How much has the U.S. government spent this year?
The U.S. government has spent $ NaN billion in fiscal year to ensure the well-being of the people of the United States.
Fiscal year-to-date (since October ) total updated monthly using the Monthly Treasury Statement (MTS) dataset.
Compared to the federal spending of $ 0 billion for the same period last year ( Oct -1 - Invalid Date null ) our federal spending has by $ 0 billion .
The federal government spends money on a variety of goods, programs, and services to support the American public and pay interest incurred from borrowing. In fiscal year (FY) 0, the government spent $, which was than it collected (revenue), resulting in a .
The U.S. Constitution gives Congress the ability to create a federal budget – in other words, to determine how much money the government can spend over the course of the upcoming fiscal year. Congress’s budget is then approved by the President. Every year, Congress decides the amount and the type of discretionary spending, as well as provides resources for mandatory spending.
Money for federal spending primarily comes from government tax collection and borrowing. In FY 0 government spending equated to roughly $0 out of every $10 of the goods produced and services provided in the United States.
Federal Spending Overview
The federal government spends money on a variety of goods, programs, and services that support the economy and people of the United States. The federal government also spends money on the interest it has incurred on outstanding federal debt . Consequently, as the debt grows, the spending on interest expense also generally grows.
If the government spends more than it collects in revenue , then there is a budget deficit. If the government spends less than it collects in revenue, there is a budget surplus. In fiscal year (FY) , the government spent $ , which was than it collected (revenue), resulting in a . Visit the national deficit explainer to see how the deficit and revenue compare to federal spending.
Federal government spending pays for everything from Social Security and Medicare to military equipment, highway maintenance, building construction, research, and education. This spending can be broken down into two primary categories: mandatory and discretionary. These purchases can also be classified by object class and budget functions .
Throughout this page, we use outlays to represent spending. This is money that has actually been paid out and not just promised to be paid. When issuing a contract or grant, the U.S. government enters a binding agreement called an obligation. This means the government promises to spend the money, either immediately or in the future. As an example, an obligation occurs when a federal agency signs a contract, awards a grant, purchases a service, or takes other actions that require it to make a payment. Obligations do not always result in payments being made, which is why we show actual outlays that reflect actual spending occurring.
To see details on federal obligations, including a breakdown by budget function and object class, visit USAspending.gov .
The U.S. Treasury uses the terms “government spending,” “federal spending,” “national spending,” and “federal government spending” interchangeably to describe spending by the federal government.
According to the Constitution’s Preamble, the purpose of the federal government is “…to establish Justice, insure domestic Tranquility, provide for the common defense, promote the general Welfare, and secure the Blessings of Liberty to ourselves and our Posterity.” These goals are achieved through government spending.
The federal budget is divided into approximately 20 categories, known as budget functions. These categories organize federal spending into topics based on their purpose (e.g., National Defense, Transportation, and Health).
What does the government buy?
The government buys a variety of products and services used to serve the public - everything from military aircraft, construction and highway maintenance equipment, buildings, and livestock, to research, education, and training. The chart below shows the top 10 categories and agencies for federal spending in FY .
Visit the Monthly Treasury Statement (MTS) dataset to explore and download this data.
For more details on U.S. government spending by category and agency, visit USAspending.gov’s Spending Explorer and Agency Profile pages.
The Difference Between Mandatory, Discretionary, and Supplemental Spending
Who controls federal government spending.
Government spending is broken down into two primary categories: mandatory and discretionary. Mandatory spending represents nearly two-thirds of annual federal spending. This type of spending does not require an annual vote by Congress. The second major category is discretionary spending. The difference between mandatory and discretionary spending relates to whether spending is dictated by prior law or voted on in the annual appropriations process. Another type of appropriation spending is called supplemental appropriations , in which spending laws are passed to address needs that have arisen after the fiscal year has begun.
Mandatory spending, also known as direct spending, is mandated by existing laws. This type of spending includes funding for entitlement programs like Medicare and Social Security and other payments to people, businesses, and state and local governments. For example, the Social Security Act requires the government to provide payments to beneficiaries based on the amount of money they’ve earned and other factors. Last amended in 2019, the Social Security Act will determine the level of federal spending into the future until it is amended again. Due to authorization laws, the funding for these programs must be allocated for spending each year, hence the term mandatory.
Discretionary spending is money formally approved by Congress and the President during the appropriations process each year. Generally, Congress allocates over half of the discretionary budget towards national defense and the rest to fund the administration of other agencies and programs. These programs range from transportation, education, housing, and social service programs, as well as science and environmental organizations.
Supplemental appropriations, also known as supplemental spending, are appropriations enacted after the regular annual appropriations when the need for funds is too urgent to wait for the next regular appropriations. In 2020, Congress passed four supplemental appropriations to aid the nation’s recovery from the COVID-19 pandemic. You can explore the spending related to these supplemental appropriation laws in USAspending.gov’s COVID-19 Spending Profile page.
Spending Trends Over Time and the U.S. Economy
The federal government spent $ in FY . This means federal spending was equal to of the total gross domestic product (GDP), or economic activity, of the United States that year. One of the reasons federal spending is compared to GDP is to give a reference point for the size of the federal government spending compared with economic activity throughout the entire country.
How has spending changed over time? The chart below shows you how spending has changed over the last years and presents total spending compared to GDP.
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Common budgetary terms explained.
This guide briefly explains—in plain language—the differences between some common budgetary terms. (For detailed definitions, see CBO’s Glossary .)
What’s the Difference Between . . .
. . . budget authority, obligations, and outlays.
Budget authority, obligations, and outlays are related terms that describe the funds provided, committed, and used for a program or activity.
Often called funding, budget authority is the amount of money available to a federal agency for a specific purpose. The authority to commit to spending federal funds is provided to agencies by law. The amount of budget authority provided can be specific—such as when the Congress provides a set amount for a program or activity—or indefinite. For example, the federal crop insurance program uses indefinite budget authority to provide insurance products to farmers and ranchers at subsidized rates.
Once budget authority has been provided for a given purpose, an agency can incur an obligation —a legally binding commitment. For example, the Department of Defense incurs an obligation when it enters into a contract to purchase equipment. Often, the funds must be obligated within a specified period—typically one or several years—although some funds are available indefinitely. If funds are not obligated within the specified period, they expire (or lapse) and are no longer available for use.
In general, outlays occur when a federal agency issues checks, disburses cash, or makes electronic transfers to liquidate (or settle) an obligation. That occurs, for example, when a federal agency deposits grant funds into recipients’ accounts or the Social Security Administration disburses payments to beneficiaries. (For more information about how the Congressional Budget Office estimates outlays, see CBO’s Waterfall Model for Projecting Discretionary Spending, March 2021 .)
. . . Authorization Acts and Appropriation Acts?
Authorization acts and appropriation acts provide the legal authority for the government to operate and fund programs or activities.
Authorization acts establish or continue the authority for agencies to conduct programs or activities. Such laws delineate a program’s terms and conditions—often, its duration and eligibility rules. When an authorization act provides funding directly from the Treasury (so that the program does not require an annual appropriation), that amount is classified as mandatory spending.
Other authorization laws establish or continue discretionary programs, which receive their funding in appropriation acts. Those authorization laws may include language such as “there is authorized to be appropriated [a certain amount of money],” indicating that any funding for the program must be provided in subsequent appropriation acts. (For more information, see Expired and Expiring Authorizations of Appropriations: Fiscal Year 2021 .)
Appropriation acts make funding available to federal programs and activities by providing budget authority to federal agencies, usually by specifying an amount of money for a given fiscal year. In the absence of an authorization act, an appropriation act—by providing funding—can also authorize agencies to operate a program or to undertake an activity. The Congress may consider multiple regular appropriation bills in a given year or provide all discretionary appropriations in one omnibus bill. When regular appropriations are not in place by October 1, the start of the fiscal year, a continuing resolution can be enacted to provide temporary budget authority for a specified period, typically in amounts equal to appropriations for the previous year.
The Congress can also supplement regular appropriations that have already been enacted. In 2020, for example, lawmakers enacted four laws that provided supplemental appropriations in response to the coronavirus pandemic to give financial assistance to individuals, businesses, and other entities.
. . . Discretionary and Mandatory Spending?
The labels discretionary and mandatory identify the process by which the Congress provides funds for federal programs or activities. The distinction is generally made at the time a law creates a program or provides authority to undertake an activity. The Congressional rules and statutory procedures that govern budget enforcement differ for those two types of spending.
Discretionary spending results from budget authority provided in appropriation acts. (A few mandatory programs are also funded through appropriation acts; those programs are discussed below.) Through the appropriation process, the Congress decides on the amount of funding for a program (such as veterans’ health care) or an activity (such as collecting entrance fees at national parks). Administrative costs—to pay salaries, for example—are usually covered through those appropriations.
As a share of all federal outlays, discretionary spending has dropped from 60 percent in the early 1970s to 30 percent in recent years. Almost all defense spending is discretionary, and about 15 percent of pandemic-related spending was classified as discretionary.
Although statutory limits (often referred to as caps) on most types of discretionary budget authority were in place in many years, none are in effect now. The Budget Control Act of 2011 established caps for fiscal years 2012 to 2021; no caps were established for subsequent years.
Mandatory spending (also called direct spending) consists of outlays for certain federal benefit programs and other payments to individuals, businesses, nonprofit institutions, and state and local governments. That spending is generally governed by statutory criteria and, in most cases, is not constrained by the annual appropriation process. Social Security, Medicare, and Medicaid are the three largest mandatory programs.
Funding amounts for a mandatory program can be specified in law or, as is the case with Social Security, determined by complex eligibility rules and benefit formulas. The authorization laws that specify the amount of funding for mandatory programs may use language such as “there is hereby appropriated [a particular amount of money].”
Funding for some mandatory programs—for example, the Supplemental Nutrition Assistance Program, veterans’ disability compensation and pensions, and Medicaid—is appropriated annually. Spending on those programs is called appropriated mandatory spending. Those programs are mandatory because authorization acts legally require the government to provide benefits and services to eligible people or because other laws require that they be treated as mandatory; however, appropriation acts provide the funds to the agencies to fulfill those obligations.
As discretionary spending’s share of total federal spending has declined, mandatory spending’s share has grown, from about 30 percent in the early 1970s to 60 percent in recent years. The remaining 10 percent of total federal outlays consists of net spending on interest (primarily interest payments on the federal debt).
Under the Statutory Pay-As-You-Go Act of 2010 (often called S-PAYGO), the Congress established budgetary reporting and enforcement procedures for legislation that affects mandatory spending or revenues. That act can trigger across-the-board cuts in funding (known as sequestration) for mandatory programs. (For more information, see The Statutory Pay-As-You-Go Act and the Role of the Congress .)
. . . Rescissions and Reappropriations?
Rescissions and reappropriations are used by the Congress to change the availability of unused (that is, unobligated) budget authority.
Rescissions cancel previously provided budget authority before it expires under current law.
Reappropriations extend the originally specified period of availability for unused budget authority that has expired or that would otherwise expire. Generally, that reappropriated budget authority is for the originally stated purpose, but sometimes it can be used for a different purpose.
. . . Cash Accounting, Accrual Accounting, and Fair-Value Accounting?
