standardising of financial rules and budget formats across states
TRANSCRIPT
Standardising of Financial Rules and
Budget Formats across States
Office of the AG(A&E), Jharkhand, Ranchi
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Task assigned by Headquarters
Study of Budget Manuals of Union & State Governments
Study of Budgets of GOI and States and related regulations, Government orders, rules etc.
Identify commonalities and variances in Budgets
Suggest best practices
Office of the AG(A&E), Jharkhand, Ranchi
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Structure of Presentation
Characteristics of a Budget
Budget Preparation and Objectives
Methodology and Criteria
Constitutional Provision for Budget Preparation
Documentation of Budget Documents
Findings
Office of the AG(A&E), Jharkhand, Ranchi
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Structure of Presentation
Breach of Constitutional Provision Incorrect exhibition of Revenue and
Capital Expenditure Receipts Budget Issues Other errors/ misclassification noticed in
Budget Documents Variation in practice relating to Flagship
Schemes Good Practices and Recommendations
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Budget should aim to be Comprehensive,
Transparent,
Realistic,
Policy-oriented and
Allow for clear accountability in Budget execution.
Characteristics of a Budget
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Budget, a policy instrument, articulates Legislature and Executive’s intent in terms of the goals, objectives, strategies of the Government.
Budget governs Fiscal Plan and Fiscal Operations of the Government.
Budget should be dovetailed with the overall macro economic framework.
Budget Preparation
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Study of the Budget Documents focuses Study Variance/ Commonalities in
Documentation
Review with reference to Constitutional Provisions
Review with reference to accepted budgetary principles/ practices
Good practices for consideration and adoption in Centre/ States
Objective of Study
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Methodology and Criteria
Collection of Budget Documents Budget Documents of Union and 13
States for financial year 2010-11 from different regions were selected for study
Confirmation from Pr. Accountant General/ Accountant General sought
Basic principles of classification, Budget Manuals, List of Major & Minor Heads of Accounts, Budget Circulars etc. referred to
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Methodology and Criteria
Recent papers of International Organizations dealing with Public Finance
Budgeting practices of Flagship Schemes reviewed
Gaps in linking financing of such schemes and utilisation of such funds by the States
Constitutional Provisions
Office of the AG(A&E), Jharkhand, Ranchi
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Constitutional Provisions
Article 112/202 of the Constitution Provision to place Annual Financial
Statement. Specific items to be classified as Charged expenditure for the Union/ State
Article 113/203 of the Constitution Procedure to place “Demand for Grants” in
Legislature with respect to estimate. Demands are placed only on the prior recommendation of the President/Governor
Office of the AG(A&E), Jharkhand, Ranchi
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Constitutional Provisions
Article 114/204 of the Constitution Relates to introduction of Appropriation Bill
of Union/State. No money shall be withdrawn without Appropriation made by Law
Article 265 of the Constitution No Tax shall be levied or collected except by
authority of Law
Office of the AG(A&E), Jharkhand, Ranchi
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Constitutional Provisions
Article 266(1) of the Constitution All revenues received/ loans raised on behalf of
the State Government are part of “The Consolidated Fund of the State”. No money out of the Fund shall be appropriated without law.
All other public money credited to Public Account.
Office of the AG(A&E), Jharkhand, Ranchi
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Constitutional Provisions
Article 267(1)of the Constitution Parliament by law establish Contingency
Fund of India place at the disposal of the President pending authorisation by the Parliament under Article 115 and 116
Article 267(2)of the Constitution Legislature of State by law establish
“Contingency Fund of the State” which place at the disposal of the Governor for meeting unforeseen expenditure
Office of the AG(A&E), Jharkhand, Ranchi
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Review of Documents placed
Budget Documents of 13 States has been reviewed
A tabular format has been devised to verify Budget Documents prepared as per
Constitutional requirements
Other Budget Documents prepared for tabling in the Legislature
Office of the AG(A&E), Jharkhand, Ranchi
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Findings
Findings of the Study broadly categorized as:- Breach of Constitutional Provisions Incorrect exhibition of revenue and capital
provision under expenditure heads Receipt Budget- Issues Other errors/ misclassification noticed in
budget documents Variation in practices relating to Flagship
Schemes
Office of the AG(A&E), Jharkhand, Ranchi
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Breach of Constitutional Provisions
Office of the AG(A&E), Jharkhand, Ranchi
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Exhibition of Charged Expenditure
Under Articles 202(2), the expenditure Charged on the Consolidated Fund of the State should be shown separately in “Annual Finance Statement”.
In Andhra Pradesh, Madhya Pradesh, Haryana and Punjab, “Charged Expenditure” has not been shown separately in the Annual Financial Statement.
