2. What Is Budget? Anticipated receipts and estimated expenditure within a given period of time, usually a year. This is also called as Annual Financial Statement. 14.2.2A

3. Significance of Budget Instrument of Policy – Allocate scarce resources to competing claims – Sets expenditure priorities of Government and hence reflects values Budget reflects the organizational structure – Establishes accountability and financial control – Management tool – Integration of Budget and Planning Issue of structural rigidities 24.2.2A

4. Economic Relevance of Budget Economic impact of government expenditure/ methods of raising resources Major fiscal policy document of the Government- as also industrial, monetary and financial sector policy Announces taxation measures or reforms which have far reaching economic impact 34.2.2A

5. Constitutional Provisions- 1 Taxation only by legislation (Art 265) Expenditure only by specific appropriation (Arts 114 and 204) Annual Financial Statement (Art 112/202) – Estimates of receipts and expenditure out of the Consolidated fund – Presented to the legislature for voting – By the President/Governor 44.2.2A

6. Constitutional Provisions- 2 Article 266 defines “Consolidated Fund” – All revenues – All loans (including treasury bills, W&M Advances) – All repayments of loans Any expenditure out of Consolidated fund only by specific appropriation Charged and Voted Items of Expenditure 54.2.2A

7. Constitutional Provisions- 3 Contingency Fund (Art 267): – Imprest amount with President/Governor – To make advances for unforeseen or new service items of expenditure – Amount determined by law – Recouped by subsequent authorisation Public Account (Art 266(2)) – All other public moneys not part of Consolidated Fund – No authorisation by legislature needed 64.2.2A

8. Salient features of Budget Prepared on cash basis Rule of lapse Realistic estimation Budget to be on gross/net basis Form of estimates to correspond to accounts Estimates to be on departmental basis 4.2.2A7

9. Scope of budget Budget documents depicts information relating to receipts and expenditure for three years 1.Through budget estimate ( BE) of receipts and expenditure in respect of budget year ( next financial year) 2.For the year preceding the budget year ( current year) through Revised estimates( RE) 3.Actuals of the second year preceding the budget year 4.2.2A8

10. Budget Shows the receipts and expenditure of Government in three separate parts under which government funds are maintained 1.Consolidated Fund of India 2.Contingency Fund on India 3.Public Account 4.2.2A9

11. Consolidated Fund of India Consolidated Fund of India has two divisions 1.Revenue Account 2.Capital Account 4.2.2A10

12. Consolidated Fund of India Revenue account : deals with the proceeds of taxation and other receipts classed as revenue and expenditure met there from – Receipts : current income including Taxes, fees, fines, interests, dividends Etc – Expenditure : which does not create asset Capital account : deals with expenditure incurred with the purpose of creating assets of durable nature or reducing recurring liabilities – Receipts : sale of assets, borrowed funds and accumulated cash balance – Expenditure : creation of new assets – Public debt : market loan, inter governmental loans etc 4.2.2A11

13. Expenditure budget Estimates of expenditure are divided into two parts 1.Charged items : not submitted to vote of Parliament but charged on consolidated fund of India.Eg; payment of interest on SB/CC, payment in lieu of court order etc 2.Voted items : met from the consolidated fund of India after being submitted in the form of DFG to the vote of Parliament 4.2.2A12

14. Budget - Expenditure Plan expenditure – Improves the earning capacity or reduces the working expenses of the department. It is developmental in nature Non – Plan expenditure- non developmental in nature. Most of the expenditure on the existing establishment comes under this category 4.2.2A13

15. Non Plan Expenditure Non developmental budget Expenditure on existing establishment Charged under Major head 3201 Estimate for DoP in 2012-13 Deficit in 2012-13 4.2.2A14

16. Plan expenditure Developmental fund On new schemes/ services Objective is to attain financial self sufficiency Intention to increase revenue and reduce cost of service 4.2.2A15

17. Budget – Receipts Revenue Receipts: these are estimates of Revenue receipts – both tax and non tax revenue. The non tax revenue interest receipts, dividends and profits etc Capital Receipts : include market loans, external assistance, small savings, government provident funds, accretion to various deposit accounts, depreciation and reserve funds of departments like railways, telecom etc 4.2.2A16

