Budget 2024 Primer – Interim Budget, Vote on Account and Full Budget

5 Jan 2024 , 09:14 AM

India’s Union Budgets

The legendary playwright George Bernard Shaw once remarked that “The budget was an attempt to equate the earning capacity to the yearning capacity.” Shaw may have spoken about budgets in a very micro sense, but the same definition holds true for the Union Budgets also. From the first budget presented by Shanmukham Chetty to the recent budget presented by Nirmala Sitharaman, Indian budgets and the Indian economy have come a long way. The coming year is an election year so obviously, there would be a small budget before the elections and a full budget when the new government assumes power. That is the focus of this section. When Nirmala Sitharaman rises to present the next budget, the markets would be eagerly looking forward to hearing the key provisions on the direct taxation and the indirect taxation front. Let us first understand all about these budget terminologies.

Did you know that Vote on account is part of every budget

The general impression is that the Vote on Account is specially taken in an election year while all other years have the actual budget. That is not true. Did you know that while there is a longer vote on account taken in an election year, India used to deploy the vote on account model regularly till 2016. What exactly does the vote on account do? The vote on account is a grant in advance to enable the government to carry on until the voting of demands for grants as well as the passing of the Appropriations Bill and Finance Bill on the floor of the house. Now, let us understand the significance of the vote on account till 2016.

You would be aware that the Union Budget was presented on the last working day of February till the year 2016. It was only from 2017 onwards that the Union Budget was moved to the first day of February. When the budget was presented on the last day of February, there was just 1 month left in the financial year (ending March) to complete the approval of the Budget on the floor of Parliament. However, the time was too short and hence the government would typically seek a vote on account for a period of 2 months. That is the standard period of vote on account and it is for just a period of 2 months and gives a temporary approval for running costs and other expenses. 

However, since 2017, the Union Budget is being presented on the first day of February, giving the government a full 2 months to get the Union Budget approved on the floor of Parliament. That is why, since 2017, this frequent use of vote on account has been done away with since it is now possible to get the entire Union Budget passed in the same financial year.

Is the vote on account longer in an election year?

As stated earlier, the normal time for a vote on account is 2 months, by which time the budget document has to be approved on the floor of parliament. However, in a budget year, this may take longer since it would take for the elections to be completed, votes to be counted and a new government to be formed. In the case of a majority government, this process is relatively quicker, but in case of coalition governments the process can take much longer. That is why, there is a longer approval for vote on account taken in a budget year. 

For instance, India has not used vote on account for approval of expenditure since 2017. The only exception was year 2019, which was an election year. During the 2019 elections, the vote on account was granted for 4 months instead of 2 months. That is because of the expectation that the main Demands and the Appropriation Bill may take longer to get approved on the floor of the House. Let us now get back to the core debate; Is the vote on account the same as an interim budget?

Vote on account and Interim budget are different

The interim budget, is like a full budget, but it is normally for a limited period. Typically, the interim budget leads towards the full budget. Here is the relationship. Through the Interim Budget, the Parliament passes a vote on account. This vote on account helps government to  meet its running costs like salaries, ongoing expenses, interest payouts, defence commitments etc. Here are some points of difference between an interim budget and a vote on account.

• The Interim Budget is like a normal budget; in that it contains both expenditures and receipts. The vote-on-account lists only the expenditure to be borne by the government and purely seeks an approval for the same.

   

• Interim Budget has to be debated and passed in both the houses of Parliament. However, the vote on account does not need any debate. It is passed as a matter of routine in the Lok Sabha without discussion, since it is to meet routine expenses.

   

• Like a full budget, the interim budget also has the powers to propose changes in the rates or structure of direct and indirect taxes. However, the Vote on Account is only an approval for routine expenses and does not have any powers to propose tax changes.

   

• An Interim budget is in most ways similar to a full budget. The only difference is that the interim budget only has projections for a few months. Also, the validity of interim budget can extend up to 1 year. The vote-on-account is generally passed through the interim budget. The vote on account is normally valid for 2 months, although in an election year, it can get extended up to 4 months as a special case.

To sum up, vote on account is just an approval for routine expenditure, while interim budget is a mini budget in the run-up to a full budget.

How the interim budget differs from a full budget?

Finally, let us look at how the interim budget differs from a full budget. Structurally, both the budgets are the same. The only difference is that interim budgets are announced by caretaker governments or by governments just ahead of central elections. Normally, the interim budget leads up to a full budget. Here are some points of differences between an interim budget and a full budget.

• Interim budget is normally presented by a government that is in a transition period or just ahead of general elections. The full budget is presented during the full tenure of a duly elected government.

   

• Interim budget only focuses on the immediate requirements over the next few months and the thrust is to maintain continuity. The full budget takes a longer term view and the thrust is to even take up bold economic reforms required to boost economic growth.

   

• The interim budget normally avoids announcing new expenditure schemes and any major tax changes, as these are best left to a full-fledged government. The full budget typically undertakes such tougher decisions as they have the electoral mandate.

   

• One of the important components of the interim budget is the vote on account to get approval for necessary routine expenditure in the interim period. Vote on account used to be a component of full budgets till 2016. However, since 2017 when the Union Budget is being announced on First day of February, the full budgets have not felt the need for a vote on account. Hence vote on account is now only part of interim budgets.

   

• In the case of the full union budget, there is the detailed presentation of the Economic Survey that happens a day before the Union Budget announcement. However, in the case of interim budget, there is no Economic Survey presented ahead of the presentation of the interim budget. 

   

• Normally, if the interim budget does not contain any special provision changes and is only to approve the vote on account, it goes through without a debate in the Lok Sabha. However, the full budget has to be elaborately debated in both the houses and passed by both the houses as its proposals become law once they are passed.

While the vote on account, interim budget and full budget are closely inter-related, there is a significant difference between them and each has its own role to play. Year 2024, will again see an interim budget since there are general elections coming up in mid-2024.