Breaking India State Business Entertainment Biography Lifestyle

Budget: How is the budget prepared, what is the process?

Pratik Mehta

By Pratik Mehta

Published on:

Budget is presented every year in the country and the state. The central government presents the country’s budget and the state government presents the state’s budget. There is no such direct mention of the budget in the Constitution. But Article 112 of the Constitution deals with ‘Annual Financial Statement’. Under this section, the central and state governments have to give accounts every year. In India, the Finance Minister usually presents the budget. There are two types of budgets, one is the full budget and the other is the interim budget. The interim budget is presented by the government which is in the last year of its term before the elections. The current government cannot present the complete Union Budget in the election year. The Finance Minister in the Central Government presents the country’s general budget every year. He reads the budget speech in Parliament. Now every year the budget is presented on February 1. In the general budget, the central government also draws a blueprint of how the country’s economy will move forward in the coming years.

Where did the word Budget originate from?

Budget is a French word. It is derived from the word baguette. It means a leather bag. Earlier, businessmen used to keep their income and expenditure documents in this leather bag. So, the word budget is derived from this. This word was used in Britain which later reached India.

What is the budget?

Budget is a yearly account. Simply put, budget is a statement of estimated revenue (earnings) and expenditure (estimated expenditure) for a year. The Finance Minister gives details of his revenue and expenditure in the budget speech. This is called the general budget or the federal budget. The budget period is one year.

The budget is not just big announcements. It is a balance sheet of the targets to be achieved during the year with the available resources. In which it is necessary to prepare an estimate of deposits and expenditure. Before presenting the budget, the process of its preparation and continuous review continues throughout the year.

Who prepares the country’s budget?

In India, the budget is prepared by the Ministry of Finance, NITI Aayog and the Ministry of Expenditure. The Ministry of Finance prepares expenditure proposals on the request of various ministries. The budget is then prepared by the Budget Division of the Department of Economic Affairs under the Ministry of Finance.

How is the central budget prepared

The Budget Department issues a circular to all the Central Ministries, States, Union Territories, Autonomous Bodies, Government Departments, Armed Forces and directs them to prepare their estimates (expenditure) for the coming year. The Expenditure Division of the Finance Ministry initiates engagement with all the Central Ministries after receiving their demand from the Ministries and Departments.

The Department of Economic Affairs and the Revenue Department contact farmers, traders, economists, organizations from various sections of the society and ask them to express their views on the budget. This process is also known as pre-budget discussion. After this the Finance Minister takes the final decision on tax. All the proposals are discussed with the Prime Minister before finalizing the budget. Then further decisions are informed.

As a final step, the Finance Ministry collects income and expenditure receipts from all departments. The estimated income and expenditure plan for the next year is prepared from the collected data. The government once again calls a meeting of the state, bankers, farmers, economists and trade associations to finalise the budget. Things like tax exemptions and financial aid are discussed. Finally, the Finance Ministry prepares the budget speech based on the revised budget.

This process begins a year in advance

Before the presentation of the budget, that is, if the budget for 2024-25 is to be prepared, then its process usually starts in September 2023 itself. Each department and office submits an annual report of expenditure to its respective head of department. Estimates are made keeping in mind the expenses of the previous and current year, the requirements of the coming year. Then the head of the department examines and sends the estimate to the Finance Department. Now like expenditure, revenue and savings are also estimated in the same way. It also includes subsidy and tax share from the central government. Now these estimates have been classified as revenue – capitalized and encumbered – estimated.

This accumulated expenditure is reviewed throughout the financial year. Additional claims are made for expenses that were not expected. Where expenditure is not expected to be as per the estimate, the amount is withdrawn. That is, it can be reallocated. Revised estimates are also prepared for the current year before preparing estimates for the next year.

Increasing or underestimating income or expenditure is a sign of financial indiscipline. Due to this, no realistic decision can be taken. By doing this, the expenditure required for the development of the state may be cut. Or it may also lead to unnecessary expenditure.

If the expenditure has increased, then more resources will have to be created to meet it. For which changes in the tax structure or imposition of new tax is being considered. But what will be its impact on the state’s economy and which section of the society will be affected by it is also important.

What is the budget of the state government?

The governments of different states of the country also present their annual budget every year. The budget estimates the income and expenditure of the state government for the next financial year. Every state government has different sources of revenue generation, similarly the expenditure on schemes also varies according to the different schemes of different states. Like the central government, this budget is valid from 1 April to 31 March.

There is not much difference between the budget of the central and state government. Only the methods of tax collection are different. Since the central government collects direct taxes from the people in the form of income tax, the state government cannot do so. A large part of the state government’s income comes from the revenue sharing of the central government.

Three levels of planning

The development plan was made at three levels. Which includes district plan, state plan and backlog plan. The District Planning Committee prepares a plan of financial planning according to the available resources. After that the state government approves this plan. The state level plan is made in consultation with the concerned departments, expert persons. The backlog plan has been made as per the instructions of the Governor.

The process of budgeting is complex. Hence it is prepared with great awareness and attention to detail. This makes the budget realistic, otherwise the estimates may go awry. A careful budgeting process is important for financial discipline.

Prioritize committed costs

The first thing to consider while preparing the expenditure budget is the fixed charges. Like establishment, overhead, interest expenses are considered. Since it is a committed expenditure, it is given priority. After this, the development plan is made keeping in view the available resources. The administration also reviews the committed expenditure from time to time. If any cost can be avoided or saved by the use of technology, the savings are used in development work.

Before the establishment of NITI Aayog in 2015, the planning process was done by the Planning Commission and the National Development Council at the national level, while at the state level it was done under the guidance of the State Planning Board. At that time development planning was done in the form of five-year plans. The budget was divided into plan expenditure and non-plan expenditure. But now it is considered as non-development expenditure. At the state level, expenditure is divided into development expenditure and non-development expenditure. The Planning Subcommittee takes decisions in this regard.

Pratik Mehta

Pratik Mehta

I am Pratik Mehta, a passionate business news writer dedicated to covering economic trends, market analysis, and corporate developments.

Related Post

Leave a comment