GENERAL FINANCIAL RULES

Definition: Consolidated Fund of India, Contingency Fund of India & Public

Fund

Consolidated Fund of India: All revenue received by Government and

all loans raised by it and the receipts from recoveries of loans granted by the
government from Consolidated Fund of India. All expenditure of the
government is incurred from this fund. The basic rule is that “Not even a pie
can be withdrawn from Consolidated Fund of India without the express
approval of Lok Sabha”.

Contingency Fund of India: This is an imprest placed at the disposal of

President to incur expenditure of unforeseen and of urgent nature, pending
approval of Parliament for such a expenditure and also for the withdrawal of
said amount from Consolidated Fund of India. After drawal of money from
Contingency Fund of India, the expenditure is incurred. When the
Parliament session starts, the approval of Lok Sabha will be taken and this
amount is drawn from Consolidated Fund of India and paid back to
Contingency Fund of India. Thus it is recouped or replenished.

Public Fund: Besides normal receipt and expenditure of

government which relates to Consolidated Fund of India, certain other
transactions also enter into government accounts, for which the government
acts more like a banker or trustee. For example small savings, provident
Fund collection, Insurance Premium, fixed deposits, UTI etc. The money thus
received or kept in a separate account called “Public Account” and the
expenditure related to such are met from Public Fund. In short Public
Account does not belong to the government. Instead it belongs to the people.
And obviously it does not require any approval of Parliament for withdrawal
from Public Account.

Capital Expenditure vis-a-vis Revenue Expenditure

Capital expenditure is the expenditure incurred with the object of either

increasing the concrete assets of a material of permanent character or of
extinguishing or wiping off or reducing the recurring liabilities. Revenue
expenditure is the expenditure incurred for maintaining day to day services,
payment of salary and other establishment charges. Capital expenditure is
met from Capital receipts namely the deposits of banking character whereas
the Revenue expenditure is met from revenue receipts.
 All charges of First construction and equipment of the projects and the
charges of intermediate maintenance of work which has not been opened for
service comes under Capital expenditure. Similarly, any further addition or
improvement which enhances the usefulness of the assets also comes under
capital expenditure.

However, all subsequent expenditure for maintenance and working

expenses comes under revenue.

Revenue Budget and Capital Budget:

The budget is divided into two categories Revenue Budget and Capital
Budget. Revenue Budget consists of revenue receipts (Taxes, duties, fees,
excise, dividend etc.) and revenue expenditure i.e. maintenance of day to day
services.

Capital budget includes capital receipts and capital expenditure.

Capital receipt includes all receipts of banking character, market loans,
borrowing from foreign countries. Capital expenditure includes any
expenditure which creates assets or which wipes of the liability.

Voted Expenditure & Charged Expenditure:

Certain items of expenditure like emoluments of President, Vice

President, Speaker, Deputy Speaker, Deputy Chairman, Judges of Supreme
Court/High Court, CAG, Chief election Commissioner, payment made to
satisfy the decree of the court etc. are “Charged” directly into Consolidated
Fund of India without waiting for the approval of Parliament. In other words
the sanction of Parliament is taken for granted. The charged expenditure is
shown separately in the budget.

Voted expenditure is an expenditure on an item which can be met only

after the vote of Lok Sabha, as required in Article 113 of the Constitution.

New Service vis-a-vis New Instrument of Service (Also called New items
of Service or New item of Expenditure)

New Service means an item of expenditure which was not previously

included in the sanctioned grant.

On the other hand New Item of Service relates to a large expenditure

arising out of important expansion of existing activity.
 In both the cases, no expenditure should be incurred during an year on
new service or new item of service which is not contemplated in the budget
except after obtaining supplementary grant or advance from Contingency
Fund of India.

Vote on Account: [Very Very Important]

Pending completion of procedure in article 113 of the constitution

Finance Ministry arranges to obtain what is called “Vote on Account” for
covering the expenditure for one or two months or such other longer period
as may be necessary. In other words it is an authority of the Parliament for
meeting the expenditure during the period from 1 st April to Final passage of
Appropriation Act. The amount granted through vote on account is not in
addition to budget but, just part of budget. Vote on account cannot be used
for new service or new instrument of service.

Vote on Credit: It is a grant made available by Parliament from

Consolidated Fund of India for meeting unexpected demand upon the
resources of India, when on account of the magnitude or indefinite character
of the service, the demand cannot be stated with details which are normally
given in budget. In short it is nothing but a blank cheque given to the
executives by the legislators.

Supplementary Grant: When the amount authorised by Parliament

through Appropriation Act. for a particular service for the current financial year
is insufficient for that purpose for that year, supplementary grant is
sanctioned.

Additional Grant: Where there is a need for additional expenditure

during the current financial year upon any new service, which is not
contemplated in the budget of that year, additional grant is sanctioned.

Exceptional Grant or Excess Payment: This is granted when money is

spent on any service during the financial year in excess of the amount
granted for that purpose for that year. It is voted by Lok Sabha after the
financial year. Before submission to Lok Sabha, Public Accounts Committee
should approve this.

