Introduction
Part XII of the Constitution (Articles 264-300A) governs public finance — how money flows into and out of
government coffers, who authorises spending, and who audits it. This chapter covers the key funds, the
Budget process, and the institutions of financial oversight.
Three Funds of the Government (Articles 266-267)
| Fund | Article | Nature |
|---|
| Consolidated Fund of India | 266 | All revenues, loans raised, and repayments received by the government — no money can be withdrawn without Parliament's authorisation (via Appropriation Act) |
| Contingency Fund of India | 267 | Held by the President, used for unforeseen expenditure pending parliamentary authorisation; corpus set by Parliament |
| Public Account of India | 266(2) | Holds money for which the government acts as a banker — e.g., provident funds, small savings — withdrawal doesn't need parliamentary appropriation |
The Union Budget Process
Flowchart — Stages of Budget Passage
Budget (Annual Financial Statement, Art. 112) presented in Lok Sabha
↓
General Discussion — no cut motions, broad policy discussed
↓
Scrutiny by Departmentally Related Standing Committees ("Vote on Account" may be passed for interim spending)
↓
Voting on Demands for Grants (Lok Sabha only) — Cut Motions can be moved here
↓
Passing of the Appropriation Bill (legalises withdrawal from Consolidated Fund)
↓
Passing of the Finance Bill (gives effect to taxation proposals)
- Cut Motions: Policy Cut, Economy Cut, Token Cut — moved during discussion on Demands for Grants (applicable only in Lok Sabha).
- Since 2017, the Railway Budget was merged with the General Budget, and the Budget date was advanced to 1 February.
Finance Commission (Article 280)
- Constituted by the President every 5 years (or earlier if needed).
- Functions: Recommends distribution of net tax proceeds between Centre and States (vertical devolution) and among states (horizontal devolution); principles governing grants-in-aid.
- Recommendations are not binding but are conventionally accepted.
GST Council (Article 279A)
Added by the 101st Amendment Act, 2016. Chaired by the Union Finance Minister, with State Finance Ministers as members. Decisions require a 3/4th weighted majority of members present and voting (Centre's vote weighted at 1/3rd, States' votes together at 2/3rd). Recommends GST rates, exemptions, and threshold limits.
Comptroller and Auditor General (Articles 148-151)
- Appointed by the President; can be removed only like a Supreme Court judge (impeachment-like process).
- Audits the accounts of the Union and States, and submits reports to the President/Governor, who lays them before Parliament/State Legislature.
- Called the "guardian of the public purse" and described by Dr. Ambedkar as the most important officer under the Constitution.
- The Public Accounts Committee examines the CAG's reports in detail.
✅ UPSC Focus: Consolidated Fund vs Contingency Fund vs Public Account · Types of cut motions · Finance Commission periodicity (5 years) and non-binding nature · GST Council voting weightage (1/3rd Centre : 2/3rd States) · CAG removal process same as SC judge.