FINANCIAL ADMINISTRATION IN INDIA

• Subject code : 18BPA53C

• Prepared By : DR. P.MAGUDAPATHY

Asst.professor

• Department : PG & Research Department of Public

Administration

• Contact No. : 9994672379

The content is prepared according to the text book and reference book given in the syllabus.

Year Subject Title Sem. Sub Code

2018 -19 Core 8: Financial Administration in V 18BPA53C India Onwards

UNIT – I: INTRODUCTION

Nature, Scope and Significance of Public Financial Administration – Meaning- Principle and types Budget – Modern Techniques of Public Financial Administration.

UNIT – II: BUDGETARY PROCESS AND PUBLIC BUDGETING IN INDIA

Aspects of Indian Budgetary system – Preparation and Enactment of Budget – Execution of Budget - Control Over Public Expenditure in India – Finance Ministry.

UNIT – III: FINANCIAL COMMITTEES OF PARLIAMENT

Public Accounts Committee – Estimate Committee – Committee on Public Undertakings – Committee on Subordinate Legislation - Standing Committees of Departments.

UNIT – IV: ACCOUNTING AND AUDITING

Meaning of Accounting and Auditing- Types of Accounts and Audit- Audit in India – Comptroller and Auditor General of India – Separation of Accounts from Audit.

UNIT – V: PUBLIC FINANCE AND FINANCIAL RELATIONS

Finance Commission of India – Union - State Financial Relations– Resource Mobilization – Tax Administration in India – Public Debt Administration in India – Local Finances in India – State Finance Commission.

Reference Books

1. Sarapa.A. Public Finance In India, Kanishka Publishers, Distributros, New Delhi,2004.

2. R.Duff And K.P. Sundharam, Indian Economy, S.CDhand&Company,New Delhi,2004.

3. Goel.S.L, Public Financial Administration, Deep & Deep Publishers,New Delhi,2004

4. M.Lamikanth, Public administration, McGraw Hill publishers, New delhi, 2013.

FINANCIAL ADMINISTRATION IN INDIA

Degree: III B.A. Subject Code: 18BPA53C

Semester: V

UNIT- II

BUDGETARY PROCESS AND PUBLIC BUDGETING IN INDIA

ASPECTS OF INDIAN BUDGETARY SYSTEM:

The primary role of a financial institution is to serve as an intermediary between lenders and borrowers. These institutions work under the overall supervision of the Reserve Bank of India. The funds pooled by the financial institutions are invested in diversified portfolios of financial assets. The transaction cost is lower. The financial institutions supply the ultimate lenders with liquid and less risky financial assets. Thus, financial institutions act as intermediaries between investors and savers. The process of financial intermediation results in: a) Providing savers with different varieties of financial assets to invest their funds according to their preferences. It enables them to increase their savings. b) Borrowers are also benefited as finance is provided through the institutions as it is not easily possible to obtain directly, from savers. c) It raises Lye productivity of aggregate investment, by improving its allocation.

Broadly, these institutions are classified into following categories: a) Development financial institutions. b) Insurance companies. c) Other Public sector financial institutions. d) Mutual Funds.

e) Non-Banking Finance Companies.

BUDGET SYSTEM AND CONCEPTS AND GLOSSARY

The budget system of the United States Government provides the means by which the Government decides how much money to spend and what to spend it on, and how to raise the money it has decided to spend. Once these decisions are made, the budget system ensures they are carried out. The Government uses the budget system to determine the allocation of resources among its major functions--such as ensuring the national defense, promoting commerce, and providing health care--as well as to determine the objectives and scope of individual programs, projects, and activities. While the focus of the budget system is on dollars, other resources, such as Federal employment, are also controlled through the budget system. The decisions made in the budget process affect the nation as a whole, state and local governments, and individual Americans. Many budget decisions have worldwide significance. This chapter provides an overview of the budget system and explains some of the more important budget concepts. A glossary of budget terms is provided at the end of the chapter. Summary dollar amounts illustrate major concepts. These figures and more detailed amounts are discussed in more depth in other chapters of the budget documents. The budget system is governed by various laws that have been enacted to carry out requirements of the Constitution. The principal laws pertaining to the budget system are referred to by title throughout the text, and complete citations are given later in the chapter.

Time and money are scarce resources to all individuals and organizations; the efficient and effective use of these resources requires planning. Planning alone, however, is insufficient. Control is also necessary to ensure that plans actually are carried out. A budget is a tool that managers use to plan and control the use of

scarce resources. A budget is a plan showing the company’s objectives and how management intends to acquire and use resources to attain those objectives.

Companies, nonprofit organizations, and governmental units use many different types of budgets. Responsibility budgets are designed to judge the performance of an individual segment or manager. Capital budgets evaluate long- term capital projects such as the addition of equipment or the relocation of a plant. This chapter examines the master budget, which consists of a planned operating budget and a financial budget. The planned operating budget helps to plan future earnings and results in a projected income statement. The financial budget helps management plan the financing of assets and results in a projected balance sheet.

The budgeting process involves planning for future profitability because earning a reasonable return on resources used is a primary company objective. A company must devise some method to deal with the uncertainty of the future. A company that does no planning whatever chooses to deal with the future by default and can react to events only as they occur. Most businesses, however, devise a blueprint for the actions they will take given the foreseeable events that may occur.

(1) shows management’s operating plans for the coming periods (2) formalizes management’s plans in quantitative terms (3) forces all levels of management to think ahead, anticipate results, and take action to remedy possible poor results (4) may motivate individuals to strive to achieve stated goals.

Companies can use budget-to-actual comparisons to evaluate individual performance. For instance, the standard variable cost of producing a personal computer at IBM is a budget figure. This figure can be compared with the actual cost of producing personal computers to help evaluate the performance of the

personal computer production managers and employees who produce personal computers. We will do this type of comparison in a later chapter.

Many other benefits result from the preparation and use of budgets.

(1) businesses can better coordinate their activities (2) managers become aware of other managers (3) employees become more cost conscious and try to conserve resources (4) the company reviews its organization plan and changes it when necessary; and (5) managers foster a vision that otherwise might not be developed.

The planning process that results in a formal budget provides an opportunity for various levels of management to think through and commit future plans to writing. In addition, a properly prepared budget allows management to follow the management-by-exception principle by devoting attention to results that deviate significantly from planned levels. For all these reasons, a budget must clearly reflect the expected results.

Failing to budget because of the uncertainty of the future is a poor excuse for not budgeting. In fact, the less stable the conditions, the more necessary and desirable is budgeting, although the process becomes more difficult. Obviously, stable operating conditions permit greater reliance on past experience as a basis for budgeting. Remember, however, that budgets involve more than a company’s past results. Budgets also consider a company’s future plans and express expected activities. As a result, budgeted performance is more useful than past performance as a basis for judging actual results.

A budget should describe management’s assumptions relating to: (1) the state of the economy over the planning horizon (2) plans for adding, deleting, or changing product lines (3) the nature of the industry’s competition (4) the effects of existing or possible government regulations. If these

assumptions change during the budget period, management should analyze the effects of the changes and include this in an evaluation of performance based on actual results.

Budgets are quantitative plans for the future. However, they are based mainly on past experience adjusted for future expectations. Thus, accounting data related to the past play an important part in budget preparation. The accounting system and the budget are closely related. The details of the budget must agree with the company’s ledger accounts. In turn, the accounts must be designed to provide the appropriate information for preparing the budget, financial statements, and interim financial reports to facilitate operational control.

Management should frequently compare accounting data with budgeted projections during the budget period and investigate any differences. Budgeting, however, is not a substitute for good management. Instead, the budget is an important tool of managerial control. Managers make decisions in budget preparation that serve as a plan of action.

The period covered by a budget varies according to the nature of the specific activity involved. Cash budgets may cover a week or a month; sales and production budgets may cover a month, a quarter, or a year; and the general operating budget may cover a quarter or a year.

Budgeting involves the coordination of financial and nonfinancial planning to satisfy organizational goals and objectives. No foolproof method exists for preparing an effective budget. However, budget makers should carefully consider the conditions that follow:

• Top management support All management levels must be aware of the budget’s importance to the company and must know that the budget has top management’s support. Top management, then, must clearly state long-range goals and broad objectives. These goals and objectives must be

communicated throughout the organization. Long-range goals include the expected quality of products or services, growth rates in sales and earnings, and percentage-of-market targets. Overemphasis on the mechanics of the budgeting process should be avoided.

• Participation in goal setting Management uses budgets to show how it intends to acquire and use resources to achieve the company’s long-range goals. Employees are more likely to strive toward organizational goals if they participate in setting them and in preparing budgets. Often, employees have significant information that could help in preparing a meaningful budget. Also, employees may be motivated to perform their own functions within budget constraints if they are committed to achieving organizational goals.

• Communicating results People should be promptly and clearly informed of their progress. Effective communication implies (1) timeliness, (2) reasonable accuracy, and (3) improved understanding. Managers should effectively communicate results so employees can make any necessary adjustments in their performance.

• Flexibility If significant basic assumptions underlying the budget change during the year, the planned operating budget should be restated. For control purposes, after the actual level of operations is known, the actual revenues and expenses can be compared to expected performance at that level of operations.

• Follow-up Budget follow-up and data feedback are part of the control aspect of budgetary control. Since the budgets are dealing with projections and estimates for future operating results and financial positions, managers must continuously check their budgets and correct them if necessary. Often management uses performance reports as a follow-up tool to compare actual results with budgeted results.

The term budget has negative connotations for many employees. Often in the past, management has imposed a budget from the top without considering the opinions and feelings of the personnel affected. Such a dictatorial process may result in resistance to the budget. A number of reasons may underlie such resistance, including lack of understanding of the process, concern for status, and an expectation of increased pressure to perform. Employees may believe that the performance evaluation method is unfair or that the goals are unrealistic and unattainable. They may lack confidence in the way accounting figures are generated or may prefer a less formal communication and evaluation system. Often these fears are completely unfounded, but if employees believe these problems exist, it is difficult to accomplish the objectives of budgeting.

Problems encountered with such imposed budgets have led accountants and management to adopt participatory budgeting. Participatory budgeting means that all levels of management responsible for actual performance actively participate in setting operating goals for the coming period. Managers and other employees are more likely to understand, accept, and pursue goals when they are involved in formulating them.

