Public money: funds, charged expenditure and the Union Budget

Detail

Two basic rules on public money

• No tax without authority of law (Art. 265): the government cannot levy or collect any tax unless a law allows it. An executive order alone is not enough.
• No spending without an appropriation law (Art. 266(3)): money cannot leave the Consolidated Fund unless a law passed by Parliament allows it. Such a law is an appropriation law (a law that says how much may be spent and on what).
• Together, these rules give Parliament "control of the purse".
• The executive needs Parliament's law to raise money (Art. 265).
• It also needs Parliament's law to spend it (Art. 266(3)).

• So a government without Lok Sabha support cannot run for long.

• Annual Financial Statement (Art. 112): a statement of the government's expected income and spending for each financial year (1 April to 31 March), laid before Parliament. It is the main budget document [5][6].

• The Constitution never uses the word "budget". It uses only "Annual Financial Statement".

The three government accounts

Government accounts are kept in three parts: the Consolidated Fund, the Contingency Fund and the Public Account [4].

Account	Article	What goes in	How money comes out
Consolidated Fund of India	266(1)	All revenues, loans raised and loan repayments received	Only under an appropriation law passed by Parliament (Art. 266(3))
Public Account of India	266(2)	Money the government holds as a banker or trustee: provident funds, small savings, deposits, remittances	By executive order. Parliament does not vote on it. It is still audited by the CAG and examined by the PAC
Contingency Fund of India	267; Contingency Fund of India Act 1950	A fixed sum (corpus) kept for emergencies	The President advances money for unforeseen spending. Parliament approves it later, and the fund is refilled from the Consolidated Fund

• Consolidated Fund of India: the government's main account. Almost all spending comes from here.
• Public Account of India: this money mostly does not belong to the government. It must be paid back some day to the people or bodies who deposited it. So payments from it do not need Parliament's approval [5].

• Even so, the PAC (Public Accounts Committee, which examines the CAG's audit reports) still checks it.

• Contingency Fund of India: an imprest (a fixed sum kept ready for urgent use) placed at the disposal of the President [4].

• How it works:
  • Urgent, unforeseen spending comes up → money is advanced from the Fund. It is held by the Finance Secretary on the President's behalf.
  • Parliament approves the spending afterwards (ex post facto) [4].
  • The same amount is then drawn from the Consolidated Fund to refill (recoup) the Contingency Fund [4].

• Corpus: raised from ₹500 crore to ₹30,000 crore by the Finance Act 2021 [2][4].

• States: each state has its own Consolidated Fund, Public Account and Contingency Fund. These are set up under the same articles (Arts. 266 and 267(2)).

Charged and voted expenditure

• Charged expenditure (Art. 112(3)): spending "charged on" the Consolidated Fund. Parliament may discuss it, but it is not put to vote (Art. 113(1)) [5]. 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;
• debt charges (interest and repayment of government loans);
• sums needed to pay any court judgment, decree or award;

• anything else Parliament declares to be charged by law. One example is UPSC expenses (Art. 322).

• Why charge these items?

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

• Charging it 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 request from a ministry for money. The Lok Sabha may approve it, reduce it or reject it.

• Only the Lok Sabha votes on demands for grants. The Rajya Sabha can only discuss the budget.

• Class 11 view (NCERT): preparing and presenting the budget is a constitutional duty of the government. It gives Parliament the purse strings. The CAG and PAC then check whether the money was spent as Parliament allowed.

