Budget in Parliament (Union Budget)

Introduction

The Union Budget, constitutionally known as the Annual Financial Statement (Article 112), is the Government of India’s annual financial plan for the upcoming financial year (1 April–31 March). It contains the government’s estimated receipts (income) and expenditure (spending), along with taxation proposals and fiscal policy measures.

The Budget is not merely an account of income and expenditure; it is the government’s most important economic policy document. It indicates the government’s priorities in sectors such as infrastructure, agriculture, education, health, defence, social welfare, employment and economic development. Since public money belongs to the people, the Constitution requires the government to obtain Parliament’s approval before collecting taxes or spending money.

Evolution of the Union Budget

• 1860 – First Budget in India presented by James Wilson.
• 1947 – First Budget of Independent India presented by R.K. Shanmukham Chetty.
• 2017 – Railway Budget merged with General Budget.
• 2017 onwards – Budget presented on 1 February.

What Does the Union Budget Include?

The Budget is a comprehensive financial document that explains where the government will earn money from, where it will spend it, how much it plans to borrow, and how it intends to manage the economy.

Revenue Receipts: Revenue receipts are those receipts that do not create any liability for the government and do not reduce its assets. They represent the government’s regular sources of income.

These include:

(a) Tax Revenue

Money collected through taxes, such as:

• Income Tax
• Corporation Tax
• GST
• Customs Duty
• Excise Duty

Example: When a salaried employee pays Income Tax or a company pays Corporation Tax, it becomes part of the government’s tax revenue.

(b) Non-Tax Revenue

Income received from sources other than taxes.

Examples:

• Dividends from Public Sector Enterprises
• Interest on loans given by the government
• Fees and penalties
• Licence fees
• Spectrum auction proceeds

In simple words: Revenue receipts are the government’s “regular income”, just like the monthly salary of a household.

Capital Receipts: Capital receipts are those receipts that either create liabilities or reduce the government’s assets.

These include:

• Market borrowings
• Small savings collections
• External loans
• Recovery of loans
• Disinvestment of Public Sector Enterprises

Example: If the government borrows ₹1 lakh crore from the market, it must repay it in future. Therefore, it creates a liability and becomes a capital receipt.

Revenue Expenditure: Revenue expenditure refers to expenditure that neither creates assets nor reduces liabilities. It is incurred for the day-to-day functioning of the government.

Examples include:

• Salaries of government employees
• Pension payments
• Interest payments
• Subsidies
• Grants to States
• Administrative expenses

Example: Paying the salary of a teacher improves administration but does not create a new physical asset.

Capital Expenditure: Capital expenditure is expenditure that creates assets or reduces liabilities. It contributes to long-term economic development.

Examples include:

• Construction of highways
• Railways
• Airports
• Defence equipment
• Irrigation projects
• Capital infusion into PSUs
• Repayment of government loans

Example: Constructing a new expressway creates a permanent public asset and improves economic productivity.

Fiscal Deficit and Other Fiscal Indicators: The Budget also presents the government’s fiscal health through important indicators such as:

• Fiscal Deficit
• Revenue Deficit
• Primary Deficit
• Effective Revenue Deficit
• Public Debt

These indicators help Parliament, investors and citizens assess whether government spending is financially sustainable.

Taxation Proposals: The Budget contains proposals regarding:

• Changes in Income Tax
• Corporate Tax
• Customs Duty
• Excise Duty
• Other tax reforms

These proposals become legally effective only after the Finance Bill is passed by Parliament.

Budget Documents: Some important documents presented along with the Budget include:

• Annual Financial Statement
• Finance Bill
• Appropriation Bill
• Demands for Grants
• Receipts Budget
• Expenditure Budget
• Budget at a Glance
• Fiscal Policy Strategy Statement
• Medium-Term Fiscal Policy Statement

Together, these documents provide complete information regarding the government’s financial position and future policy direction.

Constitutional Provisions Related to the Budget

Charged Expenditure [Article 112(3)]

Charged Expenditure refers to expenditure that is charged directly on the Consolidated Fund of India and does not require the approval (vote) of the Lok Sabha. Members of Parliament may discuss this expenditure, but they cannot vote to increase, reduce or reject it.

The Constitution keeps such expenditure outside voting to protect the independence of constitutional authorities and ensure uninterrupted functioning of essential institutions.

Why is Charged Expenditure not Voted?

The makers of the Constitution wanted important constitutional offices to remain free from political pressure. If Parliament could reduce the salaries or expenditure of institutions like the Supreme Court or the CAG every year, their independence could be compromised.

Therefore, these expenditures are charged on the Consolidated Fund and remain beyond the voting power of the Lok Sabha.

Examples of Charged Expenditure

• Salary and Allowances of the President
• Salary and Allowances of the Vice-President
• Salaries of Supreme Court Judges
• Salaries and Pensions of High Court Judges
• Salary and Allowances of the Comptroller and Auditor General (CAG)
• Debt charges and interest payments
• Expenditure required to satisfy court decrees
• Any expenditure declared charged by the Constitution or Parliament

Budget Passing Procedure in Parliament: The Budget does not become law immediately after being presented. It has to pass through several constitutional stages before the government can legally spend money or collect taxes.

