Maha Bharat: Episode 4

Why is the Union Budget Important?

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Every February, there comes a time when a single event captures the imagination of crores of Indians. No, we’re not talking about a cricket match but the annual budget speech of the Union Government. The nation sits down together to discuss the schemes and tax breaks that are on offer. News channels have gathered the experts and the stock market of course delivers its reaction.

The union budget is akin to a grand festival in India. But if you are among those who have no idea what’s going on, you’re not alone. How many of us actually know how the budget is put together and passed? Did you know that the finance ministry participates in a halwa ceremony? Is the budget speech all there is to the process of financial planning in India? How many of us actually understand the budget speech? And what happens after the budget speech ends?

Too many questions about India’s budgeting process? This episode breaks it all down for you.

Show Notes

All clips and voices used in this podcast are owned by the original creators

We thank wholeheartedly our guest who appeared on this episode:

  • Prachee Mishra

Links to clips used in this episode —

Full Transcript of Episode 4

The date is February 1. Time: 11 am.

Carrying a red file in her hand, India’s Finance Minister has reached the Parliament. In just a few minutes, she will present this year’s budget in front of the entire country.

At home, the TV is on and news channels have already gathered their experts.

The Nation Wants to Know what is about to happen this year.

[We hear the news headlines about budget from different news channels.]

In India, the budget is like a festival, a tradition that is followed year after year. But how many of us can say with confidence that we actually understand the budget?

First there is the speech that the finance minister reads out every year — how many of us are able to follow that? Is there more to the speech than names of schemes, technical terms and long lists of numbers and percentages?


[We hear the voice of Finance Ministers delivering the Union Budget speeches.

Also, what happens after this speech? How is the annual union budget actually passed? And who checks if the government follows this budget or not?

I thought I’ll try to find answers to many of these questions in this episode.

Every year, the government comes up with an annual budget. What this broadly means is that the government is planning its expenses and earnings for the upcoming year. Whether it is through taxes or duties and fees, the money that the government earns, it is supposed to spend on its different responsibilities — i.e. health care, infrastructure, roads etc. So it needs to plan to divide money for these expenditures and also plan to raise money for the future.

The government presents one such plan to the country every February.

[We hear a news clip about the budget date.]

Why is the budget presented in February?

That’s because India’s financial year or accounting period begins in April. So, the idea is that if the budget is presented on February 1, then by the time April comes, the government has the time to discuss, approve and pass the budget.

The union budget actually has many many documents within it. There is the budget speech which is just ONE such document. Apart from that, there are documents which explain where the government is spending money, there are documents which explain where the government is planning to get money from, there are documents which explain how much a government can borrow, then there are documents which explain the legal changes that are needed to implement some of the budget announcements.

All of these documents are ready every year by February. So, the question is who prepares so many elaborate documents and how do they do this?

I asked Prachee Mishra, who is the Deputy Head of Research at PRS Legislative research to tell me more. PRS is an independent research institute which keeps track of the functioning of the Indian Parliament and provides research support to MPs from the Lok Sabha and Rajya Sabha.

Prachee Mishra
The process roughly starts in around August/September of every year when the Ministry of Finance reaches out to all the different ministries with the various documents that are needed.

So, the ministry of finance basically sends out a circular to all the ministries asking them how much money they will need for the year to do their respective work. Different ministries then send this information to the Ministry of Finance.

Prachee Mishra
This is something that is known as a demand for grants. So if you look at the Union budget documents you’ll be able to see that each ministry’s document is called that ministry’s demand for grants.

Each ministry’s demand for money is called Demand for grants. Apart from this, the finance ministry also asks all these ministries how much money they hope to earn in the next two years.

Then the finance minister examines (jaanch) the proposals received from various ministries. Then he/she meets with the Prime Minister, the Union cabinet and some external stakeholders. Finally, after all these discussions, the budget is put together.

This entire process happens roughly from September to January!

Let’s pause here.

Before we carry on with the budget process, I want to ask, do you guys know when and how did modern India begin this tradition of preparing budgets?

Short answer: Thanks to the British.

The first budget in British India was prepared in 1860 by a Scottish man called James Wilson. Wilson was an interesting personality. He was the founder of what is today the Standard Chartered Bank and also the founder of the popular magazine ‘The Economist’.

