Budget Speech

The transcript of the speech the Union/State Finance Minister makes while presenting the budget in Parliament/the State Assembly.

Budget at a Glance

Provides a brief overview of total funds raised by the Government (through taxes or borrowings), and how that money is to be spent along with information on the budget deficit/ surplus.

Annual Financial Statement

Similar to the Budget at a Glance but organised in a different way to comply with the requirements set out by Article 112 of the Constitution.

Budget Highlights

This document briefly explains the key features of the Budget, indicating prominent achievements, budget proposals for allocation of funds and the summary of tax proposals.

Expenditure profile

Presents a summary of total expenditure of all the ministries. Also, it presents expenditure according to different categories of interest, i.e., a summary of funds allocated to schemes for women, children, scheduled castes, scheduled tribes and religious minorities.

Expenditure Budget

Presents a detailed breakdown of the expenditure of each ministry.

Demands for Grants/Appropriation Bill

Two documents required under the Constitution, asking Parliament to allocate the stated amount of funds to different ministries and schemes. Parliament votes to pass these two documents.

Receipts Budget

Presents detailed information on how the Government intends to raise money through different sources.

Finance Bill

A Bill presented to Parliament (and voted on) containing various legal amendments to bring into effect the tax changes proposed by the Government.

Memorandum of the Finance Bill

Explains the various legal provisions contained in the Finance Bill, and their implications, in simple language.

Statement of Revenue foregone

This statement shows the revenue impact of various incentives given to different classes of taxpayers. It can also be known as Statement of Revenue Impact of Tax Incentives Under the Central Tax System.

Macro-economic framework

Explains the Government’s assessment of the growth prospects of the economy.

Medium term Fiscal Policy

A statement setting limits on the size of the budget deficits for the next three years, as well as targets for tax and non-tax receipts.

Fiscal Policy Strategy

A statement explaining the Government’s efforts to follow sound fiscal policies and the reasons for any departure from the targets set for deficits, under the FRBM Act.

The section below lists the main institutions involved in The Budgetary Process and outlines their role in the Budget making process.

Finance Commission

Makes recommendations on the magnitude of transfer of resources from the Centre to the States for a period of 5 years. In November 2017, the 15th Finance Commission was constituted to come up with recommendations for the 2020-25 period. It was required to submit two reports.  The first report, consisting of recommendations for the financial year 2020-21, was tabled in Parliament on February 1, 2020. The final report, with recommendations for the 2021-26 period, was submitted in October, 2020.

Comptroller and Auditor General (CAG)

The CAG, an authority established by Article 148 of the Constitution of India, is supposed to be the ‘guardian of the public purse’. It audits all the receipts and expenditure of the Government of India and State Governments, including those of bodies and authorities substantially financed by the government.

The CAG is also the head of the Indian Audit and Accounts Department, the affairs of which are managed by officers of the Indian Audit and Accounts Service. The CAG is also the external auditor of Government-owned corporations and conducts a supplementary audit of government companies, i.e., any non-banking company in which the Union Government has an equity share of at least 51 per cent, or subsidiary companies of existing government companies.
After the financial year ends, the CAG audits the income and expenditure accounts of the government and tables its report in Parliament. Every year, the CAG tables about 40 audit reports in Parliament.

Controller general of Accounts (CGA)

In 1976, the Controller General of Accounts (CGA) was set up to oversee the department-wise accounts of the Union Govt. The major functions of the CGA, which works under the Ministry of Finance, are:

(a) Overseeing the maintenance of adequate standards of accounting by Central Accounts Offices

(b) Stocktaking of the monthly and annual accounts of the Government of India

(c) Administration of rules under Article 283 of the Constitution relating to custody of the Consolidated Fund of India, the Contingency Fund and the Public Accounts.

