Article 266 of the Indian Constitution is a fundamental provision that governs the financial administration of both the Union and the States. It lays down the framework for the management of public funds by establishing the Consolidated Fund and the Public Account for each government. This article ensures transparency and accountability in how the government receives and spends public money, particularly by mandating legislative control over major expenditures.
This article is crucial for understanding the basic financial structure of the Indian government and the constitutional requirements for managing public finance, which is a key aspect of governance covered in the UPSC syllabus.
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”.
(2) All other public moneys received by or on behalf of the Government of India or the Government of a State shall be credited to the public account of India or the public account of the State, as the case may be.
(3) No moneys out of the Consolidated Fund of India or the Consolidated Fund of a State shall be appropriated except in accordance with law and for the purposes and in the manner provided in this Constitution.
Detailed Explanation
Article 266 establishes two primary types of accounts for the Government of India and each State Government: the Consolidated Fund and the Public Account.
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Consolidated Fund (Article 266(1)):
- This is the main account for each government (Union and State).
- Sources of money: It comprises all revenues received by the government (e.g., tax revenues like income tax, corporate tax, GST share; non-tax revenues like dividends from public sector undertakings, receipts from services rendered), all loans raised by the government (through treasury bills, market loans, ways and means advances), and all moneys received by the government in repayment of loans given by it.
- Significance: All the major receipts of the government are credited to this fund. It is the account from which all normal expenditures are met.
- Withdrawal: Article 266(3) explicitly states that no money can be withdrawn or appropriated from the Consolidated Fund of India or a State, except in accordance with a law passed by the Parliament or the State Legislature, respectively. This ensures legislative control over the executive’s spending power, making it accountable to the representatives of the people. The process involves the annual budget, followed by the passage of an Appropriation Bill, which, upon becoming an Act, authorises the government to withdraw specified sums for specified purposes.
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Public Account (Article 266(2)):
- This account holds all other public moneys received by or on behalf of the Government of India or a State Government, which are not credited to the Consolidated Fund.
- Sources of money: These typically include funds that the government receives not as revenue or through borrowing, but rather as a custodian or trustee. Examples include provident fund deposits, small savings collections (like post office savings), judicial deposits, departmental deposits, etc.
- Significance: Money in the Public Account does not belong to the government in the same way as the money in the Consolidated Fund. It is often money held by the government for specific individuals or entities or for specific purposes.
- Withdrawal: Unlike the Consolidated Fund, withdrawals from the Public Account are generally not subject to the vote of Parliament or the State Legislature. These disbursements are made based on executive action, as the money is typically received under specific schemes or rules that govern its withdrawal. However, accountability is maintained through proper accounting and auditing.
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Appropriation Requirement (Article 266(3)):
- This clause reinforces the principle of parliamentary/legislative control over government finances.
- It mandates that any expenditure or withdrawal from the Consolidated Fund must be authorised by a law. This law is typically the annual Appropriation Act (or Acts).
- The law must specify the purposes for which the money is appropriated and must be in accordance with the procedures laid down in the Constitution (e.g., articles related to financial bills, budget process).
Article 266(1) is explicitly made subject to Article 267 (Contingency Fund) and other provisions of Part XII concerning the assignment of tax/duty proceeds to States, indicating that while the Consolidated Fund is the primary repository, there are specific provisions for other funds and distribution of revenues.
Detailed Notes
- Article 266 deals with the Consolidated Fund and the Public Account of India and of each State.
- Consolidated Fund (Article 266(1)):
- Established for the Government of India and each State Government.
- Receives all government revenues (tax and non-tax).
- Receives all loans raised by the government (treasury bills, market loans, ways and means advances).
- Receives all moneys received by the government in repayment of loans given by it.
- All major receipts of the government flow into this fund.
- Public Account (Article 266(2)):
- Established for the Government of India and each State Government.
- Receives all other public moneys not credited to the Consolidated Fund.
- Includes provident funds, small savings, judicial deposits, etc.
- Money held by the government in trust or as a custodian.
- Withdrawal/Appropriation (Article 266(3)):
- No money can be withdrawn from the Consolidated Fund without a law passed by Parliament (for India) or the State Legislature (for a State).
- This legislative authorization typically comes through an Appropriation Act passed after the budget is approved.
- Withdrawals from the Public Account are generally not subject to legislative vote; they are managed by executive action under relevant rules.
- Article 266(1) is subject to Article 267 (Contingency Fund) and other provisions regarding revenue sharing with States (Part XII).
- The Consolidated Fund is the primary reservoir of government finances, while the Public Account holds moneys received by the government in a capacity other than revenue or borrowing.
- The requirement for legislative sanction for withdrawals from the Consolidated Fund ensures financial control and accountability of the executive to the legislature.
Additional Comments
- The distinction between the Consolidated Fund and the Public Account is crucial for understanding government finance. Money in the Consolidated Fund belongs to the government, while money in the Public Account is essentially held by the government for specific purposes or persons.
- Expenditures charged upon the Consolidated Fund (e.g., salaries of President, Supreme Court judges, CAG) are not subject to the vote of Parliament, though they can be discussed. These expenditures are included in the Appropriation Act but do not require legislative approval for the amount itself, only for withdrawal.
- The budget process involves estimating receipts and expenditures, which primarily relate to the Consolidated Fund.
- The Controller and Auditor General (CAG) audits both the Consolidated Fund and the Public Account to ensure financial accountability.
- Article 267 establishes a Contingency Fund, which is an imprest fund managed by the executive (President or Governor) to meet unforeseen expenditures pending legislative authorisation. This is an exception to the rule under Article 266(3).
Summary
Article 266 of the Indian Constitution establishes the two main accounts for handling government finances: the Consolidated Fund and the Public Account, for both the Union and the States. The Consolidated Fund is the primary account receiving all government revenues, loans raised, and loan repayments. No money can be withdrawn from the Consolidated Fund without legislative authority granted through a law, typically the annual Appropriation Act. The Public Account holds all other public moneys, such as provident funds and deposits, which are not subject to legislative vote for withdrawal and are managed by executive action. This article ensures a structured framework for government financial transactions and mandates legislative control over major expenditures from the Consolidated Fund, ensuring accountability.