Interim Budget 2024

Interim Budget 2024

GS-III: Indian Economy

(UPSC/State PSC)

Important for Prelims:

General Budget, Interim Budget-2024, Article-112, 116, Fiscal Deficit, Revenue Deficit, Gross Domestic Product, Inflation, Demographic Dividend, GVA (Gross Value Added).

Important for Mains:

Difference between interim budget and general budget, important facts related to budget, way forward, Conclusion.

January 31, 2024

Why in News:

On February 1, 2024, Finance Minister Nirmala Sitharaman will present the last budget of the Modi 2.0 government.

  • The budget to be presented on February 1 will be an interim budget as Lok Sabha elections are going to be held in the month of April-May (likely) this year.
  • This interim budget of 2024 is the sixth budget of Sitharaman and the 12th budget of the Modi administration.

What is Budget:

  • Budget is a blueprint for the government's 'spending' and 'taxing', which directly affects the economy and the lives of citizens.
  • Article 112 of the Indian Constitution mentions the Annual Financial Statement (AFS) in place of the Budget.
  • The Union Budget is prepared by the 'Budget Division' of the Department of Economic Affairs under the Ministry of Finance.

Budget Types:

  • Balanced Budget, Unbalanced Budget, Surplus Budget or Deficit Budget
  • Interim Budget and Full Budget

Components of Budget:

  • The Union Budget mainly has three major components – Expenditure, Receipts and Deficit.
  • Expenditures, receipts and deficits are represented by different classifications and indicators depending on the definition.

About Interim Budget:

  • Interim Budget is often known as 'Vote on Account'. It is presented before the year in which general elections are to be held and is an interim budget until the new government is formed.
  • 'Vote on the account' refers to the advance allocation to the government under Article 116 of the Constitution which specifically defines the short-term expenditure requirements of the government.
  • In the interim budget, the estimates of revenue and expenditure are presented till the formation of the new government so that there is no problem in the smooth functioning of the country's economy and confidence in the economy remains.
  • According to the provision, the government cannot announce any new scheme or policy in the interim budget. In such a situation, the government will allocate funds to run the schemes which are already running smoothly.
  • When the new government is formed after the Lok Sabha elections, it will present the full budget in June-July.

What things are included in the Interim Budget:

  • Details of estimated expenditure of the government for the coming months.
  • Revenue projections.
  • Funds allocated to various ministries.
  • Financial provision for continuation of existing schemes.

Difference between Interim Budget and General Budget:

Interim Budget

General Budget

This happens only for the first few months of the financial year.

The general budget is for the entire financial year.

No new schemes or policies are announced in the interim budget.

New schemes, changes in tax rates and policies are announced in the general budget.

It contains details of the past expenditure of the government and the estimated expenditure for the next few months.

It contains accounts of schemes, expenditure and income of different sectors throughout the year.

There is very little discussion on this in Parliament.

There is detailed discussion on this in the Parliament.

Who presented the Budget how many times:

Finance Minister

Presented the Budget

Morarji Desai

10 times

 P Chidambaram                 

09 times

Pranab Mukherjee

09 times

Yashwant Rao Chavan

07 times

CD Deshmukh

07 times

Yashwant Sinha

07 times

Manmohan Singh

06 times

TT Krishnamachari

06 times

Nirmala Sitharaman

Will present for the 6th time.

 

How is the country's Budget made:

  • The work of budget making starts about six months in advance, i.e. from September itself.
  • In September, a circular is issued to ministries-departments, states and union territories, in which they are asked to provide data related to the funds required for the coming year. On the basis of this data, funds are later given to different ministries.
  • The Finance Ministry, after meeting with officials of other ministries and departments, decides by October-November how much fund to be given to which ministry or department.
  • Once the budget making process begins, there is a daily meeting of the Finance Minister, Finance Secretary, Revenue Secretary and Expenditure Secretary.
  • The budget making team includes experts from different sectors. The budget making team receives continuous inputs from the Prime Minister, Finance Minister and NITI Aayog throughout the process.
  • Before making and presenting the budget, the Finance Minister also discusses with many industries, organizations and industry experts.
  • After all the things related to the budget are finalized, a blue print is prepared. After everything is decided regarding the budget, the budget document is printed.

