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All About Interim Budgets In An Election Year And Its Implementation

All About Interim Budgets In An Election Year And Its Implementation

While the interim budget may be on its way to passage through Parliament, expect a fresh budget in July post the elections

On the February 1, 2019, Union Finance Minister Piyush Goyal unveiled the last budget of the Narendra Modi-led NDA government. Goyal announced several sops for small farmers and new schemes targeting the unorganised class. And to keep the party’s key middle class happy, the budget also announced several tax measures that would provide some relief to those having taxable income within Rs 5 lakh per annum.

BOOM has covered the interim budget of 2019 here.

The interim budget is the election-year counterpart of a budget passed in any normal financial year – it contains the budgetary estimates for the entire financial year, but it usually does not contain changes to the income-tax structure and no significant manoeuvre in policy direction. The documents are shorter when compared to those of a regular budget.

This is due to the fact that successive governments have had one loose and unspoken rule – one of not making major changes to the tax structure in the Finance Bill of the interim budget till the new government takes charge.

The budget is a way of showing the policy direction and outlook that a particular government adopts. When there is an election, the new government may have a reoriented sense of direction – a purpose the previous budget (interim budget) passed may not serve. Therefore, the new government proposes a regular budget (usually around the month of July) post the election.

But can an outgoing government in an election year make major announcements with an eye to influence key voter segments?

In a nutshell: The Finance Bill & The Appropriation Bill

The government cannot access funds from The Consolidated Fund Of India without the authorisation of Parliament. This implies that the government cannot levy tax on the people of India, nor can they allocate funds to various bodies of the government (or in constitutional terms: ‘Meet the Demand of Grants raised by various ministerial departments.’)

The income and expenditure estimates of the the government for any forthcoming financial year (April – March) is presented before Parliament during presentation of the budget. To legislatively formalise this, the government passes two bills (amongst others) through Parliament:

  1. The Finance Bill: This encapsulates any changes to the taxation policy of the government – and its passage means parliamentary authority to raise funds by taxing Indian entities for the forthcoming financial year i.e. giving the government the authority to earn.
  2. The Appropriation Bill: The passage of this Bill authorises the government to meet the demand raised by various departments under various ministries under the Centre i.e. giving the government the permission to spend.

Independent India was not alien to interim budgets before they started in 2004. According to the official website of the Department of Economic Affairs, the following years have had interim budgets:

Here is what the turn of events would look like based on the occurences in an election year post 2000 — 2004, 2009 and 2014.

Made with Visme Infographic Maker


We see what election year budgets have looked like post 2000.

2004: NDA Under Vajpayee to UPA-I

Yashwant Sinha presented the Interim Budget in 2004

Yashwant Sinha presented the last interim budget under the Vajpayee administration. The year 2004 warranted the ‘interim-budget break’ since the administration then called for an early Lok Sabha election; originally to be held in September that year.

The budget, being before an election, had some obvious pre-poll allowances. They did not introduce major taxation changes, but gave allocations to various Central Government schemes. It had an outreach to the rural sector with expansion of Kisan Credit Cards and an appeal to the poor with adding half a million new families to the Antyodaya Anna Yojana, which was a brainchild of the Vajpayee government. This scheme is
sponsored by the Government of India; providing subsidised food grain to millions of eligible beneficiaries.


Interim Budget 2004.

However, post the election and UPA-1 coming to power, Mr. P. Chidambaram, as Union Finance Minister, introduced indirect tax reforms in the budget of July 2004, in the form of mentioning of the Value Added Tax (VAT) – now subsumed under the current GST system – to be introduced in 2005.

Service Tax, which was levied at 8%, was increased to 10%, along with provisions for an education cess of 2%. The budget also mentioned the introduction of a bill for the establishment and promotion of Special Economic Zones for export promotions.

The ability to tax, through the finance bill, was introduced with retrospective effect as on the 1st of April, 2004, through the first budget of the UPA-1.

Final Budget, 2004, under UPA-1

In 2004, the new government led by the UPA also increased the budgeted expenditure by almost ₹20,000 crores in the regular budget, as mentioned in their respective Appropriation Bills:

  • The interim budget accounted for the ₹4,57,434 crores in expenditure (plus and non-plan)
  • The regular budget had an outlay worth ₹4,77,829 crores

2009: UPA-1 to UPA-2

Pranab Mukherjee introduced the interim budget of 2009-2010, and went on to present the final budget of 2009-2010 post the election.

Like any interim budget given before the election, the interim budget under UPA-1 was filled with handouts, such as but not limited to:

  • An allocation of ₹8,000 crores towards the mid-day meal scheme in schools.
  • Subsidy provisions for petroleum, food and fertilisers estimated to be close to ₹95,000 crores
  • A ₹30,100 crores allocation for MNREGA

The interim budget did not make significant changes to the tax structure. However, it did have this noteworthy mention:

Rates of Union Excise Duties and Service Tax rationalized for eventual shift to the Goods and Service Tax on 1st April, 2010.

