How Budget process works?
The following points will explain how the government's annual budget process moves from revenue account to the much in debate fiscal.
ANNUAL FINANCIAL STATEMENT
The ordinary man confuses the finance minister's budget speech for the annual budget. But as laid down in the constitution, the budget actually refers to the annual financial statement tabled in Parliament along with the 13-15 other documents. Divided into three parts -- Consolidated Fund, Contingency Fund and Public Account -- it has a statement of receipts and expenditure of each.
This is the core of the govt's finances. All revenues, money borrowed and receipts from loans it has given flow into this account. All government expenditure is made from this fund. Any expenditure from this fund requires the nod of Parliament.
All urgent or unforeseen expenditure is met from this Rs 500-crore fund, which is at the disposal of the President. Any amount withdrawn from this fund is made good from the Consolidated Fund.
All money in this fund belongs to others, such as public provident fund. The government is merely working as a banker in respect of this fund.
All receipts like taxes and expenditure like salaries, subsidies and interest payments that do not entail sale or creation of assets fall under the revenue account.
Capital account shows all receipts from liquidating (eg. selling shares in a public sector company) of assets and spending to create assets (lending to receive interest).
REVENUE VS CAPITAL
The budget has to distinguish all receipts/expenditure on revenue account from other expenditure. So all receipts in, say, the consolidated fund, are split into Revenue Budget (revenue account) and Capital Budget (capital account), which include non-revenue receipts and expenditure.
The govt has to prepare a Revenue Budget (detailing revenue receipts and revenue expenditure) and a Capital Budget (capital receipts & capital expenditure).
(Updated - 25 Mar 2012)
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