What Is Budget?

Anticipated receipts and estimated expenditure within a given period of time, usually a year. This is also called as Annual Financial Statement.

14.2.2A

Significance of Budget

• Instrument of Policy – Allocate scarce resources to competing claims– Sets expenditure priorities of Government and hence reflects

values

• Budget reflects the organizational structure– Establishes accountability and financial control– Management tool– Integration of Budget and Planning

• Issue of structural rigidities

24.2.2A

Economic Relevance of Budget

• Economic impact of government expenditure/ methods of raising resources

• Major fiscal policy document of the Government- as also industrial, monetary and financial sector policy

• Announces taxation measures or reforms which have far reaching economic impact

34.2.2A

Constitutional Provisions- 1

• Taxation only by legislation (Art 265)

• Expenditure only by specific appropriation (Arts 114 and 204)

• Annual Financial Statement (Art 112/202)– Estimates of receipts and expenditure out of the

Consolidated fund – Presented to the legislature for voting– By the President/Governor

44.2.2A

Constitutional Provisions- 2

• Article 266 defines “Consolidated Fund”– All revenues– All loans (including treasury bills, W&M Advances)– All repayments of loans

• Any expenditure out of Consolidated fund only by specific appropriation

• Charged and Voted Items of Expenditure

54.2.2A

Constitutional Provisions- 3

• Contingency Fund (Art 267):– Imprest amount with President/Governor– To make advances for unforeseen or new service

items of expenditure– Amount determined by law– Recouped by subsequent authorisation

• Public Account (Art 266(2))– All other public moneys not part of Consolidated

Fund– No authorisation by legislature needed

64.2.2A

7

Salient features of Budget

• Prepared on cash basis• Rule of lapse• Realistic estimation• Budget to be on gross/net basis• Form of estimates to correspond to accounts• Estimates to be on departmental basis

4.2.2A

8

Scope of budget

• Budget documents depicts information relating to receipts and expenditure for three years1. Through budget estimate ( BE) of receipts and

expenditure in respect of budget year ( next financial year)

2. For the year preceding the budget year ( current year) through Revised estimates( RE)

3. Actuals of the second year preceding the budget year

4.2.2A

9

Budget

• Shows the receipts and expenditure of Government in three separate parts under which government funds are maintained1. Consolidated Fund of India2. Contingency Fund on India3. Public Account

4.2.2A

10

Consolidated Fund of India

• Consolidated Fund of India has two divisions1. Revenue Account2. Capital Account

4.2.2A

11

Consolidated Fund of India

• Revenue account : deals with the proceeds of taxation and other receipts classed as revenue and expenditure met there from

– Receipts : current income including Taxes , fees, fines, interests , dividends Etc

– Expenditure : which does not create asset• Capital account : deals with expenditure incurred with the

purpose of creating assets of durable nature or reducing recurring liabilities

– Receipts : sale of assets, borrowed funds and accumulated cash balance

– Expenditure : creation of new assets– Public debt : market loan , inter governmental loans etc

4.2.2A

12

Expenditure budget

• Estimates of expenditure are divided into two parts1. Charged items : not submitted to vote of

Parliament but charged on consolidated fund of India .Eg; payment of interest on SB/CC , payment in lieu of court order etc

2. Voted items : met from the consolidated fund of India after being submitted in the form of DFG to the vote of Parliament

4.2.2A

13

Budget - Expenditure

• Plan expenditure – Improves the earning capacity or reduces the working expenses of the department . It is developmental in nature

• Non – Plan expenditure- non developmental in nature . Most of the expenditure on the existing establishment comes under this category

4.2.2A

14

Non Plan Expenditure

• Non developmental budget • Expenditure on existing establishment • Charged under Major head 3201• Estimate for DoP in 2012-13• Deficit in 2012-13

4.2.2A

15

Plan expenditure

• Developmental fund• On new schemes/ services• Objective is to attain financial self sufficiency• Intention to increase revenue and reduce cost

of service

4.2.2A

16

Budget – Receipts

• Revenue Receipts: these are estimates of Revenue receipts – both tax and non tax revenue . The non tax revenue interest receipts , dividends and profits etc

