Countries of the World/COUNTRYS.BIN/dp/0168/01681.txt

Text File | 1991-06-25 | 35KB | 533 lines

$Unique_ID{COW01681}
$Pretitle{221}
$Title{India
Chapter 6C.   Budget}
$Subtitle{}
$Author{Darrel R. Eglin}
$Affiliation{HQ, Department of the Army}
$Subject{billion
fy
government
percent
india
aid
taxes
million
central
labor}
$Date{1985}
$Log{}
Country:     India
Book:        India, A Country Study
Author:      Darrel R. Eglin
Affiliation: HQ, Department of the Army
Date:        1985

Chapter 6C.   Budget

     India's public finance system followed the British pattern. The
Constitution establishes the supremacy of Parliament-specifically the Lok
Sabha (House of the People)-in financial matters. No taxes may be levied and
no expenditure from public funds disbursed without an act of Parliament.
Parliament also scrutinizes and audits all government accounts to ensure
that expenditures were legally authorized and properly spent. Proposals for
taxation or expenditures may be initiated, however, only by the Council of
Ministers-particularly the Ministry of Finance. The finance minister is
required to submit to Parliament on the last day of February a financial
statement detailing the estimated receipts and expenditures of the central
government for the new fiscal year and a financial review of the current
fiscal year.

     The Lok Sabha has one month to review and modify the government's budget
proposals. If by the first of April, the beginning of India's fiscal year, the
parliamentary discussion of the budget has not been completed, the budget as
proposed by the finance minister goes into effect, subject to retroactive
modifications when parliamentary discussions have been completed. On
completion of its budget discussions, the Lok Sabha passes the
Appropriations Act, authorizing the executive to spend money, and the Finance
Act, authorizing the executive to impose and collect taxes. Supplemental
requests for funds may be presented during the course of the fiscal year to
cover emergencies, such as war or other catastrophes. The bills are forwarded
to the Rajya Sabha (Council of States-the upper house) for comment. The Lok
Sabha, however, is not bound by the comments, nor may the upper house delay
passage of money bills. When signed by the president, the bills become law.
The Lok Sabha cannot increase the request for funds submitted by the
executive, nor can it authorize new expenditures. Taxes passed by Parliament
may be retroactive.

     State governments maintain their own budgets, prepared by the state's
ministers of finance in consultation with appropriate officials of the
central government. Primary control over state finances rests with each
state legislature in the same manner as at the central government level. State
finances are supervised by the central government, however, through the
comptroller and the auditor general. The latter reviews state government
accounts annually and reports his findings to the appropriate state governor
for submission to his legislature. The central and state budgets consist of a
budget for current expenditures, known as the budget on revenue account, and a
capital budget for economic and social developmental expenditures.

     The national railroad, the largest public sector enterprise, and the
Posts and Telegraph Department have their own budgets, funds, and accounts.
The appropriations and disbursements under these budgets are subject to the
same form of parliamentary and audit control as the other government revenues
and expenditures. Dividends accrue to the central government, and deficits
are subsidized by it; this is true also, directly or indirectly, of other
government enterprises.

     The Constitution allocates the power to raise and disburse public funds
between the central and state governments. Because of its greater revenue
sources, the central government shared with the states its receipts from
personal income taxes and certain excise taxes. It also collected certain
other taxes, the total proceeds of which were transferred to the states. The
division of the shared taxes was determined by financial commissions
established by the president, usually at five-year intervals. The Eighth
Finance Commission recommended in an interim report in 1983 that the former
ratios of shared taxes remain the same in FY 1984, that is, 85 percent of the
net proceeds of personal income taxes and 40 percent of the net proceeds of
excise taxes (excluding that on electricity) were to be transferred to the
states according to a schedule devised by the commission. The Eighth Finance
Commission in its final report in 1984 recommended, however, that an extra
5 percent of excise taxes (excluding electricity) be transferred to an
enlarged group of expected deficit states during FY 1984-89. The central
government avoided such a change in FY 1984 but accepted the recommendation
for FY 1985-88. The central government also provided the states with
large-scale grants and loans to meet their commitments.

     The states have greater aggregate administrative and housekeeping
expenses than the central government because they are usually responsible for
implementation of national policies and programs. The states, for example,
administered over two-thirds of the country's development expenditures in the
early 1980s. The state's share of total public revenue collected, however,
declined from 48 percent in FY 1955 to about 42 percent in the late 1970s. The
states have continuously sought a greater share of central government
revenues. An important cause of the state's decline in the share of revenues
collected was the diminished importance of the land revenue tax, which had
traditionally been the main direct tax on agriculture. This tax declined from
8 percent of all (state and union) tax revenues in FY 1950 to less than 1
percent in FY 1981. The states have jurisdiction over taxes levied on land and
agricultural income, and vested interests exerted pressure on the states not
to raise agricultural taxation. As a result, in the 1980s agriculture largely
escaped significant taxation, although there has long been nationwide
discussion about increasing land taxes or instituting some sort of tax on
incomes of the richer portion of the farm community. In 1985 this remained
only a potential source of considerable funds for economic development, for
such taxation presented many administrative and political problems.

     The consolidated finances of the central and state governments contained
most of the public sector activity. In the FY 1983 proposed budgets of these
jurisdictions, consolidated current revenue receipts amounted to Rs 369
billion, of which Rs 315 billion were tax revenues-22 percent of GDP.
Consolidated expenditures for current and capital items amounted to Rs 509
billion-35 percent of GDP. In India's fiscal system, part of capital
expenditures were to be financed by drawing on specific funds and by issuing
various government securities; in FY 1983 these planned borrowings amounted
to Rs 116 billion, leaving a consolidated proposed budget deficit of about
Rs23 billion to be funded largely by treasury bills. For more than two
decades the joint finances of the public sector have usually resulted in
budget deficits, the amount increasing sharply after the late 1970s as the
government increased development spending.

     The proposed FY 1983 budget of the central government contained total
revenues (including capital receipts) of Rs 294 billion and total expenditures
of Rs 310 billion, leaving an anticipated deficit of about Rs 16 billion, which
was slightly smaller than the year before (see table 13, Appendix). Taxes,
specifically indirect taxes, were the main source of income. Indirect taxes
are usually considered to have a harder impact on the poor than direct taxes,
and limited data suggested that this was the case in India. In FY 1983 the
central government was expected to collect Rs 100 billion from excise taxes,
Rs40 billion of which was to be transferred to the states. India applied
excise taxes throughout the economy, including production of intermediate
goods used for