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A budget serves no purpose unless it is enforced— that is, revenue and expenditure are regulated according to it. Enforcement or execution is the responsibility of the Executive, because grants of money are made by the Legislature to it and it is also the agency authorised to collect the taxes.

Executive Control over Expenditure

Finance Ministry, as the financial representative and adviser to the Government, sees that any proposed expenditure is as per grants, within the amounts specified, (which are the maxima upto which the executive may spend for the specified purposes), not extravagant, wasteful or improper; before it allows the administrative ministry concerned to proceed with it. It is true that at the time of preparation of the Budget, this has been discussed between the two ministries and accepted by the Finance Ministry; but this is considered tentative.

This means that after the Budget is voted by the Parliament and the financial year has commenced, the Administrative Ministry concerned has to prepare detailed estimates and other justification for its execution and obtain detailed expenditure sanction. (This is said to be one of the major causes of slow progress in many development projects.)

Besides the control on expenditures for new schemes, the Finance Ministry also regulates the flow of funds commensurate with the ability of the respective administrative organs (Ministries) to spend, watches the progress of spending, sanctions re-appropriations, supervises revenue collection and gives advice and guidance on financial matters to administrative ministries.

Various Departments under the Finance Ministry exercise control through the techniques of allotment, apportionment and special regulation on certain special blocks of expenditure. Allotment means the division of funds voted by the Legislature into various categories, for different purposes: Vote or grant, major head, minor head, subhead and detailed subheads.

Financial codes and rules define the procedure and powers of spending agencies and their officers for spending funds, diverting funds, re-appropriation, reporting and accounting. Apportionment consists of dividing the total amount of grant into four quarterly or twelve monthly parts (not necessarily equal, but corresponding to the expected rate of expenditure) and watching actual expenses on a continuing basis.

Internal check, pre-audit and strict observance of the canons of financial propriety are other features of the financial control set-up. At the Centre, Pay and Accounts Offices have been created in various departments to make payments and compile accounts.

Tax Administration and Collection

It involves two kinds of operations: first, assessment of the revenue; and second, its collection. Assessment involves translation of the tax policy authorised by the Legislature into action. Machinery to administer rules of procedure, listing of persons liable to pay tax, determining how much each has to pay, including questions about its correctness and fairness, prevention of evasion, investigations, follow up for realisation of arrears and defaults etc. are facets of the work involved.

Physical collection is through demands on the spot (e.g., Customs duty), bills sent to assessees (e.g., Income Tax Demand Notice), deductions at sources (e.g., Income Tax of salaried employees), through officials/agents in the field (land revenue), through auctions to the highest bidder (e.g., license fees).

Not all tax payers pay readily. There are always some defaulters. The methods of dealing wih them and their arrears vary from a penal increase in the amount due, to restraint and sale of defaulters' movable goods, imprisonment, or suits filed in Court of Law. Arrears which are irrecoverable have to be written off.

Custody of Funds

This operation has to be organised on two main considerations:

  1. Safety to avoid all possibilities of embezzlement and misappropriation.
  2. To ensure convenience and promptness in money transactions.

There are 300 Treasuries and 1200 Sub-Treasuries for receiving money on account of the Government and for making payments. The Reserve Bank of India and (where there is no branch or agency of the Reserve Bank) the State Bank of India, also conduct the Treasury business of the Government.

Today, most of the money transactions are carried on by means of cheques or bills. The complications of the earlier system do not apply.

Disbursement of Funds 

After collection and custody of public funds, there comes the question of their disbursement. Disbursement system in India is based on the British system. Before any expenditure can be incurred, both Budget provisions and administrative sanctions are required, because in India, grants are made to the Government as a unit and not to the spending services individually. In case of engineering works, technical sanction, in addition to budget provisions and administrative sanction are required, before drawing money.

It is the responsibility of the disbursing officer–

  1. to examine the claims from the point of view of the Budget provisions.
  2. to ex am ine th eclaims fr om the point of view of administration and, in case of engineering works, of technical sanction.
  3. to examine whether payment of claims is just.
  4. to keep accounts and submit reports showing the transactions.