Cash, accrual, and fair-value accounting are ways to estimate and record the cost of government activities in the federal budget. Those methods differ in terms of when the commitment or the collection of budgetary funds is recorded in the budget and whether they measure the market value of the government’s obligations. (For more information, see How CBO Produces Fair-Value Estimates of the Cost of Federal Credit Programs: A Primer and Cash and Accrual Measures in Federal Budgeting .)
Cash accounting records costs when payments are made and revenues when receipts are collected. Most spending in the federal budget is recorded on a cash basis.
Accrual accounting records costs when goods are received or services are performed (rather than when they are paid for) and revenues when they are earned (rather than when actual payments are received). Under that accounting method, the estimated cost of budgetary activities is the sum of all cash flows associated with that activity, expressed in a single number called a present value. The present value depends on the rate of interest, known as the discount rate, that is used to translate future cash flows into current dollars. (Interest on the public debt is recorded on an accrual basis but not as a discounted present value.)
The Federal Credit Reform Act of 1990 (or FCRA) requires the costs of federal credit programs—namely, the costs of the government’s direct loans and loan guarantees—to be recorded as a present value at the time a loan is made. FCRA also requires the discount rate to be the interest rate on Treasury securities with the same term to maturity as the associated cash flow. For example, cash flows in the second year of a federal loan or loan guarantee are discounted using two-year Treasury rates. Federal credit programs include certain housing programs, postsecondary education loans, commercial loans, and loans to small businesses.
Like FCRA accounting, fair-value accounting is a form of accrual accounting, but it uses market prices to measure the costs of loans and loan guarantees. Fair-value accounting reflects the fact that the government’s risk of loss from defaults on loans tends to increase when the economy is weak. Current and future generations bear the costs of such losses, which can result in higher taxes, reductions in spending, or larger debt. Although FCRA accounting is required by law to be used for recording outlays in the budget, fair-value accounting can be used to analyze credit programs, insurance programs, and retirement benefits. In general, the fair-value cost that private institutions would assign to credit assistance on the basis of market prices is greater than the cost reported in the federal budget under FCRA procedures.
. . . Revenues, Offsetting Collections, and Offsetting Receipts?
Revenues, offsetting collections, and offsetting receipts are funds received by the federal government for various purposes and activities. Those funds are designated in the budget either as governmental receipts (revenues) or as reductions in spending (offsetting collections and offsetting receipts). The implications of those designations for legislative and budget processes differ.
Revenues are funds that the federal government collects from the public using its sovereign power. About 90 percent of federal revenues come from individual income taxes, corporate income taxes, and social insurance taxes (which fund Social Security, Medicare, and other social insurance programs). Other sources include excise taxes, estate and gift taxes, duties on imported goods, remittances from the Federal Reserve, and various fees and fines.
Offsetting collections and offsetting receipts are funds that government agencies receive from the public and from other federal agencies (in what are known as intragovernmental transactions) for businesslike or market-oriented activities. Both are shown in the budget as offsets to spending (that is, as negative budget authority and outlays).
Offsetting collections are used for specific spending programs and are credited to the accounts that record outlays for such programs. For example, the U.S. Fish and Wildlife Service issues permits to import or export some species of game animals. The fees for the permits are considered offsetting collections because they cover program costs. (The authority for the agency to spend the fees is granted in annual appropriation acts . ) Similarly, the money that the Department of Defense collects from sales at military commissaries is used to cover operating expenses.
Offsetting receipts are recorded in stand-alone accounts that are separate from spending accounts. Such receipts are not automatically available for an agency to spend but are generally considered to offset mandatory spending. The largest offsetting receipts are Medicare premiums. In addition, much of the income generated from federal oil and gas leases is counted as offsetting receipts, as are the intragovernmental transfers from agencies’ accounts to the civil service and military retirement trust funds. (Because those transfers are recorded as outlays by the agencies and as offsetting receipts to the trust funds, they have no net effect on the deficit.)
. . . Deficit and Debt?
The amount by which government outlays exceed revenues in a fiscal year is the deficit . Because the government borrows to finance deficits, a deficit adds to federal debt —the total amount borrowed by the government at a given point in time. Alternatively, a surplus exists when revenues exceed outlays; a surplus reduces federal debt.
Federal debt can be defined in several different ways. Two common measures of the amount that the federal government owes are debt held by the public and gross debt . (For more information, see Federal Debt: A Primer . )
Debt held by the public is the measure used most often in CBO’s reports on the budget. It is the amount that the government owes to other entities (such as individuals, corporations, state or local governments, the Federal Reserve Banks, and foreign governments). It consists mostly of IOUs in the form of securities—the bills, notes, and bonds that the Treasury issues to fund government operations.
Debt held by the public is the amount that the government has borrowed over time to finance the costs of programs and activities that revenues were insufficient to cover. Thus, it largely reflects the total cumulative deficit that the government has incurred. (To a lesser degree, that debt reflects other factors, such as the cumulative net cash disbursements for credit programs and the cash balances held by the government.)
Gross debt is debt held by the public plus intragovernmental debt, which is the amount that the government owes to its own accounts, primarily the trust funds for Social Security, Medicare, military retirement, and civil service retirement. When those programs’ collections exceed their spending, the Treasury uses the surplus cash flows to fund other federal activities, and the trust funds are credited with a corresponding amount of Treasury securities.
Intragovernmental debt is not a meaningful benchmark for future costs of benefits because it represents the cumulative total of the difference between a program’s past collections and expenditures. An increase in intragovernmental debt means that the programs credited with Treasury securities are running a surplus—the larger the intragovernmental debt, the bigger the cumulative surplus. The intragovernmental debt held by the Social Security trust funds is projected to decrease as the aging of the population and slow growth in the workforce cause the funds’ outlays to outpace their collections; the amounts in the trust funds will be insufficient to cover that projected gap between their collections and outlays in future decades.
Nearly all gross debt is constrained by a statutory debt limit—commonly referred to as the debt ceiling.
To make comparisons of deficits and federal debt over time, CBO typically measures them as a percentage of gross domestic product (or GDP)—the total market value of all goods and services produced domestically in a given period.
. . . On-Budget and Off-Budget?
Most public discussion and reports about the budget address the unified budget, which encompasses all the activities of the federal government. For certain budget enforcement purposes, budget accounts are divided into two categories: on-budget and off-budget . Under federal law, the budget authority, outlays, and revenues of most programs are on-budget —that is, they are included in budget totals—and on-budget activities are subject to the normal budget process and to budget enforcement procedures.
The revenues and outlays of the Social Security trust funds and transactions of the Postal Service are classified as off-budget . Most activities for those programs are not subject to caps, sequestration, or reporting and enforcement procedures under S-PAYGO. The budget resolution (the Congress’s budget plan) generally excludes off-budget programs.
. . . Cost Estimates, Dynamic Analysis, and Scorekeeping?
Cost estimates, dynamic analysis, and scorekeeping are used by the legislative and executive branches to measure and track the budgetary effects of legislation—that is, the changes in federal outlays, revenues, and deficits that result from enacting a particular piece of legislation.
Cost estimates explain how legislation would change federal spending and revenues over the next 5 or 10 years in relation to CBO’s projections of budgetary outcomes under current law. When CBO prepares estimates, it considers a range of responses that people or businesses might have to legislation and accounts for the possible budgetary effects of those responses. For example, a cost estimate for a bill that would raise or lower coinsurance for Medicare could change the number of people who chose to receive health care. As a result, CBO’s estimate of spending for that program could rise or fall in relation to the agency’s projection of such spending under current law.
CBO is required by law to produce a formal cost estimate for nearly every bill that is approved by a full committee of either the House or the Senate. The agency may, on occasion, produce estimates at other points in the legislative process. Cost estimates are advisory only. The Congress can use them to enforce budgetary rules and targets. (For more information, see How CBO Prepares Cost Estimates .)
Dynamic analysis incorporates the same kind of information found in conventional cost estimates but also includes CBO’s assessments of budgetary feedback—that is, the changes in spending and revenues caused by the changes in the nation’s economic output that would result from enacting the legislation. Although some major legislative proposals could significantly affect the economy—by affecting consumer prices or the labor supply, for example—most would not. By long-standing convention, CBO’s cost estimates typically do not account for the possible effects of legislation on GDP. Occasionally, however, the Congress asks CBO to provide a dynamic analysis of proposed legislation.
Scorekeeping is the process of developing and recording consistent measures of the budgetary effects of proposed and enacted legislation. Cost estimates are a tool used in that process. The scorekeeping process is governed by law, precedent, and rules. It addresses jurisdictional boundaries between authorization and appropriation acts and preserves the distinctions among the major budgetary categories—mandatory spending, discretionary spending, and revenues—by using different rules and procedures to analyze legislation’s effects on them. A key purpose is to attribute budgetary effects to the legislation that causes them so that rules and procedures established by the Congress for budget enforcement can be applied. (For more information, see CBO Explains Budgetary Scorekeeping Guidelines .)
. . . Calendar Year and Federal Fiscal Year?
The terms calendar year and federal fiscal year describe periods in which funds are made available or spent, changes are made to certain benefit amounts, and taxes are assessed or collected.
Calendar years begin on January 1 and end on December 31. Although most federal programs operate on a fiscal year basis, some aspects of programs are set to the calendar year. Cost-of-living adjustments for Social Security and other programs, for example, are set on a calendar year basis. In addition, individual income taxes are levied on a calendar year basis, and economic data are typically reported for calendar years.
Federal fiscal years run from October 1 to September 30 and are designated by the calendar year in which they end: Fiscal year 2021 began on October 1, 2020, and ended on September 30, 2021. Funding for federal programs is provided on a fiscal year basis, and federal budget data and CBO’s cost estimates and budget projections identify spending and revenues by fiscal year.
This document is part of the Congressional Budget Office’s efforts to promote wider understanding of its work. In keeping with CBO’s mandate to provide objective, impartial analysis, it makes no recommendations.
Kathleen FitzGerald, Ann E. Futrell, Susanne Mehlman, and Emily Stern prepared the report with assistance from Avi Lerner and with guidance from Theresa Gullo, Leo Lex, and Sam Papenfuss. Kate Kelly provided technical assistance. Nathaniel Frentz, Kathleen Gramp, John McClelland, and David Torregrosa of CBO offered comments, as did Kim P. Cawley and Jim Hearn, both formerly of CBO.
Jeffrey Kling and Robert Sunshine reviewed the report. Bo Peery edited it, and R. L. Rebach designed the layout and prepared the text for publication. This document is available at www.cbo.gov/publication/57420 .
CBO seeks feedback to make its work as useful as possible. Please send comments to [email protected] .
Phillip L. Swagel
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What Is Budget Allocation and How to Allocate Budget Correctly
If you want to pave a path toward sustainable growth, you need to embrace agility and proactivity — and one way to do that is by improving budget allocation processes. Learn how more effective budget allocation creates a path for agile, strategic spend management decisions.
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Your budgeting process requires strong collaboration from department heads and executive leadership. Yet if you’re only going to each department once, asking them what they need, and simply saying, “Here you go” once you get executive approval, then you haven’t done enough testing around your top-line goal metrics.
