The budget-making process in India is an annual exercise that involves detailed planning, meticulous execution, and strategic allocation of resources to meet the economic and social objectives of the country. It is a reflection of the government’s policies and priorities for the upcoming financial year, which runs from April 1 to March 31. The budget-making process can be divided into several stages:
1. Preparation of the Budget
The process begins several months before the actual presentation in Parliament. The Ministry of Finance plays a pivotal role in this stage. The key steps involved are:
- Issue of Guidelines: The Finance Ministry issues circulars to all ministries, departments, and states, asking them to prepare estimates of their revenue and expenditure for the upcoming fiscal year. These guidelines provide the framework for the budget-making process.
- Submission of Proposals: Various ministries and departments submit their proposals, which include details of their expected expenditures, ongoing projects, and new initiatives they intend to undertake.
- Estimates and Discussions: The Department of Economic Affairs (DEA) and the Department of Expenditure scrutinize these proposals. Meetings are held between the officials of the Finance Ministry and other ministries to discuss and negotiate allocations.
- Revenue Projections: The government assesses its revenue receipts, including tax revenues (direct and indirect taxes) and non-tax revenues (such as dividends from public sector enterprises). Projections for borrowing and fiscal deficit are also made.
- Economic Survey: A day before the budget presentation, the government releases the Economic Survey, which provides an overview of the economy’s performance in the current fiscal year and outlines prospects for the next year.
2. Presentation of the Budget
The Union Budget is presented by the Finance Minister in Parliament, typically on February 1. This provides sufficient time for the passage of the budget before the new fiscal year begins. The presentation consists of two parts:
- Speech by the Finance Minister: The Finance Minister delivers a speech summarizing the budget’s key proposals, economic policies, and fiscal objectives. This speech is usually divided into two parts: Part A focuses on economic policies and reforms, while Part B details tax proposals and financial allocations.
- Budget Documents: The budget includes various documents such as:
- Annual Financial Statement (AFS)
- Finance Bill
- Demand for Grants
- Appropriation Bill
- Expenditure Budget
- Receipts Budget
3. Parliamentary Approval
Once the budget is presented, it goes through a detailed scrutiny and approval process in Parliament. The key stages are:
- General Discussion: Both Houses of Parliament – the Lok Sabha and the Rajya Sabha – discuss the general principles and priorities of the budget without going into specific details.
- Departmental Scrutiny: The budget is referred to various Departmental Standing Committees, which examine the budgetary allocations for respective ministries and submit their recommendations.
- Vote on Demands for Grants: The Lok Sabha votes on the demands for grants proposed by each ministry. The Rajya Sabha can only discuss and suggest changes but cannot vote on these grants.
- Passing of Appropriation Bill and Finance Bill:
- Appropriation Bill: Grants legal authority to the government to withdraw funds from the Consolidated Fund of India for its expenditures.
- Finance Bill: Contains tax proposals and amendments to existing tax laws.
The budget becomes effective only after the approval of both these bills.
4. Implementation and Monitoring
After parliamentary approval, the budget is implemented by the respective ministries and departments. The government monitors the expenditure and revenue collection to ensure adherence to budgetary targets. The Comptroller and Auditor General (CAG) of India audits the accounts to ensure transparency and accountability.
Plan Expenditure vs Non-Plan Expenditure
Before the concept of plan and non-plan expenditure was discontinued in 2017, these terms were widely used in the Indian budget to categorize government spending. Let’s understand the distinction between them:
1. Plan Expenditure
Plan expenditure referred to the government’s spending on programs and schemes formulated under the Five-Year Plans. It aimed to promote economic development and address social challenges.
- Features of Plan Expenditure:
- Associated with development programs like infrastructure, education, health, agriculture, and rural development.
- Includes both revenue expenditure (e.g., subsidies, grants) and capital expenditure (e.g., building infrastructure).
- Financed through internal resources (tax revenues) and external assistance (loans and grants).
- Examples:
- Construction of highways and railways.
- Implementation of welfare schemes like the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA).
- Development of industries and science and technology initiatives.
2. Non-Plan Expenditure
Non-plan expenditure referred to all other government spending that was not part of the Five-Year Plans. It primarily focused on the maintenance of existing infrastructure, interest payments, and administrative costs.
- Features of Non-Plan Expenditure:
- Includes both revenue expenditure (e.g., salaries, pensions) and capital expenditure (e.g., defense equipment).
- Comprises obligatory spending that cannot be curtailed easily.
- Often higher than plan expenditure due to recurring costs.
- Examples:
- Interest payments on loans and borrowings.
- Defense expenditure.
- Subsidies on food, fertilizers, and petroleum.
- Administrative expenses and pensions.
Key Differences Between Plan and Non-Plan Expenditure
| Aspect | Plan Expenditure | Non-Plan Expenditure |
|---|---|---|
| Focus | Developmental and growth-oriented | Maintenance and operational expenses |
| Nature | Discretionary | Mandatory |
| Examples | Infrastructure, welfare schemes | Salaries, pensions, subsidies |
| Flexibility | Can be adjusted based on priorities | Fixed and recurring |
Discontinuation of Plan and Non-Plan Classification
In 2017, the government replaced the classification of expenditure into plan and non-plan categories with capital expenditure and revenue expenditure for better clarity and efficiency in resource allocation.
- Capital Expenditure: Spending on creating long-term assets, such as infrastructure and machinery.
- Revenue Expenditure: Spending on recurring expenses, such as salaries and subsidies.
This shift was intended to provide a more transparent and functional approach to budgeting, aligning expenditures with tangible outcomes and sustainable development goals.
Conclusion
The budget-making process in India is a comprehensive exercise that serves as the backbone of the country’s economic policies. It involves careful planning, wide consultations, and detailed scrutiny to ensure the judicious use of public resources. While the earlier distinction between plan and non-plan expenditure helped classify spending, its discontinuation has brought about a more modern and streamlined approach to budgeting.
As the government continues to address the challenges of a growing economy, the budget remains a critical tool for promoting inclusive growth, reducing inequalities, and achieving long-term sustainability.
