COMMON TERMS IN BUDGET AND FINANCE

Click on the terms to see the details

Clause (1) of Article 202 of the Constitution of India reads as, “The Governor shall in respect of every financial year cause to be laid before the House or Houses of the Legislature of the State a statement of the estimated receipts and expenditure of the State for that year, in this Part referred to as the annual financial statement”. Thus Budget is the Annual Financial Statement laid before the House of State Legislature under Article 202 of the Constitution of India. It is a statement of the expected receipts and expected expenditure of the State, for each financial year, to be laid before the Legislative Assembly

Appropriation is assignment of funds by the Legislature to meet specified expenditure. As soon as the Demands for grants are passed by the Assembly, Appropriation Bill is introduced and passed. When approved by the Governor, this becomes the Appropriation Act, which is published in the Gazette. This is the legal authority to draw money from the Consolidated Fund

Appropriation Accounts means accounts which relate to the expenditure brought to account during a financial year to the items specified in the Law made in accordance with the provisions of the Constitution of India for the appropriation of moneys out of the consolidated fund of the State.

Control of expenditure and appropriation control have the same objective ie, to ensure that there is no unauthorised excess over appropriation or un-surrendered saving at the close of the financial year. Appropriation control is executed to by Finance Department in the Secretariat, in three different ways; 1. Transfer of appropriation from one unit to another (Re-appropriation) 2. Obtaining Additional Appropriation (Additional Authorisation /Supplementary Grant) Withdrawal of excess appropriation (Resumption)

It is the detailed forecast of what the different heads of revenue are expected to yield during a financial year and the extent to which funds are likely to be expended during the same period under the different heads of expenditure.

Capital expenditure consists of payments for acquisition of assets like land, building, machinery, equipment, and also investments in shares etc., loans & advances granted by the State Government to local bodies, Government Companies, Corporations and other parties, repayments of loans to the Centre, discharge of internal debt and other liabilities in the Public Account.

The main items of capital receipts are loans raised by the State Government from public, which are called Market Loans, borrowing by the State Government from financial institutions / banks usually by way of negotiated loans, receipts from special securities issued to the National Small Savings Fund and recoveries of loans granted by the State Government. It also includes proceeds from the disinvestments of Government equity in public enterprises, receipts on account of reserve assets, deposits etc.

Cess is an additional levy on the basic tax liability. Government resort to cesses for meeting specific expenditure. For instance, both corporate and individual income was subject to Education Cess of 2% and another 1% of the Education Cess to finance Secondary and Higher Education.

The Finance Commission of India came into existence in 1951. It was established under Article 280 of the Indian Constitution of India by the President of India. It was formed to define the financial relations between the centre and the state. The Finance Commission Act of 1951 states the terms of qualification, appointment and disqualification, the term, eligibility and powers of the Finance Commission. As per the Constitution, the commission is appointed every five years and consists of a chairman and four other members. Since the institution of the first finance commission, stark changes have occurred in the Indian economy causing changes in the macroeconomic scenario. This has led to major changes in the Finance Commission’s recommendations over the years. Till date, Thirteen Finance Commissions have submitted their reports. It is the duty of the Commission to make recommendations to the President of India as to The distribution between the Union and the States of the net proceeds of taxes which are to be, or may be, divided between them and the allocation between the States of the respective shares of such proceeds The principles which should govern the grants-in-aid of the revenues of the States out of the Consolidated Fund of India The measures needed to augment the Consolidated Fund of a State to supplement the resources of the Panchayats in the State on the basis of the recommendations made by the Finance Commission of the State The measures needed to augment the Consolidated Fund of a State to supplement the resources of the Municipalities in the State on the basis of the recommendations made by the Finance Commission of the State Any other matter referred to the Commission by the President in the interests of sound finance The recommendations of the Commission relating to distribution of Union Taxes and Duties and Grants-in-aid are implemented by an order of the President. The recommendations in respect of sharing of debt relief, mode of central assistance etc are implemented by executive orders. The first Finance Commission was constituted under the chairmanship of Sri.K.C.Neogy on 6th April, 1951. Thirteen Finance Commissions have been constituted so far at intervals of every five years. The Thirteenth Finance which is constituted in 2007 is headed by Sri. Vijay Khelkar