Token Grant: It is granted when the funds for meeting any new service
can be made available by re-appropriation. A demand for the grant of a token
sum of Rs.1/- is submitted to the vote of Lok Sabha and when it is passed,
then the said new service is deemed to have been approved.
Proforma Account: When the operations of any Department include that
of an undertaking of a commercial or quasi-commercial character and the
nature of such activities are such that it cannot be conveniently brought in
within the government account, the Head of that undertaking will maintain a
subsidiary and proforma account, as agreed to by CAG and approved by the
Central Government.

Reconciliation of Expenditure or Reconciliation of Figures: For all

expenditure or receipts, accounts are maintained at two places:

(i) Where the transaction actually takes place; and

(ii) Where the accounts are settled with reference to vouchers.

Former is an operative transaction under Head of Office and the latter is

an accounting transaction under the Accounts Officer. With the object of
reconciling both these transactions, the reconciliation of expenditure is
prescribed. It should be done every month. Both Head of Department and
Accounts Officer are responsible. Initial responsibility rests with the Accounts
Officer. In case of difference the figures of the Accounts Officer are final.
The purpose is to ensure that the accounts are maintained properly, and the
control over expenditure is exercised effectively.

Contingent Expenditure vis-a-vis Miscellaneous Expenditure:

Contingent expenditure is an incidental and the other expenditure

incurred for maintenance or management of an office or for working of a
technical establishment like laboratory, workshop, store depot and other
office expenses. However, this does not include any expenditure which can
be classified as works, tools and plants.

Miscellaneous Expenditure is an expenditure other than the expenditure

falling under pay and allowances, leave salary, pension, contingent
expenditure, works, tools or plants.

Inevitable Payments: Inevitable payments means unavoidable

payments i.e. the payment which is compulsorily payable or dues to another
Department towards the cost of stores already supplied or services already
availed. The basic rule is such inevitable payments should not be kept out of
account longer than necessary period. For example the mail vans are
supplied by Railways to Indian Posts for carriage of mails. These charges
are called haulage charges. If the Railways raises any debit against
Department of Posts, the Posts has to pay by making provision in the budget.
If there is no provision either Supplementary Demand should be raised or
advance from Contingency Fund of India obtained.
 Contingent Charge: Types of Contingencies

(a) Contract Contingency: Under this category a lump-sum is kept

annually at the disposal of Drawing & Disbursing Officer for expenditure
without further sanction.

(b) Scale Regulated Contingency: Such contingent charges which can

be regulated by scales laid down by competent authority i.e. rewards for
killing wild animals or as informer assisting the police in nabbing the
criminals.

(c) Special Contingency: It is a recurring or non-recurring

expenditure which cannot be incurred without prior sanction of the competent
authority.

(d) Counter Signed Contingencies: These require approval of

controlling authority before they can be admitted as legitimate expenditure.
Such approval is taken in the form of counter signature after payment in the
detailed bill submitted to Pay & Accounts Officer.

(e) Fully Vouched Contingency: These require neither special

sanction nor counter signature but can be incurred by Head of Office on his
own authority subject to the necessity of proper accounting.

Money Bill, Financial Bill, Finance Bills, Appropriation Bill,

Appropriation Act

Money Bill: Article 265 lays down that no tax can be imposed except by
authority of law. Therefore, for each tax there should be a law in support.
Taxes are levied through passing what is called Money Bill. Therefore,
money bill is a bill containing only the provisions dealing with all or any of the
matters given in Article 110. These matters include:

(a) Imposition, abolition, remission, alteration or regulation of any tax;

(b) Regulation of borrowing of money by government;

(c) Custody of Consolidated Fund of India and Contingency Fund of India;

(d) Payment into and withdrawal of money from Consolidated Fund of India
and Contingency Fund of India;

(e) Declaring any expenditure as Charged;

(f) Any increase in the charged expenditure;

(g) Receipt of money or issue of money from Consolidated Fund of India.

A money bill should contain any of the matters mentioned above.

Money bill cannot be introduced in Rajya Sabha. It can be introduced only in
Lok Sabha and only on the recommendation of the President. Rajya Sabha
has no roll in passing a money bill. In fact, it can’t pass, instead it can only
recommend. It can delay a money bill only for 14 days after which the bill is
deemed to have been passed by both the houses of the Parliament. Every
money bill should be certified as such by the Speaker and the Speaker’s
certificate cannot be questioned in any court of law.

Financial Bill: Financial bill means, a bill which contains not strictly
the matters given in Article 110 but those which relate to revenue or
expenditure i.e. they deals with the provision indirectly.

Financial Bill are of two types; Financial Bill-I and Financial Bill-II

Financial Bill-I: Financial Bill-I is a bill which may contain any of the matters
in Article 110 but does not contain exclusively that particular issue. For
example a bill which contain a taxation clause but does not deal with taxation
policy, comes under Financial Bill-I.

Financial Bill-II: Financial Bill-II is more or less an ordinary bill which

normally contains a provision involving expenditure from Consolidated Fund
of India.

How do you treat Financial Bill-I?

Financial Bill-I cannot be introduced in Rajya Sabha. It can be

introduced only in Lok Sabha and that too only on the recommendation of
President. But not being a money bill speakers’ certificate is not necessary.
Not being a money bill Rajya Sabha has equal powers including joint session
to resolve the dispute.

How do you treat Financial Bill-II?

It is more or less an ordinary bill. It can be initiated in either house.