Within a participatory budgeting process, accountants should be compilers or coordinators of the budget, not preparers. They should be on hand during the preparation process to present and explain significant financial data. Accountants must identify the relevant cost data that enables management’s objectives to be quantified in dollars. Accountants are responsible for designing meaningful budget reports. Also, accountants must continually strive to make the accounting system more responsive to managerial needs. That responsiveness, in turn, increases confidence in the accounting system.

Although many companies have used participatory budgeting successfully, it does not always work. Studies have shown that in many organizations, participation in the budget formulation failed to make employees more motivated

to achieve budgeted goals. Whether or not participation works depends on management’s leadership style, the attitudes of employees, and the organization’s size and structure. Participation is not the answer to all the problems of budget preparation. However, it is one way to achieve better results in organizations that are receptive the philosophy Of participation.

TYPES

• Sales budget – an estimate of future sales, often broken down into both units. It is used to create company and sales goals.

• Production budget – an estimate of the number of units that must be manufactured to meet the sales goals. The production budget also estimates the various costs involved with manufacturing those units, including labour and material. Created by product oriented companies.

• Capital budget – used to determine whether an organization's long-term investments such as new machinery, replacement machinery, new plants, new products, and research development projects are worth pursuing.

• Cash flow/cash budget – a prediction of future cash receipts and expenditures for a particular time period. It usually covers a period in the short-term future. The cash flow budget helps the business to determine when income will be sufficient to cover expenses and when the company will need to seek outside financing. Conditional budgeting is a budgeting approach designed for companies with fluctuating income, high fixed costs, or income depending on sunk costs, as well as NPOs and NGOs.

• Marketing budget – an estimate of the funds needed for promotion, advertising, and public relations in order to market the product or service.

• Project budget – a prediction of the costs associated with a particular company project. These costs include labor, materials, and other related expenses. The project budget is often broken down into specific tasks, with

task budgets assigned to each. A cost estimate is used to establish a project budget.

• Revenue budget – consists of revenue receipts of government and the expenditure met from these revenues. Tax revenues are made up of taxes and other duties that the government levies.

• Expenditure budget – includes spending data items.

• Flexibility budget – it is established for fixed cost and variable rate is determined per activity measure for variable cost.

• Appropriation budget – a maximum amount is established for certain expenditure based on management judgment.

• Performance budget – it is mostly used by organization and ministries involved in the development activities. This process of budget takes into account the end results.

• Zero based budget – A budget type where every item added to the budget needs approval and no items are carried forward from the prior years budget. This type of budget has a clear advantage when the limited resources are to be allocated carefully and objectively. Zero based budgeting takes more time to create as all pieces of the budget need to be reviewed by management.

Personal budget – A budget type focusing on expenses for self or for home, usually involves an income to budget. There are two types of control, namely budgetary and financial. This chapter concentrates on budgetary control only. This is because financial control was covered in detail in chapters one and two. Budgetary control is defined by the Institute of Cost and Management Accountants (CIMA) as:

"The establishment of budgets relating the responsibilities of executives to the requirements of a policy, and the continuous comparison of actual with budgeted results, either to secure by individual action the objective of that policy, or to provide a basis for its revision".

Chapter objectives

This chapter is intended to provide:

· An indication and explanation of the importance of budgetary control in marketing as a key marketing control technique

· An overview of the advantages and disadvantages of budgeting

· An introduction to the methods for preparing budgets

· An appreciation of the uses of budgets.

Structure of the chapter

Of all business activities, budgeting is one of the most important and, therefore, requires detailed attention. The chapter looks at the concept of responsibility centers, and the advantages and disadvantages of budgetary control. It then goes on to look at the detail of budget construction and the use to which budgets can be put. Like all management tools, the chapter highlights the need for detailed information, if the technique is to be used to its fullest advantage.

Budgetary control methods a) Budget:

· A formal statement of the financial resources set aside for carrying out specific activities in a given period of time.

· It helps to co-ordinate the activities of the organization.

An example would be an advertising budget or sales force budget.

b) Budgetary control:

· A control technique whereby actual results are compared with budgets.

· Any differences (variances) are made the responsibility of key individuals who can either exercise control action or revise the original budgets.

Budgetary control and responsibility centers;

These enable managers to monitor organizational functions.

A responsibility center can be defined as any functional unit headed by a manager who is responsible for the activities of that unit.

There are four types of responsibility centers: a) Revenue centers

Organizational units in which outputs are measured in monetary terms but are not directly compared to input costs. b) Expense centers

Units where inputs are measured in monetary terms but outputs are not. c) Profit centers

Where performance is measured by the difference between revenues (outputs) and expenditure (inputs). Inter-departmental sales are often made using "transfer prices". d) Investment centers

Where outputs are compared with the assets employed in producing them, i.e. ROI.

Advantages of budgeting and budgetary control

There are a number of advantages to budgeting and budgetary control:

· Compels management to think about the future, which is probably the most important feature of a budgetary planning and control system. Forces management to look ahead, to set out detailed plans for achieving the targets for each department, operation and (ideally) each manager, to anticipate and give the organization purpose and direction.

· Promotes coordination and communication.

· Clearly defines areas of responsibility. Requires managers of budget centers to be made responsible for the achievement of budget targets for the operations under their personal control.

· Provides a basis for performance appraisal (variance analysis). A budget is basically a yardstick against which actual performance is measured and assessed. Control is provided by comparisons of actual results against budget plan. Departures from budget can then be investigated and the reasons for the differences can be divided into controllable and non-controllable factors.

· Enables remedial action to be taken as variances emerge.

· Motivates employees by participating in the setting of budgets.

· Improves the allocation of scarce resources.

· Economies management time by using the management by exception principle.

Problems in budgeting

Whilst budgets may be an essential part of any marketing activity they do have a number of disadvantages, particularly in perception terms.

· Budgets can be seen as pressure devices imposed by management, thus resulting in: a) bad labor relations b) inaccurate record-keeping.

· Departmental conflict arises due to: a) disputes over resource allocation b) departments blaming each other if targets are not attained.

· It is difficult to reconcile personal/individual and corporate goals.

· Waste may arise as managers adopt the view, "we had better spend it or we will lose it". This is often coupled with "empire building" in order to enhance the prestige of a department.

Responsibility versus controlling, i.e. some costs are under the influence of more than one person, e.g. power costs.

· Managers may overestimate costs so that they will not be blamed in the future should they overspend.

Characteristics of a budget

A good budget is characterized by the following:

· Participation: involve as many people as possible in drawing up a budget. · Comprehensiveness: embrace the whole organization. · Standards: base it on established standards of performance. · Flexibility: allow for changing circumstances. · Feedback: constantly monitor performance. · Analysis of costs and revenues: this can be done on the basis of product lines, departments or cost centers.

Budget organization and administration:

In organizing and administering a budget system the following characteristics may Units responsible for the preparation of budgets. A budget center may encompass several cost centers. b) Budget committee: This may consist of senior members of the organization, departmental heads and executives (with the managing director as chairman). Every part of the organization should be represented on the committee, so there should be a representative from sales, production, marketing and so on. Functions of the budget committee include:

· Coordination of the preparation of budgets, including the issue of a manual · Issuing of timetables for preparation of budgets · Provision of information to assist budget preparations · Comparison of actual results with budget and investigation of variances. c) Budget officer Controls the budget administration the job involves:

· liaising between the budget committee and managers responsible for budget preparation · dealing with budgetary control problems · ensuring that deadlines are met · educating people about budgetary control. d) Budget manual:

This document:

· charts the organization · details the budget procedures · contains account codes for items of expenditure and revenue

· timetables the process · clearly defines the responsibility of persons involved in the budgeting system.

Budget preparation

Firstly, determine the principal budget factor. This is also known as the key budget factor or limiting budget factor and is the factor which will limit the activities of an undertaking. This limits output, e.g. sales, material or labor. a) Sales budget: this involves a realistic sales forecast. This is prepared in units of each product and also in sales value. Methods of sales forecasting include:

· sales force opinions · market research · statistical methods (correlation analysis and examination of trends) · mathematical models.

In using these techniques consider:

· company's pricing policy · general economic and political conditions · changes in the population · competition · consumers' income and tastes · advertising and other sales promotion techniques · after sales service · credit terms offered. b) Production budget: expressed in quantitative terms only and is geared to the sales budget. The production manager's duties include:

· analysis of plant utilization · work-in-progress budgets.

If requirements exceed capacity he may:

· Subcontract · plan for overtime · introduce shift work · hire or buy additional machinery · The materials purchases budget's both quantitative and financial. c) Raw materials and purchasing budget:

· The materials usage budget is in quantities. · The materials purchases budget is both quantitative and financial.

Factors influencing

· production requirements · planning stock levels · storage space · trends of material prices. d) Labor budget: is both quantitative and financial. This is influenced by:

· Production requirements · man-hours available · grades of labor required · wage rates (union agreements) · the need for incentives. e) Cash budget: a cash plan for a defined period of time. It summarises monthly receipts and payments. Hence, it highlights monthly surpluses and deficits of actual cash. Its main uses are:

· to maintain control over a firm's cash requirements, e.g. stock and debtors

· to enable a firm to take precautionary measures and arrange in advance for investment and loan facilities whenever cash surpluses or deficits arises

· to show the feasibility of management's plans in cash terms

· to illustrate the financial impact of changes in management policy, e.g. change of credit terms offered to customers.

Receipts of cash may come from one of the following:

· Cash sales · payments by debtors · the sale of fixed assets · the issue of new shares · the receipt of interest and dividends from investments.

