WHAT IS THE BUDGET?
A Government budget is a legal document that is –
• Passed by the Parliament, and
• Approved by the President.
• The two basic elements of any budget are the revenues and expenses.
WHEN IS THE BUDGET PRESENTED?
The Union Budget is presented to Parliament in two parts i.e. Railway Budget pertaining to “Railway Finance Budget” and “General Budget” which gives an overall picture of financial position of the Government of India including the effect of “Railway Budget”.
As Railway finances have been separated from the General Finances of the Central Government, a separate budget is presented for Railways conventionally before the Union Budget, normally in the last week of February
WHY DO WE NEED A BUDGET?
Government Budget is designed for optimal allocation of scarce resources.
The main objective of Government financial management is to determine how well the financial and resource management responsibilities have been discharged and the Union Budget is an important part of this process.
It requires the broad objectives of the Government to be broken down into detailed work plans for each programme and sub-programme, activity and projects for each unit of the Government organization.
HOW IS THE BUDGET PREPARED IN INDIA?
Budget preparation in Railways is calculative process between the Zonal Railways, Ministry of Railways and Ministry of Finance.
It is a combination of –
a. Top down approach with the Ministry of Railways issuing guidelines or communicating instructions to spending Units of Railways, and
b. A bottom-up approach, wherein the spending Zonal Railways and other Railway Units present requests for budget allocation
WHAT ARE THE COMPONENTS OF THE BUDGET?
Article 112 of the Constitution of India stipulates that Government should lay before the Parliament an Annual Financial Statement popularly referred to as ‘Budget’.
The Railway Budget presented to Parliament, besides the Railway Minister’s Budget speech consists of the following documents –
1. Budget of the Railway Revenue and Expenditure
2. Demands for Grants and detailed Demands for Grants
3. Explanatory Memorandum
4. Works, Machinery and Rolling Stock Programme.
5. Performance and Outcome Budget.
6. Appropriation Bill
7. Memorandum explaining the increase in fare and freight rates
WHAT IS THE PROCEDURE FOR APPROVAL OF RAILWAY BUDGET BY PARLIAMENT?
The Budget process has the following procedure-
• Before presentation of the Budget, President’s recommendation is obtained under Articles 113(3), 117(1) and 117(3) for introduction and consideration in Lok Sabha.
• After President’s recommendation, Budget is then laid before the Lok Sabha by the Railway Minister with the “Budget speech”. It is not discussed in the Lok Sabha on that day.
• It is then laid before Rajya Sabha, which can discuss it, but cannot vote on the demands for grants. • The Discussion on the Budget in Parliament is conducted in two stages – General Discussion, Detailed Discussion
. • After general discussion on the budget is over, Parliament is adjourned for a period during which the Departmental Standing Committee examines and discusses the demands for grants of the Ministry and prepares report on them.
• Following discussions there is voting on demands for grants.
• After the demands for grants have been passed by the house a Bill to provide for the appropriation out of the Consolidated Fund of India of all moneys required to meet the grants and the expenditure charged on the Consolidated Fund of India is introduced, considered and passed.
• The introduction of such Bill cannot be opposed. The scope of discussion is limited to matters of public importance or administrative policy implied in the grants covered by the Bill and which have not already been raised during the discussion on demands for grants
. • As the whole process of Budget beginning with its presentation and ending with discussion and voting of demands for grants and passing of Appropriation Bill generally goes beyond the current financial year, a provision has been made in the Constitution empowering the Lok Sabha to make any grant in advance through a vote on account to enable the Government to carry on until the voting of demands for grants and the passing of the Appropriation Bill.
WHEN IS BUDGET PRESENTED IN LOK SABHA
According to Article 204(1) of Rules of Procedure and Conduct of Business in Lok Sabha, the Budget is presented on the day as fixed by the President of India.
Usually it is presented at 12 am on a day in the last week of February about a month before the commencement of financial year.
WHY WAS THE BUDGETARY PROCESS UNDERTAKEN TWICE IN 2014?
In an election year, the Budgets may be presented twice—first to secure a Vote on Account for a few months and later in full.
WHAT ARE THE LEGAL PROVISIONS LAYING DOWN THE BUDGETARY PROCESS?
