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- Usually works via the process of securitization of the previous loan papers. How it
happens in real life? Ans. NOT IMP.

18.5 FINANCIAL INCLUSION: CUSTOMER PROTECTION

Bank/NBFC Finances Insurance (IRDAI) Pension
(under RBI) (SEBI)
Ombudsman: Bank, ______ Insurance Ombudsman via - NPS: NSDL→
NBFC, Digital Portal→ IRDAI Act ‘1999, hears PFRDA.
Transaction (given SEBI→SAT matters upto ₹30 lakhs. If - If EPFO- then
below) higher claim then consumer its internal
courts / other courts. machinery

18.5.1 RBI’s 3 Ombudsman (ओमब समेन/ कायि नवारण अ कार )

Banking NBFC Digital Transactions
Ombudsman Ombudsman Ombudsman
When 1995 2018 2019
RBI Banking powers to regulate NBFCs
designates a Regulation Act, under RBI Act, ______
senior RBI _____ Act, 2007
official under
Where does 21 offices 4@ Chennai, Kolkata, New Same as BO
he sit? across India Delhi and Mumbai, looking
after respective zones.
Customer Any type of - Any NBFC-Deposit-taking (e.g Prepaid payment
can file free bank Mahindra, Jindal, Sriram), OR instruments, Mobile
- Any NBFC with assets size of
complaint ₹1 billion & customer
wallets, Apps,
against interface. Although Exempt: NEFT/RTGS and other
Infrastructure finance/debt digital transactions
companies, Core Investment
Companies, NBFCs under
liquidation. (for them NCLT,
SEBI-SCORE).**
For amounts* upto ₹20 lakhs upto ₹10 lakhs upto ₹20 lakhs
Penalty Ombudsman can order penalty upto ₹1 lakh for customer’s mental
agony, waste of time and money
Higher _ _ _ __ _
Appeal?
- *subject to changes, don’t lose sleep over it.
- ** gradually RBI keeps adding more category of NBFCs here.
- 2019: RBI launched online Complaint Management System (CMS): Customers can lodge
complaints against any RBI regulated Bank or NBFC → Complaint would be directed to
the appropriate Ombudsman

18.6 FINANCIAL INCLUSION: INDIA’S PERFORMANCE (भारि का द न)

18.6.1 Global __________ Report 2018

- To measure financial inclusion levels, this report is prepared by Accion global NGO's
Center for Financial Inclusion (CFI) &partners like Bill & Melinda Gates Foundation,
Metlife foundation.

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- Ranking? Columbia (1), India (4) among 55 nations.

- Report identified following challenges:
 full interoperability across payment systems. Lack of financial literacy, no trust
in financial system or buying insurance.
 Digital divide, grievances redressal. extreme poverty, no surplus to save /
invest.
 No land / property records→ access to loans is difficult.

18.6.2 Global ___________ Database 2017: (released in 2018, April)

- By______________ with help of Bill & Melinda Gates Foundation
- Appreciated PM-Jan Dhan, now we are parallel to China. Financial inclusion helps
bringing rich poor divide through targeted delivery of subsidies via J-A-M (Jandhan,
Aadhar, Mobile)

18.6.3 Financial Inclusion Index by DFS

- 2018-Sept: Proposed by Department of Financial Services (DFS).
- This annual index will have three measurement dimensions; (i) Access to financial
services (ii) Usage of financial services and (3) Quality. It complies with the format
prescribed by the G20.

