Consolidated Fund of India

Also called: Article 266(1) · Topic: Parliamentary Procedure, Committees and Privileges · NCERT: Beyond NCERT

Meaning

The Consolidated Fund of India (Article 266(1)) is the Union government's main account. All revenues the government receives, all loans it raises and all loan repayments it receives are paid into it, and no money can be taken out of it without a law passed by Parliament (Art. 266(3)).

• It matters because almost all government spending comes from this Fund.
• The rule that money can leave it only under Parliament's law is the main way Parliament keeps "control of the purse".

Explanation

What goes in and how money comes out

• What goes in (Art. 266(1)):
• all revenues of the Union, such as taxes;
• all loans the government raises;

• all money it receives back as loan repayments.

• How money comes out (Art. 266(3)): only under an appropriation law. This is a law passed by Parliament that says how much may be spent and on what.

• An executive order alone cannot release money from this Fund.

• The two basic rules on public money:

• Art. 265: no tax can be levied or collected without the authority of law. This controls money coming in.
• Art. 266(3): no money can be withdrawn from the Consolidated Fund without an appropriation law. This controls money going out.

• Together they give Parliament "control of the purse". A government without Lok Sabha support cannot run for long, because it cannot raise or spend money.

• States: each state has its own Consolidated Fund under the same Article 266.

Two kinds of spending from the Fund

• Charged expenditure (Art. 112(3)): spending "charged on" the Consolidated Fund. Parliament may discuss it but does not vote on it (Art. 113(1)) [4]. It includes:
• the President's emoluments, allowances and office expenses;
• the salaries and allowances of the Chairman and Deputy Chairman of the Rajya Sabha and the Speaker and Deputy Speaker of the Lok Sabha;
• the salaries, allowances and pensions of Supreme Court judges, and the pensions of High Court judges;
• the salary, allowances and pension of the CAG (Comptroller and Auditor General, who audits government accounts);
• debt charges, meaning interest on and repayment of government loans;
• sums needed to pay any court judgment, decree or award;

• anything else Parliament declares to be charged by law, such as UPSC expenses (Art. 322).

• Why some spending is charged:

• These offices must judge, audit or preside over the government and Parliament without fear.
• If their pay needed a yearly vote, a majority could use that vote to pressure them.

• Keeping their pay out of the vote protects their independence.

• Voted expenditure: all other spending. The Lok Sabha must approve it through demands for grants (Art. 113). A demand for grants is a ministry's request for money.

• The Lok Sabha may approve, reduce or reject a demand.
• Only the Lok Sabha votes on these demands. The Rajya Sabha can only discuss them.

Steps for taking money out (the budget cycle)

1. Presentation (Art. 112): the Finance Minister presents the Annual Financial Statement in the Lok Sabha. This is a statement of expected income and spending for the year from 1 April to 31 March. It is laid in the Rajya Sabha the same day [4][5].
2. General discussion takes place in both Houses, with no voting.
3. Departmentally related standing committees examine the demands for grants. These committees have existed since 1993.
4. Voting on demands for grants (Art. 113) happens in the Lok Sabha only. Charged items are not voted on.
5. Appropriation Bill (Art. 114): this bill allows money to be withdrawn from the Consolidated Fund for both voted and charged spending. Until it becomes law, the money cannot leave the Fund.
6. Vote on account (Art. 116): if the full budget is not passed in time, the Lok Sabha grants money in advance for part of the year so that the government keeps running until the "final supply" is voted. This is done through an Appropriation (Vote on Account) Bill [4].

Links with the other two accounts

• Contingency Fund of India (Art. 267): money for urgent, unforeseen spending is advanced from this fund first. Parliament approves the spending afterwards, and the same amount is then drawn from the Consolidated Fund to refill (recoup) the Contingency Fund [3].
• Public Account of India (Art. 266(2)): money the government holds only as a banker or trustee, such as provident funds, small savings and deposits. It is kept separate from the Consolidated Fund and is paid out without Parliament's vote [4].

