Updated: Aug 4, 2019
What are the differences between Vote on Account vs Interim Budget, and why is the distinction necessary?
A budget is defined as an estimate of income and expenditure for a set period of time.
The earliest references to drafting a budget can be found in the Arthashastra. As per the Arthashastra the chancellor is supposed to draw estimates of the revenue inflows from various departments, and the expenses expected to be incurred for implementing various policies and the exemptions promised by the king.
To understand the terms 'Vote on Account' and 'Interim Budget', let us first understand what normally happens every year when a budget is presented in the Parliament. The Finance Minister of India, usually on the first day of February, presents Annual Budget. The Annual Budget is an Estimate of Expenditures and Revenues, Estimate of Deficit or Surplus and also includes amendments being made to the Finance Act. The budget is just a presentation, whereas it is the Appropriation Bill - to be passed by both houses of the Parliament - that becomes a legally binding act. Only when the Appropriation Bill is approved by the Parliament is the Government allowed to actually withdraw money from the Consolidated Fund of India (CFI).
Whenever there is insufficient time due to an emergency or the General Elections, the outgoing Government presents something called Interim Budget. An interim budget is a complete set of accounts, including both expenditure and receipt, and gives the complete financial statement, very similar to a full budget.
The onus of framing the full budget lies with the newly elected government after the election is over. A point of contention that often crops up is whether the government can announce new economic measures in the Interim Budget? The constitution has not made any distinction between an Interim Budget and a Full budget, therefore the out-going government is not prohibited from announcing new measures. However, it is now a general practice that the government refrains from making sweeping changes as there is a prospect that a new government with a different plan could be in power.
A few governments have not shied away and brought significant tax changes in the interim budget to woo voters and outline their economic vision for the next 5 years if they’re in power (For instance in 2009, 2014 and 2019).
Why is the distinction between Interim Budgets and Vote on Account necessary?
The Constitution states that for the government to withdraw even a single penny, it must first pass the Appropriation Bill. For a bill to be passed - by both the houses of Parliament - usually takes a while; but the government will incur expenditures for administrative purposes right from the 1st of April, so what is to be done? This is where Vote on Account comes in. A Vote on Account is a permission to withdraw money from Consolidated fund of India (CIF) before the Appropriation bill is passed. A vote on Account is not generally debated, it is a mere formality.
And now to answer the question we’ve begun with, Vote on Account and Interim Budgets are two different things. While a 'Vote on Account' deals only with the expenditure side of the government's budget, an Interim Budget is a complete set of accounts, including both expenditure and receipts. So if the outgoing government decides to go for a Vote on Account and not an interim budget, it means it can not propose any new economic measures, new tax policies or any changes to the existing legislature. Like we’ve seen earlier, a Vote on Account only allows you to withdraw money from the Consolidated Fund of India for meeting the administrative expenditures.