Payments of cash may be for one or more of the following· purchase of stocks · payments of wages or other expenses · purchase of capital items · payment of interest, dividends or taxation. The basic characteristics of government budgeting are as follows: ii) There is a strong emphasis on expenditure control with itemized ceilings and sanctions. The French system of budgeting is largely based on this principle, a strong financial control system. For historical and administrative reasons, Indian budgetary system is also set in a framework of strong financial control. Although, after Independence, this feature has become diluted through various schemes of delegation of powers and decentralization. ii) Another characteristic is the tendency towards instrumentalism. The bulk of ongoing activities is left untouched. Only marginal adjustments are made in raising and allocating resources from one year to the other. In spite of various budgetary innovations, budgetary systems the world over are essentially

incremental in nature. iii) There is usually no attempt to relate inputs to outputs or expenditure to performance and benefits. Any such attempt, if at all it is made, is limited to the economic function and the largest component of government activities, perse, are mainly expenditure-oriented.

iv) Generally budgets are prepared for a time span of one year. Since budgeting presupposes planning it must, therefore, adopt a longer time frame.

v) Some of the budgetary systems (Netherlands) reflect application of commercial principles to budget, including provision of depreciation allowances and in some systems, accrual-based amounting. The Italian budgetary system shows the availability of funds beyond the financial year with parallel operation of the preceding and current year's budgets.

vi) In some countries, special accounts are maintained (Japan) and these are outside the budgetary process. In other countries, extra-budgetary devices of various types are resorted to a budget is a powerful instrument in the hands of government. It has manifold objectives. Some of these are as follows: Account. ability in the early phase, legislative control and accountability were the primary functions of the government budget. This arose from the legislature's desire to control (impose, amend and approve) tax proposals and spending. The executive was accountable to the legislature for spending-within limits approved by the latter, under several heads of expenditure, and only for approved purposes. Similar accountability was to exist within the executive on the part of each subordinate authority to the one immediately above in the hierarchy of delegation. Accountability continues to be an important function of the government budget even today owing to its usefulness in budget execution and plan implementation. Management Budgeting is an executive or managerial function. As an effective. tool of management, budgeting involves planning, coordination, control,

evaluation, reporting and review.

Many of the budgetary innovations such as: functional classification, performance measurement through norms and standards, accounting classification to correspond to functional classification, costing and performance audit and use of quantitative techniques have become important aids to management. Various budgetary systems like performance budgeting and zero base budgeting are specifically management-oriented systems. Coat ml Control essentially implies a hierarchy of responsibility, embracing the entire range of executive agencies, for the money collected and expenditure, within the framework of overall accountability to the legislature. In a democracy, control assumes new dimensions and gives rise to exceedingly difficult problems. The basic concern in a truly representative government is to bring about suitable modifications in the sign and operation of the financial system so as to ensure executive responsibility to the legislature which is the law-making, revenue determining and fund-granting authority. Legislative control would mean that the legislature can meaningfully, and not merely formally, participate in the formulation of broad policies and programs, their scrutiny, approval and implementation through the annual budget. It also means that the legislature can effectively relate performance and achievement of the executive to the objectives and policies as laid down by it. Members of the legislature are not always adequately acquainted with the complexities of financial administration, nor can they always understand the enormity of the vast scale of operations and therefore the level of funds required. Various devices are, therefore, used to assist legislatures in exercising their legitimate powers over the executive. The Congressional committees of the United States and the Parliamentary Select committees of the United Kingdom and India help the legislature in exercising their control over the public purse. We shall be discussing in detail about the role of financial Committees in Unit 19 of Block 6 of this course. Statutory audit also examines the accounts and other

relevant records to ensure that the moneys granted by the legislature are spent strictly in accordance with law. Also, audit tries to ensure that the government obtains value for the tax-payers' money and that the norms of economy, efficiency and effectiveness are observed. Planning Budgeting provides a plan of action for the next financial year. Planning, however, involves the determination of long term and short term objectives, determination of quantified targets, and fixation of priorities. Planning also spans a whole range of government policies keeping the time factor and interrelationships between policies in view. Planning envisages broad policy choices. At the level of projects and programs, the choice is between alternative courses of action so as to optimize the resource utilization. The goals of public sector,

(i) optimal allocation of resources, (ii) stabilization of economic activity. (iii) an equitable distribution of income, and (iv) the promotion of economic growth are all pursued in an organisational context. In the short-run, achievement of these goals has to be co-ordinated by means of administrative and legal instruments among which budget policy and procedure are the most important. Planning in the budget process reflects political pressures as well as financial pressures and financial analysis. Information on the working of the budgetary process is obtained from the systems of classification. Since such a process has a multitude of functions and objectives, different types of classification are needed, either singly or in combination to serve the purpose of appropriation, programme management and review, evaluation of plan implementation and financial and economic analysis. Transactions of the government can be classified by objects such as salaries, wages etc.; organisation or department; functions such as defence, education, agriculture, etc.; their economic character such as consumption expenditure, capital formation, etc. The system of classification of expenditure is a very important aspect of the budget for the fulfillment of budgetary functions. It is

through the classification system that the managerial potential of budgeting process may be realized. Let us now discuss some of the most important classification systems. They are : Object-wise or line-item or traditional classification Functional classification economic classification Object-whe Collocation Traditional budgeting ensures control of expenditure and the need to ensure accountability of the executive to the legislature as well as that of the subordinate formations of the executive to the higher echelons. The budget is divided into sections according to organisational units, departments, divisions and expenditure is detailed by each category such as salary, wages, etc.

A typical classification would be as follows :

I) Salary 2) Wages 3) Travelling allowance 4) Office expenses 5) Machinery and equipment 6) Works 7) Grants-in-aid 8) Other charges 9) Suspense account Merit 10) As almdy stated, the rationale for this type of classification was the need to facilitate control and accountability. Inter-agency, inter-organiation and interdepartmental comparison of expenditure could easily be made. This information would also be available on a time-aeries basis, that is, from year to year, so that the departments contained could be pulled. It shows clear allocation of funds. For example, what percentage of the Covanta budget expenditure is on salaries, travelling allowances, etc. and Function In times of financial stringency, this classification enables across-the- board cuts on specific heads such as travelling allowances, foreign travel etc.

i) The basic philosophy of budgets with this type of classification is that spending the budgetary allocation is in itself a virtue. Whatever the amount allocated to a I particular object it has to be spent, without emphasis on the likely outcome of that expenditure. Since control is not related to performance, it easily degenerates into wastefulness and extravagance. Performance thus takes a back seat. ii) Emphasis is laid on procedural considerations, legality and regularity of expenditure and all the complex rules that are framed to satisfy regularity audit. Evaluation, justification for expenditure and obtaining value for money become only incidental. iii) Inadequate information is available about the government's objectives and programmes. The emphasis on control and accountability exerts an influence on the criteria which govern budget decisions. Programme control, contribution to development, programme co-ordination and efficient resource allocation are neglected. iv) Any duplication, redundant activities and expenditure are hard to detect and avoid. v) It is only the most pressing demands which receive attention of the budget makers. Policies, programmes and projects which have only long term benefits, usually get postponed year after year. Functional Classification Performance budgeting is based on a "conviction that the way in which revenue and expenditure are grouped for decision making is the most important aspect of budgeting''. A functional classification of the budget is necessary under the system of performance budgeting. The presentation of budgeted expenditure should, therefore, be in tern of functions, programmes, activities and projects. Such a classification is an aid to the managerial function of performance measurement relative to the costs incurred. The output of a prograrnme activity in terms of physical targets has to be related to the inputs required. These are translated into financial terms and shown as the budget provision asked for the implementation of the programme activity

Management action and cost control

Producing information in management accounting form is expensive in terms of the time and effort involved. It will be very wasteful if the information once produced is not put into effective use.

There are five parts to an effective cost control system. These are: a) preparation of budgets b) communicating and agreeing budgets with all concerned c) having an accounting system that will record all actual costs d) preparing statements that will compare actual costs with budgets, showing any variances and disclosing the reasons for them, and e) taking any appropriate action based on the analysis of the variances in d) above.

Action(s) that can be taken when a significant variance has been revealed will depend on the nature of the variance itself. Some variances can be identified to a specific department and it is within that department's control to take corrective action. Other variances might prove to be much more difficult, and sometimes impossible, to control.

Variances revealed are historic. They show what happened last month or last quarter and no amount of analysis and discussion can alter that. However, they can be used to influence managerial action in future periods.

Zero base budgeting (ZBB)

After a budgeting system has been in operation for some time, there is a tendency for next year's budget to be justified by reference to the actual levels being achieved at present. In fact this is part of the financial analysis discussed so far, but the proper analysis process takes into account all the changes which should affect the future activities of the company. Even using such an analytical base, some businesses find that historical comparisons, and particularly the current level of constraints on resources, can inhibit really innovative changes in budgets. This can cause a severe handicap for the business because the budget should be the first year of the long range plan. Thus, if changes are not started in the budget period, it will be difficult for the business to make the progress necessary to achieve longer term objectives.

One way of breaking out of this cyclical budgeting problem is to go back to basics and develop the budget from an assumption of no existing resources (that is, a zero base). This means all resources will have to be justified and the chosen way of achieving any specified objectives will have to be compared with the alternatives. For example, in the sales area, the current existing field sales force will be ignored, and the optimum way of achieving the sales objectives in that particular market for the particular goods or services should be developed. This might not include any field sales force, or a different-sized team, and the company then has to plan how to implement this new strategy.

The obvious problem of this zero-base budgeting process is the massive amount of managerial time needed to carry out the exercise. Hence, some companies carry out the full process every five years, but in that year the business can almost grind to a halt. Thus, an alternative way is to look in depth at one area of the business each year on a rolling basis, so that each sector does a zero base budget every five years or so.

PREPARATION AND ENACTMENT OF BUDGET:

Preparation: The exercise of the preparation of the budget by the ministry of finance starts sometimes around in the month of September every year. There is a budget Division of the Department of Economic affair of the ministry of finance for this purpose. The ministry of finance compiles and coordinates the estimates of the expenditure of different ministers and departments and prepares an estimate or a plan outlay. Estimates of plan outlay are scrutinized By the Planning Commission. The budget proposals of finance ministers are examined by the finance ministry who has the power of making changes in them with the consultation of the prime minister.

Enactment: Once the budget is prepared, it goes to the parliament for enactment and legislation. The budget has to pass through the following stages. The finance minister presents the budget in the Lok Sabah. He makes his budget in the Lok Sabha. Simultaneously, the copy of the budget is laid on the table of the Rajya Sabha. Printed copies of the budget are distributed among the members of the parliament to go through the details of the budgetary provisions. The finance bill is presented to the parliament immediately after the presentation of the budget. Finance Bill relates to the proposals regarding the imposition of new taxes, modification on the existing taxes or the abolition of the old taxes.

The proposals on revenue and expenditure are discussed in the Parliament. Members of the Parliament actively take part in the discussion. After the demands for grants are voted by the parliament, the Appropriation Bill is introduced, considered and passed by the appropriation of the Parliament. It provides the legal authority for withdrawal of funds of what is known as the Consolidated Fund of India. After the passing of the appropriation bill, finance bill is discussed and passed.

