Budget Preparion Methodology in India by Tarun Das

MEPP Lectures 10-11-12
Basic Concepts, Sources of

Data and Formulation of
Budget
Presented by
Dr. Tarun Das
Professor, IILM
Budgeting-Basic Concepts 1
Contents
1. Plan-Budget Interface
2. Constitutional Provisions
3. Budget Formulation and
Presentation
4. Various Funds
5. Budget Documents
6. Basic Concepts
7. Different Concepts of deficits
8. Audit and Accounting
1.1 Plan-Budget Interface
 Fiscal Federalism- Centre, States and Local
Governments
 Union List, State List and Concurrent List
 Five-Year Plan and Annual Plans
 Devolution of Resources from Centre to
states and CPSEs, and from states to local
bodies and SPSEs.
1.2 Channels of Central
budgetary support
(a) Finance Commission-constituted every
five years u/a 280 of the Constitution to make
vertical and horizontal sharing of taxes &
duties. Also recommends grants in aid to the
States u/a 275(1). Recently, govt has
accepted recommendations of the Twelfth
Finance Commission.
(b) Planning Commission- modified Gadgil
formula
(c )Finance Ministry-u/a 275 (1)
2.1 Constitutional Provisions
(a) Article 112: President shall cause to

be laid before both houses of
Parliament the Annual Financial
Statement.
(b) Article 113: Demand for grants will
be submitted to the house of people.
(c) Article 114: After grants have been
approved by the house of people, a Bill
shall be introduced to provide for the
appropriation out of the Consolidated
Fund of India.
2.2 Constitutional Provisions
(d) Article 115: provides for supplementary
grants in case of expenditure overruns.
(e) Article 116: Provides for Vote on
Account.
(f) Article 117: A money bill as specified u/a
110 shall not be introduced or moved
except on the specific recommendation by
the President.
(g) Article 265: No tax shall be levied or
collected except by authority of law.
3.1 Budget Preparation
1. Preparation starts from October
2. Ministries send initial BEs.
3. Current year RE, next year BE and plan
outlay fixed in December
4. Finance Minister holds pre-budget
meetings in January
5. Tax proposals given final shape by
third week of February
6. Budget placed in Parliament on the last
working day of February
3.2 Passing of Budget
1. General Budget is debated in both
houses of Parliament in March
2. Vote on Account by end of March
3. Demands for Grants are examined by
various Standing Committees of
Parliament in April
4. Demands for grants are debated and
passed in April-May
5. Finance Bill passed in May
6. After President’s signature, it becomes
Finance Act in June
4. Different Funds and
Accounts
(a) Consolidated Fund of India- All receipts of the
govt automatically accrue to this Fund. All
expenditures are incurred from it with prior
approval of the Parliament.
(b) Public Fund and Accounts- provident/
pension/insurance funds, reserves, small saving.
Govt is the custodian and not the owner of these
funds. Govt acts like a banker.
(c) Contingency Fund with the president
(d) Sectoral Funds (sugar development fund, oil
development fund), Cess (for education, road
construction, national calamity etc.)
5.1 Budget Documents
1. Key to Budget Documents
2. Budget at a Glance
3. Annual Financial Statement
4. Revenue Budget
5. Capital Budget
6. Charged on and voted expenditure
7. Demands for Grants
8. Vote on Account
9. Appropriation Bills
10. Finance Bill/ Finance Act
11. Economic Survey
5.2 Public Finance Statistics
1. Ministry of Finance
b) Budget Documents
c) Economic Survey
d) Public Finance Album
e) Economic and Functional Classification
of the Central Government Budget
f) External Assistance
g) Report on External Debt
2. Reserve bank of India
a) Report on State Finances
3. International Monetary Fund
a) Government Finance Statistics (GFS)
6.1 Basic Concepts
1. Budget is the account of govt
revenues and govt expenditure, and
govt receipts and govt payments.
2. Receipts and Revenues- All revenues
are receipts, but all receipts are not
revenues. Receipts are classified as
revenue receipts and capital receipts.
• Revenue receipts consist of those
receipts which do not have obligations
for repayments such as taxes and
duties, interest earnings, rents,
dividends, profits, grants etc.
6.2 Basic Concepts
• Capital receipts consist of loans from
domestic and foreign sources and have
attendant obligations of amortization and
interest payments.
3. Expenditures and payments- Similarly, all
expenditures are payments, but all
payments are not expenditure. Repayments
of loans are not expenditure.
4. Requited and unrequited transactions-
Requited transactions are those in which
money is paid or received in exchange of
goods or services. But, transfers and grants
are unrequited expenditure as nothing is
received in return of money.
6.3 Basic Concepts
1. Budget is account of government
receipts and government expenditure
2. Both Receipts and Expenditure have
two accounts- Revenue and Capital.
3. Revenue Account is the current
account and is closed within a year.
But capital account is not normally
closed within a year and continues for
a number of years until all obligations
are met by the govt.
4. Govt has no obligations to anybody for
revenue receipts. But, govt has
obligations for capital receipts.
6.4 Basic Concepts
5. Like receipts, expenditure has also two
accounts- revenue and capital.
 Revenue expenditures relate to current
expenditure such as wages and salaries,
maintenance, subsidies, grants, interest
payments. These expenditures do not lead to
asset creation or value addition, while capital
expenditures (such as expenditures on plant,
machinery, land, property etc.) lead to asset
creation.
6.5 Basic Concepts
6. Plan and non-plan expenditure- If any project
or program is approved by the Planning
Commission as a part of the National Five Year
Plan or Annual Plan, expenditure for that
project or program is called Plan Expenditure
and all other expenditures are classified as
Non-Plan Expenditures.
7. Developmental and non-developmental-
Internationally, expenditures are classified as
Developmental and Non-Developmental
Expenditures. Any expenditure which leads to
higher production and economic development
is called developmental expenditure, all others
are classified as Non-Developmental
expenditures.
6.6 Classification of
 There is noExpenditure
one-to-one correspondence
among these classifications.
 Cross-Classification of expenditure in
Budget 2006-07 (Rupees billion)
Type Plan Non-plan Total

