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PRE BUDGET SEMINAR

Union Budget andPublic Expenditure Management

A Presentation by

Dr. K. B. L.MathurFormer Economic Adviser, Ministry of Finance

Government of India

FEBRUARY 19, 2011

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1. Growth Rate and Level

2. Savings and Investment

3. Role of Union Budget

4. Plan Budget Link

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i) Direct Plan Assistance to states. Rs.92,492 crores for 2010-11 (B.E)

Plan Expenditure: Budget Support: Expenditure on Social Services

Central Government expenditure (Plan and Non-Plan) on Social

Services like Education, Health, Welfare, Rural Development Schemewas about 19 per cent of total Central Government Expenditure.

Centrally sponsored scheme

Major Programme specific funding to states through the CSS. About

90 per cent central grant for NREGS, MDM and about 50 per cent grant

for several other schemes. See statement 18 of Expenditure BudgetVol. I for direct transfer of central Plan assistance to state/district

level autonomous bodies/implementing agencies. Total transfers of

Rs.107552 crores in 2010-11 BE.

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ii)Indirect

IEBR of PSUs

For 2010-11 out of the total Plan outlay of central PSUs of Rs.2,78,634

crore Central Budget support is Rs.34,749 crores.

Policy Initiatives

Bhart Nirman and Flagship Programmes: Irrigation, drinking waters,rural road, rural houses, rural electrification, tele connectivity.

- National Rural Health Mission.

- National Urban Renewal Mission.

Incentives disincentives

Tax preferences are provided to individual / corporates through the

budget to promote savings, exports, balanced regional development,

infrastructure, employment, charity, rural development, research,

cooperative sector and accelerated depreciation for capital investment.

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2008-09Total Annual Plan Outlay 6,93,492

Central Plan Outlay 3,88,078

Budget Support 2,04,128

IEBR of CPSUs 1,83,950

State Plan Outlay 3,05,414

Central Assistance 78,828

States own Resources 2,26,586

Source: Union Budget and Planning Commission.


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1. Institutional Arrangement

2. Policy Framework

3. Dynamics of Interaction

4. Documents and Approval Process

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Under Article 112 of the Constitution, a statement of estimated receiptsand expenditure of the Government of India has to be laid before Parliament

in respect of every financial year which runs from 1stApril to 31stMarch.

This statement titled Annual Financial Statement is the main Budget

document.

The Annual Financial Statement shows the receipts and payments of

Government under the three parts in which Government accounts are kept:

(i) Consolidated Fund, (ii) Contingency Fund and (iii) Public Account.

Under the Constitution, Budget has to distinguish expenditure on

revenue account from other expenditure. Government Budget, therefore,

comprises (i) Revenue Budget; and (ii) Capital Budget.

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The Finance Ministry comprises:

Department of Economic Affairs

Department of Expenditure

Department of Revenue

Department of Disinvestment

Department of Financial Services (since June, 2007)

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Economic Division Budget Division

Capital Markets Division

Infrastructure Division

Fund Bank Division (including UN Branch)

Foreign Trade Division

Aid Accounts & Audit Division

Administration Division Bilateral Cooperation Division

Integrated Finance Division

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Establishment Division Pay Research Unit

Plan Finance-I Division

State Plan Schemes

Finance Commission Division

Plan Finance-II Division

Staff Inspection Unit

Chief Advisor Cost Office

Controller General of Accounts

Central Pension Accounting Office (CPAO)

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Central Board of Excise and Customs

Central Board of Direct Taxes

Narcotics Control Division

Central Economic Intelligence BureauDirectorate of Enforcement

Set up for Forfeiture of Illegally Acquired Property

State Taxes Section

Financial Intelligence Unit, India (FIU-IND)

Integrated Finance Unit

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Policy framework Economic/Growth policy: Growth Rate, Plan size, Development,

Regional balance etc.

Fiscal policy: Fiscal Deficit, Revenue Deficit, Revenue, Expenditure etc,

Institutional framework Budget Division, Department of Expenditure, Department of Revenue,

P.M.O., Planning Commission, Central Government Ministries, RBI, LawMinistry

State Governments

Legal framework Tax law, Debt law, FRBM law, Accounting Rules, Spending Rules, Capital

Markets law

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Initiating the Budgetary Process:

The Budget formulation process for the ensuing financial year

(April-March) starts in the month of September of the current

year when the Budget Division in the Department of Economic

Affairs, Ministry of Finance, issues a budget circular seeking

statement of budget estimates from various Ministries and otherorganizations concerned.

Specific Performa are enclosed with the budget circular along

with the time frame within which the information is to be sent to

the Budget Division.

The process for 2011-12 Budget started with the issue of

Budget Circular in Mid September. Last year the circular was of

109 pages with 44 Appendices and 27 annexes.

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Simultaneously, the Planning Commission also addresses letters to different

Central Ministries and State Governments seeking their annual plan proposals.The Planning Commission through a process of detailed discussions finalises the

plan allocations for different Ministries in which the budget support component is

clearly specified so as to fix the budgetary outgo for the plan schemes of the

Central Ministries/Departments.

