Union Budget

Also called: Annual financial statement, Article 112 · Topic: Parliamentary Procedure, Committees and Privileges · NCERT: Class 8, Ch 6 "The Parliamentary System: Legislature and Executive"; Class 11, Ch 5 "Legislature"

Meaning

The Union Budget is the government's statement of its expected income and spending for one financial year (1 April to 31 March). Article 112 calls it the Annual Financial Statement, and it is laid before both Houses of Parliament [5][6]. The Lok Sabha votes on the spending through demands for grants. Parliament then passes the Appropriation Bill, which allows the spending, and the Finance Bill, which allows the taxes.

It matters because it is how Parliament keeps "control of the purse". The government cannot collect a tax or spend money without a law passed by Parliament. So a government that loses the support of the Lok Sabha cannot run for long.

Explanation

The rules behind the budget

• No tax without authority of law (Art. 265): a tax needs a law. An executive order alone is not enough.
• No spending without an appropriation law (Art. 266(3)): money can leave the Consolidated Fund of India only under an appropriation law. This is a law that says how much may be spent and on what.
• The word "budget" is not in the Constitution. Art. 112 uses only "Annual Financial Statement" [5][6].
• The budget covers three government accounts [4]:
• Consolidated Fund of India (Art. 266(1)): the government's main account. All revenues and loans go into it, and almost all spending comes out of it. Money can be taken out only under an appropriation law.
• Public Account of India (Art. 266(2)): money the government holds as a banker or trustee, such as provident funds, small savings and deposits. Payments from it do not need Parliament's vote [5]. The CAG still audits it and the PAC (Public Accounts Committee) still examines it.
• Contingency Fund of India (Art. 267): an imprest, meaning a fixed sum kept ready for urgent use. It is placed at the disposal of the President [4]. Its corpus was raised from ₹500 crore to ₹30,000 crore by the Finance Act 2021 [2][4].

Two kinds of spending: charged and voted

• Charged expenditure (Art. 112(3)) is spending "charged on" the Consolidated Fund. Parliament may discuss it but does not vote on it (Art. 113(1)) [5]. It includes:
• the President's emoluments, allowances and office expenses;
• the salaries and allowances of the Speaker and Deputy Speaker of the Lok Sabha, and the Chairman and Deputy Chairman of the Rajya 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;
• debt charges, meaning the interest and repayment of government loans;
• sums needed to pay any court judgment, decree or award;

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

• Why some spending is charged:

• These offices judge, audit or preside over the government and Parliament.
• If their pay depended on a yearly vote, the majority could use that vote to pressure them.

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

• Voted expenditure is all other spending. Each ministry asks for it through a demand for grants, which is a ministry's request for money. Only the Lok Sabha votes on these demands, and it may approve, reduce or reject each one (Art. 113).

How the budget passes through Parliament (in order)

1. Presentation (Art. 112): the Finance Minister presents the budget in the Lok Sabha. It is laid in the Rajya Sabha on the same day.
2. General discussion: both Houses discuss the budget as a whole. There is no vote at this stage.
3. Committee scrutiny: the departmentally related standing committees, which have existed since 1993, examine each ministry's demands for grants.
4. Voting on demands for grants (Art. 113): this happens in the Lok Sabha only, by simple majority. Charged items are not put to vote.
5. Appropriation Bill (Art. 114): allows money to be withdrawn from the Consolidated Fund for both voted and charged spending. It is a money bill.
6. Finance Bill: puts the year's tax proposals into effect. It is a money bill, meaning a bill only about taxes, government borrowing or spending (Art. 110). The Rajya Sabha can delay it for only 14 days. It cannot reject it. - Vote on account (Art. 116): the Lok Sabha grants money in advance for part of the year so the government can keep running until the full budget, the "final supply", is passed [5]. It is passed through an Appropriation (Vote on Account) Bill [5].

In the Constitution and practice

• Constitutional base:
• Art. 112: Annual Financial Statement.
• Art. 113: demands for grants.
• Art. 114: Appropriation Bill.
• Art. 110: definition of a money bill.
• Art. 116: vote on account.
• Arts. 265, 266 and 267: taxes and the three government accounts.

• Contingency Fund of India Act 1950.

