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distrust among the people and can eventually lead to the situation of the crisis, and if we see
it in this context, the importance of budget became even more apparent.
Indian constitution establishes a democratic and federal state, which is entrusted by the
people with the responsibility of their welfare. The role of budget in this regard is important.
On one hand, as being federal state, the needs of people are fulfilled by the both union budget
and state budget. On the other hand, because of the democratic governing system, budget
ensures accountability and responsibility of people toward the people and tells people about
the government of India’s welfare programme and policies. Further, the Indian constitution
make parliament (union represented body) fundamentally accountable for ensuring the
efficient use of the money. In India, Executive part of government implements this policy, for
which the need of finance is fulfilled by the budget (prepared by the Union finance ministry,
with the assistance of the other local department and bodies) which cannot be passed without
the assent of the parliament. In this way it can be said that the power of planning, its
execution and control over the expenditure of public money is fundamentally in hand of
citizens (indirectly, through their representatives). In this chapter we will discuss the meaning
of budgeting, its process of preparation and execution and its different forms, and will try to
understand its process.
Origin, Meaning and Definition of the Budget
The word “Budget” has been originated from the French word Bougette (which means a little
leather bag or small case) which was indicatively used to symbolize that the whole wealth of
a nation is contained, in the form of budget, within it. According to the Oxford English
Dictionary, “the phrase ‘to open one’s budget’ was being used in the sixteenth century to
mean that someone was revealing something which was secret, perhaps even dubious. This
phrase seems to have been first applied to a statement of government revenue and
expenditure during the Excise Crisis in 1733.” In 1773, the word Budget is first time ever
used in the British Parliament when Sir Robert Walpole, British finance minister of that time,
presented Income Expenditure Statement, and since then this word is used, all over the world,
to denote the statement of governmental expenditure and income. In the context of India, first
budget was presented by James Wilson, on February 18, 1860 as a Finance Member of the
India Council, constituted to advice the Viceroy of India. After India got its independence,
the Union Budget was presented on November 26, 1947, by RK Shanmukham Chetty. In that
budget only the review of the Indian economy was presented and no new taxes were
proposed. After it, time to time the traditions related to the budgets have changed but the
procedure is overall as it is.
Some thinkers have defined the budget as the statement of income and expenditure for
certain period, as in the words of Leonoy Beanlieu: “budget as a statement of the estimated
receipts and expenses during a fixed period. While some other have defined it as an act for
appropriation of revenue and planning. Some definitions of budget, from this perspective are
following:

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Rene Stourm defines budget as “a document contain a preliminary approved plan of

public revenue and expenditure.” Whereas according to Joseph Pois “Budgeting generally
denotes that process by which the financial policy of a public agency is formulated, enacted
and carried out.”
G. Jeze defines “budget as an forecast and an esticnate of all public receipts and
expenses and for certain expenses and receipts and authorization to incur them and to collect
them”.
On the basis of above definitions it can be concluded that Budget is: (i) a work plan; (ii)
it reflects and clarifies the various executive functions of coming financial year; (iii) it is not
just a statement about revenue and expenses but it is also a mechanism of planning, control
and management.
Budgetary Process
For India, our constitutional forefathers choose a federal system of governance in which, to
address the diverse need of Indian citizens, power is divided between Union and State. In
accordance to this provision, in India, financial needs and problem of citizens are addressed
in the budget of both state and center. In Indian constitution, provisions related to the process
of budget are mentioned in article 112, which define budget as “The Annual Financial
System”. In India budget making process starts around 6 month prior to the commencement
of new financial year, which is April 1 to March 31. In accordance to article 77(3) of the
Indian constitution, major responsibility regarding budget is fulfilled by Union finance
ministry. Union Finance minister, in every financial year presents the budget in the
Parliament which was duly prepared by the assistance of the other ministries and departments
under the guidance and supervision of Union finance ministry. The budgetary process of
India is consist of majorly four different operations, which are, “(i) Preparation of the budget;
(ii) Enactment of the budget: (iii) Execution of the budget; (iv) Parliament’s role and control
over the finance”.
1. Preparation of the Budget
In the process of preparation of the budget four major institutes took part, those are (i)
Finance Ministry; (ii) General administration ministries; (iii) NITI Ayog and (iv) Comptroller
and Auditor General. Major responsibility for the preparation the budget is generally of the
Finance Ministry, but it needed the support of administrative ministries because of their
extensive knowledge about specific administrative requirements. The preparation of the
budget starts every year around the month of September, when the “budget division of the
Department of Economic affair of the union finance ministry” issues a circular to the various
departments requesting them to submit information regarding their expenditure estimates in a
skeleton form. In their budget estimates each department provides following information:
a. Minor heads and sub-heads of appropriation
b. Actual for the last year
c. Budget estimates as sanctioned for the current year
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d. Revised estimates for the current year

