Interim budget is presented by the government when it does not have time to present a full budget mostly, during election time. The Union Budget cannot often be presented in an election year by an incumbent government. Instead, during the combined session of the Rajya Sabha and Lok Sabha in Parliament, the Finance Minister delivers an interim budget. With an interim budget, the present government asks Parliament for permission to withdraw funds from the Consolidated Fund of India in order to pay for budget costs that must be met prior to the conclusion of the fiscal year.

This article explains the Interim budget is useful for UPSC IAS exam preparation.

What is an Interim Budget?

• The ruling government normally presents an Interim budget before the General Lok Sabha Elections, which are conducted every five years.
• A Union Budget is similar to an Interim Budget.
• The ruling government presents an estimate of its expenditure, revenue, fiscal deficit, financial performance, and expectations for the future fiscal year in the Interim Budget.
• At the conclusion of its time, the ruling government submits an interim budget for three to four months in order to keep the country functioning smoothly.
• If the current government returns to power, the Interim Budget would most likely explain its economic outlook for the following five years.
• It makes no substantial policy announcements during the Interim Budget, which may financially burden the future government when the full Union Budget is presented.
• The previous year's income and spending will be stated in the Interim Budget.
• It also details the costs for the following several months until the charge is taken up by the next government. The sources of revenue, however, will not be mentioned in the Interim Budget.

What is the Procedure in an Interim Budget?

• Parliament clears the government's vote-on-account, allowing it to satisfy its obligations until the next Parliament examines and adopts a complete Budget for the remainder of the year.
• The vote-on-account is granted for a period of four months when the government changes due to General Elections rather than a loss of trust vote scenario.
• The government is constitutionally allowed to make tax changes in the interim budget, but in every interim budget since Independence, outgoing governments have respected the fact that it is only a custodian for a few months and has refrained from making major changes or introducing new schemes or plans.

Occasions on which an Interim Budget was presented in India

Here are fourteen instances when Interim Budgets were presented in the Parliament:

• By R K Shanmukham Chetty on November 26, 1947, after the Constituent Assembly’s Budget passed in March 1947 ceased because of partition.
• By CD Deshmukh, before the first General Elections, for 1952-53.
• By T T Krishnamachari for 1957-58, just before the second general elections.
• By Morarji Desai in 1962-63 and then in 1967-68.
• By Y B Chavan for 1971-72 By Haribhai M Patel in 1977. It was the shortest ever interim budget speech and also the first when an interim Budget was presented by a finance secretary and a former bureaucrat By R Venkataraman for 1980-81 after the Janata government lost power to Congress (I).
• By Yashwant Sinha in 1991 after the fall of the Chandra Shekhar government.
• By Dr. Manmohan Singh — his only interim budget in 1991-92.
• By Yashwant Sinha for 1998-99 during Atal Bihari Vajpayee’s government.
• By Jaswant Singh, in the final year of Atal Bihari Vajpayee-led NDA government in 2004-05.
• By Pranab Mukherjee in 2008-09 at the end of UPA’s first term.
• By P Chidambaram on February 17, 2014, at the end of UPA’s second term.
• By Piyush Goyal in 2019 before the end of PM Narendra Modi-led NDA government’s first term.

Difference between Interim Budget and Union Budget

Conclusion

The dictionary defines interim as "temporary" or "something done for a certain length of time as a stopgap solution." During the transition phase before a new government takes office, an interim budget is published, but the governing government needs Parliament's approval to withdraw funds from the Consolidated Fund of India, which holds all of the country's income. Thus, an interim budget is highly important in the budgetary proceedings of parliament.

FAQs

Q1: What is an Interim Budget?

Q2: Why is an Interim Budget presented?

Q3: What are the key features of an Interim Budget?

Q4: How is the Interim Budget different from a Full Budget?

Q5: When was the last Interim Budget presented in India?

MCQs

1. What is the primary purpose of an Interim Budget?

a) To introduce new tax policies

b) To approve government expenditure for the period until a new government is formed

c) To make long-term reforms in the economy

d) To reduce government expenditure

2. Who presents the Interim Budget in India?

a) The Prime Minister

b) The Finance Minister

c) The President of India

d) The Cabinet Secretary

3. What is one major difference between an Interim Budget and a Full Budget?

a) The Interim Budget includes new tax proposals

b) The Full Budget covers the entire fiscal year, while the Interim Budget only covers a few months

c) The Full Budget is not approved by Parliament

d) The Interim Budget is presented by the Prime Minister

4. What is typically not included in an Interim Budget?

a) New schemes and policy changes

b) Government expenditure proposals

c) Tax rate changes

d) Budget deficit projections

5. When was the last Interim Budget presented in India?

a) 2014

b) 2019

c) 2020

d) 2021

GS Mains Questions and Model Answers

Q1: Discuss the importance of an Interim Budget in the context of India’s parliamentary system.

