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Having the cake and eating it too

January 08, 2004

It is now becoming clear that Jaswant Singh is going to present an interim Budget and not just a vote-on-account. Even though the government may say that the interim Budget will be presented for the purpose of a vote-on-account, there is a difference between the two.

A vote-on-account will enable the government to carry on its business and meet essential expenditure during the first four months of the next financial year. It is a form of a truncated annual financial statement and there is no need for a finance minister's speech, a Finance Bill or even for presenting the revised estimates of revenue and expenditure for the year 2003-2004.

As against this, an interim Budget will have to have the demands for grants and the annual financial statement for the full financial year. These will be revised and finalised at the time of presentation of the 'regular Budget'.

Govt may go for interim budget in Jan-end or early Feb
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Vote-on-account vs full Budget

In order to continue the existing tax structure for a full year, the finance minister will also have to introduce a Finance Bill as a part of the interim budget. And of course, it will have the speech, complete with the mandatory poetry and puns!

This time around it is easy to guess that it will be another instalment of the India Shining campaign. (May I take the liberty of suggesting to the FM team of speech writers not to look for couplets of Mirza Ghalib or Mir Taqi Mir or Allama Iqbal, who are very melancholic, but to look for couplets from the compositions of the famous Junoon band of Pakistan. They are hip 'n happening and, of course, the externality will be that he would have contributed his bit to the normalisation of relations between the two countries!)

The key point is that an 'interim Budget' gives the finance minister the freedom to take some policy decisions and change the composition of expenditure, even if he doesn't change the tax structure. But, changing the expenditure level and composition can be a way of tampering with the effective tax structure.

The bottomline is that Jaswant Singh is going to have the best of both worlds. Just before going into elections, he has a potent instrument with which he can announce his intent for the regular Budget and even give a sneak preview of what he plans to do later in the year, be populist, give concessions and sops and gain a lot of goodwill and votes to boot.

Having done that, he will have another chance to amend some of the changes he has made, depending on how the dice will fall. As an aside, he would have cleared the pitch for the new incumbent, in case he is not going to be there. There cannot be a better example of having the cake and eating it too! It is certainly a matter for the Election Commission to look into.

Constitutionally speaking, there is nothing like a Union Budget, let alone an interim Budget. The word 'Union Budget' does not even figure in the Constitution! Article 112 of the Constitution stipulates that the government should lay before both Houses of Parliament an "annual financial statement".

This is simply a statement of the estimated revenue and expenditure of the government of India. All the 'emotive and ideological' estimates like the fiscal deficit, revenue deficit or non-plan expenditure are not a part of this statement. The critical statutory part, of course, is the Finance Bill.

Going strictly by his constitutional responsibilities, Mr Jaswant Singh, should present an annual financial statement for four months starting from April 1, 2004. All the frills, which come through the interim budget route should be avoided.

However, whether the finance minister presents a vote-on-account or an interim budget, he will be causing a great deal of uncertainty and fiscal mess at the level of state governments. In the discussions on the impact of a vote-on-account, it is not generally recognised that the Union budget is linked to 29 state budgets.

With no firm estimates of revenue, and expenditure, one of the main ingredients of the state budgets will be missing. It is not going to be clear what the total size of the central plan will be, or what will be the central assistance to the state plans. Even the total devolution to states will now be uncertain. The net result is that all these budgets will be mythical documents with virtually fictitious debt and deficit numbers.

This will also mean that all states will leave huge unfunded gaps in their budgets, which will, at the end of the year, have to be filled in through borrowings making the fiscal situation even worse than what it is.

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