The Union budget for 2018-19 has been presented by the Finance Minister. For several reasons the occasion has, over the years, gained not only national but international attention. And, thanks to the information technology revolution, and the explosion in media coverage (especially electronic), the proposals made in the budget are nowadays the subject matter of vigorous discussion - from the tea-stalls in the villages and towns to the most eminent academic institutions in the country.
And now, since the document is available, these discussions will become more animated and focused until the changes are made and the final proposal is passed in Parliament. And, in between, the public and various stakeholders will closely follow the scrutiny that different parts of the budget will be subjected to by the Standing Committees in the various Ministries of the government of India.
To begin with let us see what features a so-called ‘good’ budget must possess.
It is not only countries that make and implement budgets. An individual, a family, a fam-holding, an enterprise or a corporate house, all have the need to make budgets, albeit for different reasons. While a family may be hoping to make both ends meet and a farmer hoping to increase the income on his farm, an artist or a professional may wish to see his talent bringing him prosperity, and a national corporate or a multinational company may look forward to improved ‘ease of business’ conditions obtaining in the future. An investor, on the other hand, may be looking for greater returns.
For several Departments/ Ministries of the Central government and, obviously, the State governments, the budget is of special interest, as the proposals contained therein will greatly influence their plans and programmes in the coming year. I vividly remember how, as a Joint Secretary, Additional Secretary and, finally, as Secretary in the Ministry of Agriculture, officers belonging to various Divisions would gather anxiously to listen to the budget so that they could react quickly and effectively to the changed circumstances.
So far as the nation is concerned, the budget is not merely a fiscal instrument or financial statement. It is, in fact, a periodical statement of the intentions, priorities and policies of the government of the day. Among other things, it is expected to inform us of the achievement of the financial goals set in the past.
It has, over time, become a measure that translates the government’s stated policies into plans programmes that will help achieve the socio-economic objectives, of the government, and of the party which it represents. It is also a method by which the government conveys to the various sections of the people, and regions of the country, its commitment to their economic well-being and welfare, and how it (the government), balances the competing demands from different sectors of the economy for investment, support or concessions.
The budget also helps us gauge the government’s response to the mood of the nation, mirroring, as it is expected to, the present circumstances as consistent with stated policies, based on a predictable platform of resources.
All in all, a good budget should be a vehicle of attaining constitutional goals and people’s aspirations, rather than merely an instrument to pursue political ideologies and vendettas. It ought to provide a viable long-term vision, together with short-term targets whose achievement can be measured by non-ambiguous indices over definite time periods. It should a serve as a means to gather revenues equitably and apply them to actions that reflect the aspirations of all sections of people in a ‘win-win’ mode, especially in a pluralistic country such as India.
In a democracy, in particular, the budget has also become a method by which the government cultivates and pleases its vote banks. Ideally, a good budget should also build into itself the ability to respond to the ever-changing needs of the system which it serves. A mechanism that ensures ‘periodic lapse of resources’, in case the funds provided are not used within the stipulated time, would also lend a tremendous amount of discipline and order to the implementation of a good budget.
As has been wisely said, a well devised budget may be implemented badly, but a badly formulated one cannot be implemented well. Fundamentally these are two parts of a budget namely the revenue and capital parts. Revenue expenditure includes interest payments, subsidies, wages to government employees, pensions, social services and so on - any expenditure that does not lead to formation of any asset or liability.
Capital expenditure creates some liability/asset for the government. These include loans to public enterprises, loans to States, Union Territories and foreign governments and acquisition of valuables.
If there is a surplus in the revenue part which can fund the capital expenditure it is a good sign. If the revenue expenditure is more than the revenue receipts, that is, if there is a revenue deficit, then it is a negative sign as borrowing will have to be resorted to in order to finance the part as well as capital investment requirements.
Some important ratios relating to budgets are the fiscal deficit as a percentage of Gross Domestic Product (GDP), the tax to GDP ratio and the interest payments to GDP ratio. Overall debt as a percentage of GDP is also usually calculated as it rejects the health of the economy.
A reference has been made, earlier in this column, to a few mechanical changes that have been made, in the process of budget presentation, such as the change in the date and time. The process has, in recent times, also undergone some welcome changes other than these. One of these is the doing away with the plan and non-plan classification. The focus earlier, in the days of the Planning Commission which implemented five year and annual plans was on plan expenditure.
Now an overall picture alone will be available. Other changes include the combining of the presentation of the Railway Budget and the General Budget, the introduction of the concepts of gender-based budgeting and outcome-based budgeting, and the expansion, and increasing the quality of, pre-budget deliberations.
The idea of collaborative strategising at the levels of the Central ministries has also been taken seriously and is beginning to get reflected in the form and content of the initiatives announced in the budget. The concept of convergence of resources at the grassroots level, and their optimal utilisation, has also become the main plank for the majority of the measures undertaken.
Another heartwarming feature, particularly from the point of view of the increasing demand for cooperative federalism, is the gradual growth in the flexible space, in Central schemes, for initiatives by states which are now able to find increased elbow room for giving a concrete shape to the varying pattern and quality of their ranging demands.
The new initiative towards provision of flexi funds also encourages states to enjoy more financial administrative and financial freedom.In the coming weeks we shall see how the features we have discussed this time can form the basis for deciding whether the budget that has been present at this year qualifies for being described as a ‘good’ one.