• UGI USER
  • Jan 28, 2024
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SETTING THE POLICY DIRECTION

(INTERIM BUDGET 2024)

 

Syllabus:

  • GS 3 : Government Budgeting 

Why in the News?

  • Due to upcoming national elections, the finance minister will present an interim budget instead of a comprehensive annual budget.
  • No major policy announcements expected due to the model code of conduct, yet interim budget crucial for signaling policy direction, especially if the ruling party is re-elected.

Economic Landscape Overview:

  • India’s economy appears relatively stable with robust GDP growth, moderating inflation, and narrowing current account deficit.
  • Concerns persist regarding weak consumption demand, feeble private investment, and global economic uncertainties.
About Interim Budget

·    An interim budget is a temporary financial statement presented by the government when general elections are imminent.

·    It covers estimates of receipts and expenditure for the upcoming financial year until a new government is in place.

·    Inception: The practice of presenting an interim budget dates back to India’s early years post-independence.

·    The primary objective is to ensure continuity in government spending and administration during the transitional period.

·    Interim budgets do not typically include major policy announcements or changes in taxation.

·    The interim budget serves as a stopgap measure until a new government can present a full-fledged annual budget.

Critical Areas for Policy Focus:

Fiscal Consolidation:

  • Emphasis on moving towards a sustainable debt trajectory, with expectations of achieving fiscal deficit targets.
  • Robust direct tax collections and higher dividend transfers expected to compensate for lower divestment.

Capital Expenditure:

  • Continued focus on increasing government capital expenditure post-pandemic for propelling growth.
  • Expectations of capex growth by 10% to around Rs 11 trillion, with a sustained focus on infrastructure development.

Consumption Stimulus:

  • Weak consumption revival necessitates measures to spur domestic demand, particularly for lower-income segments.
  • Proposals like a slight cut in excise duty on petrol/diesel could boost consumption without significantly affecting fiscal balance.

Investment in Human Capital:

  • Increased expenditure on health, education, and skilling required to leverage India’s demographic dividend.
  • Comparisons with global peers highlight the need for higher spending on social services to ensure meaningful employment opportunities.

Rural Sector Development:

  • Focus on improving agriculture productivity and rural infrastructure to uplift rural incomes.
  • Skilling initiatives and enabling workforce transition from agriculture to other sectors crucial for sustainable growth.

Additional Areas of Focus:

  • Creating an enabling business environment, addressing environmental concerns, and uplifting marginalized sections are also imperative.
  • The overarching goal is to ensure equitable, sustainable, and green growth for India’s economic future.

Understanding the Union Budget

Constitutional Provisions:

  • Article 112 of the Indian Constitution refers to the Union Budget as the Annual Financial Statement (AFS).
  • It outlines estimates of receipts and expenditure for a financial year, detailing revenue and capital receipts, ways to raise revenue, expenditure estimates, and economic and financial policy for the upcoming year.

Budget Process in Parliament:

  • Presentation of Budget: The finance minister presents the Budget.
  • General Discussion: Budget undergoes general discussion in Parliament.
  • Scrutiny by Departmental Committees: Budget scrutinized by departmental committees.
  • Voting on Demands for Grants: Parliament votes on demands for grants.
  • Passing of Appropriation Bill: Appropriation Bill passed for expenditure.
  • Passing of Finance Bill: Finance Bill passed for taxation proposals.

Changes Introduced in 2017:

  • Budget presentation advanced to February 1.
  • Merger of Railway Budget with General Budget.
  • Elimination of plan and non-plan expenditure distinction.

Objectives of Government Budget:

  • Reallocation of Resources: Distributes resources based on social and economic conditions.
  • Reducing Inequalities: Aims to reduce income and wealth inequalities through taxation and welfare spending.
  • Contributing to Economic Growth: Focuses on investment in public sector to raise overall rate of investments and savings.
  • Bringing Economic Stability: Implements policies like Deficit and Surplus Budgets to stabilize prices.
  • Managing Public Enterprises: Provides provisions for operating public sector industries.
  • Reducing Regional Differences: Promotes production units in underdeveloped regions to reduce regional disparities.

Components of Government Budget:

  • Revenue Budget: 
  • Includes Revenue Expenditure and Receipts.
  • Receipts: Tax and non-tax sources.
  • Expenditure: Salaries, interest payments, pensions, etc.
  • Capital Budget:
  • Comprises Capital Receipts and Expenditure.
  • Receipts: Disinvestment, borrowings.
  • Expenditure: Long-term investments, loans to states.

Other Types of Budgets:

  1. Zero-Based Budgeting: Evaluates expenses each budget cycle, starting from zero base.
  2. Outcome Budget: Analyzes progress of ministries and departments and development outcomes.
  3. Gender Budgeting: Allocates funds for development, welfare, and empowerment programs for females, promoting gender equality.
  4. Interim Budget: An interim budget is a temporary financial statement presented by the government when general elections are imminent.

Comparative Analysis

Aspect Interim Budget Union Budget
Presentation Occasion Presented by the Central Government before General elections. Presented annually by the Central Government in Parliament.
Passage Procedure Vote on account passed without discussion in Lok Sabha. Passed after complete discussions in Lok Sabha.
 

 

Coverage

 Mentions income and expenses of the previous year and for a few months until the next government assumes office. Detailed income sources are not provided. Includes expenses and income of the previous year, along with the government’s plan for fund allocation and utilization for national development.
 

Duration

 Presented during the election year, covering approximately 2 to 4 months of the fiscal year. Covers the entire fiscal year.
Detail Level Provides a summary of expenses and income of the previous year. Provides detailed income and expenses of the previous year.
 

Tax Component

 Does not include income from tax collection. Includes descriptions of tax-funded social welfare measures and strategies for raising funds through taxation.

Role of Budgets in Fiscal Consolidation:

  • Setting Fiscal Targets: Budgets establish fiscal targets such as deficit reduction and debt stabilization.
  • Revenue Enhancement: Budgets introduce measures to increase revenue through taxation and other means.
  • Expenditure Rationalization: Budgets prioritize spending, focusing on essential services while cutting non-essential expenditure.
  • Debt Management: Budgets address debt levels by allocating funds for debt repayment and reducing reliance on borrowing.
  • Economic Stability: Fiscal consolidation through budgets promotes economic stability by reducing fiscal imbalances and instilling investor confidence.

In conclusion, as India navigates through economic complexities and prepares for electoral dynamics, the interim budget stands as a critical tool to steer the nation’s policy direction towards inclusive and resilient growth.

 

Source: 

https://indianexpress.com/article/opinion/columns/union-budget-2024-expectations-focus-area-economic-survey-nirmala-sitharaman-narendra-modi-9129678/

Mains Practice Question:

The Interim Budget presented by the Central Government plays a crucial role in fiscal governance and economic management. Discuss the significance of the Interim Budget in the Indian context