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In light of the decision of the union cabinet to promulgate an Ordinance to uphold provisions of the Representation of People Act, 1951, this blog examines the Ordinance making power of the Executive in India.  The Ordinance allows legislators (Members of Parliament and Members of Legislative Assemblies) to retain membership of the legislature even after conviction, if (a)     an appeal against the conviction is filed before a court within 90 days and (b)     the appeal is stayed by the court. However, the Ordinance will only be promulgated after it receives the assent of the President. I. Separation of powers between the Legislature, Executive and Judiciary In India, the central and state legislatures are responsible for law making, the central and state governments are responsible for the implementation of laws and the judiciary (Supreme Court, High Courts and lower courts) interprets these laws. However, there are several overlaps in the functions and powers of the three institutions.  For example, the President has certain legislative and judicial functions and the legislature can delegate some of its functions to the executive in the form of subordinate legislation. II. Ordinance making powers of the President Article 123 of the Constitution grants the President certain law making powers to promulgate Ordinances when either of the two Houses of Parliament is not in session and hence it is not possible to enact laws in the Parliament.[i] An Ordinance may relate to any subject that the Parliament has the power to legislate on. Conversely, it has the same limitations as the Parliament to legislate, given the distribution of powers between the Union, State and Concurrent Lists. Thus, the following limitations exist with regard to the Ordinance making power of the executive: i.   Legislature is not in session: The President can only promulgate an Ordinance when either of the two Houses of Parliament is not in session. ii.   Immediate action is required: The President cannot promulgate an Ordinance unless he is satisfied that there are circumstances that require taking ‘immediate action’[ii]. iii.   Parliamentary approval during session: Ordinances must be approved by Parliament within six weeks of reassembling or they shall cease to operate.  They will also cease to operate in case resolutions disapproving the Ordinance are passed by both the Houses.   Figure 1 shows the number of Ordinances that have been promulgated in India since 1990.  The largest number of Ordinances was promulgated in 1993, and there has been a decline in the number of Ordinance promulgated since then.  However, the past year has seen a rise in the number of Ordinances promulgated.            Figure 1: Number of national Ordinances promulgated in India since 1990 Ordinances PromulgatedSource: Ministry of Law and Justice; Agnihotri, VK (2009) ‘The Ordinance: Legislation by the Executive in India when the Parliament is not in Session’; PRS Legislative Research III. Ordinance making powers of the Governor Just as the President of India is constitutionally mandated to issue Ordinances under Article 123, the Governor of a state can issue Ordinances under Article 213, when the state legislative assembly (or either of the two Houses in states with bicameral legislatures) is not in session.  The powers of the President and the Governor are broadly comparable with respect to Ordinance making.  However, the Governor cannot issue an Ordinance without instructions from the President in three cases where the assent of the President would have been required to pass a similar Bill.[iii] IV. Key debates relating to the Ordinance making powers of the Executive There has been significant debate surrounding the Ordinance making power of the President (and Governor).  Constitutionally, important issues that have been raised include judicial review of the Ordinance making powers of the executive; the necessity for ‘immediate action’ while promulgating an Ordinance; and the granting of Ordinance making powers to the executive, given the principle of separation of powers. Table 1 provides a brief historical overview of the manner in which the debate on the Ordinance making powers of the executive has evolved in India post independence. Table 1: Key debates on the President's Ordinance making power