Local Government

The present structure of the local government is a legacy from the British rule in India, though the existence of local governments can be traced back to times immemorial. A beginning in local government may be said to have been made in 1687 when the first local governing body was set up by the East India Company for the city of Madras. The history of local government may be broadly divided into five periods.

  1.  1687-1881 - To ease central and provincial finances andthus subserve imperial needs.  
  2. 1882-1919 - Began to be viewed as self-government.
  3. 1920-1937- Local governments came within the jurisdiction of provinces and under propular control.
  4. 1938-1949 - Local government was in a state of repair and reconstruction.
  5. 1950- - Local government has been keyed Present day to the requirements of the Constitu- tion. 

Period I – 1687-1881 

A Municipal Corporation was set up in Madras in 1687, along the lines of a similar institution in Britain, to levy specified taxes. In the corporation were the Mayor, Aldermen and Burgers, who were given power to levy taxes and for the payment of salaries for the municipal personnel.

The main reason for setting up a Municipal Corporation was that “people were willing to pay five shillings for the public good, and taxed by themselves, than pay sixpence for the despotic power”. The Municipal Corporation was changed in 1726 to Mayor's Court, which had judicial powers more than  administrative powers. In 1793, municipal administration was set up in three Presidencies– Madras, Bombay and Calcutta and the British government authorized the Governor-General of India to appoint Justices of Peace in these Presidencies. These officers were empowered to levy taxes.

In 1842,the district towns in Bengal were to be brought under the municipal administration, by the Act of Bengal, 1842, provided they opt for it. But the towns in Bengal were not in favour. The setting up of a municipality was entirely a voluntary affair and no town came forward to ask for it. The Act nowhere met with popular acceptance.

The Royal Army Sanitary Commission, in 1863, expressed concern over the filthy conditions of towns in India.
Lord Mayor's resolution of 1870 gave opportunities for the strengthening and development of local governments and the association of Indians in the local government's administration.

Period II – 1882-1919

The new Governor-General resolved to change the local government to a self-governing body as previously it was neither local nor self-government. The Governor-General, Lord Ripon, known also as the father of local self-government in India, thought that the local government was “an instrument of popular and political education” and resolved to make it a self-governing body.

The Resolution of 1882 made by Lord Ripon was treated as guidelines for the local government. The principles of the resolution are as follows:

  1. Elected non-governmental members and chairman.
  2. Indirect state control over the local bodies.
  3. Adequate financial resources to carry out the functions along with local revenue, suitable grants from the provincial budget.
  4. The local government personnel operating under the control of the local bodies.
  5. Resolution of 1882 should be interpreted according to the local conditions prevailing in the province.

The Viceroys who succeeded Lord Ripon were not interested in the above principles and did not have his liberalism. The report of 1909 of Royal Commission upon decentralization recommended certain principles which marks a significant change in the history of local government. According to this report:

  1. Village should be a basic unit of local government. Every urban area should have a Municipality and every village a panchayat.
  2. A large elective majority in the local bodies.
  3. Election of Municipal President with the District Collector as the President of the district local board.
  4. Authority in the determination of taxes and preparing budgets and also governmental help by means of grants.
  5. Control over the employees by the local bodies.
  6. Outside control must be in the form of advice, audit and suggestions.
  7. Governmental sanction for lease or sale of municipal properties and governmental control over raising of local loans.
  8. Responsibility of Municipality for primary education.

Nothing was accomplished until 1918. In 1918 a resolutioon issued by the Government of India contained the following:

  1. Revival of Panchayats.
  2. Presence of large elective majority.
  3. Extension of the local government's franchise.
  4. Elected, not nominated, President who is the member of the public.
  5. Freedom in the preparation of budget, imposition of taxes and sanction of works.

Period III – 1920 -1937 

The outbreak of the war in 1914-18 made it necessary for the British government to seek the support of the people of India. To attain this, the British associated Indians in every branch of administration.