18.7 MOCK QUESTIONS FOR MAINS (250 WORDS)

1) Explain the significance of financial inclusion & social security for achievement of
Sustainable Development Goals for India. भारत के ल ए सतत ल कास य क ाल के ल ए
ल ीय समा ेशन और सामालिक सुर ा के मह को समझाएं।
2) Discuss the significance of crop insurance and health insurance in eradication of rural
poverty. Enumerate the notable initiatives of the Government in this regard. ामीण गरीबी
उ मू न म फस बीमा और ा य बीमा के मह पर चचा कर। इस संबंध म सरकार क उ ेखनीय कदमो
क सूलच दीलिए.
3) How is Ayushman Bharat-PM-JAY is different from the previous centrally sponsored
schemes on health insurance? Identify the fiscal and administrative challenges in its
implementation. रा ीय वा य संर ण म शन इससे पूव क क सरकार ारा ायोमित योिानाओसे
अलग कै से है? इस योिना को लागू करने आनेवाली मव ीय व् शासमनक चुनौमतयो को मचम हत क मिए.
4) (Asked in Mains-2016) Pradhan Mantri Jan-Dhan Yojana (PMJDY) is necessary for
bringing unbanked to the institutional finance fold. Do you agree with this for financial
inclusion of the poorer section of the Indian society? Give arguments to justify your
opinion. धान मं ी िन-धन योिना (पीएमिेडी ाई) ब कं ग से ंलचत ोगो को सं थागत ल /ऋण के
दायरे म ाने के ल ए आ यक है। या आप भारतीय समाि के गरीब ग के ल ीय समा ेशन के ल ए इससे
सहमत ह? अपनी राय को सही ठहराने के ल ए तक द।

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20 PILLAR #2: BUDGET → AN INTRODUCTION

20.1 FISCAL POLICY (राजकोषीय नी ): MEANING & SIGNIFICANCE

- The term fiscal is derived from Greek, it means basket and symbolizes the public
purse.
- Fiscal Policy is the set of Govt. decisions regarding taxation, expenditure, subsidies
and other financial operations.
- Using fiscal policy, Govt influences the savings, investment and consumption in an
economy, to accomplish certain national goals such as income redistribution, socio-
economic welfare, economic development and inclusive growth.

A well planned Fiscal Policy can help in following arenas:

✓ Full Employment (पू रोजगार): through rural employment programmes like MGNREGA
(More in pillar3)
✓ To Fight Inflation: Higher Income tax → reduces disposable income → demand
curbed, To fight deflation: Reduce direct and indirect taxes to boost demand. (More
in pillar4: Inflation)
✓ To Boost Economic Growth (आ थक कास को बढा ा दे ना): Provide income tax
benefits on household savings in LIC/Mutual Fund etc. → industries get new capital
investment → factory expansion, jobs, GDP growth. (More in pillar4: GDP)
✓ To Boost Inclusive Growth (समा ेशी कास): Higher taxes on rich → use money for
health, education, women, poverty removal programs. (More in pillar6: HDI)
✓ To Boost Regionally Balanced Growth (सभी दे शो का संतु ित कास): Give tax
benefits to industrialists for setting up factories in North East, Left-wing Extremism
(LWE) & other backward areas.
✓ Exchange Rate Stability ( नमय दर थरता): Give tax benefits to exporters to
boost exports; while impose higher taxes on imported items to reduce imports →
Current Account Deficit (CAD) controlled → ₹ :$ Exchange rate volatility controlled.
(More in pillar3)

❓MCQ. “Fiscal policy” means (UPSC-Indian-Engg-Service-2018)

a) Balancing the revenue collection and expenditure
b) Establishing equilibrium between demand and supply of goods and services
c) Use of taxation, public borrowing and public expenditure by Government for
purposes of stabilisation or development.
d) Deficiency as an instrument of growth

20.2 BUDGET (बजट): MEANING

- Budget is an annual financial statement containing estimated revenues and
expenditures for the next financial year. (अनम
ु ा नत राज और यय का ा षक ीय
र ).
- Budget is the primary tool used by Govt to implement its fiscal policy.

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20.2.1 Three Funds related to Budget

Art. ____ Incoming taxes, loans raised, loans recovered.
___ Of India सं ि न Withdrawal need Parliament Permission (- except
for Charged Expenditure like Judges’ salaries).

