Budget as a Tool to Scale up Economic Potentials
The annual presentation of the Union
Budget mapping out in exhaustive details the income and expenditure of the
Central Government for the fiscal year beginning on April 1 and how it proposes
to spend and the ways and means to find the funds for spending will all be
revealed on February 28, the last day of this month. This is a practice India
inherited from colonial era though the earlier one of the Finance Minister
presenting the budget sharply at five in the evening had been dispensed with.
Instead, it is now presented sharply at 11 in the morning, doing away with
other businesses of the House including the question hour to exclusively devote
the proceedings for the budget and its presentation in the Lok Sabha. This year
the Union Finance Minister Mr.Arun Jaitley will present his first full budget
for the fiscal year 2015-16 on a Saturday, even as the maiden one he laid in
Parliament in July last was only for eight month period. Much is expected of
the full-fledged budget of the NDA government to take forward a raft of
initiatives it had announced on the economic front ever since it was voted to
power overwhelmingly in the May 2014 elections for a five year term under the
leadership of Mr. Narendra Modi who subsequently became the Prime Minister of
the country.
It would not be out of place to demystify the book-balancing exercise billed as
budget in governance parlance. Under Article 112 of the Constitution, a
statement of estimated receipts and expenditure, commonly called the Budget
Statement ought to be placed in Parliament every financial year that runs from
April 1 to March 31. Along with the budget statement that includes the the
estimates of expenditure from the Consolidated Fund of India that are
required to be voted by the lower House (Lok Sabha) are presented in the form
of Demands for Grants of the various departments and ministries of the
Government. Each demand normally contains the total provisions for a required
service i.e., provisions on account of revenue expenditure, capital expenditure,
grants to States and Union Territories, and also loans and advances pertaining
to that service. Estimates expenditure included in the Demands for grants are
for gross amounts.
Estimates of revenue receipts embedded
in the annual financial statement are further elaborated and analyzed in the
Revenue Budget document. Revenue receipts of the Centre comprise net tax
revenue and non-tax revenue. Tax revenue includes corporation tax, taxes on
income other than corporation tax and other taxes that constitute the direct
taxes. In the indirect taxes are included customs (import) duty, union excise
duties, services tax and other taxes. Non-tax revenue includes interest
receipts, dividend of public sector undertakings, other non-tax revenue and
receipts of Union Territories. Capital receipts cover recoveries of loans and
advances, debt receipts encompassing market loans, short-term borrowings,
external assistance (net), securities issued against Small Savings, State
Provident Fund and other receipts, while non-debt receipts include recoveries
of loans and advances, disinvestment receipts and auction(sale) revenues of
spectrum.
The budget document also contains two separate volumes on expenditure with the
first one dealing with the revenue and capital disbursements and Plan outlay
for each head. The second volume gives a perspective on the objectives
underlying the expenditure proposed in the Demands for Grants with a concise
note on the various items of expenditure on major programmes set out in the Demands
coupled with the reasons for variation between the budget estimates and revised
estimates for the previous year and the budget estimates for the current year.
Besides the revenue and expenditure compendium to lend clarity to the budget proposals,
there is also the Finance Bill. This is presented in fulfillment of the
requirement of Article 110(1)(a) of the Constitution, setting out the
imposition, abolition, remission, alteration or regulation of taxes proposed in
the budget. It is tagged to a sleek booklet called a Memorandum explaining the
provisions included in it. The booklet serves a quite useful purpose to
read the fine prints of the budgetary numbers and also a bird’s eye view of the
taxation proposals contained in the Finance Bill, with the provisions and their
implications decoded for clarity and understanding. In essence, all these
attachments to the set of Budget document constitute the bedrock of the budget
papers for experts and economists to lay bare the hidden and open meaning and
message of the important fiscal document the government of the day presents
every year. Separately but along with the main documents, the Finance
Ministry also makes available highlights of the budget, spelling out the
salient features, the milestones crossed and the new milestones to be set in
the real sectors of the economy, new initiatives announced in the budget and
allocation of funds to what are described as the linchpin legs of the economy
such as agriculture, industry, financial sectors and defense, besides a brief
summary of tax proposals.
In a bid to lend more transparency to governance and macro-economic management,
the Finance Ministry had departed from past practices by showcasing in recent
years the real status of implementation of announcements made in the previous
year budget speech by the Finance Minister as also a document dealing with
Fiscal Responsibility and Budget Management Act, 2004 related reports.
Though the previous government did make a pause in the implementation of the
important Act following the fiscal stimulus India had to administer in the wake
of 2008 global financial crisis, the government continued to make
available three important reports subsumed under this Act that deal with
macro-economic framework statement, medium-term fiscal policy statement
and fiscal policy strategy statement. However, it needs to be noted
that the previous Government in 2012 adopted revised roadmap for fiscal
consolidation following the amendment to the FRBM Act 2012. In the revised
roadmap, fiscal consolidation is designed with prudent mix of reduction in
total expenditure as a percentage of Gross Domestic Product (GDP) and
improvement in gross tax revenue as a percentage of GDP, the latest Mid-Year
Review of the Economy laid in Parliament in December last said.
The Finance Minister Mr. Arun Jaitley who promised to keep the fiscal deficit
target of 4.1 per cent of GDP in 2014-15 when he presented his maiden budget in
July last, will not find the task too tough to succeed. A few fortuitous
factors like a steep drop in global crude prices and a benign recovery in major
markets like the United States and the United Kingdom this fiscal meant that
the growth impulses in the economy would gain the requisite momentum to ensure
that the economic revival predicted for the last quarter of the current fiscal
did take place. The RBI too came out with a surprising 25 basis point cut in
interest rate in mid-January 2015 to help industry and trade overcome their
working expenses woes. The government‘s import cost of crude would come down by
a massive 50 to 60 billion dollars which would help cut its exorbitant fuel
subsidies substantially. Already, the government has decontrolled the prices of
petrol and diesel so that as the global price of crude oil plunges, the
pump price of these fuels would also go down to make customers spend their
saved money on other consumption expenditure. The government had also
wisely jacked up excise duty on fuel to mop up more than Rs 20,000 crore this
fiscal. This coupled with rationalization of food subsidies by limiting
procurement of cereals and other expenditure containment measures put in recent
months meant that the next budget will have ample headroom to manage and
kick-start development programmes particularly the ones like “Make in India”
for driving manufacturing, infrastructure spend and other
employment-generation productive activities across the economy. The country can
afford to lower import taxes on production inputs and intermediates that are
indispensable to rev up manufacturing growth, leveraging duly the savings
through the steep fall in the prices of global crude prices. The
time for using budget instrument to respond to the underlying potential growth
impulses in the domestic economy is seldom ripe than in the present time of low
crude prices, lower inflation and the lowest current account deficit. All eyes
are naturally on the General Budget to be unveiled on February 28, 2015 in
Parliament as to how far it will translate the congenial circumstances into
helping push the economy into higher trajectory of growth, economists contend
with gusto.
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