T

he 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.

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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.

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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.

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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. What is the Budget all about? Yet another Budget is around the corner. This will be UPA government's last full Budget as the government is set to face elections in May 2009. It is likely to be a 'people friendly Budget'. Finance Minister P Chidambaram is not likely to take any adverse step in the wake of the general election. The Union Budget is the most awaited event in India as it affects each one of us. Here's all that you want to know about the Budget. What is the Union Budget? The Union Budget is the annual report of India as a country. It contains the government of India's revenue and expenditure for the end of a particular fiscal year, which runs from April 1 to March 31. The Union Budget is the most extensive account of the government's finances, in which revenues from all sources and expenses of all activities undertaken are aggregated.

History

of

Indian

Budget

India's first Finance Minister Sir R.K. Shanmugham Chetty, presented the first Finance Budget of independent India on November 26, 1947. Since then, 28 different Union Finance Ministers have been presenting the budget year after year. Initially, major attention was paid towards the agriculture sector but as the economy evolved, the focus shifted from agriculture to other sectors like industrial, financial etc. During the early the fifties, Indian budget highlights revolved around the public sector and public finance and hence, back then - taxation, inflation, public savings etc were much talked about topics. This trend continued till the finance budget 1985-86. The change in the approach began with Mr. Manmohan Singh who served as the Union Finance Minister under the leadership of Mr. P.V. Narsimha Rao. Mr. Singh was instrumental in headstarting the new phase of economic liberalization. He reduced the control of Government over public sector units through disinvestment. The liberalization process which he started years back is still followed and is seen in interim budget and Indian budget announcements every year. This year also live union budget 2011 will be announced by Pranab Mukherjee. Facts Bite

First Finance Minister: Shanmugham Chetty Number of Finance Minister Since Independence: 28 Maximum Number of Budgets Presented by: Morarji Desai Economic Liberalization Started by: Mr. Manmohan Singh ( Finance Minister 1991) Current Finance Minister: Mr. Pranab Mukherjee

With the emergence of Welfare State, Governments have come to look after virtually every sphere of human life. They have to perform manifold functions from maintaining law and order, protecting their territories to implementation of plans for economic and social betterment. Besides, they provide a variety of social services like education, health, employment and housing to the people. Needless to say, Government require adequate resources to discharge these functions effectively. Where is this money to come from and who is to sanction the funds? The necessary funds are mobilised from the countrys resources by way of taxes both direct and indirect, loans both long-term and short-term, to meet the Governmental expenditure. In India, the principal sources of revenue are customs and excise duties and Income-tax on individuals and companies.

Need for Budget

It is not as if the Government can tax, borrow and spend money the way it likes. Since there is a limit to the resources, the need for proper budgeting arises to allocate scarce resources to various Governmental activities. Every item of expenditure has to be well thought out and total outlay worked out for a specific period. Prudent spending is essential for the stability of a Government and proper earnings are a pre-requisite to wise spending. Hence, planned expenditure and accurate foresight of earnings are sine-qua-non of sound Governmental finance.

Indias Investment Grade Rating at Risk as S&P Cuts Outlook

By Kartik Goyal and Unni Krishnan - Apr 25, 2012 4:52 PM GMT+0530Wed Apr 25 11:22:57 GMT 2012

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Indias sovereign credit outlook was lowered to negative from stable by Standard & Poors, taking the nation a step closer to junk status and dealing a further blow to Prime Minister Manmohan Singhs economic agenda. Indias investment and economic growth have slowed, and its current-account deficit has widened, S&P said in a statement today, reaffirming its BBB- long-term India rating, the lowest investment grade. We are revising the outlook on the long-term ratings on India to negative to reflect at least a one-in-three likelihood of a downgrade. Bonds fell, stocks declined and the rupee pared gains as S&Ps decision underscored rising concern that Asias third-largest economy will fail to stem a growth slowdown and widening budget and current-account deficits. Singhs push to lure investment has been hurt by corruption scandals, inflation and political opposition to steps such as opening the retail industry to foreign companies.

