Union Finance Minister Nirmala Sitharaman is set to announce the interim budget for 2024–25 on February 1, 2024, ahead of the 2024 Lok Sabha elections. The full budget for the fiscal year 2024–25 will be presented after the formation of the new government following the general elections. Before moving any further, let's first know what an interim budget is.

What is an interim budget?

An interim budget is presented by a government that is going through a transition period or is in its last year in office before the general elections held every 5 years. An incumbent government cannot present a full Union Budget in the election year and instead presents an interim budget during the joint sitting of Rajya Sabha and Lok Sabha in Parliament. The interim budget contains detailed documentation of all expenses to be incurred and every rupee to be earned through taxes in the coming few months until the elections. The incumbent government seeks a vote of approval from Parliament to extract money from the consolidated fund of India, where the government puts all its revenue, to meet its budget expenses before the end of the financial year.

In the interim budget, the ruling government presents estimates of its expenditure, revenue, fiscal deficit, financial performance, and projections for the upcoming financial year. However, it does not make any major policy announcements that could financially burden the next government that will present the full Union Budget. The government in power does not present the economic survey along with the interim budget. An interim budget can propose changes in the tax regime, but it cannot change taxes at any cost. It is similar to a full budget but only has projections for a few months, while a Vote on Account is usually valid for two months.

The last interim budget was presented by then-Finance Minister Piyush Goyal. Key highlights include no income tax for income up to Rs 6.5 lakh with a standard deduction and a TDS threshold raised on interest earned on bank or post office deposits. The fiscal deficit pegged at 3.4% of GDP, with total expenditure increasing by over 13% in 2019–20 budgetary estimates. Freebies of Rs 6,000 for farmers and a 2–5 % interest subvention under the insurance scheme if struck by natural calamities. The defense budget crossed Rs 3 lakh crore for the first time ever. Welfare for poverty and backward classes in educational institutions and electricity connections.

PM Narendra Modi recently coined “Modi ki Guarantee,” stating that Modi's Guarantee begins when hope from everyone ends, and his government is working to reduce the problems of everyone, including the poor, farmers, small traders, and various sections of society. PM Narendra Modi said, 'Modi's guarantee is not a formula for winning elections, but the trust of the poor. Ahead of the general assembly polls, the announcement of a new welfare scheme is likely, but some popular schemes of the incumbent government may also get expansion or extra resources to boost implementation rates, such as Housing for All and health insurance.

The Indian government is facing challenges in its fiscal outlook, including a monsoon deficit, global crude price unpredictability, subdued growth, low net FDI inflows, and lower nominal GDP growth. The market sees a risk of higher taxation and a disinvestment push post-elections as the government capitalizes on the sharp run in PSU stocks in sectors such as railways and defense. The Union Budget for 2023–24 outlines a disinvestment target of Rs. 51,000 crore, the lowest in seven years, but the Centre has only achieved Rs. 31,106 crore so far. The government may continue to focus on capital expenditure to maintain growth recovery, citing a sharp increase in the stock market reflecting investor expectations of a good paycheck for Capex. The interim Budget may see sustained momentum in budgetary capital expenditure, with a 10% increase in the Capex outlay to Rs 11 trillion. This could ensure the ratio of budget capex to GDP doesn't fall below 3%, as suggested by the FRBM Act.

Major subsidies are expected to exceed the budgeted magnitudes due to uncertainty related to global crude prices and the latest announcement by Chinese leader Xi to unite Taiwan with China. To maintain growth recovery, any unanticipated excess of revenue expenditure may call for adjustments in either capital expenditure or other revenue expenditure components.