Election years apart, there is a generic misperception that budget time is only around February – March, beginning with the budget speech on February 1, passage of Appropriation Bill in Parliament and Presidential assent before March 31. While the general public may have the budgetary exposure only during February – March, the finance people within the Government deal with it throughout the year and even beyond (more than two years), handling some or other aspect of the budget. For them, any time is budget time. It is, therefore, desirable that this stretched budget cycle be cut-short to a lesser period!
The foundation stone of multi-year budget cycle is laid in the budget speech itself. Against popular misperception that the budget speech contains figures for one fiscal year, the same contains figures for three fiscal years. Apart from the budgetary estimates (BE) for the incoming year, the speech contains the revised estimates (RE) for the current fiscal year and the final accounts for previous fiscal year. There was a time when the budget, after presentation in the Lok Sabha, used to be sent to the Departmentally Related Standing Committees (DRSC) of the Parliament and that necessitated passage of Vote on Accounts by the Parliament to run the Government business till the time budget was passed in June or July. But in an innovative and commendable public policy change since 2017, the budgetary cycle was slightly preponed. Now the entire budget is passed well before March 31 so that Vote on Accounts is not necessitated, at least in the Union budget.
Stretched Out Budget Cycle
However, the budget cycle rules are still quite comprehensive and time consuming. Consequently, finance and accounts managers in most ministries / departments are busy with some or other budgetary work throughout the year. For instance, the budget guidelines, issued in the month of September or October, are eagerly awaited for preparation of RE for the current fiscal year and BE for the incoming fiscal year. The consultative mechanism in Ministry of Finance (MoF) requires serious homework from the clientele ministry / department, forcing them to spend sizeable time to come up the expectations of MoF lest they may get downward revision in their RE and BE allotments. Even the lowermost levels in ministries / departments are involved in budget planning and compilation!
The last leg before the budget presentation is the MoF’s consultation with the business, commercial, and social sector and sometimes even political representatives. The comprehensive consultation mechanism ensures that MoF has ears for everybody before taking out the knife for resource distribution. The compilation of final accounts takes another three to four months and spills over in the next fiscal year.
Preparation of Appropriation Accounts is the last but most significant aspect of the budget cycle. It indicates the budget cycle completion for a particular fiscal year. It also affirms Parliament’s authority as the ultimate custodian of the national purse. All significant variations from the allotted budgetary allotment in terms of over-expenditure or under-expenditure are brought on record along with proper justification. The Appropriation Account is signed by the concerned Secretary of the ministry who is the Chief Accounting Authority. The Appropriation Accounts are duly certified by the C&AG based on its own test checks and certifications by internal accounts and audit division of the ministry / department. These checks and balances ensure a sanitized completion of the budget cycle. Overall, the budgetary cycle spans over more than two years from issuance of budget guidelines for a particular fiscal year to finalisation of Appropriation Accounts for that fiscal year.
Recommendations To Keep Budget Cycle Short
Several policy changes may be considered to reduce this stretched out budget cycle. First, the RE stage can be eliminated altogether! At present, all ministries have to revert to the MoF for finalisation of the RE. The ministerial experiences have shown that in most cases, the RE is within 10 percent variation of the BE. Moreover, it is, in some cases, a reflection of bad planning and expenditure patterns! Most importantly, it is not worth the money and time being consumed in the process since it makes clientele ministries and departments overtly dependent on MoF. The alternate model could involve a freezing of the BE for the whole year at the ministerial level and let individual ministries take a call for RE, if at all, within the major and minor heads related to their own ministry.
Follow Union Budget Expectations Live
Second, the budgetary formulation and processing within the ministries and departments through ‘downward filtration theory’ and ‘upward feedback theory’ has not paid much dividends. Over the years, it is seen that these processes are quite time consuming and bureaucratic in nature with very little value addition. For example, the BE in most cases is just an addition of some 10 per cent over the RE figures. There is huge scope for using information technology (IT) and artificial intelligence (AI) to reduce this exhaustive time cycle.
Third, we have also not thought of using IT in reducing the timeline for preparation of final accounts and Appropriation Accounts. For instance, most payments and accounting entries are being done on a real-time basis. There is no reason for four-month time lag in preparing final accounts. Journal entries can easily be automated. Similarly, better coordination between line ministry and C&AG using electronic (instead of postal) transmission of audit objections can help reduce the time gap to a significant extent.
We have seen some significant procedural reforms in last one decade that has made the budget cycle more simple and logical. At the same time, the budgetary processes need to consider more operational autonomy to the line ministries in budget formulation that in turn would reduce the time lag. It would also strengthen MoF’s oversight mechanism over the budgetary processes. Towards this end, there is no harm in exploring further reforms. Probably, that would make the budgetary cycle less stretched, more meaningful and appealing.
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