1. Annual Financial Statement (AFS) Annual Financial Statement (AFS), the document as provided under Article 112, shows estimated receipts and expenditure of the Government of India for 2017-18 in relation to estimates for 2016-17 as also actual expenditure for the year 2015-16.
  2. The receipts and disbursements are shown under three parts in which Government Accounts are kept viz.,(i) the Consolidated Fund, (ii) the Contingency Fund and (iii) the Public Account.
  3. The Annual Financial Statement distinguishes the expenditure on revenue account from the expenditure on other accounts, as is mandated in the Constitution of India. The Government Budget therefore, comprises the Revenue Budget and the Capital Budget, already mentioned in the earlier post.
  4. The significance of the Consolidated Fund, the Contingency Fund and the Public Account as well as the distinguishing features of the Revenue and the Capital Budget are given below briefly.

Consolidated fund of India

  1. The Consolidated Fund of India (CFI) draws its existence from Article 266 of the Constitution. All revenues received by the Government, loans raised by it, and also its receipts from recoveries of loans granted by it, together form the Consolidated Fund.
  2. All expenditure of the Government is incurred from the Consolidated Fund of India and no amount can be drawn from the Consolidated Fund without due authorisation from the Parliament.

Contingency fund of India

  1. Article 267 of the Constitution authorises the existence of a Contingency Fund of India which is an imprest (a sum of money advanced to a person for a particular purpose) placed at the disposal of the President of India to facilitate meeting of urgent unforeseen expenditure by the Government pending authorisation from the Parliament.

Public Account of India

  1. Moneys held by Government in Trust are kept in the Public Account. Provident Funds, Small Savings collections, income of Government set apart for expenditure on specific objects such as road development, primary education, Reserve/Special Funds etc., are examples of moneys kept in the Public Account.
  2. Public Account funds do not belong to the Government and have to be finally paid back to the persons and authorities who deposited them and Parliamentary authorisation for withdrawals from Public Account is not required.

Accounting Classification

  1. The estimates of receipts and disbursements in the Annual Financial Statement and of expenditure in the Demands for Grants are shown according to the accounting classification prescribed under Article 150 of the Constitution.

Demand for Grants

  1. Article 113 of the Constitution mandates that the estimates of expenditure from the Consolidated Fund of India included in the Annual Financial Statement, be submitted in the form of Demands for Grants.
  2. The Demands for Grants are presented to the Lok Sabha along with the Annual Financial Statement. 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. In regard to Union Territories without Legislature, a separate Demand is presented for each of such Union Territories.

Appropriation Bill

  1. Under Article 114(3) of the Constitution, no amount can be withdrawn from the Consolidated Fund without the enactment of such a law by Parliament.
  2. After the Demands for Grants are voted by the Lok Sabha, the Parliament’s approval for the withdrawal from the Consolidated Fund of the amounts so voted and of the amount required to meet the expenditure charged on the Consolidated Fund is sought through the Appropriation Bill.
  3. The whole process, beginning with the presentation of the Budget and ending with discussions and voting on the Demands for Grants, requires sufficiently long time.
  4. The Lok Sabha is, therefore, empowered by the Constitution to make any grant in advance in respect of the estimated expenditure for a part of the financial year pending completion of the procedure of the voting on the Demands. This is termed as ‘Vote on Account’.
  5. The purpose of the ‘Vote on Account’ is to keep the Government functioning, pending voting of ‘final supply’ through the budget.
  6. The Vote on Account is obtained from Parliament through an Appropriation (Vote on Account) Bill.

Finance Bill

  1. At the time of presentation of the Annual Financial Statement before the Parliament, a Finance Bill is also presented in fulfillment of the requirement of Article 110 (1)(a) of the Constitution, detailing the imposition, abolition, remission, alteration or regulation of taxes proposed in the Budget.
  2. It also contains others provisions relating to Budget that could be classified as Money Bill. A Finance Bill is a Money Bill as defined in Article 110 of the Constitution.

Macro Economic Framework Statement

  1. The Macro-economic Framework Statement is presented to Parliament under Section 3(5) of the Fiscal Responsibility and Budget Management Act, 2003 and the rules made there under.
  2. It contains an assessment of the growth prospects of the economy along with the statement of specific underlying assumptions.
  3. It also contains an assessment regarding the GDP growth rate, the domestic economy and the stability of the external sector of the economy, fiscal balance of the Central Government and the external sector balance of the economy.

Fiscal Policy Strategy Statement

  1. The Fiscal Policy Strategy Statement is presented to Parliament under Section 3(4) of the Fiscal Responsibility and Budget Management Act, 2003.
  2. It outlines for the existing financial year, the strategic priorities of the Government relating to taxation, expenditure, lending and investments, administered pricing, borrowings and guarantees.
  3. The Statement explains 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.

Medium Term Fiscal Policy Statement

  1. The Medium-term Fiscal Policy Statement is presented to Parliament under Section 3(2) of the Fiscal Responsibility and Budget Management Act, 2003.
  2. It sets out the three-year rolling targets for five specific fiscal indicators in relation to GDP at market prices, namely (i) Revenue Deficit, (ii) Fiscal Deficit, (iii) Effective Revenue Deficit (iv) Tax to GDP ratio and (v) Total outstanding Central Government Debt at the end of the year.
  3. The Statement 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.

Medium Term Expenditure Framework Statement

  1. The Medium-term Expenditure Framework Statement is presented to the Parliament under Section 3 of the Fiscal Responsibility and Budget Management Act, 2003.
  2. It sets forth the three-year rolling target for certain expenditure indicators along with delineation of the underlying assumptions and risks.
  3. The objective of the MTEF is to provide a closer integration between the budget and the FRBM Statements.
  4. This Statement is presented separately in the session next to the session in which Budget is presented, i.e. normally in the Monsoon Session.

The concepts those should be known before the discussion of the Budget have been mentioned briefly. The provisions of the Budget 2017-18 would follow in the next posts. Read (3/n).

Click here to go to the post 1/n.