INTRODUCTION TO BUDGET

1
INTRODUCTION TO BUDGET
2
LEARNING OBJECTIVES

• Constitutional mandate
• Process of Budgetary Control
• Budget Documents
• FRBM Act

3
Constitutional Mandate

• (i) Article 112
• (ii) Article 113
• (iii) Article 114
• (iv) Article 115
• (v) Article 116

4
Article 112
Annual 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--

• Charged and Voted Expenditure
• Revenue and Capital Expenditure

5
Article 112 (contd.)
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

6
Revenue 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

7
Capital 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 -Expenditu
re on concrete asset of a material and permanent
character
8
Article 113
Procedure in Parliament with respect to Estimates
Charged Expenditures--
-Shall not be submitted to vote of
Parliament -Nothing prevents discussion of
estimates in either House
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
9
Article 114
Appropriation 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

10
Article 115
Supplementary, 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
11
Article 116
Votes on account, votes of credit and exceptional
grant

• Votes 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.
12
Process of Budgetary Control
(i) Preparation
(ii) Enactment
(iii) Execution
(iv) Parliamentary Control
Exercise No. 1
13
Preparation
Submission of estimates by estimating auth.
Scrutiny of estimates of HOD
Consolidation of grants for all Min. by FD
14
Budget 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

15
Annual Financial Statement
AFS
Statements
CFI
PA
CoFI
Rev
Cap
Rec.
Dis.
Rec.
Dis.
Charged
Voted
16
AFS (Contd.)
What the Statements consist of?
Amount (in crore Rupees)
Major Head Actuals 2009-10 BE 2010-11 RE 2010-11 BE 2011-12
Parliament
Elections
Audit
17
Receipt 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

18
Expenditure Budget
Expenditure 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.
19
Demands 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

20
Detailed 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.

21
Finance Bill

• Proposal for levy of --
• New taxes
• Modification of existing tax structure
• Continuance of the existing tax structure

22
Appropriation Bill

• In pursuance of Article 114
• Withdrawal from Consolidated Fund amounts voted
  and amounts required to meet charged expenditure

23
Budget at a Glance

• In brief--
• Receipts and Disbursements
• Broad break up of Plan and Non Plan allocations
• Revenue Deficit, Fiscal Deficit, Primary Deficit

24
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.

25
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.