By Vivek Pattanayak in Bhubaneswar, February 28, 2023: The budget season has begun with the presentation of the Union budget and followed by State budgets.The media, both print and electronic are flooded with comments and views and also there is active discussion on the academic platforms.

In this context it may be relevant to identify some historical and legal facts.

According to the Oxford dictionary the budget is an estimate of income and expenditure for a set period of time.The first use of the term ‘budget’ may date from the financial statement by Walpole as Prime Minister and Chancellor of the Exchequerof the United Kingdom in 1733. The word has been derived from the word ‘Budge’ which is an old English word for a bag or small case.

When Walpole placed the financial statement, he took out the papers from the bag meant to keep patent medicines and hence the expression “budget” gained currency. Interestingly, the tradition of taking out the papers from a bag continues. First budget in India was presented in 1860 when the East India Company yielded place to Her Majesty’s Government during the reign of Queen Victoria, after 1857 War of Independence.

The Union budget, however, in the constitutional and legal sense is an annual financial statement of estimates of receipt and estimates of expenditure of government of India which the President is obliged to cause it to be presented. The language used in the Constitution is the same used under the Government of India Act 1935 and previous Government of India Acts.

Obviously, it is prepared and submitted to the House of People by the Finance Minister of the Union Government .Budget has a capital side and revenue side. It may be a deficit or a surplus budget. Deficit budget is subject to a law called the Financial Responsibility and Budgetary Management Act. This puts a limit on deficit which is linked to GDP.

Freedom to borrow is thus restricted to avoid indebtedness. India being an emerging economy has been careful about public borrowing as servicing of debt includes interest which can be painful. In USA with its gargantuan GDP has huge public debt, almost it has reached astronomical proportion.

Second, the budget is prepared by the civil servants getting guidance from the finance minister who in turn gets appropriate political indication and advice. Article 112 to Article 117 of the Constitution of India for the Union and Article 202 to 2007 for the State are the relevant constitutional provisions.

In Odisha before budget is finalized the Finance Minister and Finance Secretary make consultations with variety of experienced people inviting former Finance Ministers, former Finance Secretaries, local Head of RBI, NABARD, nationalized Banks and also members from the academia and leading economists, members of the Chamber of Commerce, Industry and other experts.

Similar consultations do take place at the Central government level before the Budget is prepared and presented.

To what extent these consultations shape the actual budget is another matter. In Odisha the consultations take place very close to the presentation of budget. Although Budget Manual envisages the preparation should commence from August, consultations take place in January and presentation of budget is made in February.

Consultation should be meaningful, serious, and robust and not symbolic. In the age of Information Technology, it would be possible to get views from very wide sections of people having knowledge, experience and interest. Example of Singapore although a very small country would give some ideas.

Consultation with the members of the legislatures whether they are in the lower chamber or upper chamber can be done in an appropriate manner. It is well acknowledged that the prerogative of giving final shape to the budget document lies with the Government and the face of the government is the finance minister.

Budget although an exercise must be used as an instrument for a long term strategy. Since the concept of Five-Year Plan has been given a rest, it would be wise to use the annual budget as a stepping stone to have a five trillion dollar economy by certain period of time as it is very often stated while making exercise at the Union level. Similar ground work is expected at the State level for long term future goals.

Attempt has been made in the past to demystify the budget makingit easily comprehensible by people and of course this does not mean to create a situation when there is budget leak. The Dalton case is often quoted. Dalton was the Chancellor of Exchequer of UK when tax proposal in his budget got leaked to the media before actual presentation which obliged him to resign.

The presentation of budget is preceded by an Economic Survey Report. Preparation of the budget in the present globalized age has to take into account the state of global economy as it influences national economies.

Budget may provide funds under a programme. At the same it may not get adequate money in reality if the ways and means position of the government does not support it. Further, funds may be available, but execution can be deficient. Therefore, it is important to see at the completion of financial year how much was estimated, how much was available and how much was actually spent and further how much lapsed.

In the past due to resource crunch, a lot of non-budgetary expenditure has been adopted through diversion of funds from the government owned public corporations. Even surplus from RBI has been tapped which had sparked-off public debate a few years ago. This approach has, however, been adopted to avoid debts and reduce deficits and which has helped in respecting the restriction imposed by FRBM Act.