What is the union budget?The Finance Minister presents an annual statement to Parliament of how much money the union government expects to raise in the next financial year and how it will spend that money. This statement is called the union budget. The budget speech is also used by the government to propose other economic policy measures. The latest budget papers, and those for earlier years, can be found at www.indiabudget.nic.in.
What do the budget documents contain?The budget papers tabled in Parliament contain broadly, the budget speech, a breakdown of the detailed spending proposals of each ministry, as well as revenue raising proposals.
How is government expenditure classified in the budget?There are two different sets of classifications used – Plan vs Non-plan and Capital vs Revenue expenditure:
Capital Expenditure: expenditure used to create assets or to reduce liabilities e.g. building a road.
Revenue Expenditure: expenditure not used to create assets e.g. expenses on salaries or other administrative costs.
Plan Expenditure: expenditure on schemes and projects covered by the five-year Plans. Such plans are developed by the Planning Commission after consulting individual ministries. Each Plan specifies programmes that ministries will fund and develop over the next five years (such as the Mid-day Meal scheme and the Sarva Shiksha Abhiyan). The current Plan is the eleventh, and runs from 2007 to 2012. Plan expenditure can have both revenue and capital components. For instance, under the Pradhan Mantri Gram Sadak Yojana, administrative costs could be classified as revenue expenditure, while expenditure on the actual infrastructure might be classified as capital expenditure.
Non-plan expenditure: Ongoing expenditure by the government not covered by the Plans. These include interest payments on government debt, expenditure on organs of the state such as the judiciary and the police and even expenditure on the maintenance of existing government establishments such as schools and hospitals. Non-plan expenditure too, has revenue and capital components. Annexure A gives the total amounts under different heads of expenditure for 2007-08.
How can we find information on funds allocated to a given scheme?The detailed expenditure allocated to different schemes such as the National Rural Employment Guarantee Scheme, or the Sarva Shiksha Abhiyan, are given in the ‘expenditure Budget’ documents. For instance, if you want to know the expenditure on a government scheme such as the Sarva Shiksha Abhiyan, go to the www.indiabudget.nic.in site. Go to the budget page for 2007-08, click on the link for ‘expenditure Budget’ and open Volume II. Click on the link for the Ministry for Human Resource Development (Department of School Education and Literacy). You should see a table which looks like the one on the facing page.
Item 7 gives details for allocations of funds to the SSA from the general budget revenues only (this is not the only amount to be spent on the SSA as we will see in a moment). The ‘Budget 2006-07’ and ‘Budget 2007-08’ columns indicate the allocations made for the scheme when the budgets for the respective years were prepared (notice that this is all Plan expenditure).
The central column, ‘Revised 2006-07’ indicates the ministry’s subsequent estimates of what the actual expenditure is likely to be – something which takes into account further demands for money which can be made during the course of the year if budgeted funds are not enough.
Funds for the SSA also come from the ‘education cess’ – a dedicated tax imposed on all taxpayers specifically to fund expenditure on education. Revenues from this tax go to the ‘Prarambhik Shiksha Kosh’. The total amount spent on the SSA for 2006-07 therefore is Rs 10,145.7 crore (4,314.7 crore + 5,831 crore).
Finally, there is a glossary of the various schemes towards the end of the ‘expenditure Budget’ document. A similar document is prepared for each ministry. To know the allocations for the National Rural Employment Guarantee scheme for instance, we would look at the same document for the Department of Rural Development, Ministry for Rural Development.
To get an idea of trends in major types of expenditure over the last ten years or so, such as defence, subsidies or education, go to the expenditure Budget, Volume I. Under the heading ‘Annexures’, click on ‘Trends in expenditure’:
How are government receipts classified?
The revenue and capital classification applies to government receipts as well (the Plan / Non-plan distinction does not):
Revenue Receipts: Mostly revenues from taxes, dividends from companies owned by the government, and user charges on some public services.
Capital Receipts: Mainly funds borrowed by the government from various sources, both in India and from overseas, and repayments by state governments of loans from the centre. Any proceeds from the disinvestment of public sector companies also come under this category.
What is the fiscal deficit?
The excess of total government expenditure over total receipts is called the fiscal deficit and is funded by borrowing. The difference between revenue receipts and revenue expenditure is called the revenue deficit.
The Budget Timeline
How is the budget prepared?
