Explained: Parliamentary scrutiny of Union Budget 2021-22

The 2021-22 budget process concluded on Wednesday in Parliament with Rajya Sabha debating the Finance Bill, 2021 before returning it to Lok Sabha for enactment.

Finance Bills are not referred to Parliamentary Committees for detailed scrutiny.

The 2021-22 budget process concluded on Wednesday in Parliament with Rajya Sabha debating the Finance Bill, 2021 before returning it to Lok Sabha for enactment. The Finance Bill is introduced with the budget and consists of the government's financial proposals, primarily tax proposals, for the upcoming year. Before approving the Finance Bill, Parliament approved the 2021-22 union budget earlier this week as well as the budgets for Puducherry (for five months) and Jammu and Kashmir, as they are under the President’s rule in absence of their legislatures.

In addition, following announcements made in the budget speech, Parliament approved two Bills related to the finance sector in this session—one to increase the maximum foreign investment allowed in an Indian insurance company from 49 percent to 74 percent, and the other to set up a new development financial institution (DFI). This article discusses some of the financial business undertaken by Parliament in this session in detail.

In the 2021 budget session so far, Lok Sabha and Rajya Sabha have spent 39 percent and 20 percent of their time, respectively, in discussing financial business. After the union budget was presented on February 1, 2021, both Houses had a general discussion on it, following which 24 Parliamentary Standing Committees scrutinised the budgets of all the Ministries of the central government. These Committees examine the amount allocated to various programmes and schemes under the Ministry and the trends of their utilisation in previous years.

During this process, officials of the Ministry are required to depose before the Committee to respond to queries and provide additional information in connection with the budget being examined. Scrutiny by Parliamentary Committees before discussion in the House helps Members of Parliament (MPs) understand the implications of and issues with the proposed spending plans across Ministries and allows for a more informed debate before approving the budgets.

However, this year, Lok Sabha approved the budget of all Ministries even before the Committee on Food, Consumer Affairs and Public Distribution could submit its report (which was two days later). The Committee scrutinised the allocation of Rs 2.57 lakh crore to the Ministry of Consumer Affairs, Food and Public Distribution, which is 7.4 percent of the 2021-22 union budget. The Committee’s inputs become particularly important as it examines the issues faced by the government in providing food subsidy, which is its largest welfare programme.

Moreover, the government proposed a significant increase in the allocation for food subsidy from Rs 1.16 lakh crore to Rs 4.23 lakh crore for 2020-21 at the revised stage, and to Rs 2.43 lakh crore for 2021-22. Food subsidy is estimated to form 12.2 percent of the union budget in 2020-21 and 7 percent in 2021-22. Being privy to the Committee’s views and the government’s responses would have allowed the MPs to question, among other things, the rationale for a significant increase in allocation for food subsidy for 2020-21 and 2021-22 and its impact.

Before approving the union budget, Lok Sabha discusses the budgets of a few Ministries in detail. This year, the budgets of the Ministries of Education, Health and Family Welfare, and Railways were discussed, which together amount to merely 8 percent of the 2021-22 union budget. The budgets of all other Ministries are approved by Lok Sabha without discussion, following which the government is permitted to withdraw money from the Consolidated Fund of India through an Appropriation Bill.

Since Lok Sabha is the sole authority in financial matters (including Money Bills) with Rajya Sabha playing only a recommendatory role, the latter does not discuss the budgets of individual Ministries. Rajya Sabha discusses the Appropriation Bill and the working of a few Ministries, instead of their budgets. This year, it discussed the working of the Ministries of Jal Shakti, Railways, and Tourism.

Similarly, Rajya Sabha has limited powers in the case of the Finance Bill, being a Money Bill. Rajya Sabha cannot make any amendments and the Bill is deemed to be passed if not returned to Lok Sabha within 14 days. While the Finance Bill primarily consists of tax proposals of the government, it often includes non-tax proposals as well.

For example, the Finance Bill, 2021 proposed amendments to the Life Insurance Corporation Act, 1956 to create a board of directors, issue shares, and reduce government shareholding to up to 51 percent of equity. Such non-tax proposals could have been equally scrutinised by Rajya Sabha otherwise if they were not a part of the Finance Bill.

Additionally, while the Finance Bill is presented along with the union budget on February 1, the government often introduces subsequent amendments. For instance, 109 amendments were moved to the Finance Bill, 2021 on the day when Lok Sabha was passing the Bill (March 23, 2021), including the addition of 13 new clauses. The amended Bill was discussed by Rajya Sabha the very next day. Last year, both Houses discussed the Finance Bill, 2020 on the same day, despite several last-minute amendments to the Bill in Lok Sabha. Evaluating all amendments on such short notice and understanding their implication could be a challenge for MPs.

Another critical aspect to consider here is that, unlike other Bills, Finance Bills are not referred to Parliamentary Committees for detailed scrutiny. Finance Bills used to be referred to Select Committees by the Constituent Assembly and Parliament before the first Lok Sabha during 1947-52.

Typically, there is a 45-50 day gap between the introduction of the Finance Bill and its discussion, which may be sufficient time for a Committee to scrutinise its clauses and adequately assess the impact of its financial proposals. This would also avoid a 2019-like scenario when the government had to roll back some tax changes after the budget was passed.

Such mid-year tax changes may also have an adverse effect on the revenue projections presented to Parliament. This would also allow for an opportunity to understand if any amendments are necessary in the Bill. In the UK, before the Finance Bill is introduced in the House of Commons, a technical examination of the draft Finance Bill is done by an Economic Affairs Sub-Committee of the House of Lords (which is the House with limited powers on matters of taxation).

Suyash Tiwari is a senior analyst in the research team at PRS Legislative Research. The views expressed are personal