Financial Functions of Indian Parliament

Parliament, being the highest legislative body, enjoys extensive powers and performs variety of functions including financial functions.

What are key articles in constitution related to financial functions of parliament?

The two key articles that pertain to financial oversight of the parliament are article 266 and article 110. As per article 266, no amount of money can be withdrawn from the consolidated fund unless authorized by parliament by making law. Article 110 further specifies Money Bill, ensuring that custody of Consolidated Fund of India along with payment of moneys into or withdrawal of money from should be done with the approval of the Parliament. Thus, parliament exercises complete control of the finances of the government because without no bill whether money or financial can become act without clear passage from it.  Taxation and related policies need to be approved by the Parliament before coming into force.

What are the parliamentary mechanisms available to oversee the Macro-economic functions?

Parliament supervises the ongoing issues in the country by making executive responsible to itself. This is because it is the executive which implements the policies and acts. Following are the methods by which executive can be held accountable:

Questions

By asking questions over policy matters in the parliament during question-hour, zero hour etc. This is the most important tool used where each and every action of the government can be called to question. The policy of demonetization, to the issue of fall in farm prices leading to Mandsaur crisis were all called to question via this.

Various motions

By introduction of various motions like adjournment motion, calling attention motion, censure motion etc.

Budgetary Control

Budgetary control, that is, no tax can be levied and no expenditure can be incurred by executive except with the approval of the parliament. Cut motions like policy cut, token cut, economy cut etc are used for ensuring regulation over the budget.

Financial Committees

It also supervises the government spending and financial performance with the help of its financial committees. These include Public account committee, estimates committee etc. These standing committees have been formed with an aim of having a continuous and detailed dialogue on all aspects of the financial matters in a non-partisan way. Also special expertise and informative reports can be developed during this process. These committees have representatives from various parties of the Parliament holding seats in both Lok Sabha and Rajya Sabha, thus being highly representative in nature.

  • Various Acts, Taxation reforms and Budgetary allocation are referred to these committees before being passed by the Parliament to ensure proper consideration of each part without any restrain of time.
  • Public Account Committee has been further set up to look into the reports of the CAG and hence keep any eye on the expenditure by the government.
Other mechanisms

These include GST Council, Finance Commission etc.

What are the key problems faced while exercising above mechanisms?

The key problems faced while exercising the above mechanisms are as follows:

Paucity of Time

Due to increase in volume of work parliament spends less time in discussing important matters. This is further exacerbated by further disruptions & confrontations in the parliament. The time devoted by parliament for discussion is decreasing with every passing session each year. In 1950s the Lok Sabha used to meet for an average of 120 days in a year. In comparison, in the last decade, it has met for an average of 70 days a year.

The Budget session, which is of utmost importance in the highly competitive economic scenario, had faced a major setback because of this and majority of the provisions remain undiscussed due to being passed by the process of guillotine. During Parliament’s first decade, the debate on the budget lasted for an average of 123 hours. In the last decade, this number has come down to 40 hours.

Lack Of Effective Oversight By The Committees

Committees were formed to help share parliament’s work load and increase its efficiency in detailed scrutiny of the bills. However, committees are handicapped by lack of specialist advisers and lack of research support available. Moreover, financial committees like public accounts committee etc examines the expenditure after it has been incurred by the executive. Hence they do post mortem work. Partisan lines taken by the members of these committees along with secrecy of meetings further impact the democratic deliberation of financial matters. In the case of demonetization the RBI Governor was called up but adequate outcome from the enquiry was not seen.

Lack of Expertise & Time with MPs

The report sent by the departmental standing committees are not often looked at by the MPs because as their constituencies make a huge demand on their time. Moreover, they do not have research staff with them leading to lack of expertise in dealing with parliamentary process.

  • The majority of the Member Parliaments do not have financial knowledge and expertise leading to lack of adequate questioning of the policy matter being debated.
  • Declining quality of legislators though literacy level is improving but people with criminal background & lack of specialisation in some sort of public policy is rising.
  • Misuse of Provision of Money bill and bypassing of Rajya Sabha leads to a fraud on the Constitutional provisions and impediments discussions on important matters. For example the hue and cry caused after passage of Aadhar Bill as a money bill lead to many experts calling it a foul move.
  • RBI – Many critiques have been blaming the RBI to have become an office of the Ministry of Finance and thus having no independence in matters of monetary policy causing further macroeconomic instability. Continuous changes of stance and policies by RBI during the submission of demonetized notes furthered this allegation.
  • Also the focus of RBI since the past few years has been restricted to limiting the level of inflation in the country with the issue of growth and macroeconomic stability taking a back seat. A gigantic issue in the nature of twin balance sheet crisis is a result of the same mismanagement by the RBI and the Parliament.
  • Monetary Policy Committee has also unable to effectively deal with the macroeconomic challenges.

Further, the archaic division of the budget to a planned and non-planned expenditure category, with the Planning Commission having a major say in the planned expenditure had provided a major setback to the maintenance expenses. This difference though had been done away now.

What are key implications of the same?
  • Growth impediments and the continuing twin balance sheet owing to stressed assets of banks along with corporate sector
  • Lack of adequate employment opportunities with major chuck of the demography being employed in the informal sector.
  • Balance of Payment Crisis due constant decline in exports specially as the RBI is unable to adequately manage the exchange rate. Rupee has become comparatively stronger than other global currenciescausing our exports to be less attractive than our competitors.
  • Growing fiscal deficits of States to an unstainable level along with fall in the revenues due to implementation of GST.
How financial oversight can be increased?
  • Parliamentary Reforms- Regular session, technical support, decrease in the use of whip to ensure more meaningful discussions. These need to be immediately implemented to ensure proper law making in all spheres.
  • Parliamentary Committees should be better equipped with more teeth to cater to growing needs of deliberations and attention to detail. Along with this the reports or proceedings should eventually be made public without endangering the non-partisan nature of these committees.
  • Establishment of a parliamentary budget office (PBO) in India—a common feature across many countries ranging from developed democracies such as the US, the UK, Canada, Australia, Korea, Hungary. This will ensure high-quality along with policy neutral analysis on the full budget cycle, the broad fiscal challenges facing the government, budgetary trade-offs and the financial implications of legislative proposals. There will also be a need to ensure the independence and non-partisanship of such a body for it to have credibility with legislators. This may best be done if it is established as a statutory body reporting directly to Parliament or by giving it Constitutional status.
  • Joint Economic or Economic Affairs Committee: The US Congress has a committee of both Houses called the Joint Economic Committee. It reviews economic conditions and recommends improvement in policy. The House of Lords in the UK has an Economic Affairs Committee. Its role is to consider economic affairs and it is currently inquiring into the impact of Brexit on Britain’s labour market. The idea of such a committee is not new for our country.

Further, National commission for review of working of constitution, 2002 identified the issue and recommended for the National Standing Committee on Economy. This should be supported with adequate resources and having procedure to call RBI governor, CEA, chief statistician etc. to testify and enrich its proceedings. The committee shall be envisioned to conduct an ongoing analysis of the national economy and help both government and parliament in orchestrating opinion on important policy issues for building a national consensus.

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