At this stage, the members of the parliament can suggest and make some amendments which the finance minister can approve or reject. Appropriation bill and Finance bill are sent to Rajya Sabha. The Rajya Sabha is required to send back these bills to the Lok Sabha within fourteen days with or without amendments. However, Lok Sabha may or may not accept the bill. Finance Bill is sent to the President for his assent. The bill becomes the statue after presidents’ sign. The president does not have the power to reject the bill. EXECUTION OF BUDGET: Once the finance and appropriation bill is passed, execution of the budget starts. The executive department gets a green signal to collect the revenue and start spending money on approved schemes. Revenue Department of the ministry of finance is entrusted with the responsibility of collection of revenue. Various ministries are authorized to draw the necessary amounts and spend them. For this purpose, the Secretary of minister’s acts as the chief accounting authority. The accounts of the various ministers are prepared as per the laid down procedures in this regard. These accounts are audited by the Comptroller and Auditor General of India.

CONTROL OVER PUBLIC EXPENDITURE IN INDIA: In a parliamentary democracy, the political executive is responsible to the Parliament. The control exercised by the Parliament over the executive is its control on financial expenditure. This is exercised in two ways. The executive cannot spend money without Parliament’s approval. The second is post expenditure control by audit. There is a prescribed procedure by which the Finance Bill and the Appropriation Bill are presented, debated and passed.

The Parliament being sovereign gives grants to the executive, which makes demands. These demands can be of varieties like the demands for grants, supplementary grants, additional grants, etc. The Lok Sabha has the power to assent to or to reject, any demand, or to assent to any demand, subject to a reduction of the amount specified. After the conclusion of the general debate on

the budget, the demands for grants of various ministries are presented to the Lok Sabha. Formerly, all demands were introduced by the finance minister; but, now, they are formally introduced by the ministers of the concerned departments. These demands are not presented to the Rajya Sabha, though a general debate on the budget takes place there too. FINANCE MINISTRY:

The Ministry of Finance is an important ministry within the Government of India concerned with the economy of India, serving as the Indian Treasury Department. In particular, it concerns itself with taxation, financial legislation, financial institutions, capital markets, centre and state finances, and the Union Budget. The Ministry of Finance is the apex controlling authority of the Indian Revenue Service, Indian Economic Service, Indian Cost Accounts Service and Indian Civil Accounts Service. The Department of Economic Affairs is the nodal agency of the Union Government to formulate and monitor country's economic policies and programs having a bearing on domestic and international aspects of economic management. A principal responsibility of this Department is the preparation and presentation of the Union Budget to the parliament and budget for the state Governments under President's Rule and union territory administrations. No Commentson Budgetary procedure in India

The budgetary procedure in India involves four different operations that are

• Preparation of the budget

• Enactment of the budget

• Execution of the budget

• Parliamentary control over finance

Preparation of the budget

The exercise of the preparation of the budget by the ministry of finance starts sometimes around in the month of September every year. There is a budget Division of the Department of Economic affair of the ministry of finance for this purpose. The ministry of finance compiles and coordinates the estimates of the expenditure of different ministers and departments and prepare an estimate or a plan outlay. Estimates of plan outlay are scrutinized by the Planning Commission. The budget proposals of finance ministers are examined by the finance ministry who has the power of making changes in them with the consultation of the prime minister.

Enactment of the budget

Once the budget is prepared, it goes to the parliament for enactment and legislation. The budget has to pass through the following stages:

• The finance minister presents the budget in the Lok Sabha. He makes his budget in the Lok Sabha. Simultaneously, the copy of the budget is laid on the table of the Rajya Sabha. Printed copies of the budget are distributed among the members of the parliament to go through the details of the budgetary provisions.

• The finance bill is presented to the parliament immediately after the presentation of the budget. Finance Bill relates to the proposals regarding the imposition of new taxes, modification on the existing taxes or the abolition of the old taxes.

• The proposals on revenue and expenditure are discussed in the Parliament. Members of the Parliament actively take part in the discussion.

• Demands for grants are presented to the Parliament along with the budget These demands for grants show that the estimates of the expenditure for various departments and they need to be voted by the Parliament.

• After the demands for grants are voted by the parliament, the Appropriation Bill is introduced, considered and passed by the appropriation of the Parliament. It provides the legal authority for withdrawal of funds of what is known as the Consolidated Fund of India.

• After the passing of the appropriation bill, finance bill is discussed and passed. At this stage, the members of the parliament can suggest and make some amendments which the finance minister can approve or reject.

• Appropriation bill and Finance bill are sent to Rajya Sabha. The Rajya Sabha is required to send back these bills to the Lok Sabha within fourteen days with or without amendments. However, Lok Sabha may or may not accept the bill.

• Finance Bill is sent to the President for his assent. The bill becomes the statue after presidents’ sign. The president does not have the power to reject the bill.

Execution of the budget

• Once the finance and appropriation bill is passed, execution of the budget starts. The executive department gets a green signal to collect the revenue and start spending money on approved schemes.

• Revenue Department of the ministry of finance is entrusted with the responsibility of collection of revenue. Various ministries are authorized to draw the necessary amounts and spend them.

• For this purpose, the Secretary of minister’s acts as the chief accounting authority.

• The accounts of the various ministers are prepared as per the laid down procedures in this regard. These accounts are audited by the Comptroller and Auditor General of India.

Parliament Control over Finance

• There is a prescribed procedure by which the Finance Bill and the Appropriation Bill are presented, debated and passed.

• The Parliament being sovereign gives grants to the executive, which makes demands. These demands can be of varieties like the demands for grants, supplementary grants, additional grants, etc.

• The estimates of expenditure, other than those specified for the Consolidated Fund of India, are presented to the Lok Sabha in the form of demands for grants.

• The Lok Sabha has the power to assent to or to reject, any demand, or to assent to any demand, subject to a reduction of the amount specified. After the conclusion of the general debate on the budget, the demands for grants of various ministries are presented to the Lok Sabha.

• Formerly, all demands were introduced by the finance minister; but, now, they are formally introduced by the ministers of the concerned departments. These demands are not presented to the Rajya Sabha, though a general debate on the budget takes place there too.

• The Constitution provides that the Parliament may make a grant for meeting an unexpected demand upon the nation’s resources, when, on account of the magnitude or the indefinite character of the service, the demand cannot be stated with the details ordinarily given in the annual financial statement.

• An Appropriation Act is again essential for passing such a grant. It is intended to meet specific purposes, such as for meeting war needs.

Merging Railway budget into Union budget – Pros and Cons

After 92 years of seeing them separately, the year 2017 witnessed the Railway budget being merged into Union budget. This move is being lauded for it will be beneficial for the economy at large and there will be positive influence in the development in railways. During the British reign, having a separate Railway budget made sense because a larger part of the country’s GDP depended on railway revenue. The tradition of having the budgets separately continued when India gained freedom even though the revenue from railway continued to go lower than most of the organizations in the public and private sector. 1. The scores: During the British rule Railways took up to 85 percent of the yearly budget while now it has gone down to about 15 percent only. Having separate railway budget stopped making sense long ago but the old tradition was not done away with. Scrapping the old for the renewed and better is always a positive change to look upon.

2. Better policies: Now that the Railway budget will be introduced along with the union budget, there will be less wastage of time when a new policy is to be initiated and implemented. Keeping them separate resulted in a lot of drawbacks and hindrances that had to be faced by the railway ministry before it could decide upon a solution.

3. Party politics: Minority parties fighting to meet their intentions and ministers of certain states arguing new railways and trains for their region has always been known to result in an everlasting brawl. There will be less of political pressure on the Railway budget and the centre will have the ultimate hold of the decision making.

4. Goodbye to annual dividend: When Rail budget had to be introduced separately, the railways needed to pay an annual dividend to render its budgetary support to the government. The railways will be free of this now and the same fund could now be used in better ways for development the conditions of Indian railways. 5. The huge loss: Our railways are running on loss. There are lesser funds for development plans and most of them are wasted in wrongful manner when there emerges a demand from the regional MLA who promised new trains and stoppages for their location during the time of election. When it goes into the hands of finance ministry, it would mean and absolute end to this and a more commercialized distribution of resources. 1. The rise and fall: Henceforth, the distribution and allocation of funds to various departments will all go under the finance ministry, which will take decisions according to rise and fall of budget. A fall in the annual budget will mean a similar cut in the railway and other budgets. This will be something unusual for the railways and they might not react supportively to that.

2. Conditions of government departments: The depleting conditions of the various departments under the government have always been prominent. There is lesser attention paid to the responsibilities and everyone is busy sorting out their own means. Railways might see drastic disadvantage if the merging doesn’t reap the desired result.

3. Goodbye to privatization: There have previously been talks of privatization of Indian railways in order to improve and develop them with world class facilities and cleanliness. It was not well received earlier and after the merging, there will a complete end to any future chances of privatization. At the efficient hands of government employees, nothing big could be expected.

4. Loss for the railways: We know how much our parties love making promises and then reducing price to earn the favor of the voters. Not in their wildest dreams would they want to hike the railway prices and lose the vote bank that flows from commuters. Lesser hikes in price might pose loss for the railways department.

There have been mismanagement of the highest order in Indian railways and if there are chances of seeing it improve, merging it with the Union budget is just the solution that could help. The falling revenue and more projects for new trains and stoppages have been a difficult project for the railway ministry which took the right step by merging the two budgets.

Budget advancement:

The objective behind this move is to have the Budget constitutionally approved by Parliament and assented to by the President, and all allocations at different tiers disseminated to budget-holders, before the financial year begins on April 1.

• The proposal for a change in the budget presentation date was first mooted by some of the government’s senior most bureaucrats as part of a ‘Transforming India’ initiative in January 2016.

Presenting the budget earlier comes with both advantages and disadvantages.

Advantages:

• In the existing system, the Lok Sabha passes a vote on account for the April-June quarter, under which departments are provided a sixth of their total allocation for the year. This is done by March. The Finance Bill is not passed before late April or early May. If the Budget is read in January and passed by February-March, it would enable the government to do away with a vote on account for the first three months of a financial year.

• Retired and serving officials say the biggest plus would be that the Finance Bill, incorporating the Budget proposals, could be passed by February or March. So, government departments, agencies and state-owned companies would know their allocations right from April 1, when the financial year begins.

