Polity Notes 23

Financial Business of the Parliament

The Parliament of India exercises control over the executive in financial matters through a well-defined budgetary process. This process ensures legislative oversight over the collection and expenditure of public funds, a principle often summarized by the maxim, “no taxation without representation.”

• The Annual Financial Statement (Budget):
  • Constitutional Mandate: Article 112 of the Indian Constitution mandates that the President shall, in respect of every financial year, cause to be laid before both the Houses of Parliament a statement of the estimated receipts and expenditure of the Government of India for that year. This statement is referred to as the “Annual Financial Statement,” popularly known as the Budget.
  • Nature of the Budget: The Budget is not merely an accounting document. It is a potent instrument of the government’s fiscal policy. As articulated by political scientist Norman D. Palmer in The Indian Political System (1961), the budget reflects the “philosophy of the government” in economic and social spheres. It outlines the government’s revenue policy (how it intends to raise money through taxes, duties, etc.) and its expenditure policy (where it plans to spend the money).
  • Historical Evolution of the Budget:
    • Separation of Railway Budget: In 1921, the Acworth Committee recommended the separation of railway finances from general government finances. This was implemented in 1924 to ensure a stable revenue stream for railway development and to insulate the general budget from the large fluctuations of railway revenues.
    • Merger of Budgets: In 2017, the Government of India, acting on the recommendations of the Bibek Debroy Committee (2015), merged the Railway Budget with the General Budget. The rationale was to present a holistic picture of the government’s finances and to move away from using the Railway Budget as a vehicle for populist announcements.

Stages in the Enactment of the Budget

The passage of the Budget is a multi-stage process that ensures detailed scrutiny and debate.

1. Presentation of Budget:

   • Formulation: The preparation of the Budget is a complex and secretive process undertaken by the Budget Division in the Department of Economic Affairs, Ministry of Finance. It consolidates estimates from all ministries and departments.
   • Economic Survey: Traditionally, the Economic Survey is presented in Parliament a day before the Budget. Prepared by the Chief Economic Adviser, it serves as a comprehensive report card of the economy over the past year and provides an analytical framework for the Budget’s policy proposals. While the Budget is a political statement of intent, the Economic Survey is an analytical document.
   • Budgetary Reforms (2017): The NDA government introduced two significant reforms in 2017:
     • Preponement: The date of budget presentation was advanced from the last working day of February to the 1st of February. This was done to ensure that the entire budgetary process, including the passage of the Appropriation and Finance Bills, is completed before the commencement of the new financial year on April 1st. This obviates the need for a ‘Vote on Account’ and allows ministries to utilize their allocated funds from the very beginning of the financial year.
     • Merger: As mentioned, the Railway Budget was merged with the General Budget.
   • Budget Documents: Along with the Finance Minister’s speech, several documents are presented as per the Constitution and the Fiscal Responsibility and Budget Management (FRBM) Act, 2003. These include: Annual Financial Statement (Art 112), Demands for Grants (Art 113), Appropriation Bill (Art 114), Finance Bill (Art 117), and FRBM-mandated documents like the Macro-Economic Framework Statement and the Medium-Term Fiscal Policy cum Fiscal Policy Strategy Statement.

2. General Discussion:

   • This stage occurs a few days after the presentation. It takes place in both the Lok Sabha and the Rajya Sabha.
   • The discussion is confined to the general principles and policies underlying the budget. No specific demands or cut motions are moved at this stage. The Finance Minister delivers a concluding reply to the debate.

3. Scrutiny by Departmental Committees:

   • Origin and Rationale: To ensure more detailed and expert scrutiny of ministerial demands, which is not possible on the floor of the House due to time constraints, the system of Departmentally Related Standing Committees (DRSCs) was established in 1993 on the recommendation of the Rules Committee of the Lok Sabha. The system was expanded in 2004.
   • Composition: There are 24 DRSCs. Each committee consists of 31 members (21 from Lok Sabha, nominated by the Speaker, and 10 from Rajya Sabha, nominated by the Chairman). A minister cannot be a member. The term of office is one year. 16 committees function under the Lok Sabha and 8 under the Rajya Sabha.
   • Functions:
     • To consider the Demands for Grants of the concerned ministries/departments and make a report. This report does not suggest any cut motions.
     • To examine Bills pertaining to the ministries/departments.
     • To consider their annual reports.
   • The recommendations of these committees are advisory and not binding on the government.

