Budget or a vote on account?

Budget or a vote on account?
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First Published: Sun, Feb 01 2009. 01 15 AM IST
Updated: Wed, Feb 11 2009. 10 18 AM IST
Articles 112-116 of the Constitution spell out the measures required to enact Bills relating to the financial expenditure of the Union government. Importantly, Article 112 requires that the President shall cause the annual financial statement (AFS)—containing the receipts and expenditure from the consolidated fund of India for that year—to be laid before Parliament, and the subsequent Articles describe the contents as well as the procedure for getting these estimates passed.
Article 116.1(a) permits that pending the process in Articles 113 and 114, Parliament may authorize in advance the passing of expenditure relating to part of the financial year and this is described as vote on account.
Normally, budgets for the ensuing year are presented at the end of February, and since the approval of Parliament under Article 112 relates to the current year, the passage of the budget happens after 1 April. Meanwhile, a vote on account under 116.1(a) passed before 31 March enables the government to carry on business until the Finance Bill is passed.
In an election year such as this one, the government does not present the full budget—first, since the passage of the budget will have to happen after 1 April, when elections would already have been notified, and second, since the new government should have the opportunity of deciding the allocation of receipts and the source of revenues. In 2004, 1998, 1996, 1991, etc., the outgoing governments presented votes on account to Parliament, and the full budget was taken up by the new government in office. In 1999, Parliament by unanimous consent approved the passage of the budget even after the government had lost its majority in April, as the budget had already been presented on 28 February, before the government fell, and debated upon.
There is some confusion in the media on whether the Bill to be presented to Parliament would be for a vote on account, a budget or an interim budget. A budget normally includes new schemes and new taxation proposals, or the doing away of taxes. Changes in income tax have to be enacted as law, while changes in customs and duties are by notification. Announcements of new programmes and expenditure have also to be approved by the government in that financial year. It does appear, therefore, that the government would be constrained to approve expenditure to continue in the same manner as the current year through a vote on account for some months until the elections are over and the new AFS can be prepared.
The debate is over whether the government can announce new schemes and programmes or notify changes in tariff in direct or indirect taxes. There is certainly the temptation that, given the impending elections, some major programme announcement be made or some tariff concessions be announced. While customs and excise duties can be changed at any time—parliamentary approval is not required—changes in other taxes cannot be attempted, for it would require the Finance Bill to be passed. Similarly, announcements are fine but any expenditure for new schemes will have to form part of the new AFS, which can be approved only after 1 April. Hence programme announcements, if any, would not have budgetary allocations, and the Election Commission may well frown on such pre-budget announcements.
This is perhaps the reason that a slew of off-budget announcements has been made. The reduction in prices of petrol, diesel and LPG, and the cosmetic reduction in home loan rates announced by State Bank of India are some recent examples.
The promise by the deputy chairman of the Planning Commission (supposedly a non-political appointment) in Davos that there would be only a vote on account, but that there would be lots of goodies in the new budget if the United Progressive Alliance comes to power, is a bit in poor taste but proves that the government is wary of making too many announcements at this time and would like to nibble away at concessions that will not attract the chief election commissioner’s attention.
The problem with this political tightrope walk is that the economy urgently needs attention. It is now clear that the promises of the earlier finance minister that India would be unaffected by global events were quite false, and also that the enormous liquidity that has been pumped into the economy is not reaching those who need it. The next few months will be the worst of the downturn, with job losses, slowing production and disarray in the financial markets. Simultaneously, the fiscal deficit is growing to unacceptable levels, state finances are starting to get stretched and the room available for correction is being reduced. It should be frustrating for policymakers that just when the economy needs very close attention, the election process will require that not much be done.
S. Narayan is a former finance secretary and economic adviser to the Prime Minister. Comments are welcome at policytrack@livemint.com
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First Published: Sun, Feb 01 2009. 01 15 AM IST