The budget is prepared by the budget division in the Ministry of Finance after consulting with other ministries and the Planning Commission. The Finance Minister and ministry officials meet representatives of the private sector, non-governmental organisations and other stakeholders to understand their expectations from the budget. The process can be divided into the following steps. These steps are not necessarily sequential but may occur concurrently.
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Estimating Non-plan expenditure: In late 2007, the Finance Ministry would have asked other ministries how much they expect to spend in the next financial year on services which they provide outside of the five-year Plans (budget estimates of Non-plan expenditure for 2008-09). They are also asked to prepare their estimates of expected expenditure for the current financial year (revised estimates of Plan and Non-plan expenditure for 2007-08).
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Estimating Plan expenditure: The Finance Ministry, in consultation with the Planning Commission, comes up with an estimate of how much money is available in the next financial year to spend on Plan schemes. The Planning Commission then reconciles this ‘Gross Budgetary Support’ for the Plan with estimates by individual ministries of how much they need to implement their Plan programmes for next year. Final estimates of Plan and Non-plan expenditure for the next year, and revised estimates for the current year, are drawn up.
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Meetings with industry: While preparing the budget, the Finance Minister, and other officials from the Finance Ministry meet with industry associations, NGOs, experts and economists to understand their expectations of the budget. The final budget proposals are kept secret.
What is the Economic Survey? What is the role of the Survey in the budget process?
The Economic Survey provides the context to the actual presentation of the budget. It is the government’s view of current economic conditions and trends. The Survey is presented a few days before the budget speech.
What happens once the budget is tabled in Parliament?
The budget session of Parliament runs from the latter part of February to May every year. After the budget is tabled, a general discussion on the broad budget measures takes place. No voting takes place at this stage. Parliament then goes into recess for about three weeks while detailed estimates of ministries’ expenditure, called Demands for Grants, are examined by Standing Committees of Parliament (The table on page 3 indicates the Demands for Grants for the HRD Ministry’s Department of School Education and Literacy).
What are Standing Committees and what is their role?
The detailed Demands for Grants are examined by Standing Committees which together oversee the work of all the ministries. There are 24 such committees including ones on industry, home affairs, defence and finance. These committees submit reports to the Lok Sabha on each ministry’s Demands for Grants.
What happens once the reports are submitted?
Once such reports are submitted, a detailed discussion takes place in Parliament, according to a timetable. During the discussion, MPs can call for ‘cut motions’ which can reduce the grant amount for the respective ministry to Re 1 (to signify disapproval of the policies of that ministry), or by a specific amount (an ‘Economy’ cut), or by a token amount of Rs 100 (to express a specific grievance).
What is ‘guillotining’?
The Demands for Grants which have not been voted on by the last day fixed for the purpose are ‘guillotined’, i.e. they are voted upon together. Interestingly, the Demands for Grants of almost all ministries except two or three are guillotined in this way. In 2007 for instance, only the Demands for Grants of the Labour Ministry, the Science and Technology Ministry and that of the Home Affairs Ministry were discussed separately.
What are the final steps in the budget process?
After voting on Demands for Grants, an Appropriation Bill is introduced and voted on, which authorises the government to spend money from the Consolidated Fund (which consists of all revenues, interest earnings and fresh borrowings of the government). The Finance Bill is then taken up and passed in the Lok Sabha. During the year, if the government needs to spend any money which has not been voted on by Parliament, it can introduce supplementary Demands for Grants (if the expenditure on a specific head exceeds the amount that has been voted for it). Only the Lok Sabha has the power to approve the budget; the Rajya Sabha can only propose amendments which the lower house of Parliament may or may not accept.
Are there certain items of expenditure which are not voted on in Parliament?
There are certain items of expenditure which are not voted on by Parliament but are charged directly to the consolidated fund – these include the salaries and allowances of the President, judges of the supreme court etc. Interest paid by the government on its debt is also charged directly to the fund.
Annexure A
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Budget Estimates 2007-08 (Rs crore)
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a.
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Total Receipts (b+c)
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529,573
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b.
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Revenue receipts
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486,422
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c.
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Capital receipts
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43,151
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Plan expenditure
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d.
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Revenue
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174,354
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e.
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Capital
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30,746
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Non-plan expenditure
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f.
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Revenue
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383,546
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g.
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Capital
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91,875
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h.
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Total expenditure (d+e+f+g)
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680,521
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Fiscal Deficit (h-a)
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150,948
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Revenue Deficit (d+f-b)
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71,478
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