Who Prepares the Annual Budget?

Who Prepares the Annual Budget?

Understanding the process by which the Union Budget of India is made is crucial. This is because civilians need to understand how and where the government focuses its financial resources. However, the Finance Minister is the person who prepares budget in India with the help of civil servants. The process includes collecting information from different organisations, economists, and business leaders. The method includes estimating expenditures and revenues. This is done by narrowing the deficit followed by final allocations approved after a lot of consensus building e.g. pre-budget meetings. The combined effort guarantees that the future fiscal year’s budget mirrors the economic priorities and requirements of the country. In this blog, we are going to discuss what the union budget is, understand its process, and the steps involved. 

What is the Union Budget?

The Union Budget of India is known as the annual Financial Statement, mentioned in the Article 112 of the Indian Constitution. The budget is presented every year in the Parliament on the las working day of February by the Finance Minister. The budget is approved by the House before being effective from April 1st. 

Moreover, initially “budget '' only referred to the Chancellor’s annual speech on the nation’s financial planning and standing. But today, it represents an annual financial statement detailing a government's income and expenditure.

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Table of Content

  1. What is the Union Budget?
  2. Understanding the Budget Process
  3. Steps in the Preparation of the Union Budget

Understanding the Budget Process

In the Indian budget process, the Finance Minister, aided by advisors and bureaucrats, seeks input from industry leaders and economists. Various organisations related to accounting and finance share their opinions and suggestions. Bureaucrats play a significant role in influencing the outcomes of the budgeting exercise, which typically begins in the third quarter of the financial year. The budget process involves four stages: estimating expenditures and revenues, determining the initial deficit, narrowing the deficit, and finally presenting and obtaining approval for the budget.

Steps in the Preparation of the Union Budget

The preparation of the Union Budget in India involves several key steps:

Step 1: Issuing Circular and Requesting Estimates
The finance ministry initiates the budget process by issuing a circular to various entities, including ministries, states, Union territories, and autonomous bodies. The circular instructs them to prepare estimates for the upcoming year.

Step 2: Providing Guidelines and Forms
The circular contains essential elements, including skeleton forms and guidelines. These materials serve as the foundation for ministries to articulate and present their financial demands.

Step 3: Detailing Revenues and Expenditures
Ministries go beyond mere estimates, providing a breakdown of their financial activities from the past year. This includes a detailed account of both revenues generated and expenditures incurred, offering a thorough understanding of their fiscal performance.

Step 4: Scrutiny and Consultations
Upon receiving budget requests, top government officials meticulously scrutinise the submissions. This scrutiny is accompanied by extensive consultations between ministries and the Department of Expenditures.

Step 5: Data Submission to Finance Ministry
Once the budget requests receive approval, the data is compiled and forwarded to the finance ministry. This centralization of budgetary information is a crucial step in streamlining the process and facilitating further review.

Step 6: Allocation of Revenues
The finance ministry, acting as the central authority in budget allocation, reviews all recommendations. Based on this review, revenues are strategically allocated to various departments.

Step 7: Pre-Budget Meetings
The finance minister engages in pre-budget meetings with a diverse array of stakeholders. This inclusive approach involves discussions with state representatives, bankers, agriculturists, economists, and trade unions.

Step 8: Gathering Proposals and Demands
During pre-budget consultations, the finance minister actively gathers information about proposals and demands from the stakeholders. This participatory approach ensures that the budget reflects the needs and aspirations of various sectors and interest groups.

Step 9: Final Decision-Making
Armed with insights from pre-budget consultations, the finance minister makes the final decisions on budgetary allocations and priorities. These decisions are subjected to discussion with the Prime Minister before finalisation.

The Indian Union Budget is a complex process involving multiple stages and meticulous attention to detail. The Ministry of Finance, in collaboration with Niti Aayog and other ministries, crafts the budget, with the Budget division of the Department of Economic Affairs playing a central role. The modern budget system has roots in the Norman period, evolving from a mere speech to a detailed financial statement outlining the government's income and expenditures. Final decisions on budgetary allocations and priorities shape the financial landscape for the upcoming fiscal year.

Frequently Asked Questions

Budget management is influenced by factors like economic conditions, government policies, and unexpected events impacting revenue and expenses, affecting financial planning and execution.

Budgeting processes provide structure, ensuring systematic planning, allocation, and monitoring of financial resources for effective organizational management and goal achievement.

The budget process is crucial for transparent financial planning, resource allocation, and goal alignment.

The budget process involves key stakeholders, including finance professionals, department heads, and executives. Collaboration with experts and relevant personnel ensures comprehensive financial planning and decision-making.

Budgets may face limitations due to unforeseen events, inaccurate predictions, and inflexibility. Over-reliance on historical data and changing economic conditions can challenge the effectiveness of budgetary plans.