If you want to pave a path toward sustainable growth, you need to embrace agility and proactivity — and one way to do that is through budget allocation. Running a budget variance analysis and rolling forecast helps you set baselines and growth goals, but these processes can still take weeks to gather and manipulate data from multiple departments and source systems.
Here, we explore how quarterly budget allocation creates a path for more agile, strategic planning and spend.
Table of Contents
What Are Budget Allocations?
Budget allocations refer to the amount of money each department receives from the general fund to execute their strategic plans. Budget allocation breaks department spend down into an approved maximum amount each department can spend per resource, whether it’s on software, contractor or freelance assistance, or ad spend for a marketing campaign.
The Importance of Allocating Budgets
Budgeting, at its core, is an optimization and constraint problem. You need to optimize operational efficiency yet understand your constraints to ensure ample runway and team support as you track the company’s growth trajectory.
You dictate the company roadmap based on expected return on investment (ROI), which has to tie out at the department level. The R&D department is integral for Seed and Series A companies, yet once the product is ready to launch, you want to allocate budget to your sales and marketing teams. Once the budget goes toward sales and marketing, and you begin acquiring customers, you now have new constraints that impact your budget: your customer acquisition cost (CAC), CAC payback period , and your annual recurring revenue (ARR).
Budget allocation fuels overall efficiency, in that department leaders don’t need to ask for approval to expense individual tools, assign projects to freelancers, or add seats for software. By allocating budget to general categories, each department can cherry-pick when and how to apply the budget. Of course, departments need to ensure they use their budget. While saving money is generally seen as positive, departments may not receive the same budget allotment in the next cycle — which may be detrimental to department-level goals and planning.
If departments experience strain, such as requiring more seats on a specific tool or running into production issues, you run into employee retention issues that stem from operational efficiency and satisfaction. To hire more employees costs more, which digs into your runway. By keeping an eye on your goals and constraints, you can then proactively figure out where you’ll get the highest ROI.
How to Optimize Budget Allocations in 6 Steps
Knowing your startup costs (for each employee and desk space), fixed costs, and variable costs and how they impact your total budget is one thing — but to optimize budget management and allocation requires ample cross-collaboration to keep goals top of mind and realistic.
Your budget allocation strategy will depend on your industry, your growth stage, and overall macroeconomic environment. But here’s how you can optimize your budget allocation with more strategic and agile decision-making from everyone involved regardless of stage.
1. Set Company Goals and Priorities
While knowing your total budget is technically the first step, the real strategic insights begin with a simple question: What are your North Star metrics?
Naming your company goals and priorities is the key to driving how you think about and create departmental budgets across the company.
In ideal market conditions, many executive leaders say that their top priority is to grow at all costs. Yet during a market downturn, priorities shift toward keeping a closer eye on burn and preserving runway. Depending on how those priorities shake out, there’s two ways to approach budgeting:
- Growth goals: A focus on growth goals requires high confidence in achieving them. Your growth goal is the starting point, then you work backwards to allocate your budget to achieve that goal. A focus on top-line revenue growth leads to creating a sales and marketing budget around cost per lead and win rates/conversions. The question becomes “How much do I have to spend in order to get this growth goal?” which then spits out your sales and marketing budget.
- Capital efficiency : A more conservative approach begins by asking, “How much can I spend in order to only burn X number of dollars a month, or to make sure I have runway for 24 months into the future?” You can also focus on a certain set of unit economics, meaning you’d build your budget to hit a particular CAC number or set a payback period within a particular period of time.
Regardless of your approach, tying your budget back to goals (i.e. strategic budgeting ) and target metrics is critical. If you believe growth goals are most important, for example, then your ROI on spending additional sales and marketing dollars could be higher than hiring a different engineer where you may have a longer-term payoff.
2. Set Your Constraints
Your goals establish whether you’re approaching budget allocations from a bottom-line or top-line growth perspective. Utilizing both allows you to gain a sense of customer retention (with your top line) alongside expenses (bottom line), which helps you strike the right balance or priorities. Applying constraints to your goals allows you to set realistic expectations.
Company-wide, you want to keep an eye on runway and burn multiple. Yet when diving deeper into department budgets, you’ll need to focus on different metrics. For example, CAC payback period impacts your sales and marketing budget.
Your CAC payback period sets a precedent for how long potential customers stay in the sales funnel. Incorporating sales funnel metrics into this equation provides invaluable insights — and setting constraints around your payback period requires sales and marketing to scrutinize and optimize these metrics within the funnel.
3. Check Your Goals Around Budget Allocation Benchmarks
Your company’s growth stage impacts where your goals and constraints stay relevant and applicable to ensure strategic growth. OpenView runs a SaaS Benchmarks Survey that explores budgetary benchmarks in correlation with your growth stage. Here’s their chart from 2021:
OpenView SaaS Benchmarks Survey 2021 Results, courtesy of Curtis Townshend , Senior Director of Growth at OpenView.
The top row indicates the stage of the business per million dollar revenue. The numbers in bold represent a median, with percentages assigned for how much each company would allocate per category. For example, a company with $1-2.5 million in revenue would allocate 30% of their budget to sales and marketing and 40% in R&D, while aiming for 75% in gross margins.
While the above table does not mention a ratio for general and administrative costs , the standard spend for SaaS companies is about 10-12% of your total budget.
After you establish your goals and constraints to ensure financial efficiency , you can approach your budget and measure against these benchmarks.
4. Establish Your Headcount Plans
Headcount accounts for 70% of overall company spend in SaaS, and each department has different ROI.
Sales and marketing headcount should directly produce returns — but to drive the sales and marketing machine, you need to continuously spend. You need to ensure you have a strong control and understanding of your product-market fit to keep the engine running. If the company is not at the point of understanding the output of each dollar spent across the sales funnel, the budget should focus on product or internal system process data.
Work closely with human resources partners to decide how much to set aside for workforce growth in every department. Decide how many full-time hires you’ll need in the next budget year, where it might be appropriate to hire out to contractors, and where your stakeholders need the most help.
5. Conduct Scenario Planning with Mosaic
Optimizing budget allocation helps you optimize ROI of operational initiatives by forcing you to constantly check where you think you’ll get the most out of your dollars and how that spend relates to company-level goals.
Mosaic’s financial modeling and scenario planning tool integrates with your source systems to offer scenario analysis that elevates the strategy behind your budget allocation. Scenario analysis examples include looking at how cutting a fixed cost (like office space) impacts your runway, or how your product release plan may hinge on engineer headcount or come down to asking, “ How much should you spend on ads to promote the product — and when?”
Being able to quickly see how adjustments to specific budgets affects your downstream metrics is extremely helpful. Mosaic syncs in real time so you can easily integrate your historical and actual data into your scenarios. If you want to see how increasing spend by $500,000 impacts your sales and marketing budget, you can simply apply the change in one model to see how it affects your CAC, CAC payback, burn multiple, and other key metrics.
You don’t need to build entirely new models or scenarios — instead, you can tweak your budget assumptions in different scenarios and see the immediate downstream effects on the metrics that you want to employ as your constraints.
Keep in mind that your strongest models align on two or three metrics: Too many inputs leads to an overlap in ideology, which causes clutter and slows you down.
6. Make Cross-Department Collaboration a One-Stop Shop
The budgeting process is notorious for multiple Excel sheets and communication across multiple emails or Zoom meetings. Mosaic allows you to create department-level dashboards that align leaders and give them one place to stay updated on budget allocation and spend.
Department leaders can look at a graph or table in Mosaic’s variance analysis software to see where their budget currently is and where it was spent. Mosaic can immediately generate a budget analysis that allows them to make strategic decisions on what they want to do with their remaining budget or where they need to cut back to hit their budget for the month or quarter.
Mosaic also allows reports to be easily accessible for department leaders. Since Mosaic offers real-time updates, finance teams can help establish one report that automatically updates so department leaders can make plans with actual numbers. This leads to not just saving time between going back and forth to establish numbers, but more proactive decision-making that keeps leader engagement high into understanding the “why” behind their budgeting line items.
Focus more on telling the story behind your numbers with this Financial Waterfall Template Bundle.
When to review budget allocations — and why you’re not doing it enough.
A “one and done” annual budget process doesn’t work for high-growth companies. A more adaptable or flexible budget approach is essential, especially for those experiencing rapid changes. Keeping it to even twice a year causes everyone to miss out on key drivers for overall success. Proactive budget development should happen at least on a quarterly schedule, where you can change resource allocation based on historical data from the previous year to last quarter.
While establishing a quarterly financial plan review is good in practice, you also need to allow for some flexibility. Here are some other reasons to perform financial audits on budget allocation:
- Macroeconomic events. Anything from a market downturn or industry collapse signals immediate action. Budget allocation should transition into a monthly schedule to stay as ahead as possible.
- Not hitting topline goals. You may need to redistribute your budget to ensure you get as high of an ROI as possible. You may need to allocate more budget toward supporting sales and marketing than hiring another engineer, for example.
- Runway cost. If you predict that you’ll burn $5 million, but realize that headcount needs to increase in the second half of the year, you need to factor that cost in. You also need to keep track of your burn and when it occurs: If it increases from $2 to $3 million in one month due to headcount, you carry this cost throughout the rest of the year. You can then take budget away to make up the costs — it’s much harder to try and get the budget back once people start spending it.
- Capital efficiency metrics are off. Analyzing capital efficiency metrics like burn multiple on a regular basis can help you proactively address inefficiencies in the business. Drill down into your expenses and see how you can reevaluate spend.
Embrace a Smarter Way to Allocate Budgets with Mosaic
Mosaic offers preloaded, out-of-the-box metrics, templates, and dashboards that allow you to cut the budget allocation and planning process from two weeks to two days. Mosaic offers a SaaS acquisition metrics dashboard that considers CAC and CAC payback alongside other important metrics, like your SaaS magic number , to gain granular insights that craft your company’s growth narrative. You can also customize financial reports to include other key metrics, such as your burn multiple and runway, to help establish and keep your benchmarks in mind.
With Mosaic, budget planning can be a quicker, more collaborative, strategic process that keeps your company moving along toward its goals. Request a personalized demo today .
Budget allocation FAQs
Why is budget allocation important.
Understanding your budget allocations and appropriations can help your company maximize ROI. Knowing where your money goes ahead of time reduces discretionary spending and leaves a strategic roadmap for spending and expenditures . And, since this is done ahead of time, departments can run more efficiently on their allocated budget.
What is an example of a budget allocation?
An example of budget allocation is a predetermined percentage of company funding that goes to research and development, or sales and marketing. This can be done monthly, per quarter, or per fiscal year . The percentage of the allocated budget is based on importance, productivity, company profits, and other considerations. If the department needs more funding, they can submit a budget request , but ultimately, the budget allocation should be taken care of beforehand.
What is the best way to allocate your budget?
There’s no one-size-fits-all answer here. To optimize your budget allocation you need to proactively and periodically review how you’re allocating resources and reassess your priorities. What are your goals? What are your budget constraints? What ROI are you getting on your current allocations? These are all questions you need to ask in collaboration with different teams and departments to ensure your budgets are allocated properly at all times.
The latest mosaic insights, straight to your inbox, own the of your business.
National Priorities Project
Fighting for a U.S. federal budget that prioritizes peace, economic security and shared prosperity
Federal Spending: Where Does the Money Go
Federal budget 101.
