Difference between Full Budget and Vote on Account

While studying Budget related topics, many are confused about the differences between full budget, interim budget, and vote on account. Don’t worry! We hope this post will clear all your queries!

To understand the connection better, I recommend you to understand the following rule first.

Rule: Executive (Government) needs the approval of Legislature (Parliament) for spending!

Yes, the government cannot spend as it wishes!

Even though the government collects money from the public by means of various taxes and fees, for the expenditure of the same, it needs approval from another authority – ie. Legislature.

In the case of the Central government, the Legislature corresponds to the lower house of the Parliament ie. Loksabha.

Where is this rule (mandate) written? Answer: Constitution of India.

Article 266 of the Constitution of India mandates that Parliamentary approval is required to draw money from the Consolidated Fund of India. Besides, Article 114 (3) of the Constitution stipulates that no amount can be withdrawn from the Consolidated Fund without the enactment of a law (appropriation bill).

The Parliamentary Approval takes its time!

The full budget is usually passed only after long discussions. Even though the government (executive) seeks approval of expenditure for the next financial year (April 1 to March 31) in the current financial year itself, the approval from legislature takes its time.

Very often, discussion and voting of demands for grants and passing of Appropriation Bill go beyond the current financial year. This was precisely the case before 2016 when the budget was presented on the last working day of February, and it was difficult to get passed within the same financial year.

But the government needs money for its day to day functions…

Since Parliament is not able to vote the entire budget before the commencement of the new financial year, the necessity to keep enough finance at the disposal of Government.

A special provision is, therefore, made for “Vote on Account” by which Government obtains the Vote of Parliament for a sum sufficient to incur expenditure on various items for a part of the year.

Vote on Account

Vote on Account is a grant in advance to enable the government to carry on until the voting of demands for grants and the passing of the Appropriation Bill and Finance Bill.

This enables the government to fund its expenses for a short period of time or until a full-budget is passed. As a convention, a vote-on-account is treated as a formal matter and passed by Lok Sabha without discussion.

Vote on Account was frequently used until 2016 when the Budget was presented on the last working day of February. However, since 2017, the budget presentation date was advanced to February 1. This helped the executive to use almost 2 months time to get the full-budget passed in the same financial year. So, since 2017, Vote on Account is not usually used as part of the government budgeting process, unless in special cases like an election year.

Normally, the Vote on Account is taken for two months only. The sum of the grant would be equivalent to one-sixth of the estimated expenditure for the entire year under various demands for grants.

Can Vote on Account be granted for more than 2 months?

Yes. During election year or when it is anticipated that the main Demands and Appropriation Bill will take longer time than two months, the Vote on Account may be granted for a period exceeding two months.

For example, in 2019, Vote on Account is taken for 4 months.

Difference between Full Budget and Vote on Account

• Full Budget deals with both expenditure and revenue side but Vote-on-account deals only with the expenditure side of the government’s budget.
• The vote-on-account is normally valid for two months but a full budget is valid for 12 months (a financial year).
• As a convention, a vote-on-account is treated as a formal matter and passed by Lok Sabha without discussion. But passing for budget happens only after discussions and voting on demand for grants.
• A vote-on-account cannot alter direct taxes since they need to be passed through a finance bill. Under the regular Budget, fresh taxes may be imposed and old ones may go.
• As a convention, a vote-on-account is treated as a formal matter and passed by the Lok Sabha without discussion. But the full budget is passed only after discussions and voting on demand for grants.

What is an interim budget then?

An interim budget in all practical sense is a full budget but made by the government during the last year of its term – ie. just before the election. An interim Budget is a complete set of accounts, including both expenditure and receipts. But it may not contain big policy proposals.

Is it mandatory for the government to present vote on account instead of a full budget in an election year?

It is not mandatory for the government to present a vote on account in an election year.

Though the convention is to present an interim budget and get the fund required for spending via the vote on account route, the government (if it wishes so) can even go for a Full Budget and get the appropriation bills passed to get the finances.

