How to read the Budget
Documents which constitute Union Budget
Union Budgets are awaited eagerly by politicians, businessmen and the common man. The focus of interest is generally the budget proposals on direct and indirect taxes. For this only the Union Finance Minister's speech and a Memorandum explaining the budget proposals are deliberated. Relatively, very little attention is paid to the huge amounts mobilised and disbursed by the Union government every year on thousands of schemes. The magnitude and direction of this mobilisation should be far more rewarding to businessmen than the proposed changes which tinker at the margins of the structure of receipts and the disbursements. Thus, in 2000-01, the disbursements through the Central government budget added to Rs 325,611 crore, which is 16 per cent of the GDP for the year, and the budget proposals of Rs 10,500 crore for additional revenue mobilisation in 2002-03 constituted just around 3 per cent of the total disbursement budgeted for the year.
We wish that the interest in the budget should be much more broad-based for academicians, businessmen and the common man. With this end in view, we delineate the main documents, which constitute the Union Budget.
Union Finance Minister's speech
The speech is generally in two parts. The first deals with a review of implementation of the preceding year's schemes, revised estimates for the completed year and the budget estimate for the next year, without taking into account the impact of budget proposals. Part two of the speech deals with revenue mobilisation through tax proposals.
Annual Financial Statement
The Annual Financial Statement shows the receipts and payments of government under the three parts in which government accounts are kept: (i) Consolidated Fund, (ii) Contingency Fund, and (iii) Public Account. 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 All expenditure of government is incurred from the Consolidated Fund and no amount can be withdrawn from the Fund without authorisation from Parliament. Under the Constitution, budget has to distinguish expenditure on revenue account from other expenditure. Government budget, therefore, comprises Revenue Budget and Capital Budget
Demands for Grants
The estimates of expenditure from the Consolidated Fund, included in the Annual Financial Statement and required to be voted by the Lok Sabha, are submitted in the form of Demands for Grants in pursuance of article 113 of the Constitution. Generally, one Demand for Grant is presented in respect of each ministry or department.
Under the present accounting and budgetary procedures, certain classes of receipts, like payments made by one department to another and receipts of capital projects or schemes are taken in reduction of the expenditure of the receiving department. The estimates of expenditure included in the Demands for Grants are for the gross amounts while the estimates of expenditure included in the Annual Financial Statement are for the net expenditure as is reflected in the accounts, that is after taking into account the recoveries.
The proposals of government for levy of new taxes, modification of the existing tax structure or continuance of the existing tax structure beyond the period approved by Parliament are submitted to Parliament through the Finance Bill. To facilitate easy comprehension of the budget, certain explanatory documents are presented along with the budget.
Budget at a Glance
Budget at a Glance shows, in brief, receipts and disbursements along with broad details of tax revenues and other receipts. This document also exhibits broad break-up of expenditure-Plan and non-Plan, allocation of Plan outlays by sectors as well as by ministries and departments and details of resources transferred by the Central government to State and Union territory governments. This document also shows the revenue deficit, the gross primary deficit, the budgetary deficit and the gross fiscal deficit of the Central government.
The excess of government's revenue expenditure over revenue receipts constitutes revenue deficit of government.
Taking into account the capital expenditure and capital receipts there is a gap between receipts and expenditure of a year. This gap, which is covered by issue of 91 days Treasury Bills (mostly held by Reserve Bank), constitutes overall budgetary deficit.
Apart from this borrowing through Treasury Bills, government also borrows funds under many schemes, which form part of capital receipts. The difference between the total expenditure of government by way of revenue, capital and loans net of repayments on the one hand and revenue receipts of government and capital receipts, which are not in the nature of borrowing but which finally accrue to government, on the other, constitutes gross fiscal deficit.
Gross primary deficit is measured by gross fiscal deficit reduced by gross interest payments.
Expenditure Budget Vol.1 nets expenditure of related receipts so that inflation of receipts and expenditure figures are avoided and there can be a better appreciation of the magnitudes of various expenditure. Expenditure Budget Vol.2, brings together the estimates made for a scheme/ programme and shows them on a net basis at one place, by major heads. To understand the objectives underlying the expenditure proposed for various schemes, programmes etc., in the Demand for Grants, suitable explanatory notes are included in this volume in which, wherever necessary, brief reasons for variations in the estimates are also given.