• Capital Receipts : include market loans, external assistance, small savings, government provident funds , accretion to various deposit accounts, depreciation and reserve funds of departments like railways , telecom etc

4.2.2A

17

Demands for Grants

• Separate demand is presented by each Department• Includes total provision required for a service i.e provision on account of

both revenue expenditure and capital expenditure• Contains those amounts which comes under “voted expenditure“ as well

as the “charged expenditure “.• When there is no estimate for expenditure under any head requiring vote

of Lokh Sabha , then it is not called “ Demand “, but it is called “ Appropriation” and included as such in the list of demand

• The estimates are shown by Major Heads. Break up under each major head shows the estimates under ‘charged’ and ‘voted’ , ‘Revenue’ and ‘Capital’ , ‘ Plan’ and ‘Non Plan’.

• Stress is laid on major programs/activities of the Department highlighting those aspects of the budget which are important for an appreciation of the resource allocation at the National level

4.2.2A

18

Chief Accounting Authority

• The Secretary of each Ministry / Department is the chief accounting authority for the accounting in the department

• S/he is responsible to approve and sign the headwise Appropriation Accounts of the Grants/appropriation for the department concerned

4.2.2A

19

Why commercial accounting is required?

• Based on modified accrual accounting principle• For those Government departments where functions

purely or largely of commercial nature• At times, performa accounts are kept on commercial

accounting principle for such ministries• To get a complete picture on the cost services rendered and

the return from investments• For major commercial departments like railways detailed

capital and revenue accounts are prepared and presented separately

• DoP is in the process of adopting commercial accounting4.2.2A

20

Budget Formulation

4.2.2A

Issue of Budget Circular

Preparation of revenue and expenditure estimates by agencies

Review and consolidation of agency requests by competent ministries

Transmission of ministry requests to central agency

Negotiations between competent ministries and central agencyPREPARATION OF DRAFT BUDGET

Cabinet approval of draft budget

Final budget submitted to Legislature for approval

Budget Formulation: Organizational Steps

214.2.2A

Preparation of Budget

• Responsibility of the executive wing of the Government

• Issue of the Budget Circular- by the Finance Ministry– Contains instructions on how to prepare estimates

for different items– Outlines Expenditure policy– Formats are circulated

• Strict adherence to time limits laid down

224.2.2A

Preparation of Budget - 2

• Government Accounts are in simple cash book format - merely record the transactions in the year in which they occur

• Receipts Estimates– Based on trends– State of the economy– Inflation

234.2.2A

Preparation of Budget - 3

• Expenditure Budgeting– Estimates to be prepared by respective

Government Departments– Incremental Budgeting– First Charge to on-going schemes and

committed items– Justifications for increased outlays

24Back

4.2.2A

Preparation of Budget Role of Finance Ministry

• Aggregation of the Receipts & Expenditure

• Inclusion of New Schemes

• New taxation measures

• Final iterative exercise– Ensure prioritization amongst sectors– Accommodate “sensitive” items– Keep overall deficit under check– Window dressing- deliberate under-funding or over-estimation

254.2.2A

Presentation of Budget

• By the Minister in charge of Finance to the lower house of the legislature

– Annual Financial Statement– Demands for Grants– Other explanatory memoranda– Finance Bill– Appropriation Bill– Vote on Account- when needed

264.2.2A

Execution of Budget

• Expenditure can be incurred only with:– Valid sanction by the competent authority– Adequate appropriation

• Appropriations are communicated to concerned after Appropriation Act is passed

• Competent officers issue sanctions within appropriation

• Expenditure on items not included in the budget - New Service Procedure or Supplementary Appropriation 274.2.2A

Shortcomings of Existing Budgetary Practices

• Inefficiencies and wastes of earlier years carried over into subsequent years– Alternative methods or the option of not continuing the activity is

not evaluated– Funds available for new initiatives- very limited

• Paucity of resources forces arbitrary cuts leading to inflated budget requests

• Lack of sense of ownership in concerned departments

284.2.2A

Shortcomings (contd)

• More focus on current RE than BE• Classification quirks deprive crucial sectors/ activities of funds• Cash based accounting gives misleading picture of financial status• Budget is input driven and does not measure outcomes

– Obsession with financial accounting at the cost of proper utilisation

294.2.2A

Establishment of goals, objectives

and policies

Developmentof programs

Allocation ofresources

Executionof the budget

Appraisal andevaluation

BUDGETARY PROCESS

304.2.2A

31

Budget Preparation in DoP

4.2.2A

- Information regarding anticipated expenditure.  - Current Year - Next Year (Ensuing year)

- Standing expenditure- New items of expenditure

(1) Budget Estimates BE (2) Revised Estimates RE(3) Anticipated Final Grant AFG (4) Variation Statement.