Year

Legislative development

Key arguments

1970 RC Cooper vs. Union of India In RC Cooper vs. Union of India (1970) the Supreme Court, while examining the constitutionality of the Banking Companies (Acquisition of Undertakings) Ordinance, 1969 which sought to nationalise 14 of India’s largest commercial banks, held that the President’s decision could be challenged on the grounds that ‘immediate action’ was not required; and the Ordinance had been passed primarily to by-pass debate and discussion in the legislature.
1975 38th Constitutional Amendment Act Inserted a new clause (4) in Article 123 stating that the President’s satisfaction while promulgating an Ordinance was final and could not be questioned in any court on any ground.
1978 44th Constitutional Amendment Act Deleted clause (4) inserted by the 38th CAA and therefore reopened the possibility for the judicial review of the President’s decision to promulgate an Ordinance.
1980 AK Roy vs. Union of India In AK Roy vs. Union of India (1982) while examining the constitutionality of the National Security Ordinance, 1980, which sought to provide for preventive detention in certain cases, the Court argued that the President’s Ordinance making power is not beyond the scope of judicial review. However, it did not explore the issue further as there was insufficient evidence before it and the Ordinance was replaced by an Act. It also pointed out the need to exercise judicial review over the President’s decision only when there were substantial grounds to challenge the decision, and not at “every casual and passing challenge”.
1985 T Venkata Reddy vs. State of Andhra Pradesh In T Venkata Reddy vs. State of Andhra Pradesh (1985), while deliberating on the promulgation of the Andhra Pradesh Abolition of Posts of Part-time Village Officers Ordinance, 1984 which abolished certain village level posts, the Court reiterated that the Ordinance making power of the President and the Governor was a legislative power, comparable to the legislative power of the Parliament and state legislatures respectively. This implies that the motives behind the exercise of this power cannot be questioned, just as is the case with legislation by the Parliament and state legislatures.
1987 DC Wadhwa vs. State of Bihar It was argued in DC Wadhwa vs. State of Bihar (1987) the legislative power of the executive to promulgate Ordinances is to be used in exceptional circumstances and not as a substitute for the law making power of the legislature.  Here, the court was examining a case where a state government (under the authority of the Governor) continued to re-promulgate ordinances, that is, it repeatedly issued new Ordinances to replace the old ones, instead of laying them before the state legislature.  A total of 259 Ordinances were re-promulgated, some of them for as long as 14 years.  The Supreme Court argued that if Ordinance making was made a usual practice, creating an ‘Ordinance raj’ the courts could strike down re-promulgated Ordinances.

Source: Basu, DD (2010) Introduction to the Constitution of India; Singh, Mahendra P. (2008) VN Shukla's Constitution of India; PRS Legislative Research

  This year, the following 9 Ordinances have been promulgated:

  1. The Securities Laws (Amendment) Ordinance, 2013
  2. The Readjustment of Representation of Scheduled Castes and Scheduled Tribes in Parliamentary and Assembly Constituencies Second Ordinance, 2013
  3. The Securities and Exchange Board of India (Amendment) Second Ordinance, 2013
  4. The National Food Security Ordinance, 2013
  5. The Indian Medical Council (Amendment) Ordinance, 2013
  6. The Securities and Exchange Board of India (Amendment) Ordinance, 2013
  7. The Readjustment of Representation of Scheduled Castes and Scheduled Tribes in Parliamentary and Assembly Constituencies Ordinance, 2013
  8. The Criminal Law (Amendment) Ordinance, 2013
  9. The Securities Laws (Amendment) Second Ordinance, 2013

Three of these Ordinances have been re-promulgated, i.e., a second Ordinance has been promulgated to replace an existing one.  This seems to be in violation of the Supreme Court’s decision in DC Wadhwa vs. State of Bihar.  


Notes: [i] With regard to issuing Ordinances as with other matters, the President acts on the advice of the Council of Ministers. While the Ordinance is promulgated in the name of the President and constitutionally to his satisfaction, in fact, it is promulgated on the advice of the Council of Ministers.

[ii] Article 123, Clause (1)

[iii]  (a) if a Bill containing the same provisions would have required the previous sanction of the President for introduction into the legislature; (b) if the Governor would have deemed it necessary to reserve a Bill containing the same provisions for the consideration of the President; and (c) if an Act of the legislature containing the same provisions would have been invalid unless it received the assent of the President.

Today, a general discussion on the Union Budget 2020-21 is being held in both Houses of Parliament.  In the budget, the government presented the estimates of the money it 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 in 2020-21.  In addition, the budget presented the revised estimates made by the government for the year 2019-20 in comparison to the estimates it had given to Parliament in the previous year’s budget.  The budget also gave an account of how much money the government actually raised and spent in 2018-19.  

What are revised estimates?

