--- title: "Vol 1 0" book: "PG MPUB 104 (1st Sem) Financial Admn" category: "PG MPUB" publisher: "Ratan Prakashan Mandir Pvt. Ltd." type: "Educational Material" ---  According to Latest Syllabus Read For Sure SuccessIn University Examination RATAN TEXT BOOK FINANCIAL ADMINISTRATION Vol-1 M.A.Pub.Ad. (Sem-I) Dr. Raman Parihar Published by Ratan Prakashan Mandir Pvt. Ltd. 2nd Floor, Centre Plaza, Parinay Kunj, Lajpat Kunj Marg, Agra-282002 Copyright Authors & Publishers Published by Ratan Prakashan Mandir Pvt. Ltd. 2nd Floor, Centre Plaza, Parinay Kunj, Lajpat Kunj Marg, Agra-282002 ISBN :978-81-69604-95-6 Price ' 180.00 only Printed at : KIDS INTERNATIONAL PVT. LTD. C-60, 61, 62, 63, EPIP, Shastripuram, Agra - 282007 Ph. : +91 9719004921 Preamble to the Constitution of India WE, THE PEOPLE OF INDIA, Having solemnly resolved to constitute India into a SOVEREIGN SOCIALIST SECULAR DEMOCRATIC REPUBLIC and to secure to all its citizens : JUSTICE, social, economic and political; LIBERTY of thought, expression, belief, faith and worship; EQUALITY of status and of opportunity; and to promote among them all FRATERNITY assuring the dignity of the individual and the unity and integrity of the Nation; IN OUR CONSTITUENT ASSEMBLY this twenty-sixth day of November, 1949, do HEREBY ADOPT, ENACT AND GIVE TO OURSELVES THIS CONSTITUTION. Unit-1 FINANCIAL ADMINISTRATION: MEANING, NATURE, SCOPE AND SIGNIFICANCE Structure 1 .0. Introduction 1.1    Learning Objectives 1.2    Nature, Scope & Agencies involved in Financial Administration Self-Check Exercise-1 1.3 . Significance of Financial Administration, Political parties &Citizens Self-Check Exercise-2 1.4 . Summary 1.5 . Glossary 1.6    Answers to Self-Check Exercises 1.7 . References/Suggested Readings 1.8    Terminal questions 1 .0. INTRODUCTION The financial administration refers to how the government manages its finances, encompassing activities such as budget preparation, managing various revenue sources, safeguarding public funds, overseeing spending procedures, and maintaining financial records. These functions are essential for the efficient operation of public finance. The relationship between finance and government is fundamental, as the available financial resources determine the limits of the government's overall activities and those of its individual departments. Effective financial management is one of the primary and unavoidable duties of the government. To ensure the smooth functioning of government operations, financial administration is of utmost importance. 1.1.    LEARNING OBJECTIVES After studying this lesson, the learner will be able: •     To understand about the meaning and nature of Financial Administration •     To comprehend the scope of Financial Administration •    To discuss about various principles of Financial Administration •    To know about bilateral and multi-lateral agencies. 1.2.    NATURE, SCOPE & AGENCIES INVOLVED IN FINANCIAL ADMINISTRATION A sound financial policy implemented through a sound financial system is sure to produce best results. Even the best financial policies and plans will come in naught, if the financial administration is weak or inefficient. Thus. the financial administration involving the machinery and methods by which funds for the support of public services are raised spent and accounted for, is at the core of modern government. In a democratic form of government, soundness and efficiency of financial administration become all the more important, otherwise, all governmental action and policies remain ineffective, and the government becomes target of severe criticism of the hands of enlightened citizens. This is also necessary because of the vastness of the funds that pass through governmental machinery, for ensuring their lawful and efficient use. F. A. Nigro says, Financial administration is of great importance today because of the tremendous increase in the amounts of money expended for 'government services. Everything government does requires money and it now does so much that it is utterly essential that sound-principles and techniques of financial administration be employed. AGENCIES INVOLVED IN FINANCIAL ADMINISTRATION The financial administration involves the means for determining with maximum accuracy, the revenue and expenditure needs of the government, provision for meeting those needs through the enactment of revenue and appropriation laws and the establishment of an accounting and audit system that will furnish a detailed record of the manner in which these laws are administered. The following agencies are involved in the Financial Administration:- i.     The executive ii.     The legislature iii.    The Finance Department of Ministry iv.    The Audit Department. Government budget is an essential element in the sound financial administration of nation; it is on the budget that the whole financial administration rests. THE EXECUTIVE The financial operation of this agency comprise of planning, determining, executing and controlling The executive formulates its plans for the financial year and on the basis of that plan determines the financial needs. This is done through the med Annual Financial Statement comm. The Financial initiative. For with the exclusive has can be imposed or asked for by the parliament cannot act in these terms of its own. The government alone has the right to draw up and present a budget. This' major constitutional principle is one of the four fundamental principle of financial procedure provided by Sir Gilbert Cambion. The pilot incharge of steering a vessel, is the only competent judge of the position and of the speed he needs to give his Sails, because he alone is posted in such a way as to know the force of direction of the winds and currents which may hinder or delay his movements. Similarly, government is the only capable authority with which financial initiative should vest and propose its financial plan in the form of budget. The Legislature: Under parliamentary democracy system, the legislature as a representativebody of the people has to safeguard the rights and interests of tax payer in field of financial administration. In order to assure this the constitution provides for: a)    Parliamentary Control Over Taxation : According to the Article 265 of the Indian Constitution, "No tax shall be levied or collected except by authority of law." The government has to present all tax proposals before parliament in the form of a Bill to by passed into law, and unless that Act is passed, no tax can be levied. b)    Parliamentary Control Over Expenditure : According to Article 266 of the Indian Constitution. "No expenditure can be incurred except with the sanction of the legislature." This principle lays down that all revenues, all loarts by the Union or State shall be paid into the consolidated fund of the Union or the State and that no money can be withdrawn out of the fund except in accordance with law and for purpose and in the manner provided for in the constitution. c) Parliamentary Authorization of Public Loans : In India, according to the Article 292 of the constitution, the government of India has the exclusive power to borrow from the security of the consolidated fund of India, subject only to such limitation as Parliament may be law impose. a) Parliament' Enforcement of Financial Accountability The Government is, bound to spend the money granted by Parliament for no purpose other than those for which they were granted. This control is exercised through the Comptroller and Auditor General of India, whose reports are scrutinized by the public accounts committee of Parliament and laid before the House. Thus it safeguards the finance of the nation. SCOPE OF FINANCIAL ADMINISTRATION Financial administration is a crucial aspect of public administration, focusing on the management of state finances. It involves the principles and practices that ensure the proper and efficient handling of public funds. On a practical level, financial administration deals with the collection, preservation, and distribution of public funds, the coordination of revenues and expenditures, the management of state credit operations, and the overall control of the public finances. While theoretical aspects of financial administration address its principles, the practical side emphasizes real-world implementation. Recently, the importance of financial administration has grown due to various factors. One significant factor is the rise of the welfare state, leading to an increase in public expenditure and corresponding revenue needs. This has resulted in a more complex system of managing state finances. As such, the effective administration of finances must be handled by experts who can navigate the complexities involved. In democratic systems like India, where elected representatives govern, financial administration must align with the needs of democratic institutions. To serve these needs, the procedures for managing finances should be simple, organized, and understandable to the general public, at least in broad terms. The challenge lies in setting up a system that is both efficient and transparent, while ensuring public oversight through democratic institutions. Coordinating these efforts to make the system effective and optimize state revenue is one of the toughest challenges of public administration. Moreover, advances in management techniques have influenced financial administration, aiming for simplicity and rationality. As PJ.J. Pinto points out, "Science creates order and simplicity, and similarly, in finance, there has been a drive for more streamlined and efficient procedures." While achieving mechanical precision in social science is impossible, the goal is to develop an administration that is simpler, more understandable, and more efficient. The more citizens comprehend how the state machinery functions, the greater their interest in governance will be, fostering stronger democratic institutions. Self-Check Exercise-1 Q.1 The Government is, bound to spend the money granted by Parliament for no purpose other than those for which they were granted. True/False Q.2 Which Article of Indian constitution reads that "No tax shall be levied or collected except by authority of law."? 1.3    SIGNIFICANCE OF FINANCIAL ADMINISTRATION, POLITICAL PARTIES &CITIZENS The significance of financial administration became more apparent only after the Industrial Revolution. Prior to that, the idea of minimal government, influenced by the laissez-faire doctrine, emphasized low taxation. However, as society became more complex due to industrialization, the role of government expanded considerably. Additionally, the rise of the welfare state led to a dramatic increase in state involvement in various sectors previously beyond its scope. In this new context, financial administration became crucial in finding ways to generate resources to address growing public expenditures. The Great Depression (1929-1933) exposed the limitations of governments adopting a neutral economic stance. This crisis spurred a search for stability in income and employment, as well as for greater social equity. Drawing from Keynesian economics, the state took on a more active role in promoting national income and employment while also ensuring fairness and improving the socio-economic conditions of citizens. Public spending, including defense and administrative costs, shifted from being viewed as nonproductive to a tool for stimulating economic activity and job creation. As a result, financial administration was tasked with devising policies to meet these new state objectives, turning financial resources into public benefits and promoting distributive justice. With the rise of democracy, the principle of "parliamentary control over public funds" gained global recognition. The idea that there should be "no taxation without representation" and "no public expenditure without parliamentary approval" became fundamental principles of modern political systems. This led to the need for clear, straightforward financial procedures to make the system understandable to the general public. Financial administration thus became essential in ensuring that "popular sovereignty" was a reality in modern governments. The concept of planned development further empowered public administrators to play an active role in designing and executing development projects. The efficiency, time, and cost of implementing these projects became increasingly important. Consequently, financial administration shifted its focus from merely controlling fund disbursements to managing the execution of development programs. Innovations such as performance budgeting represent significant advancements in financial administration’s ability to address these challenges. Since the 1980s, modern governments have faced a critical issue with limited resources. Although there is constant pressure to increase government spending to meet the growing demands of the population, taxpayers are often unwilling or unable to bear the additional tax burden. This has led to the need for careful prioritization of public expenditure. As a result, financial administration and management have become essential areas of study, with efforts like zero-based budgeting aimed at eliminating wasteful spending and maximizing efficiency in a resource-constrained environment. In conclusion, financial administration has become a central and influential part of modern governance. FISCAL POLICY AND PLANNING Legislature and its Committees 'The final authority pertaining to financial matters is that of legislature. Legislature controls finances both directly and through its committees. In the representative democracy, elected representatives are the custodians of the interests of the people. The quality of financial legislation and responsiveness of financial administration depends upon the capability, capacity and interest of the elected representatives. Lord Beveridge has said that, "Democracy need not fear bureaucracy if it knows its business." Ministers and civil servants cannot go astray, if the elected representatives are sincere to the people who have elected them. A personal discussion with some of the elected representatives revealed that they lack interest in analyzing the financial documents presented to the legislature. They do not even find time to go through the reports of their own financial Committees. Under such conditions, ministers and civil servants design the financial system in their own way. There is a great need to improve upon this system, which is causing great damage to the efficiency and integrity of the financial administration. It is suggested that there is a need to train the elected representatives in the art and science, of parliamentary affairs and the financial implications of modern Government so that they can really watch the interest of the people for whom they have been elected. POLITICAL PARTIES Democratic governments function through political parties, the party, which runs the government is called, the ruling party while, the other party/parties are called the opposition parties. Since the decisions of the government are dependent upon the informal decisions already taken by the ruling party, it becomes essential that the political parties work on sound lines to promote national development. This does not mean that the opposition parties view the national problems subjectively and in the political context only. They should examine the financial documents issued by the government from time to time and formulate issues based on facts for drawing the attention of the government. They are there to point out the weaknesses of the financial system in order to put the Government on the right path. A new emerging trend, which is dangerous, is the blind supporting and safeguarding of the members of one's party or its allies, irrespective of its ramifications. This dilutes the representative character of our democracy. Sham Lal in his article, "The National Scene" has said that this is clear from its cynical reaction whenever events conspire to expose a scandal involving one of the leading lights of the party. Instead of purging the leadership of such elements and doing whatever it can in the interest of the integrity in public life, it tries to hush up the scandal and questions the motives of those who make the exposure. Can't it see that what is relevant in an exposure of a case centering on gross abuse of official power of patronage, is the reliability of the evidence which discredits the government, it makes it all the more imperative for the party in power to stay above board. Besides, political parties interfere in the affairs of Government to get financial favors like loans, subsidies, grants, etc. for their supporters. Those members of the bureaucracy who do not obey them are threatened with consequences like transfers etc. The Tribune editorial said that the interference of political parties in the affairs of administration to get illegal and improper things done has caused a great deal of stress and strain in the administration? In this context, we-would suggest the following: a)    Political parties need to set-up their research ceils to analyze the finances of the country and through this exercise contribute to the development of the financial system of the country. b)    Since financial administration is highly complicated and complex, we should impart training to legislators of all political parties to understand the basics of financial administration, so that they can contribute to the process of improving the financial system and administration. c)    Ways and means may be devised to avoid interference in the functioning of the financial system by political parties. Citizens Interest groups and pressure groups: In the sphere of financial administration, government is influenced by vested interests, interest groups and pressure groups. Daily observations and comments in newspapers indicate that the citizens are harassed by the financial system, such as the delay in getting loans, grants and subsidies, on account of rampant corruption. Citizens are penalized financially through fines etc, and are asked to pay penalties, otherwise there is the threat that services will not be provided. It does not apply vice-versa. Audit reports are also full of instances where personnel in financial system have not cared for the people. Most of the development programs failed as finances were not provided adequately and a major part was spent on wrong priorities. Recently, CAG has made very critical observation on the foreign trip of Gujarat CM, funded by the public exchequer, for his private purpose. When a citizen is proved guilty of an offence, he is punished, as he should be. But when a government department or a public functionary is proved guilty, mere judicial structures cannot be considered adequate. Those managing the administration in our country are thoroughly insensitive to criticism, including judiciary. Therefore, the only way to make the administration realize that it is as much accountable for its actions, or inaction, as any individual, is to put the whole department in the dock when facts establish its guilt. For example, if a power consumer fails to pay his bill, he is prosecuted, but when the electricity department overcharges the consumer, it gets off at best with judicial, strictures. To the popular mind, this situation indicates that government employees enjoy immunity not available to the ordinary citizen. That impression is hardly conducive to the maintenance of the judiciary's image of impartiality. Therefore, it is upto the judiciary, rather than to the executive, to discipline the administration and to bring home to those manning it that they are as liable to be punished for their inefficiency resulting in suffering to the common people as the average citizen is for violation of the laws of tire land. That is the additional role that the judiciary needs to assume today. Let a few government employees at all levels be administered the bitter medicine that they are used to administering to other citizens mostly without justification." B.B. Tandon in his article, 'Quality in Government', rightly stresses, "It is indeed sad that Indian bureaucracy is considered to be lethargic, rule-bound, un-responsive and corrupt. In an era of liberalization and economic reforms when, on the one hand, we are talking about second generation reforms, the bureaucracy, I am sorry to say, is still in the first gear. It would be well nigh impossible to make any great progress in any direction unless the mindset of the bureaucracy is changed. The bureaucracy has to change its role of being a regulator and the authoritarian governor of archaic rules and regulations to that of a facilitator and a service provider, and that too quality service which should include service provided with a smile and at reasonable user charges". The critical role of the State in the delivery of public goods and services can be realized only through an efficient, effective and responsive administration, delivering quality public service. Measures for administrative reforms have, therefore, acquired urgency as the framework, for an effective administration capable of quality service needs to be sensitively achieved. High quality and effective public services are a vital part of a modern state as people are entitled to expect that services which are often central to their lives, should be responsive, sensitive to their needs, easy to use, flexible and efficient. A constitution is not a parchment of paper, it is a way of life and has to be lived upto. Eternal vigilance is the price of liberty and in the final analysis its only keepers are the people. The Imbecility of men, history teaches us, always invites the imprudence to power? Jacques, The Governor of Bank of France, has rightly said that reforms in the financial system can be effective if the people understand them and they must be in a position to grasp what is at stake. For that, Government should strive to communicate and create a political and social climate conducive to a sense of involvement and commitment to the reforms. BILATERAL AND MULTI-LATERAL AGENCIES Financial aid 'can be provided either through bilateral or multilateral sources. Multilateral aid has several advantages over bilateral aid. The aid through the former is normally with no strings attached. It is more acceptable politically to the recipients and, to a large extent, it takes national politics out of the sphere of foreign assistance that often complicates bilateral operations. In other words, these channels are governed more by technical than by political considerations. Today, the World Bank and developed countries put great pressure on the Government to change the financial system before aid may be given. Therefore, the Government must analyze this pressure and take necessary decisions in the interest of the country and not due to the outside pressure. Jacuqes de Larosiere, Governor of the Banque De France, in his lecture on "World-wide Adjustment process in the 1980's" on March 24, 1992 rightly cautioned, "Beyond applying the disciplines of adjustment to the industrialized countries themselves, more needs to be done in respect of development aid. Clearly, external aid can never replace domestic progress. But aid has an important role to play in efforts to redirect savings geographically, in financing certain proj ects and helping to cope with temporary, payment imbalances, in particular, the cost arising as countries are opening up their economies." "This approach to governance has come under critical scrutiny in recent years. The expected economic benefits have not always been realized in practice. Retrenchment in government employment has not necessarily generated efficiency gains or changed the way that public officials interact with the general public. Financial accountability mechanisms have been difficult to implement and sustain. Despite ostensible commitment to reform, manifest in official policy pronouncements, public disenchantment with government continues to grow. The tangible benefits of reform have not always been evident to ordinary citizens, especially those from the poor and marginalized sections of society. In many countries, government is still perceived as remote and public officials are considered to be self interested and motivated by job security and monetary gain rather than by a public service ethos and high standards of integrity. CONTROL Constitutional Law There are many Articles in the Constitution, which deal with financial system, financial powers, and financial procedures to keep the financial, system under control. Besides, the Constitution prescribes the procedures to regulate financial relations between the Union and States. Political Head/Minister Since the minister occupies the top position in the politico administrative hierarchy, it is essential that he should have full legal and constitutional authority to administer the financial affairs of his department. Theoretically it is feasible but in practice, he cannot achieve much whether it is policymaking or implementation or evaluation, unless he gets due co-operation, help, participation and involvement of the personnel of his department. Ministry-may engage the services of financial experts to control financial operations and devote time to understand the financial management to ensure optimum performance. Research Public Administration and Financial Management Institutions can take up research and consultancy to help the government in improving financial system. Many committees and Commissions are appointed to advise the government on financial issues. The financial administration is influenced to a great extent by such advice, but full advantage does not accrue to the system because of general resistance to change and interference by vested interests. Self-Check Exercise-2 Q.1 Democratic governments function through political parties. True/False Q.2 Who said that, "Democracy need not fear bureaucracy if it knows its business." 