1. Here’s how to have a single Union Budget, including the Railways

Here’s how to have a single Union Budget, including the Railways

This is the right time for the government to change the accounting practice to ‘accrual basis’ rather than ‘actual flows’. Otherwise, linking numbers is difficult. This will make government data less confusing, transparent and of global standards

By: | Updated: September 6, 2016 6:50 AM
railways.ap The Rail Budget is a colonial legacy, which got embedded in the system and had it being presented before the main ‘Budget’.

Four interesting discussions are on in an area which, refreshingly, has nothing to do with the cliched issues of growth or monetary policy or any other fundamental economic indicators. These are conceptual in nature and question some long-held practices, rather than theories. They have appeared on the discussion table for resolution with several arguments on all sides.

The first pertains to the way in which Budgets are going to be presented. Numbers presented in the Budgets could be confusing when dealing with expenditures. There are two components called Plan and non-Plan expenditure, which were related to the existence of the Five-Year Plans. As one wanted to know how much money was being allocated for the Plan from the Budget, this had some significance.

With the concept of planning being disbanded, there is really little purpose in such classification. The FY17 accounts still showed these headings ostensibly because this would be the last year of the Plan and was hence justifiable. There is some element of duality, as we also have expenditure classified under ‘development and non-development’, which was not congruent with Plan and non-Plan classification. The next Budget for FY18 will be having a new format and it will be interesting to see how the classification is done and whether one can make comparisons with earlier year’s numbers. This has become a challenge every time we have a new series of data or definition which do not have a trail that can be juxtaposed for benchmarking.

The second issue relates to the Budget again, where there is some questioning of the concept of an exclusive Rail Budget. There is merit here, as the Railways are a part of the set of ministries which are involved in the decision-making and implementation process of the ‘Budget’. Hence, putting all the numbers at one place makes reading easier. The Rail Budget is a colonial legacy, which got embedded in the system and had it being presented before the main ‘Budget’. While, arguably, it has the largest size—being the largest employer too—there is no reason to have it separately. The British looked at the Budget in two parts, as it was an integral component of their plans in India where investments were necessary to move goods and people to control the nation. With this being an old story, this separate dispensation can be given up with the numbers coming into the General Budget numbers.

The third issue is intellectually stimulating and pertains to the financial year being changed. The financial year, it should be mentioned, is a date accepted by all or imposed on all to ensure that there is uniqueness in presentation of any data which have similar time reference. The April-March idea has come down the ages and India appears to be one of the few countries that have a financial year different from one which is globally followed. Theoretically, this should not matter as long as there is homogeneity in representation. One good move taken years ago was to have uniform closing dates for all company accounts which had random time periods—ranging from June to March of next year. But MNCs still have the calendar year for closing accounts, which is an anomaly.

There are arguments for changing this date, which can refer to any quarter as there is always some activity that affects the choice and influences the decision. Pushing it ahead after the monsoon has been argued as being more appropriate since it synchronises the prospects that have a deep impact on farm outcomes and government commitment. But agriculture is a small part of the GDP, with only about half coming in April, which is technically outside the financial year. Various crops have different years and, hence, there is really no general benchmark for the entire sector. Sugar, for example, has an October to September season. Even among industries, there are season-specific influences. Infrastructure comes to a standstill during monsoon, while consumer goods get a fillip from August onwards. This is buttressed by the busy season concept which starts in October and, hence, September-end is appropriate.

Carrying this argument forward, it can be said that to homogenise the same with global practices, we can still provide data in the international format. This is so as all data is either monthly or quarterly and can be aggregated for the period of January-December. Thus, for any global comparison, there can be a parallel set of figures. The counter argument here is that the season-specific factors hold in all countries and it would be chaotic in case every nation chooses its own year-end.

Last, the issue of accounting in the Budget deserves a re-look. As such, having it in February provides scope for discrepancies between revised and final numbers. Just like how companies bring out their results after the year ends, the government, too, should have the final numbers by April 15. The past and future should not be linked; the announcements for the next year can be separated from the past and announced by March 31.

Also, this may be the right time for the government to change the accounting practice to ‘accrual basis’ rather than ‘actual flows’. Otherwise, linking numbers is difficult. For example, when the subsidy element was high, the Budget would not reckon payments to the OMCs and, hence, balance the Budget. The payments would be made in April and May when the deficit numbers tend to shoot up. The OMCs would be happy as their accounts for March would show income receivable from the government as it was reckoned on accrual basis.

It would be advisable that a decision is taken on all four issues at one time as the rest of the system has to adjust, which is always challenging. Reckoning the financial period as January to December means that all companies have to change their accounting practices, as would individuals. In fact, all entities would internally have to move over in unison and this can be done only over a period of three years or so. Systems have to be altered, which is a major logistical issue.

In short, we can dispense with Plan and non-Plan expenditure classification and have a single Budget, including the railways. The annual year should move to January to December and the government accounts should be on accrual basis. This will make government data less confusing, transparent and of global standard.

The author is chief economist, CARE Ratings.

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  1. N
    Narendra M
    Sep 6, 2016 at 4:34 am
    A separate budget for Indian Railways (IR) is a tradition which is being reconsidered and rightly so. Here, we should not overlook the fact that IR is a commercial undertaking albeit with social responsibility. Some have rightly argued that IR should put available resources to optimum use, so that it generates sufficient funds required for its own growth. I believe that IR should be converted into Indian Railway Corporation Ltd., or IRCL, which will be a public sector undertaking similar to Union government’s telecom undertaking, Bharat Sanchar Nigam Ltd. Once IRCL is formed there will be no need for a separate railway budget. It is of course necessary that IRCL is provided full operational and financial autonomy so that it can function with least interference from bureaucracy.
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