The Union Budget Exercise:

The term 'Budget' has been derived from the French word 'Bougette', meaning a wallet or a leather bag. It signifies an annual financial statement of income and expenditure of a government.

Indian Budget Process:

Normally, the ministry of finance with the assistance of the advisors and bureaucrats starts the exercise for budget sometime during the month of September every year. The Union budget has to pass through four stages -

  1. Approximation of expenditures and revenues
  2. Approximation of deficits
  3. Narrowing down deficits and finally
  4. Presentation of budget for final approval
Approximation Of Expenditures And Revenues: Approximation Of Expenditures:

The budget-making process begins with estimation of plan and non-plan expenditures. Planned expenditures are those expenditures that are made to increase the productive capacity of the economy. The Planning commission after prior discussion allocates resources for planned programmes and also allocates resources for new programmes that can be undertaken based on tentative estimate or resources available provided to it by the finance ministry.

The non-planned expenditures refer to the govt. spending on the non-productive expenditures that are to be undertaken by the govt. The financial advisors of different Ministries prepare the non-plan expenditures which then after intensive discussion with financial advisors, budget estimates are set for the ensuing fiscal year.

The majority of the non-plan expenditure is accounted for by interest payments, salaries, subsidies, loans, and wage payments to employees.

Approximation Of Revenues:

Apart from expenditure estimation, the expected revenues of the govt. exchequer are also done. Revenue receipts are of two types -

  1. Revenue Receipts and
  2. Capital Receipts.
Revenue Receipts:

Revenue Receipts are those receipts that do not have any direct impact on the assets and liabilities of the government. It mainly consists of revenue earned by the government through tax like excise duty, income tax and non-tax sources such as dividend income, profits, interest receipts etc.

The amounts to be received by way of tax revenues is estimated on the basis of existing rates of taxation and taking into consideration the likely growth and inflation rate over the ensuing fiscal year.

Capital Receipts:

Capital Receipts are those receipts of the government that either create or increase government liability or reduce an asset of the government. It consists of:

  1. The money raised through disinvestment of shares of public sector enterprises, and
  2. Money received in the form of govt. borrowings from the Reserve Bank of India and other parties through the sale of Treasury Bills (govt. bonds or debt securities that mature within a year and are issued to meet short-term mismatch in receipts and expenditure).

The loans received from foreign Governments and bodies, disinvestment receipts and recoveries of loans from State and Union Territory Governments and other parties are also part of capital receipts.

Approximation Of Deficit:

In the budget-making process, after estimating the revenue and expenditure, they are matched together. This provides an insight if there's any shortfall in revenue to meet projected expenditure. In case of deficit, the govt. then, in consultation with the chief economic advisor, decides on the optimum level of borrowings to meet this deficit.

To meet the budget deficit, the govt. may consider external borrowing (foreign government and international government) or domestic borrowings.

In India, the government manages its deficit by borrowing from various sources like the Reserve Bank of India (RBI), public sector banks, large public institutions, overseas markets, capital markets. It also has the option of raising funds from the public as well.

Narrowing Down Of Deficit:

After estimating the budget deficit as a whole, the remaining shortfall (if any) is normally filled through feasible tax revision and this is done bearing in mind the amount required to pump into the economy stimulate the growth in different sectors. If required some of the planned expenditures of the govt. may also be modified or postponed for next fiscal year. The non-plan expenditure of the government is inflexible due to political sensitivities.

The Budget Approval Process:

Once the Budget is prepared for parliamentary discussion and process, Article 112 of the Constitution requires it to be laid before both Houses of Parliament.

The Budget is presented in the Lok Sabha with Finance Minister's speech on a day as directed by the President, the Finance Minister introduces the Budget in the Lok Sabha by way of a speech and gives an overview of the Budget, only then the Budget gets tabled it in Rajya Sabha at the conclusion of the speech. Both the Houses of the Parliament then allot time to hold a general discussion on the Budget, where the Finance Minister replies to all queries at the end.

In the Lok Sabha, discussions are taken up on each Ministry's proposals for expenditure. After this prescribed period, known as the 'Demand for Grants', the Speaker applies what is called the 'Guillotine'. Once the 'guillotine' is applied, all outstanding demands are put to vote. Although both the Houses of Parliament discuss on the Budget, it is only in the Lok Sabha that votes are put on it. On completion of the voting, the 'Appropriation Bill' is introduced after all demands are passed, and only after the Bill is being passed, the government receives authorisation to draw from the consolidated fund. Once the Appropriation Bill becomes an Act, the Finance Bill is passed. Only then the final Budget gets approved.

Here it is to be noted that if the Budget is not passed within the announced date, Article 116 of the Constitution empowers the Lok Sabha to pass the Vote-On-Account, a document which covers only the expenditure incurred.

Though the process of passing the Union Budget is tedious and prolonged, it is necessary to ensure 'Government's Accountability' to the 'Parliament'. It also allows the Parliament and the public to comprehend and evaluate the economic policies of the Government. On September 21, 2016, the Railway Budget got merged with the Union budget of India, and thus the old practice of separate rail and general budgets came to an end.