Advancement of the Budget date will ensure completion of all legislative works before the start of financial year
In 2000, the NDA Government, under the then Prime Minister Atal Bihari Vajpayee, switched the timing of the presentation of the Budget from the customary 5 pm to 11 am. While this move was symbolic, the current NDA dispensation has now taken a major step by de-linking this exercise from the vestiges of colonial raj. The Modi Government is likely to advance the presentation of the Budget from the last day of February to the last week of January or the first week of February. This will unleash huge benefits.
Under the existing arrangement, by the time the Finance Bill and the main Demands and Appropriation Bill is passed in Parliament, already first six weeks of the financial year (April to mid-May) are over. Hence, to meet the essential expenditure viz, salaries, overheads etc, during this period, the Government is forced to seek a vote-on-account. If the Budget date is pre-poned, Parliament will have two full months to pass the Bills, authorising spending for the full year.
However, the real benefit will be by the way all Ministries/departments will get to know well in advance as to how much money will be available to them for spending. This will enable them to properly plan their schemes/programmes, their implementation and expenditure pattern, unlike the extant system, wherein they either ended up bunching most of the expenses during last two quarters, or surrendering un-used balances out of the allocated funds.
This will also take away the leeway that is currently being enjoyed (indeed exploited) by ruling establishments to window-dress accounts, with the sole aim of trimming fiscal deficit, only to avoid slippages (albeit on paper) from the set target.
At present, the revision in income tax rates as proposed in the Budget, though applicable from day one of the financial year, ie April 1, has to wait till the Finance Bill is passed. Due to uncertainty as to what rate will finally get approved, businessmen and individuals are not able to make any definite provisions with regards to their tax liability. Moreover, it also hampers their ability to manage cash flows.
With regards to indirect taxes, any revision in rate, say increase in excise duty, takes ‘immediate’ effect ie March 1. As a result, any product leaving a factory from this date has to pay high excise duty. And in case the hike is not approved by Parliament (or if it partially rolls it back), it leads to hassles for producers as they have to seek refund and blockage of working capital if the refund gets delayed.
At another extreme, revision in service tax takes place prospectively after the Finance Bill is passed (unlike the income tax where changes are applied retrospectively from April 1). For instance, the increase mooted in 2016-2017 Budget to 15 per cent was effective from June 1, (up from 14.5 per cent last year).
The Government controls the maximum retail price of fertilisers. The revisions announced in the Budget takes place with immediate effect. In the past, an increase in the maximum retail price of urea had to be rolled back. This upsets the Budget as allocation for subsidy is inversely related to price. For instance, a hike of Rs 1,000 per tonne, mooted in the 1998-1999 Budget, was reversed in less than two weeks. This left the then Finance Minister Yashwant Sinha gasping for Rs1,600 crore.
The advancement of the Budget date will remove such anomalies by ensuring completion of all legislative requirements before the start of the financial year. All tax rate revisions and prices under statutory control will take effect from April 1. The vote-on-account will be a thing of the past and all Ministries will have to do proper budgeting and planning, to spend from day one. There will be greater accountability and scope for fudging hugely minimised.
Another proposal to re-classify spending as ‘revenue’ or ‘capital’ as against extant ‘plan’ or ‘non-plan’ is also welcome. The latter is a relics from planning era when development was intertwined with planned schemes. This led to an anomalous situation whereby any expense under non-plan (even if it is of capital nature) was considered as unproductive whereas, a revenue expense could be perceived as productive just because it comes under plan category.
The proposed classification is not only in sync with the contemporary realities of development, propelled by a multitude of sources (it no longer revolves around planned schemes), but it will also truly reflect the role played by respective item. Thus, a higher capital expenditure would connote a boost to asset creation and hence, productive capacity of the economy. Any decrease in revenue expenses will be a sign of improved efficiency in working.
While these changes are a good omen, the Government should also put an end to a pernicious practice of deferring certain expenses (mostly subsidies on fertilisers, food and fuel) to the following year. For over two decades, successive establishments postponed subsidy payments in tens of thousands of crores, thereby camouflaging the true position of fiscal deficit. This creates a misleading image about their being fiscally prudent. To ensure that such discipline is strictly enforced, the Government should implement the recommendations of the Expenditure Management Commission, under former Governor of Reserve Bank of India, Bimal Jalan, to switch over to accrual-based accounting from extant ‘cash-based’ accounting. This will nip in the bud any temptation to defer payments if only to manipulate fiscal deficit.
Together with the Goods and Services Tax, slated to be operational from April 1, 2017, the preponement of the Budget date, holds the promise of making the Indian economy healthy and robust, capable of taking on the challenge of double digit growth.
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