Budget Preparation and Presentation:

This article will help you understand the step by step process of preparation of the Union Budget of
India.

In India, the Union Budget is prepared by the Department of Economic Affairs of Ministry of Finance.
Earlier the budget was presented in two categories i.e. Railway budget and General budget.

From the year 2017 onwards, there is no separate budget for Indian Railway which has been
"merged" with the General Budget. The decision, taken on the recommendation of a NITI Aayog
committee reflects the decrease over time, in the relative size of the Rail Budget compared to some
of the other components in the General Budget, such as defence and roads and highways, reducing
it to a mere “ritual".

The budget is referred to in the Constitution as the "annual financial statement." To put it another
way, the term "budget" appears nowhere in the Constitution. It's the common name for the 'annual
financial statement,' which is addressed in Article 112 of the Constitution.

The President is responsible for submitting the budget to the Lok Sabha, according to Article 112 of
the Indian Constitution. The yearly financial statement covers a year's worth of transactions.

According to Article 77 (3), the Union Finance Minister has been made responsible by the President
to prepare the budget also called as the annual financial statement and pilot it through the
parliament.

Budget embodies the estimated receipts and expenditure of the Government of India for one
financial year. The financial year commences on 1st April each year.

Some important documents that are tabled at the time of presentation of the Union Budget include
the following:

 The Annual Financial Statement: Summarises the expenditure and receipts of the

government
 Budget at a Glance: Brief overview of the budget
  Expenditure Budget: Details the expenditure of various ministries and departments
including the Demands for Grants for each ministry
 Receipts Budget: Details the tax and non-tax funding plan for the government
 Finance Bill: Details any changes to the existing tax laws in the country
 Medium Term Fiscal Strategy Document: Sets three-year rolling targets for select fiscal
indicators as per the Fiscal Responsibility and Budget Management Act.

Stages of Budget

In parliament, the budget goes through 6 stages:

1. Preparation of Budget
2. Presentation of budget with Finance Minister’s speech
3. General discussion of the budget.
4. After this, there is an adjournment of houses so that standing committees scrutinize the
demand for grants for a month.
5. Voting on demand for grants in Lok Sabha
6. Passing of appropriation bills
7. Passing of Finance bills.

Budget Preparation - Indian Budget process

The budget is prepared by the Finance Minister with the assistance of number of advisors and
bureaucrats. The Finance Minister seeks the view of the industry captains and economists prior
to preparation. Various accounting and finance related organisations send in their opinions and
suggestions .The budgeting exercise in India remains mainly the domain of bureaucrats to
participate and influence the outcomes.

Normally, the budget-making process starts in the third quarter of the financial year.

The budget has four stages viz., (1) estimates of expenditures and revenues, (2) first estimate of
deficit, (3) narrowing of deficit and (4) presentation and approval of budget.

Stage 1: Estimates of expenditures and revenues

Part A: Estimates of expenditure

The process begins with various ministries providing initial estimates of plan and non-plan
expenditures. The ministries discuss the plan expenditures with the Planning Commission. The
Planning commission allocates resources for continuing plan programmes and decides on the
new programmes that can be undertaken on the basis of a tentative estimate or resources
available, that is provided to it by the finance ministry. The financial advisors of the ministries
prepare the non-plan expenditures. The expenditure secretary consolidates them and after
intensive discussion with financial advisors, budget estimates are set for the ensuing fiscal year.
The majority of the non-plan expenditure is accounted for by interest payments, subsidies (mainly
on food and fertilisers) and wage payments to employees.

Part B: Estimates of revenue

Apart from estimating the expenditure, an assessment of expected revenues likely to flow into the
government treasury has to done as a concurrent exercise. Revenue receipts are of two types -
capital and current receipts.

Capital receipts include repayment of loans given by the government, receipts from divestment of
public-sector equity and borrowings—both domestic and external. Current receipts include
mainly, tax revenues, receipts by way of dividends from public-sector units and interest payments
on loans given out by the central government.

The amounts to be received by way of tax revenues is estimated on the basis of existing rates of
taxation and taking into consideration the likely growth and inflation rate over the ensuing fiscal
year.