In the Constitution and practice

• Article 266(1) creates the Consolidated Fund of India and, for each state, a Consolidated Fund of the State.
• Article 266(3) says that money can leave the Fund only under a law and for the purposes and in the manner the Constitution provides.
• Articles 112–116 set out how Parliament releases money from the Fund:
• Art. 112: the Annual Financial Statement, and the list of charged items in Art. 112(3);
• Art. 113: charged items are not put to vote, and demands for grants are voted;
• Art. 114: the Appropriation Bill;

• Art. 116: the vote on account.

• Article 322: UPSC expenses are charged on the Consolidated Fund.

• The word "budget" does not appear in the Constitution. Art. 112 uses only "Annual Financial Statement".
• Government accounts are kept in three parts: the Consolidated Fund, the Contingency Fund and the Public Account [3].
• Contingency Fund refilled from the Consolidated Fund: the Contingency Fund's corpus (fixed sum) was raised from ₹500 crore to ₹30,000 crore by the Finance Act 2021 [1][3].
• Budget date (2017): since 2017, the budget has been presented on 1 February instead of the last working day of February. This lets Parliament pass the appropriation law before 1 April, so ministries can draw on the Fund from the start of the year [2][6].
• Railway budget merger (2017): railway finances, presented separately since 1924, became part of the Union Budget 2017-18 [7].

• The Railways stopped paying a yearly dividend to the government and instead got gross budgetary support [6].

• Plan/non-plan merger (2017-18): the "plan" and "non-plan" categories in the budget and accounts were ended [2].

• Interim budgets with a vote on account: these were presented on 1 February 2019 and 1 February 2024. The full budget for 2024 came on 23 July 2024.

Don't confuse with

• Public Account of India (Art. 266(2)): money from the Consolidated Fund needs an appropriation law. Money from the Public Account is paid out by executive order without Parliament's vote, but it is still audited by the CAG and examined by the PAC (Public Accounts Committee).
• Contingency Fund of India (Art. 267): this fund is placed at the disposal of the President for urgent spending before Parliament approves it. The Consolidated Fund needs Parliament's approval before any money is withdrawn.
• Art. 265 vs Art. 266(3): Art. 265 says no tax without the authority of law, which controls money coming in. Art. 266(3) says no withdrawal from the Consolidated Fund without an appropriation law, which controls money going out.
• Charged vs voted expenditure: both come out of the Consolidated Fund. Charged spending is discussed but not voted on (Art. 113(1)). Voted spending needs the Lok Sabha to pass demands for grants.

Prelims Hooks

• Art. 266(1) = Consolidated Fund; Art. 266(2) = Public Account; Art. 267 = Contingency Fund.
• Trap: "Charged expenditure needs no law to be withdrawn." This is false. Charged items are not voted on, but they are still included in the Appropriation Bill (Art. 114).
• High Court judges: their pensions are charged on the Consolidated Fund of India, but their salaries are charged on the state's Consolidated Fund.
• UPSC expenses are charged on the Consolidated Fund of India under Art. 322.
• Trap: "Payments from the Public Account need an appropriation law." This is false.
• Matching pairs: vote on account = Art. 116; demands for grants = Art. 113; Appropriation Bill = Art. 114; money bill (a bill only about taxes, government borrowing or spending) = Art. 110.

Mains Points

• Charged expenditure: independence vs control.
• Keeping the pay of the President, judges, the CAG and presiding officers out of the yearly vote protects their independence.

• Critics say it also narrows Parliament's control over a growing share of spending from the Fund, such as interest on debt.

• How strong is the "control of the purse"?

• Art. 266(3) gives Parliament a strong check on the Consolidated Fund.

• But spending from the Contingency Fund and Public Account happens before or without a vote. So Parliament's control depends on ex post facto approval (approval after the money is spent), the CAG's audit and the PAC.

• Reforms since 2017.

• The 1 February date lets the appropriation law pass before 1 April, so ministries depend less on a vote on account.
• The railway merger reduced separate parliamentary scrutiny of railway spending, so committee scrutiny of demands for grants now matters more.

Related concepts

• No tax without authority of law
• Public Account of India
• Contingency Fund of India
• Charged expenditure
• Voted expenditure
• Union Budget
• Interim budget

Read more

• Public money: funds, charged expenditure and the Union Budget