1.4.    SUMMARY According to Newman, "The Political party is the articulate organization of society's active political agents, those who are concerned with the control 'of government power and compete for popular support with another group or groups holding divergent views" financed by transfers from the Center During 1990-2000. This situation is not characteristics of the non-special category states. Besides, despite the all State GFD-DFP ratio being placed at 4.9 percent in 1999-2000, there exist wide variations in State-wise CFD-NSDP ratios, which may be addressed through state specific measures. The Stability and efficiency of Public financial system in each state would depend largely upon the efforts and understanding of the factors, which affect directly or indirectly the functioning of financial system. The help from outside can act only as a catalyst. Time has come when Politico-Administrative leadership have to plan, implement and monitor development schemes keeping the financial aspect in view. 1.5.    GLOSSARY •    Control : a way of keeping something within certain limits. •    Expenditure: the act of spending money, the amount of money that is spent. •    Treasury : the funds or revenue of state, institution or society. 1.6    ANSWERS TO SELF-CHECK EXERCISES Self-Check Exercise-1 Q.1 True Q.2 Article 265 Self-Check Exercise-2 Q.1 True Q.2 Lord Beveridge 1.7.    REFERENCES/SUGGESTED READINGS •    Laxmikant, M. 'Public Administration' Fifth Edition, Tata McGraw-Hill Publishing Company Limited, New Delhi, 2016 •    Gupta., B.N. Indian Federal Financial and Budgeting Policy, Chaitanya Publishing House, Allahabad, 1970. •    Wattal., P.L. Parliamentary Financial Control in India, Minerva Book Depot, Bombay, 1985 •    Handa., K.L. Financial Administration in India, HPA New Delhi, 1988 •    Pyhrr., P.A. Zero-Base Budgeting, Johan Wiley and Sons, New York, 1973. •    Baisys., K.N. Financial Administration in India, Himalaya Publishing House, Bombay, 1986 •    Mahajan., S.K. & Mahajan., A. P. Financial Administration in India, P.H.I, New Delhi. 1.8.    TERMINAL QUESTIONS a)    What do you mean by pressure group? b)    What are the role of bilateral and multi-lateral agencies in Financial PRINCIPLES OF FINANCIAL ADMINISTRATION Structure 2.0. Introduction 2.1    Learning Objectives 2.2    Principles of Financial Administration Self-Check Exercise-1 2.3.    Summary 2.4.    Glossary 2.5.    Answers to Self-Check Exercises 2.6.    References/Suggested Readings 2.7.    Terminal questions 2 .0. INTRODUCTION The financial administration refers to the financial management of the government, including the preparation of the budget, method of administering the various revenue sources, the custody of public funds procedures in expending money, keeping of the financial record and the like. These functions are important to the effective conduct of the operation of public finance. Finance and government are inseparable. Available financial resources set a maximum limit on administrative activity of the government as a whole and each of its separate parts. The management of the finance is one of the first and inescapable responsibilities which the government has to shoulder. For an effective discharge of these responsibilities and proper governmental functions, efficient government, none is of greater importance than that of financial administration. 2.1    Learning Objectives: After learning the lesson the students will be able to -    Comprehend the principles of financial administration -    understand their utility and relevence 2.2    Principles of Financial Administration The significance of financial administration emerged in the early 20th century. Thinkers such as Adams considered financial administration a component of finance. Contemporary authors share a similar perspective, viewing it as a fiscal science. Since "fisc" is related to the state's financial matters, financial administration reflects the nature, character, and scope of the government. Additionally, it deals with real-world challenges, and its methods and objectives depend on the type of economy. Due to this variation, it is difficult to fully categorize financial administration as a pure science. As a result, some economists, such as Hicks, regarded public finance as an art. Consequently, identifying core principles of financial administration becomes challenging. However, by studying the evolution of financial administration across different nations and cultures, it is possible to derive some practical guidelines. The following are some key principles: The Principle of Primacy of Public Interest, Public Choice, and Public Policy According to Professor Adams in The Science of Finance, fiscal policy should prioritize the state's welfare and avoid harming its resources. While the concept of state patrimony has evolved, today, public interest takes center stage in guiding state activities. Public interest can be understood as the collective well-being, encompassing social values, rights, and privileges. Financial policies should aim to enhance public satisfaction as expressed through public policies, ensuring they contribute to the common good. The Principle of Political Direction and Control Every society operates within a politico-legal framework, shaped by laws, traditions, and political ideals. Financial administration must align with these political ideals as expressed through the constitution. In modern times, democratic ideals have replaced older systems, and financial administration must ensure compliance with legislative will, as shown through the Appropriation Act, Finance Act, and other policies. To maintain control, legislatures also monitor financial functions through independent audits. The Principle of Correspondence This principle emphasizes the need for a logical relationship between the goals of financial administration and the resources—both human and material—necessary to achieve those goals. The types of functions, the staff required to handle them, and the facilities needed must be well-coordinated. The primary focus should be on ensuring that objectives and functions guide the staffing and equipping of financial organizations. The Principle of Unity of Organization and Management Indian financial administration expert P.J.J. Pinto highlighted the importance of this principle, which links centralization to efficiency. However, it doesn't imply centralizing every aspect of decision-making. It suggests that while the work of various financial agencies is coordinated at the top, decision-making should be decentralized. The focus should be on centralized guidance that allows decentralized decision-making, ultimately improving productivity and utility, as seen in national planning efforts. The Principle of Stability and Balance Financial administration requires specialized expertise and cannot be effectively managed by unskilled personnel. Therefore, this principle stresses the need for financial organizations to develop systems that maintain efficiency, even when skilled personnel are lost. Effective manpower planning and human resource development programs are essential to ensure continuity and stability. The Principle of Simplicity and Flexibility In democratic systems, the electorate holds ultimate authority, and all democratic institutions derive their power from the people. Thus, the financial system and its procedures should be simple enough for the average citizen to understand. If properly implemented, this principle can reduce costs and improve efficiency. The principle of flexibility emphasizes the need for financial organizations to adapt to changes in workload, staff, and available resources. The Principle of Conduct, Discipline, and Regularity Public financial organizations should uphold high ethical standards, with officials acting as role models for ethical behavior. Discipline refers to adherence to objectives, rules, and regulations, ensuring the proper functioning of the organization. Regularity highlights the continuous nature of administrative tasks, emphasizing that financial organizations cannot operate intermittently. Firm self-discipline is crucial for achieving effective outcomes. The Principle of Public Trust and Accountability Financial administration involves the collection and disbursement of public funds, which are held in trust by the government. This responsibility requires transparency and accountability at various levels, including political, legal, and administrative. Accountability ensures that officials are answerable for how funds are used, maintaining trust with the public. Self-Check Exercise-1 Q.1 The Principle of Correspondence signifies that there should be a causal relationship between the objectives of financial administration and the functions, the human and material resources necessary to accomplish such objectives.True/False Q.2 The Science of Finance treats of the wants of the State and the means of their supply and hence the fiscal policy should not impair the patrimony of the State. True/False 2.3    Conclusion: So, to conclude we can say that there is great significance of financial administration in every systems. Without efficient financial administration no country can-achieve developmental goal; In this paper we will concentrate on important issues involved in financial administration in our parliamentary system of Govt. viz. study of certain Institution i.e. Planning Commission. Finance Commission, control of public moneys and very important concept of performance budgeting and its application. We have divided various aspects into four major areas and each area has been further divided into four important factors. Let us now discuss this complex consisting of 16 variables (Refer Chart 1.1). C H A R T A-4: BILATERALAND MULTILATERALAGENCIES A-3: CITIZENS-INTEREST&PRESSURE GROUPS A-2: POLITICALPARTIES A-l: LEGISLATURE AND ITS COMMITTEES A FISCAL POLICY ANDPLANNING ASPECTS OF FINANCIAL ADMINISTRATION B EXECUTION B-1: MINISTRYOF FINANCE B-2 : INTEGRATED FINANCIALADVISORS B-3 : CONTROIIJNGOFFICERS/DD.Os. B-4: TREASURES 2.4.    GLOSSARY •    Control : a way of keeping something within certain limits. •    Expenditure: the act of spending money, the amount of money that is spent. •    Treasury : the funds or revenue of state, institution or society. 2.5.    ANSWERS TO SELF-CHECK EXERCISES Self-Check Exercise-1 Q.1 True Q.2 True 2.6.    REFERENCES/SUGGESTED READINGS •    Laxmikant, M. 'Public Administration' Fifth Edition, Tata McGraw-Hill Publishing Company Limited, New Delhi, 2016 •    Gupta., B.N. Indian Federal Financial and Budgeting Policy, Chaitanya Publishing House, Allahabad, 1970. •    Wattal., P.L. Parliamentary Financial Control in India, Minerva Book Depot, Bombay, 1985 •    Handa., K.L. Financial Administration in India, HPA New Delhi, 1988 •    Pyhrr., P.A. Zero-Base Budgeting, Johan Wiley and Sons, New York, 1973. •    Baisys., K.N. Financial Administration in India, Himalaya Publishing House, Bombay, 1986 •    Mahajan., S.K. & Mahajan., A. P. Financial Administration in India, P.H.I, New Delhi. 2.7.    TERMINAL QUESTIONS a)    What do you mean by The principle' of simplicity and flexibility? b)    Discuss the various principles of financial administration. CENTRE-STATE FINANCIAL RELATIONS Structure 3 .0 Introduction 3.1.    Learning Objectives 3.2.    Constitutional Provisions 3.2.1.    Taxes and Duties 3.2.2.    Grant- in- Aid 3.2.3.    Loans to state Government 3.2.4.    Power to Borrow Self-Check Exercise-1 3.3.    Finance Commission & Sarkaria Commission on Centre- State Relations Self-Check Exercise-2 3.6.    Summary 3.7.    Glossary 3.8 Answers to Self-Check Exercises 3.8.    References/Suggested Readings 3.9.    Terminal questions 3.0 INTRODUCTION The nature of financial relations between the centre and the states depends upon, (1) Financial position of the states, (i) whether states are the creators of the federation or are the creation themselves for the sake of administrative Convenience. Where states are financially strong or the creators of federation, they will have an upper hand in Financial matters, otherwise, the centre will dominate. The basic point of financial relations is the division of tax sources between the Centre and the States, in India, the constitution-makers have successfully attempted a logical allocation of powers and functions between the union and the States. The Union List contains the powers and functions of the union. The State Lists enumerates the taxes and levies, which can be imposed by the States. List III which is the concurrent list, does not include any source of taxation; thus there is no overlapping of tax- jurisdiction. Inspite of compartmentalization of taxing powers, there exists imbalance between financial resources and functions assigned to different levels of government. In order to remove the imbalance, the Constitutions provides for the distribution of some union taxes between the centre and the States and also for grants in-aid to the states. 3.1    LEARNING OBJECTIVES After studying the lesson, the learner will be able: •    To understand Centre State Financial Relations. •    To know about Constitutional provisions on Centre- State Financial Relations. •    To discuss important recommendations of Sarkaria Commission on Centre- State Relations. 3.2    CONSTITUTIONAL PROVISIONS The task of the imposition and collection of taxes to meet the development as well a non-developmental needs has been kept under the jurisdiction of the Union 'as well as the States. Taxes levied by the States are appropriated by them. This has been done in order to avoid any duplication or overlapping of taxes. In the case of taxes imposed by the Union and their distribution, there is a scheme of interdependence between the Union and the State Governments in the Constitution. The Indian constitution assigns more flexible, elastic and major sources of revenue, like taxes on income, corporation tax, customs duties, to the Union Government in order to perform the innumerable functions, like the defence of the country and the adequate running of the economy. Since all these major taxes are collected from its constituent State, the constitution makes it obligatory for the union to share them with the states. The constitution divides such cases into four categories. 1)    Taxes and Duties 2)    Grants-in-Aid 3)    Loans to State Governments 4)    Power to Borrow 3.2.1    Taxes and Duties in Indiaa)    Duties Levied by the Union but Collected by States Under Article 268 of the Indian Constitution, certain duties, such as stamp duties and duties of excise on medical and toilet preparations specified in the Union List, are levied by the Central Government but collected by the States in which these duties are applicable. b)    Taxes Levied and Collected by the Union but Assigned to the States According to Article 269, certain taxes are levied and collected by the Union Government, but the net proceeds are distributed among the states based on a formula prescribed by Parliament. These include: 1.    Succession and estate duties on non-agricultural property 2.    Terminal taxes 3.    Taxes on railway fares and freights 4.    Taxes on the sale or purchase of newspapers and advertisements published within them. c)    Taxes Levied and Collected by the Union but Shared between the Union and the States Article 270 specifies that taxes on income, other than agricultural income, and corporate tax are levied and collected by the Union Government, but the proceeds are shared between the Union and the States. d)    Union Duties of Excise Shared Between the Union and the States Under Article 272, Union duties of excise, excluding those on medicinal and toilet preparations, are levied and collected by the Union Government. However, Parliament may decide by law that all or part of the proceeds from these duties be distributed to the States, based on principles laid out in that law. e)    Taxes for the Purpose of the Union Article 271 provides that if Parliament imposes a surcharge on any of the duties or taxes outlined in Article 270, the entire proceeds from that surcharge will be part of the Consolidated Fund of India. Grants-in-Aid In addition to the share of proceeds from certain taxes collected by the Union and assigned to the States, the States are also entitled to grants-in-aid from the Union, as outlined in Article 275(1) of the Constitution. The Constitution provides for three types of grants to the States from Union resources: 1.    Grants-in-Lieu of Export Duty on Jute and Jute Products Article 273 provides grants to jute-growing states like West Bengal, Bihar, Odisha, and Assam, in lieu of the export duty on jute. The extent of these grants is prescribed by the President of India. 2.    Grants from the Union to Certain States Article 275 authorizes Parliament to provide financial assistance to States in need. Special grants are available for states that undertake schemes aimed at promoting the welfare of Scheduled Tribes (STs) and improving the administration of Scheduled Areas. 3.    Expenditure Defrayable by the Union or a State from Its Revenue Article 282 allows the Union or any State to provide grants for any public purpose, even if the purpose does not fall within their legislative competence, as long as it serves the public interest. This structure of taxes, duties, and grants ensures a system of fiscal federalism where resources are shared, and states receive the necessary support for their financial needs, especially for socio-economic development and welfare programs. 3.2.3    Loans to State Governments In addition to all these sources of revenue, the states are given financial assistance in the form of payable loans to meet their needs to develop and implement their continuing plan development programmes. 3.2.4    Power to Borrow According to Art. 292, the Government of India can borrow money on the security of consolidated Fund of India. The States also deposit with the Union Government certain states and local funds, which are in fact loans to the Centre and used for general purpose. The borrowing power of a state is however subject of a number of constitutional limitations, e.g. (1) it cannot borrow outside India. (2) Limitation may be imposed by the State Legislature (3) If the Union has guaranteed and outstanding loan to the state, no fresh loan can- be raised by the state without the consent of the Union Government etc. (Art. 293). f)    of the Part-1 (Taxes and duties) g)    Taxes for the purpose of States Article 276 and 277 are saving supervision Article 276 empowers the state to impose taxes on-professions, traders, calling and employment for the benefit of a state of a municipality, distinct, board. Local boards or other local authorities But the provision of Article 277 does not-extend to taxes levied under a law passed after the Constitution come into force. Self-Check Exercise-1 Q.1 According to Art. 292, the Government of India can borrow money on the security of consolidated Fund of India. True/False Q.2 According to Art. 282, the Union or State may make any grants for any, public purpose even if it is not within their respective legislative competence. True/False Q.3 3.3 FINANCE COMMISSION Broadly speaking the general 'Rule of federal constitution is that the proceeds of a tax is to be appropriated by the authority which imposes it. Thus if the Union authorities imposes a tax in respect of a source assigned to its competency they retain the proceeds accruing from such a tax similarly, the proceeds of a tax imposed by the constituent units would be appropriated by them. Not with standing all this "a chronic gap between the own, resources and expenditure potential of the states seems to" be an inherent feature of all well established federations. Since, in the fast changing circumstances the extent of the gap varies from time to time. He/devices or at any rate, the maj ority of them, have to be necessity flexible. It is worthwhile having definite provisions and providing a mechanism for their periodical review rather than trust to their being changed when they are proved grossly inadequate, and out of date. (T.D-Lakadala). The framers of India Constitution having taken into account the imperative need for flexibility in balancing devices and mindful of the inconvenience to which other federations were put due to the rigidity of the provisions in their respective constitutions, provided for a periodical revision of the arrangements by incorporation in the constitution itself. More over the general weakness of the federal state financial relations, more particularly in the field of devolution is that federal assistance tends to be discretionary in character not necessity on the principles of uniform application. The constitution provides, therefore that the assessment of the needs of the states as well as the measure of assistance to be afforded and the form in which it should be given are determined by the independent commission to be constituted at intervals of not more than five years." (Report of Finance Commission, 1961). The Finance Commission refers to the body established under Article 280 of the Indian Constitution, which functions as follows: i.    The President is required to constitute a Finance Commission within two years of the commencement of the Constitution, and subsequently, every five years or at an earlier time if the President deems it necessary. The Commission consists of a Chairman and four other members, all appointed by the President. ii.    The Parliament may, through legislation, define the qualifications required for the appointment of members to the Commission and specify the method of their selection. iii.    The Finance Commission is tasked with providing recommendations to the President on the following matters: a.    The distribution of the net proceeds of taxes between the Union and the States, as specified in this Chapter, and the allocation of the respective shares among the States. b.    The principles that should guide the grant-in-aid of State revenues from the Consolidated Fund of India. c.    Any other issues referred to the Commission by the President that concern sound financial management. iv. The Commission has the authority to determine its own procedure and exercise such powers as may be conferred upon it by Parliament in the course of fulfilling its functions. SARKARIA COMMISSION ON CENTRE-STATE RELATIONS: The long awaited report of the Sarkaria Commission on Central State relations, published at the end of January, 1988 made wide ranging recommendation, broadly endorsed the existing set up while indicating the lines on which it could be made more in tune with the provisions of the constitution. The main conclusions of the commission are: a)    No change is needed in the constitution to meet the growing demands of the states; b)    A strong centre is necessary to ensure national unity. c)    Concentration of power is undemocratic and there should be decentralization to enable the states to develop their resources; d)    There would be generous use of Art. 258. e)    There is a strong case for an inter-state commission (under Art. 263); f)     A rapport is necessary between the centre and the states on the question of appointment and transfer of judges, choice of governors, sharing of revenues and role of police and Paramilitary forces. Self-Check Exercise-2 Q.1 In which Article of the constitution, there is a provision of Inter-State commission? Q.2 The Sarkaria commission of Centre-State relations gave its report in 1988? 3.4    SUMMARY Article 268 to 293 in Part XII of the Constitution of India deal with Centre- State Financial Relations. Beside these, there are other provisions dealing with the same subject. Constitutional provides for grant-in-Aid to the States from the Centre resources. There are two types of grant- in- aid i.e. statutory grants and discretionary grants. The statutory grants under Art. 275 (both general and specific) are given to the states on the recommendations of the Financial Commission. Art. 282 empower both the Centre and the State to make any grants for any public purpose, even if it is not within their respective legislative competence under this provision, the Centre makes grants to the state on the recommendations of NITI Ayog - an extra Constitutional body. 3.5    GLOSSARY: •    Grant-in-aid: an amount of money given to local government, an institution or a particular scholar. •    Borrowing power : the amount of money that a person, company or government can borrow at a particular time. 3.6    Answers to Self-Chech ExercisesSelf-Check Exercise-1 Q.1 True Q.2 True Self-Check Exercise-2 Q.1 Article 263 Q.2 True 3.7    REFERENCES/SUGGESTED READINGS: •    Laxmikant, M. 