14 March 2013

The Explainer: Understanding the Budget - Part II

Two days back, I wrote the first part in the 'Understanding the Budget' Series under The Explainer Series.

(Read: The Explainer: Understanding the Budget - Part I)

In today's article, I am going to address some very important aspects of the Union Budget.

What does the Budget consist of?
Source: indiabudget.nic.in
Take a look at the table graphic on the right. This document titled, Budget at a Glance, is the best document to understand the components of the various types of figures in the Budget. 

The Union Budget 2013-14 consists of the following:
(a)   Actuals for 2011-12
(b)   Budget Estimates for 2012-13
(c)   Revised Estimates for 2012-13
(d)   Budget Estimates for 2013-14

The Actuals for 2011-12 may be represented as such but they STILL would be PROVISIONAL only (see notes below the table in the above graphic). This means that these figures are NOT the final figures for 2011-12 but are subject to further revision. In fact, the final figures for 2011-12 will only be available toward the end of Financial Year 2013-14 (or Fiscal Year ’14).

Budget Estimates (BE) relate to the figures which the Finance Minister set out in his Budget Speech last year (i.e., on 28 February 2013) for the Financial Year 2012-13.

However, all figures – related to revenue collection, expenditure, other allocations – are subject to change. These numbers are mere ESTIMATES and not actuals. As the year progresses, such figures may sometimes need to be revised. For example, if there is low industrial and agricultural activity (meaning lower economic output), tax collections may dip. This, in turn, will reduce the government’s Revenue Receipts.

In such case, the Government may revise the Budget Estimates (made in the Budget). Such altered figures are labeled Revised Estimates (RE). These RE are listed in the third column.

In the fourth and last column, you will find Budget Estimates for the coming Financial Year 2013-14. These figures reflect the various estimates made by the Government in terms of Receipts (including tax collections) and Expenditures (including interest payments and salary payments to government employees).

What are the different types of accounts listed in the Budget?
There are three types of accounts listed in the Budget. They are:
(a)   Consolidated Fund of India;
(b)   Contingency Fund of India, and
(c)   Public Accounts.

What is the Consolidated Fund of India?
This is the most important account maintained by the Government of India. The Consolidated Fund of India contains all the revenues (tax and non-tax revenues) earned and all the expenditures incurred by the Government of India.

No money from the Consolidated Fund of India can be spent by the Government without approval of the Parliament of India.

What is the Contingency Fund of India?
Contingency means ‘unforeseen’ or ‘emergency’. As mentioned above, all withdrawals  from the Consolidated Fund of India require prior approval of the Parliament. 

However, sometimes there are emergency expenses for which the Government may not wait for the Parliament’s approval; like, expenses incurred to tackle a devastating flood/earthquake.

In such cases, the Government of India will withdraw funds from the Contingency Fund of India. Once the expense is met, the Government may seek approval of the Parliament for such withdrawal. In short, the Parliament’s approval comes post-facto (i.e., after the expense has been made).

However, after the Parliament approves such expense, an equal amount is withdrawn from the Consolidated Fund of India to be put back into the Contingency Fund of India.

What are Public Accounts?
Public Accounts hold money that does not belong to the Government of India. Such accounts include the Employees Provident Fund and Small Savings Scheme. This money belongs to the general public but is held in Government’s trust.

Whenever withdrawals are made from such accounts, the Government pays out the amounts without the Parliament’s approval.

(To be continued)


Anonymous said...

Sir, regarding the Govt. plans what measures can be taken for inclusive growth keeping in mind the aim to reduce the fiscal and Current Account Deficit?

Anonymous said...

thanx a lot mr.bharat jain, not only are the students getting benefitted from your initiative
but also the general public.keep up the good work. u make complex things very simpler.
keep extending your explainer column.

Anonymous said...

Thanks Sir for your valuable Information ...expecting more from you :)

Unknown said...
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Anonymous said...

Thank you Sir,

I rarely spent time reading articles, specially those, which are related to topics, I never understood. But, this time I have read articles mentioned by you. Probably, this is a sign of inculcation of reading habits in me.

swat... said...

U r making even economics an interesting subject. Wish you'd make is grab more knowledge from your explanatory volumes. ..