Corse: B.A (Hons.

) Political Science IV Semester

Paper: Public Policy and Administration in India
Topic: Budget
 Topic: Budget

1)
Concept
2)
Significance of Budget
3)
Types of Budgeting
4)
Budget Policy Orientations in India
5)
Major Actors in Budgetary Process in India
6)
Budget Cycle I India
Budget

• Budgeting is concerned with allocating limited resources to problems that governments and other public
organisations face. Budget refers to the estimated receipts and expenditure of the government.

• The word “budget” is derived from a French word “bougette” which means a Leather bag or sack. Budgeting
is the heart of financial administration Leroy Beaulieo defines budget as ‘a statement of the estimated receipts
and expenses during a fixed period’. According to Remo Storm it is ‘a document containing a preliminary
approval plan of public revenue and expenditure.

• the budget is a plan of action and manifests the programme of the chief executive for the ensuing financial
year. It is an instrument through which the several operations are correlated, compared and examined at one
and the same time. The real significance of the budget system lies in providing for the orderly administration
of the financial affairs of a government. It is, thus, much more than a mere statement of revenue and
expenditure of the government.
Significance

• Budget is one of the major instruments for the expression of a government’s programme. It has a vital role to
play in the economy of a welfare state. Through a budget, citizens are benefited from various plans and
programmes of the government. The government tries to narrow down the class distinctions and inequalities
through its taxation policy.
• The budget policy of the government aims at removal of poverty, unemployment, social and economic
inequalities in society. By imposing heavy taxation upon articles of consumption, it can encourage
investment, and thus, promote the economic growth of the nation. By taxing the rich, it can mitigate
economic inequality. The signs of the welfare state are reflected in the budget with its heavy outlay on social
services and the like. In this way, it is an instrument of socioeconomic change.
• Budget also acts as an allocator of social resources. Because people cannot always acquire all goods and
services that they need for themselves; they must rely on others for help. It is the government which allocates
society’s resources by mandating that taxes be collected and then by deciding where those taxes are spent.
Governmental allocations are necessary because the market mechanism is not adequate to serve all societal
needs.
• Budgeting is the heart of administrative management. It serves as a powerful tool of coordination, an
effective device of eliminating duplication and wastage.
• The budget is many things-an economist view it as a device of influencing the country’s economy, the
politician employs it for defending or criticizing the government, the administrator uses it as a framework for
Types of Budget

The objectives of all budgets include regulating unnecessary government spending and waste. However,
different types of budgets vary in their spending provisions.
• Line-item Budget: this is the earliest system of budgeting which was designed to control governmental
expenditure and activities. A line-item budget is simply the allocation of resources according to the cost of
each item, from paperclips to personnel, used by a governmental agency. It operates on a pay-as-you-go basis
and is designed to reveal exactly how much has been spent on what.
• Performance Budgeting: performance budgeting a narrative describing an agency’s work in progress, and
accomplishments and aims to provide policy-makers with data for measuring work-load and activity costs
and to tell the public whether they are getting their money’s worth. The idea behind performance budgeting is
that how much you spent on department x is tied directly to how well department x is performing.
Performance budgeting requires the establishment of performance levels and the collection of information
that tells weather those performance levels have been met.
• Planning, programming and budgeting system: Planning, programming and budgeting system (PPBS)
emerged as a reaction to the unscientific and disjointed planning in preparing the budget. PPBS evaluates
policy by dividing it into separate programmes and quantifying their gains and losses. A basic element of
programme budgeting-cost-benefit analysis-systematically weighs the cost of a project against the amount of
benefit-in terms of money or material saved or earned-that an agency or department can expect in return.
• Zero-based budgeting: the zero-based budgeting (ZBB) is the allocation of resources to agencies on the basis
of those agencies periodically re-evaluating the need for all of the programmes for which the agency is
responsible and justifying the continuance or termination of each programme in the agency budget proposal.
This leads the allocating agencies to warn such funding schemes which are sick or irrelevant to the ground
realities of socioeconomic life.
• Gender Budgeting: it is process that entails incorporating a gender perspective at various stages of budgeting,
that is, planning, policy formulation, assessment of needs of target groups, allocation of resources,
implementation, impact assessment, and repriorotization of resources. The main objective of gender
budgeting is to bring out a gender-responsive budget. Gender budgeting is understood as a dissection of the
government budget to establish its gender-differential impacts to translate gender commitments into
budgetary comitments.
Budget Policy Orientations in India