'Public Administration' Fifth Edition, Tata McGraw-Hill Publishing Company Limited, New Delhi, 2016 •    Gupta., B.N. Indian Federal Financial and Budgeting Policy, Chaitanya Publishing House, Allahabad, 1970. •    Wattal., P.L. Parliamentary Financial Control in India, Minerva Book Depot, Bombay, 1985 •    Handa., K.L. Financial Administration in India, HPA New Delhi, 1988 •    Pyhrr., P.A. Zero-Base Budgeting, Johan Wiley and Sons, New York, 1973. •    Baisys., K.N. Financial Administration in India, Himalaya Publishing House, Bombay, 1986 •    Mahajan., S.K. & Mahajan., A. P. Financial Administration in India, P.H.I, New Delhi. •    IGNOU notes, egyankosh 3.8    TERMINAL QUESTIONS a)    What are the role of Finance Commission with regard to Centre- State Financial relations? b)    What do you mean by statutory grants? Chapter-4 MINISTRY OF FINANCE Structure 4.0. Learning Objective 4.1.    Introduction 4.2.    History and Organisation of Finance Ministry & its Departments Self-Check Exercise-1 4.3.    Functions of the attached officer under the Central Board of Direct taxes Self-Check Exercise-2 4.4.    Summary 4.5.    Glossary 4.6.    Answers to Self- check exercise 4.7.    References/Suggested Readings 4.8.    Terminal questions 4.0. INTRODUCTION The Ministry of Finance is responsible for managing the central government's finances and overseeing financial matters that impact the entire country. It is tasked with raising resources for development and other national needs, as well as regulating taxation and borrowing policies. The Ministry also addresses issues related to banking and currency, and in collaboration with relevant ministries, ensures the effective use of foreign resources. Additionally, it oversees the full expenditure of the Government of India in cooperation with administrative ministries. The Ministry of Finance plays a crucial role in (1) mobilizing resources to fund government spending and (2) controlling government spending during both the budget formulation and execution phases. It also actively participates in creating financial, fiscal, and economic policies. Among its key responsibilities are consolidating the government's annual budget, issuing government loans, managing public debt, overseeing central banking policy, controlling foreign exchange, producing coins and currency, and enhancing administrative efficiency across government operations. 4.1.    LEARNING OBJECTIVES After reading this lesson, the learner will be able: •     To understand about power and functions of Ministry of Finance •     To know about various departments and its role of Ministry of Finance •    To evaluate the power and functions of Finance commission. 4.2.    HISTORY OF FINANCE MINISTRY: The Ministry of Finance traces its origins back to 1810 when a separate Finance Department was established, initially part of the Public Department. For a period, the department was managed by the Secretary of the Public Department. In 1816, the Finance Department was placed under the Territorial Department, which was later abolished in 1830. Following this, the Finance Department came under the control of the Secretary of the General Department. In 1843, a separate Secretariat for the Government of India was created, organized into four departments, one of which was the Finance Department. In 1879, the department was renamed the Department of Finance and Commerce, but it reverted to the Department of Finance in 1905. The Government of India Act, 1919, introduced significant changes in the country's political framework. As a result, the Finance Department was reorganized into seven branches: (1) General Finance, (2) Revenue, (3) Currency and Banking, (4) Salary and Allowances, (5) Civil Accounts, (6) Army Finance, and (7) Military Accounts. The Government of India Act, 1935, did not bring major changes to the Department of Finance, though a Financial Advisor was appointed to assist the Governor-General in his financial responsibilities. After World War II, the department was further reorganized into nine divisions. Post-independence, the Finance Department became known as the Ministry of Finance and was divided into three main wings: Expenditure, Economic Affairs, and Revenue. In 1949, the Ministry was further structured into two departments: the Department of Revenue and Expenditure and the Department of Economic Affairs. In the 1950s, two more departments were added to the Ministry: the Department of Expenditure and the Department of Company Law Administration. Organisation of Finance Ministry At present the Finance Ministry is organised into the following five departments: (a)   Department of Expenditure (b)   Department of Economic Affairs (c)   Department of Revenue and Banking (d)   Department of Disinvestment (e)    Department of Financial Services Department of Expenditure: The Department of Expenditure consists of the following divisions: 1.     Establishment division including implementation Cell; 2.     Staff Inspection Unit; 3.     Defence Division; 4.    Cost Accounts Wing; 5.     Plan Finance Division; 6.    Special cell including organisation of controller General of Accounts; 7.    Bureau of Public Enterprises. 1)    Establishment Division: It is mainly responsible for the administration of various financial rules and regulations including those of services of central government Employees. Implementation Cell: Set-up-in April, 1973 the main function of this' cell is to advice various ministries regarding the revised pay scales of the employees of autonomous bodies and public sector undertakings following Central Government pattern of pay scales. 2)    Staff Inspection Unit: This unit was established in April 1964. This' unit has three types of functions: 1.    To review the staffing of Government establishment with a view to determining, the strength and composition of staff required. 2.    To forecast staff requirement by evolving and prescribing standards of performance 3.    Job grading in terms of content responsibilities attached to posts. 3)    Defence Division This division is headed by a financial advisor with the rank of Addl. Secretary. The Financial Advisor is assisted by the three Addl. Financial Advisors (Joint Secretaries) and a number of Deputy Financial Advisors, each of them closely associated with an important branch of the Defence Organisation. The Financial Controller Raksha Utpadan Board, located, at Calcutta is also a part of defence division and is responsible for scrutiny, sanction and accounting of the expenditure of Defence Ministry. 1)    Cost Accounts Wings: The Wing is headed by Chief Cost Accounts 'Officer (Joint Secretary). He is further assisted by (1) Deputy Chief Cost Accounts Officer (2) Senior. Cost Accounts Officers (3) Cost Accounts Officers (4) Asstt. Cost Accounts Officers (5) Cost Accountants. The main functions of this Wing are : 1.    To undertake cost studies in various units both, in public and private sectors. 2.    To advice various Ministries/Departments of Government of India and Public Undertakings on costs and accounting matters referred for such advice. 3.    To serve as members in Export Committee appointed by Government, when so required. 2)    Plan Finance Division: This division deals with matter relating to the finances and the plan outlays of the states. It is the focus points in the ministry of Finance for matter, connected with State Finances and State Plans. It analysis the state budgets and the States efforts at fiscal management and keeps close touch with states as regards their resources for including in the plan. This division also handles the work relating to the assessment of resources like the metropolitan authorities, Bombay, Calcutta and Madras, DamodarValley Corporation etc. and the determination of outlays for their plans programmes. 3)    Special Cell Including Organisation of Controller General of Accounts: A special cell has been created in the Ministry of Finance to bring about innovation and improvements in the Financial Administration system with special reference to the requirement of the Plan. This cell has been performing useful works by suggesting suitable changes after due deliberations. The controller General of Accounts is now responsible for consolidating. The Controller General of Accounts is now responsible for consolidating. The monthly accounts of the Central Government are to be placed before the Parliament. 4)    Bureau of Public Enterprises: This Bureau was set up in April, 1965 by the Ministry of Finance and the recommendations of the Estimates Committee. It performs the following functions: 1.    To assist the concerned ministries and Finances Ministry in making a more expert scrutiny and evaluation of feasibility studies/ DPRs to the extent practicable. 2.    To assist the ministries in controlling expenditure on residential and administrative buildings. 3.    To compile information in terms and conditions of services of employees and to advice public undertakings, with a view to ensuring desirable uniformities in, these matters. 4.    To furnish periodical reports to Parliament and Government on the working of Public undertaking 5.    To function as the secretariat of Public Enterprises Selection Board The Bureau is organised into Six constituent divisions, namely production, construction. Finance, Management, Information and Research and Administration and Coordination. DEPARTMENT OF ECONOMIC AFFAIRS : This department prepares and controls government budget, makes periodic assessments of foreign exchange needs and resources and taken steps to mobilize and allocate resources, in keeping with development and other needs. This department comprises of seven main division namely: | 1. | Budget | |---|---| | 2. | Internal Finance | | 3. | External Finance | | 4. | Economic | | 5. | Administration | | 6. | Insurance | | 7. | Banking | 1.    BUDGET DIVISION This division is responsible for the preparation of the central Budget, it is also responsible for certain other matters like preparation of the Ways and Means Estimates," floating of public loans promotion of small saving movement, administration of public debt, borrowing by the State Government, implementation of the recommendations of Finance Commission etc. 2.    INTERNAL FINANCE DIVISION: The division is responsible for the control of capital issues.. It deals with the matters concerning currency and coinage, including administration of Mints and their Assy. offices, the Security Paper Mills, the Indian Security Press, the Bank Note Press and Silver Refinery. This division is also responsible for administering the Securities contracts Act. 1956 and the regulation of stock exchange in the country. 3.    EXTERNAL FINANCE DIVISION : This division is concerned with the matters relating to exchange budget. Foreign investments and other external Finance including technical assistance received by India or rendered by her to foreign countries. 4.    ECONOMIC DIVISION : The main functions of this division are to study and analyse the trends and development in the economy in India as well as abroad and their implications with a view to keeping the Ministry informed and to render Economic advice to the Ministry. The work of this division is organised under five main units namely: 1. Prices production and wage policy, (2) Public Finance, money banking and credit policy, (3) Fiscal Policy, (4) Balance of Payments and Foreign Trade and (5) Economic information. 5.    ADMINISTRATION DIVISION: This divisions looks after the administrative matters the Department and vigilance and organisation methods of the Department as well as its attached subordinate offices. The internal work study cum D&M unit in this department assists in the identification of Kanor problems and other related studies besides its usual Q & M functions. This division is responsible for watching the progress in implementation of the instructions issued by the Ministry of Home Affair under the Official Languages. Act 1903, in the Secretariat proper and the attached subordinate organisation of the Department. 6.    INSURANCE DIVISION : The Insurance Wing administers the Insurance Act 1938. the LIC. Act, 1956. The Emergency Risks (Goods) Insurance Act, 1962, the Emergency. Risks (Factors) insurance Act, 1962, the General Insurance Emergency Provision Act, 1971 and General Insurance Business (Nationalization Act, 1972). This Wing is also administrative charge of the Insurance Claims Board set up under the Displaced Persons Act 1951. 7.    BANKING DIVISION The Banking Wing is concerned with the formulation and implementation of Government policies having a bearing on the working of Commercial banks and long term financial institutions excluding the LIC and UTI. the Banking wing have Five Functional Units - (1) Banking Operation Division (2) Industrial Finance Division (3 )Agricultural Credit and Establishment Division (4) Development and Credit Policy Division, (5) Coordination, Vigilance and Industries Relations Division. DEPARTMENT OF REVENUE AND BANKING: The headquarters administration of the Department of Revenues is divided into three Divisions. 1.    CENTRAL DIVISION The division deals with settlement commission Appellate Tribunal for forfeited property. Indirect Taxation Enquiry Committee and also the Directors of Enforcement. 2.    DIRECT TAXES DIVISION The Central Board of Direct Taxes is responsible for the administration of direct taxes levied the Central Government, headed by the Chairman and six other members of the board, control and supervision over the function of subordinate offices. Self-Check Exercise-1 Q.1 The Central Board of Direct Taxes is responsible for the administration of direct taxes levied the Central Government. True/False Q.2 Department of Economic Affairs is responsible for Budget Making. True/False 4.3. FUNCTIONS OF THE ATTACHED OFFICER UNDER THE CENTRAL BOARD OF DIRECT TAXES a)    Directorate of Inspection, (income Tax and Audit New Delhi). The main functions of this office are: 3.    Prescribing policy and programme of Inspection by I.A.Cs' Officers and supervising the work of Internal Audit parties and dealing with matters pertaining to Revenue Audit Objections 4.    Carries out Administrative Inspection of field organisation. 5.    Holds Department Examinations for department staff. 6.    Dealing with all references received from all Heads of Departments relating to the recruitment examination. b)    Directorate of Inspection (Investigation), New Delhi. There are three Directors of Inspection in this Directorate: 1.    Functions of Investigation Wing: To help field officers in improving techniques of investigation and also in gathering of income tax intelligence in order to combat tax evasion. Coordination and keeping watch over investigations conducted in Selected cases in various income tax charges. 2.    Functions of Vigilance Wing : Director of Inspection (Vigilance) functions as Addl. Chief Vigilance Officer and deals with all cases of Gazetted and non-Gazetted staff involving vigilance angle. 3.    Function of Special Cell: This cell deals with cases of tax evasion by the Large Industrial Houses. Directorate of Inspection (Research Statistics and Publications) New Delhi; This directorate is a combination of two wings: 1.    Publication and Public Relations Wing: a)    Compilation and Publication of Various rules. Acts, Bulletins, and other publications pertaining to income-tax department. b)    Translation of material in Hindi and watching progressive use of Hindi. c)    All matters connected with public Relations. 2.    Research and Statistics Wing: a)    Compilation and Supply of All India Revenue Statistics relating all directtaxes. b)    Compilation and statistics on the basis of monthly progress report. c)    Conducting Research on various matters referred to them by the Central Board of Direct Taxes. 3.    Directorate of Organisation and Management Services, New Delhi: The main functions of this Directorate are : 1)    Simplification of methods of work aiming at optimum utilization of manpower resources. 2)    Solving and receiving the stalling norms and patterns supported by method studies. 3)    Review of organisational structures and system of work. 4)    Examination staffing proposals from the Heads of Department. NDIRECT TAXES DIVISION: This Division deals with the Custom Department; Central Excise Department, Narcotic Department and many other directorates. All these offices are under over all control of Central Board of Excise and Customs. FUNCTIONS OF THE DEPARTMENT OF REVENUES AND BANKING 1)    This Department exercises control vested in it in respect of revenue matters relating to all direct and indirect union taxes, through two statutory Board under it namely, Central Board of Direct Taxes and Central Board of Excises and Customs. The Chairman and six members of each of these two boards functions as ex-officio Addl. Secretaries to the Government of India; 2)    Control over production and disposal of opium and its products produced within the country. 3)    This department is also responsible for the administration of the Central Sales Tax Act. 4)    The Administration of the conservation of foreign exchange and Prevention of Smuggling Activities Act. 1974 is also vested in the department of Revenue. Self-Check Exercise-2 Q. 1 This Division deals with the Custom Department; Central Excise Department, Narcotic Department and many other directorates. True/False Q. 2 CBDT holds Department Examinations for department staff. True/False 4.4    SUMMARY Article 268 to 293 in Part XII of the Constitution of India deal with Centre- State Financial Relations. Beside these, there are other provisions dealing with the same subject. Constitutional provides for grant-in-Aid to the States from the Centre resources. There are two types of grant- in- aid i.e. statutory grants and discretionary grants. The statutory grants under Art. 275 (both general and specific) are given to the states on the recommendations of the Financial Commission. Art. 282 empower both the Centre and the State to make any grants for any public purpose, even if it is not within their respective legislative competence under this provision, the Centre makes grants to the state on the recommendations of NITI Ayog - an extra Constitutional body. 4.5    GLOSSARY: •    Grant-in-aid: an amount of money given to local government, an institution or a particular scholar. •    Borrowing power : the amount of money that a person, company or government can borrow at a particular time. 4.6    Answers to Self-Check ExercisesSelf-Check Exercise-1 Q.1 True Q.2 True Self-Check Exercise-2 Q.1 True Q.2 True 4.7    REFERENCES/SUGGESTED READINGS: •    Laxmikant, M. 'Public Administration' Fifth Edition, Tata McGraw-Hill Publishing Company Limited, New Delhi, 2016 •    Gupta., B.N. Indian Federal Financial and Budgeting Policy, Chaitanya Publishing House, Allahabad, 1970. •    Wattal., P.L. Parliamentary Financial Control in India, Minerva Book Depot, Bombay, 1985 •    Handa., K.L. Financial Administration in India, HPA New Delhi, 1988 •    Pyhrr., P.A. Zero-Base Budgeting, Johan Wiley and Sons, New York, 1973. •    Baisys., K.N. Financial Administration in India, Himalaya Publishing House, Bombay, 1986 •    Mahajan., S.K. & Mahajan., A. P. Financial Administration in India, P.H.I, New Delhi. •    IGNOU notes, egyankosh 4.8    Terminal Questions Q.1 Discuss the structure of Department of Expenditure of Ministry of Finance. Q.2 What are functions of the attached officer under the central board of direct taxes? CHAPTER-5 FINANCE COMMISSION Structure 5.0. Introduction 5.1.    Learning Objective 5.3.    Finance Commission: need & power Self-Check Exercise-1 5.4.    Commission's functioning & 15th Finance Commission Self-Check Exercise-2 5.5.    Summary 5.6.    Glossary 5.7.    Answers to Self- check exercises 5.8.    References/Suggested Readings 5.9.    Terminal questions 5.0 Introduction: Federations are formed out of political, economic and social need. In a federation, the nature of financial relations between the centre and' the states depend upon the financial position of the states and the way in which the federation is established, i.e., federation established through independent States coming together, or countries dividing themselves into state for administrative convenience. When states are the creators of federation, they will have an upper hand in financial matters, otherwise the centre will have an upper hand. The basic characteristic of federations is the division of functions and tax-sources between the centre and the, states under the constitution. But there should be no overlapping of tax jurisdiction, otherwise it will cause conflicts and confusion. 5.1.    LEARNING OBJECTIVES After reading this lesson, the learner will be able: •    To understand about Finance Commission, need and power •    To know about functions of finance commission •    To evaluate the 15th Finance commission. 5.2.    FINANCE COMMISSION: NEED & POWER Need In a federation, economic differences exists between different constituent units, two or more fiscal systems operate upon the financial resources of the citizens, and two or more taxing authorities Operate in the same geographical area. The. peculiarities of federal finance arise due to division of functions and financial resources between the centre and the states resulting in multiplicity of taxing and spending authorities and decentralized fiscal structure. A fixed division of functions and resources cannot work because of changing conditions, needs and aspirations. Hence, there is an inherent need for adjustments or reallocation, flexibility and adaptability without undermining the federal sprit and autonomy. The need for administrative and economic-efficiency, maximum utilization of national resources, 'acceleration of the pace of economic development, reduction in disparities and augmentation in production and productivity require adjustments and flexibility. Indeed, flexibility seems to be a sine-quo-non of a rational system of federal finance. The revenue sources allocated to the central and State Governments do-not yield precisely the sums needed for the discharge of functions by these governments. The Centres revenue expenditure has/been on rise or more than its revenue receipts yet it has been found by experience that federal revenues are growing more quickly than states revenues and states' expenditure is growing as rapidly as federal expenditure. Therefore, resources have increased in the account of federal government and for spending has increased in the account of states devolvement. This is so because federal government has more elastic resources an states have more expansive functions. Hence, the imbalance in federal financial system. It' becomes inevitable to make adjustments in the financial system of federations because of the growth of activities of the modem state on the one hand, and the lopsided allocation or growth of financial resources on the other hand. Hence, there is need for adjustments or transfer of resources in the light of changing circumstances so, a constant and constructive appraisal of the federal finance system is essential, more so in a developing economy. Article 280 of the Constitution provides for an independent quasi-judicial expert body known as finance commission for recommending the principles and proportions of financial transfers from the Union to the States through the built in balancing devices Finance Commission is constituted at the expiration of the every fifth year so at such earlier times as the President considers necessary. Finance Commission is governed by the basic principles of federal finance, which seeks to meet the residuary budgetary needs of the states, after taking into account the devolution of the proceeds of the 'Union taxes to the States. The underlying idea is that the constituents units, being at different stages of development need to be brought up to a minimum level, thereby aiming at equal sacrifice and equal opportunity. Finance Commission devise their own schemes and determine the quantum of statutory assistance to the states. By and large emphasis has been on the need to meet the budgetary gaps of the states. The Finance Commission recommends on the followings: 7.    The distribution between the Union and the States of the net proceeds of taxes which are the allocation between the States of respective shares of such proceeds. 8.    