THE BUDGETARY PROCESS

OF
THE STATE GOVERNMENT

C.K.Koshy IAS (Retd)

 Significance of the Budget
 The ‘Balance Sheet’ of the Government
 Statement of the Income and Expenditure
 Laid before the elected representatives of the
Legislative Assembly for discussion
 Contains a review of the programs and policies
of the last year
 Announcement of the programs and policies of
the ensuing year
 Significance of the Budget
 Proposals for taxation. Affirms the
principle of ‘No taxation without
representation’
 Defeat of any budget proposal on the
floor of the house means defeat of the
government
 The Appropriation Bill: Passage means
the appropriation of funds to meet
expenditure. No expenditure without
authorisation
Constitutional Provisions

The Constitution of India

contains elaborate provisions
regarding Financial matters
and the Budget
 Article 265

No tax shall be levied or

collected except by authority
of law
 Articles 266, 267
 Establishment of the Consolidated Fund
(Art.266)

 Establishment of Public Accounts.

(Art.266(2)

 Establishment of the Contingency Fund

(Art.267)
 Articles268-281
Distribution of Revenue
between Centre and States
 Taxeslevied by Union but collected by States.
(Art.268)
Ex. Stamp Duty under Indian Stamps Act

 Taxeslevied and Collected by Union but

assigned to States.(Art.269)
Ex. Succession Duty, Estate Duty, Central Sales Tax, Consignment Tax

 Taxes levied and collected by Union and

distributed between Union and States.(Art.270)
Ex. Income Tax, Addl. Excise Duty
 Articles 280-81

The Finance Commission

 Articles 202-209
Procedures in Financial Matters

The Governor shall in respect of every

financial year cause to be laid before
the House or Houses of Legislature of
the State, a statement of the
estimated receipts and expenditure of
the State for that year, in this part,
referred to as the annual financial
statement. (Art. 202)
 Format of the Budget
 “Charged”Expenditure on the
Consolidated Fund.

 Sums to meet Other Expenditure.

 Expenditure
on Revenue Account and
Other Expenditure.
 Charged Expenditure
Article 202(3)
Not Submitted to Vote
 Emoluments and allowances of the Governor.
 Salaries and allowances of the Speaker and
Deputy Speaker.
 Debt Charges.
 Salaries and allowances of the Judges of the
High Court.
 Sums to satisfy judgment, decrees or awards of
any court or arbitral Tribunal
 The Budget Procedure

Under the Rules of Business of the

State Govt., responsibility of
preparing the Budget, presenting it
before the Legislative assembly and
steering it to its final passage, is
vested in The Finance Minister and
the Finance Department.
 Preparation of the Budget
 Usually in July-August every year, the
Finance Department issues circulars to
all Administrative Depts. and calls for
time bound budget proposals in the
prescribed format.
 They include:
1. Standing Charges
2. Plan and Non-Plan Continuous Items
3. Plan and Non-Plan New Items
4. Revised Estimates for the year
5. Estimates of Revenue Receipts for Tax
and non tax revenues
 Preparation of the Budget
(Contd.)

 Detailed consultations take place

between Finance Department and each
individual Dept. as well as the Planning
Department.
 Brainstorming takes place on new
schemes, programs, policies
 New taxation as resource mobilisation
measures.
 Approval of the Budget

 Approved by the Cabinet.

 At this stage, kept “Top Secret” (Why?)
 Presentation of the Budget in the
Legislative Assembly by the Finance
Minister
 In Gujarat process is completed before
31st March. In Maharashtra, Budget
presented after Union Budget is
presented
 The Finance Minister’s
Speech
 PartA: Govt. Plans, Economic
Policies, New Schemes/Programs to
be taken up in the new year.

 Part
B: Additional resource
mobilization measures, new taxes,
enhancement of existing taxes.
 Passage of Budget
 After the Finance Minister’s speech in the
Assembly, Budget proposals discussed for 4
days.
 Demand wise discussions take 12 days.
Budget passed thereafter.
 Cut motions and their significance.
 After discussions, Budget put to vote
(Except Charged Items)
 Appropriation Bill introduced and passed to
permit withdrawal from Consolidated Fund.
Implementation of the Budget
 Allocationof grants to various
Departments.
 Approval to incur expenditure on
New Items.
 Monitoring of expenditure on Plan
and Non Plan items.
 Advances from Contingency Fund
 Supplementary Demands
 The Structure of the Budget

State Budget

Consolidated Fund Contingency Fund The Public Account

 The Contingency Fund

Consolidated Fund

Charged

Non Charged
 Consolidated Fund

Revenue Account Capital Account

 Difference between Revenue
Expenditure and Capital
Expenditure
 Revenue Expenditure is expenditure on the
normal running of the Government. The
‘house keeping’ expenditure.
 Source of income for Revenue Expenditure
is the normal income accruing to Govt. in
the running of Govt.
 Capital Expenditure is expenditure on the
creation of capital assets.
 Revenue Account

Receipts Expenditure
Govt. Services
Tax-Revenue
Social Services
Non-Tax Revenue
Economic Services
Grant-in-Aid from GOI
Grant-in-Aid
 Revenue Receipts
 State’s share in Central Taxes
 State Tax Revenue: Sales Tax,
Electricity Duty, Motor Vehicle Tax,
Stamp Duty & Registration Fees.
 State Non Tax Revenue.
 Central Assistance
 Revenue Expenditure
 Pay and Allowances
 Pension
 Interest Payments
 Subsidies
 Grant-in-Aid to Local Bodies
 Other
 Surplus/Deficit on Revenue
Account

The difference between Revenue

Receipts and Revenue Expenditure
gives the surplus/deficit on the
Revenue Account
 Capital Account

Capital Account

Receipts Expenditure
Open Market Borrowings, Capital Works
Loans from Financial Institutions, Payment of Debt
Advances from Central Govt. Loans and Advances
Recovery of Loans and Advances by State Government
 Surplus Deficit on Capital
Account

The difference between the Capital

Receipts and Capital Expenditure
gives the surplus/deficit on the
Capital Account
 Contingency Fund

Imprest Account for unforeseen expenditure

The Public Account

Provident Fund,
Insurance,
Pension,
Reserve Fund,
Sinking Fund.
 Overall Budgetary Position
 Sum of Surplus/Deficit on Revenue and
Capital Account gives Surplus/Deficit of
the Consolidated Fund.
 Net amounts from Contingency Fund
and Public Account added to net
amount from Consolidated Fund.
 This gives the overall Budgetary
Surplus/Deficit of the State.
 Budget Publications
 Thereare 58 budget documents:
Annual Development Program: GAD
Budget in Brief and the Socio
Economic Review: Directorate of
Economics and Statistics
Performance Budget Publications:
Each Dept.
Remaining 35 publications by
Finance Dept.
Thank You