Paper-IX : Public Policy and Administration in India

Unit-3 : Budget

(b) Budget Cycle in India

Vishal Kumar Gupta

Structure
• Introduction
• History of Budget system in India
Budget system in pre-colonial period
Budget system in colonial period
Budget system in the post-colonial period
• Budget Cycle
Budget Preparation
Enactment of the Budget
Execution of the Budget
• Conclusion
• References
• Important Questions
Introduction
The budget cycle describes the activities and procedures to developing a budget for a
financial year (from 1 April to 31 March). The time period of the financial period varies
depending on the organization and the stated goals of a particular budget.The function of a
budget cycle is to define the stages from the beginning to the end of the process. However,
the budget is actually a continuous process, which is why the term budget cycle is used in this
context. In this chapter we will explain the History of the Budget system of India, Budget
cycle and the Execution of the Budget.
History of Budget System in India
It is often said by some scholars that the budget is a byproduct of modern phenomena, but in
ancient and medieval India, there was a provision of budget and that budget was made in
huge detail. Unquestionably, the modern budget system was launched only after when the
British government directly took over the reins of the country. In India, the study of the
emergence of the budget system and the evolutionary developments can be studied by
dividing it into three periods for convenience, which is as follows:
Budget system in pre-colonial period
It is known from various historical sources that there was an advanced budget system in
ancient India. The systematic confirmation of this fact comes from the Arthashastra written
1
by Kautilya, which describes the Mauryan administration. This is an example of a good
budget system. It has indetailed and comprehensive rules which related to maintenance,
submission and scrutiny of accounts. Every year, the Finance Minister used to keep an
account of the opening balance in the treasury and all the current expenditures including the
projects being run and the projects being completed. Along with this, the details of receipts
coming from all the sources and the possible balance at the end of the year were kept all
receipts and expenditure of revenue capital accounts in full and micro accounts. All proposed
new and investment-oriented expenditure plans were made and included in the budget.
Estimates for the coming year and actual results for the previous year were included in
the accounts. The entire cabinet had a secret meeting in which they were reviewed and their
accuracy, fullness and satisfactory nature were decided upon all subjects. Their task was to
verify the actual data, check the conformity of the expenditure incurred by receipts and
certificates, confirm that the value of every penny spent has been recovered and that clerks,
officers and department heads. Whether or not he has performed his duty with honesty and
efficiency. In order to make the system effective, there was also a system of punishments and
rewards. The punishments and awards were given to clerks, high officials, superintendents
and even the Auditor General alike. The financial system of the rulers of the Delhi Sultanate
and the Mughal Empire was also no different from that of the Mauryan system. This fact is
confirmed in the writings of various historians with reference to the reigns of Akbar and
Jahangir.
Budget system in colonial period
After the advent of British rule, the Indian financial system effectively came under the
control of the East India Company. Till 1833, the Presidencies of Bombay, Calcutta and
Madras were independent in financial matters and there was no centralized financial system.
This situation changed with the Charter Act of 1833 as the right to supervise, direction and
control all revenues was transferred to the Governor General of India-in-council through this
Act. The main intention of the East India Company was territorial expansion, so expenditure
was increased due to the war. Huge money was remitted to Britain in the name of interest to
the Indian debt, investment on railways and interest on civil and military expenses incurred
by Britain in the name of India and maintenance of office of East India Company in India.
After the revolution of 1857, there was chaos in financial administration. After that
British Empire took the administration of India under its control, the financial system became
in line with the system prevailing in Britain. Provision of highly centralized financial system
and administrative control was made to cater to the imperialist interests. The first formal
budget in India was presented in 1860 by Sir James Wilson, the finance member of the
Governor-General-in-Council. At that time there was no elected legislature in India. (When
the first modern budget was presented in 1860, the budget adopted by the government came
into the effect from 1 May to 30 April. Subsequently, in the beginning of 1866, the financial
year was changed to April-March. As it was in accordance with the custom prevalent in
Britain.) The budget was not even presented before the British Parliament. However, the