• It would also help the private sector to anticipate government procurement trends and evolve their business plans. And, civil society could deliberate on and give feedback in time for the parliamentary discussions.

Disadvantages:

• One big disadvantage of advancing the Budget preparations is lack of comprehensive revenue and expenditure data. Currently, work on the Budget begins in earnest by December. By the time it is finalised in mid-February, data on revenue collections and expenditure trends is available for the first nine months of the financial year, April-December. Based on which, projections for the full year can be made.

• To read the Budget in January, the centre will have to start preparing it by early October. To go by less than six months of data and making projections for the full

year and the next year, based on such an incomplete picture, will be an impossible task.

• Advancing the Budget dates would be fraught with practical difficulties. Effective Budget planning also depends on the monsoon forecasts for the coming year, making the advancing the whole exercise even more difficult.

• Besides, whether the chambers of Parliament and its standing committees will get adequate time to deliberate on the budget is a moot point. The standing committees of Parliament, whose charter is to examine the justification of the ministry-wise allocations and funding needs of concomitant programmes included in the Budget, undertake their scrutiny during a two to three-week gap within the budget session period, when the houses are adjourned. This scrutiny is an essential element in the parliamentary budget approval system.

• The Union Budget of India, referred to as the annual Financial Statement in Article 112 of the Constitution of India, is the annual budget of the Republic of India, presented each year on the last working day of February by the Finance Minister of India in Parliament. The budget has to be passed by the House before it can come into effect on April 1, the start of India's financial year.

• References to budget can be found in Kautilya’s Arthashastra. It states that the Chancellor should first estimate revenue from each place and sphere of activity under different heads of accounts and then arrive at a grand total. The actual revenue is to be estimated by adding receipts into the treasury for current year and delayed payments received which were due in earlier year/s. From this deduct the expenditure on king, standard rations, other exemptions granted by King and authorised postponement of payments into treasury. The outstanding revenues were estimated from work under construction for which revenue will accrue on completion, unpaid fines, unrecoverable dues, uncollectible sums, advances to be repaid by officers etc.

• The origins of the modern Budget can be traced to the Norman period, where two departments dealt with finance—the Treasury and the Exchequer. The Treasury received and paid out money on behalf of the monarch. The Exchequer, had a 'lower office' which received money, and an 'upper office', concerned with regulating the Kings’ accounts.

• The term ‘budget’ has been derived from the old French word ‘budget’, which means a leather bag or wallet. The first use of the term 'budget' may date back to 1733 financial statement by Walpole as Prime Minister and Chancellor of the Exchequer. A cartoon of him opening a patent medicine seller's wares was published at the time, as a satirical comment with the caption 'The Budget Opened'. ('Budge' is an old word for a bag or small case).

Initially, “budget” referred solely to the Chancellor’s annual speech on the nation’s finances. Now, the term is used for an annual financial statement of income and expenditure of a government. Indian Budget process The budget is prepared by the Finance Minister with the assistance of number of advisors and bureaucrats. The Finance Minister seeks the view of the industry captains and economists prior to preparation. Various accounting and finance related organisations send in their opinions and suggestions .The budgeting exercise in India remains mainly the domain of bureaucrats to participate and influence the outcomes.

Normally, the budget-making process starts in the third quarter of the financial year. The budget has four stages (1) estimates of expenditures and revenues, (2) first estimate of deficit,

(3) narrowing of deficit and (4) presentation and approval of budget.

Estimates of expenditures and revenues Estimates of expenditure The process begins with various ministries providing initial estimates of plan and non-plan expenditures. The ministries discuss the plan expenditures with the Planning Commission. The Planning commission allocates resources for continuing plan programmes and decides on the new programmes that can be undertaken on the basis of a tentative estimate or resources available, that is provided to it by the finance ministry. The financial advisors of the ministries prepare the non-plan expenditures. The expenditure secretary consolidates them and after intensive discussion with financial advisors, budget estimates are set for the ensuing fiscal year. The majority of the non-plan expenditure is accounted for by interest payments, subsidies (mainly on food and fertilisers) and wage payments to employees. Estimates of revenue Apart from estimating the expenditure, an assessment of expected revenues likely to flow into the government treasury has to done as a concurrent exercise. Revenue receipts are of two types - capital and current receipts. Capital receipts include repayment of loans given by the government, receipts from divestment of public-sector equity and borrowings—both domestic and external. Current receipts include mainly, tax revenues, receipts by way of dividends from public-sector units and interest payments on loans given out by the central government. The amounts to be received by way of tax revenues is estimated on the basis of existing rates of taxation and taking into consideration the likely growth and inflation rate over the ensuing fiscal year.

On the capital receipts side, targeted amounts to be realised through divestment of public sector equity and amounts to be realised by way of repayments of loans is made. All the estimates are provided to the revenue secretary. First estimates of deficit After the estimates of revenue and expenditure are made, they are matched together. This provides the first estimate of expected shortfall in revenue to meet projected expenditure. The government then, in consultation with the chief economic advisor, decides on the optimum level of borrowings to meet this deficit. The figure of external borrowings is known as much of the external borrowing by the government consists of bilateral and multilateral assistance which is known by the time budget exercises are undertaken. The level of domestic borrowing depends partly on the desired level of fiscal deficit that the government targets for itself. A part of the revenue gap is left unfilled to be met through the issue of ad hoc treasury bills. Narrowing of the deficit After the targets for the fiscal deficits and the overall budget deficit is decided, any remaining shortfall is filled through a revision in tax rates if feasible , keeping in mind the fiscal incentive structure the government wishes to put in place to stimulate the growth in different sectors. Following the initial plans, if any changes need to be made adjustments are made to the expenditure; usually the plan expenditure has to be modified. The non plan expenditure comprises of interest payments, subsidies and administrative expenditure. Due to the political sensitivities involved in reducing subsidies, non-plan expenditure of the government is inflexible about changing it and it is the plan expenditures which get the axe after pre-emption have already been made for non-plan expenditure. The Budget The presentation of the Budget for the ensuing fiscal year (beginning April 1) is usually done on the last working day of February. The Indian

constitution has made the Parliament supreme in financial matters. The Union government, under Article 112 of the constitution, is required to lay an annual financial statement of estimated receipts and expenditure before both Houses of Parliament. It can levy taxes or disburse funds only on approval in both houses of Parliament. However, the proposal for taxation or expenditure has to be initiated within the Council of Ministers--specifically by the Minister of Finance. The Finance Minister presents before the Parliament, a financial statement detailing the estimated receipts and expenditures of the central government for the forthcoming fiscal year and a review of the current fiscal year. Under Article 114 of the Constitution, the government can withdraw money from the Consolidated Fund of India only on approval from Parliament and so it has to get the Appropriation Bills approved by Parliament. This authorises the executive to spend money. Article 265 of the Constitution prohibits the government from collecting any taxes without the authority of law. Therefore, the government comes up with the Finance Bill. The Bill may levy new taxes, modify the existing tax structure or continue the existing tax structure beyond the period approved by Parliament earlier. The bills are forwarded to the Rajya Sabha for comment. The Lok Sabha, however, is not obligated to accept the comments and the Rajya Sabha cannot delay passage of these bills. The bills become law when signed by the President. The Lok Sabha cannot increase the request for funds submitted by the executive, nor can it authorize new expenditures.

The proposals in the budget come into force on April 1. Between the presentation and effective date there is a gap of 1 month during which the Lok Sabha can review and modify the government's budget proposals. This does not happen most of the time and the Parliamentary scrutiny of proposals and the passage of the budget gets completed in May, well after the commencement of

the new fiscal year. Since the proposed budget has to be effective from April 1, the government usually seeks an interim approval to meet emergent expenditures that have to be incurred pending the approval of the budget. This is called the vote-on-account and the sanctions given by the passage of the vote-on-account get automatically overridden once the Budget is approved by Parliament. Other budgets The Indian Railways, the largest public-sector enterprise, and the Department of Posts and Telegraph have their own budgets, funds, and accounts. The appropriations and disbursements under their budgets are subject to the same form of parliamentary and audit control as other government revenues and expenditures. Dividends accrue to the central government, and deficits are subsidized by it like other government enterprises. State Budget Each state government has its own budget, prepared by the state's minister of finance in consultation with appropriate officials of the central government. Primary control over state finances rests with the state legislature. However, State finances are which latter reviews the state government accounts annually and reports the findings to the state governor for submission to the state's legislature. Because of its greater revenue sources, the central government shares its revenue received from personal income taxes and certain excise taxes with the states. It also collects other minor taxes, the total proceeds of which are transferred to the states. The division of the shared taxes is determined by financial commissions established by the president, usually at five-year intervals. The central government also provides the states with grants to meet their commitments. Budget documents The Union Budget comprises various documents. The first one is the speech of the Finance Ministry, which he reads in the Lok Sabha. The Budget speech provides the direction in which the government wishes to move in the

coming financial year, the growth targets and the major thrust areas. The Finance Minister spells the broad tax policy measures in his speech. The speech lists the problems being faced by the country on the economic front and indicates the government’s response to them. The speech also includes various expenditures and tax proposals. The other important documents are: This document provides an understanding of the budget documents Budget Highlights: This statement gives the key features of the budget Annual Financial Statement: Annual Financial statement is the main document. This statement shows the receipts and payments of the government under the three parts in which government accounts are kept. Consolidated Fund- Resources raised by the government through taxes, loans, dividends from PSUs and banks form the Consolidated Fund. Contingency Fund- It is impress at the government’s disposal to meet unforeseen expenditure. Public Account- The amount collected by the government acting as a banker .e.g. PF, small savings collections. Finance Bill: The Finance Bill includes the tax proposals and the tax rates. It provided the fine print of the budget Memorandum: Explanatory Memorandum provides a quick overview of tax provisions contained in the Finance Bill. Budget at a Glance: Budget at a Glance provides an overview of government finances. It’s more like a balance-sheet of the Union. It gives a broad break up of tax revenues, other receipts, expenditure-plan and no-plan allocation of outlays by ministries and resource transfer to states and Union Territories. Progress towards implementation of Budget proposals announced in previous years are listed in the Implementation Budget Expenditure Budget: Expenditure Budget Volume I and II explain the provisions made. While Volume I explains the provisions ministry-wise,

Volume II analyses expenditure trend over the years with regard to Plan and non-Plan expenditure. Receipts Budget: Receipts Budget gives details of revenue receipts and capital receipts and explains the estimates so as to make them intelligible to an ordinary citizen. It also include trend of receipts over the years and details of external assistance Customs & Central Excise: This document gives the customs and excise notifications Implementation of Budget Announcements: This contains status of implementation on initiatives announced by the Finance Minister in the Budget Speech Macro Economic Framework Statement: The Macro-economic Framework Statement, as enjoined by the Fiscal Responsibility and Budget Management Act, 2003 (FRBM Act), contains an assessment of the growth prospects of the economy with specific underlying assumptions. It contains assessment regarding the GDP growth rate, fiscal balance of the Central Government and the external sector balance of the economy. Medium Term Fiscal Policy Statement: The Medium-term Fiscal Policy Statement, as enjoined by the FRBM Act sets forth a three year rolling target for specific fiscal indicators along with underlying assumptions. The statement includes an assessment of sustainability relating to balance between revenue receipts and revenue expenditure and the use of capital receipts including market borrowings for generation of productive assets. Fiscal Policy Strategy Statement: The Fiscal Policy Strategy Statement, as enjoined by the FRBM Act, contains the policies of the Central Government for the ensuing financial year relating to taxation, expenditure, lending and investments, administered pricing, borrowings and guarantees. It outlines the strategic priorities of the Government in the fiscal area, how the current policies are in conformity with sound fiscal management principles and rationale for any major deviation in key fiscal measures.