The total federal budget of the United States has recently run about $4 trillion or more each year. In 2020, the total federal budget ran much higher, at $7 trillion, because of all of the steps the government took to address the COVID-19 pandemic.
Because few of us have any idea what a trillion really is, here’s one example: 1 trillion seconds is about 31,000 years. The extinction of Ice Age animals like the wooly mammoth and saber-toothed tiger was only about 13,000 years ago, or less than half a trillion seconds.
So where does all that money go?
Three Types of Federal Spending
The U.S. Treasury divides all federal spending into three groups: mandatory spending , discretionary spending and interest on debt . Together, mandatory and discretionary spending account for more than ninety percent of all federal spending, and pay for all of the government services and programs on which we rely. Interest payments on the national debt account for a much smaller amount than the other two categories. The pie chart shows federal spending in 2020 broken into these three categories.
Source : OMB , National Priorities Project
What is Discretionary Spending?
Discretionary spending refers to the portion of the budget that is decided by Congress each year through the appropriations process .
In 2020, Congress budgeted $1.6 trillion in discretionary spending.
By far, the biggest category of discretionary spending is spending on the Pentagon and military. In most years, this accounts for more than half of the discretionary budget. In 2020, because some discretionary spending passed through supplemental appropriations went to pandemic programs, the share of the discretionary budget that went to the military was smaller – even though the amount that went to the military was just as high as in previous years.
Other examples of discretionary spending include the early childhood education program Head Start (included in Housing & Community), public housing and homeless programs (Housing & Community), federal aid for public K-12 education (Education), Pell grants for low-income college students (Education), food assistance for Women, Infants and Children (or WIC, in Food and Agriculture), job training and placement for unemployed people (in Social Security, Unemployment and Labor), and scientific research through the National Institutes of Health (NIH) and National Science Foundation (NSF), among many others.
Mandatory spending is also legislated by Congress, often for multiple years at a time. It is dominated by the Social Security and Medicare programs, which provide income security and health insurance for retirees and some Americans with disabilities, and sometimes their families.
It also includes Medicaid, the health insurance program for low-income adults and children, and widely used safety net programs like food stamps (SNAP), welfare (TANF), and highway construction and maintenance, and other things.
When Congress decides to create a program like Social Security, rather than setting aside a certain amount of money, it sets rules for who can receive benefits from the program, and what those benefits will be. People who are eligible can get help, and the government covers the costs. Medicare and other programs work similarly.
One advantage of this kind of spending compared to discretionary spending (which is limited by the amounts Congress sets) is that it can more readily respond to unexpected circumstances like a recession, or a pandemic. During the COVID-19 crisis, for example, anyone who qualified for stimulus checks could get them. Unlike discretionary programs, the money didn’t run out and shut some people out.
Mandatory spending makes up roughly two-thirds of the total federal budget in most years, and more in some years.
In 2020, most pandemic relief fell under mandatory spending programs. This led to mandatory spending of $5.2 trillion, much higher than in previous years. The ability to quickly ramp up spending enabled the government to help people who lost jobs, those who got sick, and many others.
This chart shows where $5.2 trillion in mandatory spending went in 2020.
All Federal Spending
Finally, putting together discretionary spending , mandatory spending , and interest on the debt , you can see how the total federal budget is divided into different categories of spending. This pie chart shows the breakdown of $7 trillion in combined discretionary, mandatory, and interest spending budgeted by Congress in fiscal year 2020. This year looks different from previous years, thanks to spending on the COVID-19 response.
Spending in the Tax Code
When the federal government spends money on mandatory and discretionary programs, the U.S. Treasury writes a check to pay the program costs. But there is another type of federal spending that operates a little differently. Lawmakers have written hundreds of tax breaks into the federal tax code - for instance, special low tax rates on capital gains (certain kinds of investments), a deduction for home mortgage interest, and many others.
In fact, tax breaks function as a type of government spending, and they are officially called "tax expenditures" by the Treasury Department. Tax breaks cost the federal government more than $1.3 trillion in 2020 – nearly as much as all discretionary spending in the same year.
Unlike discretionary spending , which must be approved by lawmakers each year during the appropriations process , tax breaks do not require annual approval. That means that once they are written into the tax code, they remain on the books until lawmakers change them.
On average, these tax breaks tend to benefit corporations and the wealthy more than the average person. There are many proposals out there for more fair taxation for the wealthy and corporations .
« Where Does the Money Come From
Borrowing and the Federal Debt »
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Budget planning data allocation
- 8 contributors
This article describes the allocation methods that are available in Microsoft Dynamics 365 Finance and how they can be used.
You can distribute the data in a budget plan in a number of ways to accurately portray the projected amounts.
Three allocation methods (Allocate across periods, Allocate to dimensions, and Use ledger allocation rules) can create budget plan lines that are based on lines in the same budget plan. Three other methods (Aggregate, Distribute, and Copy from budget plan) can create budget plan lines in other budget plans. For all six allocation methods, you specify the destination scenario. The destination scenario can be either the same as the source scenario or different from the source scenario. Additionally, you can specify whether new lines are appended to the budget plan or replace the current lines in the budget plan.
A unique scenario should be used for aggregation that is different from the scenario that was used for distribution or other modifications that were previously performed in the parent plan.
Using allocation methods in a budget plan
To perform allocations on the budget plan page, select the lines to allocate, and then click Allocate budget .
Next, select an allocation method. The remaining fields are then set, based on the method that you selected. These fields include the source and destination of the budget plan data, and an option that lets you multiply the source by a specified factor when the destination amounts are created, to simplify bulk adjustment. You can also set the Append to plan option. Select No to replace the existing budget plan lines, or select Yes to retain the existing budget plan lines and add new lines for the allocated amounts.
Automating allocations during a workflow
One powerful feature enables allocations to be performed automatically as part of a budget planning workflow. As a budget plan moves through its workflow, automated tasks can invoke an allocation at a specified budget planning stage.
To set up automated allocation, you must first create an allocation schedule on the Budget planning configuration page. The allocation schedule defines the allocation method that will be used when the automated allocation is run, and the values of the various allocation options (see the previous section for descriptions).
Next, you create a stage allocation on the Budget planning configuration page. The stage allocation assigns an allocation schedule to the budget planning workflow and stage.
Finally, add an automated task for budget planning stage allocation at the desired workflow stage. In the following example, two budget planning stage allocations (outlined in red) have been inserted into the workflow.
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Example sentences budget allocation
The process allows the management to monitor their expenses and review whether they operate within their budget allocation .
Research group leaders (principal and associate investigators) meet annually to decide on budget allocation .
Witnessing the impact, the education sector received a 17% increase in budget allocation for the programme.
A competitor's media strategy reveals budget allocation , segmentation and targeting strategy, and selectivity and focus.
Additionally, budget allocation via management in research departments will be independent of investment departments.
Definition of 'allocation' allocation
Definition of 'budget' budget
COBUILD Collocations budget allocation
Browse alphabetically budget allocation.
- budget accommodation
- budget account
- budget allocation
- budget analyst
- budget bill
- budget carefully
- All ENGLISH words that begin with 'B'
Quick word challenge
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Power BI Budgeting Technique: Allocating Monthly Budgeting Sensitivity Table
by Sam McKay, CFA | 9:00 am EDT | April 01, 2020 | Power BI
In this blog, I talk about a technique around Power BI budgeting , working out a way to allocate calculations across different time frames or months, for example. You may watch the full video of this tutorial at the bottom of this blog.
In most cases, budgets are in a yearly basis. However, it’s so much better to narrow it down to a monthly basis and see the allocation of our budgets per month. So I’m going to show you, through a demonstration, a few nuances of how this all works. We’ll dive into some advanced DAX calculations as well.
The data that I use in this tutorial was part of an Enterprise DNA Learning Summit around budgeting sensitivity tables.
Let’s have a look at the scenario and the data model, which is really key in understanding how to achieve this budgeting analysis.
Table of Contents
The Budget Sensitivity Table
So in this scenario, we have some budgets per city for 2018 and they’re in a yearly time frame.
We can’t just have one number for the entire year, we need to allocate these budgets at a monthly level. We can even allocate this to a daily level , which I have explained in other video tutorials. This way, we’ll be able to see what the trend is and how things perform through time .
To do this allocation, we identify the Budget Sensitivity for each month, and integrate it into our calculations. In this table, the Budget Sensitivity is breaking down the budget by each month .
Sensitivity or seasonality in Power BI could be a variety of things, but in this analysis, it’s based on our budgets or forecasts. And so here we forecast that we have an increase of allocation required in the middle of the year versus summertime, for instance. There’s also a slight increase during Christmas.
Then, we need to find a way to integrate this into our analysis . Before we get to that, let’s look at how the data model is structured.
Data Model Set Up
This is a very detailed model with all our lookup tables, fact tables, key measure, and supporting tables for a detailed Power BI budgeting analysis.
If we look closely, we can see that our Regional Budget table doesn’t have any relationships with other tables.
Likewise, our Budget Sensitivity table.
These two tables are what I call supporting tables . They don’t have any physical relationship with other tables in the model. This Budget Sensitivity table is going to support the logic that we’re going to complete in our model.
DAX Calculation To Allocate Budget Monthly
First, let’s just have a quick look at our Yearly Budget calculation.
If we drag it into our table, we can see that it’s not allocated at all. It’s only showing the full number. We want to allocate this budget across each month.
To do that, we create a new measure. We’ll call it 2018 Budget Allocation .
Remember that the Budget Sensitivity table has no relationship to the Date table in the model, so there’s no way for us to grab information from the Budget Sensitivity table and have it filtered from the Date table.
But, we created that connection virtually inside this formula using the TREATAS function.
Inside the Budget Sensitivity table, we have our Month Name column. And if we go to our Date table, we have a column that is very similar . It’s a calculated column that’s showcasing the first three letters of each month.
And so even though we can’t draw a physical relationship between these two tables (Budget Sensitivity and Date tables), we can do it virtually . This is where the real power of this budget allocation technique comes in.
By using TREATAS, we created that connection between the Date table Short Month column and the Budgets Sensitivity table Month Named column. And that’s how we get a breakdown of the correct allocations for the correct months.
We then integrate this calculation into other formulas to get our monthly allocation.
In this formula, we use it as a variable ( VAR ). Then, we go ISFILTERED Month & Year (in the Dates table), and multiple BudgetAllocation by Yearly Budget . If not, return to the Yearly Budget.
And so we can see now we have this monthly allocation via the Sensitivity table using just some DAX formulas.
***** Related Links ***** Allocate Monthly Forecasts Across Daily Results In Power BI Using DAX Managing Seasonality In Your Budget Analytics – Advanced Power BI How To Create Budgets Which Have Seasonality Adjustments – Power BI Technique
In this tutorial, I have shown you how to utilize supporting tables and DAX formulas, particularly with TREATAS, to create a virtual relationship and allocate monthly Budgeting Sensitivity.
This Power BI budgeting technique is a brilliant one that has so many applications. This methodology will clean up your model immensely as well. It simplifies things and generates insights that were so difficult to do before.
I hope you can get this concept and integrate it into your own budgeting and forecasting reports somehow.