Rajya Sabha has equal powers. Speakers’ certificate is not necessary.
However, the bill cannot be passed “in either house”, unless the president
recommends its consideration.

In view of the above, we may say that all money bills are Financial Bills
but all Financial Bills are not Money Bills.
Finance Bill:

It is a bill ordinarily introduced in Lok Sabha in each year for giving

effect to the financial proposals of the government for the financial year. It
includes a bill which is to give effect to any supplementary financial proposal
for the period.

Appropriation Bill: It is a bill introduced in Lok Sabha after the

Demands for grants of all the Ministries have been passed by Lok Sabha for
providing withdrawal of funds from Consolidated Fund of India for meeting the
expenditure of Government of India.

Appropriation Act: When the appropriation bill is passed by both

the houses of Parliament and accented to by President, it becomes
Appropriation Act authorising Union executive to draw money so authorised
from consolidated fund of India.

Standards of Financial Proprieties or Code of Conduct with regards to

Financial transactions or Basic Principles of Financial Proprieties –
[Very Important]

(i) Every officer, incurring or authorising expenditure, should maintain high

standards of financial proprietary;

(ii) It is the duty of every officer to ensure strict implementation of financial

order and strict economy at every stage and to see that these financial
regulations are followed by his subordinate;

(iii) Every officer is expected to exercise the same amount of vigilance in

respect of government expenditure as a person of ordinary prudence
would exercise in respect of his expenditure from his own money;

(iv) The expenditure should not prima facie be more than the occasion
demand;

(v) The powers should not be exercised to pass an order which would
directly or indirectly benefit the sanctioning authority;

(vi) No expenditure should be incurred which would benefit a particular

section of society or a particular community or a particular person,
unless this can be enforced through court of law or the expenditure is in
pursuance of a recognised policy or custom.
(vii) The allowances granted to the employees should be so regulated that it
is not a source of profit to the recipient;

(viii) All money received by the Government servant on behalf of government

should be brought into account immediately in accordance with the
orders of Government;

(ix) Such money so received should be remitted to the bank and should not
be utilised to met any expenditure (Exception CPWD, Railways,
Department of Posts and Department of Telecommunications);

(x) The money should be withdrawn only when it is required for immediate
disbursement. Withdrawal should not be made in anticipation of
liabilities or to prevent lapse of budget grant;

(xi) The controlling officer should always ensure that the expenditure does
not exceed the sanctioned grant, that the amount is spent for a public
purpose and that the amount is spent for the purpose for which the
funds were allocated;

(xii) The controlling officer is responsible for prevention and detection of

errors and irregularities and also to safeguard against loss and
wastage.

Permanent Advance:

Permanent advance is an advance cash imprest given to a larger unit of

the Department for primarily meeting the emergent, unforeseen and
contingent expenditure.

The Department Administrators or Head of Departments, in consultation

with Integrated Financial Advisor, can sanction permanent advance in respect
of their own office and their subordinate offices. The permanent advance
should not exceed the average of the contingent expenditure incurred during
preceding 12 months. Therefore, the application for advance should be
accompanied by a statement, showing month wise contingent expenditure for
12 months.

For new organisation the amount of advance should be sanctioned on

conservative basis at par with offices of similar character subject to a review
after 6 months.
Conditions:

(i) The advance should be recouped at-least every fortnight. The amount
of advance should not be more than what is absolutely necessary. The
advances should not be multiplied unnecessarily. For each identifiable
organisation one advance principle should be followed.

(ii) The purpose of the advance is to meet unforeseen, emergent and

contingent expenditure. However, it can be utilised for any other
bonafide expenditure except pay advance to group A & B officers.

(iii) The person to whom the advance is sanctioned is primarily responsible

for the custody of money, proper utilisation, maintenance of accounts
and regularity of procedure.

(iv) A monthly statement of expenditure showing the details of contingent

bills, with copies of sanction, should be furnished to the sanctioning
authority in the following month.

(v) Whenever there is a change of incumbency in the holder of the account

and every financial year the holder should furnish a
certificate/acknowledgment to the sanctioning authority who will
maintain a record of such advances.

Grants-in-aid – Very Important

Grants in aid is a financial assistance paid from Consolidated Fund of

India by competent authority namely the Department.

To Whom:

(i) Institutions set up by Government namely Statutory, Autonomous or

registered societies;

(ii) Voluntary organisation of all India Character with well defined criteria
about their resources, activities and personal and the objective should
be to promote plan and welfare schemes;

(iii) Educational and other institutions, local bodies, co-operative societies

by grant of scholarship or stipend;

(iv) Government servants to promote socio-cultural and sports activities.