Budget Execution After the government enacts the budget, there is an ongoing role for civil society organizations (CSOs) in analyzing and assessing how funds are actually spent to implement the policies, programs, and projects outlined in the budget. The budget execution process generally follows five steps:

• Monies are released to various line ministries (or departments/agencies) as per the approved budget

• Agencies initiate expenditures directly or by procuring goods and services

• Payments are made for these expenditures

• Expenditure transactions are recorded in accounting books

• Execution reports (In-Year and Mid-Year) are produced throughout the year, culminating in the closure of the accounting books and the production of Year-End Reports (the final execution report of a given budget year) In practice, budgets are rarely implemented exactly as approved. This can be for legitimate reasons, such as adjustments in policies in response to changes in economic conditions, or for negative reasons, including mismanagement, unauthorized expenditures, inefficiency, or fraud. CSOs can use analysis during and after budgets are implemented to identify problems in execution and use this information to strengthen their advocacy efforts to increase accountability, improve programs, and inform future budget debates. 1. Learn more about combining budget analysis with advocacy. 2. There are various tools and methods to assess budget execution, including:

3. Analyzing Budget Execution Reports 4. Expenditure Tracking 5. Community Monitoring For fiscal economists, the key issues on budget execution are always whether deficit targets are likely to be met, and whether any budget adjustments (both on the revenue and expenditure sides) agreed at the preparation stage (or in-year) are

being implemented as planned. On the expenditure side of the budget, the key issues are whether the outturn is likely to be within the budget figure; whether any changes in expenditure priorities (as against past patterns) are being implemented in specific areas as planned; and whether any problems are being encountered in budget execution, such as the buildup of payment arrears.

Fiscal economists therefore need to fully understand any weaknesses in the country's budget execution process. Is it transparent? Are there clear lines of accountability? Is information on execution of the budget available on a timely, reliable, and accurate basis? Is it thus consistent with the principles of good governance? Based on this understanding, where are problems likely to arise, and how might they be avoided or overcome? In some instances, action may be needed through budget execution procedures to bring expenditures back on track to the budget provision; hold expenditures below budget, in response to below- target revenue developments; or bring irregularities

For fiscal economists, the key issues on budget execution are always whether deficit targets are likely to be met, and whether any budget adjustments (both on the revenue and expenditure sides) agreed at the preparation stage (or in-year) are being implemented as planned. On the expenditure side of the budget, the key issues are whether the outturn is likely to be within the budget figure; whether any changes in expenditure priorities (as against past patterns) are being implemented in specific areas as planned; and whether any problems are being encountered in budget execution, such as the buildup of payment arrears.

Fiscal economists therefore need to fully understand any weaknesses in the country's budget execution process. Is it transparent Are there clear lines of accountability Is information on execution of the budget available on a timely, reliable, and accurate basis Is it thus consistent with the principles of good

governance Based on this understanding, where are problems likely to arise, and how might they be avoided or overcome In some instances, action may be needed through budget execution procedures to bring expenditures back on track to the budget provision; hold expenditures below budget, in response to below-target revenue developments; or bring irregularities to the attention of the decision makers.

This section answers these questions in turn.

After the legislative appropriation of expenditures, there are usually six main stages in the spending process.

1. The authorization stage

Once a budget is approved by the parliament, ministries are authorized to spend money, consistent with the legal appropriations for each line item. Where parliament has not yet approved the budget before the budget year starts, it is normal to allow governments to start spending on a "Vote on Account" basis--a temporary authorization, often restricted to one-twelfth per month of the previous year's expenditure. In the francophone, Latin American, transition, and many Commonwealth countries, once approved, parliamentary authorization is for one year. In some Commonwealth countries, however, the authorization period may be set monthly or quarterly by warrant.

In the majority of countries, unspent funds in one year cannot be carried forward (carryover) to be spent in the next. In some OECD countries, however, unspent operating funds can be carried forward, usually up to a specified small percentage of the total funds (e.g., Australia, Canada, most Scandinavian countries, and the United Kingdom); and in some countries cash to pay for obligations incurred in one fiscal year but falling due in the next can be carried over (e.g., Italy, Japan, New Zealand, and the United States). However, it is more common to allow the carry-forward of some element of capital

appropriations (or in some cases program expenditures), to allow for changes in the phasing of projects compared with the original budget plans, while still maintaining the same total cost.21

In some OECD countries where the emphasis is on giving agencies more freedom to manage their resources within an overall agency-specific budget to improve efficiency, and where multiyear expenditure planning is well established, the trend has been toward a greater use of such carryovers. However in these countries, aggregate expenditure control is much less of a problem and the prime objective is ensuring the most efficient and effective use of government resources. These circumstances do not typically apply in non- OECD countries, where the use of carryovers should generally be discouraged in the interest of financial discipline.

2. The commitment stage

This is the stage where a future obligation (liability) to pay is incurred. The precise definition of commitment varies not only from one system to another but even among those well-versed in public sector accounting. Broadly, a commitment arises when a purchase order is made or a contract is signed, which implies that goods will be delivered or services rendered, and that a bill will have to be paid later on. But, as noted below, there are shades of interpretation. Good budget systems maintain data on commitments that can be monitored, because these will (for the most part) ultimately be reflected in actual expenditure and because their profile, in terms of cash payments to be made, may have important financial programming implications. But there are complications to be aware of.

• The existence of a commitment does not ensure that the goods will actually be delivered or the service rendered because the relevant ministry or spending agency may change its mind or disagree with the supplier later.

This is especially true in countries with poorly organized public expenditure management systems, not least because suppliers are not guaranteed payment.

The nature of commitments varies by economic category of expenditure. A critical dimension is the lag between entering into a commitment and the associated cash payments: this is especially important for the purchase of capital goods and current nonwage goods or services. But a debt interest payment or the wage bill, both due monthly, are also types of commitment.

A commitment does not mean that a payment will be made within the same fiscal year--the payment may be made the following year. This is especially true for investment expenditure. In many countries, exceptional procedures allow an expenditure to be made without a previous commitment.

• In some countries, what is interpreted as a "commitment" is at best a reservation; that is, the request from a spending unit to the budget authority to put aside an allotment for a future expenditure. This cannot be considered a commitment in accounting terms, because no contract is signed at this stage. Some officials in transition economies tend, erroneously, to equate commitments with budget appropriations.

• In francophone and some other countries, there is a dual control over commitments: administrative control via the line ministry or spending agency and financial control by the ministry of finance. The ministry of finance's financial control represents a kind of "preaudit" confirmation that a commitment can be entered into, consistent with the appropriation.

• In many systems, commitments are either not recorded at all or the accounting for commitments is not consolidated (e.g., the line ministries and spending agencies record these only internally). When there is no centralized accounting of commitments, there is a potential danger of accumulation of

payment arrears because no one ensures, when commitments are incurred, that they are consistent with planned future cash availability.

3. The verification stage

This signifies that goods have been delivered fully or partially according to the contract, or the service has been rendered and the bill has been received. Physical delivery can precede verification by some period of time. The line ministry or spending agency making the purchase usually has the financial and the administrative responsibility to check the bill; that is, to verify that the supply has been received in full compliance with any terms or conditions. The bill at this stage is recognized as a liability of the public sector, in an accrual accounting sense, and is therefore an important stage of the expenditure process. Even though it represents an accrued liability, it may not yet represent a cash liability, however--for example, when a grace period of 30 or 60 days was included under the terms of the purchase order. Information on verifications within the central government sector, however, is not usually available on a centralized basis.

4. Payment authorization or payment order stage

This stage may have a different significance in different systems.22 In the francophone system a guiding principle is that the person who orders the supply (engagement) has to be different from the one who authorizes the payment (ordonnancement). The payment officer is normally a public accountant who belongs to the Comptabilité Publique and has specific responsibilities in terms of the expenditure process for authorizing the payment of verified bills. After verification of the bill, the spending unit must then hand it on to this public accountant, and request that the bills be paid; payment orders are normally centralized at the ministry of finance. For expenditure management purposes, this procedural distinction is not of major significance,

although it does imply a different institutional source of data on payment orders than under many commonwealth systems (see below).

In contrast, in some Latin American countries the function of postaudit and payment is undertaken by the same institution, a Contraloría General, which also exerts a preaudit function on commitments. In this case the source of data on different stages of spending is the same institution.

In Commonwealth systems the issue of payment orders is typically the responsibility of the financial officer with delegated responsibility for this function. Systems vary: the issue of payment orders and checks may be decentralized--with spending ministries carrying out these tasks and reporting back to the center--or centralized in a treasury department, typically called the accountant general's department within the ministry of finance, which acts both as paymaster and prepares the final accounts of the government.

In transition economies, the situation also varies, but most countries now have treasuries that are increasingly responsible for the issue of payment orders. Some so-called "power" ministries, like defense and internal security, often have (so far) retained separate systems. Other inherited elements of the previous system can also be very misleading: where there are different tiers of spending units (first, second, third, etc.), some ministries of finance regard expenditure as having taken place when money is transferred from ministry of finance bank accounts to the first-tier units. But, in unreformed systems, that money may take some time to be further transferred to subsidiary units and then constitute "final" expenditure on goods and services. It is therefore necessary to distinguish between such final payment orders and transfers that really represent payment authorization.

