The Consolidated Fund of India was established under Article 266 (1) of the Constitution of India. It includes all revenues received by the government from direct and indirect taxes, money borrowed, and receipts from government loans.
In this blog, we will delve into the Consolidated Fund of India. It acts as the primary repository for all government revenue, encompassing income derived from sources such as income tax, customs duties, central excise, and non-tax revenue. We will discuss its significance, revenue sources, committed expenditures, constituent elements, and additional details.
Latest update: Lok Sabha passes Bill allowing Centre to draw from Consolidated Fund for 2024-25
The Lok Sabha on Monday approved the Appropriation (No. 2) Bill, 2024 through a voice vote, allowing the Central Government to withdraw funds from the Consolidated Fund of India to cover the projected expenditures for the fiscal year 2024-25.
What is Consolidated Fund of India?
The Consolidated Fund of India, as mandated by Article 266(1) of the Indian Constitution, stands as the cornerstone of the nation's financial operations. It serves as the central repository for all revenues amassed by the Government of India, drawing from a diverse array of sources including income tax, customs duties, central excise, and non-tax revenue. Moreover, it encompasses financial inflows stemming from loans, be it through the issuance of treasury bills or other avenues, alongside repayments made on these borrowings.
So, answering the question - of what is a consolidated fund; the Consolidated Fund of India plays a pivotal role in the fiscal landscape, acting as the primary financial hub through which all legitimate expenditures on behalf of the Indian government are facilitated. It functions as the principal reservoir from which all government spending is financed, with only extraordinary items falling under the purview of the Contingency Fund or the Public Account.
Of paramount importance is the requirement for parliamentary authorisation before any disbursement from this fund can take place. This rigorous adherence to parliamentary approval mechanisms ensures that resource allocation remains transparent and accountable, safeguarding against misuse or mismanagement of public funds.
Similarly, each state within the Indian federation possesses the authority to establish its own Consolidated Funds, guided by the principles and guidelines laid down by the central authority. This decentralised approach allows for efficient financial management at both the national and state levels, ensuring fiscal responsibility and prudent governance across the board.
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Consolidated Fund of India Formation
The Consolidated Fund of India comprises all receipts of the Government of India, including loans obtained through treasury bills, loans, or other forms of advances, and repayments of such loans. All statutorily mandated payments on behalf of the Indian government are disbursed from this fund.
With the exception of extraordinary items funded by the Contingency Fund or Public Account, all government expenditures are financed from the Consolidated Fund. Any allocation (withdrawal or disbursement) from this fund requires parliamentary approval, as stipulated by Article 266(1) of the Indian Constitution. Each state is authorized to establish a Consolidated Fund of similar attributes.
The Comptroller and Auditor General of India oversees and audits the management of the Consolidated Fund, providing reports to the respective legislatures.
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The significance of the Consolidated Fund of India
The Consolidated Fund of India holds immense significance as it serves as the principal account of the Government of India, containing all revenues received through taxes, loans raised, and money received in repayment of loans. It forms the backbone of government financial operations, ensuring the centralisation of public funds. All government expenditure, except exceptional cases like the Contingency Fund, is routed through this fund. No money can be withdrawn from it without parliamentary approval, ensuring a system of checks and balances. This oversight enhances transparency and accountability in government spending. It also ensures that funds are used for intended purposes such as development, welfare schemes, infrastructure, and salaries of public servants. Essentially, the Consolidated Fund of India is a vital tool in managing the nation's finances, safeguarding public money, and maintaining fiscal discipline within the government.
What are the sources of revenue for the Consolidated fund of India?
The Consolidated Fund of India functions as the primary reservoir where all government revenue is pooled, covering a wide spectrum of sources and transactions:
- Revenue from direct taxes: This encompasses income tax collected from individuals and corporate entities. It also includes taxes levied on income derived from various sources such as salaries, investments, and business profits.
- Revenue from indirect taxes: Indirect taxes, including the Goods and Services Tax (GST), form a significant portion of the fund. These taxes are imposed on goods and services at the point of sale or consumption, contributing to the government's revenue stream.
- Dividends and profits from PSUs: Public Sector Undertakings (PSUs) contribute to the Consolidated Fund by providing dividends and profits generated from their operations. These state-owned enterprises play a crucial role in contributing to the government's revenue.
- Earnings from government services: The fund also includes earnings generated from various services provided by the government, such as administrative fees, licences, and permits. These revenues stem from a diverse range of government activities and services rendered to the public.
- Receipts from disinvestment, debt repayments, and loan recoveries: Disinvestment proceeds, repayments of government debt, and recoveries from loans constitute another significant component of the Consolidated Fund. These inflows result from strategic divestment of government assets, repayment of loans extended by the government, and recovery of outstanding dues.
It's noteworthy that any withdrawal from the Consolidated Fund of India necessitates explicit approval from the Parliament. This legislative oversight ensures that the allocation of the nation's financial resources undergoes a stringent and transparent process, safeguarding against misuse or arbitrary expenditure. The rigorous parliamentary scrutiny upholds accountability and ensures that public funds are utilised efficiently for the benefit of the nation's development and welfare.
Also read - What is a Consolidated Account Statement (CAS)?
Components of the Consolidated Fund of India
It is primarily categorised into five sections, which are:
- Revenue account (receipts)
- Revenue account (disbursements)
- Capital account (receipts)
- Capital account (disbursements)
- Disbursements charged against consolidated funds
What is the charged expenditure on the Consolidated fund of India?
Nature of charged expenditures:
- Charged Expenditures are disbursements sourced from the Consolidated Fund of India.
- These expenditures fall under the category of non-votable charges.
Withdrawal procedure:
- No voting procedure is involved in the withdrawal process of Charged Expenditures.
- These expenses are withdrawn from the Consolidated Fund without undergoing a voting process.
Obligatory nature:
- It is crucial to recognise that Charged Expenditures are obligatory.
- These expenses must be honoured regardless of whether the Budget is passed or not.
Expenses covered:
- Charged Expenditures encompass various expenses related to high-ranking officials and dignitaries.
- These include salaries and allowances for:
- The President of India
- The Speaker of the Lok Sabha
- The Deputy Speaker of the Lok Sabha
- The Chairman and Deputy Chairman of the Rajya Sabha
- Supreme Court judges, including their salaries and allowances
- Pensions allocated to Supreme Court and High Court judges.
Consolidated Fund vs Contingency Fund
The Consolidated Fund and the Contingency Fund serve distinct purposes within the financial framework of the government. The Contingency Fund is earmarked specifically to cover unforeseen or urgent expenditures that may arise unexpectedly. Prior to its establishment, the President of India authorises a predetermined amount to be allocated to the Contingency Fund for immediate use in emergencies.
It is crucial to note that the Comptroller and Auditor General (CAG) of India oversees the audit of both receipts and expenditures from the Contingency Fund, as well as audits related to state finances. This ensures transparency and accountability in the utilization of these funds, safeguarding against misuse or irregularities.
Conclusion
In conclusion, the Consolidated Fund of India stands as a testament to the nation's commitment to fiscal responsibility and transparency in governance. Serving as the bedrock of financial operations, it encapsulates the essence of prudent resource management and diligent oversight. By upholding rigorous parliamentary authorization processes and ensuring the allocation of resources to meet obligatory charges, the Consolidated Fund epitomises the nation's unwavering dedication to fiscal discipline. As India continues its journey towards economic prosperity and inclusive growth, the significance of the Consolidated Fund remains paramount, underscoring the importance of responsible financial stewardship for the collective welfare of its citizens.
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