Procedure for Voluntary Organisation:

(i) Application with all relevant information like Articles of Associations, By-
laws, Audited statement of Accounts, Source of income, pattern of
income and pattern of expenditure, should be sent to the Department to
enable assessing the suitability;

(ii) The institutions should certify that it has not applied for the grants for
the same purpose from any other Ministry/Department or State
government;

(iii) Ministry should maintain a list of grantee institutions with details of grant
& purpose etc. and put up on the website;

(iv) The Financial Advisor should be associated and ensure adherence of

guidelines;

(v) The grants are available for viable and specific scheme drawn up in
details. Primarily the aid is to ensure minimum staff structure, qualified
personnel to improve efficiency and effectiveness and also to expand
the activities and utility;

(vi) The grant-in-aid should not exceed 25% of the approved administrative
expenditure on pay & allowances;

(vii) No grant in aid to pay private institution without the sanction of

Integrated Financial Advisor;

(viii) The order of sanction of grant in aid should indicate whether the grant is
recurring or non-recurring, purpose, special conditions and if it is non-
recurring, the time limit within which the grant is to be spent;

(ix) If the amount is released in instalments, the last instalment should not
be released unless evidence of proper utilisation of earlier instalments
is obtained.

(x) The application should be received by the Department by October each

year and sanction issued by April of the following year;

(xi) When the recurring grants in aid is sanctioned to the same institution for
the same purpose, the unspent balance of the previous grant should be
taken into account in sanctioning the subsequent grants;
(xii) Any institution, receiving more than 50% of recurring expenditure in the
form of grants in aid, should follow the same rules of the Central
Government in respect of the employees deployed in the institution.
Similarly, the rules regarding reservation of SCs/STs and OBCs, should
be followed in the institutions where the salary of 50% of the employees
is met from the grant in aid;

(xiii) The assets acquired by the institution out of government grant should
not be disposed off without the approval of sanctioning authority;

(xiii) Before the grant is released, the grantee institution should execute a
bond in the prescribed format to abide by the condition of target dates,
not to divert the grants, not to entrust the execution of the scheme to
another organisation and also to abide by the conditions in letter and
spirits. If these conditions are not fulfilled, the entire amount will have to
be refunded with 10% interest.

Utilisation Certificate: The grantee institution should submit a

certificate of utilisation indicating how the money was spent and also
quantified and qualitative target achievement, within 12 months of the closure
of financial year. If such utilisation certificate is not received the organisation
should be black-listed for future grant.

Utilisation certificates need not be insisted upon in cases where the

grant in aid was sanctioned as reimbursement of expenditure already
incurred, on the basis of audited accounts. Similarly, where the grants are
given on specific condition and the conditions have been fulfilled, utilisation
certificate is not necessary.

Grants in aid for Government servant for recreation Club and other
amenities:

(i) Order of MHA will apply;

(ii) Grants in aid is on the basis of total strength born on the regular
strength of organisation i.e. Ministry/Department/Attached
Office/Subordinate Office/Statutory bodies whose budget is paid from
Consolidated Fund of India, irrespective of the fact whether any staff is
a member of the club or not;

(iii) Grants in aid in respect of gazetted officers is admissible to only such

departments where the membership is open to them;

(iv) Contingency/work charged staff are not to be taken into account for
calculation;
(v) The rate of grants in aid is Rs.50/- per head per annum plus (+)
additional grant upto Rs.25/- per head per annum to match the
subscription collected during the previous year. If the recreation club is
started during the current year, another Rs.25/- per head per annum to
match the subscription collected by the club when the proposal is made;

(vi) The total strength of the eligible staff will be those existing as on 31 st
March of the previous year;

(vii) In addition to the above, one time grant of Rs.50,000/-;

(viii) Accounts of the club should be audited by internal auditor and should
be submitted to Financial Advisor by 30th April of the following year;

(ix) For the purpose of Grants in aid, the Department attached and
subordinate offices will be taken as a single unit and therefore the
Ministry should distribute the fund to other unit;

(x) Expenditure can be incurred on the following:

(a) Purchase of sports articles and uniform for players;

(b) Magazines and periodicals;
(c) Hiring of playground and furniture;
(d) Film shows and entertainment;
(e) Conveyance charges;
(f) Entry fee for the tournaments.

Government Guarantee:

(1) The powers for the government guarantee flow from Article 292 and
also provisions of fiscal responsibility and budget management Act,
2003;

(2) Powers to grant Government of India guarantee rests with Ministry of

Finance;

(3) Public interest should be the guiding factor as in the case of public
borrowing by public sector units, for developmental purposes and for
working capital;

(4) The concerned Department should examine the proposal in

consultation with Financial Advisor with reference to credit worthiness of
the institution and the terms and conditions of borrowing;
(5) No guarantee for private sector;

(6) External commercial borrowing not eligible;

(7) Soft loan component of bilateral aid is eligible. However commercial

loan component is not eligible except for power sector;

(8) No guarantee for grants. However, if the donor insists on enduring

performance it can be a negotiating condition;

(9) There should be a nominee of government in the board of

management;

(10) The government should stipulate the condition on verification of audited

accounts, verification of credit worthiness, period of levy, amount of levy
fee to cover the risk etc.