The principles which should govern the grants-in-aid of the revenues of the States out of the Consolidated Fund of India. The recommendations of the FC are laid before each House of Parliament. Eleven such Commissions have been set up so far. "The last" EC is yet to submit its report. Composition of Finance Commission The Indian Constitution has provided- for a FC under Article 280; to recommend mainly the financial transfers from the Union Government to the States with a view to reduce fiscal imbalances. This constitutional provision require that the President should appoint the-PC within two years from the commencement of the constitution and thereafter once in every five years or even earlier, if necessary. Article 280 also specifies broadly the terms of references of the FC under clause 3(a) and 3(b) and leaves only the terms of reference under clause 3(c) to be determined by the President depending upon the need for such references. Further, Article 280 has fixed the total strength of the FC by specifying that it could consists of: Chairman               1 Other members         4 However, the Article 280 has left to the Parliament the power to prescribe the qualifications of a Chairman and other members of the FC as also the procedures for their appointment "and for the work of the FC.. Accordingly, the Parliament has created a legislation viz. the Finance Commission (Miscellaneous Provisions) Act of 1951. The Finance Commission Act of 1951 specifies the qualification for the chairman and the members under section (3) in the following way: "The Chairman of the Commission shall be selected from among the persons who have had experience in public affairs, and the four other members shall be selected among persons who: 1.    are, or have been, or are qualified to be appointed as Judge of a high court: or 2.    have special knowledge of finance and accounts of the government, or 3.    have had wide experience in financial matters and in administration; 4.    have special knowledge of economics; The qualifications outlined for the members appear well-suited for the responsibilities of the EC. However, the same cannot be said for the Chairman, who should ideally have extensive experience in multiple fields listed for the members. Relying on experience in public affairs alone could lead to political appointments by the Union Government, neglecting the specialized knowledge and experience necessary for the role. Additionally, the use of the word "or" between the four qualifications for the members suggests that all four members could be chosen from the same area of expertise or experience, which was not the original intention of the framers of the Constitution. Although this extreme approach has not yet been implemented, it could be used by a defiant government at the center. Therefore, it would be better to replace "or" with "and" to clarify the intent and prevent misuse of legal provisions by the Union Government. Generally, the practice has been to appoint well-known public figures as Chairman, with members including at least one person representing the state's perspective, a distinguished economist, and a senior official from the Union Finance Ministry as the Secretary Member of the Commission. Power of the Finance Commission: According to clause (4) of Article 280 of the Constitution, the Commission possesses the powers that Parliament may grant to it through law. However, the background of this clause reveals that the Expert Committee on the Financial Provisions of the Union Constitution initially proposed that the Commission should have powers as determined by the President through an order. This proposal was accepted by the Drafting Committee on January 30, 1948. On February 3, 1948, the Drafting Committee revised this provision, replacing "President" with "Parliament" and "order" with "law." This revision was likely a result of changes made to clause (2), which granted Parliament the authority to specify the qualifications for the Chairman and members of the Commission. Consequently, Parliament was given the power to assign the Commission its authority through law, instead of the President doing so via an order. As per the Constitution, Parliament passed the Finance Commission (Miscellaneous Provisions) Act, 1951, which was later amended by Act 13 of 1955 to confer powers on the Commission. Section 8 of the Act grants the Commission civil court powers under the Code of Civil Procedure, 1908, in the following matters: a) Summoning and compelling the attendance of witnesses; b) Requiring the production of documents; c) Requesting public records from any court or office. Additionally, clause (2) of Section 8 empowers the Commission to require individuals to provide information on matters deemed relevant to its work. Such individuals are legally obligated to supply the requested information, as outlined in Section 176 of the Indian Penal Code. Furthermore, the Commission is recognized as a civil court under sections 480 and 482 of the Code of Criminal Procedure, 1898. As such, it has the authority to summon individuals, papers, and records, and compel the provision of information. Self-Check Exercise-1 Q.1 As per Article 280 of the constitution, the commission enjoys such powers as Parliament by law confers on it. True/False Q.2 Finance Commission recommends mainly the financial transfers from the Union Government to the States with a view to reduce fiscal imbalances. True/False 5.3.    Functioning of the Finance Commission: Once the Union Government announces the constitution of the Commission, the Chairman and designated members take charge. They then determine the sequence of the Commission's tasks and establish the rules of business. The rules of procedure are based on those outlined in the Constitution. Since the Third Finance Commission, each subsequent Commission has typically adopted the rules set by the Second Commission, with minor adjustments. They also generally follow the procedures established by their predecessors for engaging with State Governments and other stakeholders. The Commission issues a press note inviting input from all interested parties on the tasks assigned to it. After the first meeting, the Commission’s member-secretary sends a letter to the State Governments requesting them to provide forecasts of receipts and expenditures for both revenue and capital accounts for the period covered by the Commission’s report. Additionally, the States are asked to supply information on certain related matters. Similarly, the member-secretary writes to the Union Ministry of Finance requesting forecasts of the Union's revenue and expenditure for the period covered by the report, specifying the divisible pool of income tax and other central taxes likely to be allocated to the states. The Comptroller and Auditor General directs the states’ Accountants General to assist the Commission with any required information. Since the establishment of the Sixth Commission, the range of information sought from the Accountants General has expanded significantly compared to previous Commissions, largely due to the inclusion of state governments' non-paid capital accounts in their scope. The Commission receives memoranda from the States in response to its press note and follow-up letters on the issues at hand. These memoranda are reviewed, and key points for discussion with the States are noted. Similarly, the Commission receives estimates of receipts and expenditures for the relevant period from the State Governments. The Commission verifies the reliability of these estimates and invites relevant state officials to Delhi for clarification. The Sixth Commission introduced preliminary discussions between Commission officers and State Governments before formal meetings, a process that helped clarify numerous details and significantly streamlined subsequent discussions with State Chief Ministers, their colleagues, and senior officials. As stated by the Sixth Commission, "this preliminary exercise considerably facilitated the subsequent discussions." Following this, the Commission sets its schedule for state visits. Once this initial phase is completed, the Commission embarks on a tour of the states, typically visiting the capitals. After completing these discussions and analyzing the materials presented, the Commission holds consultations with officials from the Union Ministry of Finance regarding the Union Government's forecasts and its views on the Commission's terms of reference. Once the second stage concludes, the Commission reconvenes in Delhi to prepare and finalize its report. At this point, the role of the staff becomes crucial. The Commission is supported by skilled officers, research staff, advisors, and consultants, who contribute significantly to the Commission's successful operation and high-quality output. Fifteenth Finance Commission (Chairman: N.K. Singh) The terms of reference and key considerations for the Fifteenth Finance Commission, under the leadership of N.K. Singh, for the period 2020-25, in formulating its recommendations, are as follows: •    The distribution of net tax proceeds between the Union and the States, as outlined in Chapter 1, Part XII of the Constitution, and the allocation of the respective shares of these proceeds among the States. •    The principles that should guide the allocation of grants-in-aid from the Consolidated Fund of India to the States, as specified under Article 275 of the Constitution, for purposes beyond those mentioned in the relevant clauses of that article. •    The measures required to enhance the resources of the states' Consolidated Funds to support Panchayats and Municipalities, based on the recommendations made by the respective State Finance Commissions. The Commission will also assess the financial health of the Union and State Governments, focusing on deficits, debt levels, cash balances, and fiscal discipline. It will recommend a roadmap for fiscal consolidation aimed at sound fiscal management, considering the responsibilities of both the Central and State Governments to maintain appropriate levels of debt and deficit, while promoting inclusive growth. The Commission will also evaluate whether to provide revenue deficit grants. In formulating its recommendations, the Commission will consider, among other factors, the financial resources available to both the Central and State Governments for the five-year period beginning April 1, 2020. This will be based on expected tax and non-tax revenue levels for 2024-25, taking into account both the potential and fiscal capacity of these revenues. Self-Check Exercise-2 Q.1 Finance Commission suggests the measures needed to augment the consolidated fund of a state to supplement the resources of the Panchayats and Municipalities in the states on the basis of the recommendations made by Finance Commission of the State. True/False Q.2 Finance Commission recommends the distributions between the union and the states of the net proceeds of taxes which are to be or may be, divided between them under chapter 1, Part XII of the Constitution and the allocation between the states of the respective shares of such proceeds. True/False 5.4.    SUMMARY The Ministry of Finance is responsible for mobilizing resources to Finance Government spending and controlling Government spending at both the stages i.e. budget making and budget execution stage. It is also a major participant in the making of fiscal and Economic policies. It is organised into five department i.e. Department of Expenditure, Department of Economic Affairs, Department of Revenue, Department of Disinvestment and Department of Financial Services. Article 280 of the Constitution of Indi a provides for a Finance Commission as a quasi-judicial body. It is constituted by the President of India every fifth year or at such earlier time as he considers necessary. Finance Commission consists of a Chairman and four other members to be appointed by the President. The Constitution of India envisages the Finance Commission as the balancing wheel of the Fiscal federalism in India. 5.5.    GLOSSARY •    Establishment Division : it is a division of Deptt. of expenditure headed by Joint Secretary. •    Fiscal decentralization : it is essentially the transfer of expenditure responsibilities and revenue assignment to lower level of government. •    Composition : the parts that form something the way in which the parts of something are arranged. 5.6    Answers to Self-Check Exercises Self-Check Exercise-1 Q.1 True Q.2 True Self-Check Exercise-2 Q.1 True Q.2 True 5.7.    REFERENCES/SUGGESTED READINGS •    Laxmikant, M. 'Public Administration' Fifth Edition, Tata McGraw-Hill Publishing Company Limited, New Delhi, 2016 •    Gupta., B.N. Indian Federal Financial and Budgeting Policy, Chaitanya Publishing House, Allahabad, 1970. •    Wattal., P.L. Parliamentary Financial Control in India, Minerva Book Depot, Bombay, 1985 •    Handa., K.L. Financial Administration in India, HPA New Delhi, 1988 •    Pyhrr., P.A. Zero-Base Budgeting, Johan Wiley and Sons, New York, 1973. •    Baisys., K.N. Financial Administration in India, Himalaya Publishing House, Bombay, 1986 •    Mahajan., S.K. & Mahajan., A. P. Financial Administration in India, P.H.I, New Delhi. •    IGNOU, New Delhi, egyankosh 5.8.    TERMINAL QUESTIONS a)    Discuss the main functions of Finance Commission. b)    Finance Commission is a balancing wheel of Fiscal Federation in India. Discuss. BLOCK-II Unit-6 BUDGET: MEANING AND PRINCIPLES Structure 6.0. Introduction 6.1.    Learning objectives 6.2.    Balanced budget & Problems of deficit financing Self-Check Exercise-1 6.3.    Principles Self-Check Exercise-2 6.4.    Summary 6.5.    Glossary 6.6.    Answers to self-check exercises 6.7.    References/Suggested Readings 6.8.    Terminal questions 6.0. INTRODUCTION Since the inception of the planning era in India, the budgetary transactions of the governments, both at the Union and State levels, have assumed a great significance on account of their magnitude and diversification in the direction of socioeconomic development. Before we discuss the principles of budgeting, let us understand the meaning of the term Budget. The Budget is a statement of Income and Expenditure for a particular period of a Government. Aaron Wild Avoky defines budgets as, attempts to allocate financial resources through political process in the context of USA. The Public Accounts Committee states the object of budgeting in the following words: "The budget is designed to provide for Parliamentary control, for administrative accountability, for the auditing of transactions, for ensuring that the expenditure incurred by the Government is in the specific manner and by the specified authority." The Oxford Dictionary defines a budget as a "Statement of probable revenue and expenditure for the ensuring year with financial proposals, founded thereon, annually submitted by the exchequer for the approval of the House of commons. Hence, any analogous statement, estimate or proposal." According to W.F. Willoughby, "The Budget, thus, is something much more than a mere estimate of revenues and expenditure. It is, or should be at once a report, an estimate, and a proposal. It is, or should be, the document through which the Chief Executive... comes before the fund raising and fund granting authority and makes a full report regarding the manner in which he and his subordinates have administered affairs during the last completed year; in which he exhibits the present condition of the public treasury: and on the basis of such information, sets forth his program of work for the year to come and the manner in which he proposes that such work should be financed." A budget is "a comprehensive and coordinated plan, expressed in financial terms, for the operations and resources of the government for some specific period in the future". It is a predetermined plan expressed in financial terms which generate all the income and expenditure estimates required by a government for a definite' future period. Budget preparation is a highly intellectual exercise and needs expertise in the areas of finance, development administration, statistics, computer programming, international economics and trade. It is very difficult to discuss all the principles, which need to be followed in the preparation of the budget. Accordingly, we discuss here only a few important principles. 6.1.    LEARNING OBJECTIVES After studying this lesson, the learner will be able: •     To understand the meaning and principles of budget. •     To know about preparation of budget as per Economic and functional classification •    To discuss the different types of budget. 6.2.    BALANCED BUDGET AND CHALLENGES OF DEFICIT FINANCING A balanced budget means that the government's revenue matches its expenditure. When the government’s income exceeds its expenditure, the budget is considered a surplus, which can lead to deflationary conditions, resulting in unemployment and falling prices. On the other hand, if income is less than expenditure, the budget is termed a deficit, which can cause inflation and rising prices. However, many governments, particularly in developing countries, use deficit budgeting as a tool for development. Graham Hockley has advocated for using deficits to stimulate development. He states, "The concept of the balanced budget is appealing on an individual level, due to the analogy with household economies, but it holds no validity at the national level. It is dangerous as it obscures the real issues, which concern the optimal use of the nation’s resources." In a broader sense, the gap between investment and domestic savings (resources) is an indicator of the deficit in the economy. The First Five-Year Plan defines deficit financing as, "The term deficit financing refers to the direct increase in gross national expenditure through budget deficits, whether on the revenue or capital account. This policy involves government spending exceeding its revenue from taxes, state enterprise earnings, public loans, deposits, and other sources. The government may cover the deficit by drawing from accumulated reserves or borrowing from the banking system," which leads to an increase in the money supply. The rationale behind deficit financing is the need for resources to promote development. Since taxation and borrowing alone are insufficient, the government resorts to deficit financing to expedite the development process. Deficit financing becomes necessary due to the depletion of resources and the rise in expenditures. The term "deficit financing" used by the Government of India has typically referred to "overall budget deficit," which excludes government borrowing from markets or raising funds from public savings schemes like national small savings, post office savings, and provident fund collections. These receipts are classified as capital receipts and are excluded from the budgetary deficit calculation. This traditional view of deficit financing was limited and only indicated the extent of the monetary deficit. A revenue deficit occurs when current revenue expenditure exceeds current revenue receipts, reflecting the government’s inability to cover its current expenses with its current revenues. A budgetary deficit is the excess of total expenditure over total receipts, which includes both revenue and capital receipts. After years of debate over the "budget deficit" or "overall budget deficit" concept, the Finance Ministry moved away from this conventional definition in the 1997-98 budget. Fiscal deficit is the difference between total expenditure and total revenue receipts, including capital receipts but excluding borrowings and liabilities. In recent years, the Finance Ministry introduced the concept of "primary deficit," which is calculated as: Primary Deficit = Fiscal Deficit - Interest Payments. To illustrate, revenue deficit increased significantly from Rs. 18,650 crore in 1991 to Rs. 77,430 crore in 2001. As a percentage of GDP, the revenue deficit averaged around 3.6%. Meanwhile, fiscal deficit grew rapidly from Rs. 44,630 crore in 1990-91 to Rs. 1,11,280 crore in 2000-2001. The government had set a policy to reduce the fiscal deficit to a permissible 4% of GDP, but it has yet to meet this target. It is crucial to understand that deficit financing cannot create real resources that are lacking in the economy. It is merely a mechanism to transfer resources to the government. The actual resources needed for economic development—such as materials, equipment, skills, and labor—must already exist within the economy. These cannot be generated by printing money or issuing bank credit. PROBLEMS OF DEFICIT FINANCING a)    Inflationary Rise in Prices Prices tend to increase with the increase in money supply. Jacques de Larosiere, Governor of central Bank France, opines that, "inflation is socially unjust as it always hits the worst off hardest-but also it is regressive in terms of economic development.. inflation destabilizes expectations, affecting investment and consumption decisions." b)    Change in the Pattern of Investment People start investing in unproductive investments like real Estate to beat the inflationary trends. c)    Forced savings resulting in less conssimption by the fixed income groups. d)    Credit Creation by Bonds. e)    Self-defeating in the Long-Run The Economic Survey also expressed that persistent and large deficits have serious implications not only for the finances of the Government but also for price stability and economic growth... The immediate task is to check the fiscal imbalances before the situation assumes alarming proportions. We have resorted to deficit financing beyond reasonable limits. The purpose of deficit financing could not be attained, as the resources raised through deficit financing have not been profitably used. The country is passing through a very critical period. It is high time that we should be cautious in the use of more and more deficit financing. The government may also try to increase its own resources through the checking of tax evasion and by reducing its expenditure through administrative reforms. Structural Reforms should be implemented quickly otherwise, the resources will be eaten away as before. Deficit financing could be a helpful device and a valuable tool in promoting economic development in an under-developed country like India. The increase in the volume of money (because of deficit financing) results in higher demand for labor and other resources: As such, deficit financing is regarded as a good tool to activate a backward and developing economy. But, extreme caution is necessary in using deficit financing for economic development. For, it is basically, inflationary in character, and hence, proper controls are required. Besides, experience of other countries clearly shows that deficit financing may lead to excessive paper currency notes which will greatly reduce the value of money. Deficit financing, like fire, is a good servant but a bad master. This is exactly what has happened in our country. It needs radical steps to control deficit financing. Now that inflation has been officially declared as our number one problem, everyone has started cursing deficit financing. It is important to emphasize the fact that deficit financing cannot create real resources, which do not exist in the economy. It is otily a device, which helps in the transfer of resources to the Government. The real resources required for economic development must exist in the form of materials, equipment, skill and labor. These things cannot be created by printing money or issuing bank credit. However, we must use the deficit budget with caution, otherwise, a country can be trapped into debts and the purpose of development can be defeated. The extent of the deficit budget needs to be kept under control and within reasonable limits, otherwise, the whole economic and financial system may collapse. PREPARATION OF BUDGET AS PER ECONOMIC AND FUNCTIONAL CLASSIFICATION The budget presented on the basis of revenue and capital accounts does not clearly reveal the true nature of economy. It is not possible, for example, to get a clear idea of capital formation out of budgetary resource's. There is a need to prepare economic and functional classifications of Government budgetary, transactions to understand the true nature of fiscal and economic policies. The ultimate aim of these classifications is to correlate the information generated from the Government Sector to other major sectors of the economy required for an effective economic policy. The Economic and Statistical Organization of the Planning Department of Haryana in Publication No. 493 has delineated the budgetary transactions of the Government of Haryana into six accounts (Based on United Nations Documents) as given below: Account I : Transactions in Goods and Services and Transfers. Current Account of Government Administration. Account II : Transaction in Goods and Services and Transfers Current Account of Departmental Commercial Undertakings. Account III : Transactions in Goods and Services and Transfers Capital Account of Government Administration and Departmental Commercial Undertakings. Account IV : Changes in Financial Assets Capital Account of Government Administration and Departmental, Commercial Undertakings. Account V : Changes in Financial Liabilities Capital Accounts of Government Administration and Departmental Commercial Undertakings. Account VI : Cash and Capital Reconciliation Account of Government Administration and Departments Commercial Undertakings. The economic classification groups expenditure by their economic character. B.N. Gupta, mentions the following limitations of economic classification? f)    Economic classification does not purport to measure the whole of government's impact on levels of economic activity. It