Arun Jaitley should practice the saffron KISS on Union Budget 2015-16

It is good that Arun Jaitley does not think the Union budget is a big deal. Speaking at the CNBC TV-18 India Business Leader Awards function last Friday (9 January), he said his job was round the year, and budget day was merely about announcing the priorities. Or words to that effect.

The real problem with the budget is not just the huge hype around it – that happens because the media hopes to shake a few extra rupees out of advertisers during the event - but the complete lack of innovation around budget-making for years on end.

Barring one change made by Yashwant Sinha during the Vajpayee years (he shifted the budget presentation hour from 5 pm to 11 am), the budgets being dished out these days are no different in substance from what they were during colonial days.

Worse, budgets have become a big bore, with verbosity growing. Finance Ministers seem to be responding to the TV Channels’ need for more hours of show-time by extending their speeches. Throughout UPA-2, for example, every successive year saw more verbiage in budget speeches. Pranab Mukherjee started with a 139-para speech and 11,700 words in 2009-10 and worked his way up to 220 paras and 14,157 words in 2012-13, before he was thankfully given a sendoff to Rashtrapati Bhavan. P Chidambaram shortened the speech to 188 paras (roughly equivalent to Mukherjee’s 2010-11 effort) in his swansong full budget of 2013-14) with “only” 12,749 words, only to see Arun Jaitley revive the tradition of verbosity again with a record-breaking 253-para effort and 16,491 words.

The effort needed him to take a health break – probably the first ever by a finance minister in the middle of a budget speech. Given that the 2014-15 budget, the Modi’s government’s first, made no waves and was dismissed as “ Chidambaram’s budget with saffron lipstick ”, all that lung-power was in vain.

Will Budget 2015-16 be any different? Probably not, despite Jaitley’s brave words to the effect that it is the other 364 days after the budget that really matter to the economy.

But someone in government should whisper into Jaitley’s ears that less is more – we need less speech, more innovation. Here are seven suggestions (including some made in the past ) on what those innovations could be.

First, of course, is length. There is no earthly reason why a budget speech should exceed 3,000-5,000 words – half an hour’s indulgence at best. Reason: this wordage is enough to convey the broad direction the government wants to take, and the few changes it plans to make in taxation. Remember: if tax systems have to be stable, year-to-year changes have to be minimal. Put another way, less verbiage will be the result of putting in place a smart, long-term tax policy and not just the result of smart editing.

Keeping it simple and short (the KISS principle) would be a nice change. A KISS, even with “saffron lipstick”, is worth the effort. If we take “saffron” to mean a post-colonial colour to the budget, why not?

Second, Jaitley must move towards ‘open’ budget-making. This means the vast majority of budget proposals should be discussed in various fora with all stakeholders all through the year, with the final shape being given to it in the budget. The budget proposal should thus come as no surprise to anyone. Normally, personal tax rates that are indexed to inflation need no year-to-year announcements; indirect tax changes, once the big things like GST (goods and services tax) are done, should also be minimal. In his July budget, Jaitley used up more than 4,000 words on the taxation part of the speech – something that should have been enough for the entire speech. This is because a significant chunk of the speech involves making announcements on small items ranging from “sports gloves” to “EVA sheets” or sin taxes on pan masala. Why does every item need a tweak in taxes almost every year? Jaitley’s watchword should be: stable taxes, and fewest possible changes to specific items.

Third, shoddy book-keeping has to end. The centre must clearly shift to an accrual-based system of accounting. This means both expected revenues and expenses must be shown in the budget, regardless of whether the money has actually come in or gone out of the exchequer. In the Mid-Year Economic Review, the Chief Economic Advisor complained that “the (2014-15) budget was unduly burdened by a legacy of carried-over expenditures”. The only way to prevent this in future is to shift to an accrual-based system. This way, unpaid bills of last year show up as last year’s deficit instead of this year’s. Chidambaram could afford to do that, since he was leaving the bills for Jaitley to pay, but Jaitley can’t do that, since the NDA has four more budgets to present before the next election. Time he opted for accrual-based accounting to end the practice of cooking the books. The proposal is hardly radical, since this is what India Inc has to do as per law.

Fourth, there must be a water-tight separation between government and public sector undertaking accounts. Right now, the government happily helps itself to profits from ONGC and Oil India to partly pay for petro-fuel subsidies, but this is nothing but bad corporate governance. Listed public companies belong to many shareholders, and hence their profits cannot be transferred in and out of company coffers to meet budget deficits. Similarly, even assuming the government is merely seeking higher payouts in terms of dividends, these should be driven by a general dividend policy – and not dependent on budgetary needs. Last January, Chidambaram milked Coal India for a special dividend of Rs 16,486 crore (which, together with the dividend distribution tax, added up to a cool Rs 19,500 crore for him ), twice the amount paid the year before. Public sector profits cannot be confiscated at will without affecting their ability to invest for the future.

Fifth, zero-base budgeting should become the norm. Currently, a project started five years ago will continue to bleed the exchequer indefinitely merely because it remains unfinished, and even though it may no longer be needed or its viability is in doubt even after spending many more thousand crores. With zero-base budgeting, every project will be re-evaluated periodically so that those that are not delivering the expected results can be reworked or modified or even scrapped. The worst thing to do is keep spending more on white elephants just because they are there.

Sixth, the budget should stay focused on one or two major programmes a year – and their implementation. In last July’s budget, Jaitley announced small outlays for scores of projects with sub-optimal outlays ranging from Rs 100 crore to Rs 500 crore. Focus is more important than random pandering to various interest groups and ideas.

Seventh, spending budgeted outlays is as important as reducing deficits. For the last few years, finance ministers have achieved their fiscal deficit targets by cutting productive plan spending towards the year-end, rather than by reducing unproductive spending. In budget 2015-16, Jaitley’s key goal must be to ensure that capital budgets are fully spent, and any saving must be attempted in the revenue expenditures. In the past, the axe has always fallen on capital and plan budgets, not revenue budgets. This needs to be reversed.

There are many more areas for Jaitley to innovate in budget-making, but budget 2015-16 must make a good beginning.