Parliamentary oversight of government finances

The expenditure of the central government has increased from Rs 3.3 lakh crore in 2000-01 to Rs 45 lakh crore in 2023-24.  This translates to an expenditure of about Rs 32,150 per person.  With the objective of improving the quality of life of citizens, these public funds are spent across various sectors such as defence, security, agriculture, health, social welfare, education, and infrastructure.

Figure 1:   Expenditure of the central government is increasing (in Rs lakh crore)

Members of Parliament (MPs) have a core role in examining how this money is being raised, how it is planned to be spent, and whether such spending would lead to desired outcomes.  MPs hold the government accountable for use of public funds in two stages.  First, before the beginning of each financial year, they scrutinise and approve the Union Budget which contains the expenditure priorities, taxation proposals, and borrowing requirements for the upcoming year.   Second, they examine the audit reports on the approved spending to see whether the allocation was used effectively and appropriately.   

This primer explains the mechanisms by which MPs conduct financial oversight of the government.  It explains key terms used in the budget documents to describe government income and spending and the gap between the two as a surplus or a deficit.   The primer also describes the different documents presented in the budget and what information may be gathered from each of them.

Oversight through the Union Budget

Parliamentary oversight of public funds broadly involves two functions: (a) scrutinising and sanctioning the government’s expenditure and taxation proposals through the Union Budget; and (b) examining the utilisation of funds that have been allocated for various activities, through parliamentary committees.

Figure 2:  Budget process

What happens once the budget is presented in Parliament?

After the budget is presented, a general discussion is held in both Lok Sabha and Rajya Sabha.  Discussion at this stage is limited to general examination of the budget and proposals of the government.  At the end of the discussion, the Finance Minister gives a reply.  No voting takes place at this stage.  

After the general discussion, Parliament may go into recess for a few weeks.  At this point, detailed estimates of expenditure of all ministries, called Demands for Grants, are sent for examination to the Parliamentary Standing Committees, that comprise members of both Lok Sabha and Rajya Sabha.

What is the role of Standing Committees in the budget process?

At present, there are 24 Standing Committees that together oversee the work of all the ministries.  One of the functions of these Committees is to scrutinise the allocation of funds to the ministries under their supervision.  For instance, the Standing Committee on Defence scrutinises the Demands for Grants of all departments under the Ministry of Defence, which amounted to Rs 5.9 lakh crore in 2023-24 (i.e., 13.2% of the budget).

Figure 3:   Expenditure under the purview of various Standing Committees (2023-24)

  

These Committees examine the: (i) amount allocated to various programmes and schemes under the Ministry, (ii) trends of utilisation of the money allocated to the Ministry, (iii) scheme design and its outcomes, and (iv) policy priorities of each ministry.  During such examination, officials of the Ministry are required to depose before the Committee to respond to queries and provide additional information in connection with the Demands for Grants being examined.  While examining a ministry’s expenditure, the Committees may also consult or invite views from subject experts.  

After scrutiny, the Committees submit their reports to Parliament.   The Committees’ recommendations are useful for MPs to understand implications of the proposed expenditure across ministries and allow for informed debate before approving such expenditure.

Standing Committee scrutiny of Demands for Grants of the Department of Rural Development The observations and recommendations of the Committee while scrutinising the 2023-24 Demands for Grants included: (i) increasing allocation of funds under the Mahatma Gandhi National Rural Employment Guarantee Scheme due to a high demand for jobs, (ii) exploring the possibility of increasing the number of days of guaranteed work under MGNREGA, and (iii) better financial prudence to manage huge volumes of unspent balances under major rural development schemes like Deendayal Antyodaya Yojana - National Rural Livelihoods Mission, Pradhan Mantri Gram Sadak Yojana, and Pradhan Mantri Awas Yojana - Gramin. The Committee also observed that the assistance provided under Pradhan Mantri Awas Yojana – Gramin (PMAY-G) was insufficient.  Hence, houses could not be completed within the stipulated time.  It recommended increasing this assistance so that it would cover the rising cost of construction.

What happens once the reports are submitted?

Typically, the budgets of four or five ministries are discussed in detail in Lok Sabha.  The ministries identified for discussion vary every year and are decided by the Business Advisory Committee of the Lok Sabha.  This discussion is followed by voting.  The demands which have not been discussed and voted on by the last day are ‘guillotined’, i.e., they are voted upon together without any discussion.  

The graph below shows the share of budget expenditure that has been guillotined from 2015-16 to 2023-24.  In 2018-19 and 2023-24 all Demands for Grants were guillotined, i.e., passed without discussion.   

Figure 4:  Share of budget expenditure: Guillotined vs Discussed (%)

During the voting on Demands for Grants, MPs can express their disapproval through ‘cut motions’.  If a cut motion is passed, it signifies loss of confidence in the government and the Cabinet is expected to resign.  MPs can move cut motions to reduce the grant amount for the respective ministry: (i) to Re 1 to signify disapproval of the policies of that ministry, (ii) by a specific amount (an ‘Economy’ cut), or (iii) by a token amount of Rs 100 to express a specific grievance. 

What are the final steps in the budget process?

After the Demands for Grants are passed, they are consolidated into an Appropriation Bill.  This Bill seeks to authorise the government to spend money from the Consolidated Fund of India, which consists of all receipts and borrowings of the government.    

After the passing of the Appropriation Bill, the Finance Bill is also taken up for consideration and passing.  This Bill includes details of the change in tax rates, and imposition of taxes on various entities. 

Once Lok Sabha passes the budget, Rajya Sabha only has a recommendatory role in passing the Appropriation and Finance Bills as they are Money Bills.