5. Payment stage

At this stage, the bill is paid--by cash, check, or electronic transfer. In some systems, the payment is made through a single ministry of finance account in the central bank or in a designated bank. In others, the payment is undertaken through the commercial banking system via bank accounts held in the names of individual line ministries. (This latter approach can make it more difficult for the ministry of finance to reconcile its accounts with those of the banking sector.)

6. Accounting stage

The cash transactions are recorded as complete in the books, which allows a reconciliation from the cash based "above-the-line" fiscal accounts with the financing of any deficit "below the line." Some countries are moving toward accrual accounting, whose differences with cash accounting are discussed i

Control over Public Expenditure the Parliament. The control exercised by the Parliament over the executive is its control on financial expenditure. This is exercised in two ways.

CONTROL THROUGH BUDGET

The executive cannot spend money without Parliament’s approval. The second is post expenditure control by audit. The office of the Comptroller and Auditor-General of India (CAG) conducts a detailed audit of all the Government departments. He sends his report to the president, who lays it before the houses of the Parliament. He also submits report about the commercial and industrial undertakings of the Government of India. The Parliament is an unwieldy body for

a serious ONE of the important ways in which Parliament exercises control on the executive is through its power to discuss and accept the "demands for grants' presented to it . The general procedure and techniques adopted by the Parliament in this respect are normal y known. But the mere provision of rules and extensive regulations in the 'rules of procedure' is by itself not adequate; the real objective can be fulfilled only when these techniques are used regularly in the day to day parliamentary proceedings. The effectiveness of Parliament's control depends, in addition to other factors, upon the scope and nature of the debates of the Houses. Debate is the Parliament's main weapon. Many factors limi t the effectiveness of this weapon. to r example, it is a general complaint that the time allotted for discussion is not always adequate. To some extent, the inadequacy of time allotted for debates is inherent in the Parliamentary system. As Durrell save "Of all the restrictions on effective Parliamentary Control which are imposed by Parliamentary practice and procedure, perhaps the greatest is the lack of time for due deliberation and in general debates can be justified, but it is questionable whether these attitudes should be extended to cut motions, etc., which are intended not so much to criticise a policy as to comment on the wastefulness of a particular expenditure. In India, party affiliations are stretched even to cut motions. As Professor Morris Jones says, "The cut motions are almost invariably moved only by opposition members, the Congress Party having effectively discouraged cut motions from its own supporters. '" Instead, a procedure has been devised by which Congress Members submit to the Minister ten-line memoranda containing local and specific pleas. More e reliance is thus placed on the Party approaches than on debate in the House. Secondly, the technical jargon in which the demands for grants are couched dissuades a majority of members despite their interests in financial matters, from participating in the debates. As Earl Atlee said, " I t was an unsatisfactory system that they should have to dismiss pages and pages in figures in a debate on the floor of the House." This difficulty is not peculiar to the Indian system This difficulty with the terminology often re suits in financial matters becoming the forte of a few specialist Members, To that extent,

the discussion tends to become a talk between specialists while the other Members confine themselves to the ventilation of local grievances wit ! Little or no realisation of the impact of their acceptance on the overall finances of the Government. Thus innumerable cut motions are moved, Generally to demand a railway line here or a fertiliser plant there. In the process national interests yield place to parochial and local interests. Programme Budgeting The practical difficulties in introducing programme budgeting are also numerous. First, the States which receive substantial assistance from the Centre and which are responsible for the execution of many Plan schemes have their own budgets. Inclusion of these schemes in the Central Programme Budget would be a very difficult and time consuming job. It would be equally difficult to quantify the different aspects of the .schemes. Besides the introduction of the system assumes the existence of certain pre-requisities (i) it is necessary to have a system of advance programming of Government operations on a long-term basis; (ii) the end-results of the programmes must be measurable, (iii) the outlay shown in the budget should represent the entire costs; (iv) the programme should be administered by the budgeting authority, and, (v) the total outlay should be capable of allocation between fixed and variable costs. These pre-requisites cannot be taker for granted in India and therefore performance budgeting does not appear to be immediately possible. However, if the intention of the Estimate Committee was that Members' should be supplied with all the details of a financial proposal the proper thing to do would be for the Government Effective expenditure control is the sine qua non of good public financial management (PFM). Fiscal rules, medium-term budget plans, and annual budgets are meaningless if expenditure cannot be controlled during execution. A lack of effective expenditure controls not only threatens macroeconomic stability and fiscal discipline, but can also call into question the integrity of the public financial management system and undermine trust in a government’s stewardship of public resources. While the institutional arrangements for raising government

revenue are typically quite centralized in a national revenue authority, the expenditure of those resources involves a wide array of public entities at various levels of government, even in countries with relatively centralized PFM systems.

1. Authorization for Public Expenditure • Limit on amount of expenditure. Government’s expenditure must be within the amounts that the budget appropriations have established, with some flexibility allowed through virements and contingency reserve mechanisms. The nature of those expenditure limits depends on the accounting basis (cash, commitment, or accrual) used in the budget • Limit on time horizon of expenditure. The expenditure must occur within the time limits applicable to the expenditure authorization. Most countries adopt annual budgets authorizing spending for one year; however, some countries authorize multi-year limits for certain types of expenditure • Authorized purpose of the expenditure. The authority for expenditure is given for a specific pre-defined purpose. The budget classification (which may be organized by programs, sub-programs, projects, economic categories, or line items) usually specifies the purpose for which the expenditure can be made. • Administrative unit accountable for expenditure. A unit of government, typically a line ministry, department or agency, is assigned the responsibility to ensure that the appropriated resources are spent as intended within the authorized limits. Public expenditure is spending made by the government of a country on collective needs and wants such as pension, provisions (such as education, healthcare and housing), security, infrastructure, etc.[1] Until the 19th century, public expenditure was limited as laissez faire philosophies believed that money left in private hands could bring better returns. In the 20th century, John Maynard Keynes argued the role of public expenditure in determining levels of income and distribution in the economy. Since then,

government expenditures has shown an increasing trend. Sources of government revenue include taxes, and non-tax revenues.

In the 17th and the 18th centuries, public expenditure was considered a wastage of money. Thinkers believed government should stay with their traditional functions of spending on defense and maintaining law and order. Causes of growth of public expenditure

There are several factors that have led to an enormous increase in public expenditure through the years

1) Defense expenditure due to modernization of defense equipment by the navy, army and air force to prepare the country for war or for prevention causes-for- growth-of-public-expenditure.

2) Population growth – It increases with the increase in population, more of investment is required to be done by government on law and order, education, infrastructure, etc. investment in different fields depending on the different age group is required.

3) Welfare activities – welfare, mid-day meals, pension provisions etc.

• Provision of public and utility services – provision of basic public goods given by government (their maintenance and installation) such as transportation.

• Accelerating economic growth – in order to raise the standard of living of the people.

• Price rise – higher price level compels the government to spend an increased amount on purchase of goods and services.[6]

• Increase in public revenue – with the rise in public revenue government is bound to increase the public expenditure.

• International obligation – maintenance of socio-economic obligation, cultural exchange etc. (these are indirect expenses of government)

4) Wars and social crises – fighting amongst people and communities, and prolonged drought or unemployment, earthquake, hurricanes or tornadoes may lead to an increase in public expenditure of a country. This is because it will involve governments to re-plan and allocate resources to finance the reconstruction.

5) Creation of super national organizations – E.g., the United Nations, NATO, European community and other multinational organizations that are responsible for the provision of public goods and services on an international basis, have to be financed out of funds subscribed by member states, thereby adding to their public expenditure.

6) Foreign aid – Acceptance by the richer industrialized countries of their responsibility to help the poor developing countries has channeled some of the increased public expenditure of the donor country into foreign aid programmes. Principle of maximum social advantage

The criteria and pre-conditions for arriving at this solution are collectively referred to as the principle of maximum social advantage. Taxation (government revenue) and government expenditure are the two tools. Neither of excess is good for the society, it has to be balanced to achieve maximum social benefit. Dalton called this principle as “Maximum Social Advantage” and Pigou termed it as “Maximum Aggregate Welfare”.

Dalton’s Principle of Maximum Social Advantage – maximum satisfaction should be yield by striking a balance between public revenue and expenditure by the government. Economic welfare is achieved when marginal utility of expenditure = marginal disutility of taxation. He explains this principle with reference to

• Maximum Social Benefit (MSB) • Maximum Social Sacrifice (MSS)

It was introduced by Swedish Economist “Erik Lindahl in 1919”.[4] According to his theory, determination of public expenditure and taxation will happen on the

basis of public preferences which they will reveal themselves. Cost of supplying a good will be taken up by the people. The tax that they will pay will be revealed by them according to their capacities.

This research work is titled “The role of Accounting in the control of public expenditure” the incessant incident of budget deficit, misappropriation and embezzlement of project fund due to lack of good accounting system constitute the problems that necessitated this research. The main objectives are: To ascertain whether adequate budgeting can regulate public expenditure, to ascertain whether a good accounting system can ensure transparency and accounting in execution in public expenditure and evaluate standard of costing impact on the control of public expenditure. Data for this work was obtained using questionnaire. The z test formula was used to test the hypotheses, the sample size is (50) fifty, this actual sample size was used because the size was not large. Some of the findings were that: public revenue and expenditure constitute an integral aspect of government budget and that the execution of public project by government entails incurring public expenditure. Recommendations made were that: Adequate government budget can regulate public expenditure, and an efficient and effective accounting system can ensure transparency and accountability during public expenditure execution. Recommendations proffered were: government should seek for the services of professional accountant during budget preparation. Government and other public institution should in still good accounting and internal control system to check embezzlement. Public expenditure is the spending made by the government of a country on the collective needs and wants of her citizenries such as spending on; the provision of infrastructures, pension provision etc. Until the 19th century, Public expenditure was limited as Laissez faire philosophies which believed that money left in private could bring better returns. In the 20th Century John Maynard Keynes argued the role of Public Expenditure in determining levels of income and distribution in the economy. Since then government expenditures has shown an increasing trend. In the 17th and the 18th Century Public Expenditure was

considered as wastage of money. Thinkers are of the view that Government should stay with their traditional functions of spending on defense and maintaining law and other.

