Why is it in the News?

Finance Minister Nirmala Sitharaman presented her sixth Union Budget for the next financial year (2024-25), which differed from previous budgets as it was an interim budget.

What is the Interim Budget?

• The Interim Budget serves as a transitional financial plan presented by the incumbent government in an election year, bridging the period between the dissolution of the Parliament and the formation of a new government.
• This budgetary measure is necessitated by constitutional requirements outlined in Article 112 of the Indian Constitution, which mandates the submission of an annual financial statement to both Houses of Parliament.
• This statement outlines the anticipated receipts and expenditures of the Government of India for the upcoming fiscal year and requires approval from both Houses.
• However, in an election year, the prospect of a change in government following the polls prevents the presentation of a full-fledged budget by the incumbent administration.
• Consequently, the need arises for an interim budget to address the financial requirements during the transitional period.
• While there is no specific constitutional provision for an interim budget, the government seeks approval from the Lower House for the funds necessary for the transition period (April - July) through the votes on account provision.

Features and Components of Interim Budget:

• During the presentation of an interim budget, the Finance Minister provides an overview of the current state of the Indian economy, including its fiscal status and revised estimated growth for the upcoming year.
• This presentation encompasses details of both planned and non-planned government expenditures and revenues.
• While the government refrains from introducing major schemes that could sway voters or presenting an Economic Survey, it retains the authority to revise tax rates within the framework of the interim budget.
• Similar to the Union budget, the interim budget is presented to both Houses of Parliament on February 1 by the Finance Minister, subjected to debate and voting in the Lok Sabha, and subsequently forwarded for Presidential approval.
• Despite its interim nature, the interim budget remains valid for the entire fiscal year, serving as a crucial transitional arrangement until the presentation of a full-fledged budget by the new government.

What is Vote on Account?

• Article 116 of the Constitution empowers the Lower House to authorize advance grants for estimated expenditures during a portion of a financial year through legislative approval.
  • This mechanism, known as a vote on account, facilitates the continuity of government operations during transitional periods.
• A typical vote on account encompasses the allocation of funds for essential expenses such as salaries, ongoing projects, and other necessary expenditures of the Central government.
• Notably, it does not entail modifications to tax rates.
• Additionally, a standard vote on account remains effective for a period of two months, with the possibility of extension for up to four months as required.

Major Takeaways from the Interim Budget (2024-25) - Part I:

• No Change in Taxation: The Interim Budget maintains existing tax rates without proposing any changes to direct or indirect taxes, including import duties.
• Withdrawal of Outstanding Direct Tax Demands: A significant initiative in the Interim Budget is the proposal to withdraw outstanding direct tax demands, benefiting taxpayers with demands up to Rs. 25,000 for the period up to the financial year 2009-10, and up to Rs. 10,000 for financial years 2010-11 to 2014-15.
  • This measure is expected to benefit approximately one crore taxpayers.
• Tripled Direct Tax Collections: Over the past decade, direct tax collections have more than tripled, accompanied by a substantial increase in the number of return filers.
  • The new tax regime ensures no tax liability for taxpayers with income up to Rs. 7 lakh.
  • Additionally, corporate tax rates for existing domestic companies have been reduced from 30% to 22%, and for certain new manufacturing companies to 15%.
• Improvements in Taxpayer Services: The government's focus on enhancing taxpayer services has led to a transformation in the assessment system and simplified tax return filing processes.
  • The average processing time for returns has been significantly reduced from 93 days to just 10 days.
• GST Compliance Relief: The implementation of GST has streamlined compliance for trade and industry, resulting in a reduction in logistics costs and taxes, and ultimately lowering prices for consumers.
  • The GST base has doubled, with monthly gross GST collections nearly doubling to Rs. 1.66 lakh crore.
• Customs Facilitation Measures: Several steps have been taken in customs to facilitate international trade, including a substantial decrease in import release times at Inland Container Depots, air cargo complexes, and seaports over the last four years.
• White Paper Announcement: The government will release a white paper to provide insights into the period until 2014, aiming to draw lessons from past challenges and policy decisions.

