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SEARCHING FOR A SHAPE OF BUDGET TO COME

Relevance: GS 3 – Government Budgeting

Why in the News?

• Finance Minister Nirmala Sitharaman is set to reveal the Interim Budget 2024 on February 1, marking the concluding budget of Prime Minister Narendra Modi’s second term, as the Lok Sabha elections 2024 loom in April-May.
• Some commentators are erroneously conflating the Interim Budget with a Vote on Account.
• Understanding these differences is crucial for accurate interpretation and analysis of fiscal policies and governmental actions.

INTERIM BUDGET VS VOTE ON ACCOUNT

The Interim Budget provides a comprehensive outline of government finances for a short period until a full budget can be presented by the new government. Conversely, a Vote on Account is a provision for essential government spending until the full budget is passed, ensuring continuity of governance during the transition period.

Constitutional Basis of Vote on Account:

• Article 116 of the Constitution explicitly mentions the concept of a Vote on Account, which allows for temporary government spending when regular procedures cannot be followed due to impending elections.
• Parliamentary approval is required for expenditure out of the Consolidated Fund, as outlined in Articles 113 and
• The term “Vote on Account” is inaccurately applied in the current context as elections have not yet been formally announced.
  • It cannot include changes in taxes and expenditures due to its temporary nature and caretaker government status.

Interim Budget vs. Constitutional Reference:

• Unlike “Vote on Account,” the term “Interim Budget” is not explicitly defined in the Constitution.
  • The absence of a constitutional reference to “Interim Budget” does not diminish its relevance in the fiscal landscape.
• Interim Budgets serve the purpose of providing a framework for government finances until a full Budget can be presented by the incoming government.
• While changes in taxes and expenditure proposals can be made in an Interim Budget, they are typically not substantial, allowing the new government flexibility in shaping its fiscal policies.

Timing and Expectations:

• The timing constraints may prevent the passage of a Finance Bill before election results are known.
• It is reasonable to wait for the full Budget for 2024-25, allowing the new government to decide taxation and expenditure proposals that align with its vision for the upcoming term.
  • Nirmala Sitharaman’s Interim Budget for 2024 has been scrutinized, considering the potential continuity in the political composition post-election.
  • Given the likelihood of a similar political landscape, waiting for the full Budget for 2024-25 may offer a more comprehensive framework for fiscal planning.

BUDGET AND ECONOMIC SURVEY

• Traditionally, the Union Budget has been closely linked with the Economic Survey, a practice mirrored in state budgets and their associated surveys.
• The Economic Survey’s inception predates constitutional mandates, as evidenced by John Mathai’s Budget speech for 1950-51.
• Initially, Budget speeches provided extensive economic reviews alongside budgetary details until approximately 1958-59.
  • From 1958-59 onwards, a separate Economic Survey was introduced, offering more detailed insights into economic developments, expanding in size and coverage over the years.

Purpose of the Economic Survey

• The Economic Survey serves as a comprehensive overview of the economy, complementing the budgetary information provided in the Budget speech.
  • It offers in-depth analysis, policy perspectives, and forecasts, facilitating a deeper understanding of the broader economic context influencing budgetary decisions.
• Despite the presence of other documents mandated by the Fiscal Responsibility and Budget Management Act of 2003, such as the macroeconomic framework statement (UPSC 2020), fiscal policy strategy statement, and medium-term fiscal policy statement, the Economic Survey garners more attention.
  • This heightened attention may be attributed to the Survey’s direct association with the Chief Economic Adviser (CEA) and their office, overshadowing the significance of other documents.

Chief Economic Adviser

• The Chief Economic Advisers’ (CEAs) role in shaping economic policy and providing expert analysis further amplifies the significance of the Economic Survey.
• While other documents play crucial roles in fiscal management, the Economic Survey stands out due to its detailed economic analysis and its association with the CEA’s expertise and office.
• The Economic Survey’s prominence may also be influenced by public perception and media attention, which often focus on the CEA’s views and the Survey’s insights into economic trends and policy perspectives.
• Avoiding Individual Dependence:
  • While citations for analytical rigor are acceptable in the Economic Survey, excessive self-quoting by a CEA may suggest a bias towards personal views, detracting from the Survey’s objectivity.
  • It is crucial to ensure that the Survey remains independent of individual whims and fancies, focusing instead on providing a comprehensive analysis of economic issues.
• Maintaining Analytical Rigor:
  • While CEAs play a significant role in shaping economic policy and providing expert advice, it is essential to maintain the Survey’s integrity by avoiding individual biases or preferences.
  • Citations should be used judiciously for analytical purposes, rather than serving as a platform for self-promotion or personal biases.

Economic Survey: Evolution from Physical to Digital

• In the past, obtaining the Economic Survey involved a frenzied rush to acquire physical copies, as newspapers often published only the initial chapter.
  • While the Survey serves as a secondary source of data, for those outside the government, it functioned as a primary source.
• With the proliferation of digital data sources, including government dashboards and reports, the reliance on the Economic Survey as a primary data source has diminished.
  • Additionally, the timing of the Survey, typically before the Budget, means it rarely includes a full year’s worth of data, reducing its significance as a comprehensive data source.

Inertia and Resistance to Change

• Despite these changes, inertia and resistance to change, coupled with the hype surrounding the Budget, have prevented significant alterations in the Survey’s format and timing.
  • John Mathai’s suggestion of moving the Survey to June/July, with a brief economic sketch in the Budget speech, remains wishful thinking due to entrenched practices and expectations.

Current Status: Interim Budget and Review of the Indian Economy

• In lieu of an Economic Survey for the Interim Budget, a document titled “Review of the Indian Economy” is provided.
  • This document serves a similar purpose by offering insights into the government’s perspective on the economy, its challenges, priorities, and potential policies.
• Limited Correlation with Budget Proposals:
  • Despite its timing, the Economic Survey does not necessarily provide indications of the Budget’s content, as historical correlation between the two has been difficult to establish.
  • Instances exist where the Survey advocated reforms or was criticized, only for the Budget to take a different direction.
• Notably, there has been a coherence between the Economic Survey and the Budget under the Narendra Modi governments, especially since 2018.
• While the recent Review may not be a full-fledged Survey, it still addresses critical issues in a similar vein.

Source: https://www.newindianexpress.com/opinions/2024/Jan/31/searching-for-a-shape-of-budget-to-come 

Mains question

Discuss the significance of the Interim Budget in fiscal governance, its relationship with the Economic Survey. (250 words)