Some of the estimates made by the government might change during the course of the year.  For instance, once the year gets underway, some ministries may need more funds than what was actually allocated to them in the budget, or the receipts expected from certain sources might change.  Such deviations from the budget estimates get reflected in the figures released by the government at later stages as part of the subsequent budgets.  Once the year ends, the actual numbers are audited by the Comptroller and Auditor General of India (CAG), post which they are presented to Parliament with the upcoming budget, i.e. two years after the estimates are made.

For instance, estimates for the year 2019-20 were presented as part of the 2019-20 budget in July 2019.  In the 2020-21 budget (February 2020), the government presented 2019-20’s revised estimates based on the actual receipts and expenditure accounted so far during the year and estimations made for the remaining 2-3 months.

Is there a way to find out the government’s actual receipts or expenditure mid-year?

The actual receipts and expenditure accounts of the central government are maintained by the Controller General of Accounts (CGA), Ministry of Finance on a monthly basis.  On January 31, 2020, the CGA updated the accounts figures for the period April to December 2019.  Thus, we have unaudited actuals for the first nine months of the financial year.

How do the actual figures for the year 2019-20 so far compare with the revised estimates?

Table 1 gives the revised estimates presented by the central government for the year 2019-20 and the monthly account figures maintained by the CGA for the nine-month period April to December 2019.  The difference between these two figures gives us the three-month target that the government will have to meet by March 2020 to reach its revised estimates.    

Till December 2019, the government has spent Rs 21.1 lakh crore, which is 78% of the revised estimates for 2019-20.  While the expenditure has reached 78% of the target, so far, the government has been able to generate only Rs 11.8 lakh crore or 61% of the receipts (excluding borrowings) for the year 2019-20.  This implies that the receipts will have to grow at a rate of 41% in the three-month period January-March 2020 to meet the revised estimates of Rs 19.3 lakh crore.   So far, receipts have grown at a rate of 4%.

Table 1:  Budget at a Glance – Comparison of 2019-20 revised estimates with Apr-Dec 2019 figures (Rs crore)

Budget

at a Glance

Actuals

Revised

Nine-month period

Three-month target

Growth rate so far

Growth target

2018-19

2019-20

Apr-Dec 2019

Jan-Mar 2020

% change
  (Apr-Dec 2018 to Apr-Dec 2019) 

% change
  (Jan-Mar 2019 to Jan-Mar 2020) 

Revenue Expenditure

20,07,399

23,49,645

18,54,125

4,95,520

14%

28%

Capital Expenditure

3,07,714

3,48,907

2,55,522

93,385

21%

-3%

Total Expenditure

23,15,113

26,98,552

21,09,647

5,88,905

15%

22%

Revenue Receipts

15,52,916

18,50,101

11,46,897

7,03,204

6%

50%

Capital Receipts

1,12,779

81,605

31,025

50,580

-33%

-24%

of which Disinvestment

94,727

65,000

18,100

46,900

-47%

-22%

Total Receipts (without borrowings)

16,65,695

19,31,706

11,77,922

7,53,784

4%

41%

Revenue Deficit

4,54,483

4,99,544

7,07,228

-2,07,684

   

Fiscal Deficit

6,49,418

7,66,846

9,31,725

-1,64,879

 

 

Primary Deficit

66,770

1,41,741

5,07,411

-3,65,670

   

Sources:  Union Budget 2020-21; Controller General of Accounts, Ministry of Finance; PRS.

How do the actual tax receipts fare in comparison to the revised estimates of 2019-20?

A lower than estimated growth in nominal GDP has also affected the tax receipts of the government during the year. The 2019-20 budget estimated the nominal GDP to grow at 12% over the previous year, whereas the latest estimates suggest this growth rate to be 7.5% in 2019-20.  The revised estimates for 2019-20 show gross tax receipts of Rs 21.6 lakh crore (includes states’ share).  Till December 2019, tax receipts of Rs 13.8 lakh crore has been collected, which is 64% of the target.  The tax receipts will have to grow at 19% in the three-month period January-March 2020 to meet the target.  Table 2 shows similar comparison for the various taxes and also for the tax receipts devolved to states.  While the budget estimated a growth in receipts from all major taxes, receipts from taxes such as corporation tax (-14%), union excise duties (-2%), and customs (-12%) have declined during the period Apr-Dec 2019.

