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Indian Budgetary System: Principle And Evolution
Even though budgeting in ancient and medieval India was known not only in its essentials but also in fairly great detail, modern budgetary practices started taking shape with the governance of the country being taken over directly by the British Crown.
Broadly, the evolution of budgeting has passed through three stages.
Firstly, the budgeting system was a sub-system of the British administration. The financial objectives were subordinate to the limited objectives of the colonial power.
Control of expenditure and accountability were the hallmarks of this period.
Secondly, with the attainment of Independence, the developmental priorities of the nation superseded the limited objectives of the British Raj.
In the third phase, a planning orientation has been sought to be imparted to the budgetary exercises.
These three phases correspond to the systems known as incremental budgeting, performance budgeting, and zero-base budgeting respectively.
The system described in the following sections is that which is currently practiced and is the end result of all the budgetary innovations introduced with varying degrees of success.
In this unit, we Will discuss the evolution of the budgeting system in India, the principles of budgeting, and the rationale of the financial year.
The various steps of budget making and the budgetary cycle shall also be focused on in the unit.
Kautilya’s Arthashastra, which describes the administration during the Mauryan period makes reference to an excellent budget system with very detailed, minute rules about the maintenance, preparation, submission, and scrutiny of accounts.
Every year, the Finance Minister makes a note of the opening balance in the Treasury, of all current. expenditure, including capital projects in hand (Karaniya) as well as those that had been completed (Siddham).
Along with this, there was a detailed statement of receipts from all sources; and also a statement of the closing balance anticipated at the end of the year.
Full and precise accounts were kept of all receipts and outgoings, on Revenue and Capital accounts; plans were also prepared and included in the budget of all proposed new and profitable expenditures for investment.
The accounts included estimates for the coming year, and the actual results of the year just ended.
The entire Cabinet sat in a conclave, so to say, to scrutinize them and to pronounce upon their accuracy, fullness, and satisfactory nature in all respects.
Their business was not only to verify the actual figures, to tally expenditure with outlay by vouchers and receipts, but they also had to see that full value was received for every pie spent; that the clerks, officers, and departmental heads had done their duty honestly and efficiently.
A system of fines or rewards helped to make the system very effective.
The rewards, as well as punishments, fell? much upon clerks as upon the superior officers, inspectors, or even the Auditor-General.
The rulers of the Delhi Sultanate and the Mughal Empire also continued a financial system not very different from the Mauryan system.
With the advent of British rule, the Indian financial administration came effectively under the control of the East India Company.
Till 1833, the presidencies of Bengal, Bombay, and Madras were quite independent in finance and there was hardly any centralized financial system.
This position changed with the Charter Act of 1833 which vested the superintendence, direction, and control of all the revenues in the Governor General of India-in-Council.
The main activity of the East India Company was territorial expansion, and expenditure on costly wars mounted.
Huge sums were remitted to England on account of interest payable on Indian debt, interest on investment on Railways, and civil and military charges supposed to have been incurred in England on behalf of India, including the expenses on the maintenance of the Office of East India Company in India.
That the Governors of the three presidencies hardly had any powers can be seen from the fact that no governor could create a permanent post carrying a princely salary of more than Rs. ten per month.
Following the first War of Independence, in 1857, there was chaos in financial administration. With the takeover of the Indian administration by the Crown, the I!. the financial system came to be fashioned along the lines of the system prevailing in England.
imperial objectives dictated a highly centralized system of financial and administrative control.
As we have discussed in Unit 2, the first budget was formally introduced in India in 1860 by Sir James Wilson, the then Finance Member of the Governor-General-in-Council. There was at that time no elected legislature in India.
The budget was also not presented to the British Parliament.
The budget, however, made the Viceroy/Governor-General-in-Council accountable to the Secretary-of-state-in-Council in London who, as a member of the British Cabinet, looked after Indian affairs.
The Secretary of State became the fountainhead of all authority.
He delegated powers to the Governor-General of India. The powers had to be exercised within the ambit of rules and regulations which had to be strictly followed.
According to Thavaraj, the basic features of the financial system in India during the period 1858- 1935 were: i) The Secretary-of-State-in-Council was the chief regulator of the financial system; ii) Governor-General-in-Council exercised delegated financial authority; iii) Finance Department was the custodian of Indian finance8 and iv) Controller General had combined responsibility for Indian Audit and Accounts.
The Secretary of State controlled Indian finances through a) acceptance of the Indian budget; b) regulation and control of expenditure through voluminous rules, regulations, and codes; and c) through numerous executive orders.
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