How the budget moves through Parliament (in order)

1. Presentation: the Finance Minister presents the Annual Financial Statement in the Lok Sabha (Art. 112). It is laid in the Rajya Sabha the same day.
2. General discussion in both Houses. There is no voting at this stage.
3. Scrutiny of demands for grants by the departmentally related standing committees (in place since 1993).
4. Voting on demands for grants in the Lok Sabha only (Art. 113). Charged items are not voted.
5. Appropriation Bill (Art. 114): allows money to be withdrawn from the Consolidated Fund for both voted and charged spending.
6. Finance Bill: puts the tax proposals into effect. It is a money bill (a bill only about taxes, government borrowing or spending, Art. 110). The Rajya Sabha can delay it for only 14 days. - Vote on account (Art. 116): the Lok Sabha gives money in advance for part of the year until the full budget is passed. Its purpose is to keep the government running until the "final supply" is voted [5]. It is passed through an Appropriation (Vote on Account) Bill [5].

Budget practice

• Date and time:
• Until 2016, the budget was presented on the last working day of February. It was presented at 5 pm until 1999.
• Since 2017, it has been presented on 1 February. The aim is to pass the budget before the financial year begins on 1 April.

• Moving the date up by about a month was meant to improve both spending and revenue outcomes [3][7].

• Railway budget merger (2017): the railway budget had been separate since 1924. On 1 February 2017, Finance Minister Arun Jaitley presented railway finances as part of the Union Budget 2017-18. This was the first time since 1924 [8].

• The reasons given were better planning across railways, highways and inland waterways. The Railways kept their functional autonomy [7].

• The Railways' capital-at-charge (about ₹2.27 lakh crore) was wiped off. From 2017-18 they no longer paid a yearly dividend to the government and instead got gross budgetary support [7].

• Plan/non-plan merger (2017-18): the Cabinet also ended the "plan" and "non-plan" categories in the budget and accounts. Funds earmarked for the Scheduled Castes Sub-Plan and Tribal Sub-Plan were kept [3].

• Interim budget: presented by an outgoing government in an election year, together with a vote on account.
• By convention, it avoids major tax or policy changes. Those choices are left to the next elected government.
• 1 February 2019: the interim budget announced PM-KISAN. This restarted the debate on whether the convention was being followed.

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

• The budget as a political statement: 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 values and priorities.

Prelims Hooks

• Art. 265 says no tax without authority of law. Art. 266(3) says no withdrawal from the Consolidated Fund without an appropriation law. Do not mix them up.
• The word "budget" does not appear in the Constitution. Art. 112 calls it the Annual Financial Statement.
• Public Account (Art. 266(2)) pays out without Parliament's vote. It is still audited by the CAG and examined by the PAC. Trap: "Payments from the Public Account need an appropriation law." This is false.
• Contingency Fund (Art. 267): placed at the disposal of the President. Its law is the Contingency Fund of India Act 1950. Its corpus went from ₹500 crore to ₹30,000 crore under the Finance Act 2021.
• Charged expenditure may be discussed but not voted (Art. 113(1)). It covers the pensions of High Court judges. High Court judges' salaries are charged on the state's Consolidated Fund.
• UPSC expenses are charged on the Consolidated Fund under Art. 322.
• Vote on account is under Art. 116. Demands for grants are under Art. 113, the Appropriation Bill under Art. 114, and the money bill definition under Art. 110.
• 2017 brought three changes: the budget date moved to 1 February, the railway budget (separate since 1924) was merged, and the plan/non-plan split ended.
• Only the Lok Sabha votes on demands for grants. The budget is only laid in the Rajya Sabha.

Mains Points

• Charged expenditure protects independence. It keeps the pay of the President, judges, CAG and presiding officers out of the yearly majority vote. Critics say it also narrows Parliament's control over a growing share of spending, such as debt interest.
• Public Account and Contingency Fund: flexibility vs control. Spending from them happens before or without Parliament's vote. Parliament's check then rests on ex post facto approval, the CAG's audit and the PAC. CAG reports on unauthorised spending show why this check matters.
• 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 Speaker's guidelines could make the convention clearer.
• Reforms since 2017. The 1 February date lets ministries spend from 1 April without relying on a vote on account. The railway merger helped integrated transport planning. However, separate parliamentary scrutiny of railway finances became smaller, so committee scrutiny of demands for grants matters more.