On the capital receipts side, targeted amounts to be realised through divestment of public sector
equity and amounts to be realised by way of repayments of  loans is made. All the estimates are
provided to the revenue secretary.

STAGE 2: First estimates of deficit

After the estimates of revenue and expenditure are made, they are matched together. This
provides the first estimate of expected shortfall in revenue to meet projected expenditure. The
government then, in consultation with the chief economic advisor, decides on the optimum level
of borrowings to meet this deficit. The figure of external borrowings is known as much of the
external borrowing by the government consists of bilateral and multilateral assistance which is
known by the time budget exercises are undertaken. The level of domestic borrowing depends
partly on the desired level of fiscal deficit that the government targets for itself. A part of the
revenue gap is left unfilled to be met through the issue of ad hoc treasury bills.

STAGE 3: Narrowing of the deficit

After the targets for the fiscal deficits and the overall budget deficit is  decided, any remaining
shortfall is filled through a revision in tax rates if feasible , keeping in mind the  fiscal incentive
structure the government wishes to put in place to stimulate the growth in different sectors.
Following the initial plans, if any changes need to be made adjustments are made to the
expenditure; usually the plan expenditure has to be modified. The non plan expenditure
comprises of interest payments, subsidies and administrative expenditure. Due to the political
sensitivities involved in reducing subsidies, non-plan expenditure of the government is inflexible
about changing it and it is the plan expenditures which get the axe after pre-emption have already
been made for non-plan expenditure.

STAGE 4: The Budget Presentation

Budget Presentation

The budget is presented to the parliament on the date fixed by the President. Generally, it was
presented on the last working day of February, a month before the commencement of the financial
year but this 92 years old practices of presenting budget has changed now. During general election
years, the budget is presented twice, first to secure a vote on account for 4 months and later
completely.

Budget speech of finance minister is in two parts, Part A constitute a general economic condition of
the country while part B relates to taxation proposals. The general budget is presented in the Lok
Sabha by Minister of Finance. At the conclusion of the speech of the finance minister in Lok Sabha,
annual financial statement is laid on the table of Rajya Sabha.

The Union Budget is divided into Revenue Budget and Capital Budget.

 Revenue Receipt:
 The receipts received which cannot be recovered by the government
 It comprises income amassed by the Government through taxes and non-tax sources
like interest, dividends on investments.
 Revenue Expenditure:
 Expenditure incurred by the Union Government for purposes other than for the
creation of physical or financial assets.
 It includes those expenditures incurred for the usual functioning of the government
departments, grants given to state governments and interest payments on the debt of the
Union Government, etc.

 Capital Receipt:
 Receipts which generate liability or decrease the financial assets of the government
 It includes borrowings from the Reserve Bank of India and commercial banks and
other financial institutions
 It also consists of loans received from foreign governments and international
organization and repayment of loans granted by the Union government
 Capital Expenditure:
 Spending incurred by the government which results in the formation of physical or
financial possessions of the Union government or decrease in financial liabilities of the Union
Government.
 It contains expenditure on procuring land, equipment, infrastructure, expenditure in
shares.
  It also includes mortgages by the Union government to Public Sector Undertakings,
state and union territories

Discussion of Budget
It is done in two stages. In the first stage, broad outlines of the budget, principle and policies
underlying it are to be discussed in general discussion of the budget which lasts for about 4-5 days.
In second stage discussion is held based on reports of concerned Departments/Ministries standing
committees, which is usually done after a month of a general discussion of the budget. Standing
committees submit reports to the house which are persuasive in nature.

Vote on Account
Since the passing of the budget takes almost 2 months, the Government requires the sanction of an
amount to maintain itself for this period. According to Art 116, a special provision called 'Vote on
Account' is created by which vote of parliament is obtained by the government for a sum sufficient
generally for 2 months to incur expenditure. During the election year a vote on an account may
exceed from 2-4 months expenditure.

Discussion and Voting on Demand for Grants

After standing committee reports are presented to the house, the house proceeds with a Ministry
wise discussion of committee reports and voting on demand for grants. The time for discussion and
voting on demand for grants is allocated by the speaker in consultation with the leader of the house.