However, during an election year, the ruling government generally opts for a vote-on-account or interim budget instead of a full budget. While technically, it is not mandatory for the government to present a vote-on-account, but it would be inappropriate to impose policies that may or may not be acceptable to the incoming government taking over in the same year.

Documents Made Simple: Key to Budget Documents

In the post ‘Government Budgeting basics‘, we have seen that Indian Budget is not a single document, but consists of many documents like Annual Financial Statement, Demand for Grants, Appropriation Bill, Finance Bill etc. Also, there are certain budget documents as per the requirements of FRBM act 2003. In this post, we shall go into the details of each of these documents and see what these documents are all about.

Annual Financial Statement

Annual Financial Statement (AFS), the document as provided under Article 112, shows estimated
receipts and expenditure of the Government of India for next financial year (say, 2017-18) in relation to estimates for the previous financial year (ie 2016-17) as also expenditure for the year before last financial year (ie. 2015-16). The receipts and disbursements are shown under the three parts, in which Government Accounts are kept viz.,(i) Consolidated Fund, (ii) Contingency Fund and (iii) Public Account. The estimates of receipts and expenditure included in the Annual Financial Statement are for the expenditure net of refunds and recoveries, as will be reflected in the accounts.

Annual Financial Statement has the following heads.

1. Statement I – Consolidated Fund of India [Receipts and Expenditure: Revenue Account; Receipts and Expenditure: Capital Account]
2. Statement IA – Expenditure charged on the Consolidated Fund of India
3. Statement 2 – Contingency Fund of India
4. Statement 3 – Public Accounts of India [Receipts and Expenditure]
5. Receipts & Expenditure of Union Territories without Legislature.

Demand For Grants

Article 113 of the Constitution mandates that the estimates of expenditure from the Consolidated
Fund of India included in the Annual Financial Statement and required to be voted by the Lok Sabha are submitted in the form of Demands for Grants. 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 the Union Territories. In budget 2014-15 there were 106 Demands for Grants.

Each Demand first gives the totals of ‘voted’ and ‘charged’ expenditure as also the ‘revenue’ and ‘capital’ expenditure included in the Demand separately, and also the grand total of the amount of expenditure for which the Demand is presented. This is followed by the estimates of expenditure under different major heads of account. The breakup of the expenditure under each major head between ‘Plan’ and ‘Non-Plan’ is also given. The amounts of recoveries taken in reduction of expenditure in the accounts are also shown. A summary of Demands for Grants is given at the beginning of this document, while details of ‘New Service’ or ‘New Instrument of Service’ such as formation of a new company, undertaking or a new scheme, etc., if any, are indicated at the end of the document.

PS: For more reference on any of these budget documents refer: Key to Budget Documents by Ministry of Finance as given in indiabudget.nic.in.

Appropriation Bill

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. After the Demands for Grants are voted by the Lok Sabha, Parliament’s approval to 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.

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. 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 procedure for the voting of the Demands. The purpose of the ‘Vote on Account’ is to keep Government functioning, pending voting of ‘final supply’. The Vote on Account is obtained from Parliament through an Appropriation (Vote on Account) Bill.

Finance Bill

At the time of presentation of the Annual Financial Statement before 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. A Finance Bill is a Money Bill as defined in Article 110 of the Constitution. It is accompanied by a Memorandum explaining the provisions included in it.

Memorandum Explaining the Provisions in the Finance Bill

To facilitate understanding of the taxation proposals contained in the Finance Bill, the provisions and their implications are explained in the document titled Memorandum Explaining the Provisions of the Finance Bill.

Documents as per the requirements of FRBM act: 

Macroeconomic Framework Statement

The Macroeconomic Framework Statement presented to Parliament under Section 3(5) of the Fiscal
Responsibility and Budget Management Act, 2003 and the rules made thereunder contains an assessment of the growth prospects of the economy with specific underlying assumptions. It contains assessment regarding the GDP growth rate, fiscal balance of the Central Government and the external sector balance of the economy.