Art. ____ Incoming provident fund, small savings, postal

___ Of India लोक लेखा deposit etc. Govt acts like banker transferring fund
from here to there so parliament permission not
necessary. IF separate fund is to be created for the
first time, for a specific expenditure, then needs
parliament permission to “create” it e.g. Central
Road Fund Act 2000, where Road Cess on Petrol,
Diesel would be deposited.

Art. Contingency Fund Unforeseen events ₹ 500 cr by FinSecy on behalf of

___ of India President. Parliament approval is “subsequently”
आक क ा न obtained, after expenditure. Money refilled from
CFI.
❓MCQ-Prelims-2011. The authorization for the withdrawal of funds from the
Consolidated Fund of India must come from:
(a) The President of India (b) The Parliament of India
(c) The Prime Minister of India (d) The Union Finance Minister

20.2.2 Three Documents related to Budget

- Budget comes from a French word 'bougette' which means a leather bag / suitcase.
Finance Minister (FM) would keep the documents in it, & present them to the
parliament. 2019: FM Nirmala Sitharaman ended this colonial practice by presenting
the budget in a traditional four-fold red cloth ledger. CEA K.Subramanian said the
‘budget documents’ inside this red-cloth should be called “Bahi-Khata”.
- While the term ‘budget’ is not given in our constitution, but for each financial year,
the Government is required to present:
Art. _ _ Annual Financial Statement (AFS: वा षक व ीय ववरण) containing receipt
and expenditure of last year (and projections for the next year).
1) The revenue expenditure must be shown separately from other
expenditures.
2) No compulsion to show railway budget separately from general
budget.
3) No compulsion to show plan expenditure separately from non-plan.

Art. _ _ Finance Bill ( न व ेयक) to obtain Parliament's permission to collect

taxes. Parliament can reduce or abolish a tax proposed by the Govt. but
Parliament cannot increase tax beyond what Govt. has proposed in the
Finance bill.

Art. _ _ Appropriation Bill ( व नयोग व ेयक) to obtain Parliament's permission

to spend money from Consolidated Fund of India(CFI: Art 266). Such
expenditure can be of two types :
1) The expenditures ‘charged’ upon the Consolidated Fund of India e.g.
Judges salaries. They can be discussed but they are non-votable &

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automatically approved. (भार क सं ि न पर भा र यय )

2) The expenditure ‘made’ from CFI. E.g. ₹ ₹ for a scheme. They’re
discussed and voted. (भार क सं ि न से कये गए यय)

- The finance bill and appropriation bill are considered money bills ( न व ेयक)
under article _ _ _. Therefore Rajya Sabha approval is _ _ _ _ _ _ _ , at maximum
they can discuss it for 14 days and give suggestions to Lok Sabha for amendments,
but it’s not binding on the Lok Sabha to accept Rajya Sabha’s suggestions.
- Sometimes, the ruling party does not have majority in Rajya Sabha to pass other
type of ordinary bills (e.g. a bill to transfer National Housing Bank (NHB)’s
ownership from RBI to Govt. or abolishing some low-profile statutory body or
enacting some law to make Aadhar card compulsory), so ruling party packs those
ordinary bills’ proposals inside Finance Bill to get it approved without Rajya
Sabha’s obstruction.
- In such scenarios, whether a given bill is money bill or not?= _ _ _ _ _ _ _ _ _ _ _ _
_ _ ’s decision is final [Art.110(3)] and it cannot be enquired by any Court
[Art.122].

❓MCQ-Prelims-2013: What will follow if a Money Bill is substantially amended by

the Rajya Sabha?
a. The Lok Sabha may still proceed with the Bill, accepting or not accepting the
recommendations of the Rajya Sabha.
b. The Lok Sabha cannot consider the Bill further.
c. The Lok Sabha may send the Bill to the Rajya Sabha for reconsideration.
d. The President may call a joint sitting for passing the Bill.

