Article 266 of the Indian Constitution is fundamental to understanding how the government manages its finances. It establishes the primary government accounts where all public moneys received by or on behalf of the Government of India and the Government of each State are credited. This particular clause, Article 266(1), defines the nature and composition of the ‘Consolidated Fund’, which is the most crucial of these accounts, acting as the reservoir for the vast majority of government receipts.
The Consolidated Fund serves as the main account for the government’s financial operations. It is from this fund that all government expenditures, except for a few exceptions defined elsewhere, must be drawn. Understanding the composition of this fund is vital for comprehending government finance, parliamentary control over expenditure, and the overall financial structure of the Indian state.
Original Text
(1) Subject to the provisions of article 267 and to the provisions of this Chapter with respect to the assignment of the whole or part of the net proceeds of certain taxes and duties to States, all revenues received by the Government of India, all loans raised by that Government by the issue of treasury bills, loans or ways and means advances and all moneys received by that Government in repayment of loans shall form one consolidated fund to be entitled “the Consolidated Fund of India”, and all revenues received by the Government of a State, all loans raised by that Government by the issue of treasury bills, loans or ways and means advances and all moneys received by that Government in repayment of loans shall form one consolidated fund to be entitled “the Consolidated Fund of the State”.
Detailed Explanation
Article 266(1) lays down the foundation for the primary public account of both the Union and State governments in India: the Consolidated Fund. It explicitly defines what constitutes this fund, making it comprehensive and central to government finance.
The Article states that all revenues received by the Government of India shall form part of the Consolidated Fund of India. This includes all forms of tax revenue (income tax, corporation tax, GST, customs, excise, etc.) and non-tax revenue (fees, fines, profits from public undertakings, receipts from provision of services, etc.).
Furthermore, it includes all moneys received by the Government of India through raising loans. This encompasses various methods by which the government borrows funds, such as the issuance of treasury bills (short-term government securities), market loans (long-term borrowings), and ways and means advances (temporary overdraft facilities from the Reserve Bank of India to bridge temporary mismatches between receipts and expenditures).
Finally, any moneys received by the Government of India in repayment of loans that it had previously extended are also credited to the Consolidated Fund of India.
The Article applies the exact same principle to the States. All revenues received by the Government of a State, all loans raised by that State Government through similar instruments (treasury bills, loans, ways and means advances), and all moneys received by that State Government in repayment of loans given by it, shall form one consolidated fund for that State, known as the Consolidated Fund of the State.
The clause begins by stating that these provisions are “subject to the provisions of article 267 and to the provisions of this Chapter with respect to the assignment of the whole or part of the net proceeds of certain taxes and duties to States”. This means that while the Consolidated Fund is the primary account, Article 267 (which deals with the Contingency Fund) and provisions regarding distribution of taxes between the Union and States (like Article 269, 269A, 270) are exceptions or related concepts that interact with the operation of the Consolidated Fund.
In essence, Article 266(1) ensures that almost all financial inflows to the government – whether from taxes, borrowings, or loan recoveries – go into a single pool, the Consolidated Fund, from which all expenditures must be authorized.
Detailed Notes
- Establishes the Consolidated Fund of India for the Union government and the Consolidated Fund of the State for each State government.
- Defines the composition of the Consolidated Fund:
- All revenues received by the respective government (Union or State).
- This includes both tax revenue (income tax, corporation tax, GST share, customs, excise, etc.) and non-tax revenue (fees, fines, dividends, profits from PSUs, receipts from services, etc.).
- All loans raised by the respective government.
- Methods of raising loans include issue of treasury bills, market loans, and ways and means advances.
- All moneys received by the respective government in repayment of loans extended by it.
- Every government (Union and each State) has its own separate Consolidated Fund.
- The Article operates subject to:
- Article 267 (Contingency Fund), which is an imprest account to meet unforeseen expenditures.
- Provisions in Part XII, Chapter I related to the assignment or distribution of net proceeds of certain taxes and duties between the Union and States (e.g., Articles 269, 269A, 270). While these provisions determine who gets the revenue, once received by the Union or a State, it goes into their respective Consolidated Fund unless specifically excluded elsewhere.
- This fund is the primary account for government finance.
- No money can be withdrawn from the Consolidated Fund except by appropriation made by law (as per Article 266(3)). This ensures legislative control over executive spending.
Additional Comments
- The Consolidated Fund is the most important government account as the bulk of government transactions flow through it.
- It is distinct from the Public Account of India/State (established under Article 266(2)) and the Contingency Fund of India/State (established under Article 267).
- Money in the Public Account typically relates to transactions where the government acts as a banker, such as provident funds, small savings, remittances, etc. Withdrawals from the Public Account do not require parliamentary appropriation.
- The Contingency Fund is an emergency fund, held by the President/Governor, that allows the executive to incur expenditure without immediate legislative approval, which is later regularized.
- Parliamentary/Legislative control over government expenditure is primarily exercised through the requirement that all withdrawals from the Consolidated Fund must be authorized by law (ผ่าน the process of budget approval and appropriation bills).
- Expenditures charged upon the Consolidated Fund (like salaries of President, Speaker, judges of Supreme Court/High Courts, etc.) are non-votable in Parliament/State Legislature, though they can be discussed. Other expenditures are subject to vote.
Summary
Article 266(1) of the Indian Constitution establishes the Consolidated Fund of India and of each State as the primary repository for all government financial inflows. It mandates that all revenues received (tax and non-tax), all loans raised through instruments like treasury bills, market loans, or ways and means advances, and all moneys received in repayment of loans shall be credited to this single fund for the respective government. This article lays the foundation for legislative control over executive expenditure, as withdrawals from this fund are subject to appropriation made by law, although it operates alongside and is subject to provisions regarding the Contingency Fund and inter-governmental tax assignments. This separation and definition of funds are crucial for structured public finance management in India.