The Annual Financial Statement (AFS) or Budget (Article 112)

According to Article 112 of the constitution, the Union Budget of a year, also referred to as the Annual Financial Statement (AFS), is a statement of the estimated receipts and expenditure of the government for that particular fiscal year (1st April to 31st March).

The Budget Division of the Department of Economic Affairs in the Finance Ministry is the nodal body responsible for preparing the Budget.

In 2017, the Budget presentation was advanced to February 1 from earlier presented on the last working day of February, the Railway Budget was merged with the General Budget, and plan and non-plan expenditure was removed.

Union Budget is classified into Revenue Budget and Capital Budget:

Revenue Budget

Revenue budget includes government's revenue receipts and expenditure, it does not impact assets or liabilities of the government.

Government's revenue receipts involve receipts which neither create liabilities (e.g. borrowing) nor reduce assets (e.g. disinvestment).

Revenue receipts consists of the money earned by the government through tax (such as excise duty, income tax) and non-tax sources (such as dividend income, profits, interest receipts etc).

Revenue expenditure is the expenditure incurred on day to day functioning (salaries, interest payments, pension, subsidies and administrative expenses etc) of the government and on various services offered to citizens.

If revenue expenditure exceeds revenue receipts, the government incurs a revenue deficit.

Capital Budget

Capital Budget includes government's capital receipts and payments, it impacts assets or liabilities of the government.

Government receipts involve receipts which either create liabilities (e.g. borrowing) or reduce assets (e.g. disinvestment).

Capital receipts consists of the money earned by selling assets (or disinvestment) and the money received in the form of borrowings (from public, foreign governments and RBI) and raising of funds from Public Provident Fund and Small savings Deposits.

Non-debt capital receipts are part of capital receipts that do not generate additional liabilities. Recovery of loans and proceeds from disinvestments would be regarded as non-debt receipts.

Debt-creating capital receipts are ones that involve higher liabilities and future payment commitments of the Government.

Capital expenditure is the expenditure on development of machinery, equipment, building, health facilities, education etc.

Fiscal Deficit

Fiscal deficit by definition is the difference between total expenditure and the sum of revenue receipts and non-debt capital receipts.

Since positive fiscal deficits indicate the amount of expenditure over and above revenue and non-debt receipts, it needs to be financed by a debt-creating capital receipt.

Fiscal Deficit = Revenue expenditure + Capital expenditure - Revenue receipts - Capital Receipts excluding borrowings

Budget stages

In Parliament, the Budget goes through six stages:

1) Presentation of Budget

The Union finance minister reads out a "Budget Speech" on such day as the President might direct, in the Lok Sabha. A copy of the Budget is laid in the Rajya Sabha soon after its presentation in the Lok Sabha.

Immediately after the presentation of the Budget, the following three statements under the Fiscal Responsibility and Budget Management Act, 2003 are also laid on the Table of Lok Sabha:

1) The Medium Term Fiscal Policy Statement
2) The Fiscal Policy Strategy Statement
3) The Macro Economic Framework Statement

No discussion on Budget takes place on the day it is presented to the House.

2) General discussion

Budgets are discussed in two stages?the General Discussion followed by detailed discussion and voting on the demands for grants.

During the General Discussion, the House is at liberty to discuss the Budget as a whole or any question of principles involved therein but no motion can be moved.

3) Scrutiny by Departmental Committees

After the General Discussion on the Budget is over, the House is adjourned for a fixed period. During this period, the Demands for Grants of the Ministries/ Departments are considered by the Committees.

These Committees are required to make their reports to the House within specified period without asking for more time.

4) Voting on Demands for Grants

After the reports of the Standing Committees are presented to the House, the House proceeds to the discussion and voting on Demands for Grants, Ministry-wise.

At this stage, cut motions can be moved to reduce any demand for grant but no amendments to a motion seeking to reduce any demand is permissible.

A cut motion (policy cut, economic cut, token cut) is a special power vested in members of the Lok Sabha to oppose a demand being discussed for specific allocation by the government in the Finance Bill as part of the Demand for Grants.

If the motion is adopted, it amounts to a no-confidence vote, and if the government fails to jot up numbers in the lower House, it is obliged to resign according to the norms of the House.

5) Passing of Appropriation Bill

Appropriation Bill gives power to the government to withdraw funds from the Consolidated Fund of India for meeting the expenditure during the financial year.

The Appropriation Bill is introduced in the Lok Sabha after discussions on Budget proposals and Voting on Demand for Grants. The defeat of an Appropriation Bill in a parliamentary vote would lead to the resignation of a government or a general election.

Once passed by the Lok Sabha, it is sent to the Rajya Sabha to propose recommendations any amendments - Lok Sabha can either accept or reject the recommendations made by the Rajya Sabha.

The bill becomes an Appropriation act after receing the assent from the president. Appropriation act gets repealed by itself after it meets its statutory purpose.

6) Passing of Finance Bill

The Union Budget proposes many tax changes for the upcoming financial year, the Finance Bill seeks to insert amendments into all those laws concerned, without having to bring out a separate amendment law for each of those Acts.

Both appropriation and finance bills are classified as money bills which do not require the explicit consent of the Rajya Sabha. The Rajya Sabha only discusses them and returns the bills.

What is "Vote on Account" (Article 116) ?

As per article 114 of the Constitution, the government can withdraw money from the Consolidated Fund only after the enactment of the appropriation bill. However, this takes time and the government needs money to carry on its normal activities.

To meet the immediate expenses the Constitution has authorised the Lok Sabha to make any grant in advance for a part of the financial year. This provision is known as the "Vote on Account" (Article 116).

Consolidated Fund of India

The Consolidated Fund of India is constituted under Article 266 (1) of the Constitution of India.

All revenues received by the government by way of direct taxes and indirect taxes, all non-tax revenues, loans raised by issue of public notifications, treasury bills (internal debt) and from foreign governments and international institutions (external debt) flow into the Consolidated Fund of India.

All government expenditure is made from this fund, except exceptional items which are met from the Contingency Fund or the Public Account.

No money can be withdrawn from the Consolidated Fund without the Parliament's approval.

The Comptroller and Auditor-General of India (CAG) audits the fund and reports to the relevant legislatures on the management.