Charges Expenditure means expenditure which is not subject to the vote of the Legislative Assembly as specified in Article 202 (3) of the Constitution of India. A list of items the expenditure on which is charged on the Consolidated Fund of the State is given below… 1. The emoluments and allowances of the Governor and other expenditure relating to his office 2. The salaries and allowances of the Speaker and the Deputy Speaker of the Legislative Assembly • Debt charges for which the State is liable, including interest, Sinking Fund Charges and Redemption Charges, and other expenditure relating to the raising of loans and the service and redemption of debt. 1. Expenditure in respect of the salaries and allowances of the Judges of High Court 2. Any sums required to satisfy any judgments, decree or award of any court or arbitral tribunal 3. The administrative expenses of the High Court including all salaries, allowances and pensions to or in respect of the officers and servants of the Court • Adjustments in respect of expenses of Courts or Commissions and pensions under Article 290 of the Constitution. • The expenses of the State Public Service Commission, including any salaries, allowances and pension payable to or in respect of the members and the staff of the Commission Any expenditure declared by the Constitution or by the Legislature of the State by law to be so charged.

Chief Controlling Officer / Controlling Officer is the Head of the Department or other officer who submits budget estimates of his department directly to the Government. He is entrusted with the responsibility of controlling the incurring of expenditure or the collection of revenue under the Head of Accounts allotted to him. Consolidated Fund All receipts of the State Government from revenues, loans and recoveries of loans go into the Consolidated Fund of the State, constituted under Article 266(1) of the Constitution of India. All expenditure of the Government incurred from this fund from which no amount can be withdrawn without authorization from State Legislature. This consists of two divisions, namely, Revenue Account (Revenue Receipts and Revenue Expenditure) and Capital Account (Capital Receipts and Capital Expenditure, Public Debt, Loans etc)

Under Article 267(2) of the Constitution of India, the State Government has established a Contingency Fund, which is in the nature of an imprest and is intended to provide advances for meeting unforeseen expenditure arising in the course of a year, pending its authorization by the Legislature by law. This fund is placed at the disposal of the Governor of the State.

Liabilities that are contingent on the occurrence of a certain event are called Contingent Liabilities. Such liabilities can either be explicit, such as Guarantees or Implicit, eg., uncollateralized borrowings by a State Government owned undertaking. Government Guarantee is the best example for Contingent Liability.

Debt Rule indicates the maximum amount of debt (generally in relation to GDP or GSDP) that is deemed to be sustainable. The fiscal management indicators under the Model Bill indicates a Debt Rule on limiting the outstanding total liabilities of the State Government as a percentage of GSDP.

Assessment of probability of devolvement of a State Government guaranteed loan / bond on the State Government. Usually credit rating of the States while moving for open market borrowing is based on this.

The Demand for Grants is a statement of estimates of expenditure from the Consolidated Fund and is required to be voted by State Legislature. Generally, Demand for Grant is presented in respect of each department. It contains expenditure estimates made for a scheme or programme under both revenue and capital heads. These estimates are brought together and shown on a net basis at one place by major heads.

In short, it is the sum found on calculating the difference of the Revenue Receipts and Total Expenditure. Fiscal Deficit is the gap between the Government’s total spending and the sum of its revenue receipts and non-debt capital receipts. It represents the total amount of borrowed funds required by the Government to completely meet its expenditure.

Drawing and Disbursing Officer (DDO) is the officer authorised to draw money from the consolidated fund and make payments on behalf of the State Government.

Details like Government properties or assets proposed to be transferred free of cost or sold at concessional rates to Bodies/Institutions/parties and particulars of Government properties leased out at subsidised or concessional rates of rent etc. are furnished in the Explanatory Memorandum of the Budget. The Explanatory memorandum also indicates the nature of the various items of receipts and expenditure included under each head and explain variations between the budget estimates and the revised estimates of the current year and the budget estimates of the current and coming years. The details of Government Guarantees provided to various Public Sector Undertakings / Local Bodies etc are also listed in the Explanatory Memorandum

Under Article 292 and 293 of the Constitution of India, the State Government gives guarantee to the loans raised by Local Bodies, Public Sector Undertakings, Co-operative Institutions, Companies, Statutory Corporation etc in the State from various financial institutions, banks and other sources upon the security of the Consolidated Fund of the State within the limits fixed by the Legislature. The guarantees given by the Government constitute a Contingent Liability of the revenues of the State. In our State, the maximum limit upto which the Government could provide guarantee is prescribed as Rs.14000 crore in “The Kerala Ceiling on Government Guarantees Act, 20003”, which came into force on the 5th December, 2003.