Fiscal Policy Strategy Statement

The Fiscal Policy Strategy Statement, presented to Parliament under Section 3(4) of the Fiscal Responsibility and Budget Management Act, 2003, outlines the strategic priorities of Government in the fiscal area for the ensuing financial year relating to taxation, expenditure, lending, and investments, administered pricing, borrowings and guarantees. The Statement explains how the current policies are in conformity with sound fiscal management principles and give the rationale for any major deviation in key fiscal measures.

Medium-term Fiscal Policy Statement

The Medium-term Fiscal Policy Statement presented to Parliament under Section 3(2) of the Fiscal
Responsibility and Budget Management Act, 2003, sets out three-year rolling targets for four specific fiscal indicators in relation to GDP at market prices namely (i) Revenue Deficit, (ii) Fiscal Deficit, (iii) Tax to GDP ratio and (iv) Total outstanding Debt at the end of the year. The Statement includes the underlying assumptions, an assessment of sustainability relating to balance between revenue receipts and revenue expenditure and the use of capital receipts including market borrowings for generation of productive assets.

Medium-term Expenditure Framework Statement

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

Explanatory Documents

Expenditure Budget Volume-1

This document deals with revenue and capital disbursements of various Ministries/Departments and
gives the estimates in respect of each under ‘Plan’ and ‘Non-Plan’. It also gives analysis of various
types of expenditure and broad reasons for the variations in estimates.

Expenditure Budget Volume-2

The provisions made for a scheme or a programme may spread over a number of Major Heads in the
Revenue and Capital sections in a Demand for Grants. In the Expenditure Budget Vol. 2, the estimates made for a scheme/programme are brought together and shown on a net basis at one place, by Major Heads. To understand the objectives underlying the expenditure proposed for various schemes and programmes in the Demands for Grants, suitable explanatory notes are included in this volume in which, wherever necessary, brief reasons for variations between the Budget estimates and Revised estimates for the current year and requirements for the ensuing Budget year are also given.

Receipts Budget

Estimates of receipts included in the Annual Financial Statement are further analysed in the document
“Receipts Budget”. The document provides details of tax and non-tax revenue receipts and capital receipts and explains the estimates. The document also provides the arrears of tax revenues and non-tax revenues, as mandated under the Fiscal Responsibility and Budget Management Rules, 2004. The trend of receipts and expenditure along with deficit indicators, statement pertaining to National Small Savings Fund (NSSF), statement of revenues foregone, statement of liabilities, statement of guarantees given by the government, statements of assets and details of external assistance are also included in Receipts Budget.

Budget at a Glance

This document shows in brief, receipts, and disbursements along with broad details of tax revenues and other receipts. This document also exhibits broad break-up of expenditure – Plan and Non-Plan, allocation of Plan outlays by sectors as well as by Ministries/Departments and details of resources transferred by the Central Government to State and Union Territory Governments. This document also shows the revenue deficit, the gross primary deficit and the gross fiscal deficit of the Central Government. The excess of Government’s revenue expenditure over revenue receipts constitutes revenue deficit of Government. The difference between the total expenditure of Government by way of revenue, capital and loans net of repayments on the one hand and revenue receipts of Government and capital receipts which are not in the nature of borrowing but which finally accrue to Government
on the other, constitutes gross fiscal deficit. Gross primary deficit is measured by gross fiscal deficit reduced by gross interest payments. In the Budget documents ‘gross fiscal deficit’ and ‘gross primary
deficit’ have been referred to in abbreviated form ‘fiscal deficit’ and ‘primary deficit’, respectively. This document also shows liabilities of the Government on account of securities (bonds) issued in lieu of
oil and fertilizer subsidies.

Highlights of Budget

This document explains the key features of the Budget, inter alia, indicating the prominent
achievements in various sectors of the economy. It also explains, in brief, the budget proposals for allocation of funds to be made in important areas. The summary of tax proposals is also reflected in the document.