 

32

Budget

4.2.2A

33

Budget

• Materials for estimates are obtained from Heads of Circles for Non Plan and concerned divisions of Dte for Plan

• It contains the – actuals of 1st five months of last year as well as for current

year ,– actuals of last seven months of last year , – original plus additional if any for the current year, – estimated expenditure of last seven moths of current year, – revised estimates of current year and budget estimate for

ensuing year

4.2.2A

Non Plan Expenditure Estimates• The framing of the Revised Estimates (RE) for current year

should always precede Budget Estimation for the ensuing year (BE).

• The RE should include:• Only those items which are likely to materialize for

payment during current year• Actual so far recorded during current year• Sanctions for expenditure already issued or

contemplated, and• Other expenditure of seasonal character or otherwise

344.2.2A

35

What is RE-BE?

1. RE means Revised Estimate and BE means Budget Estimate.2. The RE-BE statements are prepared during the month of

September and submitted to RO by DO on or before 12 th September.

3. The revised estimates are prepared by the Divisional Office for the current financial year based on the expenditure for the months from April to August.

4. The budget estimate is for the next financial year and it will be prepared anticipating the expenditure by analysing the expenditure of the previous years.

4.2.2A

36

What is AFG?

• AFG means Anticipated Final Grant.• The AFG statements are prepared during the month of January

and submitted to RO by DO on or before 06 th February• The AFG statements are prepared by the Divisional Office based

on the expenditure for the months from April to January• While preparing the AFG statements, the Divisional Office

Accountant should be more cautious to ensure accuracy. • The revised allotments are normally received during the middle

of January.• The final grants are normally received during the end of

February or in the first week of March.

4.2.2A

Name of the Unit : ---------------

RE FOR 2011-12 & BE FOR 2012-13

UNDER POSTAL WORKING EXPENSES. Head of Original Expenditure Actual TOTAL SUB MAJOR HEAD

Account Allotment First Five months

(Rs.) Cash Book Debit Liabilities (3+4+5) Estimated for Revised Budget

already accepted upto last seven Estimates for Estimates for

adjusted Aug'2011 but months of 2011-12 2012-13

upto not adjusted current year

Aug-11

3201-02-101-01 Existing POs

Salaries Wages T.E O.E P P S S OTA M & E O.C

Total

374.2.2A

Name of the Unit : --------G.P.O.RE FOR 2011-12 & BE FOR 2012-13

UNDER POSTAL WORKING EXPENSES. Head of Original Expenditure Actual TOTAL SUB MAJOR HEAD DIFFERENCE

Account Allotment First Five months BETWEEN

(Rs.) Cash Book Debit Liabilities (3+4+5) Estimated for Revised Budget COL.2 & 8

already accepted upto last seven Estimates for Estimates for

adjusted Aug'2011 but months of 2011-12 2013-14

upto not adjusted current year

Aug-11

3201-02-101-04 Speed Post Salaries 1600000 1447233 1447233 2228767 3676000 4044000 (+) 2076000 Wages 575000 257268 257268 442732 700000 735000 (-) 125000 T.E. -- - -- O.E 80000 28635 28635 513657 80000 84000 P P S S 350000 785160 785160 1099840 1885000 1979000 (-) 1535000 OTA - 111373 32087 143460 200844 344304 385000 (-) 344304 O.C 30000 33612 33612 47388 81000 85000 (-) 51000In house Comp. 0 -- -- 2250000 2250000 2250000 --

Total 2635000 2663281 0 32087 2695368 6783228 9016304 9562000

384.2.2A

Name of the Unit : ……………………..

