Interim Budget 2019: Why outgoing govts don't present full-fledged Budgets

Here's why an outgoing government needs to present an interim Budget at all, and the precedents that the finance minister can go by while doing so later this week

Last Updated : Jan 30 2019 | 1:10 PM IST

What is an interim Budget? What prevents an outgoing government from presenting a full-fledged Budget?

As the financial year in India ends on March 31, no money can be spent after that from government coffers without obtaining parliamentary approval. Thus governments of the day present an interim Budget, which is essentially a stop-gap arrangement, that ensures that it has the necessary funds to spend so that the working of the government does not come to a standstill once the financial year ends. The interim Budget is followed up by a full Budget that is presented by the new government that is sworn in after the elections.

What are the things a government can and cannot do in an interim Budget?

By convention, governments have shied away from announcing any new proposals or policy changes in interim Budgets for the upcoming financial year. That is the prerogative of the new government that is sworn in after the elections. However, some finance ministers have in the past shied away from convention by announcing a spate of new proposals in the interim Budgets.

Who presented the last three interim Budgets? And what was the state of the Indian economy when they were presented?

The last three interim Budgets were presented Jaswant Singh in 2004 under the Atal Bihari Vajpayee led NDA government, Pranab Mukherjee in 2009 and P Chidambaram in 2014, under the Manmohan Singh led UPA governments.

In 2004, when Jaswant Singh presented the interim Budget for 2004-05 the Indian economy had just embarked on a high growth phase. The economy was projected to grow at 7.5 to 8 per cent as per the then GDP series. The centre’s centre’s fiscal deficit which was budgeted to rise to 5.6 per cent of GDP in 2003-04 was brought down to 4.8 per cent in the revised estimates. Singh had budgeted it to decline further to 4.4 per cent in 2004-05.

Pranab Mukherjee’s Interim Budget of 2009-10 was presented against the backdrop of the financial crisis of 2008. As the then UPA government had already rolled out a fiscal stimulus to deal with the crisis, the centre’s fiscal deficit had risen to 6 per cent of GDP in 2008-09, up from the budget estimate of 2.5 per cent in 2008-09. Mukherjee proposed to bring the deficit down to 5.5 per cent in 2009-10.

When Chidambaram presented his interim Budget for 2014-15 oil prices were on the rise and the economy was the midst of a slowdown (according to the earlier GDP series). Chidambaram had then proposed to bring down the fiscal deficit to 4.1 per cent of GDP in 2014-15, from 4.6 per cent in 2013-14 (RE).

What are the precedents before the current government to choose from?

Of the three past interim Budgets, only the one presented by Pranab Mukherjee, shied away from announcing any new tax proposals. By comparison, both Jaswant Singh and P Chidambaram announced a slew of proposals.

For instance, in the interim Budget of 2004-05, Singh announced that fiscal benefits available to new projects in the power sector that were earlier available till 2006, would be extended up to 2012. He further proposed that exemption from long-term capital gains tax available for listed equities acquired on or after March 1, 2003, be “extended for a further period of three years so as to provide stability”. He also announced that as the salaried class had the “best track record of compliance”, the standard deduction that was allowed for the purpose of calculating income-tax burden be revised.

On the indirect tax side, Singh announced several proposals to benefit the capital goods segment, power equipment and fuel oils used for power generation. He also proposed several administrative changes so as to reduce the compliance costs in customs and service tax.

In the interim Budget of 2014-15, then finance minister P Chidambaram announcement that the UPA government had accepted the principle of One Rank One Pension for the defence forces. “This decision will be implemented prospectively from the financial year 2014-15. The requirement for 2014-15 is estimated at Rs 500 crore and, as an earnest of the UPA Government’s commitment, I propose to transfer a sum of Rs 500 crore to the Defence Pension Account in the current financial year itself,” he stated.

Chidambaram also tinkered with various indirect tax rates. For instance, in order “to stimulate the growth of capital goods and consumer non-durables”, he proposed to reduce the excise duty from 12 per cent to 10 per cent. He also cut excise duty to provide relief to the automobile industry and restructured the excise duties for all categories of mobile handsets in order to encourage domestic production of mobile handsets.