2
budget made the Governor General of the Viceroy's Council accountable to the Council-in-
State Secretaries in London, which looked after Indian affairs as a member of the British
Cabinet. The Secretary of State became the primary source of complete power.
The Government of India Act,1935 blow to his powers. In addition to the control of
services, the Secretary of State relinquished most of his powers. The Governor General and
the Governors had privileges and authority over reserved subjects which were outside the
purview of legislative financial control with items in charge. They could also relocate any
demands rejected or reduced by the legislature. Additionally, no such expenditure could be
incurred, even if it was passed by the legislature in a lawful manner, unless it was included in
the Governor General's or the Governor's authenticated Expenditure Notification.
In short, the system of financial control was very rigorous, rule-oriented and complex
during the time of budget formation and approval of expenditure. This system naturally
discouraged any important initiative motivation towards change and development. Hence
control over financial administration was only helpful to imperialist interests. This
independence of Indiafrom British government, inherited this financial system, full of
disorders and harshness.
Budget system in the post-colonial period
After the independence, there were major changes in the objectives, policy structures of
financial administration. The conflict between aspirations and policies and procedures
targeting public opinion and financial administration came to an end in a single day.
Unquestionably, the basic features of the Government of India Act 1935 were retained, but
there was no inconsistency between these instruments and national priorities. These tools
could be changed to suit the changed goals and the same was done.
The budget procedure in India follows the provisions given in Articles 112 to 117 of the
Constitution. Accordingly, the annual budget of the Union, which is called the 'Financial
Statement' of the Income-Expenditure Estimates, should be presented to both the Houses of
Parliament in respect of each financial year. The budget shows the receipts and payments of
the government in three parts, under which government accounts are classified:
Consolidated Fund: All the revenue received by the government, such as customs, excise,
income tax, estate duty, other taxes and duties and the money received by the government
from the recovery of loans, are all deposited in the Consolidated Fund. After the approval of
the Parliament, the government bears all its expenses with this fund. That is why it is called
the Consolidated Fund of India.
Contingency Fund: According to Article 267, Parliament has been given the power to set up
a fund. This fund is called the Contingency Fund of India. The fund is periodically deposited
through laws passed by Parliament. This fund is under the control of the President and to
meet the contingent needs of the country, funds are made available by the President to the
government through this fund.

3
Public Account: Apart from Consolidated funds, there are some such transactions in the
government accounts for general income expenditure by the government in relation to which
the government acts like a banker; In other words, the money which deposited in the account
does not belong to the government and this money has to be returned at a time to the
individuals or officials who deposit it. Therefore, parliamentary approval is not required for
payment from a public account.
Charged Expenditure
Some of the items of expenditure under the Constitution such as the President's emoluments,
the salary and allowances of the Chairman of the Rajya Sabha, the Deputy Chairman and the
Speaker and Deputy Speaker of the Lok Sabha, the salary and pension of the Judges of the
supreme court and Auditor General, loans and interest received by the Government Payments
etc. are made from Consolidated funds to comply with the payment and order of the court. It
is not voted by the Parliament. The expenditure incurred from the Consolidated fund is
shown separately in the budget.
Budget Cycle
To provide timeliness to executive and legislative processes, the budgeting process is made in
a circular manner. In a responsible government, the process of approval or acceptance is very
important. There are four stages in this cycle.
1. Preparation of income-expenditure estimates for the coming financial year;
2. Receipt by Parliament in the form of Revenue Acts and Appropriation Acts;
3. Implementation of Revenue Acts and Appropriation Acts; And
4. Review and control of financial activities by audit on behalf of the Parliament.
At a particular point of time, several cycles are in operation and they are overlapping.
Different segments of the budget cycle have different operating periods.
Budget Preparation
The budget formulation process in India begins formally during September / October, six
months before the presentation of the budget, on the receipt of a circular from the Ministry of
Finance. In the different circulars of the plan and non-plan miscellaneous items, the list of the
time of sending final estimates and the guidelines for testing the budget estimates made by
the concerned department are also given. According to the budget and accounting
classification, the budget estimates prepared by the Ministries and Departments are analyzed
by the Financial Advisors concerned. The plan items of the Union Budget are finalized in
consultation with the NITI Aayog and are based on the Annual Plan.
Enactment of the Budget
The budget in Parliament passes through five stages:
1. Presentation of Budget,
2. General Discussion,