e. Budget estimates for the next year
f. Explanation for the increase or decrease or actual of the current year.
After the appropriation of information from the local offices, estimates of the expenditure are
sent to the concerned departments, those scrutinize the information. After scrutiny of
estimates by the departments, these estimates are sent to the secretariat of the concerned
departments. The secretariat of the department further investigates this information and the
first phase of the budget making process is over.
In the next phase, Ministry of Finance scrutinizes the departmental estimates. Finance
ministry scrutinize about the importance of the policy or items not about the demanded
estimates because departmental ministries are accountable for the estimates. After it, outlaid
estimates of plan are scrutinized by the NITI Ayog (which used to be done by planning
commission earlier). The budget proposals of finance ministers are further examined by the
finance ministry which has the power to amend it with the consultation of the prime minister.
After the scrutiny of Finance minister preparation of the budget came to its end. The union
finance ministry is given so much power in regard to the scrutiny of the items, due to two
reasons: (i) finance ministry is accountable for the expenditure of the public funds and it is
general expectation of the citizens that finance ministry make good use of taxes. (ii) Finance
ministry has to manage money for the expenditure.
2. Budget’s Enactment and the Role of the Parliament in this Process
The enactment of budget is necessary and important, as ones the budget is adopted in the
accordance of the procedure, which is established by the constitution of India, it gains a
legitimacy and became binding on the administrators of the government. After the budget is
prepared by the Union finance ministry, it passes through several stages or procedures in
Parliament for the purpose of its legislation and enactment. These stages are the following:
a. Budget Presentation: Firstly, with prior assent of president of India, the budget is
presented by the Union Finance Minister in the lower house of parliament that is Lok
Sabha, on the first of February every year (before 2017, it used to be presented on the
last day of February). In his/her budget speech finance minister tells about the how
much money the government expects to raise from taxes and the other sources and
how much and where it intends to spend that money. Finance minister tries to explain
the objectives of government from the financial point of view. After the presentation
of the budget the printed copies of it is distributed in the house so that the members of
the parliament can go through it and be aware about the precise details of the budget’s
provision. During this process, the copy of the budget is also sent to the upper house
of parliament, which is Rajya Sabha. Rajya Sabha has limited power than the Lok
Sabha in this regard.
b. General discussion on the budget: After the few days of its presentation budget is
lay down in the both houses of parliament, for the general discussion about it, which

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lasts for three to four days. The Members of House have right to discuss the budget
part-wise or as a whole or only any specific part of it, but at this stage, no member of
house is authorized to move any motion. The point to remember is that, the scope of
discussion is narrow, at this stage, as the members can only discuss or can examine
the general scheme or polices of government, not authorized to go in the details of it.
The provision of general discussion is continued from the British period, but during
the British rule Indians did not had right to vote, Indian representatives are only
permitted to take part in the discussion. The charged expenditures are also discussed
at this stage.
c. Departmental scrutiny: As the general discussion finishes, the presiding officer of
the house announces the adjournment of the House, for fixed period that is almost the
period of 4 weeks. During this period, the “demands for grants” (which provides the
details about the estimates of the expenditure of various departments and ministries)
related to the various departments or ministries were sent to the departmental standing
committees. The parliament had, over the period of time, constituted twenty four
(since 2004) departmental standing committees, in each of which 21 members are
appointed by the Speaker, from the Lok Sabha and 10 members are appointed by the
Chairman, from the Rajya Sabha. Each of these departmental committees is assigned
with the responsibility to scrutinize the demands for the grants related to their
respective ministries and create different reports about it.
d. Voting on Demand of Grants: According to the article 113 of the Indian
Constitution states that, it is mandatory that “any demand or estimate seeking
withdrawal of money from the Consolidated Fund of India should be presented to the
Lok Sabha in the form of a demand for grants”. In accordance to this provision, after
the discussion departmental standing committees lay down their reports in the House
after which the House discuss and vote on demands for grants. The demand for grants
majorly includes provisions related to advances and loans, revenue and capital
expenditure and grants, which will be provided to the government of States and Union
territories. These demands for grants, after the scrutiny of it by respective standing
committees , are one by one (ministry-wise), presented in the House and the member
of house vote upon, after which the “demands” become “grants”. However, the
budget is discussed in both the Houses, the right to vote on demands for grants is only
limited to the members of Lok Sabha. Point to be noted is that, at this stage, even the
voting takes place in regard to the demand for the grants but the demands which will
be levied on the Consolidated Fund of India (also known as known as Charged
Expenditures) are excluded from the voting process. Now the members are authorized
not only to discuss the budget in details but also, at this stage, they can move different
motions (known as cut motions) either against the policies of government or to reduce
the amounts of the grants for the policies, which they feel inappropriate. Indian
constitution establishes a specific process in the regard of these cut motions and these
motions are following:

