Understanding the Difference Between Union Budget and Interim Budget

An Overview of Union Budget and Interim Budget

The forthcoming budget, scheduled to be presented on February 1, 2024 by Finance Minister Nirmala Sitharaman, is anticipated to be an interim budget in light of the impending elections.

With the Lok Sabha elections projected to take place between April and May 2024, the budget is likely to have an interim focus, aligning with the transitional nature of the government during this period. As India prepares for the electoral process, the budget is expected to address immediate priorities and necessities, serving as a temporary financial framework until a new government is in place post-elections.

In this article, we will explore the significant distinctions between an Interim Budget and the Union Budget.

What is Budget?

The budget is a comprehensive report of a government’s finances, detailing its revenues from all sources and outlays for all activities. It serves as an annual financial statement of the government’s revenue and expenditure. The government budget is a summary of expected revenues and expenditures during a fiscal year.

The Indian Constitution, in “Article 112”, refers to it as the ‘Annual Financial Statement’ instead of the term ‘Budget‘; the latter is not explicitly mentioned in the constitution.

What is an Interim Budget?

The Interim Budget in India is a crucial financial document presented by the government when the general elections are around the corner, typically in the year of the election. It functions as a temporary financial plan to address the country’s expenditure needs until a new government is elected and a comprehensive budget is presented.

Conventionally, an Interim Budget also known as ‘vote-on-account’. An Interim Budget remains effective for a duration of two months, with the possibility of extension if necessary.

In accordance with Article 116 of the Constitution, a vote-on-account signifies an upfront allocation to the government from the ‘Consolidated Fund of India,’ specifically designated to meet immediate expenditure needs.

Important to note:

• The Interim Budget differs from the regular budget as its primary focus is on addressing the immediate financial requirements of the government rather than introducing new policy measures or reforms.

Objectives of Government Budgeting

The objectives of government budgeting encompass several key facets:

1. Resource Allocation:

Government budgeting serves as a tool for the allocation and management of resources to benefit the public. This includes funding essential services such as national defense, infrastructure development, and administrative functions.

2. Income Redistribution:

The government plays a role in influencing household income through the collection of taxes and the provision of transfers, aiming to ensure a fair distribution of wealth. Progressive income taxation is employed, where higher incomes are subject to higher tax rates, and exemptions or lower taxes are applied to essential goods and services compared to luxury items.

3. Economic Stabilization:

Government budgeting is instrumental in stabilizing the economy by regulating fluctuations in income and employment. Through adjustments in aggregate demand, the government intervenes to expand or reduce overall spending, thereby impacting levels of employment and prices. This proactive approach aims to maintain economic stability and mitigate the effects of economic cycles.

Constitutional Provisions for Budget

Constitutional provisions regarding the budget in India are outlined in various articles:

1. Article 112 mandates that the President present an annual financial statement to both Houses of Parliament, detailing the estimated receipts and expenditures of the Government of India for the financial year.

2. Article 113 stipulates that no demand for a grant can be made without the recommendation of the President.

3. Article 114 establishes that no amount can be withdrawn from the Consolidated Fund of India (CFI) without the authorization of Parliament.

4. Article 266 directs that all government revenues be credited to the “Consolidated Fund of India,” while other public funds, such as provident funds and Postal insurance, are credited to the Public Account of India.

5. Article 267 empowers Parliament to establish a Contingency Fund of India through legislation to address unexpected or unforeseen expenditures.

6. Article 116, concerning Votes on account, votes of credit, and exceptional grants, provides constitutional guidance on these financial matters.

Important Facts

1. Union Finance Minister Nirmala Sitharaman is set to present the interim budget for the fiscal year 2024-25 on February 1.

2. The full budget for the same fiscal year will be introduced subsequent to the formation of the new government following the general elections.

3. Article 116 of the Indian Constitution allows for a vote-on-account, enabling an upfront allocation from the Consolidated Fund of India to meet immediate expenditure needs.

4. The Consolidated Fund of India encompasses all revenue generated by the central government, incorporating taxes, interest on loans, and other collections.

5. Notably, the Rail Budget was merged with the Union Budget from the fiscal year 2017-18 based on the recommendation of the Committee led by Shri Bibek Debroy.

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