these targets monitored?– Rules have mid-year targets for fiscal and

revenue deficits– Govt. to restrict fiscal and revenue deficit to

45% of budget estimates at the end of September.

– In case of breach FM will be required to explain to Parliament the reasons for the same.