Office of the AG(A&E), Jharkhand, Ranchi
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Incorrect provisioning of Charged Expenditure
Under Articles 202(3)(a), the emoluments and allowances of the Governor and expenditure relating to his office should be charged on the Consolidated Fund of the State.
In Karnataka, Madhya Pradesh and Meghalaya provisions has been made under Voted
Office of the AG(A&E), Jharkhand, Ranchi
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Incorrect provisioning of Charged Expenditure
Under Articles 202(3)(c), Debt Charges, Sinking Fund, redemption of Debt etc. should be charged on the Consolidated Fund of the State.
In Bihar provision of ` 160 crore, in the case of Sinking Fund, has been made under Voted
Office of the AG(A&E), Jharkhand, Ranchi
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Incorrect provisioning of Charged Expenditure
Under Articles 202(3)(d), expenditure in respect of salary and allowances of High Court Judges should be charged on the Consolidated Fund of the State.
In Karnataka some provision has been made under Voted
A tabular format shows details
Office of the AG(A&E), Jharkhand, Ranchi
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Grants-in-Aid budgeted as Capital
Grants-in-Aid should be classified under Revenue Section
For transparency in accounts, Grants-in-Aid is to be bifurcated into Grants-in-Aid for Salary, Grants-in-Aid for Non-Salary and Grants for creation of capital assets
Study reveals that 10 States had budgeted ` 1378.77 crore in Capital Section
Office of the AG(A&E), Jharkhand, Ranchi
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Minor Works/ repairs budgeted as Capital
Provision for minor works/ Maintenance & repairs should be under “Revenue heads”
11 States have made provision of ` 817.05 crore for minor works under Capital heads
Office of the AG(A&E), Jharkhand, Ranchi
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Major Works budgeted as Revenue
Budget provision for major works is intended to create asset
It should be budgeted for under “Capital heads”
10 States had provided a total of ` 1228.32 crore budget for Major Works under “Revenue Section”
Classifying revenue as capital, vice- versa has implication on the revenue balance of the State
This will understate/overstate the revenue deficit
Office of the AG(A&E), Jharkhand, Ranchi
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Receipt Budget Issues
Office of the AG(A&E), Jharkhand, Ranchi
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Non Budget Transparency in Union Receipt
In six tier classification structure, 15 digit codification pattern is adopted
Union Government’s receipt classification is only upto Major head (in Annual Financial Statement)
Greater degree of transparency required
Office of the AG(A&E), Jharkhand, Ranchi
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State Receipt Budget Issues
Wide variations of codification structure noticed in State Receipts Budget
Many States prepare their Receipts Budget upto 5-Tier
Additional Resource Mobilisation are not clearly depicted in Budget
Office of the AG(A&E), Jharkhand, Ranchi
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Budgeting under minor head “800 Other Receipts”
Tendency of classifying revenue receipts under omnibus head observed
Classification under “800” of Tax Revenue (i) Sales Tax and (ii) State Tax other than
Sales Tax- it is nominal
Budgeting under “800” in case of Non-Tax Revenue is substantial
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Statement of Revenue Foregone
Union Government prepares Statement of Revenue Foregone
Statement presents revenue impact of Tax incentives or subsidies
No State Government prepares such statement, currently
For clearer impact of exemptions, subsidies etc. on State Finances, State Government may consider preparing such a Statement
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Expenditure Budget Issues
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Presentation of Additional Statements
State Governments may consider preparing certain documents/ statements noticed in Union Budget:- Implementation of Budget Announcements Budget Provision by Heads of Accounts Reconciliation between Demands for Grants
and Annual Financial Statement Medium term expenditure trends Strength of establishment and provision
Office of the AG(A&E), Jharkhand, Ranchi
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Provision under Omnibus expenditure head
Provision under “800 Other Expenditure” should be avoided as far as possible.
This is an essential requirement in facilitating transparency in Budget
States viz. Meghalaya, Assam and Bihar has provided substantial amounts under such residuary head.
Office of the AG(A&E), Jharkhand, Ranchi
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Coding Pattern of expenditure heads
Standard 6 tier coding pattern has been prescribed
Major, Sub-Major and Minor have been standardized as per List of Major & Minor heads of Accounts
Wide variations has been noticed for Sub-head, Detailed and Object head
Many States have maintained 5 tier classification
Office of the AG(A&E), Jharkhand, Ranchi
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Grant-in-Aid classified under other heads
Grants-in-Aid has been classified under Lump Sum
Other Charges
State Contribution
Central Contribution
7 States have classified ` 3665.33 crore Grants-in-Aid in such heads
Office of the AG(A&E), Jharkhand, Ranchi
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Flagship Schemes
Office of the AG(A&E), Jharkhand, Ranchi
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Flagship Scheme- Sarva Shikhsa Abhiyan
Assam, Andhra Pradesh, Karnataka, Madhya Pradesh, Meghalaya and Punjab have not operated prescribed minor head “111 Sarva Shikhsa Abhiyan”
Haryana and Madhya Pradesh classified the scheme as CPS and CSS respectively
Bihar, Jharkhand, Orissa and Punjab have shown the object head as State Share/ Lump sum provision instead of Grants-in Aid.