• Who uses it:

• The Union government prepares the budget, and the Finance Minister presents it.
• The Lok Sabha votes on spending. The Rajya Sabha can only discuss the budget.

• The CAG and the PAC check afterwards that money was spent as Parliament allowed.

• NCERT (Class 11): presenting the budget is a constitutional duty of the government. It is what gives Parliament the purse strings.

• Date change (2017):
• Until 2016, the budget was presented on the last working day of February. Until 1999, it was presented at 5 pm.

• Since 2017, it has been presented on 1 February, so that the budget can be passed before the financial year begins on 1 April [3][7].

• Railway budget merged (2017):

• The railway budget had been separate since 1924.
• On 1 February 2017, Finance Minister Arun Jaitley presented railway finances inside the Union Budget 2017-18 for the first time [8].

• The Railways kept their functional autonomy. Their capital-at-charge of about ₹2.27 lakh crore was wiped off, and they stopped paying a yearly dividend to the government [7].

• Plan/non-plan split ended (2017-18): the "plan" and "non-plan" categories were dropped. Funds set aside for the Scheduled Castes Sub-Plan and the Tribal Sub-Plan were kept [3].

• Interim budgets:
• An outgoing government presents an interim budget in an election year, together with a vote on account.
• By convention, an interim budget avoids major tax or policy changes.
• 2019: the interim budget of 1 February announced PM-KISAN. This reopened the debate on whether the convention was being followed.

• 2024: an interim budget was presented on 1 February. The new government presented the full budget on 23 July 2024.

• The budget as a statement of values: in the 2025-26 budget speech, the Finance Minister quoted a Tirukkural verse (Class 8 NCERT). It shows that a budget also states the government's priorities.

Don't confuse with

• Appropriation Bill vs Finance Bill: the Appropriation Bill (Art. 114) allows the government to spend. The Finance Bill allows it to collect taxes. Both are money bills.
• Vote on account vs interim budget: a vote on account (Art. 116) is Parliament's grant of money for part of the year. An interim budget is the outgoing government's statement of its accounts in an election year, and it is usually presented together with a vote on account.
• Charged vs voted expenditure: both can be discussed. Only voted expenditure is put to the Lok Sabha as demands for grants. Charged expenditure is never voted on (Art. 113(1)).
• Consolidated Fund vs Public Account: money leaves the Consolidated Fund only under an appropriation law (Art. 266(3)). Public Account money is paid out by executive order, without a vote in Parliament.

Prelims Hooks

• The word "budget" does not appear in the Constitution. Art. 112 calls it the Annual Financial Statement.
• Match the articles:
• Art. 113: demands for grants.
• Art. 114: Appropriation Bill.
• Art. 116: vote on account.
• Art. 110: definition of a money bill.
• Art. 265: no tax without authority of law.

• Art. 266(3): no withdrawal from the Consolidated Fund without an appropriation law.

• Only the Lok Sabha votes on demands for grants. The budget is only laid in the Rajya Sabha.

• Trap: "Charged expenditure cannot be discussed in Parliament." False. It can be discussed but is not voted on. It covers the pensions of High Court judges, while their salaries are charged on the state's Consolidated Fund.
• 2017 brought three changes:
• the budget date moved to 1 February;
• the railway budget, separate since 1924, was merged into the Union Budget;

• the plan/non-plan split was ended [3][8].

• The Contingency Fund (Art. 267) is at the disposal of the President. Its corpus is ₹30,000 crore, set by the Finance Act 2021 [2][4].

Mains Points

• Control of the purse vs independence:
• The budget makes the government answer to the Lok Sabha every year.
• Charged expenditure protects the independence of judges, the CAG and presiding officers.

• Critics say it also takes a growing share of spending, such as debt interest, out of Parliament's vote.

• Interim budget convention:

• Pre-election announcements such as PM-KISAN in 2019 test the convention that interim budgets avoid big policy moves.

• A written code or guidelines from the Speaker could make the rule clearer.

• Reforms since 2017:

• The 1 February date lets ministries spend from 1 April without needing a vote on account.
• The railway merger helped joint planning of railways, highways and inland waterways.
• However, Parliament now gives railway finances less separate scrutiny, so committee scrutiny of demands for grants matters more [7].

Related concepts

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

Read more

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