After the First War of Indian Independence, the British were forced to deal with financial problems (aarthik samasya). The 1857 revolt had increased their military expenditure and now there was a financial crunch (paise ki taqleef) — and loans to pay too.

Wilson was seen as the man who understood how the market and economics worked. So he was invited to plan the finances of the British in India. So, that’s how he came to be the one to introduce the concept of a financial budget for the first time to modern India (adhunik bharat).

That was a little piece of history for you.

Now, let’s come back to modern India’s own budgets and how we prepare and present it. So what we know till now is that by January, the Finance Ministry prepares the budget documents after gathering all the information it needs from other ministries.

Then what happens? The Finance Ministry eats halwa. I’m not even joking.

Prachee Mishra
So, something else that you would have heard a lot in the news is called the halwa ceremony which essentially marks..when the documents start getting printed and prepared. The Ministry has its own printing press in the basement of where the ministry office is in the north block in delhi here. That’s where they print all the documents. So…a lot of.. to ensure confidentiality, everybody who is sort of part of the entire process is staying in the ministry to ensure that no documents get leaked out.

Actually, some of you may have heard this in the news

[We hear a news clip about the Halwa Ceremony.]

So, basically, this halwa ceremony is a celebration of sorts — because the year’s budget has been prepared. But more importantly,this ceremony also marks the occasion when all the budget documents are printed.

The finance ministry has its own printing press to print the budget. This is to ensure that confidentiality of documents is maintained.

Then what happens? A day before the finance minister’s budget speech, another document called The Economic Survey is released.

The Economic Survey is supposed to provide the entire country with an overview of the economy. It is a summary of all the issues facing the economy along with the government’s plan to address those issues.

Once this is done, then comes the day of the budget speech.

[Nirmala Sitharaman addressed the Parliamnet in her Budget Speech, 2019.]

Nirmala Sitharaman
An Urdu couplet, pardon me my pronunciation yakeen ho toh koi raasta nikal tha hai, yakeen ho toh koi raasta nikal tha hai hawa ki hot bhi lekar chirag jal tha hai wah wah wah

[We hear the voice of Nirmala Sitharaman explaining the budget.]

That was Finance Minister Nirmala Sitharaman starting her budget speech in 2019 with a touch of poetry.

The budget speech may seem long and complicated but it actually has a structure.

The FM begins her speech with a brief overview of the economic situation in the country and then goes on to talk about the schemes that the government has put in place and what they have achieved etc.

[We hear the voice of Nirmala Sitharaman’s 2020 Budget Speech.]

Nirmala Sitharaman
During 2014-19, our government brought in a paradigm shift in governance. This shift was characterised by a twin focus: fundamental structural reform and inclusive growth.

Of the structural reforms, the Goods and Services Tax (GST) has been the most historic in our country

Then FM talks about the financial proposals that the government has in mind for the current financial year. Here, FM also talks about the year’s total expected/estimated expenditure and earnings.


Nirmala Sitharaman
Our government is committed to the goal of doubling farmers’ incomes by 2022.
We have provided energy sovereignty through KUSUM and input sovereignty through Paramparagat Krishi Vikas Yojana.

For the sector comprising of Agriculture and allied activities, Irrigation and Rural Development an allocation of about 2.83 lakh crore has been made for the year 2020-21 . Its divided, a) For Agriculture, Irrigation & allied activities – 1.60 lakh crore b) For Rural development & Panchayati Raj – 1.23 lakh crore

Think of the different things you would account for in your own personal or family budget. Now, imagine how complicated making such a budget might be for the entire country. The government has to account for so many things under both income and expenditure — like government employees salaries, the cost of the construction and maintenance of things like roads, hospitals, schools etc. And this list goes on and on.

And all of this has to find a place in the budget.

[Nirmala Sitharaman announcing the 2019-20 budget.]

Nirmala Sitharaman
Sir now I move to PART B. Something of great interest to all of us — Taxation related..

The second half of the budget speech or what is called Part B is about taxes. In this part of the speech, the FM tells us whether taxes have been increased or slashed or if there are any new taxes.

The government gets most of its money from taxes but not all of it — there are also fines, fees on services it provides, money it gets from selling some of its ‘assets’ like if you remember the government recently planned to sell 100% of its shares in Air India.

