A budget that falls just before the General Elections is supposed to be a plain and simple affair. But the beast called interim budget can come in any shape or size. Traditionally, a vote-on-account is in order just before the elections when the incumbent government asks Parliament for permission to spend a certain amount of money for the first three months of the next finanical year after which the full budget would come into force. But a lot rides on the few months in the run-up to the elections, so governments can't resist the opportunity to please the voters.
A budget garners a lot of media attention and generates discussions and debates for several days, making it an ideal vehicle for political parties in power to address voters. The shape of the interim budget depends on the state of the economy that decides the extent of fiscal space available to the government and, more importantly, the political and electoral calculations of the incumbent government as well as the mood of the voters. All that makes for a budget that becomes highly unpredictable. ..
Since the law does not prescribe any clear guidelines for the budget that comes right before the general elections, it can take any shape, even though the tradition and ethics would demand the job of making a full budget be left to the government that comes to power after a few months and the interim budget should not tie the hands of the next government or present it with any fait accompli.
The 2014 interim budget presented by then finance minister P. Chidambram of the UPA II government came when the government had been reeling under long anti-corruption protests and was seen to be out of favour with the voters, especially the middle classes, even as the economy too was in distress. There was also the threat of global credit-rating agencies lowering India’s economic outlook.
In such circumstances, Chidambaram used the interim budget to shore up the credibility of the government by pledging to contain the fiscal deficit at 4.6% of the GDP against the target of 4.8%. He also set the deficit target of much lower 4.1% of the GDP for 2014-15. Of course, he was criticised for some financial jugglery. Narendra Modi, then the opposition BJP's prime-ministerial candidate, criticised Chidambaram for rolling over subsidies to the next year to contain fiscal deficit. Chidambara ..
Yet, Chidambaram's ploy spared his government huge negative publicity that would come with high deficit targets triggeing reactions among investors and rating agencies. The NDA II government had become unpopular with the middle classes due to the widespread anti-corruption protests. Chidambaram ostentsibly tried to assuage the middle class with tax cuts on cars, bikes, fridges, vacuum cleaners, computers and mobile phones. He also gave interest rebate on education loans. He accepted the long-sta ..
Chidambaram's budget could be seen as the one by a government that was not too sure of returning to power and thus would not mind constraining the next government, yet trying its best to speak to the voters.
The next interim budget of 2019, by then finance minister Piyush Goyal, was a bolder attempt than Chidambaram's. In keeping with the BJP's aggressive voter outreach, Goyal's budget appeared to be of the government that would leave no stone unturned to return to power even if it had to break conventions. Goyal did what was never done in an interim budget: he changed the income-tax rates. He offered full tax rebate for individuals with taxable income up to ₹5 lakh and raised the standard deduction ..
But Goyal justified changing income-tax rates by saying that small taxpayers needed certainty in their minds at the beginning of the financial year about their taxes. Besides tax relief, Goyal offered a large number of welfare schemes and sops for middle class, rural citizens, farmers and unorganised sector workers. The centrepiece was Rs 6,000 per year assured income support for small and marginal farmers for which Rs 75,000 crore were made available. Goyal revised the fiscal defcit target up t ..
The limitations dictated by hard numbers of the govenrment's finances can be trumped by a government's political calculations. But a government that expects to return to power rather smoothly may not put too much emphasis on an interim budget. A government that sees little chance of coming back might play with the numbers in the way that leaves the next government in a tight corner. And a government that's determined to return to power will load an interim budget with lots of goodies.
It is amply clear that since the interim budget has become an electoral tool, voters too won't expect a plain vote-on-account. Previous two interim budgets have certainly shaped popular expectations. That would make Finance Minister Nirmala Sitharaman's upcoming interim budget a thing to watch out for.
But a strong prevalent view is that the recent assembly poll victories of the BJP has made the next General Elections seem a cake walk for it. The INDIA bloc of opposition parties is mired in internecine wranglings and is bereft of any strong poll planks.
But a government which is known for leaving little to chance and a party known for its gargantuan electoral war machine and aggressive tactics might not let an opportunity like interim budget go waste, expecially when the economy, which is doing well on growth as well as inflation, provides it comfortable fiscal space.
A counter-view suggests that since the BJP is confident of winning the next elections, the budget will focus more on fuelling manufacturing and private investment as well as enabling its vast youth population and women. All of these feed into the government's target to make India a $5 trillion economy by 2025. Sitharaman too has cautioned not to expect anything spectacular from her interim budget. Moreover, a government hopeful of returning to power will not compromise the policy continuity in t ..
Amid all the speculation about the next interim budget gathers pace, one thing is certain: from a predictable and plain government ritual, the interim budget has turned into an unpredictable beast that can assume any shape or size.
An interim budget is a budget that is presented just before the general elections and covers the expenses for the first three months of the next financial year.
Governments use the interim budget to address voters and garner support in the run-up to the elections.
Interim budget 2024 is likely to be influenced by the government's political calculations and the prevailing economic conditions.
Source Name: Economic Times