It also prepares a condensed form of the Appropriation Accounts and the Finance Accounts of the Union Government. The accounts prepared by the CGA are audited by the Comptroller and Auditor General (CAG) of India. These audited accounts are placed before both the houses of Parliament. Article 149 of the Constitution prescribes the duties and powers of the CAG. Article 151 requires the CAG to present reports relating to the accounts of the Union and the States.

Parliament

Parliamentary oversight of public funds broadly involves two functions:

(a) scrutinising and sanctioning the government’s expenditure and taxation proposals in the Union Budget

(b) examining utilisation of the funds allocated for various activities, through parliamentary committees.

Parliament exerts control over the Budget, too. Three committees are constituted by the Parliament in this regard.

1. Public Accounts Committee: It examines the CAG report and can also look into irregularities that may be brought to its notice or which are of wider public interest.

2. Estimates Committee: It examines proposals and suggests ways in which public expenditure can be incurred in a judicious manner so that the objectives underlying various plans and schemes are effectively achieved.

3. Committee on Public Undertakings: It scrutinises the reports and accounts of public undertakings, which are financed through the Consolidated Fund of India. It also studies CAG reports in this regard and suggests economies, improvements in organisation/management and production that should be undertaken by various undertakings.

Guillotine

Typically, the Lok Sabha decides to hold a detailed discussion on four or five Demands for Grants. The ministries identified for discussion vary every year and are decided by the Business Advisory Committee of the House. This discussion is followed by voting. Demands that have not been discussed and voted on by the last day are ‘guillotined’, i.e. they are voted upon together.

Standing committees

One of the functions of Standing Committees is to scrutinise the allocation of funds to the ministries under their supervision. At present, there are 24 Standing Committees that together oversee the work of all the ministries.

These Committees examine the: 

(a) amount allocated to various programmes and schemes under the Ministry

(b) trends of utilisation of the money allocated to the Ministry. 

To enable this, officials of the Ministry are required to depose before the Committee to respond to queries and provide additional information in connection with the Demands for Grants being examined. While examining a ministry’s expenditure, the Committees may consult or invite views from experts.

Based on these consultations, the Committees submit their reports to Parliament. The Committees’ recommendations are useful for MPs to understand the implications of the proposed expenditure across ministries and enable informed debate before such expenditure is approved.

Estimates committee

The Estimates Committee facilitates Parliament’s control over the expenditure sanctioned and incurred, and over the general policies of the administration. The Committee’s main tasks are to: 

(a) report on improvements and administrative reforms that can be made

(b) suggest alternative policies in order to bring about efficiency in administration

(c) suggest whether the proposed expenditure is within the limits of government policy.

Earlier, this Committee carried out the task of examining proposed estimates of expenditure by various ministries. Since 1993, the Departmentally Related Standing Committees have taken over this function, leaving the Estimates Committee to largely examine the working of certain government organisations.

Public Accounts Committee (PAC)

Since it is difficult and time-consuming for Parliament to discuss each of the CAG reports, the Public Accounts Committee (PAC) is entrusted with examining the findings of the CAG audit reports. The PAC scrutinises whether the government is spending money on the purposes for which Parliament sanctioned the expenditure. While examining the reports, the PAC interacts with officials from the CAG, different ministries and experts. The government responds to every report of the PAC by stating whether various recommendations have been accepted or rejected by it. Based on these responses, the PAC prepares Action Taken Reports and tables them in Parliament.

NITI Aayog

NITI Aayog is a policy think tank of the Government of India, established with the aim of achieving sustainable development goals through cooperative federalism. To this end, it uses a bottom-up approach, by involving State Governments in the economic policy-making process.

Actuals

The amounts actually spent by the government in the previous financial year, which have been audited and certified by the office of CAG of India. This process of audit introduces the lag in data reporting.

Appropriation Account

It is prepared by the office of the Accountant General of the State, wherein discrepancies between the final grant and actual expenditure (if any) are reported and explained.