4. Voting on Demands for Grants:

   • This is an exclusive power of the Lok Sabha. The Rajya Sabha has no power to vote on demands.
   • The demands are presented ministry-wise. After the DRSCs submit their reports, the House discusses and votes on these demands.
   • Cut Motions: During this stage, members can move motions to reduce any demand for a grant. These are tools to express disapproval of government policy or to press for economy.
     • Policy Cut Motion: Expresses disapproval of the policy underlying the demand. It states that “the amount of the demand be reduced to Re 1.”
     • Economy Cut Motion: Expresses the need for economy in the proposed expenditure. It states that “the amount of the demand be reduced by a specified amount.”
     • Token Cut Motion: Ventilates a specific grievance that is within the sphere of the responsibility of the Government of India. It states that “the amount of the demand be reduced by Rs 100.”
   • The passage of a cut motion is tantamount to a no-confidence motion and, if passed, would require the government to resign.

5. Passing of Appropriation Bill:

   • Constitutional Basis: Article 114 of the Constitution states that no money shall be withdrawn from the Consolidated Fund of India except under appropriation made by law.
   • Content: The Appropriation Bill is introduced to provide for the appropriation out of the Consolidated Fund of India of all money required to meet the grants voted by the Lok Sabha and the expenditure charged on the Consolidated Fund.
   • Charged Expenditure: This is expenditure that is not submitted to the vote of the Parliament, though it can be discussed. This includes salaries and allowances of the President, Speaker, Judges of the Supreme Court, CAG, etc., ensuring their independence from political pressure. No amendment can be proposed to this Bill that has the effect of varying the amount of any charged expenditure.

6. Passing of Finance Bill:

   • This Bill gives legal effect to the government’s taxation proposals for the ensuing financial year. It is introduced along with the Budget.
   • Unlike the Appropriation Bill, amendments can be moved to the Finance Bill, but typically only to reject or reduce a tax, not to increase it.
   • According to Article 110, the Finance Bill is a Money Bill and must be passed by the Lok Sabha. The Rajya Sabha can only make recommendations, which the Lok Sabha may or may not accept. The passage of the Finance Bill marks the completion of the budgetary process.

Types of Grants

Parliament can grant money for specific circumstances beyond the regular budget under various constitutional provisions.

• Supplementary Grant (Article 115): Granted when the amount authorized by the Appropriation Act for a particular service for the current financial year is found to be insufficient for the purposes of that year.
• Additional Grant (Article 115): Granted when a need has arisen during the current financial year for additional expenditure upon some new service not contemplated in the budget for that year.
• Excess Grant (Article 115): Granted when money has been spent on any service during a financial year in excess of the amount granted for that service in the budget for that year. It is voted by the Lok Sabha after the financial year has ended. Before it is submitted to the Lok Sabha for voting, it must be approved by the Public Accounts Committee (PAC).
• Vote of Credit (Article 116): Granted for meeting an unexpected demand upon the resources of India when, on account of the magnitude or the indefinite character of the service, the demand cannot be stated with the details ordinarily given in a budget. It is like a blank cheque given to the executive by the Lok Sabha.
• Exceptional Grant (Article 116): Granted for a special purpose which forms no part of the current service of any financial year.
• Token Grant: Granted when funds to meet the proposed expenditure on a new service can be made available by re-appropriation. A demand for the grant of a token sum (e.g., Re 1) is submitted to the vote of the Lok Sabha, and if assented, funds are made available.

Parliamentary Committees

• Rationale: As noted by jurist M.V. Pylee in An Introduction to the Constitution of India, a legislature as large as the Indian Parliament cannot deliberate effectively on complex and technical issues on the floor of the House. Committees provide a forum for detailed, non-partisan, and expert examination of legislative and financial matters.
• Types of Committees:
  • Ad hoc Committees: Appointed for a specific purpose and cease to exist when they finish the task assigned to them (e.g., Joint Parliamentary Committees (JPCs) on the Bofors scandal (1987), Harshad Mehta stock market scam (1992), or the 2G spectrum allocation (2011)).
  • Standing Committees: Permanent and regular committees constituted from time to time. They can be broadly classified into Financial Committees and other committees.