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 Policy cut motion: According this motion, if it passes, the demanded estimate
amount for the policy will be reduced to Re. 1. Passing of this motion shows
that the majority of House does not believe that this policy is appropriate and
so they disapprove it. To lay this motion in the House, the proposer member
have to precisely mention the particular terms of the policy which he/she
wants to propose for the discussion in the house. This proposed discussion,
whenever it will be done, will be confine only to the specific point or points
which are mentioned by the member in the notice. At this stage, the mover
even have right to propose an alternative policy.
 Economy Cut Motion: According to this motion the demanded amount by
the government for any policy will be reduced by a certain amount. If this
motion got passed by the House it shows that the members of House are
doubtful about the effectiveness or appropriateness of the proposed
expenditure. Passing of this motion will be resulted in either the reduction of
the amount, as suggested in motion or a lump-sum reduction in the amount of
the demands.
 Token Cut Motion: Provision of this motion is done in the constitution as
mean, for the members to raise question or register their grievances, regarding
the responsibilities of the union government. Thus, when the Token cut
Motion is lay down for the discussion in the House, then the discussion will
remain centered to the specific grievance, which is mentioned in the motion. If
the members votes in the favour of its passing than the demanded grants will
be reduced by 100 rupees, as a symbol of the protest.
These Cut Motions are often laid in the house by the members but generally due to the
majority of government, it is not easy to mobilize vote against the government and pass the
motion. If Cut Motion t passes then the existence of the government will be in danger. In the
House, a time period will be allotted for discussion and voting on the Demands for Grants
which will be of 26 days, but for any reason not all Demands for Grants are presented for
discussion and voting, compared to the last for voting, All the demands of voting are put
together by the Speaker of Lok Sabha, whether they are discussed or not. This process, in
legal parlance, is called the guillotine.
e. Appropriation Bill: After the passing of demands for grants, by the Lok Sabha, an
appropriation bill so that government can withdraw the sanctioned grants out of the
Consolidated Fund of India. The appropriation bill can be simply called a sum total of
all the grants (which were passed by the House earlier) and of the Charge Expenditure
on the India’s Consolidated Fund. As per the established procedure by the
constitution, such amendments cannot be proposed, at this stage, which will affect the
mentioned amount of the grants or alter the destination of any grant or which alter the
amount of any expenditure charged on the Consolidated Fund of India. Furthermore,
the decision regarding the admissibility of the proposed amendment (in appropriation