Other Documents Along with Budget Statements

Detailed Demands for Grants

The Detailed Demands for Grants are laid on the table of the Lok Sabha sometime after the presentation of the Budget, but before the discussion on Demands for Grants commences. Detailed Demands for Grants further elaborate the provisions included in the Demands for Grants as also actual expenditure during the previous year. A break-up of the estimates relating to each programme/organisation, wherever the amount involved is not less than 10 lakhs, is given under a number of object heads which indicate the categories and nature of expenditure incurred on that programme, like salaries, wages, travel expenses, machinery and equipment, grants-in-aid, etc. At the end of these Detailed Demands are shown the details of recoveries taken in reduction of expenditure in the accounts.

Outcome Budget

With effect from Financial Year 2007-08, the Performance Budget and the Outcome Budget hitherto presented to Parliament separately by Ministries/Departments, are merged and presented as a single document titled “Outcome Budget” by each Ministry/Department in respect of all Demands/ Appropriations controlled by them, except those exempted from this requirement. Outcome Budget broadly indicates physical dimensions of the financial budget of a Ministry/Department, indicating actual physical performance in the preceding year (2015-2016), performance in the first nine months (up to December) of the current year (2016-2017) and the targeted performance during the ensuing year (2014-2015).

Annual Reports

A descriptive account of the activities of each Ministry/Department during the year 2016-2017 is given in the document Annual Report which is brought out separately by each Ministry/Department and circulated to Members of Parliament at the time of discussion on the Demands for Grants.

Economic Survey

The Economic Survey brings out the economic trends in the country which facilitates a better appreciation of the mobilisation of resources and their allocation in the Budget. The Survey analyses the trends in agricultural and industrial production, infrastructure, employment, money supply, prices, imports, exports, foreign exchange reserves and other relevant economic factors which have a bearing on the Budget, and is presented to the Parliament ahead of the Budget for the ensuing year.

Conclusion:

The Budget of the Central Government is not merely a statement of receipts and expenditure. Since
Independence, with the launching of Five Year Plans, it has also become a significant statement of government policy. The Budget reflects and shapes, and is, in turn, shaped by the country’s economy. For a better appreciation of the impact of government receipts and expenditure on the other sectors of the economy, it is necessary to group them in terms of economic magnitudes, for example, how much is set aside for capital formation, how much is spent directly by the Government and how much is transferred by Government to other sectors of the economy by way of grants, loans, etc. This analysis is contained in the Economic and Functional Classification of the Central Government Budget which is brought out by the Ministry of Finance separately.

Government Budgeting in India – The Process and Constitutional Requirements

What is the process of government budgeting in India? What are the constitutional requirements regarding the annual financial statement?

How knowledgeable are you regarding the government budgeting process of India?

In this post, we explain the basics of Indian Budget and Government Budgeting process for beginners.

What exactly is a budget?

As you know, the budget is a report presented by the government. It is a report of the government finances which includes revenues and outlays.

Thus, the budget can be defined as the most comprehensive report of the government’s finances in which revenues from all the sources and outlays for all activities are consolidated.

In simple terms, the budget is an annual financial statement of the revenue and expenditure of a government.

Budget in the Indian Constitution

The term ‘Budget’ is not mentioned in the Indian Constitution; the corresponding term used is ‘Annual Financial Statement’ (article 112).

What are the constitutional requirements which make Budget necessary?

1. Article 265: provides that ‘no tax shall be levied or collected except by authority of law’. [ie. Taxation needs the approval of Parliament.]
2. Article 266: provides that ‘no expenditure can be incurred except with the authorisation of the Legislature’ [ie. Expenditure needs the approval of Parliament.]
3. Article 112: President shall, in respect of every financial year, cause to be laid before Parliament, Annual Financial Statement.

