[Budget] Consolidated Fund of India, Contingency Fund, Public Account Vote on Account, Interim Budget Explained

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Mitrapal Philosophy
  1. Why Government Budget?
    1. #1: Contingency fund of India (Art.267)
    2. #2: Public Accounts of India (Art.266)
    3. #3: Consolidated fund of India (Art.266)
  2. What is Vote on Account?
  3. What’s interim budget?
  4. Vote on Account vs Interim budget
  5. Interim budgets in the past

Why Budget?

typical sight of a middleclass household:
Daddy earns monthly salary, stores some of it in the bank, gives the rest to mommy. Afterwards, whenever daddy needs money, he has two options

  1. Take out from bank account, without informing mommy. No questions asked. (Unless mommy checks the passbook/bank statement!)
  2. Ask mommy to give the ca$h from bedroom cupboard. In this case 11/10 times he’ll have to “Explain” to mommy why he needs money.

Same is the case government’s money. Government stores its money in three places:
consolidate fund of India need parliament approval

#1: Contingency fund of India (Art.267)

  • Held by the President of India. (doesn’t mean Pranab carries the chequebook. This is operated – by finance Secretary).
  • President can spend ca$h from this fund- for emergency/unforeseen circumstances
  • Without the authorization of parliament. (mommy’s permission not needed)

#2: Public Accounts of India (Art.266)

This is made up of:

  1. bank savings account of the departments/ministries (for day to day transactions)
  2. National Investment fund (money earned from disinvestment, goes here)
  3. National Calamity & contingency fund (NCCF) (for disaster Management)
  4. National small savings fund, defense fund.
  5. Prarambhik Shiksha Kosh, MNREGA fund
  6. Provident fund, Postal insurance etc.
  7. and so on

Does government need parliament’s permission to spend money from here? Nope.

#3: Consolidated fund of India (Art.266)

This fund/basket is filled by

  1. all the cash from direct and indirect taxes
  2. all the loans taken by government of India
  3. Whenever someone returns principle/interest of the loans given by Government of India.

This is the largest of all three funds. And government needs parliament’s approval to spend money from this fund. Why? Because Article 266 say so.

Overall, finance minister must put three files on the table of parliament:

  1. Appropriation bill: to get permission of parliament, to take out cash from Consolidated fund of India. Art 266.
  2. Finance Bill: to get permission of parliament to collect taxes from Juntaa. Art 265.
  3. Annual financial statement: to show the parliament data about his incoming and outgoing money. Art 112
  4. (+ Although not required by the Constitution) make a budget speech to tell the world, “I’m totally awesome and my government is also totally awesome.”
  5. (+ Although not required by the Constitution) present an “Economic survey”, and order the UPSC aspirant, “religiously mug up this data.”

Then what is Vote on Account?

Vote on account
In an ordinary year,

  • February: Chindu put these files in parliament, Media Walla go crazy about it
  • February to April: Parliament and its Committees will study these files, find spelling grammar mistakes and vote on the demands
  • April-end, parliament will pass:
    • Appropriation bill=> Chindu is now legally entitled to take out money from consolidated fund of India and spend.
    • Finance bill=>Chindu is now legally entitled to collect taxes from junta.

Now here comes the problem:

Consider budget for 2013:

  • Feb 2013: FM presents the budget related docs (this will apply from 1st April 2013 to 31st March 2014)
  • up to 31st March 2013: Chindu is entitled to spend money from consolidated fund of India (because previous year’s appropriation Act (2012-13) is valid upto 31st March 2013)
  • But Parliament discussion still on going. Appropriation bill for 2013-14, is yet to be passed.
  • so where to arrange money in the meantime?- for staff salary, lightbill, phone bill everything?
FundCan FM arrange money from here until budget is passed?
Contingency Fund of India
  • No. this is meant for emergency situation only.
  • This fund barely has 500 crore rupees=not even sufficient to the monthly salary and lightbill of army-navy-airforce!
Public accounts of India
  • No. Because its components have specific function. e.g. the cash from National Calamity & contingency fund (NCCF) is meant only for disaster relief type work.
Congress party’s Swiss bank accounthell no. If Chindu withdraws money from here, to run the government => this “Robinhood-giri” will defeat the whole purpose of doing scams and taking bribes in the first place!

