Tradition and convention limit the government upcoming interim budget

Last Updated: Mon, Jan 28, 2019 11:57 hrs
Piyush Goyal (PTI image)

With less than three months before the Lok Sabha elections, the government will present its interim budget on February 1st. As the current government gears up to fight for another term at the centre, its spending plan will be presented in Parliament by Piyush Goyal.

As this is a transitional phase for a government, instead of a full budget, an interim one is prepared and presented. In general, the interim budget is to seek a vote of confidence from Parliament for the government to withdraw money from the Consolidated Fund of India to meet its monetary and budget expenses until the next government passes its own Finance bill. Essentially, it’s a plan to keep the government running till the end of the financial year – March 31st.

Politically speaking, the interim budget is a way for the government to drum up support ahead of elections season. While big substantial policies might not be announced, the government might address some pressing issues. Arun Jaitley, while agreeing that there wasn’t a need to move away from convention on an interim budget, but did say in part, “But then the larger interest of the economy always dictates what goes into that interim budget.”

The interim budget includes estimate of government expenditure, revenue, fiscal deficit and financial performance and projections for the upcoming financial year.As per the rules, the spending plan can be passed by the lower house without any discussion. Brian Carvalho, Editor, Forbes India, in a column writes on the interim budget as the last dash in a marathon –

“The thing with interim budgets—typically the last one in a government’s five-year tenure unless elections are forced—is that that they’re inevitably looked upon with suspicion. What should essentially be a spending plan for the next three to four months is looked upon as a platform for governments to play to the gallery and tinker with financials to play down overspending ahead of the polls.”

Given the recent performance of the BJP in the assembly elections, the interim budget could be a populist one while simultaneously being within the boundaries of an interim budget. Looking back, interim budgets have always been measured given the economic situation of the time.

In 2015, then Finance Minister P Chidambaram didn’t increase spending before the elections to increase economic growth. The budget did include cuts on excise levies on capital goods, the automobile industry and other items. In 2010, then Finance Minister Pranab Mukherjee didn’t make any major announcements saying in part, “constitutional propriety requires that new government formulates the tax and expenditure policies for 2009-10.” Prior to this however, the government announced a farm loan waiver scheme which helped it secure a second successive term.

Income Tax

One of the questions being raised about this interim budget is if there will be any changes to the Income Tax rates. According to the Election Commission's Code of Conduct, the incumbent government cannot make any major policy announcements in the interim budget which could influence voters. While this holds true, it isn’t unusual for the government to announce policy measures prior to the interim budget like in 2010.

In 2005, then Finance Minister Jaswant Singh didn’t introduce any new tax concessions. According to Former Finance Minister Yashwant Sinha, there can be no changes in the Income Tax Act. As he said in part to Bloomberg, “there is no Finance Bill in an interim budget. And therefore, the Income Tax Act stands as it is.” The GST council introduced a number of changes to the tax slabs and so the government has limited scope in this regard.

Policy announcements

Tradition dictates that an interim budget will not include any major policy announcements. As Arvind Datar and Rahul Unnikrishnan, Senior advocates explain in Bloomberg, “In the interim budget, the practice is to desist from making any such major changes in the legislative framework because of the imminent general elections.Nothing stops a government from announcing new measures in an interim budget.” According to them, the only thing restricting the government here is tradition and convention.

The constitution doesn’t make any explicit pronouncements regarding policy changes in the interim budget. It does however mention ‘vote on account’ in Article 116. The government, if it presents a vote on account, would be limited in its announcements as per the constitution. As Datar and Unnikrishnan state – “If the government decides to present a vote on account, instead of an interim budget, there is an express prohibition against making any major policy changes.”

Pitch to voters

Interim budgets are often de facto manifestos for upcoming elections. It’s also a chance for the incumbent government to present to the people a retrospective of the past five years – a report card of its performance. In the past, the opposition has crticized the interim budgets presented and this time will be no different.

In the past, interim budgets have been presented as a pitch to voters to secure another term for the government. In 1995-96, Manmohan Singh in presenting the interim budget presented a confident tone referring to ‘a friendly hand’ to help the nation move forward. In a similar vein, Pranab Mukherjee, said in part, “I have no doubt that when the time comes, our people will recognize the hand that made it all possible.”

For Piyush Goyal and the government, the pitch to voters will surely be there. Former finance minister Arun Jaitley has hinted at certain measured needs to be taken to ease distress among farmers. The middle class might also be hoping for some relief. The restrictions of tradition will play a role in how Goyal and company present the interim, budget, but more importantly it will influence the contents.

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