Stage 1: Presentation of the Budget

o   The Budget is presented by the finance minister in the Lok Sabha after obtaining the President’s recommendation.

o   Along with the Budget Speech, several important financial documents, including the Finance Bill and Appropriation Bill-related papers, are laid before Parliament.

Stage 2: General Discussion

o   A few days after the Budget is presented, Parliament begins a general discussion.

o   During this stage, Members discuss the overall philosophy of the Budget, including economic growth, fiscal deficit, employment generation, welfare programmes and taxation policy. They do not discuss individual ministries or specific expenditure proposals.

o   Both Lok Sabha and Rajya Sabha participate in this debate. At the end of the discussion, the finance minister replies to the issues raised by Members.

Stage 3: Examination by Departmentally Related Standing Committees (DRSCs)

After the general discussion, the Budget is referred to the Departmentally Related Standing Committees.

Each committee examines the Demands for Grants of the ministries under its jurisdiction. The committees may interact with government officials, experts and stakeholders before preparing their reports.

Although the committee recommendations are not binding, they provide valuable suggestions and improve parliamentary scrutiny.

Stage 4: Voting on Demands for Grants

Once the Standing Committee reports are submitted, the Lok Sabha takes up the Demands for Grants ministry by ministry.

Every ministry seeks Parliament’s approval to spend public money during the financial year.

Only the Lok Sabha has the power to vote on these demands because it directly represents the people.

The Rajya Sabha may discuss the Demands for Grants but cannot vote on them.

Members may also move Cut Motions if they wish to oppose government expenditure.

Types of Cut Motions

(a) Policy Cut Motion: The amount demanded is reduced to ₹1, indicating complete disagreement with the policy of the government.

(b) Economy Cut Motion: The amount is reduced by a specified sum, suggesting that unnecessary expenditure should be curtailed.

A member moves a Token Cut Motion to reduce the demand by ₹100 and draw the government’s attention to a specific grievance or issue.


Guillotine: Since Parliament cannot discuss every ministry in detail due to shortage of time, the Speaker fixes a deadline.

On the final allotted day, the Lok Sabha puts all the remaining Demands for Grants to vote together without any further discussion. This process is known as the Guillotine.

o   It ensures that the Budget is passed before the beginning of the new financial year.

Stage 5: Passing of the Appropriation Bill

After the Lok Sabha votes on the Demands for Grants, the government introduces the Appropriation Bill under Article 114 of the Constitution.

This Bill authorizes the government to withdraw money from the Consolidated Fund of India.

It includes:

Voted expenditure

Charged expenditure

o   The Appropriation Bill is a Money Bill. Therefore, the Rajya Sabha can only recommend amendments, while the Lok Sabha has the final decision.

Only after the President gives assent does it become the Appropriation Act.

Importance: Without the Appropriation Act, the government cannot legally withdraw even a single rupee from the Consolidated Fund of India.

Stage 6: Passing of the Finance Bill

The final stage is the passage of the Finance Bill, which gives legal effect to the government’s taxation proposals.

The Finance Bill includes:

• New taxes
• Changes in tax rates
• Amendments in taxation laws
• Other financial proposals

If the Finance Bill contains only the matters specified under Article 110, the Constitution treats it as a Money Bill.

After Parliament passes the Finance Bill and the President gives assent, it becomes the Finance Act.

Only then can the government legally collect taxes according to the new Budget proposals.

Importance of Parliamentary Approval

Parliamentary approval ensures that public money remains under democratic control. It prevents the Executive from spending money arbitrarily and makes the government accountable to the representatives of the people.

The Budget process also provides an opportunity to debate national priorities, evaluate government performance and maintain transparency in public finance.

Check this- Funds of the Government of India

Frequently Asked Questions (FAQs)

Q1. Why does the Constitution call the Union Budget the Annual Financial Statement?


Article 112 of the Constitution officially refers to the Union Budget as the Annual Financial Statement, which contains the estimated receipts and expenditure of the Government of India for the next financial year.

Q2. Why can only the Lok Sabha vote on Demands for Grants?

The Lok Sabha directly represents the people and exercises financial control over the Executive. Therefore, only it has the constitutional authority to approve or reject government expenditure.

Q3. What is the difference between the Appropriation Bill and the Finance Bill?

The Appropriation Bill authorizes the government to withdraw money from the Consolidated Fund of India, whereas the Finance Bill gives legal effect to the government’s taxation proposals.

Q4. Why is Charged Expenditure not voted upon?

Charged Expenditure protects the independence of constitutional authorities such as the President, Supreme Court and CAG. Parliament may discuss this expenditure but cannot vote on it.

Q5. What action does the government take if Parliament does not pass the Budget before the beginning of the financial year?

The government seeks a Vote on Account under Article 116, which allows it to withdraw a limited amount from the Consolidated Fund of India to meet essential expenses until Parliament passes the full Budget.