So, after the Finance Minister finishes her budget speech, then what happens?

[We hear newsclips about the criticisms of the budget.]

News anchors and panelists start shouting of course.

But I mean in the Parliament. After the finance minister finishes her budget, she tables the budget in the Lok Sabha and the Rajya Sabha.
What does this mean? In other words, the finance minister tells the Parliament, let’s discuss this budget.

[We hear the voices of Nirmala Sitharaman speaking in the Parliament.]


Nirmala Sitharaman
Sir with your permission I rise to move for leave to introduce the finance bill 2020.
Prashn yeh hai ki vidheyak ko puraisthapit kaneki anumati ki jaaye. Jo sadasya iske paksh mein hai woh haan kahe. Jo sadasya virod me hai naa kahe. Mere vichar mein nirnay haanwalon ke paksh mein hua, haanwalon ke paksh mein hua.

Over the next few days, Lok Sabha and Rajya Sabha discuss the budget. Pracheeji tells us why this discussion is important.

Prachee Mishra
See, the idea of the budget being presented in Parliament is that it ties in with the larger role that our legislature in our country has – basically it should discuss, approve and pass the budget and it should hold the government accountable…you know whatever spending the government is incurring.

It is the duty of the Parliament to discuss, debate and approve the budget. No government of a democratic country especially can pass a budget without this process.

And as citizens, if you actually follow this discussion, it can be quite interesting and sometimes entertaining too.

[We hear the voices of ministers discussing the budget in the Lok Sabha]

Supriya Sule
I think hunger is a very serious issue, malnutrition is one of the challenging issues of the country. What specific interventions is this government going to do to eradicate poverty and malnutrition in the children of India today.

Owaisi
Is it also true sir that to complete 1.12 crore houses, it will trigger an investment of more than 7 lakh crore. I want to know, how do you intend to generate this revenue because I’m sure that you don’t have a magic lamp wherein a genie comes and gives you 7 lakh crores in 2 years.

What you just heard are the voices of Members of Parliament Supriya Sule and Asaduddin Owaisi.

Anyway so when the discussion ends, the Finance Minister stands up again and responds to the points made in the discussion.

[We hear Nirmala Sitharaman’s voice.]

Nirmala Sitharaman
Which means that the budget had so much that you could either pick up and comment on criticise, question but generate a good debate. So I’m very grateful that 98 participants have participated and contributed and enriched this debate on the budget.

Then the Parliament takes a break. But this is a break only from discussion and not from the budget process.

During this break, each ministry’s expenditure plan is taken up separately and is analysed — but this is a lot of work because there are just too many ministries and departments in our government. If the members of the Lok Sabha sit and look at it together, it could take days, even months. That’s why the government has set up standing committees for every ministry. These committees have around 30 members and they are MPs from the ruling party, opposition parties etc. Several of these committees are also chaired by members of the opposition parties.

Each standing committee examines the expenditure plan for their ministry and they do this in a detailed way.

Prachee Mishra
So, for example, say if I look at standing committee on transport, it would look at the expenditure by the ministry of shipping, expenditure by the ministry of civil aviation. It also looks at the expenditure by the ministry of culture and tourism.

So for example, if the standing committee is looking at the transport ministry’s budget, then it will look at all the different ministries/divisions under it too.

If the standing committee has questions about some amount or some new rule, then it can even call that ministry’s officials and ask them.

Prachee Mishra
So they can call in ministry officials to ask why a certain amount has been sanctioned, what is happening with a certain scheme, they actually do end up calling a lot of external stakeholders, industry bodies to understand if a certain demand that has been made by the ministry, would that be actually sufficient to meet the actual, on ground demand or not.

So, what I learnt from Pracheeji is that the recess or break time is when these standing committees do a thorough check on the budget and attempt to build consensus/convince the different stakeholders.

And once they finish their jaanch, every standing committee submits its report to the parliament.

Then the Lok Sabha reconvenes and discusses the standing committee reports. Here too, the Lok Sabha does not have the time to discuss all the departments’ reports. For example, In 2020, I think the Lok Sabha discussed only demands made by 3 ministries – tourism, railways and social justice and empowerment.

