Budget Documents Made Simple

In India, the government presents a set of budget documents every year to outline its financial plans, expenditures, revenue projections, and allocations for various sectors. The budget documents provide a comprehensive overview of the government’s fiscal policies and priorities for the upcoming financial year. Read here to understand each such document related to the budget.

In the post ‘Government Budgeting Basics‘, we have seen that Indian Budget is not a single document, but consists of many documents like Annual Financial Statement, Demand for Grants, Appropriation Bill, Finance Bill, etc.

Also, there are certain budget documents as per the requirements of the FRBM Act 2003. In this post, we shall go into the details of each of these documents and see what these documents are all about.

Annual Financial Statement

Annual Financial Statement (AFS), the document as provided under Article 112, shows estimated receipts and expenditures of the Government of India for the next financial year as estimates for the previous financial year as also expenditures for the year before the last financial year.

The receipts and disbursements are shown under the three parts, in which Government Accounts are kept viz., (i) Consolidated Fund, (ii) Contingency Fund, and (iii) Public Account.

The estimates of receipts and expenditures included in the Annual Financial Statement are for the expenditure net of refunds and recoveries, as will be reflected in the accounts.

Annual Financial Statement has the following heads.

1. Statement I – Consolidated Fund of India [Receipts and Expenditure: Revenue Account; Receipts and Expenditure: Capital Account]
2. Statement IA – Expenditure charged on the Consolidated Fund of India
3. Statement 2 – Contingency Fund of India
4. Statement 3 – Public Accounts of India [Receipts and Expenditure]
5. Receipts & Expenditure of Union Territories without Legislature.

Demand For Grants

Article 113 of the Constitution mandates that the estimates of expenditure from the Consolidated Fund of India included in the Annual Financial Statement and required to be voted by the Lok Sabha are submitted in the form of Demands for Grants.

• The Demands for Grants are presented to the Lok Sabha along with the Annual Financial Statement. Generally, one Demand for Grant is presented in respect of each Ministry or Department. However, more than one Demand may be presented for a Ministry or Department depending on the nature of expenditure.
• Regarding Union Territories without Legislature, a separate Demand is presented for each of the Union Territories.

Each Demand first gives the totals of ‘voted’ and ‘charged’ expenditure as also the ‘revenue’ and ‘capital’ expenditure included in the Demand separately, and also the total of the amount of expenditure for which the Demand is presented.

• This is followed by the estimates of expenditure under different major heads of account. The breakup of the expenditure under each major head between ‘Plan’ and ‘Non-Plan’ is also given.
• The amounts of recoveries taken in the reduction of expenditure in the accounts are also shown. A summary of Demands for Grants is given at the beginning of this document, while details of ‘New Service’ or ‘New Instrument of Service’ such as the formation of a new company, undertaking or a new scheme, etc., if any, are indicated at the end of the document.

Appropriation Bill

Under Article 114(3) of the Constitution, no amount can be withdrawn from the Consolidated Fund without the enactment of such a law by Parliament.

After the Demands for Grants are voted by the Lok Sabha, Parliament’s approval of the withdrawal from the Consolidated Fund of the amounts so voted and of the amount required to meet the expenditure charged on the Consolidated Fund is sought through the Appropriation Bill.

• The whole process beginning with the presentation of the Budget and ending with discussions and voting on the Demands for Grants requires a sufficiently long time.
• The Lok Sabha is, therefore, empowered by the Constitution to make any grant in advance in respect of the estimated expenditure for a part of the financial year pending completion of the procedure for the voting of the Demands.
• The purpose of the ‘Vote on Account’ is to keep the Government functioning, pending voting of ‘final supply’. The Vote on Account is obtained from Parliament through an Appropriation (Vote on Account) Bill.

Finance Bill

At the time of the presentation of the Annual Financial Statement before Parliament, a Finance Bill is also presented in fulfillment of the requirement of Article 110 (1)(a) of the Constitution, detailing the imposition, abolition, remission, alteration, or regulation of taxes proposed in the Budget.