FINAL GRANT AS IT WILL STAND ON 31.3.2012Standard object Revised allotment Actual Actual Probable Anticipated Total Additional

of expenditure issued by Circle Expenditure Expenditure Expenditure Expenditure in requirement Demand

office in Jan-12 upto the end during during Mar-12 for 2011-12

of Dec-2011 Jan-12 Feb-12

3201-02-101-01 Existing POs Salaries Wages T.E O.E P P S S OTA M & E O.CTotal3201-02-101-04 Salaries Wages O.E P P S S OTATotal

394.2.2A

Name of the Unit : ……………………..

SHOWING ANTICIPATED GRANT AS IT WILL STAND ON 31.3.2012Actual Actual Probable Anticipated Total Additional

Expenditure Expenditure Expenditure Expenditure in requirement Demand

upto the end during during Mar-12 for 2011-12

of Dec-2011 Jan-12 Feb-12

114302979.00 12057750.00 11430298.00 11448973.00 149240000.00 1240000.00891162.00 92309.00 200265.00 216264.00 1400000.00 ----------297299.00 41807.00 33910.00 33984.00 407000.00 ----------

4929374.00 769665.00 1172000.00 830961.00 7702000.00 1202000.00197464.00 28646.00 127000.00 152890.00 506000.00 306000.00

4376274.00 505905.00 456944.00 470877.00 5810000.00 ----------394638.00 ------- ------- 100362.00 495000.00 495000.00

7228270.00 743472.00 850000.00 900258.00 9722000.00 1022000.0032544.00 ------- 10000.00 87456.00 130000.00 ----------

3115944.50 448733.00 309603.00 315719.50 4190000.00 1190000.00517701.00 73597.00 71702.00 74000.00 737000.00 217000.0057620.00 1150.00 10230.00 11000.00 80000.00 ----------

1633224.00 473458.00 200318.00 200000.00 2507000.00 1607000.00130631.00 4883.00 27016.00 37470.00 200000.00 ----------

5455120.50 1001821.00 618869.00 638189.50 7714000.00 3014000.00

404.2.2A

STATEMENT SHOWING THE PROGRESSIVE EXPENDITURE OF CEILING ITEMS FOR THE MONTH OF ……………………………………… Ceiling Items Allotment of Actual exp. Exp. Incurred Total exp.

funds upto previous in the month ofmonth (Current Month)

1 3201-02-101-01-03 B2(i) Wages 14,00,000 6,96,464 1,04,927 8,01,3912 3201-02-101-01-05 B2(i) OE 56,25,000 37,42,812.85 4,05,347.42 41,48,160.273 3201-02-101-01-1 B2(i) OC 70,00,000 61,90,918 8,74,084 70,65,0024 3201-02-101-01-12 M & E - 3,94,638 - 3,94,6385 3201-02-101-01-08 GPO RRT 1,30,000 32,543.80 - 32,543.806 3201-02-101-01-06 B2(i) PPSS 1,47,000 1,59,359 15,620 1,74,9797 3201-02-101-01-01-13 GPO OE Plan 75,000 31,388 11,346 42,7348 3201-02-101-04-03 B2(4) Wages 5,75,000 3,90,957 56,270 4,47,2279 3201-02-101-04-05 B2(4) OE 80,000 33,020 590 33,610

10 3201-02-101-04-08 B2(4) OC 30,000 62,825 7,643 70,46811 3201-02-101-04-06 SP PPSS 3,50,000 11,17,975 4,53,959 15,71,93412 3201-02-101-01-09 MMS Wages 9,00,000 5,28,541 61,947 5,90,48813 3201-02-101-(09) MMS OE 1,50,000 42,535 - 42,53514 3201-02-101-01-09 MMS M&S 25,000 - - -15 MH-3209-03-101-III SB SBCO wages 50,000 - - -16 3201-03-101-(I) SBCO OE 10,000 1,256 - 125617 SBCO OC SBCO OC 10,000 4,301 - 4,30118 3201-03-101-03-05 (1(3)) SBOE 30,000 47,159 30,540 77,69919 SBOC SBOC 10,000 2,874 - 2,87420 3201-03-101-06-02 Cleg. House 7,30,000 2,80,680.74 - 2,80,680.7421 B2(i) OE -355 Dak Seva - 800 - 80022 3201-01-001-00-26 Phil. Pub. - 45,815 11,400 57,21523 3201-01-001-01-00-26 ASP Plan - 3,092 - 3,092

