Unit-3

1. The Process of Budget Making:

2. Sources of Revenue
3. Public Expenditure Management
4. Management of Public Debt
Meaning of Budget-
Is the Government budget is a document
presented for approval and legislation by a
government and contains estimates of the
proposed expenditure for a given period and
proposed means of financing them.
The process of Budget Making
Controlled by the Ministry of Finance and prepared by
the ministry of finance in consultation with NITI Aayog
and other relevant ministries. (National Institution for
transforming India)
The budget must be presented by both houses of
parliament before the beginning of the fiscal year
(April 1 to March 31)
“Annual financial Statement”
Procedures:
1. Preparation of the budget
2. Presentation and enactment of the budget
3. Execution of the Budget
Two types of activities
• Administrative process- where documents are
prepared in consultation with various stakeholders.
• The legislative process- budget is passed by the
parliament after discussions.
If any correction will do, then will proceed
The Budget documents depict information relating to
receipts and expenditure for two years.
• Budget Estimates of receipts and expenditure of
current and ensuring financial year
• For the current year through Revised Estimates (RE)
• Actuals of the year preceding the current year
The budget speech is mainly policy document which draws attention to the
proposed policies and programmes of the government.

Lok Sabha- the budget speech present details of the

proposals for the new financial year regarding taxation,
borrowing and expenditure plans of the governments.
Budget speech two parts
Part A- out line of the prevailing macro economic situation
of the country and the budget estimates for the next
financial year.
Then see the priorities of the government, where to raise
fund and where to do expenditure.
Part B-. Details the progress the government has made on
various developmental measures, future policies etc.
Annual Financial Statement shows the receipts and
expenditure of government in three parts
a. Consolidated Fund of India
b. Contingency Fund of India
and
c Public Account
list of budget documents:
i. Annual Financial Statement (AFS)
ii. Demands for Grants (DG)
iii. Finance Bill
iii. Statements mandated under FRBM Act.
The Statement mandated under FEBM act:
i. Macro-Economic Framework Statement
ii. Medium-Term Fiscal Policy cum Fiscal Policy Strategy
Statement.
• Apart from this Nine other documents supporting the
mandated documents are also presented along with the
documents mentioned above.
• The expenditures of certain categores (eg the emoluments
and allowances of the President of India and his/her office
and emoluments of Judges of supreme courts and high
ranking personnel of constitutional bodies across India are
charged on the consolidated Fund of India and are not
subject to the vote of parliament, are also indicated
separately in the budget.
3.Sources of Revenue
Revenue of Finance Ministry revenue matters relating to direct and
indirect union taxes.
The department is also entrusted with the administration and
enforcement of regulatory measures provided in the enactments
concerning goods and services tax (GST), central sales tax, stamp
duties and other relevant fiscal statutes.
The Department of Revenue exercises control in respect of matters
relating to all the direct and indirect union taxes through two statutory
namely,
The Central Board of Direct Taxes (CBDT) and
The Central Board of Indirect Taxes and Customs (CBIC)
Government receipts are classified under two categories:
. Revenue receipts which consists of tax revenue and non tax revenue.
Capital receipts which consists of debt receipts and non debt capital
receipts.
The broad sources of revenue are:
1. Corporation tax
2. Taxes on income
3. Wealth tax
4. Customs duties
5. Union excise duties
6. Good and services tax including GST
compensation cess
7. Taxes on union territories.
• Centres net tax revenue is total of tax
revenue after paying of the states share and
the National Calamity contingent duty
(NCCD) transferred to the National
Calamity Contingency Non-tax revenues
comprise the following:
1. Interest receipts
2. Dividends and profits from public sector
enterprises and surplus transfers from
Reserve Bank of India
3. Other Non-tax revenues and
Various social services provided by the
government such as medical services, public
health education etc.
Capital Receipts includes
1Non debt capital receipts which include
a. Recoveries of loans and advances
b. Miscellaneous capital receipts
(disinvestment)
2 Debt capital receipts which include
 4. Public expenditure Management
Is the process that allows governments to be fiscally
responsible. The programmes or projects should be
designed and implemented to achieve with minimum
cost.
If the economic costs of unproductive public
expenditures can be extensive and may have far
reaching effects like
a. Larger deficits
b. Higher levels of taxation
c. Lower economic growth
d. Fewer resources available for use elsewhere
e. Greater debt burden in the future.
Ministry of Finance is the department for overseeing
the public financial management system in the central
government and matters connected with state finances.
• It is responsible for
• The implementation of the recommendations of the
Finance Commission and the central pay commission
• Monitoring of audit comments/observation,
• Preparation of central government accounts
• Additionally, it also assists central
ministries/departments in controlling the costs and
prices of public services
• Reviewing systems and procedures to optimize
outputs and outcomes of public expenditure.
The central government expenditure is classified into six
broad categories:

A. Centres expenditure:
• Establishment Expenditure of the centre
• Central sector schemes
• Other central expenditures including those on
CPSEs and Autonomous Bodies
B Centrally Sponsored Schemes and other Transfers
• Centrally sponsored schemes
• Finance Commission transfers
• Other transfers to states
5 Public Debt Management

• Government debt from internal and external sources

contracted in the Consolidated Fund of India, is defined
as Public Debt.
• The government raises funds primarily from the
domestic market using market based and fixed rate
instruments to finance its fiscal deficit.
The institutions responsible for public debt management
are
1. Reserve Bank of India- Domestic marketable debt ie
dated securities, treasury bills and cash management
bills.
2. Ministry of Finance (MOF)- external debt
3. Ministry of Finance budget division and RBI other
liabilities such as small savings, deposits, reserve fund.
The fiscal responsibility and Budget Management
(FRBM) was passed in 2003 to provide a legislative
framework for reduction of deficit and thereby debt of
the central government to a sustainable level.
The objectives of the act are:
• Inter-generational equity in fiscal management
• Long run macroeconomic stability
• Better coordination between fiscal and monetary
policy
• Transparency in fiscal operation of the government.
The public Debt Management Cell (PDMC)- 2016 under
the department of Economic Affairs.
The Medium term Debt Management (MTDS,2021-
2024)
The debt position of the Government of India (in Crores)
page (7.61)
RBI-Retail Direct facility was announced on February 5
2021:
• For improving the ease of access by retail investors
through online access to the primary and secondary
government securities market.
• To provide the facility to open their government
securities account (Retail direct) with the Reserve Bank.
Budget concepts
Types of Budgets
• Balance budget
• Unbalanced Budget
1. A surplus budget- Revenue > Expenditure
2. A deficit budget- Expenditure > Revenue
In modern economies, most of the countries
follow deficit budgeting.
Capital Receipts
Revenue Receipts
Revenue Expenditure
Capital Expenditure
Budgetary Deficit or Overall Deficit
Revenue Deficit= Revenue expenditure-Revenue
receipts
Fiscal Deficit
Fiscal deficit= Total Expenditure-Total Receipts
excluding borrowing
Fiscal Deficit= (Revenue Expenditure +Capital
Expenditure) – (Revenue Receipts + Capital
Receipts excluding borrowing)
Fiscal Deficit= (Revenue Expenditure-Revenue
Receipts) + (Capital Expenditure- Capital Receipts
excluding borrowing).
Fiscal Deficit= Revenue Deficit + (Capital
Expenditure-Capital Receipts excluding borrowing).
Primary Deficit= Fiscal Deficit-Net Interest liabilities

• Finance bill
• Outcome budget
• Guillotine
• Cut Motions
• Consolidated Fund of India
• Contingency Fund of India
• Public Account