A budget is a comprehensive financial plan that outlines the government’s anticipated revenues and planned expenditures for a specific period. It serves as a roadmap for managing public finances, allocating resources to various sectors, and addressing the economic needs of the country. But, what is an interim budget?
An interim budget plays a crucial role in India’s fiscal landscape. It is often presented during periods of transition, and specifically in the year when Lok Sabha elections will be conducted for the formation of a new government, like this year – 2024. Unlike a full-fledged budget that is presented each year by the ruling government, the interim budget is a condensed version with specific implications. Here’s everything you need to know about interim budgets and how they influence the country’s economy.
Table of Content
Structure of an Interim Budget
- Revenue and Expenditure: An interim budget outlines the government’s expected earnings and planned expenditures until a new budget is enacted.
- Economic Indicators: Apart from the usual figures, interim budgets may contain updates on key economic indicators, providing a snapshot of the country’s economic health.
- Policy Announcements: While major policy changes are usually reserved for full budgets, interim budgets may introduce essential policy tweaks to address immediate challenges.
Distinguishing Features of an Interim Budget
An interim budget, while sharing similarities with a full budget, serves a specific purpose during a transitional period. Here are the key distinctions:
- Timing and Purpose: Interim budgets are presented when the government is in transition, often in election years. Their primary purpose is to ensure the continuity of government functions until a new administration takes charge.
- Scope and Duration: Interim budgets typically cover a short period until a full-fledged budget is presented. They focus on maintaining essential services and avoiding disruptions during the transitional phase.
The chief limitation of the interim budget is that it is usually without any major policy related changes. This is in accordance with the directives of the Election Commision that prohibits the ruling government from offering any reliefs or options that may unfairly sway the public’s opinions and, in turn, their votes.
Upcoming Interim Budget: Vote-on-Account
According to the Finance Minister, the upcoming interim budget is more accurately described as a vote-on-account rather than a typical Interim Budget.
You may have heard the term often – vote-on-account. While these terms are often used interchangeably, there are a few differences between them. Typically, an interim Budget encompasses the current economic state, planned and unplanned expenditures, changes in tax rates, and estimates for both the current and upcoming fiscal years. On the other hand, a vote-on-account is passed by Parliament to cover essential expenditures for a brief period, such as salaries, ongoing projects, and general government expenses. It focuses solely on the outgoing government’s financial responsibilities for two to four months, which can be extended under special circumstances.
Similar to a full Budget, the interim Budget undergoes discussion and approval in the Lok Sabha, but in the case of a vote-on-account, it is passed without any detailed formal deliberation. While both budgets can propose alterations to the tax regime, a vote-on-account is restricted from making any changes to the tax structure. Essentially, it serves as parliamentary approval for withdrawing funds from the Consolidated Fund of India between April and June/July or until the new government presents a comprehensive Budget. This approval is similar to getting an advance financial grant, offering interim financial support and authorisation for the outgoing government to access funds from the mentioned fund to cover short-term expenses. In terms of validity, the interim budget remains effective throughout the year, whereas a vote-on-account holds validity for only two to four months.
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Key Takeaway
In summary, a budget is a holistic financial plan for the entire fiscal year that includes revenue, expenditure, and policy directions for the nation. An interim budget, on the other hand, is a temporary measure, ensuring financial continuity during transitional phases, especially during election years. Both play critical roles in shaping the economic landscape, with budgets offering long-term strategies and interim budgets providing short-term stability.
In election years, an interim budget ensures continuous government operations until a new budget is enacted.
The first interim budget was presented in 1947 by the then Finance Minister R K Shanmukham Chetty. It set the precedent for subsequent interim budgets, establishing their role in India’s fiscal governance.
While major changes are usually reserved for full budgets, interim budgets may include essential policy adjustments.
It typically includes revenue and expenditure details, key economic indicators, and sometimes, policy announcements.
It provides a snapshot of the government’s financial plans until a new budget is presented, impacting short-term economic strategies.
An interim budget remains in force until a new government approves a full-fledged budget.
While it may touch on critical issues, an interim budget’s scope for addressing long-term challenges is usually limited.
An interim budget stays in force until a new government approves a full-fledged budget, ensuring continuity in administrative functions.
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