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The value of a budget allocation plan for businesses
Budgeting is one of the most crucial aspects of any business. However, many companies don't budget "smartly" since they don't have a budget allocation plan. It could be the difference between success and failure in your business.
What is a Budget Allocation Plan?
A budget allocation plan is a blueprint of how much you can spend on a program, event, person, or product within an organization. Essentially, it is the amount allocated to expenditures, telling staff how much funding is available, and having them to stick to the allocations.
Usually, businesses create a budget by taking into account expenditures, resources, and expenses from each department from the previous year. Identifying the needs, program expenses, and available resources of the company in the coming months can help to allocate monetary resources better. This can boost employees' confidence and productivity.
Overall, the goal of the plan is to account for the monetary resources of a company, thus ensuring money is spent as planned. In other words, the plan keeps the company in check by allowing management members to understand when they are spending too much.
However, with only 54% of small businesses having a budget many companies are vulnerable to overspending. So how can a business make a plan that works?
How to make a plan for budget allocations
A good question to ask yourself is, what is a good budget allocation plan? A good plan entails the allocation of resources. It is a realistic, transparent, and professional approach to an organization's finances.
The first thing that management and sales teams should do is understand and outline all the expenditures, allocation limits, revenue, and standard budget categories of the last few months or years. By looking at the amount spent on direct costs and indirect costs, the company can account for, limit, or adjust its expenses, thus conserving its resources.
Some companies keep subscriptions on for many years without using them. Looking back at these costs can help determine overall expenses, determine direct costs, and the assigned expenditure for these services.
Furthermore, analyzing past spending can help companies form a performance trend to predict expenses and expenditures in the future. After all, if we write an unrealistic budget, no department, employee, or staff member will truly follow it since it just isn't realistic.
Allocating Budgets across Departments
You already understand the importance of a budget. But it is crucial that your employees know that the maximum amount of money they can obtain for a fiscal year stays within the allocation plan. Therefore, consider allocating across departments by;
Determine spending requirements
No allocation plan is as good as facts and figures, so you want to make spending estimates based on historical data. Have each team discuss and provide details. Furthermore, you may find it helpful to consider all business costs, especially fixed costs and variable costs.
Of course, you may be past the startup stage, but if your allocation plan will be effective, it is essential to include this cost. Fixed costs, on the other hand, are consistent expenses that occur weekly, monthly, or yearly.
For example, salaries, health insurance, travel and subsistence item, etc. The variable costs fluctuate and may be dependent on sales and revenue. For example, your sales team may have to attend a conference, so paying for round trip airfare, and accommodation will increase your personnel expenses for that period.
Since it may be challenging to set a fixed price for variable costs, it is best if you considered buffering this part of your allocation plan (to the nearest hundred or thousand) - to accommodate increments and unforeseen expenses.
Generating a reliable revenue
It is imperative for companies to have reliable revenue so that they can have a reliable budget. It is also reasonable to have an expenditure line with the maximum amount payable. If a company has an inconsistent revenue source, it is tough to devise a competent way of calculating its budget or predicting overall performance.
A better way to secure a reliable revenue plan is through long-term contracts and partnerships that yield monthly revenue.
If an organization has yet to have a reliable revenue, it is crucial that the company knows where to make cuts in case of an economic downturn to ensure that the company will not be in the negative. However, if that is not feasible, it is crucial to find new ways to generate reliable funding sources so that they can still continue to survive in the long term.
Executing your allocation plan
The first few months after developing an allocation plan should focus on execution. Note that it may be slightly challenging to get used to the changes that come with cutting costs.
Ultimately, the first few months of execution determine the success of your plan. However, if the company can not follow up with the plan or there has been no change, it may mean that the plan needs changes. An unsuccessful plan may not be a negative. Instead, it should be an opportunity to improve your company.
Monitor the allocation plan
Monitoring the allocation plan is great for accountability, especially with economic inflation. It is essential for the company to look back at the budget allocations every few months.
Furthermore, recording your spending, expenses, budget allocations, and purchase orders will further promote accountability in the company. This will help employees determine allocated funds per department, what they have spent, and how expensive it is.
It will create a sense of responsibility and accountability and promote an ideal management culture in several organizations.
Adjusting your allocation plan
Your plan may not be perfect. Chances are, it won't be. It is not unusual to make some corrections that include fund transfers from one category of the plan to another. This is especially ideal for a category with surplus funds. Adjusting the budget keeps your results in view and prevents the adverse effects of an economic downturn.
There are usually two classifications of allocation costs: direct and indirect costs.
Direct expenses that are directly related to a product or service. These typically include raw materials, personnel, allowance, vehicle costs, holiday pay, services rendered, and more.
These costs are usually very easily traced since they fluctuate with production levels, such as inventory. If a company is doing well, the direct costs are usually higher than before.
Indirect costs are not so easily traced. They're "overhead expenses" which cannot be easily traced back to a project or product. A few examples of indirect costs are utilities, premise rent, equipment, security, operation and maintenance, and more.
Indirect costs usually fluctuate quite a lot monthly since they don't tie into how the company is doing.
Business Budgeting Methods
Organizations use different methods in determining the best budget for their resources. However, four are common: incremental budgets, zero-based budgets, value proposition budgets, and activity-based budgets.
An increment budget reviews last year's budget to determine the current year's performance. It is last year's figure plus or minus the allocated percentage. This method is ideal for any business. A factor to consider in this program is funding and the change in primary cost.
This method assumes that all departments have zero budgets. Each department in the organization must justify its expenses. Money management is good because it avoids non-essential costs and spending. It is an excellent example of when you want to shake things up in your business.
Value proposition: this falls between incremental and zero-based budget to produce a sweet balance and profitability. It analyzes different expenditures and seeks to;
- Understand why a department spends a certain amount of money.
- Justify expenses
- Determine the value expenditures provided to various departments within the organization.
The activity-based budget is prepared based on targets, especially for a newer organization interested in budget allocation and funds maintenance. The activity-based approach promotes performance and is a better way for the organization to allocate its funds. If you don't spend more time analyzing the program, it could prove detrimental to your developing enterprise.
Overall, a budget allocation plan is crucial for any business. It is a good habit to track and control the costs related to your business and improve the financial health of a company while eliminating wasteful or toxic spending habits.
Your business will enjoy growth when you have a good picture of your finances. Remember that all spending information is relevant in the process. If you need to keep your records safe and accessible, you may consider opting for software.
- Birth Certificate
- Driving Licence
Union Budget FY 2022-2023
The Budget goals for FY2022-23 aim to further India's aspirations in Amrit Kaal, as it moves towards its 100 th year post independence.
- Focus on growth and all-inclusive welfare
- Promoting technology-enabled development, energy transition and climate action
- Virtuous cycle starting from private investment, crowded in by public capital investment
The Union Budget for FY 2022-23 this year aims to strengthen the infrastructure with its focus on four priorities of:
- PM GatiShakti
- Inclusive Development
- Productivity Enhancement & Investment, Sunrise opportunities, Energy Transition, and Climate Action
- Financing of investments
The Union Budget website lists the Highlights of the FY 2022-23 Budget. The Press Information Bureau (PIB) website provides a summary of the Budget. The Productivity Linked Incentive in 14 sectors for achieving the vision of AtmaNirbhar Bharat has received excellent response, with potential to create 60 lakh new jobs, and an additional production of Rs 30 lakh crore during next 5 years.
India's GDP has witnessed robust recovery twice with the past two waves of the pandemic, a testimony to the nation's economic resilience.
- Enhanced outlay for 'Scheme for Financial Assistance to States for Capital Investment' from Rs.10,000 crore in Budget Estimates to Rs.15,000 crore in Revised Estimates for current year
- Allocation of Rs.1 lakh crore in 2022-23 to assist the states in catalysing overall investments in the economy: fifty-year interest free loans, over and above normal borrowings
- In 2022-23, States will be allowed a fiscal deficit of 4% of GSDP, of which 0.5% will be tied to power sector reforms
- Rs.2.37 lakh crore direct payment to 1.63 crore farmers for procurement of wheat and paddy
- Chemical free Natural farming to be promoted throughout the county. Initial focus is on farmer's lands in 5 Km wide corridors along river Ganga
- NABARD to facilitate fund with blended capital to finance startups for agriculture & rural enterprise
- 'Kisan Drones' for crop assessment, digitization of land records, spraying of insecticides and nutrients
- Udyam, e-shram, NCS and ASEEM portals to be interlinked
- 130 lakh MSMEs provided additional credit under Emergency Credit Linked Guarantee Scheme (ECLGS)
- ECLGS to be extended up to March 2023
- Guarantee cover under ECLGS to be expanded by Rs.50000 Crore to total cover of Rs.5 Lakh Crore
- Rs.2 lakh Crore additional credit for Micro and Small Enterprises to be facilitated under the Credit Guarantee Trust for Micro and Small Enterprises (CGTMSE)
- Raising and Accelerating MSME performance (RAMP) programme with outlay of Rs.6000 Crore to be rolled out
- One class-One TV channel' programme of PM eVIDYA to be expanded to 200 TV channels
- Virtual labs and skilling e-labs to be set up to promote critical thinking skills and simulated learning environment
- High-quality e-content will be developed for delivery through Digital Teachers
- Digital University for world-class quality universal education with personalised learning experience to be established
- Outlay for capital expenditure stepped up sharply by 35.4% to Rs.7.50 lakh crore in 2022-23 from Rs.5.54 lakh crore in the current year
- Outlay in 2022-23 to be 2.9% of GDP
- 'Effective Capital Expenditure' of Central Government estimated at Rs.10.68 lakh crore in 2022-23, which is about 4.1% of GDP
- Integrated benefits to women and children through Mission Shakti, Mission Vatsalya, Saksham Anganwadi and Poshan 2.0
- Two lakh anganwadis to be upgraded to Saksham Anganwadis
- An open platform for National Digital Health Ecosystem to be rolled out
- National Tele Mental Health Programme’ for quality mental health counselling and care services to be launched
- A network of 23 tele-mental health centres of excellence will be set up, with NIMHANS being the nodal centre and International Institute of Information Technology-Bangalore (IIITB) providing technology support
- Five to seven per cent biomass pellets to be co-fired in thermal power plants:
- CO2 savings of 38 MMT annually
- Extra income to farmers and job opportunities to locals
- Four pilot projects to be set up for coal gasification and conversion of coal into chemicals for the industry
- Financial support to farmers belonging to Scheduled Castes and Scheduled Tribes, who want to take up agro-forestry
- Government contribution to be provided for R&D in Sunrise Opportunities like Artificial Intelligence, Geospatial Systems and Drones, Semiconductor and its eco-system, Space Economy, Genomics and Pharmaceuticals, Green Energy, and Clean Mobility Systems
- 100 per cent of 1.5 lakh post offices to come on the core banking system.
- Scheduled Commercial Banks to set up 75 Digital Banking Units (DBUs) in 75 districts
Key documents such as those listed below are tabled in the parliament during the Budget presentation process.
- Annual Finance Statement (AFS)
- Demand for Grants (DG)
- Finance Bill
Explanatory statements such as those listed below are also presented for ready references.
