Article 112

Article 112 of the Constitution of India forms the cornerstone of the nation’s financial administration, providing the constitutional framework for the preparation, presentation, and scrutiny of the Annual Financial Statement (AFS), commonly known as the Union Budget. This article ensures transparency, accountability, and parliamentary oversight in the management of public finances, thereby upholding the democratic principle of legislative control over government expenditure.

Constitutional Mandate and Scope

Under Article 112(1), the President of India is required to present an Annual Financial Statement before both Houses of Parliament — the Lok Sabha and the Rajya Sabha. This statement details the estimated receipts and expenditures of the Government of India for each financial year, which runs from 1 April to 31 March.
The objective of this provision is to ensure that no part of public revenue or expenditure remains outside parliamentary scrutiny. By mandating the presentation of the AFS, Article 112 enshrines fiscal responsibility and financial discipline within the constitutional framework.

Components of the Annual Financial Statement

The Annual Financial Statement comprises two broad parts, reflecting the structure of the Union Government’s financial operations:

• Estimated Receipts: These include the expected income of the government during the forthcoming financial year, encompassing:
  • Tax revenues such as income tax, goods and services tax, customs, and excise duties.
  • Non-tax revenues including dividends, fees, and interest receipts.
  • Borrowings and repayments of loans.
• Estimated Expenditure: This outlines the projected spending by the government and is divided into revenue expenditure (day-to-day administrative costs) and capital expenditure (spending on infrastructure, assets, and long-term development projects).

These estimates are prepared by the Ministry of Finance and laid before Parliament after obtaining the approval of the Union Cabinet.

Classification of Expenditure

The Constitution classifies government expenditure into two categories under Article 112(3):

1. Expenditure Charged on the Consolidated Fund of India:
   • These expenditures are not subject to parliamentary vote.
   • Parliament may, however, discuss them without exercising control over approval.
   • Examples include:
     • Salaries and allowances of the President, Vice President, Judges of the Supreme Court and High Courts, and the Comptroller and Auditor-General of India.
     • Pensions payable to former judges and certain constitutional functionaries.
     • Debt charges and other obligations of the Government of India.
2. Other Expenditures (Votable Expenditure):
   • These expenditures require the approval of Parliament through a vote in the Lok Sabha.
   • They are classified into:
     • Revenue Expenditure: Covering routine administrative expenses, subsidies, and maintenance costs.
     • Capital Expenditure: Covering the creation of assets such as buildings, roads, defence equipment, and infrastructure projects.

This distinction ensures that the legislature retains effective control over discretionary government spending while maintaining the independence of constitutionally protected offices.

Details to be Presented in the Annual Financial Statement

The Annual Financial Statement must explicitly show:

• The sums required to meet expenditures charged on the Consolidated Fund of India.
• The sums required for other expenditures that must be voted on by the Lok Sabha.

This segregation enables Parliament to make informed decisions regarding taxation, borrowing, and expenditure, thereby enhancing fiscal transparency and democratic oversight.

The Consolidated Fund of India

The Consolidated Fund of India is established under Article 266(1) of the Constitution and serves as the principal account of the Government of India. It consists of:

• All revenues received by the Union Government.
• All loans raised by the government.
• All money received in repayment of loans previously granted.

All expenditure of the government is made from this fund, and no money can be withdrawn except in accordance with parliamentary authorisation. Article 112 ensures that every proposal for withdrawal is presented to Parliament for approval through the Annual Financial Statement, followed by Appropriation Acts under Articles 113 and 114.

Parliamentary Control and Procedure

Once the Annual Financial Statement is presented, it is subjected to detailed parliamentary scrutiny:

• The General Discussion allows members to debate the overall financial policy of the government.
• The Demands for Grants, representing individual ministry budgets, are considered and voted upon in the Lok Sabha.
• The Appropriation Bill authorises the withdrawal of funds from the Consolidated Fund to meet approved expenditure.
• The Finance Bill, introduced simultaneously, implements the taxation proposals of the government.

This parliamentary procedure ensures that all financial activity remains accountable to the elected representatives of the people.

Judicial Interpretation and Case Law

The Supreme Court of India has, through several landmark decisions, emphasised the constitutional significance of Article 112 in maintaining fiscal discipline and democratic accountability:

• Keshavananda Bharati v. State of Kerala (1973): Established the Basic Structure Doctrine, recognising financial provisions as part of the essential features of the Constitution.
• State of West Bengal v. Union of India (1964): Clarified the extent of Parliament’s financial authority over the Union and the States.
• Minerva Mills Ltd. v. Union of India (1980): Reinforced the importance of parliamentary control over public finances, viewing it as integral to the constitutional balance of power.

These judgments underline that fiscal transparency and legislative control are inherent to India’s constitutional structure.

Significance of Article 112

Article 112 serves as the constitutional foundation for the Union Budget, ensuring systematic financial planning and democratic oversight. Its significance lies in:

• Promoting transparency and accountability in government finances.
• Guaranteeing that no expenditure occurs without parliamentary sanction.
• Providing a mechanism for legislative scrutiny of fiscal policies and priorities.
• Reinforcing the separation of powers between the executive (which proposes expenditure) and the legislature (which authorises it).

By mandating the preparation of the Annual Financial Statement, the Constitution ensures that the government’s fiscal actions align with national priorities and constitutional values.

Related Constitutional Provisions

Article 112 operates in harmony with other financial articles in the Constitution, including:

• Article 113: Governs the procedure for voting on demands for grants and appropriation.
• Article 114: Relates to the passing of Appropriation Bills for authorised expenditure.
• Article 266: Establishes the Consolidated Fund of India and defines its composition.