• The present budgetary system of India owes its origin to the colonial period when the Finance Department
was established in 1843 to look after the financial affairs of the government. But the budget per se, was
presented for the first time in 1860 to herald the system of laying down the annual estimates of revenues and
expenditures and their considerations and approval by the legislature.
• The two deliberating features of the colonial budgetary system in India were absence of popular control over
the budget and lack of a socioeconomic developmental perspective in the budgetary allocations.
• The colonial budgetary system was given a go-by after Independence and replaced by a responsive and
development-oriented budgetary system under the provisions the Constitution of India.
• The budget policy orientations during the early times of Jawaharlal Nehru remained confined within the
prescriptions of the Indian Constitution as stipulated under the provisions of Article 112.
• Without affecting any drastic break with the colonial line-item budgeting system, the budgetary policy of J.L.
Nehru got enriched with the initiation of planning as a vital component of the economic development in
India.
• The budget appeared to have increasingly got reduced as an instrument of taxation rather than a policy
document.
• A number of policy measures were introduced during the times of Indira Gandhi in the budgetary system of
India. The demand for the introduction of performance budgeting was raised from a number of quarters
including the Estimates Committee and Administrative Reforms Commission.
• The government took the landmark step of separating the audit from accounts in 1976.
• The system of performance budgeting was introduced in select developmental departments of the central
government I 1977-78.
• Instead of allowing planning to dominate the budgetary process, the idea of the PPBS was accepted as way to
integrate planning with budgeting in India.
With the dawn of economic liberalization in the country since early 1990s, the policy orientations behind budget
in India appear to have undergone subtle transformations manifested in three ways:
1. Despite remaining an inalienable part of the overall budgetary process, the component of planning lost its
commanding position in determining the focus and locus of the budget.
2. In order to bring about efficiency and economy in the financial functioning of the government, a number
of managerial innovations and improvisations have also found ready acceptance in the budgetary
procedures.
3. Amidst the continuing populist and bureaucratic underpinnings in the budget, a subtle move has been in
place to bring about some degree of fiscal discipline through budgetary techniques.
Major Actors in Budgetary Process in India

The major actors or agencies in the budgetary process of India are numerous and varied, owing to the variety of
functions each of them is supposed to perform.
• Parliament of India may be taken as a lead actor in the budgetary process of the Country. Acting as the
custodian of the public money in the country. The broad functions of Parliament as the fund-raising and fund-
granting agency.
• Under Article 112 of the Constitution, the President has been vested with the responsibility of causing to be
laid before the houses of Parliament, the ‘annual financial statement’, the constitutional terminology for
budget.
• An equally important actor in the budgetary process of India is the Executive. The role of Executive and its
sub-agencies such the Ministry of Finance as the proposer of financial estimates is equally universally
accepted.
• India’s elaborate system of legislative control over the budget through the mechanism of its own committees
as well as the institution of an independent audit.
Budget system in India

Budget system in India has explains with reference to its classification, formation and composition:
Budget classification:
• Budget classification is considered as a useful tool to provide meaningful information on the activities of the
government and sets out the form and structure to provide for closer analysis and utilization by the policy
makers.
• the budget classifications in various countries of the world are carried out in two distinct ways: 1. the
traditional method of budget classification, also known as line-item method of budget classification, provides
for the arrangement of data on the basis of the departments that are supposed to incur the expenditure. 2. the
performance budgeting method or functional classification method, seeks to classify receipts and
expenditures on the basis of functions, projects, programmes, and activities of the various departments.
• Budget classification in India, for a long time even after Independence, continued to be carried out in the
format of the line-item method. Following the recommendations of a number of committees and commissions
as well as persuasions from development economists, the government decided to switch over to the functional
classification of budget in 1974.
• Now instead of just naming the department for budget classification, the government activities are
categorized into three broad groups of General or Regulatory Services, Social and Community Services, and
Economic Services.
• Even within these groups, the budgetary allocations are further classified under five heads, known as sectoral
head, major head, minor head, sub-head, and detailed heads of account.
• Budget formation:
• The formation of budget follows the cycle of the financial year from April to March each
year. The process for the same begins around the month of September or October.
• Initializing the process, the Ministry of Finance issues a circular to the various ministries and
departments inviting their estimates for the coming year.
• Approved and consolidated, the estimates of various ministries and departments then go to the
Ministry of Finance during the period of November-December.
• By the end of January or early February, the Ministry of Finance is able to prepare a
consolidated statement of revenues and expenditures, which is further fine-tuned by the third
week of February to culminate the process of formation of budget.
• Budget Completion Process
• The completion of the process of budget formation results it no the final product, technically called the
‘annual financial statement’. The composition of this statement or budget is, in the main, marked by the items
of income and expenditure that are presented in the following format:
1. Actual figures of the previous three years;
2. The sanctioned budget estimates for the current year;
3. Revised estimates of the current year;
4. Proposed estimates for the next financial year, with explanatory notes for any increase or decrease in
estimates
5. Actuals of the current year available at the time of preparation of the estimates and actuals for the
corresponding period of the previous year.
Suggested Readings:

• Chakrabarty, Bidyut and Prakash Chand. 2012. Public Administration in a Globalizing World: Theories and
Practices. New Delhi: Sage Publications.
• Thavaraj, M.J.k.1987. Financial Administration of India (2nd edition). New Delhi: Sultan Chand and Sons
Publications.