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All about interim Budgets

A K Bhattacharya | February 03, 2004

Independent India's first Budget was presented by India's first finance minister, R K Shanmukham Chetty, on November 26, 1947. And that was an interim Budget!

So when Finance Minister Jaswant Singh presents the interim Budget for 2004-05 on Tuesday, he won't be doing something unique. In fact, between him and Chetty, the Indian Parliament has seen the presentation of 10 interim Budgets.

Five of these interim Budgets were presented by finance ministers of newly elected governments that did not have sufficient time to prepare a full Budget before March 31.

And five of them were presented by governments that had decided to go for general elections immediately after or before the end of the financial year.

An interim Budget or a vote-on-account becomes a necessity because every year, Parliament's approval for drawing funds from the Consolidated Fund of India (CFI) for expenditure is usually obtained by March 31, the last day of the financial year.

If a regular Budget is not presented before March 31, and further approval for drawing funds for expenditure beyond March 31 is not obtained, the government can come to a halt.

So, all the interim Budgets so far have been presented primarily to enable the governments to continue incurring their obligatory expenditure until a regular Budget is passed by Parliament.

The exception was the first interim Budget on November 26, 1947. When he presented it, Chetty did not describe his Budget as an interim exercise.

But in the second Budget he presented to Parliament on February 28, 1948, he said his first exercise was an interim Budget. Under normal circumstances, there was no need for the Indian government to present a Budget so soon less than four months after independence.

But as Chetty explained in his speech: "With the division of the country and the emergence of two independent governments in place of the old central government, the Budget for the current year 1947-48 passed by the legislature last March ceased to be operative. Although, under the transitional provisions of the Constitution, the government could authorise the expenditure necessary for the rest of the financial year, it was felt that it will be in accordance with the public wish that a Budget should be placed before the representatives of the people at the earliest possible moment."

Chetty's first Budget speech also contained a detailed assessment of the state of the Indian economy. He hoped to end the financial year with a deficit of Rs 25 crore, but only after he had proposed an increase in export duty on cotton cloth and yarn to fetch an additional annual revenue of Rs 8 crore.

That was the only new tax proposal in the first interim Budget. But then, that was an indirect tax proposal that could be enforced through a notification and did not require Parliament's sanction.

The next interim Budgets were all presented before general elections. That was quite understandable. The Congress was the ruling party and there was hardly any opposition to its return to power. All these interim Budgets were presented with Jawahar Lal Nehru as prime minister.

On February 29, 1952, C D Deshmukh presented the second interim Budget and set a new trend. Along with the revised estimates for 1951-52 and the Budget estimates for 1952-53, Deshmukh presented a "white paper" on the state of the economy.

But Deshmukh's interim Budget would be remembered for his claim of how he had converted a Budget deficit projected earlier into a Budget surplus by the time the year was coming to a close.

Equally significant was his bold announcement that food subsidies would have to be abolished to relieve the exchequer of this growing burden.

When he returned to Parliament with a regular Budget, Deshmukh proposed no new taxes, although he had to leave a deficit of about Rs 75 crore uncovered.

Instead of looking for more revenue, Deshmukh had initiated an exercise to identify areas where government expenditure could be cut.

T T Krishnamachari (TTK) also presented his interim Budget for 1957-58, just before the general elections. The highlight of his interim Budget speech was his reference to a growing foreign exchange shortage and the need to mobilise adequate resources to fund the second Five-year Plan that was then being finalised.

TTK's interim Budget showed for the first time the finance ministry's scant regard for the sanctity of the revenue and expenditure numbers presented to Parliament.

The interim Budget brought down the revised estimates for the deficit in 1956-57 to Rs 216 crore. But after the elections, the regular Budget presented a few weeks later showed that the actual deficit was Rs 368 crore.

Morarji Desai presented two interim Budgets one for 1962-63 and the other for 1967-68. The first one was presented in his capacity as finance minister under Nehru's prime ministership, while the latter was as finance minister and deputy prime minister in Indira Gandhi's government. Both interim Budgets were significant for different reasons.

The interim Budget for 1962-63 was presented before the 1962 general elections. In it, Desai presented a full-scale economic survey along with his speech that dwelt on the critical issue of foreign aid from developed countries and the World Bank.

He justified the need for loans to developing countries at concessional terms, paving the way for the setting up of the Aid India Club.

The revised estimates for 1961-62 showed a surplus instead of a deficit projected in the Budget estimates. That was clearly aimed at wooing the electorate. Another attempt at pleasing the voters was to outline the details of expenditure allocation for different sectors for 1962-63. This was the first time that an interim Budget indicated expenditure outlay for the coming financial year.

Desai's second interim Budget was even more significant. This was soon after India's currency devaluation in 1966. Indira Gandhi was the newly elected Congress leader and prime minister, having returned to power after a well-fought general election. Also, this was the first interim Budget of a government at the start of a new five-year tenure.

Not surprisingly, Desai used the speech to outline quite a grim picture for the economy. He touched on the need for more foreign aid, the deteriorating foreign exchange reserves, the need for import restrictions and declining exports. But there was no indication of a Budget deficit. Indeed, Desai's regular Budget presented some weeks later balanced the revenue with expenditure.

The interim Budget presented by Y B Chavan for 1971-72 had no special features. It reviewed the economy, but gave sufficient indication of the need for new taxation in the regular Budget that he would present a few weeks later.

There was a longish section in his speech where Chavan waxed eloquent on the positive impact of the government's policy of nationalising 14 banks in July 1969.

H M Patel's interim Budget had many firsts. This was the first interim Budget to be presented by a former bureaucrat and also a finance secretary. No wonder his speech was the shortest of all interim Budget speeches delivered so far.

Although he had the opportunity to rubbish the Congress government's claims of an economic miracle during the Emergency (1975-77), Patel avoided all such temptations.

Instead, he let the figures do the talking. The Budget deficit in 1976-77, he said, increased from the earlier estimate of Rs 328 crore to Rs 425 crore in the revised estimate.

Patel's interim Budget also clearly hinted at the need to raise revenue through non-inflationary methods and for economy measures.

In sharp contrast to Patel's restraint, R Venkataraman converted his interim Budget speech for 1980-81 into a political statement aimed at attacking the Janata government's economic policies. And like Desai and Chavan, Venkataraman presented a long speech of over 40 paragraphs.

Yashwant Sinha's debut as finance minister was with an interim Budget, caused by the fall of the Chandra Shekhar government requiring a general election in May 1990.

This was at the height of India's economic crisis. Sinha's interim Budget will be remembered for his announcement that the government would disinvest equity in public sector undertakings.

In comparison, Sinha's second interim Budget was sober and mildly critical of his predecessor P Chidambaram's failure to meet the various revenue and expenditure targets.

Sinha also announced the government's decision to accept the Tenth Finance Commission's new formula for sharing of tax revenue among the Centre and the states through an amendment to the Constitution.

That leaves Manmohan Singh with his only interim Budget. He made it into a full-fledged election speech, outlining the Narasimha Rao government's achievements in economic policy.

He also announced a series of policy imperatives that the government ought to pursue, apart from presenting a sector-wise break-up of his expenditure plan for 1996-97.

He projected a fiscal deficit of only 5 per cent of gross domestic product, much lower than the 5.9 per cent achieved in the revised estimates for 1995-96. Singh ended his interim Budget speech with a virtual call to the voters to return the Congress party to power.

Like Manmohan Singh, Jaswant Singh also presents an interim Budget before the elections. The key question is: Will Jaswant Singh restrict himself to an election speech or set a new trend by announcing some new tax proposals too?

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