Key Financial Committees

1. Public Accounts Committee (PAC):

   • Origin: The oldest financial committee, first set up in 1921 under the provisions of the Government of India Act, 1919.
   • Composition: 22 members (15 from Lok Sabha, 7 from Rajya Sabha). Members are elected annually by Parliament from amongst its members according to the principle of proportional representation by means of a single transferable vote (PR-STV). A minister cannot be a member. The term is one year. The chairman is appointed by the Speaker from amongst its members; since 1967, the chairman has been from the opposition.
   • Function: Its primary function is to examine the appropriation accounts and the reports of the Comptroller and Auditor General of India (CAG). It scrutinizes public expenditure not just for legality, but also for “wisdom, faithfulness, and economy.” The CAG acts as its “friend, philosopher, and guide.”

2. Estimates Committee:

   • Origin: Set up in 1950 on the recommendation of John Mathai, the then Finance Minister.
   • Composition: 30 members, all from the Lok Sabha, elected by PR-STV. A minister cannot be a member. The term is one year. The chairman is appointed by the Speaker from the ruling party.
   • Function: It examines the estimates included in the budget and suggests “economies, improvements in organisation, efficiency, or administrative reform.” It is often described as a ‘continuous economy committee’. Public choice theorist William Niskanen’s concept of “budget-maximizing” bureaucrats, who inherently seek to expand their budgets, highlights the theoretical importance of such a committee in promoting fiscal prudence.

3. Committee on Public Undertakings (COPU):

   • Origin: Created in 1964 on the recommendation of the Krishna Menon Committee.
   • Composition: 22 members (15 from Lok Sabha, 7 from Rajya Sabha), elected by PR-STV. The term is one year. A minister cannot be a member.
   • Function: It examines the reports and accounts of Public Sector Enterprises (PSEs) and the reports of the CAG on them. It checks whether their affairs are being managed in accordance with sound business principles.

Critique of Committee Functioning and Suggested Reforms

• Challenges:

  • Short Tenure: A one-year term is insufficient for members to develop the necessary expertise, especially on technical subjects.
  • Advisory Recommendations: The recommendations are not binding, which can lead to the executive ignoring them without consequence.
  • Limited CAG Support: The expert services of the CAG are primarily available to the PAC, not to the Estimates Committee or DRSCs.
  • Post-Mortem Work: Much of the scrutiny, particularly by the PAC which relies on CAG reports, is ex-post facto (after the expenditure has been incurred).
  • Conflict of Interest: Members may have business interests that conflict with their duties on a committee. The case of Vijay Mallya on the Committee on Transport, Tourism, and Culture is a cited example.
  • Partisan Politics: Party loyalties often override the need for objective scrutiny. Unlike the UK’s committee system where members often defy party lines, Indian MPs tend to follow the party whip, especially those from the ruling party.
  • Secrecy: Proceedings are held in-camera and are not open to the public or media, reducing transparency.
  • Executive Non-Cooperation: The executive may be reluctant to produce required documents, citing the Official Secrets Act, 1923, and senior bureaucrats may not attend meetings.

• Reforms Suggested:

  • Action Taken Reports (ATRs): The government should be obligated to table a detailed ATR on committee recommendations within a fixed timeframe, explaining which are accepted, the timeline for implementation, and reasons for rejecting others.
  • Longer Tenure: Increasing the tenure to at least two or three years would allow for specialization and more effective functioning.
  • Wider CAG Support: The technical expertise of the CAG’s office should be extended to other financial committees.
  • Conflict of Interest Code: A robust and enforceable code of conduct is needed to prevent members from using their position for private gain.
  • Strengthening Powers: Committees should have the power to enforce the attendance of officials.
  • Greater Transparency: Proceedings should be televised or made public, as is the practice in countries like the UK, to enhance public awareness and accountability.
  • Scrapping of Archaic Laws: The Official Secrets Act should be reviewed or replaced with a law that balances national security with the public’s right to information.