Total 1,38,09,954.39 20,33,673.42 1,58,43,627.81

414.2.2A

"A" STATEMENT OF ……..…….. GPO FOR THE MONTH OF …………………………..Sl. No.Heads PO SB SBCO Speed MMS Canteen EPP Total1 Pay of Officers 92276 - Post 922762 Pay of Staff 6071849 614243 86300 136590 6270 134772 6880 70569043 DA 2772473 276420 38836 61161 2822 60657 3097 32154664 HRA 1757902 180064 22666 39866 1881 40868 2064 20453115 CCA 234317 24660 3500 4880 215 5150 250 2729726 TA 150652 13200 2200 4000 200 4400 200 1748527 PP 27055 2420 375 745 55 457 311078 T.F. 2580 1170 37509 Pay 2560 256010 Special Pay 1590 159011 Medical Treatment 48821 5244 167 5423212 OTA 535615 135364 8796 9030 3600 2696 69510113 TA bill / Adv. 10869 20551 3142014 Honararium 235 23515 PL Bonus 70614 4438 11135 8618716 FA 219000 13500 23250017 HBA 246268 24626818 CGEGIS 68215 6821519 Split duty allowance 20 2020 Machine allowance 366 36621 Leave encashment 75548 7554822 Washing allowance 24421 690 1170 60 1110 60 2751123 Incentive 980 98024 LTC 19568 1956825 Rent 248752.2 248752.2

Total 12682546.2 1287826 162840 261880 15103 261245 12551 14683991.2424.2.2A

43

What is variation statement?

1. The statement compares the final expenditure of a financial year with reference to original allotment as well as final allotment.

2. For example, in a financial year, in respect of 02-101-01 Wages the original allotment is Rs.3 lakhs and final grant is Rs.4 lakhs. If the expenditure is Rs.4,00,500, the divisional head has to explain the reason for variation as follows:

• Expenditure 4,00,500 Original allotment 3,00,000• Variation 1,00,500 (1)• Expenditure 4,00,500 Final Grant 4,00,000 Variation 500 (2)• The reason for variation in respect of (1) and (2) has to be

explained by the divisional head.4.2.2A

44

Appropriation of Accounts

1. The powers to appropriate funds within the object head rest with Chief PMG.

2. The appropriation at Circle level is done at the time of preparation of AFG statements.

3. Divisional Heads should be more careful at the time of preparation of AFG and they have to surrender the unwanted funds. Such funds can be properly appropriated and allotted to divisions/regions by the Chief PMG.

4. Even after appropriation, if excess funds are available, that will be surrendered directly to Directorate by the Circle Budget.

5. Chief PMG is not competent to appropriate funds under OTA, Railway Haulage Charges, Pensionery funds, funds under printing heads.

4.2.2A

45

Basic guidelines for incurring expenditure

1. The expenditure should always be proportionate to the total allotment.

2. By the end of December, 67% of the allotment should be spent.

3. Divisions are not allowed to spend more than 33% during the last quarter unless they receive any fresh allotment in the final grant.

4.2.2A

46

Basic guidelines for incurring expenditure

1. When excess funds are available, all the funds should be surrendered to RO before 10th of March. The surrendered funds can be utilised by the needy divisions/regions.

2. Rush of expenditure during the final stage of financial year should be avoided.

3. Whenever expenditure exceeds the allotment, the divisional head should proper action to get additional funds from RO.

4. In case of emergency, the DO has to address RO/Budget and get the clearance for spending any expenditure above the allotment.

5. Otherwise, the divisional head will be held responsible for such excess expenditure.

4.2.2A

47

Plan expenditure – Some Facts

• Approval of Competent authority is mandatory before implementation

• Annual plan will be based on approved phaseing

• Adherence to physical and financial target and approved components is necessary

• Timely utilization of fund allocated is a key factor for assessing effective implementation

4.2.2A