FRBM Act

The Fiscal Responsibility and Budget Management (FRBM) Act was passed by the Indian Parliament in 2003 for better budget management.

The FRBM act also provided for certain documents to be tabled in the Parliament of India, along with Budget, annually with regards to the country’s fiscal policy.

Budget Documents

Do you know that the Annual Financial Statement is only one of the several budget documents presented by the Finance Minister?

The Budget documents presented to Parliament comprise, besides the Finance Minister’s Budget Speech, the following:

1. Annual Financial Statement (AFS) – Article 112
2. Demands for Grants (DG) – Article 113
3. Appropriation Bill – Artice 114(3)
4. Finance Bill – Article 110 (a)
5. Memorandum Explaining the Provisions in the Finance Bill.
6. Macro-economic framework for the relevant financial year – FRBM Act
7. Fiscal Policy Strategy Statement for the financial year – FRBM Act
8. Medium Term Fiscal Policy Statement – FRBM Act
9. Medium Term Expenditure Framework Statement – FRBM Act
10. Expenditure Budget Volume-1
11. Expenditure Budget Volume-2
12. Receipts Budget
13. Budget at a glance
14. Highlights of Budget
15. Status of Implementation of Announcements made in Finance Minister’s Budget Speech of the previous financial year.

There are also other related documents like Detailed Demands for Grants, Outcome Budget, Annual Reports and Economic Survey presented along with the budget documents in Parliament.

PS: The documents shown at Serial 1, 2, 3 and 4 are mandated by Art. 112,113, 114(3) and 110(a) of the Constitution of India respectively, while the documents at Serial 6,7, 8 and 9 are presented as per the provisions of the Fiscal Responsibility and Budget Management Act, 2003. Other documents are in the nature of explanatory statements supporting the mandated documents with narrative or other content in a user-friendly format suited for quick or contextual references. Hindi version of all these documents is also presented to Parliament

Government Budgeting: Railway Budget Presentation

Do figures related to Railways find mention in Annual Financial Statement or are they part of only Railway budget?

Until 2016 (for 92 years), the budget of the Indian Railways was presented separately to Parliament and dealt with separately. Even then the receipts and expenditure of the Railways formed part of the Consolidated Fund of India and the figures relating to them are included in the ‘Annual Financial Statement’.

The last Railway Budget was presented on 25 February 2016 by Mr. Suresh Prabhu.

Since 2017, Railway Budget is merged with the Union Budget.

Government Budgeting: Union Budget Presentation

In India, the Budget is presented to Parliament on such date as is fixed by the President.

Between 1999 to 2016, the General Budget was presented at 11 A.M. on the last working day of February.

However, since 2017, the Indian Budget is presented on 1 February. As a convention, Economic Survey is also tabled in the Parliament – one day prior to budget submission, ie on January 31.

Note: In an election year, Budget may be presented twice — first to secure Vote on Account for a few months and later in full.

Vote on Account

The discussion on the Budget begins a few days after its presentation.

If the Parliament is not able to vote the entire budget before the commencement of the new financial year (ie. within 1 month or so), the necessity to keep enough finance at the disposal of Government in order to allow it to run the administration of the country remains. A special provision is, therefore, made for “Vote on Account” by which Government obtains the Vote of Parliament for a sum sufficient to incur expenditure on various items for a part of the year.

Normally, the Vote on Account is taken for two months only. But during the election year or when it is anticipated that the main Demands and Appropriation Bill will take a longer time than two months, the Vote on Account may be for a period exceeding two months.

So what exactly is Vote on Account?

Vote on Account is a special provision by which the Government obtains the Vote of Parliament for a sum sufficient to incur expenditure on various items for a part of the year, usually two months.

Vote on Account was widely used along with every budget before 2016 when the date of the budget presentation was the last day of February. Now vote on account is used only in special years like the election years (used along with interim budget).

Vote on Account deals only with the expenditure part. But the interim budget, as well as full budget, has both receipt and expenditure side.