Contract: Principles of Contract

(a) This should be made by an authority who is empowered to do so by the

orders of President under Article 299 of the constitution

(b) All contracts and agreements made in exercise of executive powers of

the Union should be executed on behalf of President of India.
Therefore, the words “for and on behalf of President of India” should
follow the designation appended below the signature of the authorised
officer;

(c) The terms of the contract should be specific and definite without any
ambiguity;

(d) There should be no uncertain or indefinite liability;

(e) Standard form should be used with such modifications wherever

necessary but only after taking advice from Finance & Law Ministry;

(f) If standard forms are not available, they should be drafted in

consultation with Finance & Law Ministry;

(g) No work should start before execution of contract;

(h) Contract document should be executed within 21 days of the issue of

acceptance letter. Failure will result in cancellation of contract and
forfeiture of earnest money;
(i) Cost plus and lump-sum contract is not allowed, unless totally
unavoidable in which case full justification should be given in writing;

(j) Price Variation Clause is allowed only in long term contract where the
delivery time exceeds 18 months;

(k) Where there is a time frame and work schedule, there should be a
provision for cancellation of contract in the case of breach of these
conditions;

(l) The terms of contract should not be varied without the consent of the
parties;

(m) Payment of Sales Tax, Octroi, Local Tax or Terminal tax should be
settled before hand in respect of contract which involves movement of
movable property;

(n) No work should be done beyond the currency of contract unless it is

renewed after due notice;

(o) There should be warranty clause for all perishable stores;

(p) No compensation should be granted to the contractors outside the

terms of contract.

Procedure for taking an advance from Contingency Fund of India:

(1) The application for drawal of money from contingency fund of India
should be sent to Ministry of Finance or Financial Commissioner of
Railways as the case may be.

(2) The application should contain:

(i) Details of additional expenditure;

(ii) Why this was not included in the annual financial statement;

(iii) Why this cannot be postponed;

(iv) Why not the approval be taken through supplementary demand;

(v) Amount required with full cost of the proposal;

(vi) Grant/appropriation under which it is proposed to be taken;

(3) After scrutiny the Finance Ministry will allow the advance to be taken
from Contingency Fund of India for meeting the expenditure;

(4) Supplementary Demand will be presented to the Parliament in the first

session meeting immediately after the advance is sanctioned;

(5) After sanction is given by the Parliament, the advance will be recouped;

(6) The sanctioning authority will maintain an account of advances granted

from their funds in the following proforma:

S. Date of Details of Amount Supplementary Amount Balance Initials of the

No. Transaction grants/order appropriation refunded sanctioning
Act authority
1 2 3 4 5 6 7 8

Budget: Procedure for preparation of Budget [Vary Important]

Article 112 of the constitution enjoins presentation of budget, also called

Annual Financial Statement. This Annual Financial Statement comprises
estimates receipts and estimated expenditure of the government for the
ensuing year, prepared at the start of the year. It stipulates the objectives for
which the money is spent. It identifies priority area of planning. It is a very
important document which controls the activities of the government.

There are different kinds of budget:

(a) Conventional budgeting or Traditional budgeting or Line item budgeting

or incremental budgeting;

(b) Performance budgeting also called Activity budgeting or Functional

budgeting;

(c) Programme budgeting or Planning Programme Budgeting;

(d) Outcome Budgeting;

(e) Zero based budgeting.

The budget has following principles:

(i) It should be balance;

(ii) It should be on cash basis or revenue basis;

(iii) It can be a single budget or dual budge or plural budget;

(iv) Budgeting should be either for gross or net of recoveries;

(v) Estimates should be close;

(vi) Rule of lapse i.e. all funds will expire on 31 st March.

Preparation of Budget:

There are three important steps in the preparation of Budget.

(a) Collection of Estimates of Receipts, Collection of Estimates of

Expenditure from the field establishment and consolidation by Head of
Departments;

(b) Scrutiny of Expenditure estimates by the Administrative Ministry and the

approval by secretary expenditure;

(c) Preparation of Statement of Budget Estimates proposed and final

preparation of demands for grant.

Preparation of Receipt Estimates:

The entire Budget process starts in the 2 nd Week of September when

the Departments gets a communication from Finance Ministry:

(a) Receipts Estimates consists of revenue receipts and Capital receipts;

(b) Revenue Receipts Estimates for the ensuing year, are obtained from
following sources:

(i) Central Board of Direct Taxes – Direct taxes

(ii) Central Board of Excise & Customs – Indirect taxes

(iii) Controller of Accounts – Taxes and duties and other receipts of

Union territories without legislature;
 (iv) Controller of Accounts - Interest receipts on loans and advances
given to States government/Union Territories and Public Sector
Units;

(v) Controller of Accounts – Dividends and profits given by Public Sector

Units

The information on Capital receipts will be provided by Budget Division

of Ministry of Finance which will furnish the estimated Capital receipts in
respect of internal debt, external debt, small savings, Provident Fund
collection, LIC, GIC, Special Deposits, Recoveries of Loans and advances.

While preparing the estimates, the actual trends of prices, policy

changes, balance of trade, position of balance of payment, rate of inflation
and existing fiscal deficit, should be kept in mind.

Expenditure Estimates: Expenditure Estimates is prepared for plan and non

plan separately and also separately for voted and charged expenditure.

