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Standardising of Financial Rules and Budget Formats across States

Standardising of Financial Rules and Budget Formats across States. 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

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Standardising of Financial Rules and Budget Formats across States

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  1. Standardising of Financial Rules and Budget Formats across States

  2. 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

  3. 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

  4. 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 Office of the AG(A&E), Jharkhand, Ranchi

  5. Characteristics of a Budget • Budget should aim to be • Comprehensive, • Transparent, • Realistic, • Policy-oriented and • Allow for clear accountability in Budget execution. Office of the AG(A&E), Jharkhand, Ranchi

  6. Budget Preparation • 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. Office of the AG(A&E), Jharkhand, Ranchi

  7. Objective of Study • 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 Office of the AG(A&E), Jharkhand, Ranchi

  8. 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 Office of the AG(A&E), Jharkhand, Ranchi

  9. 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 Office of the AG(A&E), Jharkhand, Ranchi

  10. Constitutional Provisions

  11. 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

  12. 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

  13. 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

  14. 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

  15. 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

  16. 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

  17. Breach of Constitutional Provisions Office of the AG(A&E), Jharkhand, Ranchi

  18. 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

  19. 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

  20. 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

  21. 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 tabularformat shows details Office of the AG(A&E), Jharkhand, Ranchi

  22. 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

  23. 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

  24. 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

  25. Receipt Budget Issues Office of the AG(A&E), Jharkhand, Ranchi

  26. 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

  27. 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

  28. 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 Office of the AG(A&E), Jharkhand, Ranchi

  29. 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 Office of the AG(A&E), Jharkhand, Ranchi

  30. Expenditure Budget Issues Office of the AG(A&E), Jharkhand, Ranchi

  31. 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

  32. 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

  33. 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

  34. 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

  35. Flagship Schemes Office of the AG(A&E), Jharkhand, Ranchi

  36. 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

  37. 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

  38. 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

  39. 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

  40. 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

  41. 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

  42. 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

  43. 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

  44. 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

  45. Good Practices & Recommendations Office of the AG(A&E), Jharkhand, Ranchi

  46. 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

  47. 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

  48. 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

  49. 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

  50. 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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