The procedure for presentation of the Budget in and its passing by Lok Sabha is as laid down in articles 112—117 of the Constitution of India, Rules 204—221 and 331-E of the Rules of Procedure and Conduct of Business in Lok Sabha and Direction 19-B of Directions by the Speaker.
HOW LONG DOES THE BUDGET CYCLE LAST?
The Budget cycle lasts 12 months, from April to March of the next year.
WHAT IS BUDGET CIRCULAR?
The Budget Circular, issued in the month of October/November in the budget cycle. It marks the beginning of the Budget process. It guides Zonal Railways and other Railway Units for preparing –
• Revised Estimates for the current year
• Budget Estimates for the coming year
WHAT IS PLAN AND NON PLAN EXPENDITURE?
Plan expenditure is associated with productive expenditure, which increases the productive capacity and modernisation of the Railway network.
Non-plan revenue expenditure is accounted for by interest payments, wage and salary payments to Railway employees, repairs and maintenance of Railway assets, operating expenses, fuel for traction purposes, security and other items of Railway operations and administration.
WHAT IS THE BUDGET SPEECH?
The Railway Minister presents the Budget in Parliament with the Budget Speech. For checking facts and figures in the Railway Minister’s speech, the details are contained in other budget documents.
WHAT ARE THE ACCOUNTABILITY CHECKS ON EXECUTIVE?
Accountability is enforced through the following mechanisms :-
• Lok Sabha vote on Budget.
• Through various Cut Motions like Policy Cut, Economy Cut and Token Cut
. • Through Public Accounts Committee, Estimates Committee, Committee on Public Undertakings- These three Financial Committees keep an un-remitting vigil over Government spending and performance and bring to light inefficiencies, waste and indiscretion in the implementation of programmes and policies approved by Parliament.
• Close scrutiny by Departmental Standing Committee: responsible for the administration and scrutiny of budgetary proposals and Bills of Ministries/Departments.
• Post Budget auditing by the Comptroller and Auditor General of India.
What are the categories of Government Account?
The Government account is categorised into the following –
• Consolidated Fund of India
• Contingency Fund of India
• Public Account
What is Consolidated Fund of India?
Constituted under Article 266(1) of Indian Constitution, Consolidated Fund of India is the most important of all government funds. All revenues raised by government, money borrowed and receipts from loans given by government flow into it. All government expenditures except for creation of assets are made from this fund, except certain exceptional items met from Contingency Fund and Public Account. Salaries, repair and maintenance, operating expenses and interest payments are good examples of revenue expenditure; importantly nothing can be withdrawn from this fund without Parliament approval.
What are the divisions in consolidated fund?
The Consolidated Fund of India in as far as Railways is concerned is divided into –
a. REVENUE ACCOUNT- deals with the proceeds of traffic and miscellaneous receipts classed as revenue and expenditure from it.
b. CAPITAL ACCOUNT- deals with expenditure to create durable assets and the receipts and borrowings to manage it.
Capital Account is further divided into three
1. CAPITAL EXPENDITURE- expenditure incurred for the purpose of creation of permanent assets or reduction of recurring liabilities. It includes certain receipts of capital nature to be used for setting off to capital expenditure
2. CAPITAL RECEIPTS- Receipts of capital nature which can’t be used as set off to capital expenditure
3. PUBLIC DEBT AND LOANS AND ADVANCES- loans raised, their repayment, advances made and their recoveries(This is operated by the Ministry of Finance)
Importantly the definition and distinction between capital and revenue accounts is to be uniformly meant across budget of states as well as Union Government.
What is contingency fund of India?
Any urgent or unforeseen expenditure is met from this fund, constituted under article 267 of Indian Constitution. Rs 500 Crore fund is at the disposal of the President of India, out of which Rs 5 crore has been earmarked for Railways. Any expenditure from this fund requires subsequent approval from Parliament and amount withdrawn must be returned to fund from Consolidated Fund of India.
What is Public Account?
Under provisions of Article 266(1), Public Account is used in relation to all the fund flows where Government is acting as banker e.g. Provident Funds, Small Savings etc. The money doesn’t belong to government but to be returned to the depositors. The expenditure from it need not be approved by the Parliament. The balances in the Railway Reserve Funds are also maintained by the Union Government in the Public Account.