- Expenditure Budget
- Receipt Budget
- Expenditure Profile
- Budget at a Glance
- Output Outcome Monitoring Framework
URL : https://www.indiabudget.gov.in/contactus.php
- Union Budget for FY 2022-2023
- Economic Survey of India 2021-22
- Key to Budget Documents
- Budget Speech
- Implementation of Budget Announcements 2021-2022
- Report of the Fifteenth Finance Commission
- Key Highlights of Union Budget 2022-23
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Bills & acts, demand for grants 2023-24 analysis : agriculture and farmers welfare.
The Ministry of Agriculture and Farmers’ Welfare has two Departments: (i) Agriculture, Cooperation and Farmers’ Welfare, which implements policies and programmes related to farmer welfare and manages agriculture inputs, and (ii) Agricultural Research and Education, which coordinates and promotes agricultural research and education.  This note examines the budget allocations to the Ministry and its expenditure, and discusses issues in the agriculture sector.
Overview of finances
The Ministry has been allocated Rs 1,25,036 crore in 2023-24, 5% greater than the revised estimates for 2022-23.  ,  The Ministry of Agriculture accounts for 2.8% of the total Union Budget. The increase in expenditure is on account of marginal increase in the allocation for schemes such as Modified Interest Subvention Scheme (5%) and the Pradhan Mantri Fasal Bima Yojana (10%).
Table 1 : Budget Allocation for the Ministry of Agriculture and Farmers’ Welfare (in Rs crore)
Sources: Demand for Grants 2023-24, Ministry of Agriculture and Farmers’ Welfare ; PRS.
77% of the Ministry’s estimated expenditure is allocated towards three schemes (See Table 2). Allocation for Pradhan Mantri Kisan Samman Nidhi (PM-KISAN), which is the largest scheme under the Ministry has remained the same as the revised estimates of 2022-23 at Rs 60,000 crore. Allocation has reduced from the actual expenditure of 2021-22 and budgeted expenditure for 2022-23.
Table 2 : Allocation to major schemes (in Rs crore)
Note: Interest subsidy for short term credit to farmers scheme was restructured in 2022 to the Modified Interest Subvention Scheme. Sources: Demand for Grants 2023-24, Ministry of Agriculture and Farmers’ Welfare; PRS.
Utilisation of Funds
In the past 10 years, fund utilisation of the Ministry has been above 70%. The Ministry was able to utilise 100% of the allocated funds in 2016-17. Allocation to the Ministry increased by 141% in 2019-20 on account of PM-KISAN. 48% of the allocation to the Ministry in 2023-24 is towards PM-KISAN. However, utilisation of funds reduced from 93% in 2018-19 to 73% in 2019-20. Utilisation was 93% in 2021-22.
Figure 1 : Fund utilisation by the Ministry of Agriculture and Farmers' Welfare (in Rs crore)
Sources: Expenditure Budget for various years; PRS.
Rashtriya Krishi Vikas Yojana (RKVY) scheme was introduced in 2007 to ensure holistic development of agriculture and allied sectors.  It is a centrally sponsored scheme that enables states to choose agriculture development activities as per their plans. 4 It was restructured under the 2022-23 budget to subsume other schemes such as the Pradhan Mantri Krishi Sinchai Yojna-Per Drop More Crop, Paramparagat Krishi Vikas Yojna, National Project on Soil and Health Fertility, Rainfed Area Development and Climate Change, Sub-Mission on Agriculture Mechanization including Management of Crop Residue.  In 2023-24, Rs 7,150 has been allocated under RKVY for transferring to states/UTs. The allocation for 2023-24 is 2% greater than the revised estimates for 2022-23. Between 2019-20 and 2021-22, projects worth Rs 518 crore have been approved across 18 states under the Scheme. 
Issues to consider
The agricultural sector faces several issues such as low growth, high incidence of indebtedness among farmers, high cost of inputs, fragmented landholdings, and a lack of capital investments in the sector. In the 2016-17 Union Budget the government announced that farmer incomes will be doubled by 2022-23, from 2015-16 levels. 
Doubling of farmers’ income
A committee was formed to recommend strategies for achieving the target which submitted its report in September 2018.  It recommended that policy focus must shift away from just increasing farm output, since increased output may not always lead to an increase in farmers’ income. It noted that input prices, the level of input used, and the price of the output also has an impact of farmer incomes.  Hence it recommended that with an increase in the level of output, the cost of production be reduced, remunerative prices for agricultural produce be ensured, and sustainable technology be used. 9 The Ministry has several schemes in place such as PM-KISAN to provide income support to farmers, the Pradhan Mantri Fasal Bima Yojana which seeks to provide crop insurance, and the Pradhan Mantri Krishi Sinchayee Yojana, which promotes micro-irrigation techniques. Efforts have been made to improve access to agricultural credit, and improve agricultural markets through digitalisation, introduction of contract farming, and promoting Farmer Producer Organisations (FPO).
In the absence of recent data, it is unclear whether farmer incomes have doubled in 2022-23. Note that the latest farmer income data is as per 2018-19 (See Table 3). The average monthly income of an agricultural household was Rs 8,059 in 2015-16, which increased to Rs 10,218 in 2018-19. 9 , 
Table 3 : Average monthly income of agricultural households
Note: Income for 2015-16 is derived from the annual income (at current prices) reported by the Committee on Doubling Farmers’ Income. Sources: MOSPI; Committee on Doubling Farmers’ Income, 2017; PRS.
In the absence of data, agricultural GDP may be examined to understand income growth. Agricultural GDP indicates the total income generated from producing agricultural goods and services. For farmer incomes to double, agricultural GDP should also have doubled, provided the number of farmers remained the same.
Between 2015-16 and 2022-23, the agricultural gross value added (GVA) at current prices (i.e., including inflation), doubled from Rs 25 lakh crore to Rs 51 lakh crore (11% growth).  Note that, agricultural GVA (at current prices) has doubled every eight years in the past 30 years. 11 In real terms, i.e., adjusting for inflation, agricultural GVA grew by 1.3 times. Agriculture growth has been volatile in real terms and the sector is estimated to grow at 3% in 2022-23 as compared to 4% in 2021-22.
Figure 2 : Agricultural growth (at constant prices) has been volatile
Notes: * Third revised estimates; ** Second revised estimates; # First revised estimates; $ Provisional estimates; ^ Advance estimates. Growth includes agriculture, forestry, fishing, and mining and quarrying. Sources: Economic Survey of India 2022-23; PRS.
Minimum Support Prices
The government has taken several measures to improve agricultural marketing and ensuring remunerative prices to farmers. These include procuring certain crops at the Minimum Support Price (MSP). Factors such as the cost of production, price trends, and ensuring a 50% margin over the cost of production are used to determine the MSP for a season. Wheat MSP for 2023-24 is fixed at Rs 2,125 per quintal.  The cost of cultivating wheat for the year is Rs 1,065. Paddy MSP for 2022-23 is fixed at Rs 2,040 per quintal, whose cost of cultivation is Rs 1,360. 
Figure 3 : Percentage increase in Minimum Support Price of paddy and wheat
Sources: Commission for Agricultural Costs and Prices; PRS.
The National Commission on Farmers (2006) had recommended that MSP be at least 50% greater than the weighted cost of production. The Ministry adopted that recommendation in 2018-19, and MSP for all kharif and rabi crops was increased to reflect a return of at least 50% of the cost of production.  The Ministry also fixes a Fair and Remunerative Price (FRP) for the purchase of sugarcane by sugar mills. FRP for 2022-23 was fixed at Rs 305 per quintal. 
Income support through transfers
To supplement the financial needs of farmers, they are being provided with income transfers. PM-KISAN is a direct benefit transfer scheme that was launched in February 2019.  It provides landholding farmer families with income support of Rs 6,000 per year (in three instalments of Rs 2,000).  In 2023-24, Rs 60,000 was allocated towards the scheme, same as the revised estimates for the previous year. The Scheme receives the highest allocation (48%) from the Ministry.
Constant income transfers with rising rural inflation: PM-KISAN was operationalised in December 2018 and aims to enable farmers to procure inputs to ensure crop health and yield. 17 It is currently applicable to all landholding farmer families irrespective of the size of landholdings. Between 2019-20 and 2021-22, the amount to be disbursed to each family has remained constant (Rs 6,000). However, during this period rural inflation was between 4-6%.  Rural inflation includes prices of vegetables, housing, and transport.
Figure 4 : Transfers under PM-KISAN (in Rs) and rural inflation (in %)
Sources: Database on Indian Economy, Reserve Bank of India; Operational Guidelines, PM-KISAN; PRS.
In 2021-22, Rs 66,825 crore was spent on PM-KISAN. As per the revised estimates of 2022-23, only Rs 60,000 crore is estimated to be spent on the Scheme, lower than the budget estimates for the year at Rs 68,000 crore. Table 4 indicates the expenditure on the scheme since its inception.
Table 4 : Beneficiaries and amount released under PM-KISAN
Sources: Lok Sabha Unstarred Question Nos. 1054 and 1150; PRS.
Agricultural labourers ineligible for transfers: Beneficiaries of the PM-KISAN scheme include only farmers that own cultivable land. The scheme does not cover agricultural labourers who form 55% of the agricultural workers in the country.  Agricultural labourers do not own land and work on another person’s land. They earn income through wages or a share in the crop.  Agricultural workers include cultivators and labourers. The share of landless agricultural labourers in total agricultural workers has increased over the years from 28% in 1951 to 55% in 2011. 19 The Standing Committee on Agriculture (2020) noted that tenant farmers, who are a significant part of landless farmers in many states, do not receive income support benefits.  It recommended the government to examine this issue in coordination with states so that landless farmers can also receive benefits under the scheme.
Figure 5 : Proportion of agricultural labourers rising
Sources: Agricultural Statistics at a Glance 2021; PRS.
The Pradhan Mantri Kisan Maan Dhan Yojana (PMKMY), launched in 2019 is a central sector scheme to provide pensions to small and marginal farmers with cultivable land of up to two hectares.  ,  Eligible beneficiaries are entitled to a monthly pension of at least Rs 3,000. As of November 2019, 18.8 lakh farmers have registered under the Scheme.  Farmers within the 18-40 age bracket are eligible under the Scheme. In 2023-24, the Scheme has been allocated Rs 100 crore, against the revised estimates of Rs 50 crore in 2022-23, implying coverage of less than 15,000 farmers. In 2021-22, the Ministry spent Rs 40 crore.
Climate change and agriculture
Agricultural output is vulnerable to changes in the climate as higher temperatures tend to reduce crop yields and increase pest infestations.  Rainfed agriculture is primarily impacted due to variability in the number of rainy days.  As per a study by the National Innovations in Climate Resilient Agriculture (NICRA), climate change is expected to affect yields of crops such as rice, wheat, and maize.  Studies on rice and wheat suggest that wheat is sensitive to rising maximum temperatures and heatwaves, while rice is vulnerable to increased minimum temperatures in the region. 27
Figure 6 : Wheat production (in million tonnes)
Sources: Department of Agriculture and Farmers’ Welfare; PRS.