So, ultimately, we are back to square one: the consolidated fund of India. He must arrange cash from here.

FM(to Lok Sabha) maai baap, please allow me to spend money from consolidated fund of India, until the budget is passed.

^that is vote on account.

Feb 2013: Chindu presents the (full) budget

March 2013: Chindu puts the demand under “Vote on account”. Under Vote on account, the government usually demands 1/6th of the total (Expected) expenditure for the given year. Example

lakh crore
money sought under Vote on account10,71,797
total expenditure58,78,455

This is nearly 10 lakh cr. / 59 lakh crore = ~1/6th of the expenditure.

  • Duration: two months. (from 1st April 2013 to 31st May 2013)
  • Vote on account is passed by Lok Sabha (and not Rajya Sabha)
  • because only lok sabha has the power to grant such money under Article 116(A)

Ok then what’s interim budget?

Consider the situation in 2014

  • Feb 2014: (if) Chindu presents (full) general budget. = it’s valid from 1st April 2014 to 31st March 2015.
  • April/May 2014: General election, new party comes in power. But then they’ll have to live with a budget not formed according to their manifesto/priorities= unhappiness.
  • Although they can simply frame a new budget to replace such budget by previous party= but that means policy uncertainty = not conductive for investment and economy.
  • for example, just before election Chindu abolishes all the excise duty (to please the vote bank), then suddenly new party comes in power, and re-starts the excise duty = policy uncertainty, account keeping, saving/Expenditure habits change suddenly. harmful to economy.
  • Therefore, political parties have developed an unwritten convention, “Ruling party should NOT to initiate major changes in the tax/expenditure during General election year.”
  • Such “Slim” version of Budget is called “interim budget”.
  • There is no legal/Constitutional obligation on the ruling party to launch an interim budget during election year. This is only an unwritten convention.

So let’s compare/contrast:

Vote on Account vs Interim budget

VOTE ON ACCOUNTINTERIM BUDGET
only presents demand for Expenditure part. (i.e. allow government to spend money from CFI, until budget is passed)Deals with both income (taxation) part and Expenditure part. + annual financial statement showing incoming and outgoing money of the government.
only one article applicable: 116(2)many articles applicable

  • 112: have to put annual financial statement
  • 265: have to put finance bill (to get parliament’s permission to collect taxes)
  • 266: have to put appropriation bill (to get parliament’s permission to spend money from consolidated fund of India)
Only Lok Sabha has Decision Making power here. Because art 116(2) specifically says “House of people” can grant such money.Both houses involved. Because Art 112: Annual financial statement has to be laid in both houses Lok Sabha and Rajya Sabha.although Rajya Sabha doesn’t really have any Decision Making power here either, but they could stall it for 14 days.
Asks parliament to grant 1/6th of the total estimated expenditureAsks parliament to grant entire money for total estimated expenditure.
Validity: 2 monthsIf the new Government doesn’t give new (full) budget after election, then Interim budget’s provision remain valid for the whole financial year i.e. 1st April 2014 to 31st March 2015.
done in non-election years and election years.only during election years/extreme situation.
Vote on account doesn’t contain interim budget.interim budget contains vote on account. (Because here also, budget presented in Feb, while passed somewhere in late April/May.) so government needs money in between. However, the vote on account will be of longer duration e.g. 3-4 months. (than during normal full budget years.)

Interim budgets in the past

Interim budget

Yashwant04Gave quite a few schemes and tax-benefits12 page
Pranab09Did not announce any new taxes or schemes.18 page
Chindu14
  • No changes in direct tax.
  • Few concessions in indirect tax
  • Few schemes/provisions related soldier pension, education loans, skill development, Nirbhya fund etc.
14 pages

Enough theory, let’s try a mock question from 2011’s CSAT paper

Q. What is the difference between interim budget and vote on account?

  1. The provision of a vote on account is used by a regular government, while an interim budget is a provision used a caretaker government.
  2. a “vote on account” only deals with the expenditure in government budget, while an “interim budget” includes both expenditure and receipts
  3. Both A and B
  4. Neither A nor B

Statement B is correct. That eliminates option “D”. Now the final answer (B or C) depends on whether “A” is right or not?

Observe the statement “A”

The provision of a vote on account is used by a regular government, while an interim budget is a provision used a caretaker government.