Grant means the sum sanctioned by the Legislature for a particular service/function with reference to a demand presented to it, and eventually included in an Appropriation Act.

It is the total of goods and services produced by a nation over a given period, usually 1 year. Gross Domestic Products measures the total output from all the resources located in a country, wherever the owners of the resources live.

The most important receipts under this head are interest payments (received on loans given by the Government to PSUs, Societies etc), Guarantee Commission, dividends & profits received from Public Sector Undertakings etc. Entry fees to monuments, museums, zoos, rent of Government buildings etc also form part of Non-Tax Revenue.

This is essentially the Budget support to the Central Plan and the central assistance to State Plans. Like all budget heads, this is also split into revenue and capital components.

The revenue expenditure includes interest payments on Government’s borrowings. The primary deficit is the fiscal deficit less interest payments. A shrinking primary deficit indicate progress towards fiscal health.

An account in which money received through transactions not relating to the consolidated fund is kept. Besides the normal receipts and expenditure of the government relating to the consolidated fund, certain other transactions enter government accounts in respect of which the government acts more as a banker, for example, transactions relating to provident funds, small savings collections, other deposits, etc. Such money is kept in the Public Account and the connected disbursements are also made from it. Public Account funds do not belong to the government and have to be paid back some time or the other to the persons and authorities who deposited them. Legislative authorisation for payments from the Public Account is not required.

In normal accounting, debt is a stock, to be measured at a point of time, while borrowing and repayment during a year are flows, to be measured over a period of time. In budget parlance, however, you will find public debt receipts and public debt disbursals. These are respectively borrowings and repayments during the year. The difference between the two is the net accretion to the public debt. Public Debt can be split into two heads, Internal Debt (money borrowed within the country) and External Debt (funds borrowed from non-Indian sources) The internal debt comprises of treasury bills, market stabilization schemes, ways and means advance, securities against small savings etc.

Public Private Partnership describes a Government service or private business venture which is funded and operated through a partnership of Government and one or more private sector companies

This is largely the revenue expenditure of the Government. The biggest item if expenditure are interest payments, subsidies, salaries and pension. The capital component of the non-plan expenditure is relatively small.

Revenue Deficit refers to the excess of Revenue Expenditure over Revenue Receipts. Revenue Expenditure, unlike Capital Expenditure, does not yield financial return. Therefore, one of the golden rules of fiscal policy is to eliminate revenue deficit, if any. On the other hand, surplus in the revenue account can be used to fund Capital Expenditure and reduce Government’s dependence on borrowed funds.

Revenue Expenditure is meant for the normal running of Government departments and various services, interest charges of debt incurred by the Government and subsidies. Broadly speaking, expenditure that does not result increase of assets is treated as Revenue Expenditure. All grants given by State Governments to local bodies and other parties are also treated as Revenue Expenditure even though some of the grants may be for creation of assets. While the objective of a prudent fiscal policy is to minimize Revenue Expenditure, inpractice, most of the Revenue Expenditure is of a committed nature, such as interest payments, pension costs, salaries etc.

PRevenue Receipts include proceeds of taxes and other duties levied by the State, State’s share of Central Taxes, interest and dividend on investments made by the Government, and other non-tax receipts for services rendered by the Government, as well as profits of State Government Undertakings.

It is the estimate for the probable revenue and expenditure of the current financial year under the various heads, framed during the course of the year based on the actual transaction of the first five months and anticipation for the next seven months of the year.

Re-appropriation is a way of Appropriation Control which means the transfer of funds from one unit of appropriation to another such unit. The detailed head is taken as the unit of appropriation. Re-appropriation of funds from the primary unit of appropriation to another such unit within a grant or appropriation may be sanctioned by a Competent Authority at any time before the close of the Financial year to which such grants or appropriation relates. Re-appropriation shall be made only when it is known / anticipated that the appropriation for the unit from which funds are being re-appropriated will not be utilized in full or that saving can be effected in the appropriation for the said unit. Funds as a whole will not be re-appropriated from any unit with the intention of restoring the diverted re-appropriation to that unit when saving becomes available under other units later in the financial year.

