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What is the Consolidated Fund of India?

Synopsis:

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The Consolidated Fund of India is the main fund of the Central Government. It acts as a central pool, wherein all the government's revenues (from taxes, fees, services, divestments, etc.) are collected. Besides, all the disbursements are also made from this fund by the government. Hence, it acts as the lifeblood for the government’s finances and is extremely important from the viewpoint of fiscal policy. Having discussed the meaning of the Consolidated Fund of India, let us dig deeper into this topic.

What is the Consolidated Fund of India - An Overview

a) The Consolidated Fund of India is the most important fund for the Central Government from the financial perspective.

b) It was constituted under the Article 266(1) of the Indian Constitution.

c) This fund comprises the revenue of the government from all sources, such as taxes, duties, excise, and even non-tax revenue.

d) When the government raises funds from loans or repays those loans, those details are also recorded in the Consolidated Fund of India.

e) The fund acts as a central financial reservoir from which all the expenditures required for the Indian state are paid by the government.

f) The importance of this fund can be understood by this fact. All financial disbursements made from the fund must be backed by an authorisation from the Indian Parliament.

g) As these are public funds, utmost care must be taken while spending them. Hence, parliamentary authorisation ensures transparency and accountability in using the funds.

h) It is the Central Government that maintains the Consolidated Fund of India. Meanwhile, all states are permitted to create a consolidated fund of their own based on the guidelines laid down by the Central Government.

Now that we have explained the meaning of the Consolidated Fund of India and provided an overview, let us move to other related aspects.

Components of the Consolidated Fund of India

The components of the Consolidated Fund of India are as follows:

Revenue account (disbursements)
Revenue account (receipts)
Capital account (disbursements)
Capital account (receipts)
Disbursements charged on consolidated funds

Different Revenue Sources for the Consolidated Fund of India

As discussed, the Consolidated Fund of India is a central reservoir for all sources of revenues of the Central Government. Find below the most prominent sources:

a) Direct taxes: Direct taxes are one of the most significant contributors to the Consolidated Fund. All the taxes that are directly paid by payees come under this category, including income tax paid by individuals, corporate tax imposed on the profits of companies, capital gains tax imposed on the sales of assets like real estate and shares, etc.

b) Indirect taxes: Taxes that are indirectly paid by people or institutions fall under the category of indirect taxes. For example, goods-and-services-tax (GST) is built into the price of goods and services. When consumers pay for products or services, they end up paying GST. Similarly, excise duty is built into the price of alcohol and petroleum in India. The collection from indirect taxes goes to the Consolidated Fund.

c) Share in the profit and dividends of PSU: The Central Government is the majority shareholder of many public-sector undertakings (PSUs). The government’s share in the profits of such corporations and dividends declared by them is also a source of revenue for its Consolidated Fund.

d) Income from government services: The government provides many services to people and institutions. For example, it issues driving licenses and passports. The fees paid for such official documents are a revenue for the government, which is shown in the Consolidated Fund.

e) Divestments and recoveries of outstanding loans: At times, the government sells its stake in a PSU to a private entity. The funds received from such a sale are shown as revenue in the Consolidated Fund. When the government recovers outstanding loans, such recoveries are also shown under revenues.

Additional Read: What is Trading Account: Definition, Types & Benefits

Expenses Charged on the Consolidated Fund of India

There are certain important characteristics of the expenses charged on this fund, which are explained below:

a) No vote required: Charged expenses are those disbursements that do not require the Central Government to seek a vote to make a withdrawal from the Consolidated Fund.

b) Obligatory in nature: These expenses are obligatory in nature. Hence, the Central Government is required to pay them whether the budget has been passed or not.

c) Expenses related to high-ranking officials: Under this head, we have salaries and allowances payable by the government to high-ranking officials and dignitaries, such as the President of India, the Lok Sabha's Speaker, the Lok Sabha's Deputy Speaker, the Rajya Sabha's Chairman and Deputy Chairman, and the Supreme Court judges. It also includes the pensions of the judges of the Supreme Court and High Courts.

Consolidated Fund vs. Contingency Fund

The main differences between the Consolidated Fund and the Contingency Fund are explained below:

a) Purpose: If certain unforeseeable expenses have to be paid urgently, then the President of India can release funds from the Contingency Fund for this purpose. Meanwhile, the Consolidated Fund is the most important fund, as it acts as a pool for all the revenues and expenses of the Central Government.

b) Parliamentary Approval: When an emergency arises, the Contingency Fund is used to make the payment. However, any release of funds from the Contingency Fund needs to be subsequently approved by the Parliament. But, for withdrawing funds from the Consolidated Fund, parliamentary approval is needed before making a withdrawal.

c) Article of Constitution: The Contingency Fund was set up under Article 267 of the Indian Constitution. However, the Consolidated Fund was established under Article 266(1) of the Indian Constitution.

Conclusion

The Consolidated Fund of India plays an extremely important role in our economy. Being the central reservoir for collecting all the government’s revenues and a pool from which all the expenses are paid, this fund plays a key role in the financial decision-making of the Central Government. As disbursements from the fund need parliamentary approval, it shows that the highest standards of transparency are maintained for this fund, which is good for the economy.

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