Appropriation Bill

The Appropriation Bill passed by the Legislative Assembly authorises the Government to withdraw money from the State Consolidated Fund to meet expenditure charged on the Consolidated Fund and provide for the grants approved by the Legislative Assembly.

Budget Controlling Officer

A Budget Controlling Officer is usually the Head of a Department (sometimes any other departmental officer). He/She has the responsibility of supervising and controlling expenditure and the collection of revenue.

Budget Estimates (BE)

Budget estimates are the amounts of expenditure ‘projected’ by the government for the ongoing or approaching financial year.

Capital Account

Capital Expenditure and Capital Receipts make up the budget on the Capital Account. Any expenditure incurred for the purpose of creation of assets or reduction of liabilities is recorded as Capital Expenditure.

Capital Receipts are those that lead to a reduction in the assets or an increase in the liabilities of the government. Examples include recoveries of loans, earnings from disinvestment and debt.

Capital expenditure

Any expenditure incurred in the creation of assets or reduction of liabilities is recorded as Capital Expenditure.

Capital receipts

Capital receipts are those receipts that lead to a reduction in the assets or an increase in the liabilities of the government. Examples include recoveries of loans, earnings from disinvestment and debt.

Cess

In India, a cess is applied on a specific commodity or service and is imposed as an additional tax on an already existing tax. The revenue raised from a cess is meant to meet certain specified objectives/expenditure. For instance, the Swachh Bharat cess is meant to be spent only on sanitation-related activities and not, say, on education.

Consolidated fund

The Consolidated Fund under Article 266(1) contains all the revenues received by the Government, all receipts from recoveries of loans given by the Government, and the entire amount of new loans raised by the Government. All the expenditure of the Government announced in the budget is incurred from this Consolidated Fund. And, the Government cannot withdraw any amount from it without authorisation from Parliament. 

Contingency fund

The Contingency Fund was constituted under Article 267 of the Constitution of India and is a Rs 500 crore fund that is at the disposal of the President of India. It is for urgent or unforeseen expenditure that does not require prior legislative approval, unlike with the Consolidated Fund. However, the government must get such expenditure approved by Parliament later. Moreover, with the approval of Parliament, the Government needs to withdraw funds from the Consolidated Fund (equivalent to the amount of expenditure from the Contingency Fund) and replenish the Contingency Fund.

Corporation Tax

Corporation tax is levied on incomes of registered companies/corporations in the geographical territory of India (whether national or multinational/foreign). National companies are taxed on the basis of their aggregate income, irrespective of the source and origin, whereas foreign companies are taxed only on the income that arises from their operations in India.

Deficit

The margin by which the government’s expenditure exceeds its receipts over a year.

Direct tax

The tax imposed on a person or on property that cannot be transferred, is called a direct tax.

Disinvestment

The sale or liquidation of assets by the government, usually Central and State Public Sector Enterprises, projects, or other fixed assets is called disinvestment.

Drawing and Disbursing Officer (DDO)

A Drawing and Disbursing Officer is a subordinate officer appointed by the Budget Controlling Officer to administer and control budgetary allocations. DDOs are responsible for the execution of schemes as they are authorised to draw money from the Treasury for disbursal.

Equalisation levy

Introduced in India in 2016, the aim of this levy is to bring digital transactions under the tax net. It is levied on the income accruing to foreign e-commerce companies operating in India. The equalization levy is a direct tax and is aimed at taxing business-to-business transactions. Colloquially, it is known as the Google Tax.

Expenditure Budget

The Expenditure budget gives information on how much the government intends to spend, and on what, in the next fiscal year.

Fiscal deficit

Fiscal Deficit refers to the gap in a government’s budget that arises when the government’s total expenditure in a financial year exceeds its total receipts that year. Consequently, it borrows money to cover that gap. The additional resources raised by the government in a financial year to meet this gap amount to the fiscal deficit for that year. 

