budgetary reforms


The Union Budget

  • The ‘budget system’ was introduced in India on 7 April, 1860.
  • Post-Independence, the first Budget was presented on November 26, 1947 by India’s first Finance Minister R.K. Shanmugham Chetty.
  • The Constitution of India does not explicitly mention the term ‘Budget’ but Article 112 provides, ” The President shall in respect of every financial year cause to be laid before both the Houses of Parliament, the House of People (Lok Sabha) and the Council of States (Rajya Sabha), a statement of the estimated receipts and expenditure of the government for that year.
  • By convention, the Union budget is presented each year on the last working day of February by the Finance Minister to the Parliament.
  • It is presented in two parts i.e. the Railway Budget pertaining to Railway Finance and General Budget which gives an overall picture of the financial position of the Centre including the effect of the Railway Budget.

What is Vote on Account?

  • The pre-budget preparatory cycle starts towards the end of September of the current year and lasts till May of the next financial year.
  • Since Parliament is not able to vote the entire budget before the commencement of the new financial year (April 1), the necessity to keep enough finance at the disposal of the government in order to allow it to run the administration of the country remains.
  • A special provision is, therefore, made for ” Vote on Account” under Article 116 by which government obtains the Vote of Parliament for a sum sufficient to incur expenditure for a part of the year.
  • It allows the Government to draw funds from the Consolidated Fund of India for routine Government expenditure till the Union Budget is approved by both the houses.
  • It is normally taken for two months but during election years or when it is anticipated that the main Demands and Appropriation Bill will take longer than two months, the vote on account is for a period exceeding two months.

Reforms Proposed

  1. New Parliamentary Calendar
  • A government committee headed by former Chief Economic Adviser Shankar Acharya is examining if the financial year should be changed to coincide with the calendar year.
  • The January-December calendar is most widely followed across countries and by UN bodies and also by 70 percent of the top 50 Fortune 500 companies.
  • The Centre is all set to propose a new Parliamentary calendar as it moves to end the system of securing a vote on account for expenses undertaken in the weeks pending the completion of the approvals process for the Union Budget every year.
  • The Finance Ministry is planning to seek the Cabinet’s approval for advancing by a few weeks the budget session and also a new date for presenting the Union Budget to Parliament. This, the government hopes, will help initiate revenue mobilization and capital expenditure measures right from the beginning of the fiscal year.
  • The Parliament for the Budget Session is generally convened around the third week of February.
  • Completion of the Budget exercise in Parliament on or before March 31 can eliminate the need for securing the vote on account, a constitutional necessity.
  • The change in the calendar could in turn necessitate moving back the Winter Session, which normally ends in the last week of December.
  • It will also facilitate more planned spending by various ministries and departments in the Government during the first quarter. Despite stringent guidelines on spending and reminders by the Finance Ministry, many ministries and departments bunch their expenditure in the second half, and more so in the last quarter of the financial year, lending themselves to criticism of inefficient spending.

2. Railway Budget

  • The Centre is also mulling if the 92-year old practice of a separate Railway Budget should be discontinued.
  • If the merger happens, Indian Railways will get rid of the annual dividend it has to pay for gross budgetary support from the Government every year.
  • With the merger, the issue of raising passenger fares, an unpopular decision, will be the Finance Minister’s call.
  • The move is expected to have political implications. It has been seen that almost every Railway Minister, particularly in coalition governments, has addressed his constituencies by doling out favours by way of new trains and projects.
  • Bibek Debroy Committee also recommended phasing out of a separate Railway Budget for which there was no Constitutional or legal requirement.

3. Plan and Non-Plan Expenditure

  • The Government is also planning to abolish the distinction between Plan and non-Plan expenditure from next fiscal year (2017-18) onwards as the 12th Five Year Plan (2012-17) ends this fiscal, replacing it with capital expenditure and revenue expenditure to better differentiate between asset creating and government expenditure.
  • At present, non-Plan expenditure constitutes approximately 70-75% of the gross expenditure at central and state levels.
  • Even in the Plan section, the revenue expenditure component accounts for 70% of the expenditure, puncturing the impression that Plan expenditure leads to creation of capital assets.
  • With Plan or non-Plan spending losing clarity, a High Level Expert Committee headed by former RBI Governor C. Rangarajan, as well as an Administrative Reforms Commission had recommended the abolition of the distinction.
  • The abolition of the Planning Commission and the emergence of the NITI Aayog as a think-tank without financial allocation powers, has further buttressed the case.
  • The removal of the Plan and non-Plan distinction would lead to new statements of Budget Estimates (BEs) that would have broadly three categories of expenditure- secretarial and obligatory expenditure, central sector schemes, and transfers to states.
  • The Constitution mandates distinguishing between revenue and capital expenditure, but it does not say anything on the categorisation of Plan and non-Plan, which was adopted by the government for superficial functional classification later.

Way Ahead

  • A more meaningful exercise could be for the government to encourage larger public participation in Budget-making.
  • It can do so by placing the proposed expenditure plan for the forthcoming year in the public domain.
  • This will lend itself to wider discussion and debate ahead of the actual presentation of the Budget and perhaps influence a more efficient spending programme.