Budget Types & Process

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 Types of Budgeting

  1. Incremental (Conventional)
  2. Zero Based Budgeting
  3. Cash Budgeting
  4. Gender Budgeting 
Incremental (Conventional) / Line Budgeting
  • (Check previous year budget and increase the value. Ex: 6000 Crores for Agriculture in last year, this year allocate 6500 Crore – March Rush Happen).
  • An incremental budget is a budget prepared using a previous period's budget or actual performance as a basis with incremental amounts added for the new budget period.
  • The allocation of resources is based upon allocations from the previous period.
  • This approach is not recommended as it fails to take into account changing circumstances.
  • Moreover, it encourages "spending up to the budget" to ensure a reasonable allocation in the next period.
  • It leads to a "spend it or lose" mentality.
Advantages of incremental budgeting
  • The budget is stable and change is gradual.
  • The system is relatively simple to operate and easy to understand.
  • Co-ordination between budgets is easier to achieve.
  • The impact of change can be seen quickly.
Disadvantages of incremental budgeting
  • Assumes activities and methods of working will continue in the same way.
  • No incentive for developing new ideas.
  • No incentives to reduce costs.
  • Encourages spending up to the budget so that the budget is maintained next year
Zero Based Budgeting
(Every year Allocation reset to zero, Ministry submit new document, how much money needed)
  • It was Introduced by Peter Phyrr
  • In this method Ministry foresee its expenditure for a following year by assuming that there was no budget in previous year.
  • Zero budgeting starts from the zero base and every function of the government is analysed for its needs and cost. Budget are then made based on the needs.
  • Zero based budgeting is a method of budgeting in which all expenses are evaluated each time a budget is made and expenses must be justified for each new period.
Needs
  • The Budget maker must be a professional rather than a clerk
  • The budget maker must be unbiased.
(First started at ISRO, Next Science & Technology..)
Cash Budgeting
(6000 Cr Allocated – Give 1000 Cr every two month)
  • It means instead of releasing the entire amount/budget allocation at one go, it will be done in a sliced manner.
  • In other words, Budget allocation is presented to ministries in various instalments once the first instalment is spent, 2nd is released.
  • It prevents March Rush.
(Implemented in Scheme Based (Like MG NREGA) not implemented in full budget)
Gender Budgeting
(Budget Allocated - How much each gender benefited)
  • A Gender budget is a budget that aims at gender equal society
  • Gender Budget Statement was first introduced in Budget 2005-06.
  • Every year the Ministries/Departments are requested through the Annual Budget Circular to highlight the quantum of public expenditure earmarked in budget for women.
  • To analyse how governments raise and spend public money.
  • With the aim of securing gender equality in decision-making about public resource allocation; and
  • Gender equality in the distribution of the impact of government budgets
Outcome Based Budgeting
  • The Outcome Budget is a performance measurement tool which is target oriented, that helps
    • In better service delivery;
    • Decision-making;
    • Evaluating programme performance and results;
    • Communicating programme goals;
    • Improving programme effectiveness.
Budget Process
Recent Changes in Budgeting
  • Early Presentation of Budget (Avoid vote on Account)
(Previously budget present in march and money release on may month end, but financial year start at April 1, The money given to ministry on April & May Expenditure is Vote on Account) Now, budget present on Feb and all process done in March, Money released on April.
  • Merger of General and Railway Budget.
  • Done away Plan/Non-Plan Expenditure Classification.
Documents presented during Budget
The list of Budget documents presented to the Parliament, besides the Finance Minister’s Budget Speech, is given below:
a) Annual Financial Statement (AFS)
b) Demands for Grants (DG)
c) Finance Bill
d) Statements mandated under FRBM Act:
i. Macro-Economic Framework Statement
ii. Medium-Term Fiscal Policy cum Fiscal Policy Strategy Statement
e) Expenditure Budget
f) Receipt Budget
g) Expenditure Profile
h) Budget at a Glance
i) Memorandum Explaining the Provisions in the Finance Bill
j) Output Outcome Monitoring Framework
k) Key Features of Budget 2021-22
l) Implementation of Budget Announcements,2020-2021
(Refer Key to the Budget Document for further Explanation)

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