'No spectacular announcements': Will FM walk the talk on interim Budget?

Union Finance Minister Nirmala Sitharaman has already stated that there would be no spectacular announcements in the forthcoming Interim Budget for 2024-25. If this happens, it would be a drastic change from the practice of coming out with new policies and tax rate changes in Interim Budgets since 2004-05.

The Interim Budget is also called “Vote on Account” in common parlance. However, a Vote on Account contains just the government’s expenses, whereas an Interim Budget deals with receipts and payments. A vote on account is valid for two months or so, while an Interim Budget is a Budget for the transition when elections are on the anvil.

 The Interim Budget due on February 1, 2024, will include a Vote on Account to ensure that the government’s expenditure does not get affected in view of the Lok Sabha elections. One has to wait for D-day to see if it has anything more than that.

Before 2004, governments usually refrained from announcing a programme, scheme, or tax rate changes in the Interim Budget, leaving them for the next elected regime to undertake. A Vote on Account was frequently used until 2016, when the Budget was presented on the last working day of February. In 2017, the Budget presentation date was advanced to February 1. This gave the government almost two months to get the full Budget passed in the same financial year. Since 2017, the Vote on Account is not usually used as part of the government’s budgeting process, unless in special cases, such as an election year.

As the Interim Budget provides a complete set of accounts, including both expenditure and receipts, the estimates are presented for the entire year, as is the case with the regular Budget. The next government, which comes after elections, has the freedom to change the estimates completely when the final Budget is presented.

The practice of announcing changes in tax rates in Interim Budgets was started in 2004 by then Finance Minister Jaswant Singh. He announced measures, such as the merger of a 50 per cent dearness allowance of central government employees with basic pay, halving of the stamp duty on central government papers, reduction in Customs duty on free baggage at international airports from 50 per cent to 40 per cent, raising free baggage allowance at those airports, and extending the Antyodaya Scheme from 15 million families to 20 million.

These changes were made despite Singh announcing a whole set of tax modifications just about a month ago. In January that year, in what came to be called the Mini Budget, Singh had announced a cut in excise and Customs duties that dealt a Rs 10,000-crore impact on the exchequer.

The Atal Bihari Vajpayee government’s finance minister did not stop at making changes in tax rates in the Interim Budget. He made other promises, too, such as extending the exemption from long-term capital gains tax on shares bought after March 2003, by three years, extending fiscal benefits for the power sector by six years to 2012, a reform in the tonnage tax scheme for the shipping industry, and exemption from capital gains tax on farmers’ land acquired by the government.

The subsequent finance ministers followed in Singh’s footsteps and did not revert to the old-school ways of staying away from announcing new schemes and tax rate changes in the Interim Budget.

At the outset, it may seem that Pranab Mukherjee did not announce tax changes in the Interim Budget he presented in February 2009 as acting finance minister of the first United Progressive Alliance (UPA) government. However, in reply to the debate on the Interim Budget, he extended the earlier reduction in central excise duty rates by 4 percentage points beyond March 31, 2009, cut central excise from 10 per cent to 8 per cent, and reduced service tax rates to 10 per cent from 12 per cent.

P Chidambaram, in his Interim Budget for 2014-15, as finance minister of the second UPA government, cut excise duty on some capital goods and consumer non-durables, and also on two-wheelers, cars, commercial vehicles, sports utility vehicles, and mobile phones. However, he announced some of these cuts for the period only up to June 30, 2014, and left it to the next government to take a call.

Piyush Goyal, as finance minister of the National Democratic Alliance (NDA) government presenting the Interim Budget for 2019-20, raised the pitch. He announced a new programme, PM-KISAN, to offer annual income support of Rs 6,000 a year to all farmer families that have cultivable land up to 2 hectares. This impacted the exchequer by Rs 75,000 crore a year.

He came out with another programme -- PM Shram-Yogi Maandhan-- to provide pensions to 100 million workers in the unorganised sector. He also gave full tax rebate to those with a total taxable income of up to Rs 5 lakh, increased the standard deduction limit to Rs 50,000, and raised the limit for deducting tax at source for bank interest earnings from Rs 10,000 to Rs 40,000 a year.

Subhas Chandra Garg, who wrote that Interim Budget speech as the then department of economic affairs secretary, however told Business Standard that some of the proposals, such as PM-KISAN and PM Shram-Yogi Maandhan, did not have his real authorship. He said those two proposals were basically the Prime Minister's Office (PMO) initiatives that time, not the finance ministry’s.

Besides, tax matters were with the revenue department. The other portions of the speech had his real authorship, Garg said. He said there is no difference between the Interim Budget and the regular Budget, as far as the Constitution is concerned.

Former Lok Sabha Secretary-General P D T Achary said it is not appropriate for a government facing elections to announce programmes and policy changes for the next year. “The next elected government is competent to do it,” he argued.

Achary also pointed out that there is nothing in the Constitution that prevents the outgoing government from announcing programmes and changes in tax rates in the Interim Budget, while adding that it may, however, be in contravention of the constitutional scheme of things.

Garg said there are two views on how to prepare the Interim Budgets. One view can be that since you are not at this movement, elected government of the next year, you just make the Budget which is just estimates of receipts and expenditures based on the existing scale of operations, present it, and get quick approval of Parliament, he explained.

 "That view is the one which used to prevail until 2019. If you go back to the earlier Interim Budgets, there were not many new proposals. But the character changed quite a lot in 2019,” he recalled.  

Again in 2024, the same political party is running the government, Garg said, adding it may like to use the opportunity the same way as was done in 2019. “There is nothing to stop them,” he emphasised.