Budget Components Explained: What To Find Where In Budget Documents

Union Budget 2020: For example, the Demand for Grant documents detail the estimated expenditure by each ministry or department in the coming financial year.

Budget Components Explained: What To Find Where In Budget Documents

Budget 2020: Budget documents are classified into various categories serving their own unique purpose

Finance Minister Nirmala Sitharaman will present the Union Budget 2020-21 in Parliament on February 1. As an annual financial statement of a government, a Budget details the estimates of revenue and expenditure in the past as well as the time to come. Other than the Budget speech, which is delivered by the Finance Minister in Parliament while tabling the Budget, Budget documents include various sections such as the annual financial statement, the demand for grants and the macroeconomic framework. Each of these components contains specific information. For example, the Demand for Grant documents detail the estimated expenditure by each ministry or department in the coming financial year. (Also read: Will Not Support Fiscal Tightening, Says Abhijit Banerjee)

Here's a brief description of what some of the key components of Budget 2020 contain:

Annual financial statement

Also known as budget statement, this document contains details of estimated receipts and expenditure in the financial year ending in the coming March (this is known as revised estimates or RE). Similarly, the forward looking estimates for the financial year starting in April (budget estimates) are included. The final figures - known as "actuals" - for the year before the current financial year numbers are also mentioned.

For example, in the Budget 2018, the annual statement contained the budget estimates (BE) for the year 2018-19, the revised estimates (RE) for the year 2017-18 and the actuals for 2016-17.

In other words, the annual financial statement juxtaposes the government's projected receipts and expenditure for the coming financial year with those for the current financial year as well as the figures of the previous financial year. The receipts and disbursements are categorised into three parts: Consolidated Fund of India, Contingency Fund of India and Public Account of India.

The Consolidated Fund of India (CFI) contains details of all the revenue earned by the government, the loans raised by it, and receipts of loans granted by it. All expenditure is incurred from the Consolidated Fund and therefore, no amount can be drawn from it without due authorisation from Parliament.

The Contingency Fund of India contains the money reserved for any unforeseen expenditure by government.

The Public Account of India contains the money kept by the government in trusts, such as provident fund, small savings scheme collections, and government income set aside for expenditure on specific objects such as road development, primary education and special funds.

Demand for Grants

Demand for Grants is the form in which estimates of expenditure from the Consolidated Fund are submitted in Parliament.

A government is required to provide details of estimated expenditure in this form. Generally, one Demand for Grant is presented in respect of each ministry or department. However, more than one demand may be presented for a ministry or department depending on the nature of expenditure.

Finance Bill

A government submits its proposals - in terms of imposition, abolition, remission, alteration or regulation of taxes - to Parliament through this document.

Statements Mandated Under FRBM Act

The Budget documents include three statements mandated under the Fiscal

Responsibility and Budget Management (FRBM) Act: the macroeconomic framework statement, the fiscal policy strategy statement and the medium-term fiscal policy statement.

  1. Macroeconomic framework statement: This document contains an assessment of the growth prospects of the economy including the assessment on GDP growth rate, the fiscal balance and the external sector balance of the economy.
  2. Fiscal policy statement: This document outlines the strategic priorities of the government relating to areas such as taxation, expenditure, lending and investments, borrowings and guarantees. It also seeks to explain how the current fiscal policies are in conformity with sound fiscal management principles and gives the rationale for any major deviation in key fiscal measures.
  3. Medium-term fiscal policy statement: This statement mentions targets for five fiscal indicators - revenue deficit, fiscal deficit, effective revenue deficit, tax-to-GDP ratio and total outstanding liabilities - for the coming three years. It includes the underlying assumptions, an assessment of the balance between revenue receipts and revenue expenditure and the use of capital receipts including market borrowings for the creation of productive assets.

A few other explanatory documents are also included to facilitate a more comprehensive understanding of the major features of a Budget.

Expenditure Budget

The provisions made for a particular scheme or programme may be spread over a number of major heads in the revenue and capital sections under Demand for Grants. The expenditure budget includes the estimates for a scheme or programme and shown on a net basis on a revenue and capital basis at one place. Suitable explanatory notes are included in this section to explain the objectives behind the proposed expenditure.

Receipts Budget

This document provides details of tax and non-tax revenue receipts, and capital receipts. It also provides a statement on the arrears of tax revenues and non-tax revenues. Details on the trend of receipts and expenditure and the deficit indicators, and statements on National Small Savings Fund (NSSF), liabilities, guarantees, assets and External Assistance are also included.

Expenditure Profile

While the estimates of expenditure included in the Demands for Grants are for the gross amounts, the estimates of expenditure included in the Annual Financial Statement are for the net expenditure after taking into account the recoveries. The document makes certain other refinements such as netting expenditure of related receipts so that overstatement of receipts and expenditure figures is avoided. The expenditure profile provides an aggregation of various types of expenditures and certain other items across demands.

It includes scheme expenditure, which forms a sizeable proportion of the total central expenditure, and a detailed report on the working of public sector enterprises.

Memorandums Explaining Finance Bill Provisions

These are aimed at facilitating the understanding of taxation proposals in the Finance Bill, the provisions and their implications.

Budget At A Glance

This set of documents gives a brief description of the receipts and disbursements along with broad details of tax revenues and other receipts. It also provides details of the resources transferred by the Centre to state and Union Territory governments. Besides a self-titled, four-five page document summarising the key receipts and disbursements and pie charts classifying where money comes and where it goes, this section has the following components:

  1. Debt and deficit statistics
  2. Transfer of resources to states and UTs with legislature
  3. Budget profile
  4. Receipts
  5. Expenditure
  6. Outlay on major schemes

This section also mentions the revenue deficit, the gross primary deficit and the gross fiscal deficit.

From Budget 2017-18, the distinction between the Plan and Non-Plan was removed from expenditure budgeting with an aim to improve the link between spending and outcomes to make it more holistic and focused.

Outcome Budget

This document broadly indicates the outcomes of the financial budget of a ministry or department, outlining the actual deliverables linked with outlays targeted during the year and over the medium term. From the Budget 2007-08, the performance budget and the outcome budget were merged and presented as a single document in respect of each ministry or department. From financial year 2017-18, the outcome budget of all ministries has been combined into one single document.