GST was scheduled to be introduced in 2010, but never passed legislatively through Parliament due to a number of obstacles meeting its path. The timeline can be read through here.

The UPA-1 provided a loan waiver to farmers worth ₹60,000 crores, regarded widely as a populist move. Contrary to popular belief, this waiver was accounted for in the preceding budget in FY2008-2009, the last full budget of UPA-1.


Interim Budget, 2009

Once the UPA were voted back to power, they took to hauling the direct taxation rates in the regular budget presented in July 2009:

  • Raise in the exemption limits for senior citizens and women taxpayers – from ₹2.25 lakh to ₹2.4 lakh and from ₹1.8 lakh to ₹1.9 lakh respectively.
  • For all other taxpayers, the exemption increased marginally – from ₹1.5 lakhs to ₹1.6 lakhs.

They modified indirect taxation rates too:

  • The imposition of service tax on a basket of services – plastic surgery, legal consulting and transport of goods by rail.
  • Changing custom duties with respect to 20 categories of goods.
  • Excise duty changes on 22 categories of goods.

Both these budgets also had allocations for the UIDAI, the organisation incharge of Aadhar:

  • A ₹100-crore allocation in the interim budget
  • Raised 20% to ₹120 crores in the regular budget

The regular budget in 2009 too had a spending increment over the interim budget, by around ₹70,000 crores as per their Appropriation Bills:

  • The interim budget provided for a total (plan and non-plan) outlay of ₹9,53,230 crores
  • This increased to ₹10,20,837 crores, almost a 7% increase in budgetary allocation less than half a year
Regular Budget 2009

Just like the regular budget in 2004, the regular budget in 2009 was implemented with retrospective effect from April 2009.

2014: UPA-2 to NDA Under PM Modi

The interim budget was presented by P. Chidambaram and the first Budget of the NDA Government by Arun Jaitley in 2014

P. Chidambaram, not sticking to “convention”, actually did announce major tax changes in the last months of the UPA-2 government through the interim budget of 2014.

In a recognisable poll-sop, the government also slashed Central Excise duty on a certain category of goods. Quoting the budget highlights:

The Excise Duty on all goods falling under Chapter 84 & 85 of the Schedule to the Central Excise Tariff Act is reduced from 12 percent to 10 percent for the period upto 30.06.2014. The rates can be reviewed at the time of regular Budget.

These categories cover industrial boiler, certain industrial-grade heavy machinery, precision tools for scientific application and the likes. The budget further provided relief on the Central Excise Duty on cars, again applicable till the end of June 2014:

  • From 12% to 8% on small cars, motorcycles/scooters and commercial verhicles
  • From 30% to 24% on SUVs
  • Large and mid-segment vehicles from 27%/24% (as applicable) to 24%/20%

It is worth noting, however, that this budget consisted of a formal appeal to parties to pass the GST framework for the purpose of restructuring the indirect tax framework in India.

Interim Budget 2014

However, the NDA came to power in Lok Sabha elections of that year.

In Arun Jaitley’s first budget as FM in July 2014, he introduced direct tax changes by raising the tax exemption celing for the base income tax slab – from ₹2 lakh to ₹2.5 lakh in the Budget of 2014, implying that those with an income below ₹2.5 lakh would have to pay no tax. This slab exists till the presentation of the interim budget, 2019.

Further, the new NDA increased the government’s aggregate spending outlay under the Appropriation Bills passed during the respective budgets:

  1. The interim budget under P. Chidambaram provided for an overall (plan and not plan) spending of ₹17,63,214 crores
  2. Arun Jaitley increased the spending by almost ₹30,000 crores to ₹17,94,861 crores.
Regular Budget 2014

Just like all previous governments post the year 2000, this too was passed with retrospective effect from April 2014.

2019: The Interim Budget Under The NDA Government, Before the General Election

Interim Budget 2019

The interim budget in 2019 did not change the existing income tax structure, but instead provided a rebate those declaring a taxable income less than ₹5 lakh alongside outreach programs to the rural and unorganised; contrary to the nomenclature used in preceding interim budgets.

Having noted that, nothing constitutionally or legally inhibits the Finance Minister from doing so.

Expect a Regular Budget In July

One cannot say if these provisions would hold if a new government/coalition comes to power in the forthcoming Lok Sabha elections. A government only presents a new budget to project the direction that its policy is taking.

However, there is the possibility that it could stick with the provisions under the interim budget which is already applicable till the end of the FY2020 once it passes in the ongoing budget session.

Sources: Official Archive of the Indian Budget. Find it here.



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