All the subordinate unit have to furnish the expenditure estimate in the
following proforma:

Prepared in November 2010:

Department of:

Statement of Revised Estimates for 2010-2011 and Budget Estimates for

2011-12, relating to Major Head ......
S Detailed Actuals Allotment Actuals Estimated Revised Budget Explanation Explanation Total
No Head for the for 2010- for the Expenditur Estimate Estimate for variation for variation actual
last 2011 last four e for the for 2010- for 2011- between between for the
eight months ensuing 8 2011 2012 Col. 3 and Col.6 & Col. last 12
months of the month i.e. Col. 6 7 months
i.e. current August i.e. Col.
from year i.e. 2010 to No.2
August April March 2011 and
2009 to 2010 to Col.
March July No.4
2010 2010
1 2 3 4 5 6 7 8 9 10

The estimates so received will be scrutinised by the Financial Advisor

and necessary economy will be exercised. The Department will consult
various wing and policy changes in the Department, will be kept in mind.
 The Department will get the estimates of expenditure for the current
year and next year in the above proforma and send them to the budget
division of Ministry of Finance and this is called statement of budget
estimates proposed. In this, both plan and non plan, for current revised
estimates and next budget estimates, will be indicated. This will be discussed
with Secretary (Expenditure) by the Financial Advisor of the Ministry. Zero
based budgeting will be exercised at this stage.

After the statement of budget estimates (Proposed) is sent, the

statement of Budget Estimates (Final) will be prepared. This statement will
be accompanied by four (4) additional statement (i)Explanation for variation
(ii)Loans and equity components of the investment in Public Sector Unit
(iii)The statement of charged expenditure under Revised Estimates and next
Budget Estimates (iv)Statement of Estimates showing the recoveries which
have been taken into account.

Budget Process:

After collecting the Estimates of Receipts and expenditure and demand

for grants, consolidation of main demand for grant and appropriation bill, the
budget is sent to cabinet. Before this the Finance Minister discusses these
proposals with various organisation, stake holders, pressure groups, trade
unions, economists and financial experts for getting wider acceptability.

After approval by Cabinet, the budget is sent to President for

recommendation. Budget can be presented only in Lok Sabha. A copy of the
budget will be placed before Rajya Sabha.

To understand the state of economy, an economic survey is placed

before Parliament before Budget presentation. Annual reports of the
Department are also placed before the house.

Budget is normally, as a convention, presented to Lok Sabha on the

last working day of February of the year.

General discussion on budget will take place for 4 to 5 days. At this

point of time only the policy and general issues underlying the budget will be
discussed.

Prior to March, 1993, there was no machinery of Standing Committees.

The Parliament was therefore, used to take up the demand for grants of
selected Ministries, say four to five Departments selected at random for
discussion straightaway.
 Parliament is too large a body to go into the minute details of budget
proposals. In addition the Parliament has no expertise, nor adequate time to
subject these demands for grants to close scrutiny. The result was the
thousands of crore of rupee were approved by Lok Sabha without any
discussion or scrutiny. The lack of legislative scrutiny over the executives
spending spree is an aberration of Parliamentary systems. Therefore, to put
an end to this lack of control by Parliament over executive, a machinery of
Departmentally related Parliamentary Standing Committee was established
from 31.03.1993.

Standing committees were in existence in 1989 itself, but only for a few
Ministries like Agriculture, Science & Technology, Environment & Forest and
not for all. However, in March 1993, 24 Departmentally related Parliamentary
Standing Committees, each covering 3 to 4 Departments, were established.

These Committees are presided over by Chairpersons nominated by

Speaker/Chairman. The term is one year. Minister cannot be a member.

There are 24 committees. Each committees has 31 members (21 from

Lok Sabha and 10 from Rajya Sabha), nominated by Speaker and Chairman.
The committee are assisted by experts. The committees can set in-camera
(Secret).

The functions of the committees are:

(i) To consider the Demand for Grants of the concerned

Departments/Ministry and make a report to the House;

(ii) No cut motion can be recommended;

(iii) To examine the bills referred to the committees by the

Speaker/Chairman;

(iv) To consider basic long term policy documents referred to by

Speaker/Chairman;

(v) To consider annual reports of the Ministries/Departments and make

reports;

(vi) The committees shall not interfere with day to day administration of the
Departments.
Procedure:

After the general discussion on the budget is over, the houses will go
for recess for a month. During this period the committees will consider the
Demands for grants and submit their reports. They shall not ask for more
time. Demands for grants will be examined and the suggestions of the
committees will be recorded. There will be a separate report for each
Ministry.

Defects in the Committee System:

(i) There are too many committees – 18 House Committees, 35-40

Consultative Committees, 24 Standing Committees, many Select
Committees, Joint Committees, and Ad-hoc Committees. Many functions
overlapped. There is a need to streamline the functions of the Committees.

(ii) With the proliferation of the Committees, even rooms are not available.
With the Standing Committees in position, there is a need for to re-examine
the necessity of having Consultative Committees.

(iii) Every committee can appoint a sub-committee for examining a

particular problem. Each such sub-committee pre-suppose meeting rooms,
hospitality, stenographic assistance etc, against draining the exchequer.
Instead of Sub-committees Study Groups can be set up.

(iv) The Standing Committees recommendations are only recommendatory.

During the 18 years not even a single recommendations of the Standing
Committee was accepted.

(v) There is not set procedure to implement the recommendations.

(vi) The Committees suggestions are not given serious thought. In many
cases the Committees have suggested revision in allocation. However, due
to paucity of time the Ministries could not make any changes.