Guillotine
The guillotine is passing the Demand for Grants without discussion. On the last day of the period
allotted by speaker due to the paucity of time, speaker puts all the outstanding Demands for grants
to vote of the house. It is a device used for want of time.

Powers of both the Houses

Introduction and voting on Demands for Grants is confined only to the Lok Sabha. The Lok Sabha
has the power to assent, refuse to assent and even to reduce the amount of the Demand for Grant.
In Rajya Sabha, there is only general discussion of the budget. The upper house does not vote on
the Demands for Grants.
Cut Motions
Cut motions are motions for reduction in various demand for grants. Cut motions seek a reduction of
an amount of demands of grants on the following grounds: economy, policy cut and token cut.
Categories of Cut motions

Economy cut
Economy cut motion demands reduction of a specified amount from the demand for Grant
representing the welfare of the economy.

Policy cut
According to policy cut motion, the demand for a grant is reduced to Re.1 representing the
disapproval of the policy underlying the demand. A member giving such notice should indicate
precise terms, the particulars of the policy which he proposes to discuss. It is open to the member to
advocate alternative policy.

Token cut
Token cut motion is used to voice a grievance. In token cut, the amount of the Demand for Grant is
reduced by Rs.100 in order to express a specific grievance.

Finance bill
It is introduced in the Lok Sabha immediately after the presentation of the general budget. The
finance bill contains fresh taxation proposals and variations in existing duties. They are contained in
Article 117 of Indian constitution. Finance bill is of two types. Provisions of the first type relate to the
money bill. Provisions of the second type of Finance bill are same as that of an Ordinary bill.

Money bill
No bill is money bill unless it satisfies the requirements of Article 110. A bill is money bill only if it
contains provisions dealing with all or any of six matters specified in Article 110. A Financial bill,
which receives the certificate of the speaker, is a money bill. The decision of speaker of House of the
people is final and his certificate that a particular bill is money bill is not liable to be questioned.

Appropriation Bill
An appropriation bill is intended to give authority to the Government of India to incur expenditure
from the consolidated fund of India. After the voting of Demand for grants has been completed, the
government introduces an appropriation bill. Appropriation bill includes charged expenditure and
sums granted by voting on demand for grants. The procedure for passing the appropriation bill is
same as that of the money bills.

Types of Expenditure

Charged expenditure
It includes expenditure specified in the constitution. There is no voting on charged expenditure. It
includes emoluments of the president and the salaries and allowances of the chairman and deputy
chairman of the Rajya Sabha, speaker and deputy speaker of Lok Sabha, Judges of the Supreme
Court, CAG, and certain other bodies/agencies specified in the constitution.

Non-Charged Expenditure
It is the votable expenditure. It is the sum required to meet other expenditure proposed to be made
from the consolidated fund of India. In other words amount of expenditure incurred through Demand
for Grants.

Types of Grants
The provisions related to supplementary, additional and excess grants are specified in Art.115.

Supplementary Grant
If the amount authorised in the original budget for a particular service for a current financial year is
found to be insufficient, supplementary grant may be made by the Parliament.

Excess grant
It is a grant to retrospectively authorise excess of expenditure committed by an executive. The public
accounts committee recommends such retrospective regularisation on the basis of CAG report.

Additional Grant
It is the grant made by the parliament for expenditure on new service not contemplated in the annual
financial statement that year.
Token grant
Spending money sanctioned for one head on another head within the same ministry with the
permission of finance ministry is done through a token grant. In the token grant, it seeks a token sum
of Rs.1 from Lok Sabha to spend on a new service.

Exceptional Grant
Through exceptional grant money is sought for service that is not part of the current service of any
financial year.
Indian constitution under Article 112-117 enshrines powers of parliament in the enactment of the
Budget. According to article 112-117, any proposal for expenditure and demand for a grant can be
made only on the recommendation of the President. The parliament has to pass a financial bill within
75 days of its introduction. After discussion in both the houses on demand for Grants, Financial bill
and appropriation bill and voting of the Lok Sabha Budget is enacted and expenditure can be
incurred from the consolidated fund of India.

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