Budget Preparation Process in India

The preparation of budget in India involves the several stages before its presentation to the house.

The fiscal year of the Union and State Governments is from April to March. The preparatory work on budget documents starts around 6-8 months before the commencement to of the fiscal year. The first initiative is taken by the finance ministry which sends circulars along with some skeleton forms to different ministries and departments asking them to start preparing in advance for the coming fiscal year. It also sends various instructions and guidelines in the Budget Circular, releases via Department of Economic Affairs, Budget Division.

The ministries and departments pass on these printed forms to the disbursing officers. Disbursing Officers are the heads of the local offices such as Deputy Commissioners of the districts, for preparing their own estimates. The forms are filled with items of income and estimated expenditures with actual figures of last year, sanctioned budget of current year, revised estimates of current year and proposed estimates of next year.

This makes it clear that in our country, process of budget preparation is bottom up process, that starts at the lowest level in departments and moves upwards to the level of the Head of the Department. The head of the department works as Controlling Officer for budgetary transactions. This is as per the below flowchart:

In the second stage, the estimates sent by the disbursing officers are scrutinized by Head of Departments (Controlling Officers). They have the option to either accept the estimates as they are or revise it. These revised estimates are then sent to the Budget Department of the Ministry of Finance by mid November. The Estimates Committee considers these estimates and after its approval sends them to the Finance Ministry. They are further scrutinized by the finance ministry. This scrutiny by Finance Ministry is of different nature. For example, it would correlate the estimates with the state of economy and see if the revenues are available. It also would correlate them with new schemes to be announced soon. Simple questions are kept in mind while scrutinizing the estimates for example:

• If the proposed expenditures are really necessary?
• How without this expenditure was done till now? How this expenditure would make difference?
• Is such expenditure done elsewhere?
• From where the funds would come?

The Finance ministry justifies and passes the demands of several Administrative Ministries and fixed a net figure for each Ministry. We note here that the decision of the finance ministry is final in determining the provision. Many a times, there might be differences between ministries over inclusion or exclusion of some schemes. Such disputes are sorted out by finance ministry at ministerial level and such disputes might also be sent to Union Cabinet or Prime Minister, whose decision in this context is final.

Once the budget estimates on the expenditure side are done; the Finance Ministry prepared the estimates of revenue side with the help of Central Board of Direct Taxes and Central Board of Excise and Customs (a.k.a. Central Board of Indirect Taxes).

Finally, a consolidated statement is prepared which is now considered by the cabinet. Cabinet approval of the budget is done by January. The Finance minister in consultation with the Prime Minister now prepares a Financial Policy, which is essentially kept secret.