Finer points of Interim Budget, Full Budget and Vote on Account
Finally, let us conclude with a sidelight. It is not just outgoing governments in an election year that present interim budget (vote on account). There are occasions when the incumbent government also presents an interim budget due to paucity of time. Till date, there have been 12 Votes on Account in India, of which six were by outgoing government while six were by incumbent governments. Normally, the incumbent government that gets elected very close to the end of the fiscal year (November or December) prefers to present an interim budget and then a full budget February next. So that is what these different types of budgets are all about.
It is actually a full 6 month process that starts in August in the previous year and culminates in February next year. We will also look at some unique aspect of the Indian Budget process like the “Halwa Ceremony” and why it is done. Over to the budget process.
Four pillars of the Budget process
The entire budget is divided into 4 clear phases.
Let us focus here on the Budget preparation process for Feb-22 Union Budget.
Step 1: Annual Budget Circular commences in August
The budget process starts around the previous August itself i.e. The first step is the Department of Economic Affairs, Ministry of Finance issuing the Annual Budget Circular. These are detailed instructions for various departments / ministries for preparing budget estimates. For every item under the purview of that department, the officials have to present the Budget Estimates, Actuals and the Revised Estimates for the ongoing budget year for every item of receipt and expenditure. For example, when budget is presented on 01-Feb 2023, it will contain budget estimates for 2023-24, revised estimates for 2022-23 and actual expenditures and receipts of 2021-22.
Here the Niti Aayog (formerly called Planning Commission) has a role to play. The various ministries provide budget estimates for plan-related expenditure for the next year in consultation with the Niti Aayog. These estimates must fit into the Plan allocations for each five year bracket.
Step 2: Reducing the Fiscal Deficit (Budget Deficit)
This is portion of outflows that cannot be funded by budget inflows. Hence the government has to rely on borrowings. Under the FRBM Act, the onus is on the Finance Minister to strive towards the reducing the fiscal deficit and bring revenue deficit to zero. The Fiscal deficit was to progressively move towards 3.5% of GDP and then to 3% of GDP. However, due to COVID, the normal FRBM path has been disrupted as India ended up with fiscal deficit of 9.4% in FY21 and 6.9% in FY22 and possibly 6.4% in FY23. This budget will put the onus on the finance minister to reduce the fiscal deficit to around 5.8% for FY24 and give a timetable to bring it to 3.5% target.
Step 3: Consolidating Budget Data and Priorities
This normally happens around January wherein the revenue-earning ministries provide estimates of revenue receipts in the current fiscal year and next fiscal year to the finance ministry. Once the total receipts are consolidated, the various budget proposals are examined by the finance minister and expenditure is prioritized in consultation with the prime minister and the Union Cabinet.
Step 4: Inputs from key stakeholders
This is when (around the second week of January), the Finance Minister holds pre-budget consultations with various stakeholders to seek final inputs. These include various ministries, state governments, trade associations, industry associations, industry captains, stock market professionals, leading academicians, economists, bankers etc. By the end of January, the People’s Charter of Demands is readied and incorporated into the budget where acceptable and approved.
Step 5: Putting the final Budget document in place
This is the last step in the budget preparation process. Here the National Informatics Centre (NIC) helps the budget division consolidate all the tables, graphics and data into a single document. The consolidation is fully computerized. This is a stage that entails high secrecy and the budget staff normally stays there till the budget is ready. At the end of the process, the permission of the President is sought before finalizing the budget for printing.
Step 6: Budget Printing and Halwa ceremony
The printing process of the Union Budget papers is marked by the traditional “Halwa Ceremony” at North Block. In Indian tradition, it is believed that it is auspicious to eat something sweet before starting an important work. Halwa ceremony is presided over by the Finance Minister.
However, the Union Budget 2022-23 presented by Nirmala Sitharaman on 01st February 2022 was not physically printed but it was a digital budget. That could be the trend in the coming years too.
Why did the government present 2 budgets in 2019 but only one budget in 2020? Why was 2014 called a vote on account and why was 2019 called interim Budget? Let us unmask these realities.