Budget - Why & How

Aisha (Finance Professional) (8099 Points)

28 February 2008

Budget - Why & How

Why Budget

To function effectively and discharge all its duties and obligations, every government needs resources. Through the budgetary process, the Indian Parliament authorizes the government of the day to collect funds by way of taxes, duties, cess, borrowings and so on. The funds so collected by the government are used, with the approval of Parliament, to meet its expenditure.

The President of India is obliged constitutionally to have the Annual Financial Statement for the ensuing financial year laid on the table of the House under Article 112. But, according to Article 77(3), the Finance Minister has been made responsible to prepare the Annual Financial Statement and pilot it through Parliament. This Annual Financial Statement is called the budget.

THE TEAM

The Finance Minister prepares the Union Budget and budgets of those states under President's Rule. Though the ministry of finance has overall responsibility of framing the budget other organs of the state are also involved in budget-making. These include:

The Planning Commission:

Planning Commission sets overall targets for the ministries.

The Comptroller and Auditor General (C & AG)

C & AG keeps on check on accounts

Administrative Ministries:

Finance Minister has to consult the administrative ministries for their requirements and to incorporate plan priorities.

THE FINANCE MINISTRY

In common usage, the budget is referred to as being the Finance Minister's speech and the documents tabled on the day of the budget. The actual process, however, starts much earlier and continues even after the budget is presented to Parliament. Each department in the finance ministry is charged with a particular responsibility.

Expenditure

Department of Expenditure

Revenue

Non-tax – Department of Economic Affairs
Tax- Department of Revenue

Deficit

Department of Economic Affairs

THE PROCESS

The budget exercise kicks off in September every year with the issue of a budget circular by the Budget Division of the Department of Economic Affairs (DoE) to all Union Ministries, all states and UTs, autonomous bodies and departments and the three arms of the defence forces for preparing revised estimates for the current financial year and the budget estimate for the next financial year.

The circular for 2008-09 budget was issued on September, 2007. It contained guidance to ministries/departments for framing the Revised Estimates for 2007-2008 and Budget Estimates for 2008-2009

DUE DATES

Due dates for rendition of estimates for 2008-2009 budget by ministries/departments to Budget Division of Department of Economic Affairs are:

October 26 2007	Interest receipts/ recoveries of loans
October 26 2007	Capital receipts (including public account transactions)
October 31 2007	Statement of (proposed) Budget Estimates (S B E)
November 30 2007	Revenue Receipts
Immediately after ceilings are communicated	Statement of Budget Estimates (final)
Within 3 days of receipt of plan allocation from planning commission	SBE with BE 2008-2009 (plan)
Within 3 days of rendition of SBE (Final) for Plan Expenditure 2008-2009	Notes on Demands for Expenditure Vol.2 Material for statement to be appended to Demands for Grants/Expenditure Budget.

CONSULTATIONS

Ø Administrative Ministries:

o After the line ministries submit relevant documents, pre-budget meetings begin. These involve extensive consultations between line ministries and the Department of Expenditure.

Ø Interest Groups:

o Meanwhile the Department of Economic Affairs and Department of Revenue engage with stakeholders such as farmers, labour unions, business, FIIs, economists and civil society groups.

Ø State Governments:

o Demands to the state governments are sent to the concerned finance ministry departments for evaluation.

Ø Internal Assessment

o The Finance Ministry also undertakes an intense internal assessment

§ Spending Priority

· Department of Economic Affairs

§ Revenue Mobilisation

· Department of Revenue

§ Aligning with policy goals

· Department of Economic Affairs

Ø Once the pre-budget meetings are over, the approved ceiling for expenditure, as finalized in these meetings, is communicated. It includes internal ceilings of revenue and capital expenditure. Based on these limits, each ministry/department will prepare a final statement on budget estimates (SBE) and send to the budget division.

