Power to raise and disburse public funds has been divided under the Constitution between the Union and the state governments. Sources of revenue for Union and states are, by and large, mutually exclusive, if shareable taxes and duties between them are excluded. The Constitution provides that:
(i) no tax can be levied or collected except by an authority of law;
(ii) no expenditure can be incurred from public funds except in the manner provided in the Constitution; and
(iii) executive authorities must spend public money only in the manner sanctioned by the Parliament in case of the Union and by the state legislature in the case of a state.
All receipts and disbursements of the Union are kept under two separate headings, namely, the Consolidated Fund of India and Public Account of India. All revenues received, loans raised and money received in repayment of loans by the Union form the Consolidated Fund. No money can be withdrawn from this Fund except under the authority of an Act of Parliament. All other receipts, such as deposits, service funds and remittances go into Public Account and disbursements therefrom are not subject to the vote of Parliament. To meet unforeseen needs not provided in the Annual Appropriation Act, a Contingency Fund of India has been established under Article 267(1) of the Constitution. The Indian Constitution provides for the establishment of a Consolidated Fund, a Public Account and a Contingency Fund for each state.
The Railways, the largest public undertaking, present their budget separately to the Parliament. Appropriations and disbursements under the Railway budget are subject to the same form of parliamentary control as other appropriations and disbursements. However, as the Railways have no separate cash balance of their own, total receipts and disbursements of the Railways are incorporated in the budget of the Union as part of the General Budget.
SOURCES OF REVENUE
The main sources of the Union tax revenue are customs duties, Union excise duties, corporate, service tax and income taxes. Non-tax revenues largely comprise interest receipts, including interest paid by the Railways and Telecommunications, dividend and profits. The main heads of revenue in states are taxes and duties levied by the respective state governments, share of taxes levied by the Union and grants received from the Union. Property taxes, octroi and terminal taxes are the mainstay of local finance.
TRANSFER OF RESOURCES
Devolution of resources from the Union to the states is a salient feature of the system of federal finance of India. Apart from their share of taxes and duties, state governments receive statutory and other grants as well as loans for various development and non-development purposes. In addition, resources are also transferred by Central government to implementing agencies under various schemes without routing it through State Budgets.
ANNUAL FINANCIAL BUDGET
An estimate of all anticipated receipts and expenditure of the Union for the ensuing financial year is laid before the Parliament. This is known as ‘Annual Financial Statement’ or ‘Budget’ and covers Central Government’s transactions of all kinds, in and outside India, occurring during the preceding year, the year in which the statement is prepared as well as the ensuing year or the ‘Budget Year’ as it is known. The presentation of Budget is followed by a general discussion on it in both the Houses of Parliament. Estimates of expenditure from the Consolidated Fund of India are placed before the Lok Sabha in the form of ‘Demands of Grants’. All withdrawals of money from the Consolidated Fund are thereafter authorised by an Appropriation Act passed by the Parliament every year. Tax proposals of Budget are embodied in a Bill which is passed as the ‘Finance Act’ of the year. Estimates of receipts and expenditure are similarly presented by the state governments in their legislatures before the beginning of the financial year and legislative sanction for expenditure is secured through similar procedure.