The Constitution of India envisages the accounts of the Union and the States to be kept in such a form as the President may on the advice of the C&AG. The government accounts are kept on cash basis. Only actual receipts and payments during the financial year are taken into account. However, commercial units under a ministry or a department are allowed to adopt commercial basis.
Each division in consolidated Fund and Public Accounts is divided into sectors, which may be divided into subsectors and then into six tiers of accounting classification. Detailed Demands for Grants presented by the Ministries to Parliament should also adopt the same six tier numeric codification pattern.
What ARE appropriation and Finance Accounts?
The annual accounts of the Government, comprising the Union Government Finance Accounts and the Appropriation Accounts, are prepared by the Controller General of Accounts. These documents are presented before the Parliament after their statutory audit by the Comptroller and Auditor General of India.
Preparation and submission of Appropriation Accounts to the parliament completes the cycle of budgetary process. Through Appropriation Accounts parliament is informed about the expenditure incurred against the appropriations made by the parliament in the previous financial year. All the expenditures are duly audited and excesses or savings in the expenditure are explained.
The Finance Accounts show the details of receipts and expenditure for all the three funds in the form of various statements including liabilities of the government such as guarantees etc. and loans given to states, union territories and public sector under takings.
What is the FRBM Act?
The Fiscal Responsibility and Budget Management Act or the FRBM Act, 2003 is an Act providing for the responsibility of Central Government to ensure intergenerational equity in fiscal management and long term macro-economic stability. The Railways material is also incorporated in fiscal policy statement and further reviews and statements required to be presented by Ministry of Finance in Parliament.
The Act also aims at prudential debt management consistent with fiscal sustainability through-
• limits on the Central Government borrowings, debt and deficits,
• greater transparency in fiscal operations of the Central Government
• conducting fiscal policy in a medium term framework and
• Other matters connected therewith or incidental thereto
What documents are laid before Parliament under the FRBM Act 2003?
The Act stipulates that the following documents shall be laid before Parliament in addition to the Budget documents –
• Medium Term Fiscal Policy Statement
• Fiscal Policy Strategy Statement
• Macro economic Framework Statement
What is the Outcome Budget?
From the fiscal year 2007 the Railway Ministry presents Outcome Budget to the Parliament.
The Outcome Budget is a progress card on what various Ministries and Departments have done with the outlays in the previous annual budget.
It measures the development outcomes of the Railway programmes and whether the money has been spent for the purpose it was sanctioned including the outcome of the fund-usage.
Outcome budget is a performance measurement tool that helps in –
• Better service delivery;
• Evaluating programme performance and results;
• Communicating programme goals; and
• Improving programme effectiveness.
• Make budgets cost effective
• Fix accountability
• Aid better scheme management
• Aids the Government in examining the expenditure proposals before the budget is made.
• It puts in place a mechanism of checks and balances at the very stage of planning a programme
• This reduces unnecessary expenses.
The Outcome Budget, after its presentation in Parliament, is also put up on the Railway Ministry’s Web site along with other Budget documents.
How are Grants and Appropriations communicated and distributed during budget implementation?
• After the Appropriation Bill relating to Budget is passed, the Ministry of Railways shall communicate Budget provisions to the Zonal Railways and other Railway Units.
• The Zonal Railways and other Railway Units distribute the same to their subordinates.
• The distribution is communicated to the respective Pay and Accounts Officers
• The Officers exercise check against the allocation to each subordinate authority
What are the Role and Responsibilities of Departments with respect to spending, control and receipt?
Roles and responsibilities with respect to Spending
The relevant administrative zonal Railways etc has the responsibility for ensuring that
i. expenditure is incurred for the approved purpose,
ii. it is within the sums allotted,
iii. it has been incurred under the authority competent to sanction it, and
iv. Due prudence has been shown in its incurrence.
No public authority can incur any expenditure or enter into any liability involving expenditure or transfer of moneys for investment or deposit from government account unless it has been sanctioned by general or special orders of the Ministry by any delegated authority.
No expenditure can be incurred against a sanction unless funds are made available to meet the expenditure by valid appropriation or re-appropriation.
The designated controlling authorities have to ensure that –
• The total expenditure is kept within the limits of the authorised grants
• The funds allotted to spending units are expended in the public interest; and
• The funds on objects for which the money was provided.
Roles and responsibilities with respect to Control
Departments of the Ministry, Zonal Railways and other Railway Units are responsible for the control of
• Expenditure against the sanctioned grants and
• Appropriations at their disposal.