So presentation and passing of vote on account is the first stage in the budget passing process. Vote on Account is necessary for the working of the government until the period the full budget is passed.

Budget Speech

The Budget Speech of the Finance Minister is usually in two parts. Part A deals with the general economic survey of the country while Part B relates to taxation proposals.

He makes a speech introducing the Budget and it is only in the concluding part of his speech that the proposals for fresh taxation or for variations in the existing taxes are disclosed by him.

The ‘Annual Financial Statement’ is laid on the Table of Rajya Sabha at the conclusion of the speech of the Finance Minister in Lok Sabha.

 

Indian Public Administration. Ramesh K Arora & Rajni Goyal

Indian Public Administration. Ramesh K Arora & Rajni Goyal

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Elections to the Rajya Sabha: Know the procedure of electing a candidate to the upper house

 Most of us know how elections are conducted in Lok Sabha. But how is a candidate elected to Rajya Sabha? What is the election procedure of the upper house, Rajya Sabha, also known as the Council of States? Procedure for Rajya sabha elections are more complex when compared to Loksabha elections.

Why Rajya Sabha or Council of States?

A single directly elected House was considered inadequate to meet the challenges before free India by the Constituent Assembly.  A second chamber, known as the ‘Council of States’, therefore, was created with altogether different composition and method of election from that of the directly elected House of the People.  It was meant to be the federal chamber i.e., a House elected by the elected members of Assemblies of the States and two Union Territories in which  States were not given equal representation (unlike many other federal countries).  Apart from the elected members, provision was also made for the nomination of twelve members to the House by the President.

Composition of Rajya Sabha

Article 80 of the Constitution lays down the maximum strength of Rajya Sabha as 250, out of which 12 members are nominated by the President and 238 are representatives of the States and of the two Union Territories.  The present strength of Rajya Sabha, however, is 245, out of which 233 are representatives of the States and Union territories of Delhi and Puducherry and 12 are nominated by the President. The members nominated by the President are persons having special knowledge or practical experience in respect of such matters as literature, science, art and social service.

Allocation of Seats to Rajya Sabha

The Fourth Schedule to the Constitution provides for the allocation of seats to the States and Union Territories in Rajya Sabha.  The allocation of seats is made on the basis of the population of each State.  Consequent on the reorganization of States and formation of new States, the number of elected seats in the Rajya Sabha allotted to States and Union Territories has changed from time to time since 1952.

Process of Rajya Sabha Election

The representatives of the States and of the Union Territories in the Rajya Sabha are elected by the method of indirect election.  The representatives of each State and two Union territories are elected by the elected members of the Legislative Assembly of that State and by the members of the Electoral College for that Union Territory, as the case may be, in accordance with the system of proportional representation by means of the single transferable vote.

Election to Rajya Sabha: Procedure Illustrated with an Example

The Rajya Sabha seat quota for each state is fixed as per Schedule 4 of the constitution. Elections to 1/3 of these seats occur every 2 years. Let’s take an example of a state where there is Rajya Sabha election for 3 seats. Let there be only two parties in the legislative assembly. Party A has 100 seats and party B has 40 seats. Both parties can field three candidates each for the three Rajya sabha seats.

To win a Rajya Sabha seat, a candidate should get a required number of votes. That number (quotient) is found out using the below formula.

Quotient = Total number of votes divided by (Number of Rajya Sabha seats + 1 ) + 1.

In the illustrated case, a candidate requires (140/4)+1, ie. 36 votes to win.

NB: Members don’t vote for each seat. If that had been the case then only the ruling party representatives would make it through. Rather, the members give preferences for each candidate (as 1, 2, 3, 4, 5 and 6). If 36 or more members choose a candidate as their first choice, he gets elected. So the Party B (opposition party in Loksabha assembly) with 40 seats can get one member elected if the members give preference for a candidate as first preference. The ruling party (Party A) on the other hand can get 2 members elected (72 votes from their 100 members).