Budgeting

Meaning of budget
Budget is a statement containing a forecast of revenues and expenditures for a period of time,
usually a year. It is a comprehensive plan of action designed to achieve the policy objectives set
by the government for the coming year. A budget is a plan and a budget document is a reflection
of what the government expects to do in future. While any plan need not be a budget, a budget
has to be necessarily a plan. It shows detailed &location of resources and propod taxation or
other measures for their realisation. More specifically, a budget contains information about :
i) plans, programmes, projects, schemes and activities-current as well as new proposals for the
coming year;
ii) resource position and income from different sources, including tax and non-tax revenues;
iii) actual receipts and expenditure for the previous year; and
iv) economic, statistical and accounting data regarding financial and phy
CHARACTERISTICS OF BUDGET
i) There is a strong emphasis on expenditure control with itemised ceilings and sanctions. The
French system of budgeting is largely based on this principle, viz. : a strong financial control
system. For historical and administrative reasons, Indian budgetary system is also set in a
framework of strong financial control. Although, after Independence, this feature has become
diluted through various schemes of delegation of powers and decentralization
ii) Another characteristic is the tendency towards incrementalism. The bulk of ongoing activities
is left untouched. Only marginal adjustments are made in raising and allocating resources from
one year to the other. In spite of various budgetary innovations, budgetary systems the world
over are essentially incremental in nature.
CHARACTERISTICS OF BUDGET
iii) There is usually no attempt to relate inputs to outputs or expenditure to performance and
benefits. Any such attempt, if at all it is made, is limited to the economic function and the largest
component of government activities, perse, are mainly expenditure-oriented.
iv) Generally budgets are prepared for a time span of one year. Since budgeting presupposes
planning it must, therefore, adopt a longer time frame.
v) Some of the budgetary systems (Netherlands) reflect application of commercial principles to
budget, including provision of depreciation allowances and in some systems, accrual-based
acounting. The Italian budgetary system shows the availability of funds beyond the financial year
with parallel operation of the preceding and current year's budgets.
vi) In some countries, special accounts are maintained (Japan) and these are outside the
budgetary process. In other countries, extra-budgetary devices of various types are resorted too.
FUNCTIONS OF BUDGET
[Link] In the early phase, legislative control and accountability were the
primary functions of the government budget. This arose from the legislature's
desire to control (impose, amend and approve) tax proposals and spending. The
executive was accountable to the legislature for spending-within limits approved
by the latter, under several heads of expenditure, and only for approved
purposes. Similar accountability was to exist within the executive on the part of
each subordinate authority to the one immediately above in the hierarchy of
delegation. Accountability continues to be an important function of the
government budget even today owing to its usefulness in budget execution and
plan implementation.
FUNCTIONS OF BUDGET
Management Budgeting is an executive or managerial function. As an [Link] of
management, budgeting involves planning, coordination, control, evaluation, reporting and
review. Many of the budgetary innovations such as :
functional classification,
performance measurement through norms and standards,
accounting classsification to correspond to functional classification,
costing and performance audit and use of quantitative techniques have become important aids
to management.
Various budgetary systems like performance budgeting and zero base budgeting are specifically
management-oriented systems.
FUNCTIONS OF BUDGET
Coat ml Control essentially implies a hierarchy of responsibility, embracing the entire range of
executive agencies, for the money collected and expenditure, within the framework of overall
accountability to the legislature. In a democracy, control assumes new dimensions and gives rise
to exceedingly difficult problems. The basic concern in a truly representative government is to
bring about suitable modifcations in the uesign and operation of the financial system so as to
ensure executive responsibility to the legislature which is the law-making, revenue determining
and fund-granting authority. Legislative control would mean that the legislature can
meaningfully, and not merely formally, participate in the formulation of broad policies and
programmes, their scrutiny, approval and implementation through the annual budget. It also
means that the legislature can effectively relate performance
FUNCTIONS OF BUDGET
Planning Budgeting provides a plan of action for the next financial year. Planning, however, involves the
(i) determination of long term and short term objectives,
(ii)determination of quantified targets, and
(iii) fixation of priorities. Planning alsospans a whole range of government policies keeping the time factor and
interrelationships between policies in view. Planning envisages broad policy choices. At the level of projects and
programmes, the choice is between alternative courses of action so as to optimise the resource utilisation.
The goals of public sector, viz.,
(i) optimal allocation of resources,
(ii) stabilisation of economic activity.
(iii) an equitable distribution of income, and
(iv) the promotion of economic growth are all pursued in an organisational context. In the short-run, achievement of
these goals has to be co-ordinated by means of administrative and legal instruments among which budget policy and
procedure are the most important. Planning in the budget process reflects political pressures as well as financial
pressures and financial analysis.
THE BUDGETARY PROCESS
With the attainment of Independence, the objectives, the policy framework and the
environment of financial administration underwent a radical change. The conflict between
popular will and aspirations and the policy and procedures which had characterised financial
administration in the country disappeared overnight. Even though the basic features of the
Government of lndia Act, 1935, with regard to financial administration, were retained, there was
no fundamental disharmony between these instruments and the national priorities. These
instruments could be and were refashioned according to the changed objectives. The budgetary
processes in India follow the procedure laid down in Articles 112 to 117 of the Constitution.
Accordingly, annual budget of the Union, called the Annual Financial Statement of estimated
receipts and expenditure, is to be laid before both Houses of the Parliament in respect of every
financial year.
THE BUDGETARY PROCESS
The Budget shows the receipts and payments of government under three parts in which
government accounts are kept : i) Consolidated Fund, ii) Contingency Fund, and iii) Public
Account.