The control shall be exercised through the Financial Adviser and Chief Accounts Officer on Railways/Units.
In order to maintain proper control, the controlling officer obtains information on –
• What has actually been spent from the grants
• What commitments and liabilities have been and will be incurred against them.
Every controlling officer must guard against waste and loss of public money and stores.
No charges against a Grant or Appropriation can be authorized after the expiry of the financial year.
Expenditure exceeding the total grant or appropriation authorized by Parliament for a financial year can be incurred only after obtaining –
• A supplementary grant or
• Appropriation or
• An advance from the Contingency Fund.
Roles and responsibilities with respect to Receipts
It is the duty of the departments concerned to ensure that the dues of Government are correctly and promptly assessed and paid into the treasury/bank.
WHAT IS CASH MANAGEMENT AND EXCHEQUER CONTROL?
Exchequer Control Based Expenditure Management has been introduced to have contol over expenditure.
Objectives of the Cash Management System
• Obtain greater evenness in the budgeted expenditure, especially in respect of items entailing large sums of advance releases and transfers to corpus funds;
• Reduce rush of expenditure during the last quarter, especially the last month of the financial year; • Reduce tendency of parking of funds;
• Effectively monitor the expenditure pattern;
• Better planning of Indicative Market Borrowing Calendar of the Central Government.
The scheme provides for a MONTHLY EXPENDITURE PLAN (MEP), separately for Plan and Non Plan expenditure in respect of each demand for grant.
MEP forms the basis of QUARTERLY EXPENDITURE ALLOCATIONS (QEA). The Department/Ministries concerned may not issue cheques beyond the QEA (equivalent to the sum of provisions under MEP), without the prior consent of the Ministry.
Monthly Expenditure Plan
The Monthly Expenditure Plan takes account of the following –
• MEP for the month of March may not exceed 15 percent of the budgeted provision ;
• MEP for the months of January-March may be so fixed that the QEA for the last quarter may not exceed 33 percent of the budgeted provision; and
• (c) The extant guidelines issued by Ministry of Finance, Department of Expenditure.
The expenditure control would apply cumulatively at the end of the quarter to the Demand for Grants level. Variations would be permissible, subject to statutory restrictions and extant guidelines between –
• Months within a quarter,
• Plan and Non Plan and between schemes
Savings under the QEA would not be available for automatic carry forward to the next quarter. The Department/Ministry would require to approach the Ministry of Finance for revalidation of such savings through modification in the MEP and QEA.
WHAT ARE RE-APPROPRIATIONS?
Re – Appropriations allow the Government to re-appropriate provisions from one subhead to another within the same Grant. This alters the destination of the original provision from one purpose to another.
The Comptroller & Auditor General and the Public Accounts Committee reviews these re-appropriations and comments on them for taking corrective actions.
Re – Appropriation provisions may be sanctioned by a competent authority at any time before the close of the financial year to which such grant or appropriation relates.
Re-appropriation of funds shall be made only when –
• It is known or anticipated that the appropriation for the unit from which funds are to be transferred will not be utilized in full; or
• That savings can be made in the appropriation.
Funds under other units later in the year cannot be re – appropriated.
What are The General Restrictions relating to Appropriations and Reappropriations?
• Funds shall not be appropriated or re-appropriated to meet expenditure which has not been sanctioned by an authority competent to sanction it.
• Funds provided for charged expenditure shall not be appropriated or reappropriated to meet votable expenditure and funds provided for voted
• Expenditure shall not be appropriated or re-appropriated to meet charged expenditure.
• No re-appropriation shall be made from one Grant or Appropriation for charged expenditure to another Grant or Appropriation for charged expenditure.
• Funds shall not be appropriated or re-appropriated to meet expenditure on a new service or new instrument of service not contemplated in the Budget as approved by Parliament.
WHAT ARE SUPPLEMENTARY DEMANDS FOR GRANTS
Supplementary Demands for Grants are normally presented in each session of the Parliament, in the following circumstances-
• When amount authorized during Current Financial Year is insufficient;
• Need has arisen for additional expenditure on existing service or expenditure on a new service not contemplated in the Annual financial Statement for that year;
• For recouping Contingency Fund Advance.