Ø The Revenue department goes through all the demands and works out their revenue implications. A final call on the tax proposal is taken by the Finance Minister. The proposals are discussed with the Prime Minister before a final decision is taken.

Ø Budget Division then gets on with the task of preparing the budget documents. These are 13+ core documents.

THE SECRET WORLD OF THE FINANCE MINISTER

The entire process of collating data and preparation of the text of the budget documents is done by a few selected officials and stenographers working on computers which are de-linked from all networks, including NIC hot link.

Intelligence Bureau sleuths monitor every moment, phone calls and the security of all officials involved with the budget preparation and production.

Use of cell phones is monitored and jammed in some areas. All electronic storage devices are out of bounds.

PRINTING OF THE BUDGET DOCUMENTS

Finance Ministry hands over the CD containing print-ready templates of all budget documents for printing around February 24.

The Union Budget is printed at the special printing press in the basement of the North Block of the Central Secretariat in New Delhi.

QUARANTINE

All officials, technicians and workers involved with the printing are quarantined they have to sleep in North Block.
The legal experts on taxation from the law ministry who check the text and wordings of the Tax Acts are also quarantined.
The press information bureau officials who prepare press notes in English, Hindi and Urdu on the budget too are quarantined.
All quarantined officials walk out of the North Block only after the budget has been tabled in the FM in the Lok Sabha.
The Cabinet gets to see the budget summary only 10 minutes before Parliament assembles for the budget session.

HOW THE BUDGET IS PASSED

ü The Budget is presented to parliament on a date fixed by the President. By convention, since 1999, it is being presented at 11 A.M. on the last working day of February.

ü The budget session of Parliament opens with the address by the President.

PRESENTATION

ü Finance minister presents the Budget in the Lok Sabha.

ü The Budget speech of the FM has two parts.

o Part A details with general economic survey of the country and policy statement

o Part B contains tax proposals.

ü "Annual Financial Statement" is laid on the Table of Rajya Sabha after the FM's speech.

DISCUSSION

ü No discussion follows immediately after the budget is presented.

ü Few days later the Lok Sabha discusses the Budget as a whole and not the details for 2 to 3 days.

ü The FM makes a reply at the end of the discussion.

ü A "Vote on Account" for expenditure for the next two months of ensuing financial year is obtained from Parliament

ü The House is adjourned for a fixed period.

ü During this period, the Demands for Grants of various ministries/departments including Railways are considered by relevant standing committees.

VOTE

v Standing Committee reports are presented to the House. It discusses and votes on demands for grants, ministry-wise.

v The speaker puts all the outstanding Demands to the vote of the House. This device is known as the "quillotine". The Lok Sabha has the power to assent to or refuse any demand or even to reduce the amount of grant sought by the government.

v In the Rajya Sabha, there is only a general discussion on the Budget. It does not vote on the Demands for Grants.

v After the General Discussion on the Budget proposals and voting on Demands for Grants have been completed, government introduces the Appropriation Bill. The Appropriation Bill is intended to give authority to the government to incur expenditure from and out of the Consolidated Fund of India.

TAX PROPOSALS

The Finance Bill seeking to give effect to the government's taxation proposals, which is introduced in the Lok Sabha immediately after the presentation of the Budget, is taken up for consideration after the Appropriation Bill is passed. However, certain provisions in the Bill relating to levy and collection of fresh duties or variations in the existing duties come into effect immediately on the day of the Bill is introduced by the virtue of a declaration under the Provisional Collection of Taxes Act. Indirect tax proposals come into force as soon as they are announced; direct tax proposals await

approval by the Parliament. Parliament has to pass the Finance Bill within 75 days of its introduction.

DOCUMENTS

Finance Minister tables the following documents in the Lok Sabha

1. Key to Budget.

2. Budget Highlights

3. Budget Speech

4. Budget at a Glance

5. Finance Bill

6. Memorandum

7. Receipt Budget

8. Expenditure Budget

9. Customs and Central Excise