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Budget Gyan: Vote on Account, Interim Budget and Full Budget

  • India Infoline News Service
  • 14 Jan , 2022
  • 4:37 PM
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.

Finer points of Interim Budget, Full Budget and Vote on Account

A. Interim budgets are normally presented in an election year or when the government is facing a no-confidence motion. Normally, it is the election year. In India, central elections are conducted across the country in April and May once in 5 years. When the budget is presented in February (for example, 2014 or 2019), the government is about to complete its 5-year term. It may be tough to take concrete decisions on the road ahead till there is clarity on the new government. Hence, an interim budget is presented in an election year as a stop-gap arrangement. That is the accepted practice over the years.

B. Interim budget is linked to the vote-on-account or you can say vote on account is the outcome of the interim budget. What do we understand by Vote on Account? The vote-on-account gets the approval of the Parliament to draw funds from the Consolidated Fund of India (CFI) for routine expenses between April and the formation of the new government. This is a stop-gap arrangement to ensure expenses are met.

C. Interim budgets are also a sign of deference to electoral democracy where election outcomes cannot be predicted till the results are actually out. Since there is no guarantee that the same government will return to power, the FM cannot make long term allocations and commitments ahead of elections. The full budget is only presented after the new government assumes office and the new finance minister is appointed. In election years, the interim budget is presented in February and the final budget is presented in June or July after the new government is in place.

D. One big difference between a full budget and interim budget is the Finance Bill. This Bill, which is part of the Union Budget, announces the in the Direct Tax provisions and modifications. These are reserved for the full budget since they may be too sensitive to be presented in an interim budget. The Finance Bill requires a comprehensive debate on the direct taxes, the annexures and implications. This may not be feasible in an election year when the nature of the new government is now known. That is why, the Finance Bill is normally placed before the house only in the full budget and not in interim budget.

E. Union budget presentation is normally the prerogative of the newly formed government. After all, it is the new government that will set the tone for the next financial year. This is the main reason why the vote on account is used as a temporary stop-gap arrangement to keep the central administrative machinery up and running. However, anything to do with major changes in direct taxes or the reforms process are reserved for the full budget.

F. The distinction between interim budget and final budget has been necessitated by the Election Commission’s model code of conduct that kicks in just before the general elections. Here is the dilemma! If the ruling party presents the full year budget, it would be tantamount to making promises at a time when the colour and nature of the new government is uncertain. That would be against the basic democratic principles where the mandate of the electorate is considered to be supreme. For example, governments may be inclined to offer easy sops to attract votes. The interim budget without reforms and direct tax sops, serves the purpose of adhering to the Election Code of Conduct.

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.

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Budget Gyan: Vote on Account, Interim Budget and Full Budget

  • 24 Jan , 2023
  • 2:04 PM
  • 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.

Finer points of Interim Budget, Full Budget and Vote on Account

  1. Interim budgets are normally presented in an election year or when the government is facing a no-confidence motion. Normally, it is the election year. In India, central elections are conducted across the country in April and May once in 5 years. When the budget is presented in February (for example, 2014 or 2019), the government is about to complete its 5-year term. It may be tough to take concrete decisions on the road ahead till there is clarity on the new government. Hence, an interim budget is presented in an election year as a stop-gap arrangement. That is the accepted practice over the years.

     
  2. Interim budget is linked to the vote-on-account or you can say vote on account is the outcome of the interim budget. What do we understand by Vote on Account? The vote-on-account gets the approval of the Parliament to draw funds from the Consolidated Fund of India (CFI) for routine expenses between April and the formation of the new government. This is a stop-gap arrangement to ensure expenses are met.

     
  3. Interim budgets are also a sign of deference to electoral democracy where election outcomes cannot be predicted till the results are actually out. Since there is no guarantee that the same government will return to power, the FM cannot make long term allocations and commitments ahead of elections. The full budget is only presented after the new government assumes office and the new finance minister is appointed. In election years, the interim budget is presented in February and the final budget is presented in June or July after the new government is in place.

     
  4. One big difference between a full budget and interim budget is the Finance Bill. This Bill, which is part of the Union Budget, announces the Direct Tax provisions and modifications. These are reserved for the full budget since they may be too sensitive to be presented in an interim budget. The Finance Bill requires a comprehensive debate on the direct taxes, the annexures and implications. This may not be feasible in an election year when the nature of the new government is now known. That is why, the Finance Bill is normally placed before the house only in the full budget and not in interim budget. 

     
  5. Union budget presentation is normally the prerogative of the newly formed government. After all, it is the new government that will set the tone for the next financial year. This is the main reason why the vote on account is used as a temporary stop-gap arrangement to keep the central administrative machinery up and running. However, anything to do with major changes in direct taxes or the reforms process are reserved for the full budget. 

     
  6. The distinction between interim budget and final budget has been necessitated by the Election Commission’s model code of conduct that kicks in just before the general elections. Here is the dilemma! If the ruling party presents the full year budget, it would be tantamount to making promises at a time when the colour and nature of the new government is uncertain. That would be against the basic democratic principles where the mandate of the electorate is considered to be supreme. For example, governments may be inclined to offer easy sops to attract votes. The interim budget without reforms and direct tax sops, serves the purpose of adhering to the Election Code of Conduct.

     

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.

Budget Gyan: Budget process from start to finish

  • 25 Jan , 2023
  • 2:44 PM
  • Most of you have seen the budget being presented by the Finance Minister on the floor of the house each year. Have you ever wondered about the amount of work and detailing that goes into the preparation of the Union Budget?

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.

  1. Budget formulation, which entails preparation of estimates of expenditure and receipts for the fiscal year

     
  2. Budget approval by the Lok Sabha and Rajya Sabha via enactment of Finance Bill and Appropriation Bill

     
  3. Implementing or enforcement budget provisions including collection of receipts and making necessary disbursements

     
  4. Legislative review of budget implementation

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.

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