Revenue 1438 3444 4882
(26%) (61%) (87%)
Capital 290 468 758
(5%) (8%) (13%)
Total 1728 3913 5640
(31%) (69%) (100%)
6.7 Classification of Expenditure
(a) Interest payments- Revenue, non-plan, non-
developmental exp
(b) Food subsidy- Revenue, non-plan, non-
developmental expenditure
(c) Fertiliser subsidy- Revenue, non-plan,
(d) Construction of national highways- Capital,
plan, developmental expenditure
(e) Construction of border roads- Capital, plan,
non-developmental expenditure
6.8 Classification of Expenditure
(f) Salaries of staff of a National University-

Revenue, plan, developmental expenditure
(g) Salaries of staff of a National University
under construction- Capital, plan,
developmental Expenditure
(h) Construction of government hospitals/
government schools- Capital, Plan,
(i) Grants for private hospitals/ private schools
– Revenue, non-plan, developmental
expenditure
6.9. Classification of Receipts
1. Revenue and capital receipts
2.Revenue receipts- Taxes and Non-taxes
 Taxes- Direct (personal income, corporate
income, dividends tax) and indirect
(customs, excise, services tax)
 Non-taxes- Interest receipts, profits,
dividends, fees, service charges, grants
3. Capital receipts include recovery of loans,
disinvestment of government equity,
market and other borrowings, public funds
4. Non-debt creating receipts include
revenue receipts, recovery of loans and
disinvestment of govt equity.
7.1 Different Concepts of
Deficits
 Revenue deficit= Revenue expenditure
less revenue receipts
 Capital deficit= Capital expenditure less
capital receipts
 Budget deficit= Total expenditure less total
receipts= Revenue deficit +Capital deficit
 Gross Fiscal Deficit= Total expenditure less
Non-Debt receipts= Total Expenditure less
(Revenue receipts+recovery of loans+
disinvestment of govt equity)
 Gross Primary deficit= Gross Fiscal Deficit
less interest payments
7.2 Different Concepts of
Deficits
 Net Fiscal Deficit= Gross Fiscal Deficit
less Net Lending
 Net Primary Deficit= Net Fiscal Deficit
less Net Interest Payments
 Net Lending = Loans given by the
central govt to the States and PSUs less
recoveries of past loans from them
 Net Interest Payments = Interest
payments less interest receipts
 Net RBI Credit to the central govt =
RBI’s holdings of Treasury Bills, govt of
India dated securities, rupee coins, and
loans and advances taken from RBI.
7.3 Budget 2006-07 at a glance
Items Rs. Billion
1. Revenue receipts (a+b) 4035

(a) Tax revenues 3272
(b) Non-tax revenues 763
2.Capital receipts, of which 1605
(a) Recovery of loans 80
(b) Disinvestment 38
(c) Borrowings & other 1487
liability
3.Total receipts (1+2) 5640
4.Revenue expenditure
Budgeting-Basic Concepts
4882 23
7.4 Budget 2006-07 at a glance
Items Rs. Billion
5.Capital expenditure 758

6. Total expenditure (4+5) 5640
7. Revenue deficit (4-1) 847
8.Capital deficit (5-2) -847
9. Budget deficit= (7+8)=(6- 0
3)
10. Gross fiscal deficit 1487
=(6-1-2a-2b)=2c
11. Primary deficit= (10-4a) 89
12. Net fiscal deficit 1465
13. Net primary deficit 273
7.5 Macro-economic
Background
for Budget 2006-07
Major macro-economic 2005- 2006-07
variables 06 Projected
1. Real GDP growth rate 8.4 8.0