4
 3. Voting on Demands for Grants
4. Passing of Appropriation Bill,
5. Passing of Finance Bill.
1. Presentation of Budget: The budget session of the Indian Parliament starts in the mid-
February. The budget is presented in Parliament into two parts, the Railway Budget and
the General Budget. The Railway Budget contains the details of Railways' income and
their expenditure and is presented by the Railway Minister. The general budget is
related to the demands of all other departments except the Railways. It is presented by
the Finance Minister in the Parliament.
Integration of Railway and General Budget: Since 1924, the tradition of presenting the
Railway Budget separately from the General Budget started. In the beginning of 2016,
the NITI Aayog also suggested to merge these two budgets again. That is, the railway
budget should be presented in conjunction with the general budget. From the financial
year 2017-18, the same budget has now started to be presented.
2. General Discussion: General discussion on the budget starts a few days after its
presentation. Normally, this discussion of three to four days goes on in both the houses
of Parliament. It is a British tradition and heritage. At this stage, the Lok Sabha can
discuss the entire budget or any theoretical aspect of it, but during this time neither a
motion can be introduced nor the budget can be put up for voting in the House. At the
end of the discussion, the Finance Minister is authorized to give a general answer.
3. Voting on Demands for Grants: At the end of the general discussion, the Lok Sabha
begins the process of voting on the Demands for Grants which is not a weighted
expenditure on the Consolidated Fund of India. Separate voting cantake place for every
demand. At this stage, MPs can discuss the details of the budget. They can also propose
to reduce or decrease the demand for a particular grant. These proposals are also called
'Cut Motions'. These are of three types:
Policy Cut Motion: It refers to the rejection of the policy on demand. Accordingly, the
amount of demand can be reduced to a certain amount (which may be a one-time
reduction in demand or non-inclusion or reduction of any one item in the demand).
Economic Cut Motion: This proposal is introduced to reduce the amount of money in a
fixed budget from the point of view of economy due to out of demand. If an MP feels
that unnecessary expenditure is being incurred in a demand, then he can present it.
Token Cut Motion: It brings forth the complaint/problem which is under the
jurisdiction of the Government of India. Under this, 100 rupees can be deducted from
the total amount of demand.
Voting on demands is entirely the prerogative of the Lok Sabha, the Rajya Sabha does
not participate in it. Twenty-six days have been set for voting in India like Britain. It is
clear from this limited time system that many demands are passed without any
5
 discussion. The Speaker, in consultation with the Leader of the House, determines the
time for which demand or demand group and for the entire expenditure part of the
budget. As soon as the deadline is over, the demand is immediately put up for voting,
whether it has been discussed or not. This is called ‘Guillotine’.
4. Passage of Appropriation Bill: The next step is to pass the annual Appropriation Bill.
According to Article 114 of the Constitution, "No money shall be withdrawn from the
Consolidated Fund of India without appropriation by the law." In other words, all the
expenses and investments made in the context of public welfare of the Government of
India are mentioned in the Appropriation Bill. Hence, the Appropriation Bill has
introduced, so that funds can be withdrawn from the Consolidated Fund of India for the
grant and charged expenditure sanctioned by the Lok Sabha.
No amendment can be introduced in either House of Parliament on the
Appropriation Bill which changes the amount of grant sanctioned or changes its
destination, or reduces the amount of any expenditure charged from the Consolidated
Fund of India or You do more. The Appropriation Bill, after the assent of the President,
becomes an Appropriation Act. The Act legalizes the payments to the Consolidated
Fund of India. This means that until the Appropriation Bill becomes an Act, the
Government cannot withdraw any kind of money from the Consolidated Fund of India.
It takes time and usually runs till the end of April, but after 31 March, the government
needs money for its normal functioning. To overcome this functional difficulty, the Lok
Sabha has been empowered by the Constitution to grant any advance grant for the
estimated expenditure for a part of the financial year till the completion of the voting
process on the Demands for Grants and the passing of the Appropriation Bill. This
arrangement is called Vote on Account. It is passed after the completion of the general
discussion on the budget. Typically, this occurs for two months.
5. Passing of Finance Bill: The Appropriation Act empowers the government to withdraw
funds from the Consolidated Fund, but it has not yet been arranged where the money
will come from. Hence, there is a system of collecting money by taxation. A Finance
Bill is introduced in the House for this purpose. The bill contains financial proposals of
the government for the next year. The details of various taxes, fees etc. levied by the
Government of India are given in the Finance Bill. 'Finance Bill', under Rule 219 of the
Lok Sabha, means a Bill which is introduced for the purpose of implementing the
financial proposals by Government of India for the coming financial year and a bill to
implement the supplementary financial proposals of any period is included.
Amendments may be made to the rejection or reduction of any tax in respect of the
reversal of the appropriation bill. According to the Tax Collection Act, 1931, a financial
bill should be enacted or passed in Parliament within 75 days and approved by the
President.

