The Indian Budget

An Interactive Session with Honourable Members of

Parliament
Delhi
December 11, 2006

Vinod Vyasulu

Centre for Budget and Policy Studies, Bangalore

 What is a ‘budget’?

 It is the Annual Financial Statement that the

Government must present to Parliament
each year in accordance with the
Constitution
 The Finance Minister usually presents it in
February each year

Centre for Budget and Policy Studies, Bangalore

 What does a budget contain?
 It contains an overview of the economy, and
the financial position of the country
 It details the Governments priorities in
expenditure and the Demands for Grants of
the Ministries
 Based on this, it details the Government’s
proposals to raise revenues through
taxation

Centre for Budget and Policy Studies, Bangalore

 Who makes the budget?
 The Finance Minister, on the basis of
priorities of the Government, balances out
the need for expenditure with the resources
available

 The various ministries make demands

based on the Government’s programmes

Centre for Budget and Policy Studies, Bangalore

 Who decides on Priorities?
 Governments come to office on the basis of
elections
 Promises made to the people must be kept
 The priorities are derived from these
promises
 For example, the UPA Government
prioritised the issue of rural employment
and designed NREGA
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How are Priorities Implemented?
 Once Parliament approves the budget, they
are implemented by the ministries.
 Some are implemented by the state
governments
 The NREGA, by law, is to be implemented
by panchayats.
 Parliament monitors the implementation
through Standing committees
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 How are Priorities Financed?
 The budget makes proposals to raise
revenue through taxation
 Direct taxes are collected by the union and
shared with the states in accordance with
Finance Commission recommendations
 There are indirect taxes also—like excise,
value added tax etc, which are also shared
with the states

Centre for Budget and Policy Studies, Bangalore

 What is the role of Parliament?
 The Government sets the agenda, and must get
Parliamentary approval to act.
 In addition to passing the budget—the Finance Bill
—the Parliament must also pass appropriation
bills for a ministry to be able to spend money
 In each budget, the actual expenditures of the past
year, revised estimates of the current year, and
proposals for the next year are presented to
Parliament

Centre for Budget and Policy Studies, Bangalore

 Where Does the Money Go?
 All revenues received by the government
are placed in the Consolidated Fund of
India.
 To spend money from the Consolidated
Fund, a law must be passed by Parliament
 As an imprest to the Government,
Parliament has created a Contingency fund
of India

Centre for Budget and Policy Studies, Bangalore

 Is Government Accountable?
 Government is accountable to Parliament
 To enable Parliament hold government
accountable, the Comptroller and Auditor
General audits how government spends
money approved by Parliament
 The CAG reports are tabled in Parliament
 The Public Accounts Committee goes
through the CAG reports and decides on
necessary action
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 A look at Budget Documents

 We can relate this discussion to the budget

by going through some documents we have
collected
 We will now look at how the budget papers
look, and then move into discussion

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 Issues for Discussion -1

 Given that there are committed

expenditures, how much flexibility does the
Government have?

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 Issues for Discussion - 2

 What are revenue and capital accounts?

 What are Plan and Non-Plan expenditures?
 How does one find specific information in
the budget document?

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 Issues for Discussion - 3

 How are the budget and the 5 year Plans

related?

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 Issues for Discussion - 4
 Why should a budget be ‘balanced’?
 Why are there so many definitions of
‘deficit’?
 Is a deficit always ‘bad’?

Centre for Budget and Policy Studies, Bangalore

 Issues for Discussion - 5
 India today has among the lowest tax rates
in the world
 Our system has many ‘exemptions’ that
reduce the tax burden on a taxpayer
 Is this justified when the tax rates are low?
 Should not exemptions be removed?
 Is there a case for a few specific
exemptions?
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Discussion on the Budget

Thank you for your kind attention!

Centre for Budget and Policy Studies, Bangalore