What the next budget will be, Finance secretary, Ashok Lavasa, explains

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New Delhi | Published: September 30, 2016 6:26:12 AM

The Budget will be essentially for a year, but whatever schemes are there in the Budget which will go on for a longer period of time those schemes will be crafted on the basis of the envelope which is available for the next three years.


Finance secretary Ashok Lavasa.Finance secretary Ashok Lavasa.

The Budget will be essentially for a year, but whatever schemes are there in the Budget which will go on for a longer period of time those schemes will be crafted on the basis of the envelope which is available for the next three years

From a change in the date of presentation in Parliament to the outlining of the goals and targets along with the allocation of funds for the schemes and merger of the Rail Budget with it, the next Union Budget will be starkly different from what it has been till this year. In an interview with Santosh Tiwari, finance secretary Ashok Lavasa explains the contours of the new-look Budget that finance minister Arun Jaitley will present on February 1, 2017.

The Budget will be completely different from next year. It will be the first Budget of the non-five-year-plan model. What will it look like, as many of the changes proposed are historic?

Yes, the changes are very important, and discussions on some of them have been going on for a long time. Various committees have made recommendations and considerations have been given to some of these recommendations in the past, but the government has taken decisions on them now. There are four or five big changes. One is the merger of Plan and non-Plan segments, and then shifting to a capital and revenue accounting model. This is incidentally something which the Constitution also provides for. The second one is an outcome-based approach. We are insisting that the ministries must specify not only output, but also measurable outcomes, for each of the schemes and programmes they suggest for which budgetary allocations are made. It is possible that in all the schemes, the outcomes may not be measurable in one year, but the ministry has to take a call that it will assess the outcome of a scheme in two years or three years, according to the nature of that scheme. The third is a medium term framework, and then, of course, the merger of the Rail Budget with the General Budget. The decision to advance the presentation date stems from the objective of trying to complete the budgetary approval process before the new financial year begins. We thought that presenting the Budget on February 1 may help us in achieving this objective.

An outcome budget would mean that the deliverables will be identified in the beginning of the fiscal year itself. So, allocations will also accompany targets. Isn’t it?

Exactly. That is what we are trying to incorporate in the budgetary estimates and the budget documents. We are attempting through the circular which we have issued that when we discuss with various departments, they give us this outcome framework for assessment.

So, with the allocation for Swachh Bharat, the Budget will also specify outcomes like how many toilets are to be made in the year…..

Among the outputs would be if you spend a certain amount of money, so many toilets can be built. One of the outcomes would be making a village or a town open-defecation free and to what extent, or in what manner, will it improve the level of hygiene and cleanliness. That is where the complexities of the outcome-based budget lie. It will be important for the administrative ministries to devise outcome indicators in such a way that they reflect the true objective of the scheme.

Coming to the scrapping of the Rail Budget, how will the merger process deal with the need to share Railways’ social costs?

In fact, in some ways, this is already being done, because the dividend which Railways has been paying to the government is a dividend on capital at charge. In 2015-16, Railways paid the dividend at a rate of 4%. It is about R9,700 crore. About R10,000 crore is to be paid in FY17 which, probably, has also been calculated at 4%. Where can you get capital at 4% in the market today? So, the fact that Railways is getting capital at this rate shows that government of India is bearing some of the social cost of Railways already because even the cost of the government of India borrowing from the market itself is 7.8%, and last year, it was close to 8%. This is one, but even if you overlook this factor, out of the R9,700 crore budgeted amount, almost R5,000 crore plus would be given back to Railways in the form of non-Plan assistance, which is subsidy for running unsustainable or loss-making routes and national projects. Similarly, there is a category of services which they perform for which the government gives them relief from dividend. With the merger of the budget, Railways will not have to bear even the burden which they have been till now.

The next budget will also be the first non-five-year-plan model budget. So, will it reflect the future roadmap also, rather than just one year?

One document that we have, that in some way gives a projection of revenues the government can expect, is the Fourteenth Finance Commission report, which has done forecasting of revenues. This gives you a broad kind of envelope of resources which you can expect and within which planning can be done. What the government has asked the ministries to do is to make the plan for three years, i.e., up to 2019-20, which is the period of the Fourteenth Finance Commission. Then, NITI Aayog has been asked by the government to prepare an action plan and also a mid-term plan for seven years and do a vision document for upto 2030. The overall framework of the vision document could come out of two big commitments that the government has already made publicly. One is the Sustainable Development Goals that virtually encompass all the sectors of the economy and the second, the INDCs, nationally determined contributions, which have become a part of the Paris Agreement. Between these two documents, the roadmap for the next 15 years is more or less described. Now, how it is converted into short-term action plans, medium-term targets and goals is what the NITI Aayog will prescribe.

All this will be there in the next Budget because you have to give indications now on what the government’s medium-term and long-term plans are…

The Budget will be essentially for a year, but whatever schemes are there in the Budget that will go on for a longer period of time, those schemes will be crafted on the basis of the envelope which is available for the next three years.

How do you see the fiscal situation this year that will play an important role in this transition?

On the whole, there are one or two clear positives in sight. The Plan spending so far is 43% of the budget estimate. Going by the comparison from the last year, this means an increase of R50,000 crore, which I think is very substantial. On the non-Plan side also, there has been an increase. On the receipt side too, there is buoyancy in excise, service tax and corporate tax collections. There is an increase of almost 25% in the tax receipts as compared to the last year. We are hoping that if this trend continues, we will be within our targets although we have the challenge of meeting the 7th Pay Commission liabilities. The collection from excise duty is showing a remarkable increase and it is an indication that things could be looking up. Also, if you look at the capital formation, the government’s contribution here in 2014-15, has gone up from 3.6% of GDP to 4.2% of GDP. The contribution of private non-financial sector in capital formation has also increased from 11.2% of GDP to 12.1%. These are all indicators of growth which is propelled by government contribution and also that of the private sector.

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