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Government Budgeting

Process of the Balanced Budget Formation: constitutional provisions, department of financial affairs, different statements in the budget, and different types of budget.

Introduction

Budget(article 112)-

  1. Government budgeting is an annual financial statement of income (receipts)  and spending (expenditure) of the government for a particular financial year.
  2. The financial year starts from 1st April and ends on 31st March.
  3. The government budget is a quantitative expression of a plan of action for a specific time span, as well as a tool for planning, execution, and evaluation of the plan of action. 
  4. It is also a method for determining the most efficient use of a country’s total resources. Budget can be made for an individual, a group of people, a business, a government, or just about anything else that generates and spends money. 
  5. Government budgeting is an essential element in the planning and analysing all the financial matters of a nation. 
  6. The Union Budget of a year is referred to as the Annual Financial Statement (AFS) under Article 112 of the Indian Constitution. It is the government’s projected budget revenues and expenditures for a given fiscal year.
  7. The government budget gets approvals through a consultative process involving the Ministry of Finance, NITI Aayog, and other ministries.
  8. The Budget Division of the Department of Economic affairs under the Ministry of Finance is the nodal body for preparing the budget.

Objectives of Government Budgeting

  • To stimulate economic growth 
  • Redistribution of Income (Reducing inequalities) 
  • Optimal allocation of resources 
  • Employment generation and poverty reduction
  • To ensure stability in prices
  • To correct the balance of payments deficit

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Rationale of Budget

  • To ensure transparency in public finance
  • To ensure accountability of the government
  • To ensure advance planning
  • To ensure financial control of the legislation over the executive

Estimates of Government Budget

  • Actual Estimates: Estimates of expenditure and receipts of the preceding financial year
  • Provisional Estimates: Estimates of revenue and expenditure of the current financial year
  • Budget Estimates: Estimates of the coming  financial year

The estimates are arrived at by one of the following three methods:

  • Advanced estimates: These estimates are made before the actual occurrence of economic activity
  • Revised Estimates: Estimates which are revised in the mid-year, after the six month’s actual economic trends. these estimates are based on changes in the economic scenario or actual occurrence of some economic activities
  • Quick Estimates: These estimates are based on sample surveys, information gathered from the sample is used to predict the overall economic activity

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Presentation of Budget

Rule 213 of Lok Sabha provides for the presentation of the budget in two or more parts. The documents that are also presented along with the budget are:

  • An explanatory memorandum on the budget
  • An appropriation bill
  • A finance bill containing the taxation proposals
  • Annual reports of the ministries
  • Economic classification of the budget
  • After the general discussion on the budget, the departmental standing committee of the Parliament examines the demands for grants
  • The departmental standing committee, the Lok Sabha takes up voting for demand for grants
  • Rajya Sabha has no power of voting the demands

Forms of Budgeting

Below are the types of Government budget- 

Line-item budgeting

  • It emphasizes on the items or objects of expenditure without highlighting its purpose
  • Under this, the amount granted on a specific item should be spent on that item only
  • It is also called ‘incremental budgeting’ as the funds are allotted on an incremental basis after identifying the existing base
  • Objective is to prevent wastage, overspending or misuse of money granted

Performance Budgeting

  • It presents more clearly, the purposes and objectives for which the funds are sought
  • It establishes a correlation between the physical (performance or output) and financial (Input) aspects of each programme and activities
  • It necessitates functional classification of budget
  • It renders performance audits more purposeful and effective

Zero-based Budgeting

  • It is a rational system of budgeting
  • It eliminates or minimizes the low priority programmes
  • It makes high impact programmes to obtain more funds
  • It allocates the scarce resources rationally
  • It provides for quick budget adjustments during the financial year

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Top-Down Budgeting

  • It is also known as ‘Target Base Budgeting’
  • It only empowers the central administration to set expenditure and programmatic goals
  • It is a complete reversal of traditional budgetary systems

Conclusion 

In 2016, departing from the colonial-era tradition of presenting the Union Budget on the last working day of February, the government announced that it will now be presented on 1 February. Also the Rail Budget, presented separately for 92 Years, merged with the union budget. Finance commission has suggested to governments to follow the path of fiscal consolidation by bringing down the fiscal deficits. Government has also started to spend more on capital formation.