Office of the AG(A&E), Jharkhand, Ranchi
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Flagship Scheme- National Rural Health Mission
Bihar and Himachal Pradesh have operated the scheme under the major head 4210 and 2211 respectively instead of major head 2210
Assam and Madhya Pradesh classified the scheme as CSS
Bihar, Himachal Pradesh, Jharkhand, Karnataka, Orissa and Punjab have shown the object head as State Share/ Lump sum provision
Office of the AG(A&E), Jharkhand, Ranchi
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Flagship Scheme- MNREGA/ NREGA
Assam, Andhra Pradesh and Punjab have operated the scheme under the major head 2501/ 2515 respectively instead of major head 2505
Himachal Pradesh and Madhya Pradesh classified the scheme as CSS while Haryana has shown as CPS
Bihar and Jharkhand, have shown the object head as State Share
The name of the scheme in Karnataka is “Karnataka Rural Employment Guarantee Act”
Office of the AG(A&E), Jharkhand, Ranchi
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Flagship Scheme- JNNURM
All State Governments have correctly operated the scheme under major head 2217/ 4217
Himachal Pradesh, Jharkhand and Punjab operated the scheme partially as SP and partially as CSS
Meghalaya has shown the object head as “Major Works”, while there is no Detailed and Object head in Kerala
Office of the AG(A&E), Jharkhand, Ranchi
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Flagship Scheme- Indira Awas Yojana
Wide Variations of major heads have been operated for the scheme (2216/ 2501/ 2515/ 4515)
Himachal Pradesh and Madhya Pradesh operated the scheme as CSS while Haryana as CPS
Bihar, Jharkhand has shown the object head as “State Share”, while there is no Detailed and Object head in Kerala
Office of the AG(A&E), Jharkhand, Ranchi
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Flagship Scheme- ARWSS
Haryana and Himachal Pradesh have operated the scheme under the major head 2215 and 4215 while other states have budgeted only in revenue section 2215
Himachal Pradesh has operated the scheme as Non Plan while Other States have shown SP/ CSS
Office of the AG(A&E), Jharkhand, Ranchi
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Flagship Scheme- ICDS
Most States have classified the scheme under the major head 2235 and 4235
However, Karnataka has operated the scheme in major head 2211 and Meghalaya has operated major head 2236
Office of the AG(A&E), Jharkhand, Ranchi
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Flagship Scheme- Backward Region Grant Fund
Most States have correctly classified the scheme under the major head 2505
Bihar and Kerala have classified the scheme under object head “Other Charges” instead of grants-in-aid
No such scheme found in the Budget of Assam
Office of the AG(A&E), Jharkhand, Ranchi
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Flagship Scheme- Mid Day Meal
Assam, Andhra Pradesh, Himachal Pradesh, Madhya Pradesh, Meghalaya and Punjab have not operated prescribed minor head “112 National Programme of Nutritional Support to Primary Education”
Haryana and Orissa have classified the scheme under CPS
There is no such scheme found in Karnataka
Office of the AG(A&E), Jharkhand, Ranchi
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Good Practices & Recommendations
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Good Practices and Recommendations- General
Determine a clear macro-economic framework as part of the Budget Process
Haryana may consider preparing a separate document called “Annual Financial Statement” as required in Article 202(1) of the Constitution of India
States should consider preparing Performance Budget, Gender Budget and Outcome Budget as good practice
Office of the AG(A&E), Jharkhand, Ranchi
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Good Practices and Recommendations- Correcting Constitutional Infringements
Madhya Pradesh, Andhra Pradesh, Haryana and Punjab should include a separate statement of expenditure charged upon the Consolidated Fund of State in the Annual Financial Statement
Karnataka, Madhya Pradesh, Bihar and Meghalaya should correct provisions shown as Voted in breach of Article 202(3)(a),(c) & (d)
Misclassification pertaining to revenue and capital heads should be reviewed to avoid overstatement/understatement of “Revenue Deficit”
Office of the AG(A&E), Jharkhand, Ranchi
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Good Practices and Recommendations- Receipts Issues
Union Government needs to bring greater transparency in Receipt Budget by making projection below major head
States should review classification under “Other receipts” under Non-Tax section
Good practice of Union Government- of laying “Statement of Revenue Foregone” needs to be emulated by States
Office of the AG(A&E), Jharkhand, Ranchi
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Good Practices and Recommendations-
Expenditure Budget
Good practice of Union Government may be adopted by States : Implementation of Budget Announcements Budget provision by heads of Accounts Reconciliation between Demands for Grants
and Annual Financial Statement Trends in receipts/ expenditure for last 10
years and Estimated strength of establishment and