Interim Budget (2024-25)- Part II:

• Increased Capital Expenditure: The Interim Budget allocates an 11.1% increase in capital expenditure for the upcoming year, amounting to Rs. 11,11,111 crore, representing 3.4% of the GDP.
  • This investment aims to build on previous capital expenditure growth and stimulate economic growth and employment.
• Projected Real GDP Growth: India's Real GDP is projected to grow at 7.3% in FY 2023-24, reflecting the economy's resilience and healthy macroeconomic fundamentals despite global challenges.
  • International agencies forecast India's continued growth between 6.1% and 6.7% in 2024-25.
• Robust GST Collection and Revenue Outlook: Strong economic activity has bolstered revenue collections, with gross GST revenues surpassing the Rs. 1.6 lakh crore mark for the seventh time.
  • Total receipts, excluding borrowings, are estimated at Rs. 30.80 lakh crore, reflecting strong growth momentum and formalization in the economy.
• Support for State Governments: The Interim Budget extends support to state governments through schemes such as interest-free loans for capital expenditure and provisions for milestone-linked reforms.
• Fiscal Consolidation and FDI Inflow: Efforts towards fiscal consolidation aim to reduce the fiscal deficit to below 4.5% by 2025-26, with market borrowings estimated to be lower than the previous fiscal year.

Additionally, the government highlights a significant increase in FDI inflows over the past decade.

• Developmental Achievements: The Interim Budget underscores various developmental initiatives, including poverty alleviation programs, support for entrepreneurs through schemes like PM Mudra Yojana, housing initiatives, and promotion of startups through financial assistance.
• Infrastructure Development in Railways and Aviation: The budget outlines plans for major economic railway corridor programs and enhancements in aviation infrastructure, reflecting the government's commitment to improving transportation and connectivity.
• Committee on Population Growth Challenges: A high-powered committee will be formed to address challenges arising from rapid population growth and demographic changes, aligning with the goal of 'Viksit Bharat' (Developed India).

What are Other Announcements and Strategies in the Budget?

• During the presentation of the Interim Budget, Union Finance Minister Smt. Nirmala Sitharaman unveiled plans to increase the capital expenditure outlay for the next year by 11.1 percent to approximately Rs. 11 lakh crore, constituting 3.4 percent of the GDP.
• The Interim Budget introduces a range of announcements and strategies, signaling the trajectory and developmental approach aimed at realizing the vision of a 'Viksit Bharat' (Developed India) by 2047.
• In a series of announcements, Smt. Nirmala Sitharaman underscored the government's commitment to empowering the eastern region and its populace, positioning it as a significant catalyst for India's overall economic growth which includes:

• Boost in the Technology Sector: A corpus of Rs 1 lakh crore will be established through a fifty-year interest-free loan to facilitate long-term financing or refinancing for research and innovation in emerging technology domains.
  • This initiative aims to incentivize the private sector to significantly enhance research and innovation efforts.
• Railway Infrastructure Development: The budget outlines plans for three major economic railway corridor programs focusing on energy, mineral, and cement corridors, port connectivity corridors, and high-traffic density corridors.
  • Additionally, the conversion of forty thousand normal rail bogies to Vande Bharat standards will enhance safety, convenience, and passenger comfort.
• Aviation Sector Expansion: With the number of airports doubling to 149, and five hundred and seventeen new routes serving 1.3 crore passengers, the aviation sector demonstrates significant growth.
  • Indian carriers have proactively placed orders for over 1000 new aircraft, indicating a robust expansion in the aviation industry.
• MGNREGA Allocation: A substantial increase in allocation for the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) scheme is proposed in the Interim Budget for 2024-25, with Rs. 86,000 crore allocated compared to Rs. 60,000 crore in the previous fiscal year.
• Subsidy Rationalization: The interim budget aims to reduce the subsidy bill on essential commodities like food, fertilizer, and fuel, with the projected subsidy falling to a five-year low of approximately Rs. 3.8 lakh crore in 2024-25.
  • Notably, the fertilizer subsidy is being reduced with expectations of improvements in the global situation and increased domestic production.
• Demographic Challenges Addressed: Recognizing the challenges posed by rapid population growth and demographic changes, the government announces the formation of a high-powered committee.
  • Tasked with comprehensive consideration and recommendations, this committee aligns with the goal of 'Viksit Bharat' (Developed India) by addressing demographic challenges effectively.

Conclusion

The Interim Budget serves as a transitional financial plan presented by the government during an election year, addressing various sectors such as railways, tourism, healthcare, technology, aviation, green energy, aquaculture, and housing. However, it is important to note that the incoming government will present its comprehensive budget after the newly elected Lok Sabha, delineating the government's financial strategy for the entire fiscal year.