Government unleashes bold budgetary reforms

The reforms aim at doing away with complications that haunt our budget-making.

The Union Cabinet’s approval to advance the budget presentation by about a month, merge the rail budget with the general budget, besides doing away with plan and non-plan classification of expenses, are landmark budgetary reforms aimed at doing away with complications that haunt our budget making exercise. The merger of the rail budget with the general one is likely to increase the size of the general budget by over Rs 3 lakh crore, the amount that the railways had planned to spend on its plan and non-plan expenditure this year. All the approved steps would kick in from the next financial year beginning April 2017. Although the railways would still have autonomy to fix passengers’ fares, many feel that such issues would now be decided in the larger domain “It would hopefully pave the way for the setting up of a regulator to take on such decisions,” feels Sunil Sinha, principal economist with India Ratings & Research. Stakeholders hope that the approved steps would not only un-complicate the entire process “but would also improve the way accountability is sought from top to bottom,” according to Sinha.

Though the advancement of the budget presentation (probably by a month) is not going to make much of a difference, yet the government claims that such advancement would certainly help and enable ministries and departments to ensure better planning and execution of schemes from the beginning of the financial year that would still begin on 1 April.

Analysts feel that the decision to subsume the rail budget with the general budget is a welcome step because the rail budget, more than often in the past, was used as political instrument to obtain certain objectives which usually had long term implications on the operational efficiency of the railways. But with this unification, that discretion of doling out freebies would certainly not be there. This would minimise the distortions that have almost crippled the financial backbone of the railways. The Indian railways remain the largest passenger carrier in the world. Globally, it is also the fourth largest freight carrier.

But with the Railways’ financial autonomy now shift- ed to north block, how much room would such a shift leave for railways to exert its operational autonomy is yet to be seen. Many fear that populist measures like announcement of a new train, or one related to passengers fares (till the regulator is set-up) may now actually be dictated by the Ministry of Finance. Doing away with the redundant classification of Plan and non- plan expenditure is a welcome step which would make life easy both from operational as well as from an accounting perspective. Moreover, with no “Planning Commission” in place, such classification looks irrelevant.

Analysts feel that the decision to subsume the rail budget with the general budget is a welcome step because the rail budget, more than often in the past, was used as political instrument to obtain certain objectives which usually had long term implications on the operational efficiency of the railways.

The fact that car makers have sent higher volumes of passenger vehicles to their respective showrooms both in July and August does point towards a recovery which many feel “looks more sustained now.” The passenger vehicle (PV) segment which consists of cars, vans and utility vehicles is certainly looking up and is expected to grow by over 12% in the next twelve months. Key drivers for triggering such healthy growth would be benign fuel prices and a strong probability of interest rates going down further. “New models continue to drive sales,” says a report by Emerging Markets Automotive Advisors, “thus making August the best ever month for the PV segment. It was the best month for mini and compact segment as its demand in price sensitive retail market is quite strong.

Tata Motors, Hyundai and Renault managed to lure more customers through their new models, but niche manufacturers like Ford, GM and Volkswagen continue to struggle. While Tiago, a new model by Tata Motors, did wonders for them, customers seem to have evinced equal interest in Renault’s Kwid. “The impact of the good monsoon would boost the sales of mid-sized cars as well as scooters in the rural geography” says Sudarshan Shreenivas, auto maven with India Ratings & Research. Although much of the industrial activity is yet to turn around, good growth in the services sector would keep urban demand for cars alive.

One other factor which has helped drive more sales in the primary market is the well-evolved secondary market (second hand car market) where people find it easy to dispose of their older vehicles at fair prices before graduating to a newer one. “The average tenure for holding on to one’s new car has come down to five years now,” says Shreenivas and that means that rising incomes bring in more aspiration among people to move up their asset possessions. Many organised players like Maruti dot the secondary market, bringing in more confidence among buyers and sellers of old cars.

Apart from the car sales, two-wheeler segments have also gained much momentum in August that many feel is going to continue. The ongoing improvement in rural road conditions has pushed scooters sales quite significantly in rural geographies. “For every 100 vehicles sold in the rural areas, scooters make up about 30%” says Shreenivas.