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bill) made by the Speaker will be final. After the passage of the appropriation bill by
the Lok Sabha, the Speaker sends it to the Upper House as a money bill. The Rajya
Sabha has limited power regarding this bill, as it will have 14 days to discuss the bill
and may propose a recommendation if it is necessary. After a period of 14 days, the
bill will be sent back to the Lok Sabha, which has unconfirmed power to accept or
reject this recommendation.
f. Vote on Account: The appropriation bill will become an appropriation act after the
assent of the president and now government can take out money from the
Consolidated Fund of India. The President's power in relation to this bill is also
limited. Because the enactment process of the budget begins with the prior consent of
the President, he cannot refuse to provide assent to the Bill. As the budgeting process
takes a long time to reach to the office of President and is usually takes two to three
months to complete, till that time, the government cannot withdraw money from
India's Consolidated Fund for its daily requirement. To avoid such situation, the
constitution of India provides a provision that is called the ‘Vote on Account’.
According to this provision, the parliament have power to provide a certain amount
(usually equivalent to one-sixth of the total proposed expenditure) to the government,
for this part of the year (usually the period of the two months), so that it can continue
its daily expenses.
g. Finance Bill: Any budget has two categories of constituents one is expenditure and
other is income. With the passing of appropriation bill the process regarding first
category finishes. The sources of income of government are various but the most
important is the income it get from the taxes. In the category of taxes, some taxes of
permanent nature are amended, time to time by the executive orders and to implement
or amend such taxes does not require annual permission of Lok Sabha. But there are
some other taxes of which the rates are annually decided by the Lok Sabha. The bill
which gives effect to the Government of India’s financial proposals the following
financial year, and by which it proposes changes (such as the imposition of new taxes,
modification on the existing ones or the abolition of the old taxes) in the later type of
taxes, is introduced in Lok Sabha, as Financial Bill. The procedure of passing the
finance bill is as similar as of any other money bills. “The finance bill is presented in
the Lower House, immediately after the presentation of the budget and it cannot be
opposed by the members of the House”. According to the Provisional Collection of
Taxes Act, 1931, “the finance bill has to be passed by parliament and assented to by
the president before the expiry of the seventy-fifth day after the day on which it was
introduced”.
3. Execution of the Budget
Budget’s execution is next step after the passing of the both finance bill and appropriation
bill. The execution of budget means that government, at this stage, will implements its plan
and programs and will monitor the execution process. The financial requirement for
execution of plans and programs is met by the government, by withdrawing money from the

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Consolidated Fund of India, as it is now, legally authorized to receive funds from the
Consolidated Fund of India after the passage of the appropriation bill. Not only this, but now
government is also authorized to collect taxes, as mentioned in the financial bill, from the
people of the country. The country's executive departments get the green signal to collect
revenue and spend money, as proposed in the budget, on plans that were approved by
Parliament. The responsibility of revenue collection rests with the Department of Revenue of
the Ministry of Finance, but all other ministries are authorized to withdraw the required
amount and spend as required. The Secretary to the Ministers, who act as the Chief
Accounting Authority, is given the responsibility of maintaining the records of their accounts.
These accounts of various ministries will be audited by the Comptroller and Auditor General
of India.
4. Parliament’s Control over Finance
Budgetary control is an important tool for any institution, as it ensures the effective and
efficient use of its resources. Budgetary control can be defined as “the establishment of
budgets, relating the responsibilities of the executive to the requirements of a policy and the
continuous comparison of the actual budget with the budget results, either to secure by
individual actions the objective of that policy or to provide a firm basis for its revision.”
The Constitution of India has laid down specific procedures by which the Appropriation
Bill and Finance Bill will be introduced and debated and passed. Similarly, the constitution
gives Parliament the power to grant grants to the executive, which makes demands. These
demands can be of various types like demand for grant, additional grant, supplementary grant
etc. In addition to the expenditure charged on the Consolidated Fund of India, the expenditure
estimates are presented by the Finance Minister in the Lok Sabha as demands for grants.
After the conclusion of the general debate on the budget, demands for grants from various
ministries are tabled in the Lok Sabha. At his stage, through various motion the Lok Sabha, to
which the constitution has given the power to assent or to reject, can give its assent to any
demand or can reject any demand, or can alter, amend the amount specified for any demand
or even can alter the direction of grant from on demand to another.
Furthermore, the Constitution of India empowers Parliament to grant grants to meet
unforeseen demands, even if, depending on the magnitude or uncertain character of the
service, the details of the demands are not presented with the budget or annual financial
statement, but to approve such grants, the passage of appropriation bill by Parliament is
mandatory.
Railway Budget in India
The annual financial statement of Indian Railways, which is a state owned public sector
enterprises, was called as Railway budget of India. Till the year of 2016, the Union minister
of Railway, on the behalf of railway ministry, had presented it in the parliament. This policy
of two separate budgets started in India after the Acworth Committee’s recommendation,
which was headed by William Acworth, a British railway economist. In accordance to the

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