Prelims Pointers

• Annual Financial Statement (Budget): Mandated under Article 112 of the Constitution.
• Charged Expenditure: Not subject to the vote of Parliament. Includes salaries of President, Supreme Court Judges, CAG, etc.
• Demands for Grants: Voted upon only in the Lok Sabha (Article 113).
• Appropriation Bill: Mandated under Article 114 for withdrawing money from the Consolidated Fund of India.
• Supplementary, Additional, or Excess Grants: Provided under Article 115.
• Votes on account, votes of credit and exceptional grants: Provided under Article 116.
• Railway Budget Merger: Merged with the General Budget in 2017.
• Railway Budget Separation: Separated from the General Budget in 1924 based on the Acworth Committee recommendations.
• Budget Presentation Date: Preponed to 1st February since 2017.
• Departmentally Related Standing Committees (DRSCs): Established in 1993. Total 24 committees.
• Composition of DRSCs: 31 members (21 from Lok Sabha + 10 from Rajya Sabha). Term is one year.
• Policy Cut Motion: Aims to reduce the demand to Re 1.
• Token Cut Motion: Aims to reduce the demand by Rs 100.
• Public Accounts Committee (PAC): Established in 1921. Has 22 members (15 LS + 7 RS). Chairman is from the opposition.
• Estimates Committee: Established in 1950. Has 30 members (all from Lok Sabha). Chairman is from the ruling party.
• Committee on Public Undertakings (COPU): Established in 1964. Has 22 members (15 LS + 7 RS).
• CAG is described as the ‘friend, philosopher and guide’ of the Public Accounts Committee.
• The term “Budget” is not mentioned in the Constitution; the phrase used is “Annual Financial Statement”.

Mains Insights

1. Parliamentary Control over Finance: A Reality Check

• Theoretical Framework: The Indian Constitution establishes a robust framework for parliamentary financial control. The budget must be passed by Parliament; money can only be withdrawn via an Appropriation Act; and all taxation requires legislative sanction. This embodies the principle of executive accountability to the legislature.
• Practical Limitations:
  • The Guillotine: Due to lack of time, demands for grants of all ministries are not discussed. On the last day of the allotted time, the Speaker applies the ‘guillotine’ and puts all outstanding demands to vote, whether they have been discussed or not. This undermines detailed scrutiny.
  • Party Discipline: The Anti-Defection Law and the whip system ensure that the government, with its majority, can easily pass the budget and defeat any cut motions. This transforms parliamentary control into executive control, as the executive (government) controls the legislature (via majority).
  • Technical Nature: The budget is a highly technical document, and most MPs lack the expertise to scrutinize its details effectively, making their interventions often limited to general policy debates.

2. Departmental Standing Committees: The Linchpin of Scrutiny?

• Significance: The DRSC system is arguably the most significant reform for strengthening legislative oversight. They provide a forum for detailed, non-partisan examination away from the public glare and party compulsions of the House floor. They allow for engagement with experts and ministry officials.
• Effectiveness Debate:
  • Arguments for Effectiveness: They have produced high-quality, detailed reports on a range of subjects, from defence procurement to environmental policy, influencing government policy and fostering informed debate. They ensure that at least a select group of MPs examines the budget proposals of every ministry in detail.
  • Arguments against Effectiveness: Their advisory nature is their “Achilles’ heel.” The government is not bound to accept their recommendations. Short tenures, partisan behaviour seeping into committee rooms, and lack of expert support (unlike the US Congressional committees which have their own research staff) limit their impact. The low attendance of MPs in meetings is also a recurring problem.

3. Ethics, Conflict of Interest, and the Role of an MP

• GS Paper IV Linkage: The functioning of parliamentary committees raises critical ethical questions. The issue of ‘conflict of interest’ (e.g., Vijay Mallya) strikes at the core of public service ethics. An MP’s primary duty is to the public interest, not private gain.
• Dilemma: There is a fundamental conflict between the role of an MP as a legislator for the nation and as a member of a political party. Within committees, this is starkly visible when ruling party members are expected to defend the government rather than critically scrutinize it. This erodes the very purpose of these committees as independent oversight bodies.
• Way Forward: A binding code of ethics for MPs, transparency in declaring financial interests, and empowering the Ethics Committee are essential steps to uphold probity in public life. The UK’s Register of Members’ Financial Interests offers a potential model.

4. The CAG-PAC Relationship: Symbiosis in Accountability

• Unique Partnership: The relationship between the CAG (an independent constitutional authority) and the PAC (a parliamentary body) is a cornerstone of India’s accountability mechanism. The CAG conducts the audit, and the PAC examines the CAG’s findings and holds the executive to account based on them.
• Impact: This synergy has brought several instances of financial irregularities and policy failures to light, such as in the 2G spectrum allocation, Commonwealth Games, and coal block allocation. It transforms the CAG’s technical audit into a potent political tool for accountability.
• Limitations: The process is post-mortem. It can only uncover wrongdoing after it has occurred. While it can have a deterrent effect, it cannot prevent the misuse of funds in the first instance.