Broad guidelines, before firming up their proposals for the supplementary demands for grants are as follows:
• Need for economy and rationalisation of expenditure;
• A thorough review of expenditure to explore the possibility of meeting the requirements through Token or Technical supplementary;
• No new schemes and programmes, except those that are part of the Budget announcements should normally be introduced during the course of the financial year;
• Additional expenditure over and above the prescribed approved ceiling for individual schemes may not be ordinarily permitted;
• If there is an amendment to the existing scheme leading to requirements for additional funds, Railways should explore and locate matching savings from other schemes/projects in the Demand;
• The mandatory cuts in terms of the austerity instructions should be enforced before determining the requirements for additional funds;
• The proposal for Supplementary Demand should be made only when the programme/scheme for which additional provision is sought has been approved by competent authority and should be limited to the funding requirements within the relevant financial year.
Types of Supplementary Demands for Grants
1. Cash Supplementary
This supplementary is over and above the original budget provisions and results in enhancement of the allocation for the Demand/Grant
. • Cash Supplementary impacts the fiscal/revenue deficit.
• Cash supplementary should be obtained as a last resort and after proper due diligence.
• Cash supplementary is required to have specific approval of Financial Commissioner(Railways).
2. Technical Supplementary
There are 4 Sections in each Demand viz., Revenue-Voted, Revenue-Charged, Capital-Voted and Capital-Charged. When there is a saving in one of the Sections and the same is proposed to be utilized for another scheme under a different section, it can be done after obtaining approval of Parliament through ‘Technical Supplementary’.
3. Token Supplementary
Token supplementary of is obtained when approval of Parliament is required for Reappropriation towards utilizing the savings within the same section of the Demand. Token supplementary Token supplementary does not alter revenue/fiscal deficit position.
Revised Estimates are mid-year review of possible expenditure, taking into account the trend of expenditure, New Service, New Instrument of Services, etc.
Revised Estimates are not voted by Parliament, and hence by itself do not provide any authority for expenditure.
Any additional projections made in the Revised Estimates need to be authorized for expenditure through Parliament’s approval (in case of New Service/New Instrument of Service, etc) or by Re-appropriation order.
WHAT ARE EXCESS GRANTS?
If the total expenditure under a Grant exceeds the provision allowed through its original Grant and Supplementary Grant, if any, the excess requires regularization by obtaining excess Grant from the Parliament under Article 115 of the Constitution, after going through the whole process as in the case of the annual budget, i.e. through presentation of Demands for Grants and passing of Appropriation Bills.
OTHER BUDGET RELATED PROVISIONS OF THE FINANCIAL RULES
• The controlling officer should maintain a Liability Register for effecting proper control over expenditure.
• Personal attention of the Head of Department / Controlling Officer required for estimating savings or excesses.
• Control of expenditure against grant/appropriation and ultimate responsibility of the authority administering it.
• Zonal Railways etc shall surrender to the Ministry, by the specified dates.
• Prescribed by the zonal Railways etc before the close of the financial year, all the anticipated savings noticed in the Grants or Appropriations controlled by them.
• The funds provided during the financial year and not utilized before the close of that financial year shall stand lapsed at the close of the financial year.
• The savings as well as provisions that cannot be profitably utilised should be surrendered immediately when they are foreseen without waiting till the end of the year.
• Rush of expenditure, particularly in the closing months of the financial year, shall be regarded as a breach of financial propriety and shall be avoided.
• No expenditure shall be incurred during a financial year on a “New Service” not contemplated in the Annual Budget for the year except after obtaining a supplementary grant or appropriation or an advance from the Contingency Fund during that year.
• An advance from the Contingency Fund (under Article 267 (1)) is obtained before incurring the expenditure in excess of –
o Sanctioned grant; or
o Appropriation; or
o For a new service not part of the budget.
• This is done in case of insufficient time for voting of supplementary demand and passing of an appropriation bill.
• Subject to the Constitution, money indisputably payable by Government shall not ordinarily be left unpaid.
• Anticipated liabilities should invariably be made in Demands for Grants to be placed before Parliament.
WHAT ARE THE Duties and Responsibilities of the Chief Accounting Authority?
