Nuts and bolts in the budget-making exercise

While budget making is shrouded in a lot of secrecy, here is an overview of the backend processes that determine the direction and its overall messaging.
Express illustrations.
Express illustrations.

NEW DELHI: When Finance Minister Nirmala Sitharaman presents her full budget for 2024-25 in the Lok Sabha on July 23, it would mark the culmination of weeks of consultation and brainstorming for resource generation and allocation to fulfil the new government’s promises and meet the aspirations of the electorate. Earlier in February, she had presented a vote on account – which is a grant in advance to the Central government for short-term expenditure till the new government presents the full budget.

Budget making is an annual ritual that usually starts in December and lasts till February, when the budget is presented. While it is shrouded in a lot of secrecy, here is an overview of the backend processes that determine the direction and its overall messaging.


The finance ministry sets the preparation ball rolling by seeking inputs from various sources like all ministries, departments, industry bodies and the public. Each ministry submits its expenditure proposals, which are collated by the Budget Division of the Department of Economic Affairs in the Ministry of Finance. The department coordinates the entire process of budget making that begins with a broad outline from the Prime Minister's Office (PMO). The budget speech includes allocations for different sectors, policy announcements and tax proposals. Along with the budget speech, detailed documents are presented to provide a comprehensive overview of the government's financial plans and allocations.

The documents include the Annual Financial Statement, which shows the government's estimated receipts and expenditure for the upcoming financial year. It includes details of revenue and capital accounts, as well as the ways and means to finance the deficit. The receipts and expenditures are shown under three parts - the Consolidated Fund, the Contingency Fund and the Public Account.

The most important document is the Finance Bill that outlines changes in tax rates, provisions and rules. Another document, the Memorandum Explaining the Provisions in the Finance Bill, provides a detailed explanation of the proposed amendments in tax laws, along with the rationale.

As for the Expenditure Budget, it describes the spending proposals under various heads like salaries, infrastructure and social welfare schemes. The process of formulating the budget from a taxation perspective involves several key steps.

Inputs review

Stakeholders such as trade and industry representatives, tax officers and other ministries provide inputs for potential changes in policies, laws, rules and procedures. These are examined, organised and discussed with key officials like the Member/Chairman of the Central Board of Indirect Taxes and Customs (CBIC), Secretary Revenue, and the finance minister.

Pre-budget consultations

The finance minister conducts consultations with major industry associations, stakeholders in various ministries, states and Union territories. Important issues identified during these consultations are thoroughly examined and presented for the finance minister's consideration.

Draft amendments

After receiving approval in principle for changes, draft amendments in policies, laws, rules and procedures are prepared. These drafts undergo vetting by the Ministry of Law and Justice before they are finalised for inclusion in the Finance Bill.

Impact analysis

Detailed discussions on the impact of the proposed changes and revenue implications are held with key officials such as the Revenue Secretary, Secretary Expenditure, and the finance minister. The finance minister then collaborates with relevant stakeholders to finalise the budget speech.

Final approval

According to former government officials, the PMO gives various ministries an indication in advance about the objectives it is seeking to achieve through the budget. So, the broad roadmap is already set by the PMO, after which the finance ministry requests the concerned ministries to provide inputs. “This iterative process involves consultations, analysis, approvals and legal procedures to ensure a comprehensive and well-structured budget with focus on taxation,” a top official said, who didn’t want to be identified.

It also involves inter-ministerial consultations for generating the desired impact. “For example, if the agriculture ministry aims to boost exports, it could discuss it with, say, the commerce ministry. It may suggest a cut in duty on exports on certain goods among other measures to make an impact,” said the officer.

These consultations by the respective ministry and the justification for the particular proposal are documented and sent to the finance ministry for consideration. "The proposal is drafted and sent to the PMO for final approval," he stated.

If some important announcement related to a particular ministry is to figure in the budget speech, then the concerned ministry is sounded out unofficially for inputs. So, they get a broad idea of the proposal in advance, another official said.