A Finance Bill is a Money Bill as defined in Article 110 of the Constitution. It is accompanied by a Memorandum explaining the provisions included in it.

Memorandum Explaining the Provisions in the Finance Bill: To facilitate understanding of the taxation proposals contained in the Finance Bill, the provisions and their implications are explained in the document titled Memorandum Explaining the Provisions of the Finance Bill.

Budget Documents as per the requirements of the FRBM Act

The Fiscal Responsibility and Budget Management Act (FRBM Act), 2003, establishes financial discipline to reduce the fiscal deficit.

Macroeconomic Framework Statement

• The Macroeconomic Framework Statement presented to Parliament under Section 3(5) of the Fiscal Responsibility and Budget Management Act, 2003 and the rules made thereunder contains an assessment of the growth prospects of the economy with specific underlying assumptions.
• It contains an assessment regarding the GDP growth rate, the fiscal balance of the Central Government, and the external sector balance of the economy.

Fiscal Policy Strategy Statement

• The Fiscal Policy Strategy Statement, presented to Parliament under Section 3(4) of the Fiscal Responsibility and Budget Management Act, 2003, outlines the strategic priorities of the Government in the fiscal area for the ensuing financial year relating to taxation, expenditure, lending, and investments, administered pricing, borrowings, and guarantees.
• The Statement explains how the current policies are in conformity with sound fiscal management principles and give the rationale for any major deviation in key fiscal measures.

Medium-term Fiscal Policy Statement

• The Medium-term Fiscal Policy Statement presented to Parliament under Section 3(2) of the Fiscal Responsibility and Budget Management Act, 2003, sets out three-year rolling targets for four specific fiscal indicators about GDP at market prices namely (i) Revenue Deficit, (ii) Fiscal Deficit, (iii) Tax to GDP ratio and (iv) Total outstanding Debt at the end of the year.
• The Statement includes the underlying assumptions, an assessment of sustainability relating to the balance between revenue receipts and revenue expenditure, and the use of capital receipts including market borrowings for the generation of productive assets.

Medium-term Expenditure Framework Statement

• The Medium-term Expenditure Framework Statement presented to Parliament under Section 3 of the Fiscal Responsibility and Budget Management Act, 2003 sets forth a three-year rolling target for the expenditure indicators with a specification of underlying assumptions and risks involved.
• The objective of the MTEF is to provide closer integration between the budget and the FRBM Statements.
• This Statement is presented separately in the session next to the session in which the Budget is presented, i.e. normally in the Monsoon Session.

Explanatory Budget Documents

This documents include Expenditure Budget Volume-1, Expenditure Budget Volume-2,  Receipts budget, Budget at a glance, Highlight of budget etc.

Expenditure Budget Volume-1

• This document deals with revenue and capital disbursements of various Ministries/Departments and gives the estimates in respect of each under ‘Plan’ and ‘Non-Plan’.
• It also gives an analysis of various types of expenditure and broad reasons for the variations in estimates.

Expenditure Budget Volume-2

• The provisions made for a scheme or a program may spread over several Major Heads in the Revenue and Capital sections in a Demand for Grants.
• In the Expenditure Budget Vol. 2, the estimates made for a scheme/program are brought together and shown on a net basis in one place, by Major Heads.
• To understand the objectives underlying the expenditure proposed for various schemes and programs in the Demands for Grants, suitable explanatory notes are included in this volume in which, wherever necessary, brief reasons for variations between the Budget estimates and Revised estimates for the current year and requirements for the ensuing Budget year are also given.

Receipts Budget

• Estimates of receipts included in the Annual Financial Statement are further analyzed in the document “Receipts Budget”.
• The document provides details of tax and non-tax revenue receipts and capital receipts and explains the estimates.
• The document also provides the arrears of tax revenues and non-tax revenues, as mandated under the Fiscal Responsibility and Budget Management Rules, 2004.
• The trend of receipts and expenditures along with deficit indicators, statements about the National Small Savings Fund (NSSF), statements of revenues foregone, statements of liabilities, statements of guarantees given by the government, statements of assets, and details of external assistance are also included in Receipts Budget.

