Ahead of the 2024 general elections, the Modi government is preparing to present its second interim budget on February 1. Union Finance Minister Nirmala Sitharaman, who has presented the budget for the past five years, will seek Parliament’s approval for the government’s expenditure for the first four months of this fiscal year. India will most likely go to polls in April-May this year.
Why an interim budget?
As per Article 112 of the Indian Constitution, a statement of the estimated receipts and expenditure of the Government of India for a specific financial year— referred to as ‘annual financial statement’ — is laid before both Houses of Parliament. The Centre seeks both Houses’ approval to withdraw the necessary funds from the Consolidated Fund of India; this statement has to be passed by both Houses.
However, in an election year, the incumbent Government cannot present a full Budget as there may be a change in the executive after the polls. Hence, the need for an interim budget. As there is no constitutional provision for an interim budget, the Centre can choose to seek the Lower House’s approval for the funds required for the transition period (April – July) till the new government presents a full Budget— via the votes on account provision.
What is an interim budget?
Article 116 of the Constitution allows the Lower House to make any grant in advance for the estimated expenditure for part of any financial year by voting and passing such a legislation, i.e. vote on account. The Lok Sabha is empowered to authorise withdrawal of required funds from the Consolidated Fund of India for such expenditure.
A simple vote on account includes presenting the Centre’s fund requirements for salaries, ongoing projects and other expenditure for the transitional period, and is then passed via the Lok Sabha sans debate. It cannot make any changes to tax rates. It is also valid only for two months and can be extended up to four months.
However, it has been the trend for outgoing governments to present an interim budget instead of a simple vote on account. In an interim budget, the Finance Minister will present the current state of the Indian economy, its fiscal status including India’s revised estimated growth in the next year (here FY 25 from April 2024-March 2025). She will also detail the government’s planned and non-planned expenditure and receipts. While the Centre has to desist from announcing any major scheme which could influence voters or present an Economic Survey, the government is allowed to revise tax rates via an interim budget.
Affirming the same, Ms. Sitharaman said, “The Budget that the government presents would just be to meet with the expenditure of the government till a new government comes to play. So no spectacular announcements are made that time. You may have to wait till after the new government comes in and the next full Budget will July 2024. So things have to wait till then.”
How is it different from the Union Budget?
In the case of the Union Budget, the Finance Minister presents the annual financial statement to both Houses on February 1, at the beginning of Parliament’s Budget session. The document, which is now paperless, is circulated to all members as the Minister summarises key points in the Budget speech. The Minister lists the work completed in various sectors via central schemes, explains the need for proposed schemes, enumerates funds allocated for the same, and details the aims of the various departments for the next fiscal year. The Minister also briefs the Houses on the state of the nation’s economy, its growth projections, fiscal deficit and the government’s source of income via taxes and cess.
The document is then presented to both Houses, which will vote to pass it before it is sent to the President for approval. If the Budget is not passed by the Lok Sabha, the Prime Minister and his Cabinet will have to resign.
Similarly, the interim budget too will be presented to both Houses on February 1 by the Finance Minister, put to vote and then sent for Presidential approval. It will list the current status of the Indian economy, its projections and the government’s projected expenditure till June/July 2024, when the new government will present a full budget. Like the Union budget, the interim budget too is debated in the Lok Sabha before passage and is valid for the entire year though it is merely a transition arrangement.
Expectations from Budget 2024
With the BJP having launched its 2024 poll campaign, helmed by Prime Minister Narendra Modi, the upcoming budget is expected to cater to tax payers. According to Businessline, the standard deduction of Rs 50,000 under both tax regimes (old and new) might be raised to tackle food inflation. While the income tax rates are unlikely to be changed, the exemptions and the threshold limits of the tax slabs may be altered. By raising the limit by Rs 50,000, those who earn up to Rs 5.5 lakhs annually may not have to pay tax at all.
The government may also increase funds allotted to the employment guarantee scheme MGNREGA, to alleviate the rural employment crisis. While sectors like health, real estate, and fast-moving consumer goods seek higher allocation, targeted schemes and tax breaks, these are unlikely to be tackled in the interim budget. The Centre is expected to set a fiscal deficit target of 5.3% of GDP, thus allowing it to raise its capital expenditure by 10% to around Rs 10.2 lakh crore, estimates ratings firm Investment Information and Credit Ratings Agency (ICRA).
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