All about Government Budgeting

The word ‘budget’ comes from the word ‘bougette’ which is a French word for a leather bag. Even kings and other world rulers used to store their official seals and important documents in leather covers. The budget is the most important part of a nation’s economic planning. It gives an insight into the government’s plan for the financial year by estimating the amount of revenue the government anticipates and how it will be distributed across different programmes and services. Let’s look at what exactly is a budget, the budget in the Indian constitution and more. 

Budget in the Indian Constitution

The budgeting process, relative strategies, and government role vary from country to country. The budget period is twelve months in almost all countries. In many countries, special policies control a significant portion of government expenditure.

According to Article 112 of the Indian Constitution, the Annual Financial Statement, also called the Union Budget of India, is a statement of the estimated receipts and expenses of the government for that particular year. The budget in the Indian Constitution keeps track of the country’s finances for the financial year, which runs from April 1 to March 31.

 The union budget in the Indian constitution is likely the most prominent annual item on the Parliament’s agenda. Annually, the government seeks Parliament’s approval to generate revenue to meet its expenditure. The yearly budget is presented by the Finance Minister of India in Parliament every year. The budget is implemented from the start of the new financial year, from April 1. Before that, the budget bill needs to be passed by the Rajya Sabha and Lok Sabha of the Parliament.

The Ministry of Finance prepares the overall budget estimate with other ministries at the central and state levels, private sector members, industry representatives, non-governmental organisations, and other stakeholders. The budgeting process usually begins in the third quarter of the fiscal year. 

The Budget in the Indian Constitution and the Role of the Finance Ministry 

The Ministry of Finance has a budget division in the Union government’s department of economic affairs. Every year from August to September, this division begins drafting the Union budget for the following fiscal year. Every year, around the last week of August or the first week of September, the budget division produces an annual budget circular to kick off the process. 

This annual budget circular provides thorough instructions to Union government ministries and departments on the format of the statement of budget estimates that they must provide. The budget is divided into four stages:

• Expenditure and revenue estimates.
• The first estimate of the deficit.
• Deficit narrowing.
• Budget presentation and approval.

The finance minister tries to incorporate stakeholder demands and expectations into the budget to the extent practicable.

In the final budget preparation stage, the finance minister reviews the ministry’s budget plans and makes any necessary changes. The finance minister consults with the Prime Minister and informs the Union Cabinet of the budget. If there is a budget conflict between any ministry and the finance ministry, the Cabinet addresses the issue.

The finance ministry’s budget division consolidates all statistics to be presented in the budget and develops the final budget documents in the final stage. The National Informatics Centre (NIC) assists the budget division in consolidating fully computerised budget data. After this procedure, the finance minister seeks the president’s authorisation to propose the Union budget to Parliament. This is what exactly a budget is. 

The Constitution also permits the ruling administration to offer a ‘Vote of Account’ or ‘Interim Budget’ in certain special circumstances, such as election years (government change). The former is merely an expenditure statement, whereas the latter contains receipts and expenditures. Four mini budgets, 14 interim budgets, and 73 annual budgets have been presented since independence.

The budget in the Indian constitution is categorised into two components: the revenue budget and the capital budget. The revenue budget comprises items that don’t affect the government’s liabilities and assets. The revenue budget relates to the government’s tax, revenue and the expenditures covered by those revenues. Revenue expenditure and revenue receipts make up the revenue budget. 

Revenue receipts do not directly affect the government’s assets and liabilities. It consists of revenue raised by the government through income tax and excise duty, as well as non-taxation sources. Salaries, pensions, administrative costs and interest payments are a few examples.

Items that change the government’s assets or liabilities are included in the capital budget. Capital receipts as well as expenditures are included in the capital budget. Capital receipts relate to a country’s government’s borrowings, loans from a public or foreign government, or borrowings from the central bank. On the other hand, capital expenditure refers to money spent on things like machinery, roads, and health care facilities.

Budget Documents of the Budget in the Indian Constitution

The budget documents of the Indian government provide insights into current events, challenges and the government’s perspective on them. They emphasise current economic difficulties in India and government policy steps to address them, providing for an intriguing study of India’s development progress. The budget documents presented to Parliament include the following, in addition to the Finance Minister’s budget speech:

1. Demands for Grants (DG).
2. Macro-economic framework statement.
3. Fiscal Policy Statements are mandated under FRBM Act.
4. Medium-term fiscal policy cum budgetary policy strategy statement.
5. Expenditure budget.
6. Finance Bill.
7. Annual Financial Statement (AFS).
8. Receipt budget.
9. Expenditure profile.
10. Budget at a glance.
11. Memorandum explaining the provisions in the finance bill.
12. Output outcome monitoring framework.
13. Key features of the budget.
14. Implementation of budget announcements.