In this post, notes of “Unit 2: Budget” from “DSC 10: Public Administration in India” are given which is helpful for the students doing graduation this year.
Budget and Budget Cycle in India
1. What is a Budget?
Definition and Importance of Budget
A budget is a plan that shows how much money a government expects to earn and spend in a year. In India, the Finance Minister shares this plan every year in Parliament, usually on February 1.
Why is the Budget Important?
– It helps use resources wisely.
– It supports economic growth and stability.
– It helps control prices and economic downturns.
– It funds programs for social welfare and development.
– It keeps government spending in check.
Goals and Principles of Budgeting
Goals:
1. Resource Allocation – Distributing money to different areas based on needs.
2. Economic Growth – Encouraging development and stability.
3. Reducing Inequality – Helping programs that support those in need.
4. Fiscal Discipline – Making sure spending matches income.
5. Transparency & Accountability – Making financial information clear to everyone.
Principles of Budgeting:
1. Annuality – The budget is made and used every year.
2. Universality – All income and spending should be included.
3. Specificity – Every spending item should be clearly listed.
4. Accuracy – Income and spending should be estimated as closely as possible.
5. Transparency – Financial information should be clearly shared.
Parts of a Budget: Income and Spending
1. Income – Money the government gets from:
– Tax Income: Income Tax, GST, Corporate Tax, Customs Duties, etc.
– Non-Tax Income: Fees, money from public sector companies, fines, etc.
2. Spending – Money the government uses:
– Regular Spending: Salaries, pensions, subsidies, interest payments, etc.
– Capital Spending: Infrastructure, defense equipment, loans to states, etc.
2. Budget Cycle in India
The Budget Cycle is the process of creating, approving, using, and checking the budget.
1. Preparation Stage
– Begins in September-October each year.
– Ministries & Departments send budget plans to the Ministry of Finance.
– The Finance Ministry combines these plans to create the Union Budget.
2. Presentation Stage
– The Finance Minister presents the Union Budget in Parliament on February 1.
– The budget speech highlights important financial policies and plans.
3. Approval Stage
– Parliament reviews and approves the Budget.
– They discuss Demands for Grants (money requests from ministries).
– They pass the Appropriation Bill and Finance Bill to allow spending and taxes.
4. Execution Stage
– Money is given to ministries and departments to carry out their plans.
– Ministries make sure their spending matches the approved budget.
5. Audit and Evaluation Stage
– The Comptroller and Auditor General (CAG) checks government accounts.
– The Public Accounts Committee (PAC) and other groups review how the budget was used.
Types of Budgets in Public Administration
Budgets are important for planning and managing money in government. Different budgets help keep spending efficient, responsible, and clear.
1. Line Budget
Definition and Features
A Line Budget is a common way to budget where costs are sorted into categories like salaries, office supplies, travel, and equipment. Each category has a set amount of money.
Features:
– Based on previous spending with small changes.
– Focuses on control and responsibility rather than results.
– Organized by department and spending type (like salaries, maintenance).
– Has a fixed structure with little room for change.
Pros and Cons
✅ Pros:
– Simple and easy to use.
– Gives clear control over spending.
– Lowers the chance of overspending.
– Helps stop corruption and mismanagement.
❌ Cons:
– Does not focus on results (doesn’t measure efficiency or effectiveness).
– Can lead to wasteful spending (departments spend their whole budget to avoid cuts next time).
– Inflexible—hard to move money to urgent needs.
Use in Public Administration
– Used by local and state governments to keep close track of public money.
– Common in education, defense, and health sectors where spending needs careful tracking.
– Good for small public projects with clear spending categories.
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2. Performance Planning Budget
Definition and Features
A Performance Budget connects how money is spent with the results expected from programs. It focuses on results and efficiency instead of just listing costs.
Features:
– Money is given based on expected results.
– Highlights efficiency, effectiveness, and responsibility.
– Encourages looking at cost vs. benefits.
– Uses performance indicators (like number of students educated, kilometers of road built) to measure success.
Pros and Cons
✅ Pros:
– Ensures smart use of resources by tying spending to results.
– Encourages responsibility in government.
– Helps with policy evaluation and better choices.
– Supports long-term planning and better resource use.
❌ Cons:
– Hard to measure performance in some areas (like law enforcement).
– Needs a strong data system, which can be costly.