Consolidated Fund of India All revenues received by government, loans raised by it, and also its
receipts from recoveries of loans granted by it form the Consolidated Fund. All expenditure of
government is incurred from the Consolidated Fund and no amount 'can be withdrawn from the
fund without authorisation from the Parliament.
Contingency Fund Occasions may arise when government may have to meet urgent unforeseen
expenditure pending authorisation from the Parliament. The Contingency Fund is an Imprest
placed at the disposal of the President to incur such expenditure. Parliamentary approval for
such expenditure and for withdrawal of an equivalent amount from the Consolidated Fund is
subsequently obtained and the amount spent from Contingency Fund is recouped to the lund.
The corpus of the fund authorised by the Parliament, at present, is Rs. 50 crore.
THE BUDGETARY PROCESS
Public Account Besides the normal receipts and expenditure of government which relate to the Consolidated Fund,
certain other transactions enter government accounts, in respect of which government acts more as a banker; for
example, transactions relating to Provident Funds, small savings collections, other deposits etc. The moneys thus
received are kept in the Public Account and the connected disbursements are also made therefrom. Generally
speaking, Public Account funds do not belong to government and have to be paid back some time or the other to the
persons and authorities who deposited them. Parliamentary authorisation for payments from the Public Account is,
therefore, not required.
Charged Expenditure Under the Constitution, certain items of expenditure like emoluments of the President, salaries
and allowances of the Chairman and the Deputy Chairman of the Rajya Sabha and the Speaker and Deputy Speaker
of the Lok Sabha, salaries, allowances and pensions of Judges of the Supreme Court and the Comptroller and
Auditor-General of India, interest on and repayment of loans raised by government and payments made to satisfy
decrees of courts etc; are charged on the Consolidated Fund. These are not subject to the vote of Parliament. The
budget shows the charged expenditure separately in the Consolidated Fund. Government budget comprises :
i) Revenue budget; and
ii) Capital budge
Revenue Budget It consists of the revenue receipts of government (tax and non-tax revenues)
and the expenditure met from these revenues. The estimates of revenue receipts shown in the
budget take into account the effect of the taxation proposals made in the Finance Bill. Other
receipts of government mainly consist of interest and dividend on investments made by
government, fees, and other receipts for services rendered by government.
Capital Budget It consists of capital receipts and payments. The main items of capital receipts
are loans raised by government from public which are called Market Loans, borrowings by
government from Reserve Bank and other parties through sale of Treasury bills, loans received
from foreign governments and bodies and recoveries of loans granted by Central Government to
State and Union Territory governments and other parties. Capital payments consist of capital
expenditure on acquisition of assets like land, buildings, machinery, equipment, as also
investments in shares etc. and loans and advances granted by Central government to State and
Union Territory governments, government companies, corporations and other parties. Capital
budget also incorporates transactions in the Public Account.
BUDGETARY CYCLE
In order to allow time for the executive and legislative processes to go through, budgeting is
geared to a cycle. The process of approval is very significant in a responsible form of
government.
The cycle consists of four phases:
 Preparation and submission;
Approval;
Execution; and
 Audit At any given point of time, several cycles would be in operation and would be
overlapping.'Nevertheless, various segments of a cycle have different operational life.
BUDGETARY CYCLE
Budget Preparation In India, budget preparation formally begins on the receipt of a circular from the Ministry of
Finance sometime during September/October, that is, about six months before the budget presentation. The
circular prescribes the time-schedule for sending final estimates separately for plan and non-plan, and the
guidelines to b
e followed in the examination of budget estimates to be prepared by the department concerned The general
rule is that the person who spends money should also prepare the budget estimates.
Budget proposals normally contain the following information:
i) Accounts classification
ii) Budget estimates of the current year
iii) Revised estimates of the current year
iv) Actuals for the previous year; and
V) Proposed estimates for the next financial year (which is the budget proper).
BUDGETARY CYCLE
Parlinmentary Approval The estimates of expenditure prepared by ministries/departments are
transmitted to the Ministry of Finance by December where these are scrutinised, modified where
necessary and consolidated. The estimates of revenue are also prepared by the Finance Ministry
and thus the budget is finalised. The budget is presented to the Parliament generally on the last
working day of February. In the first stage, there is a general discussion on the broad economic and
fiscal policies of the government as reflected in the budget and the Finance Minister's speech. This
lasts about 20-25 hours.
In the second stage, there is a detailed discussion on the demands for grants, usually in respect of
specific ministries or departments. Each demand for grant is voted separately. At this stage
members of parliament may move motions of various kinds. Generally these are policy cuts,
economy cuts, and token cuts. The policy cut motion seeks to reduce the demand to rupee one and
is indicative of the disapproval of general or specific policy underlying the service to which the
demand pertains. The motion for economy cut is to reduce the proposed expenditure by a
specified amount.
BUDGETARY CYCLE
Execution of the budget The execution of the budget is the responsibility of the executive government.
The procedures for execution of the budget depend on the distribution anddelegation of powers to the
various operating levels. As soon as the Appropriation Act is passed, the Ministry of Finance advises
spending Ministries/ Departments about their respective allocation of funds. The controlling officers in
each ministryldepartment then allocate and advise the various disbursing officers. The expenditure is
monitored to ensure that the amounts placed at the disposal of the spending authorities are not
exceeded without additional funds being obtained in time.
Audit The executive spends public funds as authorised by the legislature. In order to ensure
accountability of the executive to the legislature, public expenditure has to be audited by an
independent agency. The Constitution provides for the position of the Comptroller and Auditor
General of India to perform this function. It is his/ her duty to ensure that the funds allocated to
various agencies of the government have been made available in accordance with law; that the
expenditure incurred has the sanction of the competent authority; that rules, orders & procedures
governing such expenditure have been duly observed; that value for money spent has been obtained
and that records of all such transactions are maintained, compiled and submitted to the competent
authority