provision thereof
Office of the AG(A&E), Jharkhand, Ranchi
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Good Practices and Recommendations- Expenditure Budget
Review expenditure budget to minimise provisions under omnibus head “Other Expenditure” to bring more transparency
Budget classification below minor head needs alignment across States to ensure uniformity
Provision under Grants-in-Aid should be made under Revenue Account
Office of the AG(A&E), Jharkhand, Ranchi
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Good Practices and Recommendations- Flagship Scheme
Clarity and Uniformity regarding nature of scheme viz. State Plan, Centrally Sponsored Scheme and Central Plan Scheme is required
Union Government should allot unique code for Flagship schemes for uniformity and linking Plan schemes
Share of funding between Centre and State should be indicated in Budget in case of CSS
Uniform classification needs to be operated to facilitate inter-state comparison
Office of the AG(A&E), Jharkhand, Ranchi
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Office of the AG(A&E), Jharkhand, Ranchi
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FLAGSHIP SCHEMES SELECTED FOR STUDY
1. Sarv Shikhsha Abhiyan (SSA)
2. Mid Day Meal Scheme (MDM)
3. National Rural Health Mission (NRHM)
4. Mahatma Gandhi National Rural Employment Guarantee Act (MNREGA)
5. Backward Region Grant Fund (BRGF)
6. Jawaharlal Nehru National Urban Renewal Mission (JNURAM)
7. Accelerated Rural Water Supply Schemes (ARWSS)
8. Indira Awas Yojana (IAY)
9. Integrated Child Development Schemes (ICDS)
Office of the AG(A&E), Jharkhand, Ranchi
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States Selected for Review of Budget
1. Andhra Pradesh 8. Kerala
2. Assam 9. Madhya Pradesh
3. Bihar 10. Meghalaya
4. Haryana 11. Orissa
5. Himachal Pradesh 12. Punjab
6. Jharkhand 13. West Bengal
7. Karnataka
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Codification Structure
Major Head XXXX Sub-major Head XX Minor Head XXX Sub-head XX Detailed Head XX Object Head XX
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Incorrect provisioning of Charged Expenditure
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Grants-in-Aid budgeted as Capital
Office of the AG(A&E), Jharkhand, Ranchi
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Minor Works/ repair budgeted as Capital
Office of the AG(A&E), Jharkhand, Ranchi
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Major Works budgeted as Revenue
Office of the AG(A&E), Jharkhand, Ranchi
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Codification pattern in respect Receipt Heads sub-ordinate to Minor heads
Office of the AG(A&E), Jharkhand, Ranchi
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Variation of classification under the omnibus head ‘800 Other Receipts’
Office of the AG(A&E), Jharkhand, Ranchi
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Provision under omnibus heads
Office of the AG(A&E), Jharkhand, Ranchi
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Codification pattern in respect Expenditure Heads sub-ordinate to Minor heads
Office of the AG(A&E), Jharkhand, Ranchi
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Grants in Aid classified under other head
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THE CONSTITUTION OF INDIA(Part VI.—The States.—Arts. 200—202.)
Procedure in Financial Matters202. (1) The Governor shall in respect of every financial year cause to be laid before the House or Houses of the Legislature of the State a statement of the estimated receipts and expenditure of the State for that year, in this Part referred to as the "annual financial statement".(2) The estimates of expenditure embodied in the annual financial statement shall show separately—(a) the sums required to meet expenditure described by this Constitution as expenditure charged upon the Consolidated Fund of the State; and Bills reserved for consideration.(b) the sums required to meet other expenditure proposed to be made from the Consolidated Fund of the State; and shall distinguish expenditure on revenue account from other expenditure.(3) The following expenditure shall be expenditure charged on the Consolidated Fund of each State—(a) the emoluments and allowances of the Governor and other expenditure relating to his office;(b) the salaries and allowances of the Speaker and the Deputy Speaker of the Legislative Assembly and, in the case of a State having a Legislative Council, also of the Chairman and the Deputy Chairman of the Legislative Council;(c) debt charges for which the State is liable including interest, sinking fund charges and redemption charges, and other expenditure relating to the raising of loans and the service and redemption of debt;(d) expenditure in respect of the salaries and allowances of Judges of any High Court;(e) any sums required to satisfy any judgment, decree or award of any court or arbitral tribunal;(f) any other expenditure declared by this Constitution, or by the Legislature of the State by law, to be so charged.
Major Works
Rule-8, Delegation of Financial Power Rules,1978
Minor Works
Rule-8, Delegation of Financial Power Rules,1978