Meaning and Scope of Budget (Annual Financial Statement)


Ajit Kumar AJIT KUMARWISDOM IAS, New Delhi.

A government budget is defined as a legal document that is passed by the legislature, and approved by the chief executive-or President. The two basic elements of any budget are the revenues and expenses. Unlike a pure economic budget, Government Budget is designed for optimal allocation of scarce resources taking into account larger sociopolitical considerations.
 
The main objective of Government financial management is to determine how well the financial
and resource management responsibilities have been discharged. This is based amongst others, on a comparison of accomplishments against the fiscal policies and the time bound Government
programmes. These fiscal policies and programmes determine the Budget of the Government, through which the amounts of revenue to be raised and the allocation of sums for the respective Government programmes and purposes are set. Budgeting therefore, involves determining for a future time period on what is to be done and achieved, the manner in which it is to be done and the resources required for the same. It requires the broad objectives of the Government to be broken down into detailed work plans for each programme and sub-programme, activity and projects for each unit of the Government organization.
 
The Union Budget of India, also referred as the General Budget, is presented each year on the
last working day of February by the Finance Minister of India to the Parliament. Article 112 of the Constitution of India stipulates that Government should lay before the Parliament an Annual Financial Statement popularly referred to as ‘Budget’. The Union Budget is currently presented through 14 documents, some of which are mandated by the Constitution while others are Explanatory documents. Budget preparation in India is an iterative process between the Ministry of Finance/Planning Commission and the spending Ministries. It is a combination of top down approach with the Ministry of Finance and the Planning Commission issuing guidelines or communicating instructions to spending Ministries, and a bottom-up approach, wherein the
spending Ministries present requests for budget allocation.
 
Some of the salient features of Union Budget are as follows-
 
1. Budget is prepared on Cash Basis:
Whatever is expected to be actually received or paid under proper sanction during a financial year (including arrears of the past years) should be budgeted in that year.
 
2. Rule of Lapse: All appropriations granted by the Parliament expire at the end of financial
year and no deduction of unspent budget can be appropriated for meeting the demands in
the next financial year. Thus, all unutilized funds within the year ‘lapse’ at the end of the
financial year.
 
3. Realistic Estimation: It is essential that the provisions in the budget should be restricted
to the amount required for actual expenditure. The Finance Ministry is interested in seeing that the Departments do not obtain more/less money than what they really need. If a Department is allotted funds which it does not need, it will deprive some other Department from getting the required resources.
 
4. Budget to be on Gross/Net Basis: Budget is prepared both on the gross basis and net
basis. The gross figures of receipts and expenditure of the Government are reflected separately for voting by Parliament and the Departments/Ministries are normally not permitted to utilize the receipts or deduct expenditure in their budget proposals. Net basis of budgeting is done in case of some Grants e.g. Defence Ordnance Factories, and Department of Posts wherein the departmental receipts are allowed to be utilized and outlays on gross as well as net
basis are reflected.
 
5. Form of Estimates to Correspond to Accounts:
It is essential that the form in the budget estimates correspond to that of Government accounts as it is from these accounts, that the performance of the Government is judged and the estimation for subsequent year made. If these are prepared in different forms, financial control will also
become difficult.
 
6. Estimates to be on Departmental Basis:
Each Department prepares estimates for receipts and expenditure separately. Generally one Demand or Grant is allocated in respect of each Ministry/Department. In case of certain large Departments/Ministries more than one Demands for Grants is allocated in terms of General Financial Rules.
 
Scope of the Budget
 
The Budget is presented to the Parliament in such form as the Finance Ministry may decide after
considering the suggestions, if any, made by the Estimates Committee. Broadly the Budget documents depict information relating to receipts and expenditure for three years i.e.-
 
i. Through Budget Estimates (BE) of receipts and expenditure in respect of Budget year
(current financial year);
ii. For the year preceding the Budget year (current year) through Revised Estimates
(RE); and
iii. Actuals of the second year proceeding the Budget year.
 
Budget thus sets forth the receipts and the expenditure of the Government for three consecutive
years. The Annual Financial Statement shows the receipts and expenditure of Government in three separate parts under which Government accounts are maintained viz.
 (i) Consolidated Fund of India
 (ii) Contingency Fund of India and the
 (iii) Public Account.
As per Constitutional provisions (Article 112) the Annual Financial Statement has to distinguish
expenditure on revenue account from other expenditure. It, therefore, comprises of (i) Revenue
budget and (ii) Capital Budget. Broad break-up of expenditure on Plan and Non Plan i.e. expenditure which is part of normal activities of the Government or maintenance expenditure, sectoral allocation of Plan Outlays, details of resources transferred to States and Union Territory Governments are also reflected in the budget documents.
 
The expenditure of certain categories, charged on the Consolidated Fund of India and not
being subject to the Vote of Parliament are also indicated separately in the Budget. The Demands for Grants show separately the revenue and capital, and the charged and voted expenditure. Similarly, estimates of receipts are classified in the tax and  on-tax receipts and also those which are on revenue account and others which are on capital account.
 
The Union Budget is presented to Parliament in two parts i.e. Railway Budget pertaining to Railway Finance and General Budget which gives an overall picture of financial position of the Government of India including the effect of Railway Budget. The three Statements presented to the Parliament viz. the Macroeconomic Framework Statement, the Medium Term Fiscal Policy Statement and the Fiscal Policy Strategy Statement Under the FRBM mandate, has further enhanced the scope of Budget to provide an assessment of the growth prospects of the economy, indicate the rolling targets for specific fiscal indicators as well as outline the strategic priorities of the Government in the fiscal area for the ensuing year.

Saturday, 13th Feb 2016, 08:31:23 PM

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