(vii) The quorum for Lok Sabha is 1/10, so also for Rajya Sabha. For
Committees it is 1/3. Off course, for Consultative Committee there is no
quorum require. There are 24 Committees with 31 members in each. When
Parliament is in session quorum in Committees is not possible. When
Parliament is not in session members prefers to return to constituency.
Therefore, instead of recess, Parliament should remain in session with
afternoon devoted to Committee work.
(viii) The Draft Bills are at present referred to Committee after introduction.
These should be referred before introduction. The bills should be introduced
only with the report of the Committees.

(ix) When the Committee report is submitted, it will be taken up for

discussion alongwith the demands for grant of the respective Ministries. The
discussion with regard to Demands for grant will take place only in respect of
four (4) Ministries. During such discussions, the Members are free to move
“Cut Motions”.

Cut Motion: Cut Motion is a motion moved for reduction of a specified

amount from the votable head of the Demands for grant of the Department.

There are three types of cut motion:

(i) Policy cut motion;

(ii) Economy cut motion;

(iii) Token cut motion.

Policy Cut: Under Policy cut motion, the amount of demand is

sought to be reduced to Rs.1/- to represent the disapproval of the policy
underlying the Demand. While giving notice, the members should indicate
the precise details of the policy to be discussed alongwith the details of
alternate policy. Once the notice for policy cut motion is admitted, discussion
will take place. After discussion, if a policy cut motion is passed, it amounts
to expression of lack of confidence by the house over council of Ministers and
the result is that the Council of Ministers is obliged to resign.

Economy Cut: Economy cut is to seek that the demand preferred by the
particular Department be reduced by a specified amount. This represents the
need for effective economy in the expenditure of that Ministry. The reduction
may be a particular item in the demand or a lump sum in the demand. If this
Economic cut motion is passed, Council of Ministers need not resign but it is
a slur on the Ministry.

Token Cut: Token cut is to ventilate a specific grievance which is

purview of the government. The discussion is confined only to the grievance.
In this case the demand is sought to be reduced by Rs.100/-. If this motion is
passed it does not affect the Council of Minister. But it is only a slap on the
face of the Minister.
Condition of admissibility of a cut motion:

(i) The motion should relate to only one demand;

(ii) It should be confined to a specific matter;

(iii) No arguments, no inference, no ironical expressions, no defamatory

statement and no allegation;

(iv) Not on a trivial issue;

(v) No question of any privilege;

(vi) The matter should concern Government of India;

(vii) Should not relate to Charged expenditure;

(viii) There should be no suggestion to amend any existing law;

(ix) No subjudice matter;

(x) No revival of any discussion on a matter which has already been

discussed in the same session;

(xi) No discussion on any matter which is pending with judicial, semi-judicial

or quasi-judicial body or with Parliamentary committees or with court of
inquiry.

After the discussion on the Demands for grant of the Selected

Ministries, the rest of the outstanding demands are summarily put to vote on
a specified day at a specified time. This is called guillotine.

Guillotine is a form of closure putting all the outstanding demands on

hand to vote without any discussion at the expiry of time.

Normally 26 days from the date of submission of budget are allotted for
discussion of voting of demands and on 26 th day the guillotine is applied.
Similarly the Finance Bill is passed within 75 days from the date of first sitting
of the Budget session.

After the demands for grants are voted, the Finance Minister will
introduce Finance Bill, followed by Appropriation Bill.
 When Appropriation Bill is passed by both the houses and accented to
by President it becomes Appropriation Act giving the authority to Union
Executives to draw the money shown in Appropriation Act from Consolidated
Fund of India.

Ministry of Finance on behalf of Union Executive withdraw this money

from Consolidated Fund of India and distribute among the
Departments/Ministries on the basis of their demands for grant as passed by
Lok Sabha.

Control over Expenditure: Very Important

Drawing and Disbursing Officer, Head of Department and Departments

are associated in the control of expenditure.

On the passage of Appropriation Bill, Ministry of Finance withdraw the

money from the Consolidated Fund of India and distribute the funds to
various Ministries as per their Demands for grant as passed by Parliament.

The execution of Budget is the primary responsibility of the Department

on whose behalf budget is approved by Parliament. This authority is
responsible for control of expenditure against the sanctioned grant and the
appropriation placed at his disposal. That authority should ensure:

(1) That the expenditure does not exceed the sanctioned grant;

(2) The expenditure is incurred in public interest;

(3) The expenditure is made for the purpose for which the funds were
allotted;

(4) The entire fund should be utilised during the financial year;

(5) No expenditure should be incurred on any service not contemplated in

the budget;

(6) Re-appropriation from one primary unit of appropriation to another is a

subject to Delegation of Financial Powers Rules 1978;

(7) Since the unspent balance during the financial year cannot be carried
over to the following financial year, the savings should be anticipated in
advance and such savings should be surrendered to the co-ordinating
agency namely Ministry of Finance so that the latter can distribute such
funds to the needy units.
The drawing and Disbursing Officer has following responsibility:

(i) To prepare and present the bills separately for charged and voted
expenditure;

(ii) He should indicate the accounts classification from Major Head to

Object Head;

(iii) He should also indicate the progressive total expenditure upto the date
of voucher under the given primary unit of appropriation;

(iv) As disbursing officer he should maintain an expenditure register in Form

GFR-9 for all allocations for each Minor Head;

(v) On the 3rd of each month, he should sent an extract of the register of
GFR-9 to the controlling officer;

(vi) The controlling officer is to maintain GFR-10 to monitor the receipt of all
return and also to check account classification, expenditure during the
month, progressive expenditure and propriety of expenditure.

