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HindustanTimes Thu,31 Jul 2014

Budget, interim budget: what you should know about FM's speech

Gaurav Choudhury , Hindustan Times  New Delhi, February 16, 2014
First Published: 15:47 IST(16/2/2014) | Last Updated: 08:47 IST(17/2/2014)

An interim budget is presented by an outgoing government but does not usually contain significant tax-related measures. It is primarily aimed to enable spending till a new government assumes office and Parliament passes a full budget.

We answer a few frequently asked questions about the interim budget.

What is Budget?

Government's financial plans, pretty much like household budgets, are primarily about prioritising spending. Total expenditure or the size of the annual budget is the amount of money that government spends during the year.

Over the years, the government's annual spend has risen sharply, reflecting the growing size of the economy as also the need to fund welfare schemes such as the rural job guarantee scheme NREGS.

On the other hand, the government's revenues are akin to the income of a large family where the each member's earning from various sources is pooled together to take care of the total expenses.

Like households, the government also borrows money to fund some of its expenses as income falls short of revenues.

The government's Annual Financial Statement or the Statement of the Estimated Receipts and Expenditure for each financial year is popularly known as the Budget.

Read: Chidambaram to avoid populist announcements in interim budget

How is the government expenditure categorised?

India's total expenditure is divided into two broad components: plan and non-plan. 

Plan expenditure is spent on productive asset creation through centrally-sponsored programmes and flagship schemes.

Traditionally, higher plan expenditure is considered good budget management because it implies that more funds are going towards asset creation that can multiply income and create jobs.

On the other hand, 'non-plan' refers to all other expenditure such as defence expenditure, subsidies, interest payments, including expenditure on establishment and maintenance activities such as salaries.

The government's five-year plan is knocked down into five annual plans that are fleshed out in the budget. The central plan is funded almost equally from government's own accounts or the annual budget and the resources that flow in from public enterprises.

The government's support to the central plan is called the gross budgetary support, or the GBS. The planning commission and the finance ministry decide on the GBS for every year, which is finalised by the second-week of January.

When is the budget presented in Parliament?

The Budget is presented to Lok Sabha in two parts, namely, the Railway Budget pertaining to Railway Finance and the General Budget which gives an overall picture of the state of the economy and the government's financial position.

By convention, the Railway Budget is presented sometime in the third week of February at 12pm after the Question Hour.

The General Budget was presented by convention, till 1998, on the last working day of February at 5pm. This convention was however, changed in 1999 when the General Budget was presented at 11am.

In an election year, the Budgets may be presented twice — first to secure a 'Vote on Account' for a few months and later in full.

What is a 'Vote on Account'?

Article 266 of the Constitution of India mandates that parliamentary approval is required to draw money from the Consolidated Fund of India.  Besides, Article 114 (3) of the Constitution stipulates that no amount can be withdrawn from the Consolidated Fund without the enactment of a law.  This is sought through the Appropriation Bill.

As the whole process of Budget beginning with its presentation and ending with discussion and voting of demands for grants and passing of Appropriation Bill and Finance Bill generally goes beyond the current financial year, a provision has been made in the Constitution that empowers the Lok Sabha to make any grant in advance through a 'Vote on Account' to enable the government to carry on until the voting of demands for grants and the passing of the Appropriation Bill and Finance Bill.

This enables the government to fund its expenses for a short period of time or until a full-budget is passed.

Normally, the 'Vote on Account' is taken for two months for a sum equivalent to one sixth of the estimated expenditure for the entire year under various demands for grants.

During an election year, the 'Vote on Account' may be taken for a longer period, say three to four months, if it is anticipated that the main demands and the Appropriation Bill will take longer than two months to be passed by the House.

How is 'Vote on Account' different from a budget?

A 'Vote on Account' relates only to the expenditure side of the government's financial statement. A full budget, on the other hand, carries details of the governments' earnings and spending plans.

What is the difference between a 'Vote on Account' and an 'interim budget'?

An interim budget gives the complete financial statement, very similar to a full budget.

While law does not debar the government of the day to introduce tax changes, normally during an election year governments have avoided making any major changes in income tax laws during an interim budget.

The rationale for this is that it may not be proper for an outgoing government to announce major changes which may not be readily agreeable to a new legislature. This, however, is not legally binding.


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