This just lengthens the shadow that has been cast over the India story, said Vishnu Varathan, an economist at Mizuho Corporate Bank Ltd. in Singapore. It raises the big fear of losing the investment grade rating, and what that means for financing costs and the efforts for fiscal consolidation. Bonds, Stocks and Rupee The yield on the 8.79 percent note due November 2021 rose seven basis points, or 0.07 percentage point, to 8.64 percent as of 3:32 p.m. local time. The BSE India Sensitive Index declined0.2 percent. The rupee pared earlier gains and was up 0.3 percent to 52.52 per dollar. It slumped 16 percent last year, the most in Asia. S&P said diminishing growth prospects, a deterioration in trade performance or slow progress on fiscal reforms could lead to a ratings cut. It expects the government to face headwind in implementing policy measures to improve its fiscal and macroeconomic parameters in the near future, given the current unfavorable political environment. There is no need to panic following S&Ps move, Finance Minister Pranab Mukherjee said in New Delhi today, adding reforms will be on track and that he is confident Indias economy will expand about 7 percent in the fiscal year through March 31, 2013. In last months annual budget, Mukherjee estimated Indias fiscal deficit at 5.9 percent of gross domestic product in 2011-2012, the widest in the so-called BRIC group of biggest emerging markets that also includes Brazil, Russia and China. Record Borrowing He proposed a cap on a subsidy program ranging from diesel to fertilizers and raised service and excise taxes, seeking to pare the gap to 5.1 percent of GDP this financial year. Funding the shortfall requires record borrowing of 5.69 trillion rupees ($108 billion) in 2012-2013, the government estimates. Fitch Ratings and Moodys Investors Service also grade India one step above so-called junk status. Fitch yesterday declined to comment on whether it plans to review or revise Indias rating anytime soon and reiterated its BBB- grade, with a stable outlook, on the nations long-term debt.

Indias economic expansion moderated to 6.1 percent in the quarter ended Dec. 31, the slowest pace in almost three years, as costlier credit hurt consumer spending and dented investment. The slowdown sapped tax receipts even as subsidies and a job-guarantee program for rural workers fanned spending. Reserve Bank of India Governor Duvvuri Subbarao cut the benchmark interest rate by a greater-than-forecast half a percentage point on April 17, to 8 percent, seeking to bolster growth with the first reduction since 2009. Lingering Price Pressures At the same time, the Reserve Bank signaled that price pressures might limit room for further cuts. Indias wholesale prices rose 6.89 percent in March from a year earlier, giving it the fastest BRIC inflation. Indian companies seeking credit overseas may face higher borrowing costs after S&Ps move, said Madan Sabnavis, chief economist at Credit Analysis & Research Ltd. in Mumbai. At the same time, the nations long-term growth outlook should help underpin investment flows, he said. The Reserve Bank predicts Indian economic expansion of 7.3 percent in 2012-2013. The chance of a cut in Indias sovereign rating is low partly because its economy is set to rebound in the near term and given that the fiscal deficit is unlikely to worsen substantially, said Sonal Varma, an economist at Nomura Holdings Inc. in Mumbai. S&P said it may change Indias outlook or credit ratings anytime in the next 24 months. The company said the ratings may stabilize if the government takes steps to reduce structural fiscal deficits and to improve its investment climate. Challenging Period Ratings changes arent necessarily accompanied by corresponding moves in bond prices. Instead of falling in value after S&P stripped the U.S. of the top AAA sovereign rating, Treasuries rallied and the governments borrowing costs fell to record lows. Singhs administration is facing one of the most challenging periods since taking office in 2004. Among the setbacks was the suspension in December of plans to open Indias retail industry to foreign companies such as Wal-Mart Stores Inc.

Trade organizations have also said that businesses around the world are re-evaluating investments in India because of uncertainty over the nations tax laws following changes proposed in the March 16 budget. Todays action by S&P is a negative move and further solidifies the macroeconomic risks India is facing, saidRajeev Malik, senior economist at CLSA Asia-Pacific Markets inSingapore. Coming from the most conservative of the rating agencies, its a wake-up call for the government to do something meaningful soon.