1. Column: What can the budget deliver?

Column: What can the budget deliver?

We require a clear roadmap for delivery of results in the remaining four years of the government

By: | Updated: February 24, 2015 11:31 AM
The budgetary process needs a further rationalisation. The estimates of revenue and expenditure for the year just ended need to be free of the suspicions of manipulation by the finance minister.

The budgetary process needs a further rationalisation. The estimates of revenue and expenditure for the year just ended need to be free of the suspicions of manipulation by the finance minister.

Every time the Budget comes around, the print and TV media indulge in the vox populi exercise. Everyone is asked what they would like to see in the Budget. The respondents are the sophisticated middle- and upper-middle-classes. Captains of industry are consulted, as are their trade associations.

The response is almost always to ask for more concessions, more tax cuts. Lately, there is an awareness of the cost of subsidies, especially the food security bill. But what is remarkable is that no one is ready to give up the subsidy they enjoy. College students can be passionate about wasteful subsidies but not be aware that all state-sponsored universities subsidise their education. They pay no more than a fraction of the cost of their higher education. There is no demand to convert higher education to be a fully-charged tuition fee system, financed by an income-contingent loan system. The gap between what private universities charge and what the state-sector does is wide and growing. Thus, there is a middle-class subsidy for those chosen on merit. They are also most likely to get the better-paid jobs. This is a regressive subsidy. Even if there were some externalities, they are hardly so large as to justify the fact that the fee a student pays for college education is a fraction of what he will spend on food during a term. The argument that the poorer students will be discouraged is an old one. There could be bursaries and scholarships for those students. But if we were to examine the class composition of those who score those fabulous 99% marks, you will find them all from middle- or upper-middle-classes.

India is one of the more lightly-taxed nations. The few who pay income tax complain of harassment, which is valid. But an economy where the tax revenue is in low double digits 10-14% can hardly be called a high-tax regime. We need an analysis of the incidence of the tax structure. Who pays in the final instant ? Professor Sir Tony Atkinson pioneered just such an analysis of the British tax system—TaxMod—in the 1970s. We need a breakdown of taxes and subsidies by income deciles and social classes to judge the fairness of the public finances.

The budgetary process needs a further rationalisation. The estimates of revenue and expenditure for the year just ended need to be free of the suspicions of manipulation by the finance minister.

This was not the case in the interim budget of the outgoing UPA government as was widely presumed though never officially acknowledged.

There needs to be credibility in official financial numbers. Pressures of politics are no doubt paramount when an incumbent government faces an election. Every party can manipulate numbers while in office. In India, however, there is a perennial election cycle in one state or another in between general elections. Thus, political expediency always beckons.

The UK government which came to power in May 2010 was a coalition government, the first such in peace-time in living memory. It decided therefore to instal an independent Office of Budget Responsibility to scrutinise the numbers put out in the budget and any statement on expenditure or taxation laid before Parliament. This has improved the quality of the data, usually very high in any case, as well as the level of debate. India needs such an institution to ensure that the lapse in good behaviour last year does not become an ingrained habit in the finance ministry.

Credibility of numbers is also at issue in the most recent revisions by the CSO. This is a highly reputable institution. Yet, the revised growth numbers it has released for the last two years defy belief. When a new government has taken office, one is never sure whether the avowed practice of hands-off in the work of such specialist bodies has been adhered to. It may be that the CSO is correct and a base change makes that much difference to the GDP growth numbers. Only time will tell. One needs to track the numbers based on the old weights in parallel with the revised weights. Here again is a seemingly dull technical matter which needs to be shielded from suspicions of political manipulation.

That having been said, the prospect of the budget itself is exciting. This is the first proper budget of the new government. The previous budget was a holding exercise. Now, we require a clear roadmap for the remaining four years of the government. There have been promises made and hopes raised. The political shocks the BJP has experienced are in some, though not a major, part due to a sense of disappointment at the delay in delivery of results. The finance minister should therefore also give us an estimated timetable of the delivery of results as he sees them. The nation waits.

The author is a prominent economist and Labour peer

Tags: Union Budget
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