The Budgetary Process

THE BUDGETARY PROCESS OF THE STATE GOVERNMENT

C.K.Koshy IAS (Retd)

Significance of the Budget  The

‘Balance Sheet’ of the Government  Statement of the Income and Expenditure  Laid before the elected representatives of the Legislative Assembly for discussion  Contains a review of the programs and policies of the last year  Announcement of the programs and policies of the ensuing year

Significance of the Budget  Proposals

for taxation. Affirms the principle of ‘No taxation without representation’  Defeat of any budget proposal on the floor of the house means defeat of the government  The Appropriation Bill: Passage means the appropriation of funds to meet expenditure. No expenditure without authorisation

Constitutional Provisions The Constitution of India contains elaborate provisions regarding Financial matters and the Budget

Article 265

No tax shall be levied or collected except by authority of law

Articles 266, 267  Establishment

of the Consolidated Fund

(Art.266)  Establishment

of Public Accounts.

(Art.266(2)  Establishment

(Art.267)

of the Contingency Fund

Articles268-281 Distribution of Revenue between Centre and States  Taxes

levied by Union but collected by States. (Art.268) Ex. Stamp Duty under Indian Stamps Act

 Taxes

levied and Collected by Union but assigned to States.(Art.269) Ex. Succession Duty, Estate Duty, Central Sales Tax, Consignment Tax

 Taxes

levied and collected by Union and distributed between Union and States.(Art.270) Ex. Income Tax, Addl. Excise Duty

Articles 280-81

The Finance Commission

Articles 202-209 Procedures in Financial Matters The Governor shall in respect of every financial year cause to be laid before the House or Houses of Legislature of the State, a statement of the estimated receipts and expenditure of the State for that year, in this part, referred to as the annual financial statement. (Art. 202)

Format of the Budget  “Charged”

Expenditure on the Consolidated Fund.

 Sums

to meet Other Expenditure.

 Expenditure

on Revenue Account and Other Expenditure.

Charged Expenditure Article 202(3) Not Submitted to Vote

 Emoluments

and allowances of the Governor.  Salaries and allowances of the Speaker and Deputy Speaker.  Debt Charges.  Salaries and allowances of the Judges of the High Court.  Sums to satisfy judgment, decrees or awards of any court or arbitral Tribunal

The Budget Procedure Under the Rules of Business of the State Govt., responsibility of preparing the Budget, presenting it before the Legislative assembly and steering it to its final passage, is vested in The Finance Minister and the Finance Department.

Preparation of the Budget 

 1. 2. 3. 4. 5.

Usually in July-August every year, the Finance Department issues circulars to all Administrative Depts. and calls for time bound budget proposals in the prescribed format. They include: Standing Charges Plan and Non-Plan Continuous Items Plan and Non-Plan New Items Revised Estimates for the year Estimates of Revenue Receipts for Tax and non tax revenues

Preparation of the Budget (Contd.)  Detailed

consultations take place between Finance Department and each individual Dept. as well as the Planning Department.  Brainstorming takes place on new schemes, programs, policies  New taxation as resource mobilisation measures.

Approval of the Budget  Approved

by the Cabinet.  At this stage, kept “Top Secret” (Why?)  Presentation of the Budget in the Legislative Assembly by the Finance Minister  In Gujarat process is completed before 31st March. In Maharashtra, Budget presented after Union Budget is presented

The Finance Minister’s Speech  Part

A: Govt. Plans, Economic Policies, New Schemes/Programs to be taken up in the new year.

 Part

B: Additional resource mobilization measures, new taxes, enhancement of existing taxes.

Passage of Budget  After

the Finance Minister’s speech in the Assembly, Budget proposals discussed for 4 days.  Demand wise discussions take 12 days. Budget passed thereafter.  Cut motions and their significance.  After discussions, Budget put to vote (Except Charged Items)  Appropriation Bill introduced and passed to permit withdrawal from Consolidated Fund.

Implementation of the Budget  Allocation

of grants to various Departments.  Approval to incur expenditure on New Items.  Monitoring of expenditure on Plan and Non Plan items.  Advances from Contingency Fund  Supplementary Demands

The Structure of the Budget State Budget

Consolidated Fund

Contingency Fund

The Public Account

The Contingency Fund Consolidated Fund

Charged

Non Charged

Consolidated Fund

Revenue Account

Capital Account

Difference between Revenue Expenditure and Capital Expenditure

 Revenue

Expenditure is expenditure on the normal running of the Government. The ‘house keeping’ expenditure.  Source of income for Revenue Expenditure is the normal income accruing to Govt. in the running of Govt.  Capital Expenditure is expenditure on the creation of capital assets.

Revenue Account

Receipts Tax-Revenue Non-Tax Revenue Grant-in-Aid from GOI

Expenditure Govt. Services Social Services Economic Services Grant-in-Aid

Revenue Receipts  State’s

share in Central Taxes  State Tax Revenue: Sales Tax, Electricity Duty, Motor Vehicle Tax, Stamp Duty & Registration Fees.  State Non Tax Revenue.  Central Assistance

Revenue Expenditure  Pay

and Allowances  Pension  Interest Payments  Subsidies  Grant-in-Aid to Local Bodies  Other

Surplus/Deficit on Revenue Account

The difference between Revenue Receipts and Revenue Expenditure gives the surplus/deficit on the Revenue Account

Capital Account Capital Account

Receipts

Expenditure

Open Market Borrowings, Loans from Financial Institutions, Advances from Central Govt. Recovery of Loans and Advances

Capital Works Payment of Debt Loans and Advances by State Government

Surplus Deficit on Capital Account The difference between the Capital Receipts and Capital Expenditure gives the surplus/deficit on the Capital Account

Contingency Fund

Imprest Account for unforeseen expenditure

The Public Account Provident Fund, Insurance, Pension, Reserve Fund, Sinking Fund.

Overall Budgetary Position  Sum

of Surplus/Deficit on Revenue and Capital Account gives Surplus/Deficit of the Consolidated Fund.  Net amounts from Contingency Fund and Public Account added to net amount from Consolidated Fund.  This gives the overall Budgetary Surplus/Deficit of the State.

Budget Publications  There

are 58 budget documents: Annual Development Program: GAD Budget in Brief and the Socio Economic Review: Directorate of Economics and Statistics Performance Budget Publications: Each Dept. Remaining 35 publications by Finance Dept.

Thank You