In the case of states, the Planning Commission after detailed reviews and

discussions finalises the magnitudes of central assistance to be extended to the

states which is an outgo from the Union Budget.

Special attention is given to the budgetary support to be given to Central

Ministries and assistance given to the states for programs/projects which are

financed through external assistance.

Thus, necessary plan allocations as well as central assistance allocation forexternally aided projects is provided for as far as possible.

For the purpose, there is a continuous interaction between the External Finance

Division of the Department of Economic Affairs and the Planning Commission.

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Expenditure Estimates : The process of preparation of

expenditure estimates starts from the issue of the budget circular.

The financial advisers (FAs) forward this circular to the

Ministry/Department with which they are associated for

obtaining the required information.

The ministries in turn collect estimates from organisations undertheir control or prepare the same for their own activities.

These are scrutinized by the budget. units of the ministries and

submitted to the FAs.

The FAs review and examine these estimates before sending the

same in the form of their recommendations to the Budget

Division in the Ministry of Finance.

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These recommendations classified under separate demand for grants in

details up to the object head and labelled as statement of budget estimates(SBEs), are discussed by the Secretary (Expenditure) with each FA in a series of

meetings where the ministrys budget division is also represented.

After these discussions the budget division conveys budget ceilings to each FA

for revising all the estimates within the ceilings and sending the SBEs in the

final form.

The final SBEs are to be sent to the budget division in two stages.

In the first stage, the SBEs include (i) revised non-plan expenditure for the

current year and budget estimate for the next year, and (ii) revised plan

expenditure for the current year.

At the second stage of SBEs, FAs send to the budget division budget estimates

for plan expenditure for the next year as approved by the Planning Commission. Meanwhile, the Controller of Aid Accounts & Audit (CAA&A) also sends the

estimates on external debt, repayment of external loans and other payments.

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Revenue Estimates : The budget division obtains revenue estimates

from a large number of organisations. Estimates on central taxes and duties are obtained from the Revenue

Department in the Ministry of Finance.

The Central Board of Direct Taxes (CBDT) and the Central Board ofExcise and Customs (CBEC) provide revised estimates on direct and

indirect tax revenues respectively, initially for the current year and laterthe budget estimates for the next year after several interactionsdepending on proposals under consideration at various stages.

The Chief Controllers of Accounts (CCAs) and Accountants General(AGs) of Union Territory (UT) administrations send to the budgetdivision estimates of taxes, duties etc. for the UTs concerned.

Chief Controller of Accounts (CCAs) of different ministries send to theBudget Division their estimates on various types of receipts (non-tax)including those from public accounts after getting the same approvedfrom obtained by the budget division directly from the StateAccountants General (SAGs).

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For external aid receipts the CAA&A prepares the estimatesafter obtaining information from different credit units of the

external finance division of the Department of Economic affairs,

and sends the same to the budget division.

Finally, the budget division obtains from the RBI estimates onpossibilities as well as sources of market borrowings which

may be required by the government.

This process continues over a long period from October till the

time of giving a final shape to the budget as the variousalternatives to fill the gap between receipts and disbursements

are to be worked out till the end.

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Flow of Estimates : The various estimates on receipts and expenditure keep

flowing in the budget division from October till the budget is given a final shapetowards the end of the February.

In the process there are to and fro movements also for several estimates amongstthe different units of the Ministry of Finance and also amongst the BudgetDivision of Ministry of Finance, Planning Commission, different ministries, stategovernments and other organizations of which RBI is most important. apart from

the receipt estimates which are finalized only in the middle of February, it is onthe plan expenditure of the central ministries, central assistance to the states andresources of the central public sector enterprises that the changes in theestimates continue over the period owing to discussions at various levels and indifferent stages.

The annual plan discussions in the Planning Commission with the centralministries and the states continue, at times, till the end of January and it is onlyafter finalisation of these estimates that the FAs of different ministries can sendfinal SBEs for central plan expenditure to the budget. In working out theseestimates Planning Commission associates the plan finance division of theDepartment of Expenditure, the external finance division of the Department ofEconomic Affairs, etc.

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An Overview : With different flows of estimates, overall estimates of resources

and expenditure continue to be made by the budget division.

From December onwards the broad estimates are reviewed, discussed and

simulated under the overall guidance and supervision of the Additional Secretary

(Budget), who obtains guidance from Secretary (Expenditure), Secretary

(Economic Affairs), Chief Economic Adviser, Secretary (Revenue) and the Finance

Secretary.

This group receives an overall guidance from the Finance Minister. Meanwhile,

the Finance Minister invites a group of leading economists, representatives of

industry and trade, labour and trade unions, consumer organizations, small scale

sector and science and technology sector, for pre-budget discussions and receives

their suggestions for the budget.

The Finance Minister also consult the members of the Consultative Committee ofParliament for the Ministry of Finance.

After the presentation of the budget in the Parliament, the Parliamentary

Standing Committee reviews the budget proposals, the budget proposals are

debated in the Parliament and various bills are passed to approve the budget.

