The Indian Express (Delhi Edition)
How Budgetmaking has changed, and how it may change again
EXPRESS ECONOMIC HISTORY SERIES
EARLY IN January 1999, in the run-up to the Budget of that year, Finance Minister Yashwant Sinha discussed with senior officials in his Ministry the idea of changing what had been a longstanding tradition — of the Government of India’s annual Budget being presented to Parliament at 5 pm. Sinha, his Finance Secretary Vijay Kelkar, and D Swarup, a man who had overseen several Budgets, were in agreement that it would be sensible to move to a morning timing, which would lead to a far more rational and informed debate on the Budget, and a better analysis of numbers and announcements.
The evening tradition was a carryover from the Raj, to suit lawmakers in the British House of Commons — and had no meaning in independent India. Reporters of news agencies would be locked in along with officials to enable them to go through the documents, and then out the contents after the Budget had been presented, in time to catch tight press deadlines.
There was another reason, as Sinha — who had presented the Budgets of 1991 and 1998 earlier — has said. The presentation of the Budget would be followed by countless interviews till late in the night leaving him exhausted, and this prompted him to think of changing the procedure. Prime Minister Atal Bihari Vajpayee was on board, and Sinha wrote to the Speaker of Lok Sabha and Chairman of Rajya Sabha for their approval to drop question hour, which starts at 11 am. Finally, at 11 am on Saturday, February 27, 1999, Sinha rose to present the Budget for 1999-2000.
Along with the change in timing came other changes. For long, the union Budget used to be a thick document — with the contents in both English and Hindi. That gave way to separate versions and a slimmer document. The documents that come with the Budget — apart from the Finance Minister’s speech — used to be white for decades. But soon, the expenditure budget, the receipts budget, the financial statement, memorandum and associated documents were all marked in different colours — red, orange, blue — making the job easier for those looking for information specifically on a particular aspects of the Budget.
Even at that time — and through the years that followed — it was almost an annual ritual to discuss the prospect of merging the Railway Budget with the Government of India’s Budget. But there were no follow-ups or a push for change. A separate Railway Budget too was based on convention — following recommendations of a committee headed by Sir William Acworth, then chairman of Eastern Railway. The committee argued that the Railways, a commercial undertaking that fixed its own fares, needed to have a separate Budget.
The convention, which came into force in 1924 and has survived for over 90 years, is now set to change, with a proposal to merge the Railway Budget with the Union Budget. It will put an end to the grandstanding and patronage distribution — in terms of approving new lines and trains — based on political factors. A merger of accounts has been advocated in the past as well — most recently by an expert committee headed by economist Bibek Debroy, which recommended that the Railways should make the transition to commercial accounting, and the Railway Budget, for which there is no constitutional or legal requirement, be phased out.
Some would argue that subsuming the Railway Budget into the Union Budget for a “commercial department”, would lead to obfuscation. But the counterargument could be that the absence of a separate Budget — or speech — by the Minister, would signal the end of populism and change the ethos of the organisation, pushing the country’s largest employer to be more commercially oriented.
The proposed merger of accounts could also mean that a regulator to fix tariffs or fares may not be far away. The massive wage bill and pension burden have put a huge burden on the Railways, which is seeking to invest heavily over the next few years. A merger — and the larger balance sheet of the union government — may bring benefits in terms of leveraging for raising money.
Yet another fundamental change could be in the offing — that of advancing the date of presentation of the Budget. This idea — of a budgeting cycle that follows the Januarydecember calendar year rather than the April-march financial year — too has been discussed for years. The proposal is being revived — with its backers saying it would help in better planning and utilisation of funds. But this would have to go hand in hand with change in accounting by firms in India, as also in the practice of supplementary estimates, which goes against the grain of basic budgeting.
Real reform will come when, like in many other countries, the Budget is just a statement of receipts and expenditure, rather than the massive, secretive affair that it is in India now. Logically, that step shouldn’t be far off with the introduction of the Goods and Service Tax, and the subsuming of many taxes. A stable rate, and now stable income tax rate — with three slabs of 10%, 20% and 30% which has not been changed since 1997 — should make it possible over the next few years to leave the Finance Minister to manage the economy without the annual tinkering of rates starting from petroleum to rubber chappals. This reform would also mean putting an end to the practice of using the Finance Bill to surreptitiously make changes to other laws as provisions tucked away in the fine print.