Budget at a Glance

• This document shows in brief, receipts, and disbursements along with broad details of tax revenues and other receipts. This document also exhibits a broad break-up of expenditure – Plan and Non-Plan, allocation of Plan outlays by sectors as well as by Ministries/Departments, and details of resources transferred by the Central Government to State and Union Territory Governments.
• This document also shows the revenue deficit, the gross primary deficit, and the gross fiscal deficit of the Central Government. The excess of the Government’s revenue expenditure over revenue receipts constitutes a revenue deficit for the Government.
• The difference between the total expenditure of the Government by way of revenue, capital, and loans net of repayments on the one hand and revenue receipts of the Government and capital receipts which are not like borrowing but which finally accrue to the Government on the other, constitutes gross fiscal deficit.
• Gross primary deficit is measured by gross fiscal deficit reduced by gross interest payments. In the Budget documents ‘gross fiscal deficit’ and ‘gross primary deficit’ have been referred to in abbreviated form ‘fiscal deficit’ and ‘primary deficit’, respectively.
• This document also shows the liabilities of the Government on account of securities (bonds) issued instead of oil and fertilizer subsidies.

Highlights of Budget

• This document explains the key features of the Budget, inter alia, indicating the prominent achievements in various sectors of the economy. It also explains, in brief, the budget proposals for the allocation of funds to be made in important areas.
• The summary of tax proposals is also reflected in the document.

Other Budget Documents Along with Budget Statements

This includes detailed demand for grants, outcome budget, annual reports, and economic survey.

Detailed Demands for Grants

• The Detailed Demands for Grants are laid on the table of the Lok Sabha sometime after the presentation of the Budget, but before the discussion on Demands for Grants commences.
• Detailed Demands for Grants further elaborate on the provisions included in the Demands for Grants as also actual expenditure during the previous year.
• A breakup of the estimates relating to each program/organization, wherever the amount involved is not less than 10 lakhs, is given under several object heads which indicate the categories and nature of expenditure incurred on that program, like salaries, wages, travel expenses, machinery and equipment, grants-in-aid, etc.
• At the end of these Detailed Demands are shown the details of recoveries taken in reduction of expenditure in the accounts.

Outcome Budget

• With effect from Financial Year 2007-08, the Performance Budget and the Outcome Budget hitherto presented to Parliament separately by Ministries/Departments, are merged and presented as a single document titled “Outcome Budget” by each Ministry/Department in respect of all Demands/Appropriations controlled by them, except those exempted from this requirement.
• Outcome Budget broadly indicates the physical dimensions of the financial budget of a Ministry/Department, indicating actual physical performance in the preceding year, performance in the first nine months (up to December) of the current year and the targeted performance during the ensuing year.

Annual Reports

• A descriptive account of the activities of each Ministry/Department during the year is given in the document Annual Report which is brought out separately by each Ministry/Department and circulated to Members of Parliament at the time of discussion on the Demands for Grants.

Economic Survey

• The Economic Survey brings out the economic trends in the country which facilitates a better appreciation of the mobilisation of resources and their allocation in the Budget.
• The Survey analyses the trends in agricultural and industrial production, infrastructure, employment, money supply, prices, imports, exports, foreign exchange reserves, and other relevant economic factors which have a bearing on the Budget and is presented to the Parliament ahead of the Budget for the ensuing year.

Conclusion

The Budget of the Central Government is not merely a statement of receipts and expenditures. Since Independence, with the launching of the Five Year Plans, it has also become a significant statement of government policy.

The Budget reflects and shapes, and is, in turn, shaped by the country’s economy. For a better appreciation of the impact of government receipts and expenditure on the other sectors of the economy, it is necessary to group them in terms of economic magnitudes, for example, how much is set aside for capital formation, how much is spent directly by the Government and how much is transferred by Government to other sectors of the economy by way of grants, loans, etc.

This analysis is contained in the Economic and Functional Classification of the Central Government Budget which is brought out by the Ministry of Finance separately.