Decoding The Budget Documents

Every year, the Budget Session is a grand jamboree played out on Raisina Hill. It is also a time when the security guys go hyper; North Block is sealed – cameras and mobiles are not allowed inside. On the first floor, extra guards hover around the bronze Nataraja, keeping a sharp eye on the FM’s room.

When finally put together, the Budget documents look like a sibling of the Delhi telephone directory – fat, colorful, heavy and full of fine print. Only the numbers here connect you directly to the lives of 1300 million people in India.

This is an attempt to understand what all the fuss is about.

Under Article 112 of the Indian Constitution, a statement of the estimated receipts and expenditure of the Government of India (GoI) has to be laid before the Parliament (Lok Sabha) w.r.t every fiscal year (1st April—31st March). This statement is called the “Annual Financial Statement” and this AFS is the main Budget document.

AFS shows receipts and payments of the Government in three parts – (1) Consolidated Fund of India, (2) Contingency Fund of India, and (3) Public Account of India.

1. Consolidated Fund: Contains all revenue received by GoI, loans raised and recoveries from loans granted by GoI. All expenditure comes from this fund. Nothing can be withdrawn without an authorization from the parliament.
2. Contingency Fund: To meet urgent, unforeseen expenditure pending authorization from the Parliament. It is an imprest (loan/advance) at the disposal of the President. Corpus – Rs.500 Crores
3. Public Account: Wherever GoI acts as a banker (Public Provident Fund, Small Savings, etc.) the money is kept in this account. This money does not belong to the government so Parliament authorization is not required for payments. This account also holds money from the Consolidated Fund, earmarked by the Parliament for specific projects (mid-day meal scheme, road dev., primary education, etc.)

The Constitution requires the Budget to distinguish expenditure on revenue from other expenditure, so we have two heads (1) Revenue Budget, (2) Capital Budget

1. Revenue Budget: Shows revenue received and the expenditure met from this. Revenue comes from taxes, duties levied by the Union, and also interest and dividends earned. Revenue Expenditure mainly goes for normal running of the Government – paying salaries, repaying loans, grants to states ---- mainly stuff that does not result in creation of assets.
2. Capital budget: Shows capital receipts & payments. Here the receipts from loans raised by GoI -- from the public / foreign banks/ market loans; recovery of state loans, through RBI. Capital expenditure mainly goes into creation of assets (acquisition of land, buildings, machinery, equipment etc.)

Article 150 prescribes how the govt accounting is to be classified so that it can be understood by the Parliament and by the public. Loan repayments and salaries of certain senior officials are exempted from the vote in Lok Sabha – this portion is shown as “expenditure charged” to the Consolidated Fund, separately. This process is called “Appropriation”.

In all, there are 10 documents, some in color coded binding and the others just copies stapled without much ado:

1. Annual Financial Statement of the Central Government for 2007-2008: The main document, containing details of Consolidated Fund, Contingency Fund and Public Account

2. Demands for Grants: Estimates of expenditure from CFI requiring a vote of approval from Lok Sabha under Article-113.

3. The Finance Bill, 2007: Completely relates to taxes – its imposition, abolition, remission, alteration or regulation (under Article 110-1). Over a 100 pages of nothing but amendments.

4. Memorandum Explaining the Provisions in the Finance Bill, 2007 (Purple): This is the key to the Finance Bill. All those terse amendments are explained under various heads, like “Measures to plug revenue leakages”.

5. Budget at a Glance 2007-2008 (Green): A brief on receipts (Rs. 680,521 / $162b) and disbursements (ditto); broad break-up of expenditure – Plan and non-plan; allocation to sectors / ministries / departments. This is the place to look for all those deficits –

· “Revenue Deficit” – revenue expenditure over revenue receipts (Rs.71,478 Cr / $17b)
· “Fiscal Deficit” GFD – (revenue expenses + capital expenses + loan repayments) less (revenue receipts + capital receipts) = Rs.150,948 Cr / $35b)
· “Primary Deficit” = GFD less Gross Interest Payments (Rs.8047Cr / $2b)

6. Expenditure Budget 2007-2008 – Vol-I (Blue): Revenue and Capital disbursements totaling Rs.680,520 Cr ($ 162 b) to various departments and estimates of each under Plan and Non-plan:

· Non-Plan Expenditure – All expenditure not included in the Plan. Could be either Revenue Expenditure or Capital Expenditure; partly obligatory (interest payments, pension charges, statutory transfers to states & UTs); partly for essential functions – defense, internal security, external affairs…. The total is Rs.475,420 Crores ( 69% of total Ex, $113 b). The biggest chunks go towards interest payments & debt servicing (33%, $ 37 b) & defense (20%, $22 b)
· Plan Outlay – Distribution of resources as agreed in the 10th Plan. Covers various projects, programmes and schemes; to states and UTs. Total – Rs. 205100 Cr (31%, $48 b)

7. Expenditure Budget 2007-2008 – Vol-II (Orange): Covers schemes or programmes spread across various sections, ministries and departments.

8. Receipts Budget 2007-2008: Details of tax and non-tax revenue receipts, capital receipts; arrears of revenues, deficit indicators, statements on Small Savings Fund, revenue foregone, liabilities, guarantees given by govt., etc. The total money coming into the Consolidated Fund of India is Rs. 2,379,312 Cr ($ 566b) -

· Revenue Receipts = Rs. 583,647 Cr. ($138b), of which Tax Revenue is – Rs. 548,122 Cr. (94%, $ 130b of which $33b goes to the State’s), and Non-Tax Revenue – Rs. 177,975 Cr. ($ 42b). If one includes the excess of disbursements over receipts - Revenue Deficit – of Rs. 71977.8Cr ($17b), the total RR becomes Rs. 655,625 Cr ($ 156b)
· Capital Receipts = Rs. 1,795,665 Cr ($ 427b), of which the total internal debt of the central govt. is Rs. 1,733,533 Cr (96%, $ 412b); External Debt is Rs. 17,451 Cr (1%, $4b)

9. Statement on Fiscal Responsibility and Budget Management Act, 2003 – This Act places certain obligations on the Central Govt.; any deviation has to be reported to the Parliament.

10. Key to Budget Documents (Pink)

Soon after the Finance Minister presents these documents to the Parliament, along with his much awaited “Budget Speech” (peppered with some mandatory couplets & slokas), the Opposition and the Media swings into action. The numbers are analyzed threadbare, criticized, debated, written & talked about for weeks on end.

It is a relief to discover that some effort had gone in to make the Budget easier to comprehend. Some big question linger, though -

· If the Budget Receipts add up to $ 566b, how is it that the total Expenditure Budget is only for $ 162b?
· What explains the mismatch of figures for “Budget 2007-2008” in Annual vs. ‘Budget at a Glance’?
· In CFI, net External Assistance is shown as Rs. 17,451 Cr (1%, $4b) but in BaaG it is just Rs.9111 Cr ($2b) – why?