Budget 2024 Primer – Understand the key documents pertaining to the budget

9 Jan 2024 , 10:09 AM

The usage of the term budget document is a misnomer. In fact, the budget is more like a master document and it has a number of sub-documents. When we say the Union Budget, it is actually a collection of various documents that, put together, constitute the Union Budget. Here, let us look at some of the key documents that form part of the Union Budget announcement. In fact, the budget speech delivered by the Finance Minister on the floor of the House is just a summary of some of the key recommendations. One has to refer to the individual documents and read the Finance Bill to get a total and 360 degree picture of how the government finances are being managed and how the government is planning to taking forward the Indian economic story. Let us start off by looking at the list of documents that make up the Union Budget in totality.

Annual Financial Statement

This is the actual budget or the raw numbers of the debit side and the credit side of the government accounts. This only pertains to the Union government and each state prepares its own budget. This document is mandatory under Article 112 of the Constitution of India. This document provides the estimated receipts and expenditure of the Union Government of India for the financial year. For example, if the when the Union government presents the Union Budget for fiscal year 2024-25 on February 01, 2024, it will present these estimates:

• Budgeted estimates (BE) of receipts and expenditures for the upcoming financial year 2024-2025 extending from April 2024 to March 2025.
• Budgeted estimates (BE) and the Revised estimates (RE) for the current year i.e. financial year 2023-2024 extending from April 2023 to March 2024.
• Actual data of receipts and expenditures for the previous financial year 2022-2023 extending from April 2022 to March 2023.

The receipts and expenditures are divided into 3 parts in which Government accounts are kept viz., The Consolidated Fund of India; The Contingency Fund and; The Public Account. The information presented in this document classifies the expenditure as revenue expenditure and capital expenditure while the receipts are also classified as capital receipts and revenue receipts. They have the same definition that we have in accounting. This kind of a detailed presentation of numbers is mandated under the Constitution of India. 

Key to Budget, Budget Highlights, Budget Speech, and Budget at a Glance

Here we have covered 4 different components of the Union Budgets or sub-sets of the Union Budget under a single point for the sake of simplicity. Here is what each of these sub-sets of the budget means.

• The Key to Budget Documents offers a brief introduction to all the other budget documents, and explains what information they contain. It is like an index reference for you to understand the budget better.

   

• Budget Highlights: A brief summary of the main features of the budget. This does not delve too much into details, but is enough to give you a quick and dirty view on the contents of the Union Budget provisions.

   

• The actual budget speech is also a part of the overall Budget document. The speech is delivered by the finance minister on the floor of the House. Typically, the budget speech lasts for anywhere between 90 minutes and 120 minutes.

   

• Budget at a Glance is more of a summary document that gives more details on the sources of receipts and heads of expenditure. It goes beyond mere numbers and also gives explanations of various headers.

The Finance Bill

This is one of the most important documents of the Union Budget, and is quite eagerly awaited by the people. The finance minister only describes the tax provisions broadly in the speech on the floor of the house. However, the Finance Bill contains the legal text which will help the experts to interpret the provisions of taxation announced in the budget. The Finance Bill is a Money Bill as defined in Article 110 of the Constitution. The Finance Bill is presented in Parliament proposing required changes in the taxation by the government every year. This bill is put to a vote in Parliament and only after the bill is passed by a majority vote can the tax changes to be implemented and the Finance Bill becomes law of the land. 

Finance Bill Memorandum

This is a supplementary document to the Finance Bill which we just discussed in the previous point. The Finance Bill is the document that is put to vote on the floor of the house. However, many of the provisions may have open ends and may need explanation. That job is done by this Finance Bill memorandum. The memorandum lucidly explains the various legal provisions of the Finance Bill. It also gives hints and pointers towards how the various provisions of the Finance Bill must be interpreted from a practical standpoint. Quite often, the lawyers and tax experts also differ on the interpretation of the various provisions as enshrined in the Finance Bill. In such situations, it is the Finance Bill Memorandum that provides the key to interpreting some of the finer points of law.

Receipt Budget and Expenditure Budget

The big question is not about the total receipts and total expenditure. It is about from where and how these funds will be raised and deployed. There is also the need for a timetable of such receipts and spending. That is what is captured here.

• The Receipts Budget provides detailed information on how the government expects to raise money from different sources. This is a more micro level planning document and lays down how much will be raised through taxes and how the various tax break up will work out. It also puts down critical receipt numbers like the dividend from the RBI, the expected receipts from disinvestments, expected receipts from monetization of assets, expected receipts from the strategic sale of government owned assets etc.

   

• The Expenditure Budget provides very detailed and elaborate information about all the expenditure the government plans to incur. This will break up the expenditure into capital expenditure and the revenue expenditure. The allocations are done based on the various headers of spending with trends over the previous period to get an idea how the trend looks like.