  • Focus on the word “Caretaker” government. What do we understand by Caretaker government?
  • Until new PM/CM takes charge, the earlier government continues to be in office, as in “caretaker” position. This happens when:
Term has expiredIn this case how can FM present the (interim/full) budget?
after PM/CM has resignedIn this case, entire council of minister is automatically gone. So, how can Finance minister “Exist” and present the (interim) budget
No-confidence motion passed In this case, even if FM presents (interim) budget, it’ll be defeated.
Parliament/assembly is dissolved. Then where will FM place the “interim” budget?

On 17/2/2014, Chindu presented interim budget for UPA-II. So, is UPA-II a caretaker government? Nope. Not yet. its term (5 years) has not expired yet. They’ve still got ~90 days to misrule the country. Therefore statement “A” is wrong. Interim budget is not used by a caretaker government. Eliminate choices accordingly:

  1. The provision of a vote on account is used by a regular government, while an interim budget is a provision used a caretaker government.
  2. a “vote on account” only deals with the expenditure in government budget, while an “interim budget” includes both expenditure and receipts
  3. Both A and B
  4. Neither A nor B

Thus we are left with answer “B”.

so far we learned:

  • Why does government need to pass a budget?
  • What is vote on account, what is interim budget and what’s the difference between them two?
  • Remaining topics related to polity: money bill vs finance bill, Committees of parliament, CAG , vote on grant etc. you prepare from (the great) M.Laxmikanth.

Mrunal recommends

  1. (free) NCERT, NIOS, TN-Books 4 History,Geo,Sci
  2. Indian Polity M.Laxmikanth (Hindi | English)
  3. Spectrum: Modern History (Hindi | English)
  4. Maths: Quantam CAT Sarvesh Kumar
  5. Objective General English SP Bakshi
  6. Word Power made Easy -Norman Lowe
  7. Topic wise Solved Paperset by Disha

29 Comments on “[Budget] Consolidated Fund of India, Contingency Fund, Public Account Vote on Account, Interim Budget Explained”

  1. For economic optional, which book should I prepare…..please sir help me

  2. Thanks alot sir, i really appraciated in the way that u clearify above topics….

  3. Very informative not only to a particular class of people but also for a common man. This is very useful & has been explained in a very simple way by giving our own system of financial transactions.

  4. Very useful article in a good way and different from traditional explanation style. very informative. Thank you

  5. Sir, you make things so easy to understand
    Thank you

  6. i awesome to read it. very useful and informative in a simple way thanks sir

  7. Sir i have a doubt,
    Is the consolidated fund also used to fill up the other two?
    (because pci and especially contingency fund do not seem to have enough sources of income)
    If yes, then when and how does it happen?

    1. on 10th march 2005 P Chidambaram raised the Contingency fund from 50 crore to 500 crore to meet critical demands like Inflation. So yes it was sourced from consolidated fund. The financial memorandum says this will be done under clause 115 of the (finance) bill, by “transfer of an additional amount of Rs 450 crore from the Consolidated Fund of India to the Contingency Fund of India”.

  8. You made it look sooo easy. Thank you.

  9. Can GOI transfer money from CFI(Consolidated Fund of India) to Contingency Fund of India ?

    1. Yes, An equivalent amount from the Consolidated Fund is subsequently obtained to ensure that the corpus of the Contingency Fund remains intact.

  10. Awesome ! Clarified beyond doubt. Keep ot up

  11. Great article . Really cleared my doubts . Thank you mrunal sir.

  12. Wonderfully presented just like a small children story.

  13. Thank you for making me understand

  14. Scrutinise with elucidation…
    Thanks

  15. Thanks sir !!!

  16. The way you present the topic is so easy to understand and easy to remember sir..thank you very much for your efforts sir

  17. thank you sir…and awesome explanation…

  18. Delighted , Marvelous expressed by learned author. Keep it up.

  19. HECK AWESOME !!!
    thanx a lot sir :3 <3

  20. simply scripted and easily descripted .Thank you sir ,It help me a lot.

  21. East or West Mrunal is the Best !!

  22. Sir,the Contigency fund does not need the approval of the Parliament?

  23. Explained amazingly…… Thanks a lot… ROBIN HOOD..

  24. Thank you Mr. Mrunal for describing it a layman’s term…

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