measures a part of the impact and this too, only in approximate terms. It can furnish information about the contribution of the government to the national income and whether that contribution is increasing or decreasing. g)    Such a classification can record only those changes which are due to governmental revenue and expenditure and not otherwise. h)    An economic classification does not, in itself, provide an estimate of the effects of governmental activities on the distribution of income, and not the effects on its division among sectors of the economy (Agriculture, Industry, etc.) This kind of information is of great importance in the formulation of fiscal policy, for both expenditure and taxation. Functional classification groups the heads of expenditure according to the particular purpose they serve. The functional classification enables one to distinguish between development and non-development expenditure. The UN report on Economic and functional classification of Government transactions has suggested the following functional classifications under eleven 'major categories; (1) General, Government Services, (2) Civil Defence (Police), (3) Education, (4) Medical,. Public Health and Family Welfare, (5) Social Security and Welfare Services, (6) Housing and Community Services, (7) Cultural, Recreational and Religious Services, (8) Economic Services, (9) Other Purposes, (10) Interest, and (11) Public Debt. These can be further split into development and non-development activities: a)    Development activities- Education, health, social security and welfare, housing and other community services, cultural, recreational and religious services, economic services. b)    Non-Development activities- General Government services, civil defence, other services, interest, public debt. Such a classification can help in the development of performance budgeting, which is ideal for the developing countries. C.O. Omeh has rightly said &at, "the modem budgetary theory presupposes that budgetary policy is a powerful instrument of economic regulation. It can, therefore, be employed to attain the planned economic objectives." Such economic goals include high rates of economic growth; reduction in unemployment or attainment of full employment; stability of the price level and equitable distribution of income or reduction in inequality. The budgetary policy could, therefore, be used to keep the economy on an even keel. Self-Check Exercise-1 Q.1 Deficit financing could be a helpful device and a valuable tool in promoting economic development in an under-developed country like India. True/False Q.2 Who said that, "the modem budgetary theory presupposes that budgetary policy is a powerful instrument of economic regulation. It can, therefore, be employed to attain the planned economic objectives." COMPREHENSIVENESS The budget needs to be an integral part of the fiscal policy of the Government and should project a clear picture of revenue and expenditure of the Government. The comprehensive budget will help us to understand the financial health of the Government- a sine-quo-non for development and nation building. The elements of comprehensiveness and coordination are indispensable in budgeting. Various ministries are required to prepare their individual budget estimates, which need coordination, as they are mere components of the toaster or comprehensive budget. A master budget is, therefore, a conglomeration of budget estimates of individual ministries, which have been coordinated and collated into a single comprehensive budget. INTELLIGIBLE The Budget may be couched in such language and style, which can be intelligible to different sections of the people. In practice, budget is drafted in such difficult language that it is beyond the comprehension of the ordinary citizen, resulting in his disassociation with budget and loss of interest. Keeping in view the level of literacy in the country, we need to find ways and means to enlist the support of the common people and create interest in them so that they can give their viewpoint and assert in claiming the benefit out of the budget. ACCURACY AND EXACTNESS All the officers engaged in the preparation of the budget need to devote time and energy to collect facts required for the preparation of the exact budget, otherwise it leads to faulty distribution of resources among, different activities and organizations. This is one of the signs of bad administration, as it results in some organizations having more money than required while others having less money than requited. P.K. Wattal has rightly said that, "the task of preparing budget estimates is of one requiring sound judgement and experience. It is not a simple arithmetical exercise in striking out average of previous year's actuals.... Behind figures lie the insistent realities of administration. The Eighth Report of Public Accounts Committee 2000-2001, Lok Sabha, based on thorough scrutiny of many departments, rightly mentions that, "The responsibility- of framing Budget Estimates on realistic basis and also to ensure that there is neither considerable short-fall nor unforeseen excess expenditure rests on Ministries/Departments. To achieve this, the Financial Advisers are required to ensure that prescribed Financial Rules and procedures are followed scrupulously. The Heads of the Departments have been advised accordingly The Ministries'/Departments have also been advised to devise suitable mechanism for tightening the exchequer control so that it does not lead to excess expenditure and deal sternly with cases where any slackness in following the prescribed financial rules is noticed". It is, thus, necessary to exercise utmost care and foresight in framing the forecast of receipts and estimates of annual expenditure. There should be a close approximation between the income forecast and actual receipts and also between the budget grants and the actual expenditure. The Sixth Report of Public Accounts Committee 1999-2000, 13th Lok Sabha rightly comments that, "Although the Constitution as well as the General Financial Rules and the provisions in various department codes clearly stipulate that no money shall be drawn from the Consolidated Fund of India except under appropriation made by law and that no expenditure shall be incurred over and above the total grants or appropriations authorized by Parliament by law for a financial year except after obtaining supplementary funds or an advance from the Contingency Fund, the Committee are constrained to observe that some Ministries/Departments of Union Government continue to display callous attitude towards rules laid down for containing the expenditure within the authorized limits. While viewing this state of affairs with grave concern, the Committee would like to emphasize that the Secretary, Department of Expenditure in the Ministry of Finance should strongly and effectively draw the personal attention of the Secretaries in all the Ministries/ Departments of the Union Government to bear in mind that excess expenditure is unauthorized" expenditure and that the authority administering a grant/appropriation would be held personally responsible for the control of expenditure against the sanctioned provisions in terms of the instructions issued by Department of Expenditure on 17.10.94 in pursuance of the recommendation made by the Committee in paragraph 1.20 of their 60th Report (10th Lok Sabha). The Committee also desire the Department of Expenditure to impress upon all the Ministries to ensure rigid enforcement of prescribed financial rules and procedures so as to contain the instances of excess expenditure only to genuine and inevitable payments. Steps should also be taken to deal sternly with cases where any slackness is noticed in observance of prescribed financial rules." All the officers need to make earnest and sincere efforts to ensure that money in the budget is allocated to the areas where maximization of output is possible, and in the priority areas. It has been observed that most of the officers are in a hurry and prepare the budget on intuition, rather than facts. Such officers ought to be given training in the art and science of budgeting. PUBLICITY Since the resources are to be raised from the public, they need to be involved at different stages of the budget preparation. It is seen that only a negligible proportion of the people react to budget proposals, which is not a sound tendency. We should educate people in the rural areas to understand the implications of the budget so that they can contribute to this exercise and watch their own interests. RULE OF LAPSE Budget may be for a definite period and whatever is not used during that period may be transferred back to the state exchequer. This would keep the drawing and disbursing officers alert and active as they have to use these resources for the welfare of the people in given period of time. The period may be a year as is generally the case in modem Government, including India. However in United Nations, the budget is prepared Biennially. SEPARATION OF REVENUE AND CAPITAL ACCOUNTS The revenue and capital portions of the budget should be kept separate. The revenue and capital portion of the budget should be indicated separately so that a correct understanding of the budget is possible. GROSS AND NOT NET INCOME The budget should be based on gross income and not net as it gives a total and realistic picture of working of a department by examining separately income and expenditure therein. FEED BACK The officers dealing with budget should get a proper feedback, which can help in reviewing and further action during supplementary budget or in the-next year. Feedback should be an integral activity of the budget and in fact should be inbuilt in the system. RESEARCH The Government of India and State Government may seek help, guidance and advice from financial research institutions, Departments of Economics. Public Administration, Commerce and Business Management etc., in framing the budgets, based on the research conducted by them. This would bring "Think Tank" of the Government" and the universities nearer, to ensure welfare of the people. The universities would also become active with this role and serve as a bridge between the community and the Government. UNITY OF THE BUDGET The budget of the Government should be based on the concept of unity. In India, the Railway budget was made separately to take special care of its business nature. But now there is only one Annual Budget in India. CASH BASIS Estimates should be on a cash basis and not the accrual basis i.e. that money should be included in the budget, which is realized in that period. This will make the budget realistic. Self-Check Exercise-2 Q.1 Estimates should be on a cash basis and not the accrual basis. True/False Q.2 The budget should be based on gross income and not net as it gives a total and realistic picture of working of a department by examining separately income and expenditure therein. True/False 6.4.    SUMMARY The term "Budget" refers to the statement of Income and Expenditure for a period of a government. The Oxford dictionary defines a budget as a "Statement of probable revenue and expenditure for the ensuring year with financial proposals funded thereon, annually submitted by the exchequer for the approval of the House of Commons. A budget is a "Comprehensive and Coordinated plan, expressed in financial terms, for the operations and resources of the government for some specific period in the future. It is a predetermined plan expressed in financial terms which generate all the income and expenditure estimates required by a government for a definite future period. 6.5.    GLOSSARY •    Estimate : a gross or judgement about the size, cost etc. of something. •    Accountability : admitting responsibility. •    Incremental : gradational, gradual step by step. 6.6.    ANSWERS TO SELF CHECK EXERCISES: Self-Check Exercise-1 Q.1 True Q.2 C.O. Omeh Self-Check Exercise-1 Q.1 True Q.2 True 6.7.    REFERENCES/SUGGESTED READINGS •    Laxmikant, M. 'Public Administration' Fifth Edition, Tata McGraw-Hill Publishing Company Limited, New Delhi, 2016 •    Gupta., B.N. Indian Federal Financial and Budgeting Policy, Chaitanya Publishing House, Allahabad, 1970. •    Wattal., P.L. Parliamentary Financial Control in India, Minerva Book Depot, Bombay, 1985 •    Handa., K.L. Financial Administration in India, HPA New Delhi, 1988 •    Pyhrr., P.A. Zero-Base Budgeting, Johan Wiley and Sons, New York, 1973. •    Baisys., K.N. Financial Administration in India, Himalaya Publishing House, Bombay, 1986 •    Mahajan., S.K. & Mahajan., A. P. Financial Administration in India, P.H.I, New Delhi. •    IGNOU New Delhi, egyankosh 6.8.    TERMINAL QUESTIONS o)    "Budget should be on Annual Basis", Discuss. p)    Discuss about the elements of comprehensiveness & Coordination of Budget. Unit-7 PREPARATION AND PASSAGE OF BUDGET Structure 7.0. Introduction 7.1.    Learning objectives 7.2.    Features & Preparation of budget 7.4.    Preparation of defence & railway budget 7.5.    Summary 7.6.    Glossary 7.7.    Self check exercises 7.8.    References/Suggested Readings 7.9.    Terminal questions 7.0. INTRODUCTION Normally, there are five stages in the budgetary procedure : (1) preparation of the budget; (2) budget in the legislature-presentation, discussion and sanction; (3) execution of the budget; (4) national accounting : and (5) audit. In India, functions (1), (3) and (4) are the responsibilities of the executive government; function (5) is performed by the Comptroller and Auditor General .of India In this chapter, a discussion on the procedure, of the preparation of the budget in this country would be attempted; but before that let us take up the normal features of budget. 7.1.    LEARNING OBJECTIVES After studying this lesson, the learner will be able: •    To understand the features of budget. •    To comprehend about method of budget preparation. •    To know about estimates of reverse. 7.2.    FEATURES & PREPARATION OF BUDGET : Features The budget system, it will be observed, is the means by which financial administration is expressed broadly, and, therefore, what has been laid about the general characteristics of a good system of financial administration applies equally to the budget system. The budget system consequently, provide for unity and centralisation; for control at all stages of budget procedure; for simplicity, promptness regularity: and for efficiency of functioning. Obviously, the budget should be characterized by the following : 1)    The estimates should be on cash basis The budget should be prepared on the basis of what is expected to be actually received for paid, under sanction of the legislature during the current financial year and the arrears of past years, and not for demands or liabilities falling due within the years. Consequently, the budget is an estimate of falling due within the years. Consequently, the budget is an estimate of cash receipts and cash payments during the financial year to which it relates, notwithstanding the fact that such receipts . and payments relate to the year or previous year(s). 2)    One budget for all functional transactions: Separate - budgets for administrative departments or preparation and presentation of extraordinary budgets for special purposes observe the true financial position of the state and make. It difficult to coordinate the financial activities of the various departments so as to assess the real surplus or deficit on the whole. Accordingly, these should be principle of financial transactions of the government for the year. The aforesaid criterion, however, applies to administrative departments, and not to be departmental commercial sand: industrial undertakings, like Railways in India, for which separate budget is considered necessary. 3)    Budgeting should be gross and not net : The gross transactions in the case of both receipts, and charges in each departments should be entered separately estimating, the receipts on the receipt side of the budget and the expenditure on the expenditure side, i.e. to deduct receipts from charges or vice versa and frame the budget for net receipts or expenditure is not allowed. The provision is necessitated because in the absence of such, procedure, the legislature would lose its control over the expenditure of the government which has considerable receipts for meeting expenditure and approaches the former for grants only for the amount of the expenditure which the latter cannot meet from such receipts. 4)    Estimating should be close : The general tendency among the persons responsible for estimation of the budget proposals is to underestimate the revenue, and over-estimate the expenditure. To a certain extent this tendency may be natural and prudent, but the budgeting should be as close as possible so as to assure the legislature that more should be as close as possible so as to assure the legislature that more money is not taken away from the tax payer than is absolutely necessary for the requirements. Obviously, this would be the case if the underestimation of revenue and the over-estimation of expenditure is out of proportion. Moreover, the Ministry of Finance should also be interested to ensure that the administrative departments do not get more funds than what they really need, if a department is allotted funds which are an over-estimate and accordingly they would not be spent, the other useful schemes with other departments may be unnecessarily starved of financial allocation. 'Close budgeting means also that the services for which provision has been made out, the particular items included in any vote should be specified and there should be no demands for lump-sums under any head which the executive may be at liberty to allot after the budget has been voted, for any purpose it pleases. 5)    The budget should be on actual basis : Barring for exceptions almost in all modern economics, the budgets are voted for one year. Firstly, a year corresponds with the customary measure of human estimation, and secondly, a year appears to be the maximum period for which legislatures can afford to give financial sanctions to the executives and the minimum time which the executive needs to. Execute the budget effectively. 6)    The rule of lapse: All appropriations voted by legislature expire at the close of the financial year as "no portion unexpended during the year may be reserved or appropriated by transfer to deposits or any other head, or drawn and kept in the cash chest to obviate the lapsing of the grant was made. This is known, as the 'rule of the lapse'. Although the rule prevents economical planning of expenditure over a long periods and also leads to what is known as rush of expenditure at the end of the financial year, the financial control would become impossible if the administrative departments were permitted to spend, in any year, unutilized savings of previous years in addition to the grants voted for that particular year. Moreover, any advice for rendering grants non-lapsing by withdrawing amounts to a fund outside the Consolidated Fund is contrary to the very fundamentals of parliamentary control and proper financial discipline. In India, in order to avoid the abnormal rush of payments towards the close of the financial year, the administrative ministries had been advised by the Union Ministry of Finance that, whenever grants have not been used to the full extent for valid reasons, the Finance Ministry would be prepared to consider; proposals to allot provision for the unexpended amounts either in the original budget of the coming year or by means of supplementary grants in that year provided the purposes for which these amounts were originally included in the sanctioned grants continue to be operative. It is hoped that, with this assurance, the ministries concerned would take positive steps to prevent the rash of expenditure in the closing months of the year, and also to refrain from making purchases in a hurry merely to avoid lapse of grants. 7)    Form of estimates to correspond to the accounts : It is essential that, for an easy understanding and proper financial control, the form of estimates should conform to that of national accounts. In India, the rules for the conduct of business in parliament provide that the budget shall be presented to parliament in such term as the Finance Ministry may, after considering the suggestions (if any) of the Estimate Committee settle. 8)    Estimates to be prepared on departmental basis : Each ministry/Department should estimate for the whole receipts and payments with which it deals finally, irrespective of the fact that such receipts or charge is on account of another ministry /department. PREPARATION OF BUDGET The preparation of the budget estimates in the first step towards the financial administration of any country. Viewed from the authority responsible for preparing the budget, the budget can be classified into three categories: (a) Legislative type, (b) executive type, and (c) board or commission type. Legislative type or budget is prepared ordinarily by a committee of legislature on the request of the executive. Ordinarily by a committee of legislature on the request of the executive. Since it is the legislature which prepares the budget as well as approves it, this type of budget, gives more importance to the legislature than the executive. It is doubtful, however, if the legislature would command the necessary competence in order to prepare a budget as the requirements of various ministries/departments could best be known only to the executive. As regards the executive type of budget, in almost all the countries who have adopted a system of parliamentary democracy, this type of budget is in vogue. After the budget is approved by the legislature, the executive becomes responsible for its execution. The board or commission type of budget is one which is prepared by or bound or commission consisting' wholly of administrative officers or of administrative and legislative representatives, jointly. The system is prevalent in some of the states in the Unites States of America and in some municipal governments. Of all the agencies which can possibly be charged with the responsibility of the preparation of the budget, the executive should be the fittest body. "The Executive alone can and should do this work, situated at the centre of government, reaching through its hierarchical organisation to the smallest unit, the executive more than anybody else is in a position to feel public needs and wishes, to appreciate their comparative merits and accordingly to calculate, in the budget, a just appropriation which each of these needs and wishes deserves. Others may know certain ' details as well possibly better than the executive, but no body can have so extensive and impartial a view of the mass of these details, and no one can comprise the conflicting interests with so much competence and precision. Moreover the execution of the budget, is compelled' thorough concern as to its future responsibility, to prepare as well execute the plan." According to another authority, the responsibility for preparing the budget falls upon the executive a procedure which is quite universally approved among the critics. Public opinion ordinarily holds the chief executive responsible for the financial success over either the receipts or the expenditures. The executive is in the best position to view the financial problem as a whole and to assume the responsibilities for the success and failure of a financial programmes. There is a general agreement, therefore, that the preparation of the budget should be the responsibility of the executive government. In India, as in any other democratic country where the budgetary system has been adopted the same, principle is followed and there is a clear provision in the financial codes that the responsibility for the preparation of the budget estimates lies on the executive government. The task relating to the preparation of the budget is carried on by three agencies: (1) the Ministry of Finance; (2) the administrative ministries/departments; and (3) the Planning Commission, India adopted a system of planning for economic development since 1951- 52, and since a major portion of investment activity is undertaken in the public sector, while regarding the budget, particularly the capital budget, the Ministry of Finance has to be in close touch with the Planning Commission in order to incorporate in the budget the plan priorities. In India, the 'Annual Financial Statement' laid before both the Houses of Parliament in accordance with the provisions of the constitution, constitutes the budget of the Indian Union. This statement covered all the transactions of the union government during the current and the budget years. The budget of the Indian Railways is separately presented to the parliament and dealt by it. But as the receipt and expenditure of the railways are, nevertheless, the receipts and expenditure of the union government, the figures relating to those are also included in lump sum in the above statement. The Annual Financial Statement is prepared by Major Heads of Accounts, such heads of accounts falling either under Consolidated Fund or in the Public Account of the government. The receipts and expenditure of government fall under one are other major heads either in the consolidated fund or the Public Account in accordance with the prescribed rules of classification. The estimate of expenditure, must be shown separately: 1.    