2. WPI Inflation rate (%) 4.4 5.0
3. Fiscal deficit / GDP (%) 4.1 3.7
4. Revenue deficit/GDP 2.6 2.1

(%)
5.Primary deficit/GDP (%) 0.5 0.2
7.6 Medium Term Fiscal
Indicators
Items 2005- 2006- 2007- 2008-
06 RE 07 BE 08 Tar 09 Tar
1. Rev. Deficit 2.6 2.1 1.0 0.0

as % of GDP
2. Fiscal 4.1 3.7 3.4 3.0

Deficit
as % of GDP
3. Tax rev. 10.5 11.2 11.5 11.8
as % of GDP
4. Year-end 65.7 65.7 64.4 63.1
debt stock (%
of GDP) Budgeting-Basic Concepts 26
8.1 Accountability and Audit
 All expenditures and receipts are subject to
accounting principles, under the Controller
General of Accounts (CGA).
 Expenditures must confirm to budget provisions.
There are Financial Advisers (FAs) attached to
each department.
 Controller of Aid Accounts and Audit Office for
external debt under the Ministry of Finance.
 Accounts are subject to audit by the Comptroller
and Auditor General (C&AG). Under article 151
of the constitution, reports of the C&AG are laid
in both houses of the Parliament.
 Constitutional provisions (under article 148)
guarantee the authority, autonomy and
independence of C&AG.
9.1 Review Questions
1. Write short notes on:
(a) Revenue expenditure and capital
expenditure
(b) Revenue receipts and capital receipts
(c) Requited and unrequited expenditure
(d) Vote on Account, Appropriation Bill and
Finance Bill
(e) Consolidated Fund, Public Funds and
Sectoral Funds
(f) Revenue Deficit, Gross Fiscal Deficit
and Net Fiscal Deficit
(g) Gross Primary Deficit and Net Primary
Deficit
9.2 Review Questions
2. Without any explanation, classify the following
expenditures under revenue and capital
expenditure, plan and non-plan expenditure,
developmental and non-developmental
expenditure:
(a) Interest payments
(b) Food subsidy
(c) Fertilizer subsidy
(d) Construction of nation highways
(e) Construction of border roads
(f) Salary of staff of a National University
(g) Salary of staff of a National University under
construction
(h) Construction of a government school
(i) Grants to a private school
9.3 Central Govt Budget (Rs.
Billion)
Items 2005-06RE 2006-07
1. Tax revenues 2742 3272

2. Non-tax revenues 743 763
3.Capital receipts, 1602 1605

of which
(a) Recovery of 117 80
loans
(b) Disinvestment 24 38
(c)Borrowings and 1461 1487
other liabilities
4. Capital 684
Budgeting-Basic Concepts
758 30
Question 9.3
1. Given above data, estimate the
following for the Union Budgets 2005-
06 RE and 2006-06 BE
(a) Revenue deficit, (b) Capital Deficit
(c) Budget Deficit, (d) Gross Fiscal Deficit
(e) Primary Deficit
2. Do you consider the budget for 2006-
07 to be an improvement over that for
2005-07?
Answer to Question 9.3
Items 2005-06 2006-07
6. Revenue deficit 918 847

=5- (1+2)
7.Capital deficit=4-3 -918 -847
8.Budget deficit=6+7 0 0
9. Gross fiscal deficit 1461 1487

=4+5-(1+2+3a+3b)
10. Primary deficit=9- 161 89
5a
Budget 2005-06
6. Revenue deficit = Revenue
Expenditure – Revenue Receipts = (5) –
[ (1) + (2) ]
=
7.Capital deficit = Capital expend. –
Capital Receipts = (4) – (3) =
8. Budget deficit = Rev Def + Cap Def =
0
9. Gross fiscal deficit = Total Exp - Non-
debt receipts = Rev Exp + Cap Ext –
[Rev Receipts + Recoveries of loans +
disinvest.] =
10. Primary deficit = Gross Fiscal Deficit
– Interest Payments =
Budget 2006-07
6. Revenue deficit = Revenue
Expenditure – Revenue Receipts = (5) –
[ (1) + (2) ]
=
7.Capital deficit = Capital expend. –
Capital Receipts = (4) – (3) =
8. Budget deficit = Rev Def + Cap Def =
0
9. Gross fiscal deficit = Total Exp - Non-
debt receipts = Rev Exp + Cap Ext –
[Rev Receipts + Recoveries of loans +
disinvest.] =
10. Primary deficit = Gross Fiscal Deficit
– Interest Payments =
THANK YOU
Have a Good Day

Budget Preparion Methodology in India by Tarun Das

Transféré par

Informations du document

Copyright

Formats disponibles

Partager ce document

Partager ou intégrer le document

Options de partage

Avez-vous trouvé ce document utile ?

Ce contenu est-il inapproprié ?

Droits d'auteur :

Formats disponibles

Budget Preparion Methodology in India by Tarun Das

Transféré par

Droits d'auteur :

Formats disponibles

MEPP Lectures 10-11-12

Basic Concepts, Sources of

(a) Article 112: President shall cause to

Type Plan Non-plan Total

(f) Salaries of staff of a National University-

1. Revenue receipts (a+b) 4035

5.Capital expenditure 758

1. Real GDP growth rate 8.4 8.0

4. Revenue deficit/GDP 2.6 2.1

1. Rev. Deficit 2.6 2.1 1.0 0.0

2. Fiscal 4.1 3.7 3.4 3.0

1. Tax revenues 2742 3272

3.Capital receipts, 1602 1605

6. Revenue deficit 918 847

9. Gross fiscal deficit 1461 1487

Vous aimerez peut-être aussi