❓MCQ-Prelims-2015: Find correct statement(s)

1. The Rajya Sabha has no power either to reject or to amend a Money Bill.
2. The Rajya Sabha cannot vote on the Demands for Grants.
3. The Rajya Sabha cannot discuss the Annual Financial Statement.
Codes: (a) 1 only (b) 1 and 2 only (c) 2 and 3 only (d) 1, 2 and 3

20.3 SIX STAGES OF PASSING THE BUDGET

The budget goes through the following six stages in the Parliament:
1. _ _ _ _ _ _ _ of budget (बजट का ु करण)
2. _ _ _ _ _ _ _ Discussion (आ बहस)
3. _ _ _ _ _ _ _ by departmental committees ( वभागीय स य वारा जांि)
4. _ _ _ _ _ _ _ on demands for grants, cut motions, guillotine. (अनद
ु ान क ांग
पर दान )
5. Passing of _ _ _ _ _ _ _ Bill ( व नयोग व ेयक का पा र होना)
6. Passing of _ _ _ _ _ _ _ Bill ( व व ेयक का पा र होना )

For more, Self-Study from Indian Polity by M.Laxmikanth’s chapter 22 on Parliament.

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20.4 VOTE ON ACCOUNT- (लेखा अनद

ु ान)
The Constitution does not mandate any specific date for presentation of the Budget, but it
is presented to the Lok Sabha on such day as the President directs.
- Before 2017, it was presented in the last working day of February. Then it’ll pass
through aforementioned six stages- consuming all the time upto May month.
- But in between, on 31st March, the financial year will be over so previous year’s
Appropriation Act’s validity will be over.
- Then government cannot withdraw money from the consolidated fund of India even for
the routine expenditure like staff salary, electricity bills.
- So, to avoid such crisis, government will put a motion for vote on account.
- Here, parliament (= practically Lok Sabha) will allow the government to spend some
money from the CFI, till the Appropriation Act for next financial year is passed.
- Vote on Account is generally granted for two months for an amount equivalent to one-
sixth of the total budget estimation.

Vote on Account is no longer necessary because

- Constitution has no compulsion to put budget on a specific date. So, from 2017, Modi
Govt. began tabling the budget on the first working day of February.
- All the six stages are completed by the last week of March.
- Appropriation bill gets passed and signed by President before completion of 31st
March. So they did not require vote on account in 2017, 2018.
- In 2019’s Interim Budget they demanded vote on account because they planned to
place full-budget after general elections.

20.5 INTERIM BUDGET (अं र बजट)

- Our constitution does not define or require interim budget.
- But, during election year or extreme situation (E.g. when coalition government may
collapse before its term) then it’s considered immoral / unethical for such Govt. to
make drastic changes through budget like “1.5 x times MSP to farmer or 2-tolaa gold
for the marriage of every BPL-girl.”
- So, while they’ll present a budget in the regular fashion i.e. 3 documents (AFS, FinBill,
Appro.Bill) & 6 Stages of Passing. But it (should) not have grand populist
announcements.
- Such budgets are called Interim Budgets, and were presented in 2004 (Yashwant S.),
2009 (Pranab M.), 2014 (Chidambaram P.) and 2019 (Piyush G.)
- Just like a Regular General Budget, an Interim budget is valid for the whole financial
year, however in between if new government is formed they may present another
budget to change the provisions.
- E.g. 2014-Feb: Chidambaram presented (interim) budget in 15th Lok Sabha, but then
UPA/Congress defeated in general election→ 2014-July: Jaitley presented (Full)
General Budget in 16th Lok Sabha.
- 2019-Feb: FM Piyush G. presented Interim budget in 16th Lok Sabha → 2019-May: Modi
won General Election → 2019-July: FM Nirmala S. presented (Full) General Budget in
17th Lok Sabha.

PS: throughout the handout, I’ve used the term “Full” budget to differentiate it from
“Interim” Budget for easier revision & visualization. But in Mains, you should use the
word ‘General Budget’, instead of Full Budget.

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