Behind every economic decision there is often a political mind at work. The Modi government’s move to bring forward the budget presentation date to January from February should thus be seen as having as much political content as economic.
During Vajpayee’s tenure, the budget presentation time was shifted from 5 pm to 11 am. Reason: in the TV age, the print media was handicapped with having to report a budget presented so late. Print needed time and that is what it got. Vajpayee got claps from the print media.
A few days ago, it was reported that starting 2017, the Railway Budget will be dispensed with. While this makes no difference to the preparation of the railway budget or the existence of the railway minister, it helps reduce pressures for political favours on new railway lines and close scrutiny of the details of the railway budget. As an appendage to the general budget, most of the attention will shift away from the railway budget. The railway minister then ceases to be a quasi-political functionary. He can do his job quietly, away from the glare.
Now, with the move to shift budget dates, the NDA will be bringing in a third major shift, but mostly for non-economic reasons. The ostensible reasons for shifting the budget date to January next year are two-fold. One, since it takes till mid-May for the budget to pass, effectively two months of the financial year (April-March) elapse, giving the budget only 10 months to work its wonders. Shifting the budget to January means the whole budget will be done and dusted before the financial year begins.
Second, since a committee under former Chief Economic Advisor Shankar Acharya has been tasked with the idea of studying the pros and cons of shifting the financial year itself from the current April-March period to January-December (or some other period), the budget presentation date could be shifted even further back, to end-October. The reason why a January-December financial year is favoured by some is that the finance minister currently presents a budget in February, when little is known about the progress of the monsoon. Presenting the same in October means he knows how agricultural output will fare, and the budget can be appropriately modified. In an election year, the farm vote is overwhelmingly important to politicians.
Once again, the idea of shifting the financial year and the budget date has a political intent, if not content. Economically, it does not mean much. The fact is the share of agriculture in GDP has been shrinking – and is now just about 15 percent. Despite two bad monsoon years, it was not our agricultural output that fluctuated wildly, but manufacturing and trade.
On the other hand, it isn’t as if the prospects of the remaining 85 percent of GDP is crystal clear even in October, given that India operates in an inter-linked global economy, and trade accounts for nearly 50 percent of it.
Did we know that exports would fall month-after-month for nearly one-and-a-half years? Did we know that oil prices would crash to new lows in 2014? But both factors impacted us and our growth trajectory. What if the Lehman crisis had happened in January rather than September?
The fact is regardless of when the budget presented, the Indian economy is not insulated from weather or other shocks, and the only guarantee of good economic performance is a responsive government that constantly tracks changing trends in the fortunes of various sectors. We did not wait till the February budget in 2009 to drop excise or interest rates when Lehman crashed. So it is not the financial year that matters much.
Then why should the Modi government be fooling around with budget dates and financial years?
There could be three political thoughts behind this.
First, in terms of optics, Modi can tell Indians that the Congress followed the same budget date that the British left us with. He was the one to make the change. For a party that wraps itself in nationalism, this symbolism cannot hurt.
Second, moving the budget date by a month means the goods and services tax (GST), due for implementation from April 2017, will get a full year to run and establish itself as viable. The legislation will get done by March 2017, well before GST rolls out.
Third, a budget moved away from February to January or even October means the last budget of this government can be a regular one and closer to election dates. It will be free from the model electoral code, which mandates that no major tax or subsidy changes can be made so close to elections. Since Lok Sabha elections are due in April-May 2019, it means a full budget can be presented by the Modi government in January, or even two or three months earlier, without making it an interim budget. It can have political content, electoral intent.
This means between May 2014 and May 2019, Arun Jaitley could end up presenting six full budgets and not the normal five, assuming budget dates will be brought forward again to October, and the next budget is for a shorter period than 12 months. This is not to say this is what Modi or Jaitley are thinking, but they do have those options. How’s that for political thinking?