Interim Budget Vs Union Budget

In India, the budgeting process is a crucial aspect of the country’s economic governance, with two distinct types of budgets – the Interim Budget and the Union Budget. With general elections just around the corner, Finance Minister Nirmala Sitharaman will present an interim budget instead of a regular full-year budget for the next fiscal year.

What is Interim Budget? 

During the general election year, the government in power presents an interim budget instead of a union budget. It serves as a temporary financial plan to meet the immediate requirements of the government until the new administration takes charge. Typically, Interim Budgets cover a short duration, extending only until the new government can present a full-fledged Union Budget.
An interim budget includes all the financial statements of expenses incurred along with income earned in the previous year. It also includes the expenses expected to be held in the next few months until the new government takes charge. It should be noted that during the transition period, the ruling government must have the Parliament’s permission to withdraw funds from the Consolidated Fund of India, into which the government deposits all of its revenue.
The consolidated fund of India was constituted under Article 266 (1) of the Constitution of India. All revenues received by the government by way of direct taxes and indirect taxes, money borrowed and receipts from loans given by the government flow into this fund.

What is a Union Budget?

The Union Budget, on the other hand, is the annual budget prepared by the central government, this budget is passed after a whole discussion in the Lok Sabha, and is for the entire fiscal year. It outlines the government’s revenue and expenditure plans, along with policy initiatives, taxation proposals, and economic forecasts. The Union Budget also has a component on spending funds for various social welfare measures for the development of a country. It also provides a detailed information of income and expenses of the previous year, and the plan of the government on how to raise funds through various measures and how it will be utilised in the development of the nation.

Why is an interim budget prepared instead of a full-year budget?

It is impracticable for the current administration to draft and approve a full-year budget during an election year as the control of power could have to be transferred to the next in line. The future administration will have more time to construct and draft the Union budget for the remaining fiscal year with the help of the interim budget.

Why is an interim budget necessary?

An Interim Budget’s primary focus is on meeting the government’s maintenance expenditures, such as salaries, interest payments, and essential services. Capital expenditures and new projects are usually deferred for the new government to decide. There is no constitutional provision for an interim budget. But it’s now standard procedure for the departing government to do so before elections. Alternatively, rather than producing an interim budget, a ruling administration may decide to use the vote-on-account option to secure the required cash for expenses.

What is a vote-on-account?

The Interim Budget includes a Vote on Account, which is a grant made in advance by the parliament to meet the essential expenditure for a specific period (till the formation of a new government). It does not contain any proposals for new schemes or policy changes.

What can and cannot be included in the interim budget?

Estimates for the government’s spending, revenue, fiscal deficit, financial performance, and expectations for the following months can be included in the interim budget. Whereas the interim budget cannot include any substantial policy pronouncements that may burden the next government.

How is the interim budget different from the full-year budget?

The primary objective of an Interim Budget is to ensure the continuity of governance during the transitional phase. It avoids a policy vacuum and ensures that essential government functions can proceed smoothly. Unlike the Interim Budget, the Union Budget is designed for the entire fiscal year and presents a more comprehensive and long-term vision for the country’s economic development. It also includes new policy measures, schemes, and allocations for various sectors. The Union Budget distinguishes between capital and revenue expenditures, allocating funds for both. It encompasses a holistic view of the government’s financial commitments, encompassing infrastructure development, social welfare programs, and other key sectors.
The Union budget consists of two parts — income and expenses of the previous year and expenses to be incurred in the next year. The interim budget has the first part of the previous year’s income and expenses, but the second part will only have the most basic expenses up until the election.

Will another budget be prepared after the election?

The Union Budget often carries higher public expectations, as it is a reflection of the government’s economic vision and commitment to addressing pressing issues. Interim Budgets, being transitional, are more about ensuring continuity and stability. The ruling government prepares an interim budget for the rest of its tenure and leaves the task of framing the full budget to the incoming government.

Conclusion:

In conclusion, both the Interim Budget and Union Budget are crucial components of India’s fiscal governance, each serving a distinct purpose in the country’s economic cycle. The Interim Budget acts as a caretaker, ensuring the smooth functioning of the government during the transitional period, while the Union Budget sets the tone for the nation’s economic priorities and policies for the entire fiscal year. Together, these budgets play a pivotal role in steering India’s economic trajectory, ensuring stability, and fostering sustainable growth.