What does the Interim Budget tell us?

Although the Interim Budget presented by the Union Finance Minister,is only meant to legalise expenses until the main budget is announced following the Lok Sabha elections, it still is a window to the country’s state of the economy, and the government’s thrust on the way it is meant to grow. Will it serve as a stepping stone to larger goals for the main budget remains to be seen

On 1st February, the Union Finance Minister presented the budget, but this time, it was not the main budget, but an interim budget. An interim budget is presented when there is no time to present the main budget. The Lok Sabha elections are round the corner and this required the presentation of the interim budget. This may be called the ‘Vote-On-Accounts’ to legalise expenses in the interim period till the new budget is presented by the new government. The last interim budget was presented in 2019 before the last general elections were held. Though the interim budget has the limited objective of giving a legal pedestal to expenses to be incurred in the short interim period, it also earmarks the direction of governance and the economic path the country will undertake.

What is the budget?

The Budget is an annual financial statement that lays out the government’s proposed expenditure and revenue for the upcoming fiscal year. It also gives details of income and expenses of the current year so that the country can know about the performance on the economic front with reference to the preceding budget.

Article 112 of the Constitution gives the budget a constitutional support and also explains what it is. The budget is divided into two parts – Budget Receipts which constitute revenue receipts and Capital Receipts and Budget Expenditure which includes revenue expenditure and capital expenditure. The presentation of the budget by the Finance Minister is again divided into two segments. The first segment is Part A, and it provides an overview of the economy of the previous and current years and also gives budget estimates for the next financial year. Basically it is a review of the economic situation of the country, and is more concerned about the ‘macro’ aspect of the economy. The second part of the budget presentation, Part B, highlights the tax proposals.

Budget history:

The Arthashastra of Chanakya, gives a glimpse of the budget in ancient India, as it discusses the annual statement of accounts. In British India, the budget was first introduced on 7 April, 1860, by the East India Company. However, the first budget was presented on 18 February, 1869, by James Wilson, who was member of the India Council that advised the Indian Viceroy. In independent India, the first budget was presented by Minister R.K. Shanmukham Chetty on 26 November, 1947. It was in fact only an interim budget. The famous statistician, PC Mahalanobis is considered the Father of the Indian Budget, as he was the first to provide a scientific structure to our budget.

Economic situation of the country:

Like the thermometer which measures body temperature, the Union Budget measures the economic situation of a country. The Interim Budget 2024 is a very short document but it still gives some idea about the economic condition of our country. The economic condition of the world after Covid-19 and the ongoing wars has not been very encouraging. Many countries are in the grip of inflation and even have recession at their doors. In contrast, we are the fastest growing major economy after the US, China, Japan and Germany and by all indications we will become the third largest economy in about three years.

The GDP growth figure of the third quarter of 2023-24 just released, says a lot. We have surprised everybody including both the government and RBI as GDP growth has reached 8.4%. The Government with all caution now says that our GDP for the whole year of 2023-24 will be 7.6% and this figure is well ahead of the earlier forecast figure.

The stock market is also an indicator of the economic situation of the country. We now have a market cap of 4.6 trillion US dollars and have just bypassed the Hongkong stock market to reach the fourth position. We are definitely a good attraction for foreign investors, but still creditable for our middle class SIP investors through mutual funds which are outperforming. Our stock market also has a distinct characteristic. Our entire market, big cap, medium cap and small cap stocks are unitedly growing, unlike only a few big technology companies in the US, and that too due to their AI engagements.

"Though the interim budget has the limited objective of giving a legal pedestal to expenses to be incurred in the short interim period, it also earmarks the direction of governance and the economic path the country will undertake"

Anticipated budget in July 2024:

The main budget will be presented by the new government in July. As per all expectations and media survey reports, the Modi government will be elected with more strength and hence the direction set in the Interim Budget will be allowed to fructify. The country will put in all efforts to make it a developed country by 2047, when India celebrates hundred years of independence.

The indicators so far show that the country will have adequate tax-buoyancy to prepare a robust budget. India’s direct tax collection up to 10 February, 2024, is Rs 18.38 lakh crores (gross) which is 17.3% higher than the corresponding period last year. The net collection has risen by 20.25% to Rs 15.60 lakh crores for the same period. GST collection is also consistently rising every month. For February, 2024, GST revenue went up to Rs 1,68,337 crores which indicates an increase of 12.5%.

The GDP for FY 2023-24 is set to be higher than earlier expected. Massive capital expenditure by the government over the years has worked as a catalyst and the private sector has also started coming forward to join the bandwagon. Inflation is under control and foreign exchange reserves are also very high. In the last ten years, direct tax collection has tripled and the number of returns filed have gone up 2.8 times.

Time for the big jump

The government will have an ideal time to make a big jump. It is not possible to make a wild guess of what the government will do, but it is for sure that Budget 2024 will work as a stepping stone for an ambitious development. The government will pave the way for India to become a developed nation and to become the third biggest economy in a small time span.

There can be some changes in the tax laws, though at the present tax rates are reasonable. For income up to Rs 7 lakh, individuals do not have to pay income tax due to Section 87A and the threshold limit. Companies also pay low tax at the rate of 22% and still lower at the rate of 15% in the case of new manufacturing companies. There are liberal benefits to startups.

We have to be optimistic about the full budget and above are the reasons for that. But, we have to keep in mind that we the people also have to work hard if we want to see India as a developed country. Rules, laws and budgets alone will not be enough.