Fiscal Responsibility and Budget Management (FRBM) Act, 2003

The FRBM Act, when first passed, required the Central Government to reduce its fiscal deficit to 3 per cent of GDP. The initial deadline to achieve this target was 2007-08, but it has been extended multiple times over the years.

The Finance Act, 2018, extended the deadline to achieve this target from 2017-18 to 2020-21. It also removed the provision that required the Central Government to limit its revenue deficit to 2 per cent of GDP.

Google Tax

The equalisation levy is popularly known as the Google Tax. The term was coined as the levy is targeted at digital companies, and Google is synonymous with digital services.

Grants-in-aid

Grants-in-Aid are provided by a higher tier of Government to a lower tier. In this case, they are provided by the Union Government to the States. They are different from loans since they are provided without the expectation of any repayment.

GST compensation cess

GST compensation cess is levied in addition to regular GST on certain goods such as tobacco and related products, coal, aerated beverages, luxury cars, etc. The revenue generated from these cesses is to be used to finance compensation to States in case there is a shortfall in their GST collection.

Gross State Domestic Product (GSDP)

GSDP refers to the monetary value of all goods and services produced within the boundaries of a State during a given period.

Guillotine

Typically, the Lok Sabha decides to hold a detailed discussion on four or five Demands for Grants. The ministries identified for discussion vary every year and are decided by the Business Advisory Committee of the House. This discussion is followed by voting. Demands that have not been discussed and voted on by the last day are ‘guillotined’, i.e., they are voted upon together.

Income Tax

Income tax is a tax on the income of individuals, firms, etc. other than companies, under the Income Tax Act, 1961.

Indirect tax

A tax imposed on a transaction, that can be transferred, is called an indirect tax.

Integrated Financial Management System (IFMS)

IFMS is a budgeting and accounting system through which the budget, expenditure, payment, etc. of the Government can be managed.

Local Bodies Grant

A Local Bodies Grant is determined by Article 275(1) of the Constitution and consists of grants to both urban and rural local bodies.

Motor Vehicles Tax

Motor vehicles tax is a tax levied on every motor vehicle by a State under its Motor Vehicles Taxation Act. The Union Government has the power to increase or decrease the rate of tax from time to time.

Non-tax revenue

Sources of revenue that are outside the purview of levies on wealth, income or property are classified as non-tax revenue. States that are rich in natural resources tend to raise revenues from non-tax sources such as mining of minerals and metals. Other key sources are Interest Receipts, Dividends and Profits from State Public Sector Enterprises, as well as returns from user charges on general, social and economic services.

Post-Devolution Revenue Deficit Grant

A Post devolution revenue deficit grant covers the gap between a State’s revenue and expenditure. It is a mechanism provided by the Finance Commission for compensation (from the Centre) for any loss incurred by States.

Public accounts

The Public Account was constituted under Article 266(1) of the Constitution. Certain transactions, other than the normal receipts and expenditure of Government, enter Government accounts. The Government acts more as a banker in the case of these transactions, through provident funds, small savings collections, other deposits, etc. The money received and the related disbursements are made from the Public Account. Funds kept in the Public Account do not belong to the Government, and it needs to repay this money eventually to the persons and authorities who deposited them. Therefore, Parliamentary authorisation is not required for payments from the Public Account. 

Public Debt

Public debt is the total of all the liabilities of the Central Government contracted against the Consolidated Fund of India.

Revenue Account

The Revenue Account consists of Revenue Expenditure and Revenue Receipts. Any expenditure that does not create assets or reduce liabilities is treated as Revenue Expenditure. Examples include salaries, subsidies, interest payments, etc.

Proceeds from taxes, non-tax sources of revenue and other receipts are recorded as Revenue Receipts. Income tax, corporation tax, Union excise duty, etc. are some of the sources of tax revenue, while interest receipts, fees/user charges, and dividend or profits from government enterprises are examples of non-tax revenue.