6
Execution of the Budget
Implementation of the budget is the responsibility of the executive government. The process
of implementation of the budget depends on the distribution and delegation of powers at
various operating levels. As soon as the Appropriation Act is passed, the Ministry of Finance
advises the spending ministries and departments about their allocated funds. Then the
controlling officers of each ministry and department provide allocation and advice to
different disbursing officers. The expenditure is organized in such a way that the amount
given in the hands of the spending authority is not spent before the additional amount is
received. In short, the financial system is made up of the adjustment of the following
elements:
A. The Controlling Officer, generally the head of the Ministry and Department, acts as
the Controlling Officer,
B. A system of capable officers that grants financial approval,
C. Arrangement of imperatives and disbursing officers, and
D. Arrangement of payments, receipts and accounts.
The Department of Revenue in the Ministry of Finance controls and supervises the system of
collection of direct and indirect taxes. This control is maintained by the Central Board of
Direct Taxes and Central Board of Indirect Taxes. The board is the central bank which is
implementing various tax laws. Nationalized banks and treasury agencies are also executing
finance collection and distribution services.
Audit
The executive spends public funds which are authorized by the legislature. The Government
conducts an audit of public expenditure by an independent agency to determine its liability to
the Parliament. For this work, the Constitution provides the post of Comptroller and Auditor
General of India. It is his duty to ensure that the allocation of funds to various agencies of the
government is done by the law, the rules, orders and procedures to governing such
expenditure have been followed, the value of the money spent has been received and such
transactions. The documents of the loan have been kept, compiled and submitted to the
competent authority. This is the last phase of the budget cycle.
Conclusion
Thus, we can say that there is a long procedure of budget formulation and enactment in India.
Many reforms were brought by the colonial rule, especially in 1919 and thereafter in 1935.
The system of finance controls the inherited by India in 1947 was highly rigid, rule-oriented
and complex. Essentially it was for the achievement of fundamental colonial objectives and
not for the solution of national problems. Undoubtedly, public welfare is the main objective
of the budget. Therefore, according to their expectations and requirements for the
development of Indian people, the budget is presented every year by the government. In this
context, the efficiency and transparency of the budget cycle plays a useful and decisive role.

7
References
• Thavaraj, M.J.K., 1978. ‘Financial Administration of India’. Delhi: Sultan Chand &
Sons.
• Cox III, Raymond W., Susan J. Buck, and Betty N. Morgan. 1994. ‘Public
Administration in Theory and Practice’. India: Pearson.
• Premchand A, 1983. ‘Government Budgeting and Expenditure Control: Theory and
Practice’, IMF: Washington DC.
• Burkhead, Jesse, 1956. ‘Government Budgeting’. New York: John Wiley & Sons.
• Henry Nicholas. 1986. ‘Public Administration and Public Affairs’, Prentice Hall.
• Goel, S.L. 2010. ‘Social Welfare Administration, Part II’. New Delhi: Deep and Deep
Publications.
• Holzer, Marc and Richard W. Schwester. 2011. ‘Public Administration: An Intro-
duction’. New Delhi: PHI Learning.
• Bhattacharya, Mohit.2013. ‘New Horizons of Public Administration’, New Delhi:
Jawahar Publishers and Distributors.
• Chakrabarty, Bidyut and Chand, Prakash. 2012. ‘Public Administration in a Globalizing
World’, New Delhi: SAGE Publication India Pvt Ltd.
• Kashyap, Subhash C. 1999. ‘A New Parliamentary Initiative: Subject-based Standing
Committees of Parliament’, Economic and Political Weekly, 6 October: 3247.
• Maheshwari, Arasthiand. 2010. ‘Public Administration’. Agra: Lakshmi Narain
Agarwal.
• Prasad, Kamala. 2006. ‘Indian Administration: Politics, Policies and Prospects’. New
Delhi: Pearson Longman.
• Rao, M. Govind. 2009. ‘The Fiscal Situation and a Reform Agenda for the New
Government’, in Economic and Political Weekly, 20 June.
• Singh, Amita. 2002. ‘Public Administration: Roots Are Wings’. New Delhi: Galgotia
Publishing.
• The Encyclopedia of Social Sciences, vols. III and IV.
Important Questions
1. Write an analyticalnote on the history of Budget in India?
2. What do you understand by 'Cut Motions'?
3. Highlight the provisions related to the Budget in the Indian Constitution?
4. Write an essay on various stages of the Budget Cycle?
5. What do you understand by the Execution of the Budget?