The total wheat production in the country has been steadily rising at 3% CAGR between 2014-15 and 2021-22.  As per the Indian Meteorological Department, certain areas in India experienced a heatwave in March 2022.  The maximum temperature was 33 o Celsius, 2 o greater than normal. As per a study by the US Foreign Agricultural Service, wheat yield in March 2022, in wheat growing areas was 11% lower than anticipated.  The report suggests that yield was not in line with the forecast as record high temperatures were observed during the grain filling (final) period for wheat. 30 Note that wheat production declined by two million tonnes in 2021-22. 
Similarly, in the first two weeks of October 2022, crops such as paddy, cotton, blackgram, vegetables, soybean, and bajra were affected across five states due to heavy rainfall.  In Andhra Pradesh, agricultural area of 7,178 hectares was affected due to heavy rains during this period. The National Innovations in Climate Resilient Agriculture (NICRA) project was launched in February 2011 to make Indian agriculture more resilient to changes in the climate.  NICRA conducts research on mitigation of climate impact on agriculture and field demonstrations of technologies.  In 2021-22 Rs 50 crore was budgeted for this initiative, of which Rs 47 crore was actually spent. 3
The allocation declined to Rs 41 crore in 2022-23. From 2023-24 onwards, the NICRA project will be merged with the Natural Resource Management Institutes including Agro Forestry Research (NRAI), which examines farm productivity, profitability, and soil health deterioration. 3 The overall allocation to Natural Resources Management (which includes NRAI and NICRA) has increased from Rs 186 crore in 2022-23, to Rs 240 crore in 2023-24 (29% increase).
The Pradhan Mantri Fasal Bima Yojana (PMFBY) and the Restructured Weather Based Crop Insurance Scheme (RWBCIS) were launched in 2016 to provide farmers with affordable crop insurance against non-preventable natural risks from pre-sowing to post-harvest stage.  Under PMFBY, farmers pay a premium of up to 2% (for Kharif crops), 1.5% (for Rabi crops), and 5% (for horticultural crops) of the sum insured. States (except for north-eastern states) and the central government share the premium burden equally. The scheme was made voluntary to farmers in 2020.
In 2023-24, Rs 13,625 crore is allocated to the scheme, 0.5% greater than the actual expenditure incurred in 2021-22. In 2022-23, Rs 15,500 crore was budgeted for the scheme, however estimated expenditure declined (by 20%) in the revised estimates to Rs 12,376 crore.
Table 5 : Allocation towards Pradhan Mantri Fasal Bima Yojana (in Rs crore)
Sources: Demand No. 1, Ministry of Agriculture and Farmers’ Welfare; PRS.
Between 2018 and 2022, the number of farmers covered under the scheme reduced by 9%.  Similarly, the sum and area insured have also reduced by 7% and 5%.
Figure 7 : Area and sum insured under Pradhan Mantri Fasal Bima Yojana (2018-2022)
Sources: Pradhan Mantri Fasal Bima Yojana Dashboard; PRS.
Delays in payment is one of the biggest challenges in implementing the scheme.  The Ministry noted that delay in settlement of claims takes place due to: (i) delay in release of state share of subsidy, and (ii) delay in sharing yield data by states to insurance companies.  The Committee added that delays may also occur due to yield-related disputes between insurance companies and states, and non-receipt of account details of farmers. 39 It recommended implementing a timeline for settlement of claims by insurance companies. Between 2016 to 2020, a total of Rs 4,602 crore of state subsidy was pending, against which claims of Rs 3,008 crore were also pending.
The Committee also noted that revisions in the scheme may lead state governments to withdraw from it. It recommended revising amendments that: (i) prohibit participation of those states which delay the release of subsidies, and (ii) mandate state governments to bear the entire subsidy for crops which have a greater-than-specified premium rate. The Ministry noted that several states have opted out of the scheme due to their inability to pay the state share of premium subsidy.
Some states have their own crop insurance schemes. For instance, Jharkhand has a crop relief scheme, where financial assistance is provided in case of crop damage, without the insurance premium component.  West Bengal also has its own crop insurance scheme that covers all farmers. It insures certain specified crops such as wheat, maize, moong, sugarcane, and paddy, with an indemnity of up to 90%. 
Anticipating the rise in demand for crop insurance due to the vulnerability of farming to climate change, the Ministry of Agriculture and Farmers’ Welfare has noted that it may make necessary changes to PMFBYS. 
With fragmentation of landholdings, and rise in the absolute number of agricultural workers, farm productivity may be impacted. India’s agricultural sector is dominated by marginal and small farm holdings.  Over the past several decades, the number of farm holdings have increased while the area under farming has declined. This has led to a reduction in the average size of a landholding.  Area under farming has declined due to its diversion for non-agricultural purposes. 48
Fragmented landholdings may affect agricultural growth as it implies reduced capital expenditure on a farm. Smaller farmers find it difficult to invest in tube wells, drip irrigation, bulk inputs or storage of produce. 21 Farm productivity may be improved through land consolidation. Between 2005-06 and 2015-16, the share of marginal and small landholdings has increased, while the proportion of medium and large landholdings has reduced (See Figure 9 ). Marginal landholdings have an area of less than one hectare. Between 1951 and 2011, the number of agricultural workers increased by 1.7%. 19 The Committee on Doubling Farmers’ Income (2017) had recommended that to improve farm productivity, agricultural workers need to move out of the sector.
Figure 9 : Category-wise share of landholdings (2005-06 to 2015-16)
Sources: Pocketbook of Agricultural Statistics 2020; PRS.
Gross capital formation indicates the level of investment in building assets. The share of gross capital formation in agricultural output has reduced from 18% in 2011-12 to 14% in 2020-21. The share of private investment has been much greater than the share of public investment (See Figure 10).
Figure 10 : Share of Gross Capital Formation in Agricultural GVA (at current prices)
* Third Revised Estimates ** Second Revised Estimates # First revised estimates. Sources: Agricultural Statistics at a Glance 2021; PRS.
Availability and accessibility to adequate, timely and low-cost credit is necessary for profitable farming.  The amount of institutional credit available to farmers has increased over the past few years. However, rural indebtedness has increased and loans are primarily being used to meet revenue expenditure in farming, or recurring household expenditure.
Over the past ten years, the total institutional credit availed by farmers has increased at CAGR 7.8%. 19 In 2021-22, the Ministry had targeted to provide Rs 16.5 lakh crore worth of credit to the farmers.  It exceeded its target by 13%. It aims to provide Rs 18.5 lakh crore as agricultural credit in 2022-23. As access to credit has increased, the proportion of short-term credit has been reducing since 2012-13 (See Figure 11). However, it rose from 57% in 2020-21 to 60% in 2021-22 (as of December 2022). A higher share of short-term credit indicates that farmers are borrowing to meet their recurring expenditure needs, rather than funding long-term investments.
Figure 11 : Flow of institutional credit availed by agricultural sector (in Rs lakh crore)
* As of December 12, 2021 Sources: Agricultural Statistics at a Glance (2021); PRS.
Institutional credit refers to loans taken from commercial banks, regional rural banks, insurance companies, employers, or non-banking financial institutions.  Non-institutional credit refers to loan taken from landlords, agricultural moneylenders, friends and family, or professional moneylenders. A significant portion of the total credit is not being spent in asset creation. As of December 2019, 25% of institutional credit was used to meet revenue expenditure in farm business, while 20% was used for capital expenditure.  31% of non-institutional credit was used to meet household expenditure, followed by loans for housing (17%). 54
Figure 12 : Purpose of agricultural loans
Sources: All India Debt and Investment Survey 2019; PRS.
Despite an increase in the availability of low-interest institutional credit, agricultural indebtedness has increased as compared to 2003. 54 As of December 2019, half of all agricultural households are indebted, with an average outstanding loan of Rs 74,121.
Table 6 : Incidence of indebtedness in agricultural households
Sources: Situation Assessment Survey for various years; PRS.
Schemes for agricultural credit
The government launched the Interest Subvention Scheme in 2006-07, to provide short term agricultural loans up to three lakhs at an annual interest rate of 7% for farmers engaged in agriculture and allied activities.  Additional 3% subvention is also provided for prompt and timely repayment of loans. The scheme was modified in 2022.  Under the modified scheme, lending institutions such as public sector banks, regional rural banks, or cooperative banks are provided with 1.5% interest subvention from 2022-23 to 2024-25.
Table 7 : Allocation towards agricultural credit schemes (in Rs crore)
Note: The interest subsidy for short term credit to farmers scheme was restructured in 2022 to the Modified Interest Subvention Scheme. Sources: Demand for Grants 2023-23, Ministry of Agriculture and Farmers’ Welfare; PRS.
In 2015, the Committee on Medium-Term Path on Financial Inclusion under the Reserve Bank of India (RBI) observed that the scheme is for short-term crop loans, and hence it discriminates against long-term loans.  Short term crop loans are used for pre-harvest activities such as weeding, sorting, harvesting, and transporting. Long-term loans are taken to invest in agricultural machinery and equipment, or irrigation. The Committee stated that the scheme does not incentivise long-term capital formation, which is essential to boost productivity in the sector.
Table 8 : Funds allocated and released under the Interest Subvention Scheme (in Rs crore)
* As of January 20, 2022 Sources: Expenditure Budget of various years; PRS.
The Committee on Doubling Farmers’ Income (2017) recommended that the central and state governments should provide interest subsidy on long-term or investment credit taken by farmers, particularly small and marginal farmers.
The Kisan Credit Card scheme was introduced in 1998 to enable farmers to purchase agricultural inputs such as seeds, fertilisers, or pesticides.  It was extended in 2004 to meet the needs of farmers in allied and non-farm activities as well. The Revised Kisan Credit Card Scheme (2020) seeks to provide banking credit through a single window to meet needs such as: (i) short term credit requirement for cultivation of crops, (ii) post-harvest expenses, (iii) produce marketing loan, (iv) working capital to maintain farm assets, and (v) consumption requirements of a farmer household.
Small and marginal farmers, share-croppers, tenant farmers, and self-help groups are eligible as scheme beneficiaries. In 2022-23, as on November 11, 2022, 377 lakh applications have been sanctioned with a credit limit of Rs 4 lakh crore . 
Table 9 : Number of beneficiaries under Kisan Credit Card Scheme
Note: Amount for 2019-20 does not include data of scheduled commercial banks as the data was not maintained at the time. Data for 2022-23 is as of September 2022. Sources: Lok Sabha Unstarred Question No. 1051, answered December 13, 2022; PRS.
Inputs for production
Fertiliser subsidy and soil health
The Ministry of Chemicals and Fertilisers is responsible for the production, distribution and pricing of fertilisers. However, the Ministry of Agriculture and Farmers’ Welfare is responsible for assessing its requirements.  The Agriculture Ministry is also responsible for promoting balanced use of fertilisers, i.e., ensuring that various nutrients and micronutrients are used in proper combinations. Three major nutrients used in fertilisers include Nitrogen (N), Phosphorous (P) and Potash (K).
Fertiliser subsidy: Fertilisers are subsidised through a urea subsidy (which contains nitrogen) and a nutrient-based subsidy for P and K fertilisers. Subsidy is provided to fertiliser manufacturers and importers so that farmers can directly purchase them at subsidised rates. 60 In 2023-24, Rs 1,75,103 crore was budgeted for fertiliser subsidies 22% less than the revised estimates of 2022-23. However, the subsidy for 2023-24 is 66% greater than the budget estimates for 2022-23.