The receipts budget gives details of revenue receipts and capital receipts and explains the estimates. Trend of receipts over the years and details of External Assistance received are also included. To facilitate understanding of the taxation proposals made in the Finance Bill, the provisions of the Bill are explained in the document titled Memorandum explaining the provisions in the Finance Bill.
Detailed Demands for Grants
The Demands for Grants are followed by the Detailed Demands for Grants laid on the table of the Lok Sabha some time after the presentation of the budget, but before the discussion on Demands for Grants commences. These Detailed Demands for Grants show further details of the provisions included in the Demands for Grants as also of actual expenditure during the previous year.
Resource Transfers to States
The state governments are paid grants and loans for various Plan and non-Plan purposes. Besides, sizeable amounts of tax revenues collected by the Central government in the form of income tax and Union excise duties are also transferred to the state governments. Some of the states also get grants to cover the gap in their revenue resources, as recommended by the Finance Commission. The total resources transferred to State and Union territory governments are indicated in Budget at a Glance. Further details of these transfers by way of share of taxes, grants-in-aid and loans are given in Expenditure Budget Vol.1. Such resource transfers accounted for 28 per cent of the total spending of the Central government in 2001-02.
The Demands for Grants of the various ministries show the Plan expenditure under each head separately from the non-Plan expenditure. The Expenditure Budget Vol. l also gives the total Plan provisions for each of the ministries arranged under the various heads of development and highlights the budget provisions for the more important Plan programmes and schemes. A description of important schemes included in the Plan along with the objectives, targets and achievements is given in the Performance Budget of the respective ministry. Variations in the estimates of Plan expenditure are also explained in this document.
Performance Budgets are prepared and circulated to Members of Parliament by all
ministries and departments dealing with developmental activities. The Performance Budget presents the budget of the ministry and department in terms of functions, programmes and activities and gives appraisal reports separately in respect of major Central sector projects/programmes estimated to cost Rs 100 crore or more.
Public Sector Enterprises
A large part of the Plan expenditure incurred by the Central government is through public sector enterprises. Budgetary support for financing outlays of these enterprises is provided by government either through investment in share capital or through loans. Expenditure Budget Vol.1 shows the estimates of capital and loans disbursements to public sector enterprises for Plan and Non-Plan purposes and also the extra budgetary resources available for financing their Plans.
A detailed report on the working of public sector enterprises is given in the document titled "Public Enterprises Survey" brought out separately by the Department of Public Enterprises. A report on the working of the enterprises under the control of the various administrative ministries is also given in the annual reports of the various ministries circulated to MPs separately. The annual reports along with the audited accounts of each of the government companies are also separately laid before Parliament. Besides, the reports of the Comptroller and Auditor-General of India on the working of various public sector enterprises are also laid before Parliament.
Departmental Commercial Departments
The Railways and telecommunication services are the principal departmentally run commercial undertakings of government. The Railway Budget and the Demands for Grants relating to Railway expenditure are presented to Parliament separately. The total receipts and expenditure of the Railways are incorporated in the Annual Financial Statement of the Government of India. However, to portray the actual working of these departments and not inflate receipts or expenditure, the expenditure as reflected in the Receipts Budget & Expenditure Budget Vol.1 and 2 has been taken net of receipts.
Annual Reports of Ministries
A descriptive account of the activities of each ministry and department during the year is given in Annual Report, which is brought out separately by each ministry and department and circulated to MPs at the time of discussion on the Demands for Grants.
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, money supply, prices, imports and exports and other relevant economic factors that have a bearing on the budget.
For a better appreciation of the impact of governmental receipts and expenditure on other sectors of the economy, it is necessary to group them in terms of economic magnitudes; for example, how much is set aside for capital formation, how much is spent directly by the government and how much is transferred by government to other sectors of the economy by way of grants, loans etc. This analysis is contained in the document Economic and Functional Classification of the Central Government Budget, which is brought out by the Ministry of Finance separately.
After the Lok Sabha votes on the Demands for Grants, 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.