First Budget of India:

History:

  • India's first budget was presented by the Scottish economist James Wilson in the year 1860. Whereas the first budget of independent India was presented by Finance Minister RK Shanmugam Chetty on 26 November 1947. No new taxes were implemented in this budget. It was just an account of the Indian economy.
  • Professor PC Mahalanobis, a member of the first Planning Commission of independent India and a statistician, played an important role in making this budget.
  • Exactly 95 days later, the full budget for 1948-49 was presented. While presenting the budget at that time, RK Shanmugam had said that the budget presented before this was an interim budget.
  • Since then the election year budget is called 'Interim Budget'. That is, the budget presented for a short period came to be called interim budget. However, there is no separate mention of it in the Constitution of India.

Important facts related to the Budget:

  • In the year 1950, Finance Minister John Mathai had to resign due to budget leaking.
  • After 1950, the 'lock in period' started so that information related to the budget could not be leaked again. Going paperless reduced the 'lock in period'.
  • Till the year 1955, the budget was presented only in English language. After this it was decided to publish it in both Hindi and English.
  • In 1977, the then Finance Minister Hirubhai Muljibhai Patel gave the shortest budget speech of just 800 words.
  • In 1991, the then Finance Minister Manmohan Singh in the Narasimha Rao government read the maximum budget speech of 18,650 words.
  • The record of giving the longest budget speech of 2 hours 42 minutes on February 1, 2020 is in the name of Nirmala Sitharaman.

Way forward:

  • This year's budget is very important for sustained economic growth, hence there is a need to focus on the following 5 areas on priority:
  • First, moving towards fiscal consolidation.
  • India's general government debt was 82 per cent of GDP in 2022-23, with interest payments accounting for about 17 per cent of total expenditure. This leaves limited scope for more productive government spending. Therefore, it is very important that the government continues to focus on fiscal consolidation and move towards a sustainable debt trajectory.
  • The government should work towards achieving the fiscal deficit target set for 2023-24. The government targets fiscal deficit at 5.3 percent for 2024-25 and 4.5 percent has been set for 2025-26
  • Second, to continue the focus on capital expenditure. The government has increasingly used capital expenditure as a means to spur growth following the pandemic. The budget is to increase the government capital expenditure to GDP ratio to 3.4 percent in 2023-24. The government has also budgeted Rs 2.3 trillion of interest-free loans to state governments for capital expenditure over the last two years.
  • Third, the need to promote consumption. The revival in consumption has been relatively weak and appears to be tilted towards the upper income groups. While GDP is projected to grow at a strong 7.3 per cent this year (as per advance estimates), consumption growth is estimated at only 4.4 per cent. The government is focusing on capital expenditure-led growth, but accelerating consumption is equally important. The revival in domestic demand becomes even more important given the poor external demand outlook. Despite fiscal limitations, there is a need to take measures to increase consumption demand. For example, a small cut in excise duty on petrol/diesel by Rs 2-3 per liter will provide some boost to consumption and help control inflation without impacting the fiscal arithmetic.
  • Fourth, increase spending on human capital. India is in a unique position to enjoy a large working-age population at a time when most economies are struggling with an aging population. However, for the economy to enjoy the demographic dividend, the government must invest in human capital. This requires significantly greater expenditure on health, education and skills to prepare the working age population to be meaningfully employed. General government expenditure on social services (mainly health and education) is budgeted to increase from 6.7 per cent of GDP in 2017-18 to 8.3 per cent of GDP in 2022-23. However, it compares poorly with some of our global peers. For example, in many European countries, government spending on social services exceeds one-fifth of GDP. Given that a large section of India's population depends on the government for these services, it is important to increase spending on these services.
  • Fifth, the need to focus on agriculture and rural areas. 65 percent of the country's population lives in rural India and has a major dependence on the agricultural sector. Agricultural productivity in terms of GVA (gross value added) is one-third that of China and about 1 percent of that of the US.
  • Measures to improve productivity in the sector will help in improving rural incomes. This can be done by adopting latest technology and promoting rural infrastructure. Providing appropriate skills to the rural workforce and enabling them to move into manufacturing and service sectors will also help in reducing the huge dependence of the rural workforce on the agriculture sector. India cannot sustain its growth story while its rural areas remain in crisis. Therefore, the need of the hour is to focus on improving rural health.

​Conclusion:

The interim Budget 2024, presented by Finance Minister Nirmala Sitharaman, addresses short-term financial needs amid the impending elections. Farmers and the underprivileged have been given priority in the budget focused on rural development and social schemes. Hopefully, this Budget should support positive change and innovation in sectors ranging from agriculture, infrastructure and healthcare to education, banking and industry.

Source: Indian Express

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Mains Question:

What do you understand by interim budget? How is it different from the annual budget? Outline the way forward to make the upcoming budget sustainable and inclusive.