What is the budget preparation process

The Budget process is a
massive exercise. The exercise has different stages and each stage
kicks off at a different stage of Budget making process.

The two sides of the Budget

Like our family budget, the nation’s General Budget has two major parts: Revenue and Expenditure.

Assessing
the revenues from different central taxes is the primary function of
the Department of Revenue and the expenditure estimates for the current
and the next year for various expenditure heads are assessed by the
Department of Expenditure. The Department of Expenditure also assesses
the resources of the public sector undertakings (PSUs).

The
Budget division is a part of the Department of Economic Affairs. The
Finance Secretary coordinates the overall Budget-making process. All of
them keep the finance minister informed and seek directions from time
to time. The Chief Economic Advisor assists the concerned departmental
officer in this process.

1) Resources (Revenues) side

Leaving
aside the tax receipts, the other sources of the revenue which go into
the Budget are the dividends paid by the PSUs on the government
shareholdings, including the interim dividends and the capital receipts
on account of the divestment of the government share holdings.

Besides
external receipts on account borrowing from international agencies like
World Bank, ADB, etc, are also estimated and included in the assessment
of the gross budgetary resources of various programmes under various
ministries.

Resources of the public sector undertakings,
including their operating surplus and the borrowings by them, also
constitute an important component of the gross budgetary resources and
goes to fund their plan.

The general policy is to fund the plans
of the PSUs through their own resources except in some strategic and
economically vital areas where the budgetary support is provided based
on the recommendations of the Planning Commission.

This
assessment of the Internal and External Budgetary Resources(IEBR)
conducted by the Department of Expenditure forms part of the total plan
resources and is also reflected in the budget documents.

To
estimate the earnings of PSUs, the government invites CMDs or the
finance directors of the PSUs to the North Block. A joint secretary
level officer of the ministry of finance holds one-on-one meeting with
the PSU chairmen and estimates revenue.

He passes on the
information to Expenditure Secretary, who in turn, passes on the
information to Finance Secretary. This exercise starts usually in the
month of August/September. This revenue forms a part of plan
expenditure.

Now comes role of the ministries of the
government. Each ministry has a financial advisor. The financial
advisor is called by the ministry of finance and asked about the
expenditure of the amount allocated to his ministry. Generally,
ministries are not able to spend the allocated amount but some may
overspend as well.

Based on the inputs of different ministries
Revised Estimate (RE) is prepared. Revised Estimate means as to how
much is actually required by the ministry.

As
a part of the expenditure management, the government has issued
instructions to various ministries to adhere to the quarterly
expenditure schedule and to avoid bunching of the expenditure in the
last quarter.

Additional funds are also provided in the RE stage. Important is the estimates of the non-plan requirement for the next year.

Plan
allocations are to be provided by the Planning Commission later based
on the total gross budgetary support (GBS) indicated by the ministry of
finance. This exercise starts in the month of October-December.

As
is known, the Department of Revenue, the ministry of finance has two
boards — Central Board of Direct Taxes (CBDT) and Central Board of
Excise and Customs (CBEC). By mid-January, these boards give the figure
of tax collection up to December 31. For remaining three months, tax
collection is assumed on the basis of previous trends.

The boards
also estimate the tax revenue expected in next financial year. The
integrity of the budget making depends on the realistic nature of these
estimates particularly in the face of the fiscal discipline imposed by
the FRBM Act.

It is a happy development in the past two or three years the estimates are generally not very wide off the mark.

2) Expenditure side

Parallel
to all this, the Planning Commission goes into stock-taking mode. It
starts meeting with individual ministries in the month of
September-October and reviews ongoing schemes of the ministries,
considers allocation for them, etc. It may decide to stop some ongoing
scheme or merge two similar schemes.

Thus, an estimate of Plan
Budget is prepared. The Planning Commission conveys to the ministry of
finance that it requires so and so amount to run planned schemes for
next financial year.

The finance minister and the Deputy Chairman
of Planning Commission discuss the demand in detail. This way Plan
Expenditure is ready. Different ministries are also asked to tell about
their fund requirement, which forms a part of budget estimate.

Side
by side, Department of Economic Affairs meets representatives of trade
unions, industry chambers, economists and other groups. In the
Budget-making exercise, suggestions of different stakeholders are kept
in mind.

FM has to decide with his team

By this
time, the finance minister is in a position to estimate as to how much
it will get through taxes and how much it has to spend in coming
financial year.

The finance minister has other constraints also.
He has to abide by FRBM Act and cut fiscal deficit. Keeping in mind all
these, the finance minister — with his team — decides whether some
new taxes should be levied to collect more tax, how to widen tax net in
order to earn more revenue. While doing so the suggestions from various
interest groups are duly taken into account.

GDP assessment

The
Department of Expenditure and the Department of Economic Affairs sit to
decide GDP assessment for next year. Generally, a nominal growth in GDP
is projected. Actual growth in GDP is nominal growth of GDP reduced by
inflation figure.

The Budget Speech of the FM

Now
comes the Budget Speech. It is fine-tuned to the last minute. Around
February 15, some of the Budget documents are almost ready and goes for
printing to a press located in North Block itself. Security agencies
cordon off the press and entry is almost prohibited.

The D-Day:
The finance minister delivers the Budget Speech in Parliament.
Normally, on February 28, the finance minister delivers the Budget
Speech in Lok Sabha. After which Budget documents are made available.

These are also put on the Web site www.finmin.nic.in.

However, 2008 being a leap year, this time the Budget would be presented to Parliament on February 29.

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