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At the time of presentation of the Annual Financial Statement before

Parliament, a Finance Bill is also presented in fulfillment of the requirement ofArticle 110(1)(a) of the Constitution, detailing the imposition, abolition,remission, alteration or regulation of taxes proposed in the Budget. A FinanceBill is a Money Bill as defined in Article 110 of the Constitution. It isaccompanied by a Memorandum explaining the provisions included in it.

Budget Documents

1.Annual Financial Statement

2.Budget at a Glance

3.Budget Speech

4.Budget Highlights

5.Action Taken on Budget Announcements6.Receipts Budget

7.Financial Bill

8.Customs & Excise Notification

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9.Explanatory Memorandum

10. Appropriation Bill

11. Demand for Grants

Exp. Budget Vol-I

Exp. Budget Vol-2

12. FRBM Statements

Macro-Economic Framework for Year T+1

Medium term fiscal policy for Years upto T+3

Fiscal policy strategy for the year T+1

Deviations statement for Year T

13. Detailed Demand for Grants

14. Economic Survey (A day before The Presentation of the Budget)15. 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 OutcomeBudget

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After the presentation of the budget in the Parliament, the Parliamentary

Standing Committee reviews the budget proposals, the budget proposals aredebated in the Parliament and various bills are passed to approve the budget.

After the Demands for Grants are voted by the Lok Sabha, Parliaments approval

to 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. 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.

The whole process beginning with the presentation of the Budget and ending

with discussions and voting on the Demands for Grants requires 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 financialyear pending completion of procedure for the voting of the Demands. The

purpose of the Vote on Account is to keep Government functioning, pending

voting offinalsupply. The Vote on Account is obtained from Parliament through

an Appropriation (Vote on Account) Bill.

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1. Expectations

2. Constraints

3. Issues in Public Expenditure Management

- Weaknesses of PEM in India

- Issues outlined by P. Ms Advisory Council

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The presentation of Union Budget before the Parliament and the Budget

Speech of the Finance Minister has always remained a major Annual

event in the country.

Of late, Media has created a hype over this event and discussions start in

visual media and press much before the event outlining the expectations.The expectations from the Union Budget vary from individual to groups

and to institutions.

Thus salaried class expects a relief on direct taxes, business expects a

relief in indirect taxes, economists analyze it for macro-economicvariables, politicians respond depending on their party affiliation and

common man responds to it depending on his level of understanding.

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The whole exercise of budget making is so huge and complex

that very little is understood about the constraints andlimitations of a budget with reference to the expectationsgenerated.

In terms of balancing of revenue and expenditure there arelimitations of raising revenue through taxes for containing

inflationary tendency. In terms of expenditure the committed expenditure is so huge

that the flexibility with a finance minister to change theexpenditure pattern within a year is extremely limited.Expenditure on account of interest payment, defence and

pensions account for almost 59 per cent of the total non planexpenditure. If subsidies and grant to States are added, theexpenditure on these five items would account for 81 per cent oftotal non-plan expenditure which itself is about 68 per cent oftotal expenditure.

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(Rs. in cores)

2001-02 2009-10

(BE)

A. Total Expenditure 362310 10,20,838

B. Total Non-Plan Expenditure 261116 6,95,689

Interest 107460 2,25,511Defence 154266 1,41,703

Pension 14436 34,980

C. =INT+DEF+PEN 176162 4,02,194

C as % of B 67.47 57.81

C as % of A 48.62 39.40


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(Rs. in cores)

2001-02 2009-10

(BE)

Subsidies 31210 1,11,276

Grant to States 15327 48,570

Sub+ GRA 46537 1,59,846

D. =C+Sub+GRA 222699 5,62,040

D as % of B 85.29 80.79

D as % of A 61.47 55.06

Police 7248 25,390

Tax Collection 2214 6,627C. =D+PO+TA 232161 5,94,057

E as % of B 88.91 85.39

E as % of A 64.08 58.19


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The process of Budget preparation usually has extremely tight time schedules.

Following are the due dates of different estimates flows for the 2010-11Budget. Due dates for rendition of estimates by Ministries/Departments to

Budget Division of Department of Economic Affairs

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Due Dates1. Interest Receipts/Recoveries of loans October 23, 2009

2. Capital Receipts(including Public Account transactions)

October 23, 2009

3. Statement of Budget Estimates* proposed October 23, 2009

4. Revenue Receipts November 27, 2009

5. Statement of Budget Estimates (Final) Immediately after ceilingsare communicated

6. SBE with BE 2010-11(Plan)and statement showing provision for externally

aided projects in Central Plan

Within 3 days of receipt ofthe Plan allocation from P.C.

*enclosing the receipt estimates also for review at the pre-Budget meeting.


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Revenue deficit refers to the excess of revenue expenditure

over revenue receipts.

Fiscal deficit is the difference between the revenue receipts

plus certain non-debit capital receipts and the total

expenditure including loans, net of repayments. This indicates

the total borrowing requirements of Government from all

sources.

Primary deficit is measured by fiscal deficit less interest

payments.

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