Once the discussion is over, the members vote yes or no on the proposed expenditure.

[We hear the voice of the Parliament Speaker.]

Though both the Houses of Parliament discuss the Budget, only the Lok Sabha votes on it. This voting too has a name: “guillotine”. The Speaker of the Lok Sabha announces it and then voting begins. Isko kehte hain “applying the guillotine”.

After voting, the budget process is still not over.

The next step is to pass something called the Appropriation Bill. This bill basically gives the government permission to spend money. So in other words, if this bill is passed, it means that the government’s proposals in the budget have been approved and the government can now spend money.

The final step is the discussion and voting on tax proposals — at the end of this discussion and voting, the Parliament passes something called the Finance Bill and THEN the budget process comes to an end. Then your budget is passed.

Now, what happens if the budget is not passed? Has it ever happened?

If the budget is not passed, then it means that the ruling party is in the minority. Technically it means the government has lost the confidence vote in the Lok Sabha and it has to resign. In Indian history, this has not happened so far.

Now, you could also ask who is checking the budget — numbers that the FM announces in a budget. She could easily say the government will do this and we will earn this, and we will spend on this and this etc etc. But is there anyone checking these facts and numbers?

Well, the Parliament is supposed to keep a tab on the government’s performance over the year. And there are some ways in which they check if the government is following the budget.

Prachee Mishra
So there are two ways in which this happens. One is Parliament has its own financial committees which scrutinize government accounts and exercise sort of Parliamentary control over the entire government expenditure. The CAG also audits the income and expenditure accounts of the government. And the CAG is an independent constitutional body which derives its power from the constitution

So Parliament has something called financial committees and it is their duty to check government’s accounts through the year. Then there is also the CAG which is an independent body and which also checks the government’s accounts. CAG submits its report to the Parliament every year and that is also further checked.

Now what one must also remember is that the government is actually doing financial planning all through the year. It might present one annual budget at the start of the year but financial planning has to happen throughout the year.

This is because nobody knows how the year is going to progress. Take this year for instance. On February 1, India was still not fully aware of how bad the Coronavirus would affect governments, people and businesses worldwide. Now, the government will need to re-look at its budget because the virus has affected our economy too.

So you could ask what then is the value of the annual budget? The value of an annual budget is to ensure that funds reach the departments/sectors that require it the most. A budget could use data from previous years to identify sections of the society in need of economic welfare policies.

Ultimately, what a budget provides is a broad overview of what the country should be focusing on in the year.

Waise, what happens in reality is for us all to see and perhaps check too.

Now, before I go, I want to quickly talk about bags. Yes, you heard that right. If you recall, on the morning of the budget presentation, a finance minister always carries a briefcase. Or in Nirmala Sitharaman’s case a red bahi khata.

That’s actually parampara. Another parampara handed down to us by the British.

In 1860, UK’s minister William E Gladstone used a red suitcase to carry his bundle of papers. It came to be known as ‘Gladstone Box’. Gladstone’s speeches were extraordinarily long and so, he needed a briefcase to carry his speech papers. And the parampara was that every finance minister will pass on this suitcase to the next FM.

India too has a similar parampara but unlike in Britain, different Finance Ministers in India carry different budget briefcases. Generally, on Budget day, the Indian Finance Minister poses with the Budget briefcase outside the Parliament. You must have seen these photos on every newspaper that covers the budget.

But on July 5, 2019, FM Nirmala Sitharaman ditched the British tradition of carrying a briefcase and adopted an Indian tradition. She carried the budget documents in a red cloth with the national emblem on it, wrapped with a ribbon.

[We hear Nirmala Sitharaman’s voice.]

Nirmala Sitharaman
Yes, I thought it is high time India grew out of this colonial mindset — that baggage which we’ve been carrying in the form of the red suitcase I thought why not get back to being our own Indian, you know carry it where you want.

Phew, this is the story of India’s budget. It is definitely not an easy task to prepare a budget that works for everyone in this complex and diverse country like ours. But try, we must. And if not this year, then next.

I hope you liked this episode.

I’ll see you next week with a brand new story on Maha Bharat.

Credits

Narrated by – Dhruv Rathee
Producer – Gaurav Vaz
Research help –
Written by –

Title Track Design – Abhijith Nath
Audio Production –