18. Demands for Grants Separate demand is presented by each Department Includes total provision required for a service i.e provision on account of both revenue expenditure and capital expenditure Contains those amounts which comes under “voted expenditure“ as well as the “charged expenditure “. When there is no estimate for expenditure under any head requiring vote of Lokh Sabha, then it is not called “ Demand “, but it is called “ Appropriation” and included as such in the list of demand The estimates are shown by Major Heads. Break up under each major head shows the estimates under ‘charged’ and ‘voted’, ‘Revenue’ and ‘Capital’, ‘ Plan’ and ‘Non Plan’. Stress is laid on major programs/activities of the Department highlighting those aspects of the budget which are important for an appreciation of the resource allocation at the National level 4.2.2A17

19. Chief Accounting Authority The Secretary of each Ministry / Department is the chief accounting authority for the accounting in the department S/he is responsible to approve and sign the headwise Appropriation Accounts of the Grants/appropriation for the department concerned 4.2.2A18

20. Why commercial accounting is required? Based on modified accrual accounting principle For those Government departments where functions purely or largely of commercial nature At times, performa accounts are kept on commercial accounting principle for such ministries To get a complete picture on the cost services rendered and the return from investments For major commercial departments like railways detailed capital and revenue accounts are prepared and presented separately DoP is in the process of adopting commercial accounting 4.2.2A19

21. Budget Formulation 4.2.2A20

22. Issue of Budget Circular Preparation of revenue and expenditure estimates by agencies Review and consolidation of agency requests by competent ministries Transmission of ministry requests to central agency Negotiations between competent ministries and central agency PREPARATION OF DRAFT BUDGET Cabinet approval of draft budget Final budget submitted to Legislature for approval Budget Formulation: Organizational Steps 214.2.2A

23. Preparation of Budget Responsibility of the executive wing of the Government Issue of the Budget Circular- by the Finance Ministry – Contains instructions on how to prepare estimates for different items – Outlines Expenditure policy – Formats are circulated Strict adherence to time limits laid down 224.2.2A

24. Preparation of Budget - 2 Government Accounts are in simple cash book format - merely record the transactions in the year in which they occur Receipts Estimates – Based on trends – State of the economy – Inflation 234.2.2A

25. Preparation of Budget - 3 Expenditure Budgeting – Estimates to be prepared by respective Government Departments – Incremental Budgeting – First Charge to on-going schemes and committed items – Justifications for increased outlays 24 Back 4.2.2A

26. Preparation of Budget Role of Finance Ministry Aggregation of the Receipts & Expenditure Inclusion of New Schemes New taxation measures Final iterative exercise – Ensure prioritization amongst sectors – Accommodate “sensitive” items – Keep overall deficit under check – Window dressing- deliberate under-funding or over-estimation 254.2.2A

27. Presentation of Budget By the Minister in charge of Finance to the lower house of the legislature – Annual Financial Statement – Demands for Grants – Other explanatory memoranda – Finance Bill – Appropriation Bill – Vote on Account- when needed 264.2.2A

28. Execution of Budget Expenditure can be incurred only with: – Valid sanction by the competent authority – Adequate appropriation Appropriations are communicated to concerned after Appropriation Act is passed Competent officers issue sanctions within appropriation Expenditure on items not included in the budget - New Service Procedure or Supplementary Appropriation 274.2.2A

29. Shortcomings of Existing Budgetary Practices Inefficiencies and wastes of earlier years carried over into subsequent years – Alternative methods or the option of not continuing the activity is not evaluated – Funds available for new initiatives- very limited Paucity of resources forces arbitrary cuts leading to inflated budget requests Lack of sense of ownership in concerned departments 284.2.2A

30. Shortcomings (contd) More focus on current RE than BE Classification quirks deprive crucial sectors/ activities of funds Cash based accounting gives misleading picture of financial status Budget is input driven and does not measure outcomes – Obsession with financial accounting at the cost of proper utilisation 294.2.2A

31. Establishment of goals, objectives and policies Development of programs Allocation of resources Execution of the budget Appraisal and evaluation BUDGETARY PROCESS 304.2.2A

32. Budget Preparation in DoP 4.2.2A31

33. - Information regarding anticipated expenditure. - Current Year - Next Year (Ensuing year) - Standing expenditure - New items of expenditure (1)Budget Estimates BE (2)Revised Estimates RE (3)Anticipated Final Grant AFG (4)Variation Statement. 32 Budget 4.2.2A