The sums required to meet expenditure which the constitution has 'charged' upon the Consolidated Fund of India (a) this expenditure is obligatory and therefore, no subject to the "site of the legislature, although there is nothing in the constitution to prevent a discussion on it; and (b) the sums required to meet other expenditure to be voted by the legislature. The estimates are also split-up from those on Capital Account. The letter voters disbursements on capital outlay, advances granted by the government, discharge of permanent debt and other items of similar nature. The estimates of expenditure are also split-up into demands for grants. These demands of expenditure are also split-up 'into demands for grants. These demands are arranged Ministry-wise generally cover the requirements of each administrative service. The revenue estimates are prepared in the Ministry of Finance on the basis of existing levels of taxation at that Mme and the trends of collections. The effects of taxation proposals, if any, are indicated separately in the budget. The Indian budget year commences on 1st April and consequently the budget grants for the budget year are available for expenditure from 1st April to 1st March next year. The various stages leading upto the preparation and compilation of the budget are: 1)    preparation and consolidation of the estimates . by the needs of ministries/departments; 2)    scrutiny of the estimates by tile department controlling, officers; 3)    scrutiny by the Ministry of Finance; 4)    consolidation of the estimates by the, Ministry of Finance; and 5)    consideration of the consolidated estimates by the executive government and a further review in the light of any comments. In about September or October every year, i.e. 5-6 months before commencement of the fiscal year. The administrative units or the operating agencies are required to make estimates of the expenditure required during the next fiscal year. The general rule is that he who spends the money must also prepare estimate in advance. The items of income and expenditure contained in these statements show: (a) actual figures or the previous three years; (b) the sanctioned budge; estimates of the current year; (c) revised estimates for the current year; (d) proposed estimates for the next financial year, with reason for any increase or decrease in estimate; and (e) accruals of the current year available at the time of preparation of the estimates and accruals for the corresponding period of the previous year. "The tasks of framing the budget estimates is one requiring sound judgement' and experience, it is not a simple arithmetical exercise in striking out averages of previous years accruals and putting in a safe figure which would not look exactly like a repetition of tire last year's performance. No circumstances of one year are exactly similar to those of the previous year and yet they are not quite dissimilar. One has therefore, to use his judgement, estimating the similarities and dissimilarities and making due allowances for each." The estimates proposed by the ministries/departments then go to the respective department controlling officers who: (a) scrutinize them fully: (b) revise the estimates where necessary giving reasons therefore: and (c) give the approval. The consolidated estimates are then transmitted is to Ministry of Finance. Self-Check Exercise-1 Q. 1 In budget, estimates to be prepared on departmental basis. True/False Q. 2 In Constitution, Annual Financial Statement is mentioned instead of budget. True/False 7.3 PREPARATION OF THE DEFENCE & RAILWAY BUDGET:DEFENCE While preparing the estimates for defence, such estimates are split up into primary units of appropriation. The overall control of the defence vests in the Finance Wing of the Ministry of Defence, which is divided into several branches each under a principal staff officer. These branches prepare the estimates which are submitted to the Ministry of Defence where they are scrutinized in a meeting where three services are invited and at which the representatives of the Finance Division of the Ministry of Defence are also present. Then the estimates are submitted and finally reach the Financial Adviser and the Secretary and if any further policy decisions are to be taken, it is done at this level. The budget then goes to the Defence Committee of the Cabinet for approval. After such approval the estimates are sent to the Ministry of Finance for incorporation in their estimates. PREPARATION OF THE RAILWAY BUDGET: Indian Railways are a Departmental Commercial Undertaking of the Government of India and as such a different method is followed in preparation of the Railway Budget. The framing of the budget has to be proceeded by a careful forecast of the expected traffic, both passenger and goods, to be handled by the railways during the budget year. Such a forecast must be based upon a clear view of the functioning of the economy in the budget year. On the expenditure side, there are five broad divisions. Firstly, it is administration, which includes the cost, mainly for the staff of administrative officers and of general departments like accounts, stores, etc. Secondly, comes the repairs and maintenance, perhaps the largest. Thirdly, it is the operating expenses which include the cost of the operating fuel consumable stores, etc. The fourth division consists of items such as retirement benefits, medical aid health services, cost of certain minor works charged to revenue. The budget of each department and subjected to close the expert scrutiny by the built-in financial organisation in each railway administration. Such estimates are then submitted to the Railway Board Administration. Such estimates are then submitted to the Railway Board for final consolidation into the railway budget. CONSOLIDATION BY THE MINISTRY OF FINANCE Budget estimates prepared by the administrative ministries/ departments are scrutinized by the ministry of finance. The scrutiny exercised by the Ministry of Finance is different in character from the one applied by the Controlling Officers. The policy behind the prepared expenditure, its necessity or general propriety, etc., are the concern mainly of the administrative unit. The Ministry of Finance is concerned, primarily with the economy and is to keep the demands within the revenues availably for a particular period. Such scrutiny therefore, is: 1)    The least in respect of items of expenditure that are charged upon the Consolidated Fund of India. 2)    Is nominal and purely administrative in the case of standing charges which relate merely to permanent charges like salaries and allowances of permanent establishments and fixed contingent charges. 3)    Is more exacting according to the importance, need and the urgency of the expenditures in respect of new items of expenditure which are either proposed for the first time or are being continued from year to year, but nevertheless are not standing charges. Besides, new items cannot be included in the estimates forwarded by the administrative ministries/departments without the prior sanction of the Ministry of Finance. Such items are separately and distinctly shown in the estimates. Budgeting for the new schemes poses a different proposition. The new scheme has to be formulated in the administrative units or opera-agency in all its details. The same has to be approved by the ministry-in-charge. The items of expenditure are then examined by the Financial Adviser accredited to various demonstrative ministries/ departments. Estimates of capital expenditure are examined by the financial Adviser of the Ministry and further considered and screened by the Ministry of Finance in consultation with the Planning Commission. Finance examines it to find out whether details have been worked out or something is still left undone, and whether, the rules of common prudence have been observed. If these points are found to be in order, the scheme is declared acceptable. It has them to compete for the available funds along with other new schemes of all the other ministries/departments. If the scheme succeeds in this completion so, budget provision is made, that is to say, the necessary expenditure is included in the budget to be presented before the legislature. Quite frequently it happens that at the time the budget estimates me prepared, the ministries/department may not be ready with details of the scheme, especially the schemes broadly included in the successive Five year Plans, but think that the scheme is essential to the ensuring year's budget Under such circumstances the ministry department concerned can ask for a lump provision in the budget, subject to details being worked out before execution. The decision of the Ministry of Finance is final in the matter of determining the provision. Differences over the quantum of provision or the need for including an item of expenditure are resolved by discussion at Ministerial level. If they still persist, the matter is taken to the Cabinet. In case a settlement cannot be reached, then the arbitration is had either from the Prime Minister or the Cabinet. The budget estimates of the parliament are submitted to the Ministry of Finance. The estimates are not criticized not rare comments made there on by the later. After all these preliminaries are over the budget Division of the Ministry of Finance Consolidates the estimates received from various ministry/department of the estimated disbursements necessary during the next year on the existing basis that is to say without any new scheme being included. ESTIMATES OF REVENUE Estimates of revenue is also an important aspect of the procedure of budgeting. This is arrived at by the Ministry of Finance is consultation with the Central Board of Direct Taxes and the Central Board of Indirect Taxes and with the assistance of the Income Tax, and Central Excise and Customs Departments the most important revenue collecting agencies, A forecast is made of the expected revenue for the coming financial year at the existing rates of taxation. In order to match the revenues with the magnitude of the expenditure the Finance Ministry proposes alterations in the rates of existing taxation. The rates of taxes may be increased or decreased or new taxes may be levied, or old ones may be published. Next, all the new schemes that have been approved in consultation with the finance in course of the year and which are now forwarded to the finance with a request for provision of funds, are also compiled by the later at this stage and the total expenditure involved, if all the new schemes were to be accepted for execution during the next financial year, is arrived at The ministries/ departments are requested to indicate the polarities of their different schemes of that if anyone has got to be excluded, it can be done on the basis of the said order or priority. Side by side with this are shown actual figures of the previous five years, the budget estimates approved at the commencement of me current year, and the revised estimates for the current year (i.e. the budget figures revised on the basis of actual of the past nine months and estimates for the seasoning three months) In addition to this the finance prepares an estimate of receipts from possible new sources of taxation and form possible increases in the existing rates. Possible proceeds of the borrowings during the ensuring financial year are also estimated. The considered figures are now considered by the Cabinet who issue order there on. Self-Check Exercise-2 Q.1 Budget estimates prepared by the administrative ministries/ departments are scrutinized by the ministry of finance. True/False Q.2 The new scheme has to be formulated in the administrative units or operaagency in all its details. True/False 7.4.    SUMMARY The Budget Division of the Ministry of Finance then makes the necessary charges in the estimates in accordance with the orders of the Cabinet, brings the revised estimates for the current year up-to-date and prepares two important documents: (a) Annual Financial Statement, (b) Demands for grants. These documents are then submitted to the legislature for consideration and approval. 7.5.    GLOSSARY •    Preparation : The action or process of preparing or being prepared for we or consideration. •    Estimate : Roughly calculate or judge the value. •    Rule of Lapse : Lapsing of grant made earlier. 7.6.    ANSWERS TO SELF-CHECK EXERCISES Self-Check Exercise-1 Q.1 True Q.2 True Self-Check Exercise-2 Q.1 True Q.2 True 7.7.    REFERENCES/SUGGESTED READINGS •    Laxmikant, M. 'Public Administration' Fifth Edition, Tata McGraw-Hill Publishing Company Limited, New Delhi, 2016. •    Gupta, B.N. Indian Federal Financial and Budgeting Policy, Chaitanya Publishing House, Allahabad, 1970. •    Wattal., P.L. Parliamentary Financial Control in India, Minerva Book Depot, Bombay, 1985. •    Handa., K.L. Financial Administration in India, HPA New Delhi, 1988 •    Pyhrr., P.A. Zero-Base Budgeting, Johan Wiley and Sons, New York, 1973. •    Baisys., K.N. Financial Administration in India, Himalaya Publishing House, Bombay, 1986. •    Mahajan., S.K. & Mahajan., A. P. Financial Administration in India, P.H.I, New Delhi. •    IGNOU New Delhi, egyankosh 7.8.    TERMINAL QUESTIONS (a)    Write a note on the estimate of expenditure. (b)    Critically analyse about the need of consolidation by Ministry of Finance is budget making process. Unit-8 ENACTMENT OF THE BUDGET Structure 8.0. Introduction 8.1.    Learning Objectives 8.2.    General Discussion, Voting on Demands of the Budget Self-Check Exercise-1 8.3.    Cut Motions & Conditions of Admissibility of Cut Motions Self-Check Exercise-2 8.4.    Summary 8.5.    Glossary 8.6    Answers to self-check exercises 8.7    References/Suggested Readings 8.8    Terminal Question 8.0 INTRODUCTION In all parliamentary democracies, after the executive government prepares and approves the budget, it is presented to the legislature for discussion and approval. The responsibility of presenting the budget to the legislature lies with the executive government. Typically, a representative of the executive, often the Finance Minister, delivers the budget to the legislature. "Centralized executive responsibility for budget preparation and submission helps streamline the budget authorization process in the legislature and allows it to focus on reviewing programs and policies. The exclusive right to present the budget enables the executive to shape the effective implementation of policies. The legislature’s review of the budget, as prepared and presented by the executive, provides a critical opportunity—arguably the most significant—for assessing the quality and nature of administrative actions. This scrutiny is a fundamental aspect of a parliamentary democracy, and every legislature has a responsibility to act as a watch-dog." The budget then goes through the following stages before it is passed finally by the parliament: 1)     presentation to the legislature; 2)    general discussion : 3)    discussion and voting of Demand for Grants. 4)    consideration and passing of Appropriation Bill, and 5)    consideration and passing of the Finance Bill. 8.1    LEARNING OBJECTIVES After studying the lesson the learner will be able: •    To understand the enactment and execution process. •    To comprehend some aspect of Delegation of Financial powers. •    To know about the role of Financial Adviser. •    To discuss recommendations of Administrative Reforms Commission with regards to financial power. 8.2    GENERAL DISCUSSION AND VOTING ON BUDGET DEMANDS: In India, the budget must receive the President's recommendation before being presented to the legislature, as required by the Indian Constitution. The President's approval is necessary for matters such as imposing, abolishing, altering, or regulating taxes, borrowing money, and withdrawing funds from the Consolidated Fund of India. Article 112 of the Constitution specifies the following: 1.    The President must present the estimated receipts and expenditure for the Government of India for each financial year before both Houses of Parliament, known as the annual financial statement. 2.    The expenditure estimates in the financial statement must clearly distinguish between: a) Expenditure charged upon the Consolidated Fund of India. b) Expenditure required for other purposes from the same fund. 3.    The statement also distinguishes between revenue and other types of expenditure. According to Rule 213 of the Rules of Procedure and Conduct of Business in Lok Sabha, the budget may be presented in multiple parts, and each part is handled as though it were the entire budget. This rule governs the presentation of the railway budget, which, although not specifically outlined in the Constitution, is presented separately from the general budget. In India, the gap between the presentation of the budget and the start of the financial year is generally about five weeks, with the budget traditionally being presented on the last working day of February. If Parliament is not scheduled to meet on that day, a special session is convened at 5:00 PM for the budget presentation. After the President’s recommendation, the budget is first presented in the Lok Sabha by the Finance Minister, who delivers a speech introducing the budget. This speech includes: a)    A review of the country’s general economic conditions for the current year, covering the foreign exchange situation and related developments in monetary policy. The budget also serves as an instrument for shaping economic, political, and social policies, reflecting the government's progress toward these goals. b)    An explanation of discrepancies between the budget estimates at the start of the year and the revised estimates based on actual figures for the first ten months, along with projections for the remaining months. c)    Clarification on the budget estimates for the coming year and proposals for addressing any deficit, such as through new or increased taxes or other methods, or for handling any surplus. The presentation of the budget is a significant event, often used to announce policies that affect the country’s economic and financial landscape. While the budget speech and accompanying statements provide substantial information, they may not offer enough detail for thorough examination or criticism by lawmakers. To address this, detailed books containing specific figures are also provided. After the Finance Minister's speech, a junior minister typically presents the budget documents and a copy of the Finance Minister's speech to the Rajya Sabha, completing the budget presentation in both Houses of Parliament. The following documents are presented alongside the annual financial statement: 1.    An explanatory memorandum detailing the nature of receipts and expenditures for the current and next year, and the reasons for any variations in the estimates. 2.    A summary of demands for grants. 3.    A book of demands showing provisions for each ministry and department under separate headings, detailing the estimates for each item. The Finance Ministry may consolidate grants for multiple ministries or create demands for expenditures that are not easily classified under specific ministries. 4.    Demands for Grants related to the Post and Telegraphs Department. 5.    Defence Services Estimates. 6.    An Appropriation Bill. 7.    A Finance Bill outlining the taxation measures proposed by the government. 8.    A memorandum explaining the provisions of the Finance Bill and their impact on the country's finances. Government taxation proposals and changes in tariffs are generally announced with the budget or during its discussion. Changes in direct taxes can also be announced at other times during the year as necessary. 9.    The Economic Survey. 10.    The economic classification of the budget. 11.    Annual reports of various ministries, presented alongside the demands for grants for each ministry. Additionally, the Ministry of Railways presents a separate Railway Budget, typically in the first or second week of February. The Railway Minister introduces the budget, accompanied by an explanatory memorandum. GENERAL DISCUSSION OF THE BUDGET There is no discussion on the budget on the date it is presented to the parliament. On a day appointed by the Speaker, a general discussion on the budget as a whole takes place. "According to the practice in the Lok Sabha, the General Budget is ordinarily discussed after about a week or ten days of its presentation to House, while the Railway Budget is taken up for discussion alter about a week of its presentation." The budget is a whole or questions of fiscal policy relating are covered in this discussion and it helps the government to find out the general attitude of members to tin? Budget proposals. The Speaker's direction regarding budget discussion is, "that during (the general discussion on the budget, the House will be at liberty to discuss the budget as a whole or any question or principle involved therein. The scope of discussion at this stage is thus confined to the general examination of the budget i.e. the proper distribution of the items of expenditure according to the importance of a particular subject or service, the policy of taxation as it is expressed in the budget and in the speech of the Honourable Finance Minister. "Members may, therefore, make observations in regard to the general scheme and the scientific of the budget. The general schemes of the budget. The general scheme of the budget will include consideration of revenue, surplus or deficit, revenue and expenditure account and the overall surplus or deficits. So for as the revenue account is concerned, members may take into account the method of estimation, whether revenue is over estimated or under-estimated whether the expenditure is pitched too high etc." "As regards general grievances, they may be referred for ventilation at the time of considering the Finance Bill. That will also be; the proper occasion for going into details of taxation and matters related thereto. Similarly details of expenditure may be discussed when demands for grants come up before the House." Article 113(1) of the Constitution allows discussion of expenditure, charged upon the Consolidated Fund of India. The Article provides. "So much of the estimates as relate to expenditure charged upon the Consolidated Fund of India shall not be submitted to the vote of Parliament, but nothing in this clause shall be construed as preventing the discussion in either House of Parliament on any of those estimates." The provision assures that no item is exempted from discussion in the legislature. Hence, though the article 'prohibits submission of such expenditure to the vote of the House and consequently the House cannot refuse or reduce the items of such expenditures either house gets an opportunity, each year to criticize the conduct or administration of the services which are so charged. Members are also free to ask for any information relating to these items. No motion however, can be moved at this stage and the budget too is not submitted to the vote of the House." VOTING ON DEMANDS FOR GRANTS: After the general discussion of the budget is completed, individual demands, or demands for grants, are presented for approval one at a time. Typically, a separate demand is made for each ministry or department. However, the Finance Ministry may combine grants for multiple ministries or create a single demand for expenditures that do not fit neatly into specific departments. The total demand consists of a statement detailing the total grant requested, followed by a breakdown of the detailed estimates for each grant, divided into various categories. Each ministry is assigned a specific date for the discussion of its respective demands. These discussions and the subsequent voting usually take up about three weeks. According to the established rules, the debate on any particular demand is limited to two days. On the final day of the scheduled discussion, any demands that have not been discussed or approved are put to a vote without further debate, a process known as "guillotining." The motion typically reads: "That a sum not exceeding Rs. ____ is granted to the President to cover the charges for the financial year ending 31st March, 20__ with regard to [the subject of the demand]." If a demand is not fully debated on the day it is introduced, it will be guillotined on the second day. Along with the presentation of the demands, an annual report from the relevant ministry is submitted to the House. These reports outline the ministry's performance for the past year, its major achievements, and its plans and proposals for the upcoming year, justifying any additional funds requested in the demand for grants. These reports, which started being submitted in 1951, serve as a substitute for the minister's speech when moving a demand and are part of the discussion when the demand for grants is being considered. A similar