– Some bureaucrats resist this method as they prefer traditional ways.
Use in Public Administration
– Commonly used in education, health, and infrastructure where results can be clearly defined.
– Used in the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA), measuring performance by job creation.
– Applied by local governments for city development projects.
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3. Zero-Based Budget (ZBB)
Definition and Features
A Zero-Based Budget (ZBB) requires departments to explain every cost from the beginning for each new budget cycle, instead of relying on past budgets. This method makes sure that only necessary spending is approved.
Features:
– No automatic carryover of past budgets—every cost must be justified.
– Encourages cost-cutting and better use of resources.
– Prioritizes programs based on need and efficiency.
– Requires detailed analysis of all spending.
Pros and Cons
✅ Pros:
– Cuts out wasteful spending by funding only necessary programs.
– Promotes responsibility and efficiency.
– Allows for better allocation of resources to important projects.
– Helps control budget deficits.
❌ Cons:
– Time-consuming and complex since each cost must be reviewed every year.
– Needs lots of data collection and analysis.
– May create uncertainty in long-term projects due to changing funding.
Use in Public Administration
– Used in government reforms to reduce unnecessary spending (like subsidies).
– Applied in defense and infrastructure projects where budget efficiency is key.
– Adopted by state governments for financial discipline (like Karnataka in 1983).
Conclusion
Each budget type has its strengths and is used in different situations:
– Line Budget is straightforward and ensures control.
– Performance Budget focuses on efficiency and results.
– Zero-Based Budget funds only necessary expenses.
Governments often use a mix of these budgeting methods to ensure responsible spending, efficiency, and accountability.
Budget Making: Role of the Finance Ministry
The Ministry of Finance is key in making and managing the budget. It helps keep finances stable, uses resources wisely, and ensures proper spending.
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1. Role of the Finance Ministry in Budget Preparation
The budget process in India starts months before it is shown in Parliament. The Finance Ministry works with different groups to create the budget.
a. Working with Ministries and Departments
– The Finance Ministry gathers budget plans from all ministries and government departments.
– Ministries provide their expected income and spending for the next year.
– The Department of Economic Affairs (DEA) and the Department of Expenditure check these plans.
b. Setting Budget Rules and Goals
– The Finance Ministry sets spending limits for ministries based on the economy.
– It sets goals for deficit, tax income, and resource distribution.
– It makes sure these goals match the overall economic policies and government goals.
c. Pre-Budget Discussions
– The Finance Ministry talks with business leaders, economists, financial experts, trade unions, and others.
– They discuss tax policies, subsidies, and economic changes.
– They also get public suggestions online.
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2. Presentation and Approval of the Budget
a. Creating Budget Documents
– The Finance Ministry, with the Revenue Department, prepares:
– Annual Financial Statement (Budget Statement)
– Finance Bill (suggests tax changes)
– Appropriation Bill (allows government spending)
– Expenditure Budget, Receipts Budget, and Economic Survey
b. Presenting the Union Budget in Parliament
– The Finance Minister presents the Union Budget in Lok Sabha on February 1 every year.
– They give a budget speech, explaining the main funding areas and financial plans.
c. Role in the Parliamentary Budget Process
– The budget is discussed in both Lok Sabha and Rajya Sabha.
– Demands for Grants are looked at by Parliamentary Standing Committees.
– Finance Ministry officials explain budget allocations.
– After discussions, the budget passes through the Appropriation Bill and Finance Bill.
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3. Implementation and Monitoring
a. Distributing Funds
– After approval, the Finance Ministry releases funds to ministries and state governments.
– It ensures funds are given out on time as per the budget.
b. Watching Spending and Income
– The Controller General of Accounts (CGA) checks government spending and income.
– The Department of Revenue monitors tax collections from Income Tax, GST, Customs, etc.
– Stops overspending and ensures budget rules are followed.
c. Mid-Year Reviews and Changes
– Conducts a mid-year review (usually in September-October) to check financial progress.
– If needed, makes changes with a Supplementary Budget or Revised Estimates.
– Takes steps to manage deficit and economic changes.
Conclusion
The Finance Ministry is very important for good budget-making and financial management. It ensures:
✅ Smooth cooperation among government bodies.
✅ Good financial planning and resource use.
✅ Monitoring and changes for proper spending.
This organized approach ensures clarity, responsibility, and economic stability in India’s financial system. 💰📊