Public Expenditures are incurred through budget implementation. The macro-economic goals of the state budget are administered in specific and complex systems which were developed in the managerial information unit of the General Accounting department under the name of “Budget Implementation macro system” The role of accounting in the control of public expenditures relates mostly on setting of standards via budgeting and ensuring that the standard set are adhered to. The accounting controls also ensure the actualization of the macro- economic goals which are viz:

• Maintaining the total framework of the planned expenses.

• Adjustment of expenditure rate to the rate of the reception of incomes.

• Regular follow-up of compliance with deficit goals.

• Planning of the financing of the deficit in order to reduce the national debt-product ratio etc.

In Nigeria, public enterprises are engaged in a wide spectrum of economic activities including agriculture, mining, construction, manufacturing commerce and services. The classification of public enterprises in Nigeria has been made according to varieties of criteria by different authorities. The Public Service review commissionclassified public sector into:

• Public Utilities

• Regulatory of Service body

• Financial Institutions

• Commercial and Industrial Enterprises.

Nigeria being a mixed enterprises. Eze (2013) opined that a firm is classified as private enterprises when it is funded, owned and managed by an individual or group of individuals. These firms are expected to be registered in the state within which they operate. The activities of the public enterprises have been on the increase in recent times which necessitated the introduction of the accounting to check and monitor the financial activities of these enterprises. According to On kwelu (2010:2) Accounting is defined as the process by which data relating to the economic activities of an organization are measured, recorded and communicated to interested parties for making informed decision. The earliest methods of accounting records were kept in physical quantities. These records came from Eastern early civilization which involved countries around the Mediterranean sea such as Mesopotamia, Egypt, Greece Italy etc. Money was recorded as soon as it was received. Money took the place of barter as a medium of exchange and unit of account. This practice has been closely related to economic development of countries. If the operation of Public enterprise grow in size and complexity, management and other stakeholders will like to be informed on the enterprise’s operation. Accounting is the only means via which such information which are financial in nature can be communicated to the stakeholders.

The role of accounting in enterprises in Nigeria is primary to ensure accurate accountability in these sectors and true and fair financial position of the enterprise. This role is of utmost importance in any organization. An organization can only grow or profit when the resources at its disposal are well managed. The role of accounting seems to be more pronounced public enterprises. In recent times, there are cases of mis-appropriation of funds in the public enterprises and improper accountability. These factors have led to a lot of public enterprises into oblivion, if the government had recognized the role of accounting all most of the problems witnessed would not have occurred. No Enterprise can move forward without having a well-organized and functional account department which will

provide accurate financial information for the Enterprise and other interest group(s).

In summary, the role of accounting in the control of public expenditure deals with the process of setting cost standards and ensuring that the standard set are maintained, However, if the already set standards appear to be in realistic such standard can be reviewed and adjusted for it to be more realistic. Control of public expenditure can be done through adequate budget implementation.

MINISTRY OF FINANCE The Ministry of Finance is an important ministry within the Government of India concerned with the economy of India, serving as the Indian Treasury Department. In particular, it concerns itself with taxation, financial legislation, financial institutions, capital markets, centre and state finances, and the Union Budget.[2]

The Ministry of Finance is the apex controlling authority of the Indian Revenue Service, Indian Economic Service, Indian Cost Accounts Service and Indian Civil Accounts Service.

Department of Economic Affairs

The Department of Economic Affairs is the nodal agency of the Union Government to formulate and monitor country's economic policies and programmes having a bearing on domestic and international aspects of economic management. A principal responsibility of this Department is the preparation and presentation of the Union Budget to the parliament and budget for the state Governments under President's Rule and union territory administrations. Other main functions include:

• Formulation and monitoring of macroeconomic policies, including issues relating to fiscal policy and public finance, inflation, public debt management

and the functioning of Capital Market including Stock Exchanges. In this context, it looks at ways and means to raise internal resources through taxation, market borrowings and mobilisation of small savings;

• Monitoring and raising of external resources through multilateral and bilateral Official Development Assistance, sovereign borrowings abroad, foreign investments and monitoring foreign exchange resources including balance of payments;

• Production of bank notes and coins of various denominations, postal stationery, postal stamps; and Cadre management, career planning and training of the Indian Economic Service (IES).

The Foreign Investment Promotion Board (FIPB), housed in the Department of Economic Affairs, Ministry of Finance, was an inter-ministerial body, responsible for processing of FDI proposals and making recommendations for Government approval. FIPB is now abolished as announced by Finance Minister Arun Jaitley during 2017-2018 budget speech in Lok Sabha.[5]

Shri tarun bajaj is the current secretary of this department.[6]

Department of Expenditure

The Department of Expenditure is the nodal Department for overseeing the public financial management system (PFMS) in the Central Government and matters connected with the finances. The principal activities of the Department include a pre-sanction appraisal of major schemes/projects (both Plan and non-Plan expenditure), handling the bulk of the Central budgetary resources transferred to States, implementation of the recommendations of the Finance and Central Pay Commissions, overseeing the expenditure management in the Central Ministries/Departments through the interface with the Financial Advisors and the administration of the Financial Rules / Regulations /Orders through monitoring of Audit comments/observations, preparation of Central Government Accounts, managing the financial aspects of personnel management in the Central

Government, assisting Central Ministries/Departments in controlling the costs and prices of public services, assisting organizational re-engineering thorough review of staffing patterns and O&M studies and reviewing systems and procedures to optimize outputs and outcomes of public expenditure. The Department is also coordinating matters concerning the Ministry of Finance including Parliament- related work of the Ministry. The Department has under its administrative control the National Institute of Financial Management (NIFM), Faridabad. The business allocated to the Department of Expenditure is carried out through its Establishment Division, Plan Finance I and II Divisions, Finance Commission Division, Staff Inspection Unit, Cost Accounts Branch, Controller General of Accounts, and the Central Pension Accounting.

Department of Revenue The Department of Revenue functions under the overall direction and control of the Secretary (Revenue). It exercises control in respect of matters relating to all the Direct and Indirect Union Taxes through two statutory Boards namely, the Central Board of Direct Taxes (CBDT) and the Central Board of Indirect Taxes and Customs (CBIC). Each Board is headed by a Chairman who is also Special Secretary to the Government of India (Secretary level). Matters relating to the levy and collection of all Direct taxes are looked after by the CBDT whereas those relating to levy and collection of Customs and Central Excise duties and other Indirect taxes fall within the purview of the CBIC. The two Boards were constituted under the Central Board of Revenue Act, 1963. At present, the CBDT has six Members and the CBIC has five Members. The Members are also ex officio Secretaries to the Government of India. Members of CBDT are as follows:

1. Member (Income Tax) 2. Member (Legislation and Computerisation) 3. Member (Revenue)

4. Member (Personnel & Vigilance) 5. Member (Investigation) 6. Member (Audit & Judicial)

Ajay Bhushan Pandey is the current secretary of this department.

Department of Financial Services

The Department of Financial Services covers Banks, Insurance, and Financial Services provided by various government agencies and private corporations. It also covers pension reforms and Industrial Finance and Micro, Small and Medium Enterprise. It started the Pradhan Mantri Jan Dhan Yojana.

PFRDA, Pension Fund Regulatory and Development Authority (PFRDA) is a statutory body which also works under this department.

Shri Debasish Panda is the current secretary of this department. Department of Investment and Public Asset Management The Department of Disinvestment has been renamed as Department of Investment and Public Asset Management or 'DIPAM', a decision aimed at the proper management of Centre's investments in equity including its disinvestment in central public sector undertakings. Finance Minister Arun Jaitley had announced the renaming of the Department of Disinvestment in his budget speech for 2016-17. Initially set up as an independent ministry (The Ministry of Disinvestment) in December 1999, the Department of Disinvestments came into existence in May 2004 when the ministry was turned into a department of the Ministry of Finance. The department took up all the functions of the erstwhile ministry which broadly was responsible for a systematic policy approach to disinvestment and privatisation of Public Sector Units (PSUs).

Tuhin Kanta Pandey is the current secretary of this department.||

The Minister of Finance (or simply, the Finance Minister, short form FM) is the head of the Ministry of Finance of the Government of India. One of the senior-most offices in the Union Cabinet, the finance minister is responsible for the fiscal policy of the government. As part of this, a key duty of the Finance Minister is to present the annual Union Budget in Parliament, which details the government's plan for taxation and spending in the coming financial year. Through the Budget, the finance minister also outlines the allocations to different ministries and departments. Occasionally, s/he is assisted by the Minister of State for Finance and the lower-ranked Deputy Minister of Finance.

There have been a number of Finance Ministers who went on to become the Prime Minister like Morarji Desai, Charan Singh, Vishwanath Pratap Singh and Manmohan Singh and also to serve as the President like R. Venkataraman and Pranab Mukherjee. Several other Prime Ministers have since held the additional charge of finance ministry.

The current Finance Minister of India is Nirmala Sitharaman. The finance ministry on Monday, notified the updated Viability Gap Funding (VGF) scheme which gives a push to the social infrastructure sector in India along with extending the existing scheme to continue support to core sector infrastructure. The new scheme, applicable with immediate effect, allows for funding up to Rs 200 crore to be sanctioned by an Empowered Committee (EC) headed by the economic affairs secretary, while projects requiring over Rs 200 crore would be approved by the EC with the approval of the finance minister. Members of the EC include NITI Aayog CEO, expenditure secretary, secretary of the line ministry dealing with the subject and joint secretary in the Department of Economic Affairs as member secretary, the notification said. The scheme, titled, Scheme for Financial Support to Public Private Partnerships (PPPs) in infrastructure, will be a central sector scheme administered by the finance ministry. Projects under the scheme would be

implemented by a private sector company as selected by the government or a statutory entity through a process of open competitive bidding. In November, the Cabinet Committee on Economic Affairs approved the scheme till 2024-25 with a total outlay of Rs 8,100 crore. While the Centre will continue to fund 20% of the total project cost (infrastructure, as in the existing scheme since 2006, it will also provide 30% of TPC for social infrastructure in the waste water treatment, water supply, solid waste management, health and education sectors. As per the notification, the VGF amount sanctioned under the scheme would be equal to a maximum of 30% of the lowest bid for capital grants in social infrastructure projects, and 20% for economic infrastructure projects.