Finance Bill The Finance Bill is introduced with the budget and consists of the government's financial proposals for the upcoming year.     The Finance Bill is usually introduced as a Money Bill.  The Constitution defines Money Bill as one which only contains provisions related to taxation, borrowings by the government, or funds of the Consolidated Fund of India.  A Money Bill only needs the approval of Lok Sabha, after which Rajya Sabha can only give its recommendations. In the recent past, Finance Bills have included items which had no relation to taxes or to the expenditure of the government.  For example, the Finance Bill, 2017 changed the compositions of 19 quasi-judicial bodies such as the Securities Appellate Tribunal, the National Green Tribunal and the Telecom Disputes Settlement and Appellate Tribunal, and repealed seven other bodies including the Competition Appellate Tribunal.  The 2017 Bill also introduced Electoral Bonds which allowed anonymous donations to political parties.  The Finance Bill, 2022 allowed the Reserve Bank of India to issue bank notes in digital form.

What happens if the government needs to spend additional money during the year?

During the year, if the government needs to spend any money which has not been approved by Parliament or needs to incur additional expenditure, it can introduce Supplementary Demands for Grants.  Note that, unlike the Demands for Grants presented with the budget, these supplementary demands have never been scrutinised by Standing Committees. 

In 2023-24, the government introduced two Supplementary Demands for Grants.  These required the Parliament to authorise additional expenditure of about Rs 1.4 lakh crore (i.e., 3% of the 2023-24 budget).  For instance, the second Supplementary Demands for Grants provided Rs 9,231 crore and Rs 3,000 crore to fund excess expenditure under food and fertiliser subsidies respectively.

Preparation of Union Budget The process of budget preparation begins with the publication of a budget circular by the finance ministry.     The circular is typically released five to six months before the presentation of the budget.  It outlines the timeline within which various ministries have to submit estimates of receipts and expenditure to the finance ministry.  Based on these estimates, the budget estimates for the next financial year are prepared.

Oversight after the Budget is passed

Oversight by Parliament after the budget is passed is necessary to make sure that the amount sanctioned by Parliament is being used appropriately.  Financial Committees scrutinise and exercise parliamentary control over government expenditure and table reports in Parliament.

Public Accounts Committee 

PAC 151st Report on Ayushman Bharat - Pradhan Mantri Jan Arogya Yojana The Committee examined the CAG Performance Audit report on Pradhan Mantri Jan Arogya Yojana (PMJAY).  PMJAY aims to improve affordability, accessibility, and quality of secondary and tertiary healthcare for the poor and vulnerable section of the population.  Observations made by the Committee include: (i) inadequacies in the process of beneficiary identification and verification, (ii) duplication and inclusion of ineligible beneficiaries leading to higher payouts for unintended beneficiaries, and (iii) large volume of pending claims due to lack of bank integration, offline payments, and delay in release of states’ share of funds.  The Committee recommended the following: setting up an independent body to oversee coverage of eligible beneficiaries, incorporating inbuilt validation checks to increase accuracy of beneficiary data, and ensuring compliance with financial reporting standards.

After the financial year ends, the Comptroller and Auditor General (CAG) audits the income and expenditure accounts of the government.   Its report is then tabled in Parliament.   Every year, several CAG reports are tabled in Parliament.  Since it is difficult and time-consuming for Parliament to discuss each of these reports, the Public Accounts Committee (PAC) is entrusted with examining the findings of the CAG audit reports.  The PAC scrutinises whether the government is spending money for the purpose for which Parliament sanctioned the expenditure.

While examining the reports, the PAC interacts with officials from the CAG, different ministries, and experts.  The government responds to every report of the PAC by stating the recommendations that have been accepted or rejected by them.  Based on these responses, the PAC prepares Action Taken Reports and tables them in Parliament.

Estimates Committee

The Estimates Committee facilitates Parliament’s control over the expenditure sanctioned and incurred, and over the general policies of the administration.  The Committee’s main tasks are to: (a) report on the improvements and administrative reforms that can be made, (b) suggest alternative policies in order to bring about efficiency in administration, and (c) suggest whether the proposed expenditure is within the limits of government policy.

Earlier, this Committee carried out the task of examining proposed estimates of expenditure by various ministries.  Since 1993, the Departmentally Related Standing Committees have taken over this function leaving the Estimates Committee to largely examine the working of certain government organisations.

Estimates Committee 29th Report on Preparedness of Armed Forces - Defence Production and Procurement The Committee made the following observations and recommendations: (i) adequate financial resources for defence preparedness should be allocated, as budgeted defence expenditure in 2017-18 was lowest since 1962 at 1.6% of GDP, (ii) share of capital procurement budget in the defence budget has been continuously declining leading to an adverse impact on the modernisation process of armed forces, and (iii) urgent requirement to replace the obsolete armaments with state of the art weapon systems for which substantial increase in capital budget is essential.

Public Undertakings Committee

The Public Undertakings Committee scrutinises the operations of various public sector companies such as Food Corporation of India, Life Insurance Corporation of India, and Hindustan Aeronautics Limited.  The Committee: (i) examines the financial accounts and CAG reports on public sector companies and (ii) examines whether these entities are being managed as per sound business principles.

Understanding government finances

As part of the budget, the Finance Minister presents the Annual Financial Statement of the government for the forthcoming year.  The statement consists of estimates of the money the government expects to spend on various ministries, and how much money will be raised from different sources such as levy of taxes and dividends from public enterprises.  The budget also provides an estimate of the borrowing requirements of the government and its overall debt.  In addition, the statement also gives an account of how much money the government raised or spent in the previous year, in comparison to the estimates it had given to Parliament.

This section explains the central government’s finances with the intent of providing a simple understanding of the key concepts and terms involved.

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