Union Budget

The term ‘Budget’ is not mentioned in Indian Constitution. The related term mentioned is ‘Annual Financial Statement’. In this post, we explain the basics of Indian Budget and Government Budgeting process for beginners.

The constitutional requirements which make Budget necessary, are

  • Article 265: provides that ‘no tax shall be levied or collected except by authority of law’.
  • Article 266: provides that ‘no expenditure can be incurred except with the authorisation of the Legislature’.
  • Article 112: President shall, in respect of every financial year, cause to be laid before Parliament, Annual Financial Statement.

Railway Budget
The Budget of the Indian Railways is presented separately to Parliament and dealt with separately. But the receipts and expenditure of the Railways form part of the Consolidated Fund of India and the figures relating to them are included in the ‘Annual Financial Statement’.
Budget Presentation
In India, the Budget is presented to Parliament on such date as is fixed by the President. Since 1999 the General Budget is being presented at 11 A.M. on the last working day of February, i.e. about a month before the commencement of the Financial year except in the year when General Elections to Lok Sabha are held. In an election year, Budget may be presented twice — first to secure Vote on Account for a few months and later in full.
Vote on Account
The discussion on the Budget begins a few days after its presentation. Since Parliament is not able to vote the entire budget before the commencement of the new financial year (ie. within 1 month or so), the necessity to keep enough finance at the disposal of Government in order to allow it to run the administration of the country remains. A special provision is, therefore, made for “Vote on Account” by which Government obtains the Vote of Parliament for a sum sufficient to incur expenditure on various items for a part of the year.
Normally, the Vote on Account is taken for two months only. But during election year or when it is anticipated that the main Demands and Appropriation Bill will take longer time than two months, the Vote on Account may be for a period exceeding two months.

Vote on Account is a special provision in every budget (and not only in an interim budget) by which Government obtains the Vote of Parliament for a sum sufficient to incur expenditure on various items for a part of the year, usually two months. Vote on Account deals only with expenditure part. But interim budget as well as full budget has both receipt and expenditure side.

So presentation and passing of vote on account is the first stage in the budget passing process. Vote on Account is necessary for the working of the government till the period the full budget is passed.

Budget Speech

The Budget speech of the Finance Minister is usually in two parts. Part A deals with general economic survey of the country while Part B relates to taxation proposals. He makes a speech introducing the Budget and it is only in the concluding part of his speech that the proposals for fresh taxation or for variations in the existing taxes are disclosed by him. The ‘Annual Financial Statement’ is laid on the Table of Rajya Sabha at the conclusion of the speech of the Finance Minister in Lok Sabha.

Budget Documents
The Budget documents presented to Parliament comprise, besides the Finance Minister’s Budget
Speech, the following:

  1. Annual Financial Statement (AFS) – Article 112
  2. Demands for Grants (DG) – Article 113
  3. Appropriation Bill – Artice 114(3)
  4. Finance Bill – Article 110 (a)
  5. Memorandum Explaining the Provisions in the Finance Bill
  6. Macro-economic framework for the relevant financial year – FRBM Act
  7. Fiscal Policy Strategy Statement for the financial year – FRBM Act
  8. Medium Term Fiscal Policy Statement – FRBM Act
  9. Medium Term Expenditure Framework Statement – FRBM Act
  10. Expenditure Budget Volume-1
  11. Expenditure Budget Volume-2
  12. Receipts Budget
  13. Budget at a glance
  14. Highlights of Budget
  15. Status of Implementation of Announcements made in Finance Minister’s Budget Speech of the previous financial year.
    There are also other related documents like Detailed Demands for Grants, Outcome Budget, Annual Reports and Economic Survey presented along with the budget documents in Parliament.


Annual Financial Statement (AFS)
, the document as provided under Article 112, shows estimated
receipts and expenditure of the Government of India for next financial year (say, 2017-18) in relation to estimates for the previous financial year (ie 2016-17) as also expenditure for the year before last financial year (ie. 2015-16). The receipts and disbursements are shown under the three parts, in which Government Accounts are kept viz.,(i) Consolidated Fund, (ii) Contingency Fund and (iii) Public Account. The estimates of receipts and expenditure included in the Annual Financial Statement are for the expenditure net of refunds and recoveries, as will be reflected in the accounts.

It has the following heads.
Statement I – Consolidated Fund of India [Receipts and Expenditure: Revenue Account; Receipts and Expenditure: Capital Account]
Statement IA – Expenditure charged on the Consolidated Fund of India
Statement 2 – Contingency Fund of India
Statement 3 – Public Accounts of India [Receipts and Expenditure]
Receipts & Expenditure of Union Territories without Legislature.

Demand For Grants
Article 113 of the Constitution mandates that the estimates of expenditure from the Consolidated
Fund of India included in the Annual Financial Statement and required to be voted by the Lok Sabha are submitted in the form of Demands for Grants. The Demands for Grants are presented to the Lok Sabha along with the Annual Financial Statement. Generally, one Demand for Grant is presented in
respect of each Ministry or Department. However, more than one Demand may be presented for a
Ministry or Department depending on the nature of expenditure. In regard to Union Territories without Legislature, a separate Demand is presented for each of the Union Territories. In budget 2014-15 there were 106 Demands for Grants.

Each Demand first gives the totals of ‘voted’ and ‘charged’ expenditure as also the ‘revenue’ and ‘capital’ expenditure included in the Demand separately, and also the grand total of the amount of expenditure for which the Demand is presented. This is followed by the estimates of expenditure under different major heads of account. The breakup of the expenditure under each major head between ‘Plan’ and ‘Non-Plan’ is also given. The amounts of recoveries taken in reduction of expenditure in the accounts are also shown. A summary of Demands for Grants is given at the beginning of this document, while details of ‘New Service’ or ‘New Instrument of Service’ such as formation of a new company, undertaking or a new scheme, etc., if any, are indicated at the end of the document.