It is an organisation constituted with a limited purpose or life. Frequently, it serves as a conduit or pass-through organisation or Corporation. In relation to securitization, it means the entity which would hold the legal rights over the assets transferred by the originator.

The State Finance Commissions are constituted by Government of Kerala under clause 1 of Article 243 (I) and (Y) of the Constitution of India read with sections 186 of the Kerala Panchayat Raj Act 1994 and Section 205 of the Kerala Municipalities Act 1994 to study the financial position of the Panchayats and the Urban Local Bodies and to make recommendations to the Governor. Kerala state was prompt in submitting SFC reports well in time and to take action on it. Four State Finance Commission reports, with recommendations for enhancing the financial health of the local governments were submitted and acted upon in Kerala with practically every recommendation being adopted, as per the provisions of the 73rd and 74the Constitutional Amendments made in 1993. Each State Finance Commission in Kerala has been a path-breaker The first SFC was chaired by Sri.P.M.Abraham (1996-97 to 2000-2001), second by Sri.Prabhat Patnaik (2001-02 to 2005-06), the third by Sri.K.V.Rabindran Nair (2006-07 to 2010-11), the fourth one was chaired by Prof.M.A.Oommen and the fifth one was chaired by Dr. B A Prakash

The term subvention finds a mention in almost every budget. It refers to a grant of money in aid or support, mostly by the Government. In the India context, for instance, the Government sometimes asks institutions to provide loans to farmers at below market rate. The loss is usually made good through subventions.

No expenditure in excess of the sums authorized by the Legislature can be incurred without the sanction of the Legislature. Supplementary grant means the sum sanctioned by the Legislature over and above the amount already sanctioned during the current financial year. If and when the amount authorised by the Appropriation Act is found insufficient for the purpose of that year or when an unforeseen item of expenditure has arisen upon a new service for that year, another statement laid before the Legislature including the amounts if any on charged expenditure for the approval of the Legislature. The supplementary demand for grant is also passed on the same manner as the budget. Usually Supplementary Demands for Grants are moved during July and February of every financial year.

Total Revenue Receipts (TTR) includes State’s own revenue receipts (both tax and non-tax) and current transfers from the Centre (comprising grants and State’s share of Central Taxes)

Voted Expenditure means expenditure which is subject to the vote of the Legislative Assembly. It is to be distinguished from Charged Expenditure

Vote on Account means a grant made in advance by the Legislative Assembly, in pursuance of Article 206(1) (a) of the Constitution of India, in respect of the estimated expenditure for a part of the new financial year, pending the completion of the procedure relating to the voting of the demand for grants and the passing of Appropriation Act. The Annual Finance Statement is generally presented to the Legislature in the month of February and normally the general discussion, the voting of the demands for grants by the Legislative Assembly and the passing of the Appropriation Act are expected to be completed before the end of March, so as to make available the grants and appropriations for the ensuing year right from the commencement of the year. But circumstances may sometimes arise in which this may not be possible. On such occasions, demands for advance grants in respect of the estimated expenditure for a part of the financial year may be presented.

Both the Reserve Bank of India and the Central Government provide Ways and Means Advance (WMA), ie., a loan for a temporary period, to the State Governments to help them top tide over their temporary liquidity mismatches (ie., temporary shortfall in receipts vis-à-vis expenditure). The transparent and incentive driven formula for the limit for normal WMA provided by the Reserve Bank of India to the different States under Section 17(5) of the Reserve Bank of India Act, 1935 has been fixed as per the recommendation of the Advisory Committee on Ways and Means Advances to State Governments by linking normal WMA to the Revenue Receipts of the previous three years. As such, the limit of normal WMA is revised annually. Apart from normal WMA, which is provided at the bank rate and has been vacated after 90 days, the Reserve Bank of India also provides ‘Special WMA’ to the states at bank rate minus once percent and the amount is proportional to the amount of investment in Government of India securities by the states. There is also a provision for overdrafts to the states by the Reserve Bank at penal rates of interest.