Budget Basics: Constitutional Framework & Key Documents

ECONOMY | MARCH 2026

Constitutional Provisions — Budget Framework

• Article 112 — Annual Financial Statement: The President causes the AFS (Budget) to be laid before both Houses of Parliament. It shows estimated receipts and expenditure for the coming financial year.
• Article 113 — Procedure for Appropriation: No money can be withdrawn from the Consolidated Fund without parliamentary approval. Demands for Grants are discussed and voted upon in Lok Sabha.
• Article 110 — Money Bill: Defined exclusively as a bill dealing with taxation, borrowing, or expenditure from the Consolidated Fund. Speaker’s certification is final — not challengeable in court.
• Article 265: No tax shall be levied or collected except by authority of law — fundamental principle of taxation.
• Article 266: Establishes the Consolidated Fund of India — all government revenue goes here, all expenditure is drawn from here.
• Article 267: Establishes the Contingency Fund of India — for urgent, unforeseen expenses before Parliament approves.

Revenue vs Capital — Budget Classification

Key Deficit Concepts

• Fiscal Deficit = Total Expenditure – Total Revenue (excl. borrowings) — shows how much government borrows
• Revenue Deficit = Revenue Expenditure – Revenue Receipts — shows shortfall in non-capital account
• Primary Deficit = Fiscal Deficit – Interest Payments — shows borrowing need excluding past debt servicing
• Effective CapEx = Direct CapEx + Grants to states for capital creation — the government’s preferred metric since 2022

FRBM Act 2003

• Full form: Fiscal Responsibility and Budget Management Act
• Original target: Fiscal deficit of 3% of GDP by 2007-08 — repeatedly missed
• NK Singh Committee (2017): Recommended debt-to-GDP target of 40% for Centre, 20% for States
• Current status: Government follows a glide path approach — gradual fiscal consolidation
• Escape clause: Allows 0.5% deviation in case of war, national calamity, or structural reforms

Finance Commission (Article 280)

• Constitutional body — constituted every 5 years by the President
• Function: Recommend distribution of net tax proceeds between Centre and States (vertical devolution) and among States (horizontal devolution)
• Also recommends: Grants-in-aid, measures to augment state finances, disaster management funding
• Current: 16th Finance Commission (Chairman: Arvind Panagariya) — period 2026-2031

Money Bill vs Finance Bill

• Money Bill (Art 110): Deals exclusively with tax/expenditure. Can only be introduced in Lok Sabha. Rajya Sabha has 14 days to recommend (not amend). Speaker’s certification is final.
• Finance Bill: Gives effect to budget tax proposals. May contain non-tax provisions. Broader than Money Bill.
• Appropriation Bill: Authorises withdrawal of money from Consolidated Fund after demands for grants are voted.

Source: UPSC Essentials, The Indian Express — March 2026

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