Following are the important tools to ensure control over expenditure:

(i) Monthly statement of expenditure by Head of Office;

(ii) Register of expenses;

(iii) Quarterly statement of expenditure;

(iv) Liability Register;

(v) Reconciliation statement;

(vi) Calendar of returns.

Every office is required to sent a monthly statement of expenditure by

rd
3 of the following month, total expenditure incurred during the month,
progressive expenditure upto the month, balance of allotment and reasons of
variation. Plan and non-plan should be shown separately.

Departmental figures should be reconciled with the accounting figures

and in case of discrepancy the accounting figures should be taken as final.
 A similar statement showing the progress of expenditure and progress
of work in respect of each payment/scheme in physical terms with reasons for
any shortfall or excess both in terms of financial or physical should be
obtained from the Department.

These should be analysed every month and remedial action should be

taken.

To have an effective control over expenditure, the information obtained

in the monthly statement of actual expenditure will not suffice. Therefore, the
controlling officer should obtain a statement of liability in the prescribed form
from each office from August of the year. This will show the details of
liabilities which are yet to be cleared and which have not been included in the
statement of expenditure. To facilitate this statement, a liability Register
should be maintained.

Thus the control of expenditure over the all funds allotted under votable
heads is exercised.

FINANCIAL SANCTION

Financial Sanction is a written expression of the authorisation of

expenditure from Govt. funds. According to transaction of Business Rules
1961 no department shall issue any order involving any expenditure without
the approval of M/o Finance unless such powers have already been
conferred by Transaction of Business Rules. Nevertheless, for expeditious
discharge of duties, Ministry of Finance has delegated certain powers to the
subordinate units and these details have been given in DFPR 1978. These
powers should be exercised after following the procedure explained in GFR
2005. The powers not specifically delegated rests with M/o Finance and
these powers are called Residuary Powers. The powers of Finance Ministry
are exercised by Integrated Finance Advisor of the Department who
represents M/o Finance.

While incurring any expenditure, the sanctioning authority should be

competent to sanction and he is guided by the high standards of Financial
propriety. While drafting financial sanction following points should be kept in
mind.

1. Purpose: To be mentioned clearly without any ambiguity or

misconstruction. If any articles are to be indented, quantity and specifications
should be given. If the sanction is for special pay, or personal pay or
compensatory allowance, the reasons should be given. The amount of
sanction should be in words and figures. In the case of temporary post,
duration, date of creation, time scale/grade pay should be indicated. In
respect of grants-in-aid, pattern of assistance and approval of M/o Finance
should be indicated. IF the sanction relates to the members of Staff of Indian
Audit and Accounts department, consultation with CAG is necessary and this
fact should be indicated in the sanction. If financial sanction is issued by the
Department, under its own powers in consultation with IF Division, this fact
should be given. If it involves foreign exchange, consultation of M/o Finance
should be indicated. Source of financing primary unit of Appropriation subject
to availability of funds should be given. In some cases, expenditure is
sanctioned by one Organization and incurred by different. IN such cases, the
sanction should indicate in whose book the expenditure is to be finally
adjusted.

Financial sanctions issued by the Department relating to a matter

concerning the department proper should be addressed to the Accounts
Officer in letter form. In all other cases, like creation of post, advance to
Govt. Servants etc. it should be in order form.

Signing of Sanction

It should be signed in ink, only by Gazetted Officer and not cyclostyled.

It should be communicated in the name of the president as provided in the
Authentication of Orders Rules 1958. Financial Sanction issued by
Ministry/Department whether with the concurrence of M/o Finance or
otherwise should be conveyed in the name of President. However, if the
powers are derived out of any law, the sanction should be conveyed on
behalf of Central Government. In some cases, the powers may be delegated
to HOD or Head of Office. In these cases, the sanction should be issued in
their name.

Effect of Sanction or Currency of Sanction:

The financial sanctions are effective from date of issue unless some
other date is specified. Actual expenditure can be incurred only when the
funds are made available either through appropriation or re-appropriation. A
sanction for recurring expenditure becomes operative when the funds to meet
such expenditure of the first year is made available and it would remain
effective for subsequent years without any fresh sanction subject to allotment
of funds for the subsequent years. Normally retrospective sanction with
regard to pay and allowances or special pay or any such concession unless
M/o Finance agrees. Similarly, the post cannot be created retrospectively
except in rare cases upto 3 months.
Lapse of Sanction - (Important)

Sanction for any fresh charge lapses if no payment either part or full
has been made during 12 months from the date of issue of sanction.
However, if currency of sanction is given, that will stand.

A sanction to a non-refundable part withdrawal or advance of GPF is

valid for 3 months.

IF there is any provision in the sanction, that the expenditure would be

met from the budget provisions, the sanction lapses at the close of the
financial year.

Supposing there is no provision as above and if payment has been

made in part with the authority of sanction, no further sanction is necessary, if
budget provision has been made for subsequent years.

In case of purchase of stores, a sanction does not lapse, if tenders

have been accepted or indent has been placed on Central Purchase Agency
within one year of sanction even though, no actual payment either whole or
part was made.