History of Budget in India

Etymologically, the term budget is related to Latin bulga , which refers to a ‘leather bag. The term comes from a Gaulish source connected to the Irish bolg, which means a bag. It got associated with finance in mid 18th century following up a pamphlet titled “The Budget Opened” sarcastically attacking the tax plans of Great Britain’s first prime Minister Sir Robert Walpole. However, the term budget was first used in 1760 for statement of the actual results of receipts and expenditure in the preceding fiscal year presented in House of Commons by UK’s Chancellor of Exchequer.  The term budget was used in current context only after mid 19th century. 20th century was a stimulating era for budgeting. It was only after 1950s that budget was more rationally used for public planning and policy. The development of the theoretical framework of budgeting during 20th century has been shaped by the political, social and administrative players and circumstances.

During the 20th century, while the Budget and Accounting Act 1921 systematized the budgeting in USA, the Parliament Act 1911 excluded the Lords in UK to refuse money bills, thus depriving House of Lords of its power of veto over financial legislation. Since then, the elected House of Commons has supreme powers regarding budget decisions in UK and same was followed in India where Lok Sabha has such powers.

Key Points: Evolution of Indian Budget

A rough budget of East India Company was prepared in 1790. After the end of East India’s Company’s rule, India’s first budget was presented on February 18, 1860 by James Wilson, a Finance Member of the India Council. The Finance Member’s work was to advise the Viceroy on financial matters.

After the Morley-Minto Reforms of 1909, the Finance Member had to present his estimates to the Central Legislature in first quarter of every year. The Finance Member’s presentation was followed by discussions on Budget proposals. During discussions, the members of the legislature could propose alterations in tax provisions, loans and grants to local government. The Finance Member was able to accept or reject these proposals but he needed to justify why he accepted some proposals and why rejected others.

Initially, the Railway budget was part of the general budget. On the basis of recommendations Acworth Committee, the Rail Budget was separated in 1924. That system follows till date. Recently, the Bibek Debroy committee has recommended to abolish the separate Railway Budget in a period of five years. The first budget of Independent and united India was presented by John Mathai in 1949-50. This budget also included the financial statements for former Princely States. The decision of forming a planning commission was declared in this budget.