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Union Budget 2

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Constitutional Provisions with regard to enactment of budget

In this part the constitutional provision regarding the budget is being discussed. What are the various funds provided by the government and how money can be withdrawn from those funds.

The President of India presents a statement of estimated receipts and expenditure of the Government of India for that year before both the houses of Parliament in respect of every financial year. Our constitution lays down certain conditions for the withdrawal of money from the Funds mentioned in the constitution. Some of these are:

  • No demand of grant shall be made except on the recommendation of the President.
  • No money shall be withdrawn from the Consolidated Fund of India except under appropriation made by law.
  • No money bill imposing the tax shall be introduced in the Parliament except on the recommendation of the President, and such a bill shall not be introduced in the Rajya Sabha.
  • No tax shall be levied or collected except by authority of law.
  • Parliament can reduce or abolish a tax but cannot increase it.
  • The Constitution has also defined the relative roles or position of both the Houses of Parliament with regard to the enactment of the budget in the following way:

Role of the both the houses of the Parliament (Lok Sabha and Rajya Sabha)

  • A money bill or finance bill dealing with taxation cannot be introduced in the Rajya Sabha—it must be introduced only in the Lok Sabha.
  • The Rajya Sabha has no power to vote on the demand for grants; it is the exclusive privilege of the Lok Sabha.
  • The Rajya Sabha should return the Money bill (or Finance bill) to the Lok Sabha within fourteen days. The Lok Sabha can either accept or reject the recommendations made by Rajya Sabha in this regard.
  • The estimates of expenditure embodied in the budget shall show separately the expenditure charged on the Consolidated Fund of India and the expenditure made (Votable) from the Consolidated Fund of India.
  • The budget shall distinguish expenditure on revenue account from other expenditure.
  • The expenditure charged (Non-votable) on the Consolidated Fund of India shall not be submitted to the vote of Parliament. However, it can be discussed by Parliament.

Government Account

  • The financial management of any organisation must have a prudent financial system backed by sound and effective accounting procedures and internal controls. A well-designed and well managed accounting system helps ensure proper control over funds. On the basis of accounts, the Government determines the shape of its monetary and fiscal policies.

STRUCTURE OF ACCOUNTS AND FLOW OF FUNDS

The constitution of India provides for the following three kinds of funds for the Government of India 

  1. Consolidated Fund of India (Article 266)
  2. Contingency Fund of India (Article 267)
  3. Public Accounts of India (Article 266)

What is Consolidated Fund of India

Article 266(1) of the constitution provides for a Consolidated Fund of India  and every State in India shall have their own Consolidated Fund of State . It means that every State government in India has their own separate Consolidated Funds.

The Consolidated Fund of India includes revenues, which are received by the government through taxes and expenses incurred in the form of borrowings and loans. It represents one of the three parts of the Annual Financial Statement with the other two: the Contingency Fund and Public Account. All government expenditures are met by consolidated funds except a few made by the Contingency fund of India or Public Accounts of India.

The most important fact to be remembered is that no money can be withdrawn from the Consolidated Fund without the permission of the Parliament. The whole budgetary process is for the Government of India to seek the permission of the Parliament to meet its expenditure for a financial year.

What goes into the Consolidated Fund of India

All the government revenue generated from taxes, asset sale, earnings from state-run companies, etc go into the Consolidated Fund of India. The fund gets money from:

  • Revenue earned in direct taxes such as income tax, corporate tax, etc
  • Revenue earned in indirect taxes such as GST
  • Dividends and profits from Central  PSUs (Public Sector Undertakings)
  • Money earned through government’s general services
  • Disinvestment receipts
  • Debt repayments
  • Loan recoveries

Keep in mind that no money can be withdrawn from the Consolidated Fund of India, without the government securing the approval of the Parliament.

Parts of Consolidated Fund of India

The Consolidated Fund of India is divided into five parts namely:

  • Revenue account (receipts)
  • Revenue account (disbursements)
  • Capital account (receipts)
  • Capital account (disbursements)
  • Disbursements charged on the Consolidated Fund.

Types of Expenditure

The budget consists of two types of expenditure – the expenditure 'charged' upon the Consolidated Fund of India and the expenditure 'made' from the Consolidated Fund of India.

Expenditure charged upon the Consolidated Fund of India 

The charged expenditure is non-votable by the Parliament, that is, it can only be discussed by the Parliament.The Parliament cannot vote on the expenditure proposals under that are to be charged upon the Consolidated Fund of India.  