Table 2:  Tax receipts – Comparison of 2019-20 revised estimates with Apr-Dec 2019 figures (Rs crore)

Revenue

Receipts

Actuals

Revised

Nine-month period

Three-month target

Growth rate so far

Growth target

2018-19

2019-20

Apr-Dec 2019

Jan-Mar 2020

% change
  (Apr-Dec 2018 to Apr-Dec 2019) 

% change
  (Jan-Mar 2019 to Jan-Mar 2020) 

Gross Tax Revenue

20,80,465

21,63,423

13,83,035

7,80,388

-3%

19%

Devolution to States

7,61,454

6,56,046

4,76,113

1,79,933

-2%

-34%

Net Tax Revenue

13,17,211

15,04,587

9,04,944

5,99,643

-3%

57%

Dividend and Profits

1,13,420

1,99,893

1,61,979

37,914

175%

-30%

Other Non-tax Revenue

1,22,284

1,45,620

79,974

65,646

-10%

96%

Revenue Receipts

15,52,916

18,50,101

11,46,897

7,03,204

6%

50%

Note:  Figures for income tax exclude receipts from the Securities Transaction Tax.

Sources:  Receipts Budget, Union Budget 2019-20; Controller General of Accounts, Ministry of Finance; PRS.

If we look at sources of receipts other than taxes, non-tax revenue during Apr-Dec 2019 is Rs 2.4 lakh crore, i.e. 69% of the estimated Rs 3.5 lakh crore.  Disinvestment receipts till date amounted to Rs 18,100 crore, i.e. 17% of the budget target of Rs 1.05 lakh crore.  Though the investment target has been revised down to Rs 65,000 crore, it implies that Rs 47,000 crore would need to be raised in the next two months.    

How does this impact the borrowings of the government?

When the expenditure planned by the government is more than its receipts, the government finances this gap through borrowings.  This gap is known as fiscal deficit and equals the borrowings required to be made for that year.  Given lower than expected receipts, the government has had to borrow more money than it had planned for.  Borrowings or fiscal deficit of the government, till December 2019, stands at Rs 9.3 lakh crore, which is 22% higher than the revised estimate of Rs 7.7 lakh crore.  Note that with three months still remaining in the financial year, fiscal deficit may further increase, in case receipts are less than expenditure.

When we look at fiscal deficit as a percentage of GDP, the 2019-20 budget estimated the fiscal deficit to be at 3.3% of GDP.  This has been revised upward to 3.8% of GDP.  However, till December 2019, fiscal deficit for the year 2019-20 stands at 4.6% of GDP (taking the latest available GDP figures into account, i.e. the First Advance Estimates for 2019-20 released in January 2020).  This increase in fiscal deficit as a percentage of GDP is because of two reasons: (i) an increase in borrowings as compared to the budget estimates, and (ii) a decrease in GDP as compared to the estimate made in the budget.  The latter is due to a lower than estimated growth in nominal GDP for the year 2019-20.   The 2019-20 budget estimated the nominal GDP to grow at 12% over the previous year, whereas the latest estimates suggest this growth rate to be 7.5% in 2019-20.

Note that, in addition to the expenditure shown in the budget, the government also spends through extra budgetary resources. These resources are raised by issuing bonds and through loans from the National Small Savings Fund (NSSF).  The revised estimates for 2019-20 show an expenditure of Rs 1,72,699 crore through such extra-budgetary resources. This includes an expenditure of Rs 1,10,000 crore by the Food Corporation of India financed through loans from NSSF. Since funds borrowed for such expenditure remain outside the budget, they do not get factored in the deficit and debt figures.  If borrowings made in the form of extra-budgetary resources are also taken into account, the fiscal deficit estimated for the year 2019-20 would increase from 3.8% of GDP to 4.6% of GDP due to extra-budgetary borrowings of Rs 1,72,699 crore.  This does not account for further slippage if the targeted revenue does not materialise.