Appropriation Bill
Under Article 114(3) of the Constitution, no amount can be withdrawn from the Consolidated Fund without the enactment of such a law by Parliament. After the Demands for Grants are voted by the Lok Sabha, Parliament’s approval to the withdrawal from the Consolidated Fund of the amounts so voted and of the amount required to meet the expenditure charged on the Consolidated Fund is sought through the Appropriation Bill.
The whole process beginning with the presentation of the Budget and ending with discussions and voting on the Demands for Grants requires sufficiently long time. The Lok Sabha is, therefore, empowered by the Constitution to make any grant in advance in respect of the estimated expenditure for a part of the financial year pending completion of procedure for the voting of the Demands. The purpose of the ‘Vote on Account’ is to keep Government functioning, pending voting of ‘final supply’. The Vote on Account is obtained from Parliament through an Appropriation (Vote on Account) Bill.

Finance Bill
At the time of presentation of the Annual Financial Statement before Parliament, a Finance Bill is also
presented in fulfillment of the requirement of Article 110 (1)(a) of the Constitution, detailing the imposition, abolition, remission, alteration or regulation of taxes proposed in the Budget. A Finance Bill is a Money Bill as defined in Article 110 of the Constitution. It is accompanied by a Memorandum explaining the provisions included in it.

Macroeconomic Framework Statement

The Macroeconomic Framework Statement presented to Parliament under Section 3(5) of the Fiscal
Responsibility and Budget Management Act, 2003 and the rules made thereunder contains an assessment of the growth prospects of the economy with specific underlying assumptions. It contains assessment regarding the GDP growth rate, fiscal balance of the Central Government and the external sector balance of the economy.

Fiscal Policy Strategy Statement
The Fiscal Policy Strategy Statement, presented to Parliament under Section 3(4) of the Fiscal Responsibility and Budget Management Act, 2003, outlines the strategic priorities of Government in the fiscal area for the ensuing financial year relating to taxation, expenditure, lending, and investments, administered pricing, borrowings and guarantees. The Statement explains how the current policies are in conformity with sound fiscal management principles and give the rationale for any major deviation in key fiscal measures.

Medium-term Fiscal Policy Statement
The Medium-term Fiscal Policy Statement presented to Parliament under Section 3(2) of the Fiscal
Responsibility and Budget Management Act, 2003, sets out three-year rolling targets for four specific fiscal indicators in relation to GDP at market prices namely (i) Revenue Deficit, (ii) Fiscal Deficit, (iii) Tax to GDP ratio and (iv) Total outstanding Debt at the end of the year. The Statement includes the underlying assumptions, an assessment of sustainability relating to balance between revenue receipts and revenue expenditure and the use of capital receipts including market borrowings for generation of productive assets.

Medium-term Expenditure Framework Statement
The Medium-term Expenditure Framework Statement presented to Parliament under Section 3 of the
Fiscal Responsibility and Budget Management Act, 2003 sets forth a three-year rolling target for the expenditure indicators with a specification of underlying assumptions and risks involved. The objective of the MTEF is to provide a closer integration between budget and the FRBM Statements.
PS: This Statement is presented separately in the session next to the session in which Budget is presented, i.e. normally in the Monsoon Session.

Annual Reports
A descriptive account of the activities of each Ministry/Department during the year 2016-2017 is given in the document Annual Report which is brought out separately by each Ministry/Department and circulated to Members of Parliament at the time of discussion on the Demands for Grants.

Economic Survey
The Economic Survey brings out the economic trends in the country which facilitates a better appreciation of the mobilisation of resources and their allocation in the Budget. The Survey analyses the trends in agricultural and industrial production, infrastructure, employment, money supply, prices, imports, exports, foreign exchange reserves and other relevant economic factors which have a bearing on the Budget, and is presented to the Parliament ahead of the Budget for the ensuing year.

Cut Motions:
Parliament being the authority to check the expenditure of the government, it may not approve all demands. Cut motions are motions in the parliament moved to reduce the amount of a demand.

A Cut motion may be moved to reduce the amount of a demand in any of the following ways:-
1. Disapproval of Policy Cut Motions
A Disapproval of Policy Cut motion is moved so that the amount of the demand be reduced to Re.1.
It represents the disapproval of the policy underlying the demand.
A member giving notice of such a motion shall indicate in precise terms the particulars of the policy which he proposes to discuss.
The discussion shall be confined to the specific point or points mentioned in the notice and it shall be open to members to advocate an alternative policy.

2. Economy Cut Motions
An Economy Cut motion is moved so that the amount of the demand be reduced by a specified amount.
It represents the economy that can be effected.
Such specified amount may be either a lump sum reduction in the demand or omission or reduction of an item in the demand.
The notice shall indicate briefly and precisely the particular matter on which discussion is sought to be raised and speeches shall be confined to the discussion as to how economy can be effected.

3. Token Cut Motions
A Token Cut motion is moved so that that the amount of the demand be reduced by Rs.100.
This is to ventilate a specific grievance which is within the sphere of the responsibility of the Government of India.
The discussion thereon shall be confined to the particular grievance specified in the motion.

Speaker to decide admissibility
The Speaker shall decide whether a cut motion is or is not admissible under these rules and may disallow any cut motion when in his opinion it is an abuse of the right of moving cut motions or is calculated to obstruct or prejudicially affect the procedure of the House or is in contravention of these rules.

Notice of cut motions
If notice of a motion to reduce any demand for grant has not been given one day previous to the day on which the demand is under consideration, any member may object to the moving of the motion, and such objection shall prevail, unless the Speaker allows the motion to be made.