34. Budget Materials for estimates are obtained from Heads of Circles for Non Plan and concerned divisions of Dte for Plan It contains the – actuals of 1 st five months of last year as well as for current year, – actuals of last seven months of last year, – original plus additional if any for the current year, – estimated expenditure of last seven moths of current year, – revised estimates of current year and budget estimate for ensuing year 4.2.2A33

35. Non Plan Expenditure Estimates The framing of the Revised Estimates (RE) for current year should always precede Budget Estimation for the ensuing year (BE). The RE should include: Only those items which are likely to materialize for payment during current year Actual so far recorded during current year Sanctions for expenditure already issued or contemplated, and Other expenditure of seasonal character or otherwiseOther expenditure of seasonal character or otherwise 344.2.2A

36. What is RE-BE? 1.RE means Revised Estimate and BE means Budget Estimate. 2.The RE-BE statements are prepared during the month of September and submitted to RO by DO on or before 12 th September. 3.The revised estimates are prepared by the Divisional Office for the current financial year based on the expenditure for the months from April to August. 4.The budget estimate is for the next financial year and it will be prepared anticipating the expenditure by analysing the expenditure of the previous years. 4.2.2A35

37. What is AFG? AFG means Anticipated Final Grant. The AFG statements are prepared during the month of January and submitted to RO by DO on or before 06 th February The AFG statements are prepared by the Divisional Office based on the expenditure for the months from April to January While preparing the AFG statements, the Divisional Office Accountant should be more cautious to ensure accuracy. The revised allotments are normally received during the middle of January. The final grants are normally received during the end of February or in the first week of March. 4.2.2A36

38. 374.2.2A

39. 384.2.2A

40. 394.2.2A

41. 404.2.2A

42. 414.2.2A

43. 424.2.2A

44. What is variation statement? 1.The statement compares the final expenditure of a financial year with reference to original allotment as well as final allotment. 2.For example, in a financial year, in respect of 02-101-01 Wages the original allotment is Rs.3 lakhs and final grant is Rs.4 lakhs. If the expenditure is Rs.4,00,500, the divisional head has to explain the reason for variation as follows: Expenditure 4,00,500 Original allotment 3,00,000 Variation1,00,500 (1) Expenditure 4,00,500 Final Grant4,00,000 Variation 500 (2) The reason for variation in respect of (1) and (2) has to be explained by the divisional head. 4.2.2A43

45. Appropriation of Accounts 1.The powers to appropriate funds within the object head rest with Chief PMG. 2.The appropriation at Circle level is done at the time of preparation of AFG statements. 3.Divisional Heads should be more careful at the time of preparation of AFG and they have to surrender the unwanted funds. Such funds can be properly appropriated and allotted to divisions/regions by the Chief PMG. 4.Even after appropriation, if excess funds are available, that will be surrendered directly to Directorate by the Circle Budget. 5.Chief PMG is not competent to appropriate funds under OTA, Railway Haulage Charges, Pensionery funds, funds under printing heads. 4.2.2A44

46. Basic guidelines for incurring expenditure 1.The expenditure should always be proportionate to the total allotment. 2.By the end of December, 67% of the allotment should be spent. 3.Divisions are not allowed to spend more than 33% during the last quarter unless they receive any fresh allotment in the final grant. 4.2.2A45

47. Basic guidelines for incurring expenditure 1.When excess funds are available, all the funds should be surrendered to RO before 10 th of March. The surrendered funds can be utilised by the needy divisions/regions. 2.Rush of expenditure during the final stage of financial year should be avoided. 3.Whenever expenditure exceeds the allotment, the divisional head should proper action to get additional funds from RO. 4.In case of emergency, the DO has to address RO/Budget and get the clearance for spending any expenditure above the allotment. 5.Otherwise, the divisional head will be held responsible for such excess expenditure. 4.2.2A46

48. Plan expenditure – Some Facts Approval of Competent authority is mandatory before implementation Annual plan will be based on approved phaseing Adherence to physical and financial target and approved components is necessary Timely utilization of fund allocated is a key factor for assessing effective implementation 4.2.2A47