Receipts Budget

A Receipts Budget details how much revenue the government intends to raise in the next fiscal year to meet its expenditure, and from where.

Revenue deficit

Revenue deficit is the amount by which revenue expenditure exceeds revenue receipts. Any expenditure/receipt that does not create assets or reduce liabilities is treated as a Revenue expenditure/receipt.

Revised Estimates (RE)

Revised estimates or ‘revised projections’, are reported in the forthcoming year’s budget and are a revision of the budget estimates announced in the budget of the previous year.

Revenue expenditure

Any expenditure that does not create assets or reduce liabilities is treated as Revenue Expenditure. Examples include salaries, subsidies, interest payments, etc.

Revenue receipts

Revenue received from tax and non-tax sources of revenue is recorded as Revenue Receipts. Income tax, corporation tax and Union excise duty are some of the sources of tax revenue, while interest receipts, fees/user charges, and dividend or profits from government enterprises are examples of non-tax revenue.

Sales Tax

Sales tax is generally charged at the point of purchase or exchange of certain taxable goods. It is charged as a percentage of the total value of the product. In India, Sales Tax used to be levied under the authority of both Central Legislation (Central Sales Tax) and State Governments’ laws (Sales Tax) before the introduction of VAT.

Service Tax

Service tax is levied on services provided by an entity such as a bank or a hotel. The responsibility for payment of this tax lies with the service provider. The Goods and Service Taxes (GST) includes both Excise Duties and Service Taxes. 

Stamp and Registration Duty

Duty charged on the sale or transfer of property is referred to as Stamp Duty and is a major source of tax revenue for most States.

State Development Loans (SDLs)

SDLs are dated securities issued by States to meet their borrowing requirements from the market.

State Excise Duty

Unlike Union Excise Duty or CENVAT, State Excise Duty is charged on alcohol and related products, narcotics, etc.

Supplementary Budget

Budgets are made before the start of the financial year, and the revenue and expenditure numbers in the budget are projection by the government. 

Many a time, however, things turn out different than what was estimated in the budget. Like revenue can be higher, or there could be a need for some additional spending. In such cases, government can bring a smaller budget during the ongoing financial year. Such budgets are called ‘Supplementary budget’. 

Compare to full budgets, these are smaller in scale, and generally more focused in select areas.

Surcharge

A surcharge is an additional charge levied on a tax, but unlike a cess, revenue from a surcharge can be spent on any purpose.

Tax

A tax is a compulsory transfer from eligible taxpayers to the Government, to enable it to provide public services.

Tax-GDP ratio

Tax-GDP ratio shows tax revenue as a percentage of the income of the country and allows for an inter-country comparison of the means at the disposal of a country to provide public services.

Tax revenue

All money collected through various taxes imposed on individuals or organisations, whether direct or indirect, is called tax revenue.

Union Excise Duty

Union Excise Duty is a production tax imposed by the Union Government on goods manufactured in India for domestic consumption, under the Central Excise Act, 1944 and the Central Excise Tariff Act. From 1999 onwards, it has been called the Central Value Added Tax (CENVAT). Certain goods, such as alcohol and its related products, as well as narcotic substances, come under the purview of State Excise Duty and are collected by all States.

Value Added Tax (VAT)

VAT, is a multistage tax levied only on the ‘value added’ at each stage in a supply chain and not on the entire value of sale. Under the VAT system, taxpayers receive credit for tax already paid on the inputs in earlier stages of the supply chain.
The Goods and Services Tax (GST) is a version of VAT.

Voted and Charged Expenditure

Expenditure that has to be authorised by a legislature/Parliament is Voted Expenditure while any spending that is automatically debited from the Consolidated Fund of India is called Charged Expenditure. Examples of charged expenditure include expenditure on all constitutional offices, interest payments, and salaries of the President, Lok Sabha speaker, etc. Parliament can discuss these matters but cannot vote on them.