1. Why only Rail Budget, scrap General Budget too

Why only Rail Budget, scrap General Budget too

The practice of waiting for the next year’s Budget to announce major policy and taxation decisions must be done away with and the General Budget should also be limited to presentation of the expenditure and revenue statement for the year

By: | Published: September 13, 2016 6:27 AM
Budget 2016 The practice of waiting for the next year’s Budget to announce major policy and taxation decisions must be done away with and the General Budget should also be limited to presentation of the expenditure and revenue statement for the year (AP)

At a time when the Union government is holding an extensive consultation on the changes to be brought in the General Budget process, including the clubbing of the Rail Budget with it and advancement of the day of presentation from the last day of February, it would be worth noting what then finance minister of the previous NDA government, Jaswant Singh, said in his 2003-04 Budget speech: “…..there is palpable impatience in the country for progress and growth. The nation cannot afford the luxury of prolonged periods of reflection, or a leisurely implementation schedule. The world will otherwise pass us by. Beyond deregulation, it is more and ever more de-bureaucratisation that is needed, as much of systems as of the mind. Of course, institutions matter, correct design and application of rules, too, but all in the service of our national objectives; not either as obtuse abstractions or as partisan goals. The core need in the country is of releasing national creativity. The Budget 2003-2004, of the NDA Government endeavours to do just that.” (February 28, 2003).

Though Singh spent less than two years at the North Block as finance minister, his tenure saw major reforms in the policy, administrative and tax domain—the efforts to bring in transparency to the budget-making process and policy decisions, and also reduce the tax burden on people were among the most important ones.

His view that ‘economy was too serious a matter to be budget-centric’ and a year-long attention was required to attain a high growth trajectory is still equally relevant.

The underlying idea was that any policy or taxation decision should not wait for the budget and it should be taken and implemented any time during the year, and the budget should ideally be limited to just presenting the revenue and expenditure statement before Parliament for approval.

Prime minister Narendra Modi and finance minister Arun Jaitley would do well to revisit this idea and make this the ultimate goal of the current changes in the Budget process, and not just limit it to the scrapping of the Rail Budget and changing the financial year.

In any case, PM Modi has taken the lead in doing this and has announced major policy decisions of the government as and when he found it opportune to do so, whether it is through his Independence Day address or the launch of schemes like Start-up India, which have been later implemented by the finance ministry.

Some of the tax changes, such as retrospective application of MAT on FPIs, have also been made in the middle of the year and there is no reason why the Income-Tax Act and other laws can’t be amended during the course of the year, if the government thinks it to be a necessity.

So, the real reform in the Budget-making process would be disbanding the practice of waiting for the next year’s Budget to announce major policy and taxation decisions and limiting of the General Budget to presentation of the expenditure and revenue statement for the year—the hype and uncertainty surrounding the budget must go.

What appears to be a strong possibility from the next financial year is a combination of advancement of the Budget day by a month or so to enable implementation of all the budget measures from the start of the financial year from April 1, and scrapping of the Rail Budget presentation in Parliament that would lead to the General Budget also outlining the Railways’ financial statement.

This would lead to the Railways getting the gross budgetary support (GBS) from the ministry of finance for its capital works in the same manner as other government departments get. Though it is a contentious issue, the Railways GBS ideally should be net of dividends.

Going ahead, any additional requirement of capital funds based on the investment need would be decided by both the ministries, and this may be financed through a mix of market borrowings, institutional finance or through other modes like PPP, and monetisation of railway assets, including land.

The tricky issue, though, would be devising a workable subsidy sharing mechanism—once the Rail Budget is scrapped, there has to be a framework for sharing of the Railways’ social cost due to its subsidisation of the passenger fares. Along with the changes in the rail fares, the proposed railway development authority will have to suggest a model for compensating Railways by the concerned ministries and departments, including the finance ministry.

This may take time, but unless the Railways’ subsidisation burden is taken off its back, scrapping the Rail Budget presentation would just be a symbolic change.


Another proposed alteration, the changing of the financial year— which the government is also considering and has set up a committee under former chief economic adviser, Shankar Acharya, to give its recommendation on this issue—will impact the Budget- making process significantly.

Inherited from the colonial past, the financial year (April 1-March 31) has been questioned several times in the past 150 years it has been in place—the April 1–March 31 financial year was adopted to align it with the British Government in 1867.

The main argument for changing the financial year is that, at present, the government budgets are formed without the knowledge of South-West or North-East monsoons that impact the economy in a major way. A number of committees have suggested a change in it, but it has been continued by successive governments as a decision on the alternative date could not be taken.

The Shankar Acharya panel could still suggest maintaining a status quo when it gives its report in December; but if it goes ahead and recommends a change in the financial year—beginning either October 1, November 1 or January 1—a transition period of 3-4 years must be given to the companies and others for a smooth switchover.

Clearly, this is something that the government can delay for a few more years, but if PM Modi succeeds in removing the budget hype in his current tenure, that is slated to end in May 2019, it will be another big reform.

But, that will take away a large part of the charm that the finance minister’s portfolio holds currently!


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