Article 112 (3) of the Constitution of India, provides that the following expenditure does not require a vote and is charged to the Consolidated Fund. 

The following expenses are charged on the Consolidated Fund of India:

  • President’s Emoluments and allowances and other expenditure relating to his office
  • Chairman and the Deputy Chairman of the Rajya Sabha and the Speaker and the Deputy Speaker of the Lok Sabha – Salaries and allowances
  • Salaries, allowances, and pensions of the Supreme Court’s judges
  • Pensions of the High Courts’ judges
  • Comptroller and Auditor General of India’s salaries, allowances, and pensions
  • Salaries, allowances, and pension of the chairman and members of the Union Public Service Commission
  • Administrative expenses of the Supreme Court, the office of the Comptroller and Auditor General of India, and the Union Public Service Commission including the salaries, allowances, and pensions of the persons serving in these offices
  • The debt charges for which the Government of India is liable, including interest, sinking fund charges, and redemption charges, and other expenditure relating to the raising of loans and the service and redemption of debt
  • Any sum required to satisfy any judgement, decree, or award of any court or arbitral tribunal
  • Any other expenditure declared by the Parliament to be so charged

Expenditure Proposed to made from the Consolidated Fund of India 

The proposal for expenditure to be made from the Consolidated Fund of India  is presented in the form of demand for grants in the Lok Sabha .  Normally all the ministries of the government present their separate demand for grants in the Lok Sabha . The house can either reject or accept the demand for grants or reduce the demand for grants.

What is a Contingency Fund of India

Article 267 of the constitution provides for a Contingency Fund of India for the central government and for each state government. The fund can be created by the Parliament for the Central government of India and the respective state legislative assemblies for the state.

In 1950 the Parliament passed the Contingency Fund of India act  1950. In the Budget 2021-22 Parliament increased the corpus of the Contingency Fund of India to Rs 30,000 crore from Rs 500 crore.

  • As the name suggests, the Contingency Fund of India is the emergency fund for the nation. The fund is at the disposal of the government to meet unforeseen expenditures like earthquakes, floods etc.
  • However it is to be noted that whatever expenditure is made by the government from the fund has to be approved by the Parliament later on.

How is the contingency fund utilized

After the emergency has been dealt with, the fund is reimbursed to its full capacity of Rs 30,000 crore. This required money comes from the Consolidated Fund of India. The Secretary of, Finance Ministry holds this fund on behalf of the President of India. This fund is used to meet unexpected or unforeseen expenditure. Each state can have its own contingency fund established under Article 267(2).

Public Accounts of India

This is constituted under Article 266(2) of the Constitution.The President of India of India is the custodian of the Public Accounts. It means that unlike the Consolidated Fund of India, from which the government can withdraw money only after the permission of the Parliament, in the case of the Public Accounts, the Government of India needs no prior permission of the Parliament to withdraw the money from the Public Accounts of India.

The key is with the President of India.

Source of Fund 

All other public money (other than those which are credited to the Consolidated Fund of India) received by or on behalf of the Government of India shall be credited to the Public Account of India.

  • It consist of- 
    • Bank savings account of the various ministries/departments 
    • National small savings fund, defence fund
    • National Investment Fund (money earned from disinvestment)
    • National Calamity & Contingency Fund (NCCF) (for Disaster Management)
    • Provident fund, Postal insurance, etc.
    • The government does not need permission to take advances from this account. Each state can have its own similar accounts. The audit of all the expenditure from the Public Account of India is taken up by the CAG i.e. Comptroller and Auditor General of India.

Department of Economic Affairs

  • The Department of Economic Affairs under the Ministry of Finance is the nodal agency of the government to formulate and monitor a country's economic policies and programmes having a bearing on domestic and international aspects of economic management. 

Functions: 

  • A principal responsibility of this Department is the preparation and presentation of the Union Budget (including Railway Budget) to the Parliament and the Budget for the state governments under President’s Rule and union territory administrations. 
  • Other functions include: formulation and monitoring of macroeconomic policies, including issues relating to fiscal policy and public finance; inflation, public debt management and the functioning of capital market including stock exchanges; production of bank notes and coins of various denominations, postal stationery, postal stamps; and cadre management, career planning and training of the Indian Economic Service.

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