Budget speech

The finance minister's budget speech is usually drafted by a team of experts and advisors within the Ministry of Finance. This team may include economists, financial analysts, policy experts, speechwriters and other professionals. The finance minister herself may provide inputs and make final revisions before delivering the speech.

"The budget speech is prepared well in advance. Minute details like language and meaning are discussed so that the speech comes out nicely and there is no ambiguity. After the budget speech, various documents with bullet points, powerpoint presentations, etc., on the important aspects are released. So, everything is prepared beforehand," an official added.

Each finance minister has his or her own favourite source for interesting quotations like from the Upanishad, Kautilya, Thiruvalluvar, Victor Hugo. It also sometimes brings out the inherent poet (shayar) in the finance minister, to lighten the mood. For example, in the budget speech for 2015-2016, the then finance minister Arun Jaitley underscored the government's dedication to equality and justice for all, transcending barriers of caste, creed or religion. He invoked an Upanishadic verse, stating: "Om Sarve Bhavantu Sukhinah... Sarve Santu Niraamayaah... Om Shaantih Shaantih Shaantih."

The budget speech typically covers the country's economic outlook, policy initiatives, revenue and expenditure plans, tax proposals, debt management strategies, sectoral allocations, and long-term vision for economic growth and development. It serves as a comprehensive overview of the government's financial plans and priorities for the upcoming fiscal year.

Arguably the most anticipated part of the speech is the section on tax proposals. This is where the finance minister announces changes to tax rates, exemptions, deductions, cess and other tax-related measures that can directly impact businesses, individuals and the overall economy. The tax proposals often generate a lot of interest and attention from various stakeholders, as they have immediate implications on personal finances, investment decisions, business operations and the overall economic activity.

"The tax proposals can reveal the government's priorities, economic outlook, and policy direction in terms of revenue generation and fiscal management. The finance minister's explanations and justifications for the proposed tax changes provide insights into the government's thinking and strategy for the upcoming fiscal year," an official added.

Major schemes or changes having large outlay or wide impact, especially on the vulnerable sections, often headline the budget speech. “Major ministries like agriculture, heavy industry, health, labour, education, railways, information technology, communications, commerce, highways and defence are invariably covered on a priority basis,” said the official.

After the budget is approved by Parliament, the government allocates funds to specific departments and programmes based on the priorities outlined in the speech. It involves further detailed planning and distribution of funds according to the needs and objectives of each department. So, while the budget speech provides a broad outline of the government's financial plans, the department-wise allocations are finalised in the subsequent stage to ensure that resources are allocated efficiently and effectively to meet the objectives.

Key documents

Annual financial statement: Mandated by Article 112 of the Constitution, provides estimated receipts and expenditure

Key to budget documents: Gives brief introduction to all budget documents

Budget highlights: Brief summary of the main features

Budget speech: Verbatim transcript of the speech

Budget at a glance: Gives more details on the sources of receipts and heads of expenditure

Finance bill: Comprises taxation proposals, mandated by Article 110 (1)(a) of the Constitution

Memorandum: Supplementary document to the finance bill explains its various legal provisions

Expenditure budget: Provides detailed information about the proposed spending

Expenditure profile: Summary of the total expenditure of all ministries

Appropriation bill: Provides legal authority to withdraw money from government accounts for expenditure

Macro-economic framework statement: Assessment on the growth prospects of the economy for the next few years

Medium-term fiscal policy cum strategy statement: Details the budget deficit target for the next three years, with the targets broken down for tax and non-tax receipts

Output outcome framework for schemes: Captures outcome budgeting to evaluate performance of various schemes

Receipt budget: Explains how money will be raised from different sources

Implementation of budget announcements: Looks into major announcements / targets mentioned in the budget speech of the previous year and takes stock of the achievements

Gender budget statement: Captures budgetary resources earmarked for women and girls

Statement of revenue foregone: Estimates loss of revenue due to tax incentives

Source: Budget basics

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