process applies to the Railway Budget, which is presented separately in Parliament. In the Upper House, there is only a general discussion on the budget, and it does not vote on individual demands. Instead, the discussion is held collectively. During the budget discussion, members are allowed to propose adjustments to duties or the introduction of new taxes. The government's proposed tax measures are implemented through the introduction of the Finance Bill. During the consideration of this Bill, members can discuss the government's monetary and financial policies. Amendments to the Bill, including changes to tax rates, can be proposed. However, amendments that seek to raise tax limits require the President's recommendation before they can be introduced. It is important to note that no demand for grants can be made without the President's recommendation. This ensures that all demands for grants originate from the executive government, not from individual members of the legislature. While the legislature can reduce or deny a requested grant, it cannot increase the amount. If the legislature believes that the expenditure on a particular item should be higher, it can only recommend such an increase, which the executive government may or may not accept. This practice aligns with the constitutional norms observed in the British House of Commons. In this system, expenditures from the Consolidated Fund of India can only be incurred if both the legislature (specifically the Lower House) and the executive government agree. Self-Check Exercise-1 Q.1 No demand for a grant can be made except on the recommendation of the President. True/False Q.2 Any member may make suggestions during the discussion of the budget for enhancement of duties and the imposition of new taxes. True/False 8.3 Cut Motions and Conditions for Admissibility The legislature has the authority to propose reductions in grants. Members may introduce a motion to reduce the expenditure on any specific demand for grants presented for approval. This type of motion is known as a "cut motion." There are three primary types of cut motions: (a) reduction of expenditure, typically when the mover believes the proposed expenditure is excessive, (b) cuts aimed at promoting economy, and (c) motions to highlight a specific grievance related to a demand for grant. The rules of procedure in Indian legislatures define specific categories of cut motions. These include Policy Cuts (or Policy Cut Motions), Economy Cuts (or Economy Cut Motions), and Token Cuts (or Token Cut Motions). Any cut motion introduced by a member must fit one of these categories. Disapproval of Policy Cut: A cut motion aiming to disapprove the policy behind a demand reduces the demand to a nominal amount. This is referred to as a "disapproval of policy cut." A typical motion might state: "That the amount of the demand be reduced to Rs. 1." If this motion is approved by a majority, it acts as a vote of censure against the government. Members proposing such a motion are usually required to clearly specify the policy aspects they wish to challenge. The discussion is then focused on the specified policy, and members are allowed to propose alternative policy measures. Economy Cut: An economy cut is proposed when members believe that savings can be made from the expenditure being requested. This motion seeks to reduce the demand by a specific amount to reflect these savings. The motion typically reads: "That the amount of the demand be reduced by Rs. [specific amount]." The reduction may be either a lump sum or a specific reduction, and the discussion is centered on how the economy can be achieved. Token Cut: A token cut is used to highlight a specific grievance within the scope of the government's responsibility. In this case, the demand is reduced by a nominal amount, usually Rs. 100, to draw attention to the issue. The motion typically states: "That the demand under [the relevant head] be reduced by Rs. 100." The objective is to bring focused attention to a particular grievance, which must be clearly stated so the government can respond. Discussions on token cuts are limited to the grievance mentioned in the motion. Although cut motions are typically introduced by members of the opposition, there is no formal rule or parliamentary practice (apart from party whips) preventing government supporters from proposing them. Each cut motion specifies the precise points for discussion. For instance, a policy cut motion allows members to propose an alternative policy, an economy cut focuses on how savings can be made, and a token cut is confined to discussing the grievance raised. Generally, token cuts are the most common, with numerous motions proposed to address specific grievances. Each amendment or cut motion is subjected to a vote. CONDITIONS FOR ADMISSIBILITY OF CUT MOTIONS For a motion proposing a reduction in the demand amount to be accepted, it must meet the following conditions: 1.    The motion must relate to a single demand. 2.    It must be clearly worded, avoiding arguments, inferences, sarcasm, accusations, insults, or defamatory language. 3.    It should focus on one specific issue and be stated clearly and precisely. 4.    It must not address the character or conduct of any individual, as these can only be challenged through a substantive motion. 5.    It should not propose changes to existing laws. 6.    It must not involve matters that are outside the scope of the Government of India’s responsibilities. 7.    It should not relate to expenditures charged to the Consolidated Fund of India. 8.    It must not address a matter that is being adjudicated by a court with jurisdiction in any part of India. 9.    It cannot raise a question of privilege. 10.    It should not revisit a topic that has already been discussed and decided upon in the same session. 11.    It must not anticipate a matter that has already been scheduled for consideration during the session. 12.    It should not raise issues currently under review by any statutory tribunal, authority, commission, or court of inquiry. 13.    It should not concern trivial matters. Consideration and Passage of the Appropriation Bill No funds can be withdrawn from the Consolidated Fund of India without a law that authorizes the appropriation. Voting on the expenditure estimates and the demands for grants alone does not give the government the authority to incur expenditure. To regularize this process, an Appropriation Bill must be introduced, debated, and passed by the legislature. The Appropriation Bill acts as formal legislation that authorizes the grants already approved by the legislature and covers expenditures charged on the Consolidated Fund of India by the Constitution. The scope of the debate on the Appropriation Bill is limited to matters of public significance or administrative policy reflected in the grants covered by the Bill, which have not already been discussed during the initial debate on the demands for grants. Repetition of debates on points already discussed in the demands for grants is not allowed. Only relevant matters can be addressed in the discussion, and the Speaker may require members to notify the specific points they wish to raise beforehand. The Speaker can withhold permission for points deemed irrelevant or repetitive. When a member raises an issue with the Speaker’s approval, the relevant Minister must be present to address those points. Article 114(2) of the Constitution prohibits amendments to the Appropriation Bill that would alter the amount or destination of any grant or modify any expenditure charged on the Consolidated Fund of India. The presiding officer’s decision on whether an amendment is permissible is final. This ensures that the grants already approved by the House are not changed at this stage, although the debate provides an opportunity for members to offer suggestions and comments on the government's activities concerning the authorized expenditures. According to the Constitution, an Appropriation Bill is also required for the Vote on Account, which must be considered and passed by Parliament before the start of the financial year. The Appropriation Bill introduced after the voting on the grants applies only to the remaining sums. Once the Appropriation Bill is passed by the Lower House, it is reviewed and passed by the Upper House without any modifications. Only after receiving approval from both Houses and the President's assent does the Appropriation Bill become law, allowing money to be withdrawn from the Consolidated Fund of India. Consideration and Passage of the Finance Bill The Finance Bill is a legislative proposal typically introduced annually to implement the Government of India’s financial plans for the upcoming fiscal year. It may also be used to address supplementary financial measures for any given period. However, the Finance Bill does not include provisions aimed at making permanent changes to existing laws unless they are directly related to or a result of the taxation proposals. Once the expenditures are voted on by the House, the next step is to consider how to generate the necessary revenue to meet those expenses. This involves reviewing the income side of the budget, which is addressed through the passage of the Finance Bill. The Finance Bill includes provisions related to the imposition, modification, or regulation of taxes and must be passed by Parliament before any of the proposals can be enforced. In India, these proposals are typically presented alongside the budget. The Bill may cover: (a) new taxes to be introduced, (b) increases in existing taxes, and (c) taxes that require annual renewal or revision. After being discussed and reviewed, the necessary laws are enacted to enable the government to implement these proposals. Considerable latitude is allowed during the debate on the Finance Bill, allowing for a broader discussion on the government's financial policy and general administration. This is different from the Appropriation Bill, which typically involves two stages of debate—general discussion and the debate on the demands—before the bill is passed with little further discussion. In contrast, the Finance Bill is debated for the first time, giving members an opportunity to thoroughly examine the taxation proposals. The debate on the Finance Bill covers several key points: 1.    Members are allowed to discuss actions of the Government of India. 2.    Criticism of state government actions is not within the scope of this debate. 3.    General critiques of government policy are permitted. 4.    Detailed discussions of specific estimates are not allowed, but members can address public policy issues that may contribute to a deficit. 5.    While the general principles behind the budget can be debated, specific details of these principles are not open for discussion. 6.    The entire administration may be reviewed, but topics already discussed in prior debates cannot be revisited. 7.    Discussions on individual clauses and amendments to the Finance Bill are restricted to the proposed taxation measures and potential alternatives. Under the Provisional Collection of Taxes Act of 1931, the Finance Bill must be passed by Parliament and receive presidential assent no later than 75 days after its introduction. Self-Check Exercise-2 Q.1 A Finance Bill deals with imposition, remission or regulation of taxes. True/False Q.2 Cut motions should not be confined to only one specific matter which shall be stated in precise terms. True/False 8.4.    SUMMARY Principally the accounting responsibilities should be decentralized and should come to/be vested with the executive government instead of the Comptroller and Auditor General of India. This involves, however, intricate and complicated problems to be sorted out at various levels before some final decision is taken. Until such time, the system of 'internal finance' would positively help devising techniques as are best suited to keep a watch over the progress of expenditure. Such techniques should aim at the formulation of realistic and valid budget estimates; realistic projections of forward expenditure; keeping expenditure within the limits of appropriation, and keeping expenditure up to the level to reach Plan objectives. The scheme has, without doubt, gone a long way towards efficient execution of the budget. This is what was required in the context of increasing development activity undertaken in the public sector involving investments of hundreds of crores of rupees years by year. The system of internal finance still, however, leaves a considerable scope for further improvements. The Public Accounts Committee, in its Report on the Finance Accounts of the Central Government (1961-62), remarked that large savings continued to occur despite the delegation some years ago of financial powers to administrative ministries.' The committee recommended that the Ministry of Finance should examine the feasibility of making more effective the financial control exercised through the financial advisers attached to the various Ministries. The Committee also stressed the need for curbing the tendency of administrative Ministries to overlook avoidable expenditure in the delegated set-up. 8.5.    GLOSSARY •    Delegation : A body of delegates or representatives, a deputation. •     Execution : The carrying out of a plan, order or course of action. •     Cut Motion : It is a power given to the members of the Lok Sabha to oppose a demand in the financial bill discussed by the government. 8.6.    Answers to self-check exercises Self-Check Exercise-1 Q.1 True Q.2 True Self-Check Exercise-2 Q.1 True Q.2 False 8.7.    REFERENCES/SUGGESTED READINGS •    Laxmikant, M. 'Public Administration' Fifth Edition, Tata McGraw-Hill Publishing Company Limited, New Delhi, 2016. •    Gupta, B.N. Indian Federal Financial and Budgeting Policy, Chaitanya Publishing House, Allahabad, 1970. •    Wattal., P.L. Parliamentary Financial Control in India, Minerva Book Depot, Bombay, 1985. •    Handa., K.L. Financial Administration in India, HPA New Delhi, 1988 •    Pyhrr., P.A. Zero-Base Budgeting, Johan Wiley and Sons, New York, 1973. •    Baisys., K.N. Financial Administration in India, Himalaya Publishing House, Bombay, 1986. •    Mahajan., S.K. & Mahajan., A. P. Financial Administration in India, P.H.I, New Delhi. •    IGNOU New Delhi, egyankosh 8.8.    TERMINAL QUESTIONS (a)   Write a note on consideration and Passing of The Finance Bill. (b)    Describe the execution process of budget on the revenue side. CHAPTER-9 Structure 9.0 Introduction 9.1   Learning Objectives 9.2   The execution of the Budget Self-Check Exercise-1 9.3    Financial Adviser & Recommendations of the Administrative Reforms Commission Self-Check Exercise-2 9.4    Summary 9.5    Glossary 9.6   Answers to Self-Check Exercises 9.7   References/Suggested Readings 9.8    Terminal Question 9.0. INTRODUCTION The execution of the budget is the responsibility of the executive government, and therefore, the distribution of power within, the executive government determines the procedure for the execution of the budget; it is an axiom of financial control that for every grant there must be an authority responsible for its administration and particularly to see that the amounts are spent on the subjects as sanctioned, moneys are utilized in the most economical manner and the expenditure is kept within the funds allotted for the purpose. An efficient execution of the budget presupposes, therefore, strong control direction and control. If this is not done the budget will fall in a, large measure to accomplish its purpose, which is to produce stability in government's finance by making both ends meet. In order to make the execution of the budget an ideal one, the system must aim, at the following objectives: (a) preservation of the intent of the legislature; (b) observance of financial limitations and (c) the maintenance of flexibility. 9.1.    LEARNING OBJECTIVES After studying the lesson the learner will be able: To understand the execution of budget process. To know about the role of Financial Adviser & his role. • To discuss recommendations of Administrative Reforms Commission with regards to financial power. 9.2.    EXECUTION OF THE BUDGET As regards the preservation of the intent of the legislature, it must be kept in mind that the budget to be executed is the budget sanctioned by the legislature. The expenditure to be incurred and the revenues to be raised must be put into practice in the spirit and intent the legislature had while sanctioning such authorizations. It is only in this way that the sovereignty of the electorate and authority of the legislature can duly be safeguarded. So far as the observance of financial limitations is concerned, the use of the resources must be with utmost economy and efficiency, and the financial sanctions expressed by the legislature must be adhered to. A proper execution of the budget, as a matter of fact means execution of financial control in the sense that not only the expenditures are available for such disbursement in time. There must therefore, be in efficient planning of the ways and means position on the part or the executive government. Coming to the maintenance of flexibility, it must be borne in mind that during the course of the financial year, changes in economic conditions from those assumed at the time of preparation of budget may come about leading to cost fluctuations in the programmes. The execution of the budget must, therefore, be able to cope with such unexpected eventualities. EXECUTION OF THE BUDGET ON THE EXPENDITURE SIDE In India, the Ministry of Finance oversees the overall execution of the government’s budget. This Ministry plays a vital role in implementing financial policies and supervising the finances of administrative authorities. The Ministry monitors public spending through three primary stages: (a) approval of policy frameworks, (b) acceptance of budget estimates, and (c) granting prior approval for incurring expenditures, while also managing any delegated powers to administrative Ministries or Departments. The Ministry's control is especially focused on the first and third stages, which significantly impact the daily functioning of administrative Ministries. However, excessive rigidity or detailed scrutiny at these stages may slow progress and delay the execution of projects, particularly in areas like development, commerce, or industry. This can result in a loss of national productivity or income. While control and oversight are essential, they should be constructive, efficient, and forward-thinking, avoiding unnecessary restrictions. Once the budget receives legislative approval and the Appropriation Act and Finance Act are passed, the budget becomes operational. The funds authorized by the legislature for the financial year are allocated to the executive government for specific purposes. At this point, the primary task is to ensure compliance with the approved budget. The government’s framework for fulfilling this responsibility involves several key components: (1) a system of controlling officers, (2) authorities who approve financial sanctions, (3) drawing and disbursing officers, and (4) a payment and accounting system. Typically, each Minister or Department acts as the controlling officer for the portion of the budget within their jurisdiction. Following the passage of the budget and the enactment of the Appropriation Act, the Ministry of Finance notifies each administrative Ministry/Department about the specific section of the budget relevant to them. The allocated funds are then placed at the disposal of the designated controlling officers, who are responsible for monitoring and ensuring that the funds are spent according to the approved purposes, without exceeding the allocated amount unless additional funding is legally sanctioned. The controlling officers further guide the disbursing officers by providing them with budgetary limits, ensuring that spending stays within the specified boundaries. It is the duty of the controlling officers to ensure that the execution of the budget follows the plan as approved by the legislature. EXECUTION OF THE BUDGET ON THE REVENUE SIDE The execution of the revenue side of the budget involves three key aspects: (1) efficient collection of revenue, (2) secure management of collected funds, and (3) appropriate allocation of those funds. The executive government is responsible for proposing taxes, which are then authorized by the legislature. Once this approval is in place, it falls on the government to establish an effective system for administering the taxes, including rules and procedures to ensure smooth and cost-effective operation. In India, the Ministry of Finance’s Department of Revenue oversees the overall management and supervision of tax collection, which includes both direct and indirect taxes. This supervision is carried out through two main bodies: the Central Board of Direct Taxes and the Central Board of Excises and Customs. These boards oversee various administrative authorities, ensuring that they properly enforce tax laws and regulations. The funds collected are then handled and distributed by the Treasuries and Sub-Treasuries. SOME ASPECTS OF DELEGATION OF FINANCIAL POWERS Till recently, opinion was held that there was an excessive concentration of financial authority in the Ministry of Finance and there was no delegation of this authority even to the high-ranking and-responsible officers in the other administrative Ministries/Departments type of right financial control obviously resulting dilatory and inefficient execution of the budget, especially so when under the impact of planned charged with the execution of large scale investment programmes in the public sector "Sir Richard Tottenham in his report to the Government in 1945-46 emphasized that the need of the time was to develop a sense of financial responsibility in the spending departments and, for this purpose, to provide them with the assistance of their own financial adviser at distinct from the Finance Ministry's officials. He attached special importance to the strengthening of the financial set up within the spending departments. Shri Gopalaswamy Ayyangar, in his report on the Reorganisation of the Machinery of Government (1949) referred to the delays and deficiencies of the existing system of financial advice and observed: that the system requires to be improved so as to increase the responsibilities of the individual ministries and remove the sense of frustration among them: Sh. Ashok Chanda a former Comptroller and Auditor General of India observed. "The present conception of control extends also to the examination of technical details, through the Finance Department is not properly equipped for the purpose. As a result, the objections raised are often elementary and uniformed in charterer. This not only acts as an irritant, but it is also time-consuming. Ultimately these objections' mostly come to be waived, but often only after interminable discussions, and control becomes affective only over establishment proposals, the expenditure on which forms but an insignificant fraction of the total cost. The Financial Ministry therefore, whilst straining at the grant has often to swallow the camel." Shri A.D. Gorwala suggested, "What is really needed in financial matters is control and not interference in small matters leading to a great deal of waste of time and energy and frustration on the part of, the administrative departments that is the greater part of the Government. This must be avoided." In this connection, the Estimates committee, in its 9th Report on 'Financial Administrative, and Other Reforms' emphasized the need for coordination between the Ministry of Finance and the administrative Ministries/Departments and recommended delegation of more financial powers to the later. The Committee observed that "concentrated steps should be taken to achieve the end in view and to establish perfect cordiality between the administrative Ministries and the Ministry of Finance and to see that one is complementary to the other and helps in the ultimate objective. Following recommendations were made by the committee." Before a scheme is embarked upon, it should be properly planned and it, should also be ascertained whether the money required for it is available or can be made at the proper time. Detailed plans and estimates should be worked out fully so as to enable the Ministry of Finance to approve the scheme and accord financial concurrence. After the scheme is concurred from the financial point of view of the Ministry of Finance, the detailed execution of the Scheme and spending the money there on should be the responsibility of administrative Ministry, which should also be given power to vary or to alter the amounts under the sub-heads of the scheme so long as the total outlay is not affected. The general opinion developed, therefore, that the administrative efficiency and efficient execution 'of the budget demand that the administrative Ministries/Departments should possesses sufficient financial powers once their demands for grants are sanctioned by the legislature. The Ministry of Finance could exercise, however, overall control only. As regards the delegation of powers, the order of the executive government of August 1958, were followed up by the promulgation, in December 1958, of the Delegation of powers Rules, 1958. These rules were subject to some general limitations, conferred wide powers upon the administrative Ministries, Administrators and Head of Departments. The salient features of the conferment of such powers are as follows; (1)    Full posers had been granted to the administrative Ministries/ Departments for appropriations and re-appropriations subject to expenditure being within the scope of the grant with certain provisions for prior consultation with the Ministry of Finance. (2)    After the scheme is concurred in form the financial point of view by the Ministry of Finance, the detailed execution of the scheme and spending the money there on should be the responsibility of administrative Ministry, which should also be given power to vary or to alter the amounts under the sub heads of the scheme so long as the total outlay is not affected. The general opinion developed, therefore, that the administrative efficiency and efficient execution of the budget demand that the administrative Ministries/ Departments should posses sufficient financial powers once their demands for grants are sanctioned by the legislature The Ministry of Finance could exercise, however, overall control only. In view of the pressing need for better financial coordination between the Ministry of Finance and the Administrative Ministries, the Government of India examined the details of the delegation of more financial powers to the administrative Ministries/Departments early in 1955. The Organisation and Methods Division of the Cabinet Secretariat issued a brochure in 1957 entitled "Financial and Cognate Powers delegated to Ministries and Heads of Departments," in which the financial powers delegated as such were embodied. Proceeding further, the President made a reference in this regard in his address to the Parliament on February 9, 1959 in the following words : "My Government have recently made some important changes in regard to arrangement for budgeting and financial control over expenditure from the Civil estimates in order to secure a speedier implementation of our development plans, the Administrative ministries have been given wider financial powers to issue expenditure sanctions to schemes which have been included in the budget estimates after scrutiny by the Finance Ministry. Self-Check Exercise-1 Q.1    Execution of the budget on the revenue side involves three considerations; (1) proper collection of revenues; (2) proper custody of the collected funds; and (3) proper distribution of funds. True/False Q.2    In India, the Ministry of Finance of the Government of India exercises an overall control over the execution 'of the budget. True/False 9.3.    