Opinion The budget process

The union budget is the annual statement of receipts and expenditures for the financial year. Budgets are usually presented in February for the entire financial year that follows. However,since 2009 was an election year,the budget presented in February was an ‘interim’ one,in which the government sought permission from Parliament to cover its expenditures only till the end of July 2009. The budget to be presented next month under the new government,will cover expenditures for the remaining eight months. However,like the interim budget,expenditures and revenues are likely to be estimated for the entire year.

•n How is government expenditure classified in the budget?

There are two different sets of classifications — ‘revenue vs capital expenditure’ and ‘plan vs non-plan.’ In general,expenditure used to create assets (building a road for instance) is capital expenditure while revenue expenditure consists of expenses such as salaries and other administrative costs. Plan expenditure covers money spent on schemes or projects run by different ministries under the five-year plans (currently this means the eleventh five-year plan which runs from 2007-12). Such schemes include the mid-day meal scheme and the National Rural Employment Guarantee Scheme,and can have both revenue and capital components. For instance,the administrative costs of a plan scheme could be classified as revenue expenditure while the expenditure on the scheme itself (e.g. building a village road) might be capital expenditure. Non-plan expenditure consists of any expenditure by the government not covered by the five year plans. These include interest payments on government debt and expenditure on organs of the state such as the judiciary and the police.

•n How are government receipts classified?

The revenue and capital classification applies to government receipts as well (the plan/ non-plan distinction does not). Revenue receipts consist mainly of revenues from taxes,dividends from companies owned by the government,and user charges on some public services. Capital receipts are mainly funds borrowed by the government from various sources,both in India and abroad. Any earnings from disinvestment also comes under this category.

•n What is the fiscal deficit?

The difference between the total expenditure of the government and its total receipts (excluding certain types of capital receipts),constitutes the gross fiscal deficit.

•n How is the budget prepared?

The budget is prepared by the budget division in the ministry of finance after consulting with other ministries and the planning commission. Ministries prepare estimates of how much their plan and non-plan expenditure is likely to be for the year. This is reconciled with the finance ministry’s estimates of how much money it can make available. The finance ministry estimates how much tax revenue it can raise after accounting for increases in income and inflation. It also proposes new revenue raising measures. Other ministries also estimate how much money they can raise (through user charges on public services,for instance). Throughout the process,the finance minister and other officials meet with economists,experts,industry representatives and citizen groups. The finance minister briefs the prime minister and the cabinet on budget proposals.