The Chief Accounting Authority, who is Financial Commissioner(Railways), has the following duties and responsibilities –
• be responsible and accountable for financial management of his Ministry or Department
• ensure that the public funds are used for the purpose for which they were meant
• be responsible for the effective, efficient, economical and transparent use of the resources
• appear before the Committee on Public Accounts
• review and monitor regularly the performance of the programmes and projects
• maintains full and proper records of financial transactions • ensure procurement of services and supplies, and implements it in a fair manner
• avoids unauthorized, irregular and wasteful expenditure
WHAT IS INTERNAL AUDIT?
It is recognised that the continuing examination of the accounting and financial records, of systems and procedures, and of compliance with stated management policies, are essential elements of public policy and internal audit in this direction is a tool of positive help to public administration.
GLOSSARY OF BUDGETARY TERMS
The Appropriation Bill is passed to provide for appropriation out of the Consolidated Fund of India to meet requirements relating to – (a) the grants made by the Lok Sabha; (b) expenditure to be charged on the Consolidated Fund of India
VOTE ON ACCOUNT
The Vote on Account is a grant in advance which keeps the government functioning pending the voting of the final supply of funds detailed in the Budget.
DEMAND FOR GRANT
A separate demand for grant is made in respect of Ministries financial requirements and expenditures which cannot be classified under a single ministry. Each demand contains a statement of the total grant proposed and detailed estimate under each grant divided into items.
CONSOLIDATED FUND OF INDIA
All revenues of the Union Government, loans raised by it and all moneys received in repayment of loans form one consolidated fund called the Consolidated Fund of India (Article 266(1)).
CONTINGENCY FUND OF INDIA
Contingency Fund is a corpus of funds which is Rs 500 crores at present with Rs 5 crores earmarked for Railways. The Contingency Fund is intended to provide advances to the executive/Government to meet unforeseen expenditure arising in the course of a year pending its authorization by the Parliament. (Contingency Fund of India Act 1950 and Article 267 (1) of Constitution of India).
The revenue budget consists of revenue receipts of the government (revenues from tax and other sources), and its expenditure.
The Works budget is different from the revenue budget as its components are of a longterm nature. The capital budget consists of capital receipts and payment.
ACCOUNTS OR ACTUALS FOR A YEAR
These are the amounts of receipts and disbursements for the financial year beginning on April 1st and ending on March 31st following, as finally recorded in the Accounting authority’s books.
CHARGED EXPENDITURE (ON CONSOLIDATED FUND OF INDIA)
This means expenditure as is not to be submitted to the vote of the Parliament under the provisions of the Constitution.
Revised Estimates reflect the supplementary requirements for funds submitted to Parliament by Ministries and Departments as Supplementary Demands for Grants.
SUPPLEMENTARY DEMANDS FOR GRANTS
This means the statement of supplementary demands laid before the parliament, showing the estimated amount of further expenditure necessary in respect of a financial year over and above the expenditure authorized in the Annual Financial Statement for that year.
When a Demand for Grant is taken up for discussion any Member of Parliament may seek reduction in the amount of the Demand by moving any Cut Motions.
Under this motion the amount of the Demand is reduced to Re. 1”, thus representing disapproval of the policy underlying the demand. The Member giving notice of ‘Disapproval of Policy Cut’ indicates in precise terms the particulars of the policy which he proposes to discuss.
This motion by moving reduces the amount of the demand by a specified amount representing the economy that can be effected. The Member giving notice of ‘Economy Cut’ may indicate either a lump sum reduction in the Demand or omission or reduction of an item.
Under this motion the amount of the demand is reduced by ` 100” in order to ventilate a specific grievance, which is in the sphere of the responsibility of the Government of India.
QUARTERLY EXPENDITURE ALLOCATION
These are issued under the Modified Expenditure Management System. They are submitted to the Ministry of Finance, Cash Management Cell (Budget Division) and may not be exceeded by Ministries and Departments without the Cell’s prior permission.
CASH SUPPLEMENTARY DEMANDS
This supplementary is over and above the original budget provisions and results in enhancement of the allocation for the Demand/Grant.
TECHNICAL SUPPLEMENTARY DEMANDS
There are 4 Sections in each Demand viz., Revenue-Voted, Revenue-Charged, CapitalVoted and Capital-Charged. When there is a saving in one of the Sections and the same is proposed to be utilized for another scheme under a different section a Technical Supplementary Demand is used after Parliamentary approval.