THE ROLE OF THE FINANCIAL ADVISER Before explaining the role of the Financial Adviser, a distinction may be drawn between; (1) the External Financial Adviser, whose main function is to exercise some of the powers of the Finance Ministry and advise on its behalf; and (2) the Internal Financial Adviser, whose main function is to assist in the exercise of powers delegated to the administrative Ministry. The aforesaid distinction may further be amplified as follows: The External Financial Adviser is responsible to the Ministry of Finance. While discharging various functions on behalf of the Ministry of Finance, however, there is nothing to prevent him being asked to advise-6n the delegated financial roles of External and Internal Financial Adviser'. 1.    An Internal Financial Adviser strictly so called (i.e., one who does not exercise any powers whatever on behalf of the Ministry of Finance) confines himself to not only the financial matters finally disposed of by the' administrative Ministry but also with those which being outside the delegated powers necessitate a reference to the Ministry of Finance. This, however, is not a combination of roles as in (1) above. 2.    Another distinguishing feature of the Internal Financial Adviser's advice is that it is susceptible to being overruled within the Ministry itself. The level at which it may be overruled and the condition,, if any, on which it is overruled are points of relative details, through important in, themselves. Summarizing the latest position, certain financial powers are delegated to the administrative Ministries. In the exercise of such powers it is open to the Administrative Ministry : (1) whether or not to make purely internals arrangements for financial advice; (b) in the event of making such arrangements, whether or not they should conform of appointing an Internal Financial Adviser, strictly so called; and (c) in the event of not appointing an internal Financial Adviser, whether or not to refer one or more categories or cases, within the delegated sphere, for advice, to Finance Minister, it being understood that such advice is not binding on the administrative Ministry. The role and functions of the Financial Adviser, who under the-new scheme, is to be internal and not 'external to the administrative Ministry as before assume great importance. "It should be obligatory in our view, for each Department or Ministry to have a whole-time' Internal Financial Adviser of adequate seniority and rank it should not be left to the discretion of the Individual Department or Ministry to decide whether it should have an Internal Financial Adviser. The internal Financial Adviser should be placed in charge of Financial management and controlling all matter within the Ministry's field of responsibility and for maintaining requisite liaison with the Finance Ministry." The Administrative Reforms Commission states further that "the Internal Financial Adviser should be responsible to and under the administrative control of the Secretary of the Ministry. The Finance ministry should, however, be required to concur in the appointment of this officer and should have overall and coordinating interest in the development careers of Financial Advisers. The annual assessment of his work should be made by the Secretary of the Expenditure Department, who should obtain the views and comments of the administrative Ministry under whom the 'Financial adviser may, for the time-being, be working. While it will be open to the secretary of the administrative ministry to overrule him without being required to report the fact to any other authority, the relationship between him and the administrative Secretary should, as envisaged by the study team in Financial Administration, be that of senior partners in a common enterprise. In terms, of the existing rules, the administrative Ministry, in respect of the delegated financial powers, can lay down, in its discretion, the procedure for consultation with the Financial Adviser, "In view of the increased delegation to the administrative ministries and of the dimensions of expenditure controlled by one ministries, it is necessary that a set of model rules should be framed for the guidance of administrative ministries in these matters." RECOMMENDATIONS OF THE ADMINISTRATIVE REFORMS COMMISSION The Chief recommendations of the Administrative Reform Commission are reproduced below: 1.    It should be obligatory for each Ministry to have a whole-time Internal Financial-Adviser of adequate seniority and rank. This officer should be placed in charge of the Finance and Budget Cell of the Ministry and should be responsible for the financial management and control within the Ministry's field of responsibility. He should not be entrusted with any other work of the administrative Ministry like personal work or office management, etc. It should be open to the entrusted the officer with the work relation to more than one Ministry Department. 2.    The procedure for constitution with the Financial Advisor and the type of cases in which he would be consulted should not be left to the discretion of individual Ministry. A set of model rules should be framed for the guidance of administrative Ministries in this matter. 3.    The Finance and Accounts Branches of the Administrative Ministries should be suitably strengthened where necessary staffed with qualified and well trained personal. 4.    The Finance Ministry should help the administrative Ministries to organise well-equipped internal Finance Branches. For this purpose, it will be necessary to (i) ensure proper-training of the junior officers, and (ii) provide for officers in the middle levels suitable' opportunities to acquire varied experience and knowledge of public administrations. 5.    The Financial Adviser should bring to his assignment of background of field experience-and at an appropriate state he should be given such orientation as to equip him for this role and functions of Financial Adviser. The officers without a similar background should be provided this experience as 'early as possible in their careers as Financial Adviser. 6.    There should be a provision for periodical interchange between the officers of the Finance Branches and other branches of Administration. 7.    If a feasibility report has been accepted by Govt. and the detailed scrutiny thereof is likely to take considerable time the administrative Ministry should be allowed to incur expenditure on preliminary work subject to specified financial limit. 8.    A definite time limit, say three months should be prescribed for the consideration of schemes by the Finance Ministry. If the decision of that Ministry is not reached within the prescribed period the case should automatically be put up to the Finance Minister who will decide upon the action to be taken and will communicate the decision to the administrative Minister concerned. 9.    Proposals of the administrative Ministries for additional staff or creation of new posts should be considered by an independent agency namely, well- equipped and well-trained Staff inspection Unit. 10.    In cases of sudden unforeseen increase in work due to. extraordinary circumstance, the Miniseries and Departments should have power to create", only for very short periods not exceeding three months temporary posts if funds can be found by re-appropriation within the existing budget provision Such powers may be made available to Heads of Departments also. The system of Internal finance under the control of the Secretary of the administrative Ministry/Department is a recent development, and has been introduced on a model as in the United Kingdom. It has to be recognised that the Secretary of the administrative Ministry/Department is primarily responsible for the efficient and economic functioning of the Ministry/Department under his charge and, therefore he should have sufficient financial authority for the due discharge of that responsibility. The system now assures that there should- not be any difficulty on the administrative side of the Ministry/ Department which may arise in the formulation, and proper execution of the schemes and projects. Self-Check Exercise-2 Q.1 The Finance bill is passed before Appropriation bill. True/Fasle Q.2    The External Financial Adviser is responsible to the Ministry of Finance. True/False 9.4.    SUMMARY Principally the accounting responsibilities should be decentralized and should come to/be vested with the executive government instead of the Comptroller and Auditor General of India. This involves, however, intricate and complicated problems to be sorted out at various levels before some final decision is taken. Until such time, the system of 'internal finance' would positively help devising techniques as are best suited to keep a watch over the progress of expenditure. Such techniques should aim at the formulation of realistic and valid budget estimates; realistic projections of forward expenditure; keeping expenditure within the limits of appropriation, and keeping expenditure up to the level to reach Plan objectives. The scheme has, without doubt, gone a long way towards efficient execution of the budget. This is what was required in the context of increasing development activity undertaken in the public sector involving investments of hundreds of crores of rupees years by year. The system of internal finance still, however, leaves a considerable scope for further improvements. The Public Accounts Committee, in its Report on the Finance Accounts of the Central Government (1961-62), remarked that large savings continued to occur despite the delegation some years ago of financial powers to administrative ministries.' The committee recommended that the Ministry of Finance should examine the feasibility of making more effective the financial control exercised through the financial advisers attached to the various Ministries. The Committee also stressed the need for curbing the tendency of administrative Ministries to overlook avoidable expenditure in the delegated set-up. 9.5.    GLOSSARY •    Delegation : A body of delegates or representatives, a deputation. •     Execution : The carrying out of a plan, order or course of action. •     Cut Motion : It is a power given to the members of the Lok Sabha to oppose a demand in the financial bill discussed by the government. 9.6    Answers to Self-Check Exercises Self-Check Exercise-1 Q.1 True Q.2 True Self-Check Exercise-2 Q.1 False Q.2 True 9.7.    REFERENCES/SUGGESTED READINGS •    Laxmikant, M. 'Public Administration' Fifth Edition, Tata McGraw-Hill Publishing Company Limited, New Delhi, 2016. •    Gupta, B.N. Indian Federal Financial and Budgeting Policy, Chaitanya Publishing House, Allahabad, 1970. •    Wattal., P.L. Parliamentary Financial Control in India, Minerva Book Depot, Bombay, 1985. •    Handa., K.L. Financial Administration in India, HPA New Delhi, 1988 •    Pyhrr., P.A. Zero-Base Budgeting, Johan Wiley and Sons, New York, 1973. •    Baisys., K.N. Financial Administration in India, Himalaya Publishing House, Bombay, 1986. •    Mahajan., S.K. & Mahajan., A. P. Financial Administration in India, P.H.I, New Delhi. •    IGNOU New Delhi, egyankosh 9.8.    TERMINAL QUESTIONS (a)   Write a note on consideration and Passing of The Finance Bill. (b)    Describe the execution process of budget on the revenue side. Chapter-10 BUDGET AS AN INSTRUMENT FOR ECONOMIC DEVELOPMENT AND MANAGEMENT Structure 10.0. Introduction Learning Objectives 10.1.    Learning Objectives 10.2.    Budget-As an instrument of Management and Economic Development Self-Check Exercise-1 10.3.    Summary 10.4.    Glossary 10.5    Answers to Self-Check Exercises 10.6.    References/Suggested Readings 10.7.    Terminal Questions 10.0. INTRODUCTION The word budget is derived from the French word "Baguette" which means a small leather bag. It was first used in England to describe the white leather bag that holds the seal of the medieval court of the exchequer. Later on chancellor of the Exchequer's bag containing his proposals for Financing Government expenditure became known his budget.. This term was used in 1773. Gradually the word Budget' came to be used for the proposals themselves carried to parliament for approval This word has now become current in all countries and has been incorporated in many languages. Thus the word Budget' is commonly understood as a document presented by a Government, containing an estimate of proposed expenditure of a given period and proposed means of financing them, for the approval of the legislature. The budget is future oriented in that it, expresses anticipated action as distinguished from an accounting balance sheet that indicates actual revenues and expenditure. 10.1.    LEARNING OBJECTIVES After studying the lesson, the learner will be able: • To understand about the budget as on instruments of Management and Economic Development. 10.2.    Budget-As an instrument of Management and Economic Development Public budgeting provides an effective 'means of organising management information to make correct decisions concerning, the allocation of limited fiscal resources. A budget may be defined as,' "A comprehensive plan, expressed in financial terms, by which ah operating programme is effective for. a given period of time. It includes estimates of, the services, activities and projects comprising the programmes, the resultant expenditure requirements and the resources enable for their support." The budget is much more than a financial document, it represents a process by which (i) public policy is made, (ii) public programmes are put into effect, (iii) both the legislative and the administrative controls are established. The budget has primarily three functions to perform: control, management and planning. Control in budgeting is the process of enforcing the limitations and conditions set in the budget in appropriations, securing compliance with the spending restrictions ensure the efficient use of staff and other resources in the conduct of authorised activities. Planning refers to the process of determining public objectives and the evaluation of alternative programmes. Historically, the fiscal objects of budgeting have received the greatest emphasis. The rapid growth of government activities and expenditures, made it exceedingly difficult to cope with the governmental task with the traditional type of budgeting. In 1949, the Hoover Commission, called for modification in budget classification, so as to be in accordance with management orientation. The term performance budgeting was first used by the commission. A performance budget is a budget based on functions, activities and projects. Performance budgeting has strong management orientation. Its principle objective is to assist administrators in their assessment of the work efficiency of operation units. It seeks this objective by (1) casting budget categories in functional terms, and (ii) providing work cost-measurement to facilitate the most effcierst performance of prescribed activities. The common components of performance budgeting system are: (1) activity classification, (ii) performance measurements, (iii) performance reports. Performance budgeting places considerable emphasis on redesigning expenditure, accounts and grouping expenses into functional and activities categories. The budget innovations in the budget process that has received the greatest attention in the recent years is the Planning Programming and Budgeting System. Planning: Planning is the determination and the review of objectives the development of alternative and subsequent analysis. Programming : Programming is the organisation of related activities by main obj ectives and their representation in the form of programme and financial plan, and looking ahead for a number of years into the future. It also included further detailed analysis of alternatives within the contest of major policy decisions and regular' review of programmes as a whole. Budgeting : Budgeting is the translation of the first year a programme and financial plan, to a more detailed and precise annual budget, which sets targets for performance, fixes limits for spending and forecast income. System: System is the emphasis upon coordinating planning, programming and budgeting with one all embracing, approach or system. The production of information, whether for analysis or for progress reporting should be viewed in terms of the system as a whole. This is a very important component in PPBS. Under PPBS, a conscious effort is made, (1) to state the objectives, (ii) to seek a weak range of alternatives, and (iii) to link programmes and financial plans. There are Five Major Components of PPBS : 1.    The first involve an identification of major public goals and objectives, in programme terms. 2.    The second involves the structuring and analysis of public programmes' across the board, i.e. without concern initially for the variety of agencies that might be involved in the process of implementation. 3.    The third involves an extended time horizon and multi-year-programme and financial plans. 4.    The Fourth Component, programme analysis is the comer stone of PPBS. The final component involves programme updating procedure. BUDGET The volume of government activity and consequently the magnitude, of government budget all-over the world have grown considerably since the beginning of the century. The expansions of budget is partly due to the financial consequences of two world-wars; but its principle cause lies in the radical changes of ideas regarding the role of State and its responsibility for the creation of sound economic social and technical development society. This has resulted in government budgeting undergoing a complete change. It has now acquired some economic significance. Budget has become instruments for searching new grounds and evolving a new economic thinking. New economic theories have come 'on the scene and they say that budgets can be very well utilized for planning long range economic development. It also points out to modem budgets of a country, which is under developed and trying to march on the rough and torturous road of economic development, have become, real means of guiding the country. In almost all the countries, the government has come to assume increasingly important role in determining the level of economic activity in the modem times, it is enlisted with the responsibilities of conducting development programmes and maintaining full employment of the available men and material resources in order to contribute to current and future levels of the country's productive capacity. It is also expected to enhance pace of capital formation in the country through special attention to long term Investment projects which do not attract private capital. The presentation of its programme and more specifically its budgets, therefore, assume special importance, because comprehensive economic policy is impossible without a proper system of financial planning' and reporting at all levels of government. Hence a budget is not merely a financial estimate of revenue and expenditures of the government, it is something more. The whole policy of the government is reflected in the budget. Through government budgets, great improvements can be in the economic conditions of the people. The great power of today achieve higher economic status only with the help of budgets through which their policies were implemented and the process of economic development was initiated, and it is due to their economic power that they have great political power. Great programmes of economic development have been undertaken in the European countries and the United States with the help of budgetary techniques A.E. Buck has cited the case of Japan, rapidly developed country, which (introduced as early as in 1889 a budget system as a mean of rationaling and controlling government activities. In that country, government budgeting appears to have led and not aged in the process of economic development. Self-Check Exercise-1 Q.1 In PPBS, the structuring and analysis of public programmes'across the board, i.e. without concern initially for the variety of agencies that might be involved in the process of implementation. True/False Q.2 The budget is much more than a financial document, it represents a process by which (i) public policy is made, (ii) public programmes are put into effect, (iii) both the legislative and the administrative controls are established. True/False 10.3.    SUMMARY Government budgeting is an important tool initiated for making economic development in a country. The modem government which is regarded a welfare state, especially in the under-developed countries, has to shoulder greater responsibilities for providing a better living standard to the people. In order better the standard of living implementing programmes for development. In this task, budgeting arid budget process are major instruments. In the countries, when a system of mixed economy has been followed, a major part of government budget is devoted to the activities of the public sector; while the private sector is also helped by making provisions. In the budget for loans, grants and subsidies to be given to the units of the private sector. Thus in the conclusion we can say that the budget is an important instrument for the economic development of a country. 10.4.    GLOSSARY Management: the process of dealing with or controlling things or people. Economic Development : is a process by which the economic well being and quality of life of a nation region or local community are improved. 10.5.    ANSWERS TO SELF-CHECK EXERCISESSELF-CHECK EXERCISE-1 Q.1 True Q.2 True 10.6.    REFERENCES/SUGGESTED READINGS Laxmikant, M. 'Public Administration' Fifth Edition, Tata McGraw-Hill Publishing Company Limited, New Delhi, 2016. Gupta, B.N. Indian Federal Financial and Budgeting Policy, Chaitanya Publishing House, Allahabad, 1970. Wattal., P.L. Parliamentary Financial Control in India, Minerva Book Depot, Bombay, 1985. Handa., K.L. Financial Administration in India, HPA New Delhi, 1988 Pyhrr., P.A. Zero-Base Budgeting, Johan Wiley and Sons, New York, 1973. Baisys., K.N. Financial Administration in India, Himalaya Publishing House, Bombay, 1986. Mahajan., S.K. & Mahajan., A. P. Financial Administration in India, P.H.I, New Delhi. 10.7.    TERMINAL QUESTIONS (a) Do you think budget is the instruments of Management and Economic Development? If yes then how?