Customs & Central Excise Notifications

This section provides details on proposed changes in customs rules and tax rates. Remember, GST subsumed most of the taxes and GST changes are normally made through the monthly GST Council meeting. However, customs duty is still payable and excise is still leviable on products outside the ambit of GST like petrol, diesel, alcohol etc. These are official notifications and it must be remembered that there is a small difference here. Unlike the direct tax provisions that are effective only from the start of the next fiscal year, the provisions related to indirect taxes are effectively immediately. This includes any changes to customs, excise, GST etc. If the budget is announced on February 01, then from the next day, such changes are effective.

Expenditure Profile

This is a summary of the total expenditure of all ministries. Here the expenditure and allocations are not classified by heads of expenditure but by ministries. This shows how much is the budget allocation to defence, agriculture, HRD, etc. This document also presents the expenditure according to different categories of interest. This includes summary of funds allocated to schemes for women, children, scheduled castes, scheduled tribes, and religious minorities.

Summary of Demands for Grants and Detailed demand for Grants

During the preparation of the budget, every ministry is required to submit to the finance ministry its proposal regarding the amount it plans to spend and the specific items on which it intends to spend the funds. The expenditure has to be further classified into “voted” and “charged” expenditures. The voted expenses have to be put to vote on the floor of the house while the charged expenses are only informed to the house and no approval is necessary for the same. A more elaborate picture comes from  the Detailed Demands for Grants. In this document, the demands for grants provide item wise details for each ministry. Along with voted and charged, they also give the breakup of revenue and capital expenditure. It is like the summary of demand for grants, but a lot more elaborate and granular in its approach.

Appropriation Bill and Macroeconomic Framework Statement

Another important part of the Union Budget documents is the Appropriation Bill. This bill provides the government with the legal authority to incur expenditure. To be more specific, it is this Appropriation Bill which authorizes the government to withdraw money from government accounts for expenditure. The Bill provides specific details about the amount being withdrawn and the purposes for which it is being withdrawn. This is just to keep tabs on how the government treasury is being handled. The other important part of the budget documents is the Macro-Economic Framework Statement. This statement provides a comprehensive break-up of growth along with the projections of growth. The GDP growth is broken up into agriculture, industry and services and projections are provided for each of the components with the projections for nominal and real GDP growth.  

Medium-Term Fiscal Policy cum Fiscal Policy Strategy Statement

This has come in as a recent addition under the Financial Responsibility and Budget Management (FRBM) Act. This document details the government budget deficit (fiscal deficit) target for the next three years. The fiscal deficit is the gap that has to be funded with borrowings and in the interest of the long term health of the economy, it is always advisable that the fiscal deficit is kept in control and any variations are pushed back to the median. The document specifically explains the government’s policies and its adherence to the FRBM Act; the extent of divergence and the reasons for such divergence. Any departure from the Act has to be explained and the remedy for the same has to be suggested in this particular document. Earlier there were two separate documents: medium-term fiscal policy statement and the fiscal strategy statement; but now these two have been combined into one single document.

Economic Survey

This document is presented by the Finance Minister on the floor of the house one-day ahead of the Union Budget, outlining an elaborate review of the economy for the ongoing financial year in terms of various macroeconomic parameters.  It is a document prepared by the Ministry of Finance providing details of the state of economy of the ongoing year. Typically, this document is divided into two parts. The first part of the document presents the analytical and qualitative description of the Indian economy for the said period and the second part focuses on the statistical data of all major sectors, as well as any other important economic data points like GDP, CPI inflation, core inflation, fiscal deficit, revenue deficit, core sector growth, IIP, WPI inflation, fiscal deficit, trade deficit, current account deficit etc.

Output Outcome Framework for Schemes and Implementation of Budget Announcements

These two document s are the form of an action taken report (ATR). Let us look at what these two documents do.

• This Output Outcome Framework for Schemes is the result of the outcome budgeting practice adopted by India. This report provides a tool to evaluate performance of various schemes undertaken by the central government. The document provides the output and outcome indicators for major central sector schemes and centrally sponsored schemes.  The schemes are evaluated based on their financial outcomes, environmental outcomes, and social benefit outcomes.

   

• The Implementation of Budget Announcements is also an evaluation tool. It presents the major announcements / targets mentioned in the budget speech of the previous year, and details the extent to which those targets have been achieved.  This is a good way to understand whether there are lags in implementation or whether the targets are too lofty or whether the progress has been spasmodic.

When the budget is announced this year, remember, it is not just one document but a collection of documents. Based on your specific area of interest, you can read one or more of these documents in much greater detail.