Answer: An Interim Budget holds significant importance in the context of India’s parliamentary system as it ensures the continuity of government functioning during the transitional phase between the end of one government’s tenure and the formation of a new government. In the absence of a Full Budget, the Interim Budget provides a legal framework to approve government expenditure for a limited period, typically until the general elections are conducted and a new government is formed.
The Interim Budget is essential in maintaining financial stability and preventing any disruption in the government’s operations, particularly in areas like public welfare, defense, and administrative functions. It enables the government to make essential payments for salaries, pensions, and running government services. The presentation of the Interim Budget by the Finance Minister also ensures that the legislative body, Parliament, is informed of the government’s financial position and can make necessary approvals for expenditure.
In India’s parliamentary system, where the executive is accountable to the legislature, the Interim Budget helps maintain continuity in governance during a period of uncertainty. The Full Budget, which includes more comprehensive policy proposals and revenue plans, is typically presented by the new government once it has taken office.

Q2: Explain the procedural differences between the Interim Budget and the Full Budget.

Answer: The Interim Budget and the Full Budget differ in both procedure and content. While the Full Budget is a comprehensive plan for the government's financial activities for the entire fiscal year, the Interim Budget is a temporary arrangement presented when the term of the government is nearing its end.

Presentation and Approval Process:

• The Full Budget is presented annually by the Finance Minister to the Parliament and is debated and approved in detail, often with amendments, by both Houses of Parliament. The Full Budget includes detailed proposals for revenues, expenditures, and policy reforms for the coming fiscal year. It must be approved by both Houses of Parliament before it becomes law.
• In contrast, the Interim Budget is presented just before a general election. It generally covers only the essential expenditure needed to run the government until the new government takes office and presents the Full Budget. The Interim Budget is often approved with less scrutiny, as it does not propose new schemes or significant tax changes.

Policy Proposals and Taxation:

• The Full Budget includes tax proposals, including new taxes or changes in tax rates, as well as long-term economic reforms. The Full Budget is the government's opportunity to set out its economic vision for the upcoming fiscal year and announce major policy changes.
• The Interim Budget, however, does not include such proposals. It mainly covers expenditure for ongoing schemes and the continuation of existing policies. No major policy changes or tax adjustments are made, as the incoming government is expected to finalize fiscal policies after assuming office.

Purpose and Duration:

• The Full Budget covers the entire fiscal year (from April to March), while the Interim Budget is a stop-gap measure that usually covers only a few months until the new government takes over and presents a comprehensive budget.

In summary, the Interim Budget serves a limited purpose of managing government finances temporarily, while the Full Budget provides a detailed plan for managing the nation’s finances over a longer period, with proposals for tax reforms, new schemes, and policy changes.

Q3: Analyze the implications of presenting an Interim Budget on the fiscal management of the Indian government.

Answer: Presenting an Interim Budget has several implications on the fiscal management of the Indian government, both in terms of short-term financial stability and long-term planning. The primary purpose of the Interim Budget is to ensure the continuity of government operations during the transitional phase before a new government takes office. While it ensures the government's financial functioning, the presentation of an Interim Budget also has several key fiscal implications:

Short-Term Financial Stability: The Interim Budget provides the necessary financial framework for the short-term operation of the government. It ensures that essential services, including public welfare schemes, defense expenditure, and administrative functions, continue smoothly without interruption. This is crucial for maintaining social stability and economic confidence in the period leading up to the elections.

Limited Fiscal Policy Reforms: Since an Interim Budget avoids introducing major fiscal reforms or new taxation proposals, it does not provide a comprehensive economic vision for the country. This can lead to uncertainty regarding the government's long-term fiscal strategy. The lack of new fiscal policy measures in the Interim Budget means that the new government may have to make quick decisions once it assumes power, depending on the economic situation.

Expenditure Control: The Interim Budget often focuses on expenditure control and continuation of existing programs, as it does not make room for major new initiatives. This can affect the government's ability to launch new development programs or invest in long-term infrastructure projects. It typically prioritizes maintaining basic administrative and financial functions rather than advancing growth-oriented reforms.

Impact on Tax Collection and Revenue Generation: Since no major tax proposals are included in the Interim Budget, the government has limited scope to influence tax collections or make significant changes to revenue generation mechanisms. This can result in financial constraints if there is a sudden shortfall in government revenue or if economic conditions worsen.

Previous Year Questions on Interim Budget

1. UPSC CSE 2020

Question: Discuss the significance of an Interim Budget in India’s parliamentary system and its implications on fiscal management.

Answer: The Interim Budget holds significant importance in India’s parliamentary system by ensuring the continuity of government operations during the transition period before a new government is formed. It helps maintain essential services, financial functioning, and public welfare schemes until the Full Budget is presented. The Fiscal implications include limited scope for fiscal policy reforms and new tax proposals, while focusing on expenditure control. Though it ensures financial stability, the lack of long-term planning and policy measures poses challenges for future economic growth and fiscal management.

2. UPSC CSE 2018

Question: Explain the procedural differences between the Interim Budget and the Full Budget, and analyze the impact of the Interim Budget on government policy.

Answer: The Interim Budget is a temporary financial plan presented before the general elections to ensure continuity in government functions. Unlike the Full Budget, the Interim Budget does not include major tax proposals, policy changes, or long-term economic reforms. Its focus is mainly on securing approval for short-term expenditure. The lack of fiscal policy changes in the Interim Budget limits its ability to address structural economic challenges, while the Full Budget outlines the government’s economic agenda for the entire fiscal year.