The Government of India Act, 1919, introduced the dyarchy system of government. Subjects like local government, agriculture, co-operation etc. were transferred to the control of popularly elected ministers. There were a series of Amending Acts on local governments during this period. The practice of having a civil servant as the President of the municipal bodies disappeared.

The executive direction passed into the hands of elected members of the public. Along with the measure of democratization of local government there occurred a gradual but definite decline in the efficiency of the administration of local affairs.

Period IV – 1938-1949

With the enforcement (even in part) of the Government of India Act of 1935, the dyarchy system of government at the provincial level was replaced by provincial autonomy. The national movement for Independence was hotting up. Therefore, when provincial autonomy was achieved, the system of local government ceased to be an experiment and became a part and parcel of self-government of the entire country.

The Independence of India (1947) gave a new impetus to the local government. The popular national and state governments gave a different atmosphere for the functioning of the local government. The entire system of local government was restructured with the advent of the Constitution.

Period V – 1950-Present day

The Constitution of India placed the local government in the state list of functions and affirmed: “The State shall take steps to organise village panchayats to endow them to function as units of self-government”. Three-tier system of government came into force as a result of the report of the team for the Study of the Community Projects and National Extension Service (1957) with—

  1. Zila Parishad at district level,
  2. Panchayat samiti at block level, and
  3. Panchayat at village level.

The development of urban local government was comparatively slower than the rural local governments. In the Third Five-Year Plan (1961-66) steps were taken for the development of urban local government. There were many committees set up both by the state and Centre to review the problems of local governments. 

The committees of the Central Government were:

  1. Local Finance Enquiry Committee, 1951.
  2. Committee on the Training of Municipal Employees, 1963.
  3. Committee of Ministers on Augmentation of Financial Resources of Urban Local Bodies, 1963.
  4. Rural-Urban Relationship Committee, 1966.
  5. Committee on the Service Conditions of Municipal Employees, 1968.

Another important development was the bifurcation of rural and urban local governments. The departments of community development and panchayati raj have been set up to deal with rural government and departments of local self-governments in the states, with urban local government. The local government falls within the jurisdiction of the states. But the practice and pattern of local government varies from state to state.

The document Revision Notes: The Execution of Budget | Indian Polity for UPSC CSE is a part of the UPSC Course Indian Polity for UPSC CSE.
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FAQs on Revision Notes: The Execution of Budget - Indian Polity for UPSC CSE

1. What is the execution of the budget?
Ans. The execution of the budget refers to the process of implementing and carrying out the planned budgetary allocations and expenditures. It involves tracking and managing the financial resources in accordance with the budgetary plans to achieve the desired goals and objectives.
2. How is the execution of the budget monitored?
Ans. The execution of the budget is monitored through various mechanisms such as regular financial reports, audits, and performance evaluations. Government agencies and auditors closely monitor the expenditure patterns, financial performance, and compliance with budgetary regulations to ensure transparency and accountability in the budget execution process.
3. What are the challenges faced in the execution of the budget?
Ans. The execution of the budget can face several challenges, including inadequate financial resources, delays in budgetary approvals, inefficient financial management systems, and unexpected changes in economic conditions. These challenges can affect the timely and effective implementation of budgetary plans and may require adjustments or reallocation of funds to address emerging needs.
4. How does the execution of the budget impact the economy?
Ans. The execution of the budget plays a crucial role in shaping the economy. It determines the allocation of financial resources to different sectors and programs, impacting employment, investment, and economic growth. Effective budget execution can promote economic stability and development, while poor execution can lead to inefficiencies, fiscal deficits, and economic downturns.
5. What are the consequences of poor execution of the budget?
Ans. Poor execution of the budget can have significant consequences for the economy and society. It can result in misallocation of resources, wasteful spending, and accumulation of public debt. Additionally, it can undermine public trust in the government's ability to manage public finances, hinder effective service delivery, and impede socio-economic development.
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