In 2022-23, Rs 1,05,222 crore was budgeted for fertiliser subsidies, which increased to Rs 2,25,222 crore (114% increase) at the revised stage. In November 2022, the central government increased the subsidy rates for nutrient-based fertilisers for the Rabi season 2022-23 (October 1, 2022 to March 31, 2023). The increase was mainly on account of increased subsidy to indigenous urea, which was driven by an increase in international prices of fertilisers.
Table 10 : Allocation towards fertiliser subsidy (in Rs crore)
Sources: Demand for Grants 2023-24, Ministry of Chemicals and Fertilisers; PRS.
Fertiliser imports: The Ministry of Chemicals and Fertilisers noted that the international prices of raw materials and fertilisers have been increasing for the past year and a half, making imports costly.  About 25-30% of urea is imported annually.  Between January 2021 and December 2021, the international price of urea increased from 300 USD per metric tonne to 1,000 USD per metric tonne due to supply disruptions led by sanctions on Russia and export restrictions by China. 62 ,  As a result, a larger amount of money is being spent to import the same amount of fertilisers, which has led to an increase in the fertiliser subsidy.
Figure 13 : Import of urea (2019-20 to 2022-23)
Note: Data for 2022-23 is up to December 2022. Sources: Lok Sabha Unstarred Question 439; PRS.
Table 11 : Approved subsidy rates for Rabi season (October 2022 - March 2023)
Sources: Press Information Bureau; PRS.
Import dependence: The Standing Committee on Chemicals and Fertilisers (2021) had observed that 25% of urea, 90% of phosphatic fertilisers, and 100% of potassic fertilisers are imported.  India is dependent on imports of different fertilisers due to the non-availability or scarce availability of resources. To cushion the effects of fluctuations in international prices, the Committee recommended the Ministry to: (i) diversify import sources by signing long-term agreements through PSUs, and (ii) monitor international prices and maintain a buffer stock to control for sudden fluctuations. 62
The Standing Committee (2020) also noted the increase in expenditure on fertiliser subsidies over the years.  It noted that while it is necessary to provide the subsidy, it is also the government’s responsibility to contain this expenditure by adopting innovative ways without increasing the prices. 65 The Committee recommended that the government should take all possible steps to reduce its expenditure on subsidy by: (i) modernising fertiliser manufacturing plants, (ii) adopting best practices of manufacturing and strict energy norms, and (iii) building a strong research and development base for continuously upgrading the manufacturing technology, so as to reduce the manufacturing cost. 65
Soil Health: While examining the system of fertiliser subsidy, the Standing Committee on Chemicals and Fertilisers (2020) observed that agricultural productivity increased tremendously due to fertiliser subsidy, and helped ensure food security. 65 However, large amounts of subsidy has led to negative effects such as over-use and imbalanced use, which results in the degradation of soil. The Soil Health Card scheme was launched in 2015 to provide farmers with information regarding the quality of soil.  The Cards provide farmers with recommendations on appropriate nutrient dosage to improve soil health and fertility. 
This scheme has now been merged with the Rashtriya Krishi Vikas Yojana, an umbrella scheme for ensuring holistic development in agriculture. 2 As per the Ministry of Chemicals and Fertilisers, the possibility of excessive use of fertilisers generally arises when it is applied without proper assessment of: (i) the nutrient requirement of a crop, (ii) contribution of nutrients from soil and other sources, (iii) nutrient use efficiency of the fertilizers, and (iv) mode, method and time of applications. As per a study by the National Productivity Council (2017) on soil testing infrastructure, using fertiliser sand micronutrients based on Soil Health Card recommendations resulted in 8-10% savings and a 5-6% overall increase in the yield of crop. 
In order to prevent over-use of fertilisers, the Standing Committee on Chemicals and Fertilisers (2020) recommended that farmers must get the fertiliser subsidy directly in their bank accounts. 65 It noted that several manufacturing plants were operating with old technology which led to inefficiencies. The cost of such inefficiencies is being borne by the government through subsidies. It recommended that a direct transfer of subsidy would lead to a system where manufacture and import of fertilisers takes place as per market forces. 65 In October 2016, the Department of Fertilisers has implemented Direct Beneﬁt Transfer (DBT) project for fertiliser subsidy payment. Under the fertilizer DBT system, 100% subsidy on various fertiliser grades is released to fertiliser companies on the basis of actual sales made by the retailers to the beneﬁciaries.  A Nodal Committee has been constituted in June, 2020 to formulate a policy for implementing Direct Cash Transfer of Fertiliser Subsidy to farmers. Two meetings were held in 2020. 69
A significant portion of Indian agricultural is rainfall dependant. Current sources of irrigation such as tubewells and canals lead to wastage of water. Further, water intensive crops such as sugarcane are being grown in water-scare areas. The Ministry has launched the Pradhan Mantri Krishi Sinchayee Yojana to promote micro-irrigation techniques.
As of 2018-19, 51% of the country’s net sown area was under irrigation. 19 As of 2018-19, major irrigation sources include tubewells (49%) and other wells (15%), and canals (23%). Sources such as canals and tubewells use the flood irrigation technique, where water is allowed to flow in the field and seep into the soil. This results in wastage of water since excess water seeps into the soil or flows off the surface without being utilised. It has been recommended that farmers move from flood irrigation to micro-irrigation systems (drip or sprinkler irrigation systems) to conserve water.
The Pradhan Mantri Krishi Sinchai Yojana was launched in 2015 to increase the coverage of the area under irrigation. The Ministry implemented the ‘Per Drop More Crop’ component until 2021- 22 under the scheme to increase water efficiency through micro-irrigation and other interventions. The component of the scheme now continues under Rashtriya Krishi Vikas Yojana, an umbrella scheme for farmer welfare, for 2022-23. Between 2013 and 2021, 60 lakh hectares of area has been covered under micro-irrigation.
Several crops such as paddy and sugarcane are grown in districts that face a scarcity of water. For example, Maharashtra (which is one of the highest producers of sugar) faces groundwater stress and
lacks perennial sources of irrigation.  ,  Other states which also produce sugar such as Karnataka and Tamil Nadu lack proper irrigation channels. In these states, sugarcane cultivation takes place in districts where the groundwater level is categorised semi-critical. The Swaminathan Commission on Farmers noted that land-use must be designed such that crops that are high value, but require low water must be encouraged in water scarce areas.
Agriculture markets in most states are regulated by the Agriculture Produce Marketing Committees (APMCs) established by the state governments. APMCs were set up to ensure fair trade between buyers and sellers for effective price discovery of farmers’ produce. APMCs can: (i) regulate the trade of farmers’ produce by providing licenses to buyers, commission agents, and private markets, (ii) levy market fees or any other charges on trade, and (iii) provide necessary infrastructure within their markets to facilitate the trade.  The Standing Committee on Agriculture (2019) observed issues with the implementation of APMC laws and that they need urgent reforms. 79 Issues identified by the Committee include: (i) most APMCs have a limited number of traders operating, which leads to cartelisation and reduces competition, and (ii) undue deductions in the form of commission charges and market fees. Traders and commission agents organise themselves into associations, which does not allow easy entry of new persons into market yards, stifling competition. 79
Parliament enacted laws three laws in September 2020 to: (i) facilitate barrier-free trade of farmers’ produce outside the markets notified under the various state APMC laws, (ii) define a framework for contract farming, and (iii) impose stock limits on agricultural produce only if there is a sharp increase in retail prices.  ,  ,  The laws were repealed through the Farm Laws Repeal Bill, 2021 following large protests by farmers and a stay implemented by the Supreme Court. 
The Standing Committee on Agriculture (2019) noted that the availability of a transparent, easily accessible, and efficient marketing platform is a pre-requisite to ensure remunerative prices for farmers. Small and marginal farmers (who hold a majority of the agricultural landholdings in the country) face various issues in selling their produce in APMC markets such as inadequate marketable surplus, long distances to the nearest APMC markets, and lack of transportation facilities. There are several suggestions for reforming APMCs. These include digitalising the marketing process, contract farming, and promoting a futures market.
The central government released the model Agricultural Produce and Livestock Marketing (Promotion and Facilitation) Act 2017 in April 2017.  The model Act seeks to provide farmers with marketing channels other than the APMC. APMCs will be made responsible for: (i) ensuring payment to farmers on the same day, (ii) publicising the rates of agricultural produce brought into the market area for sale, and (iii) setting up public private partnerships for managing agricultural markets. Further, it has a provision to directly sell farm produce through a contract, without routing it through a notified market. As of November 2019, Arunachal Pradesh has adopted the model Act, while Uttar Pradesh, Chhattisgarh, and Punjab have adopted several provisions of the Act.  Studies have noted that contract farming may provide benefits in terms of yield, prices, and incomes. However, it may exclude small farmers as contracting corporations demand large tracts of land. Under the APMC Act of Haryana, a contracted price cannot be lower than the MSP of the preceding year, which affects price discovery proposed by the arrangement.  , 
An agricultural commodities exchange backed by a warehouse receipt system is expected to improve the efficiency in agricultural marketing. The National Commodity and Derivatives Exchange Limited (NCDEX) is an agricultural derivative exchange, incorporated in 2003.  Commodities such as soya oil, chana, jute, rubber, and turmeric are traded on NCDEX. As per the Standing Committee on Food, Consumer Affairs and Public Distribution (2010), futures markets lead to reducing seasonal price variations and help the farmer in realising a better price at the time of the harvest.  It allows a farmer to postpone the sale of his product as well, and moderate market arrivals. In 2021-22, NCDEX delivered 4.72 lakh tonnes of commodities, and represents 4 lakh farmers. 
Agriculture Infrastructure Fund: The scheme was approved in July 2020 and it seeks to provide a medium to long term debt financing facility for creating port-harvest management infrastructure. The size of the Fund is one lakh crore rupees, and loans up to two crore rupees will receive annual interest subvention of 3% (for up to seven years). 
Eligible beneficiaries under the scheme initially included entities such as primary agricultural credit societies, marketing cooperative societies, and farmer producers’ organisations. Eligibility was extended to state agencies/APMCs, national and state federations of cooperatives, federations of farmers producers’ organisations and federations of self-help groups in 2021.
The scheme has been allocated Rs 500 crore in 2023-24, 233% greater than the revised estimates of 2022-23. The scheme was allocated Rs 500 crore in 2022-23 as well. As of January 2023, the Fund has 59,144 registered beneficiaries. Rs 10,082 crore has been disbursed since August 2020 across 16,000 projects.
The Standing Committee (2019) noted that Gramin Haats (small rural markets) can emerge as a viable alternative for agricultural marketing if they are provided with adequate infrastructure facilities. 79 It recommended that the Gramin Agricultural Markets scheme (which aims to improve infrastructure and civic facilities in 22,000 Gramin Haats across India) should be made a fully funded central scheme and scaled to ensure the presence of a haat in each panchayat of the country. The central government has proposed development of basic infrastructure in Gramin Haats through the MGNREGS and of marketing infrastructure through the Agri-Market Infrastructure Fund. As of April 2022, infrastructure has been developed in 1,351 village haats under MGNREGS.  Subsequently, these haats will be linked to the e-NAM platform.
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