Union Budget Part II – Interim Budget

Mr. P Chidambaram presented an Interim Union budget for the Financial Year 2014-15 on 17th Feb, 2014. When UPA Government’s term was up to May, 2014, why didn’t they present a regular budget? By the way, what is Interim budget?

Let me compare this to a Marketing Manager in an office. Once the manager decides to quit the job, during his notice period, he will complete all regular work, but will not initiate any new strategies. He will leave the decision to the incoming Manager. Isn’t it? Same is the case here in India. During an election year, the outgoing Government avoids making any policy changes or announces any new schemes. They will leave the decision for the successive government. So, why has he presented an Interim budget? Could he not have left this to the new government?

To explain this, we have to understand about the Accounts of India. The accounts of Government are kept in three parts –

  1. Consolidated Fund of India – all revenue received by the Government including loans are credited to this account and all expenditure incurred by the government are spent from this account.
  2. Contingency Fund of India – As the name suggests, it is a fund for meeting contingency, emergency or unforeseen expenditure.
  3. Public Account – All the receipts for this fund are from Provident fund, railway fund etc. Basically government acts like a custodian of funds, like a banker.

Let me compare the accounts to that of a company. In case you need to draw funds from a company you have to take the approval of the owner (in case of small business) or the Board of directors. The Board approves the annual budget and the operational head or Managing Director spends the money as per the broad approval given by the Board.  Similarly, in case of Government, the Parliament acts like a Board. They have to approve the spending.

Unless Parliament approves through a process called Vote on Account, the government can’t spend money from Consolidated Fund of India for day to day running of the Government. As the approval of UPA government ends on March 2014, they had to seek the approval for payments to be done from April, 2014.

If that was the case, why didn’t the FM present just a Vote on Account? Why did he present Interim budget?

Yes. There was a discussion that FM may present only Vote on Account during Feb 2014. But he had an option to present an Interim budget along with Vote on Account and he exercised it.

The interim budget is a full budget like a regular annual budget covering the performance appraisal, highlighting their achievements, estimates for future etc. eg: FM reduced the excise duty on automobile products. Hence the newly elected government is presenting a regular budget for FY2014-15


Continue Reading : Basics of Budget III – who maintains Government accounts?


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About B E Kumar Prasad

B E Kumar Prasad
He is a Practicing Chartered Accountant in Bengaluru, India. He has 25+ years of experience in income tax, business setup, and NRI matters. He is also an Insolvency Professional and Registered Valuer (F&SA).Prasad welcomes your comments and questions. Please email him at simplifiedlaws20@gmail.com

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