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

The Economic Survey

This is an annual commentary on the state of the economy which is put together by the Union finance ministry. The survey is thus the finance ministry's version of economic developments during the course of the year. It is presented in Parliament each year shortly before the general budget and just after the railway budget.

Now let us understand the components of the budget and its mechanism and the types of taxation and their purpose.

The Budget

The Union Budget contains the government of India's revenue and expenditure for the end of a particular fiscal year.

The Indian Constitution requires the government to present to Parliament a statement that shows separately the expected revenues and expenditures, both current and capital by heads of account.

The Budget-making process, in normal times set in third quarter of the financial year.

Thus the budget contains basically two main components. They are Revenue and Capital budgets.

The Revenue Budget consists of revenue receipts of the government and its expenditure. The Capital Budget consists of capital receipts and expenditure.

Current receipts, by and large, include tax revenues, receipts by way of dividends from public-sector units and interest payments on loans given out by the federal government.

The sources of Revenue Receipts by taxation are further divided into Tax and Non-Tax Revenue.

The Tax Revenues include Income tax, corporate tax, excise, customs and other duties that the government levies. The Non-Tax Revenue includes the interest on loans and dividend on investments like PSUs, fees, and other receipts for services that it renders. The Revenue Expenditure includes the payment incurred for the normal day-to-day running of government departments and various services that it offers to its citizens. Revenue Deficit means that the government spends more than it earns. This difference is called the revenue deficit.

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* Contributed by: -
Prof. M. Guruprasad is Senior Faculty for Economics, Finance and Research, with AICAR Business School Raigad / Mumbai. He has more than 15 years of experience in research and educating / training management students. He was research scholar with the University of Mumbai. Worked as Executive in the Marketing research industry. Also Conducted Workshops and Training programmes. He has published articles in various industry magazines, newspapers and has initiated many discussions on academics.