Cabinet approves major Budget overhaul: Here's how it can boost infra spending
The move signifies a break away from the colonial past
The Union Cabinet has approved advancing the date for presenting the Union Budget by a month, paving way for one of the major overhauls in the budgeting exercise in the last several years and also in the process taking a step that has the potential to boost infrastructure spending.
The Cabinet has also decided to merge the Railway Budget with the Union Budget, a reform sought by many experts for long. A decision has also been taken to remove the classifications for expenditure to make the exercise simpler.
The proposals were cleared by a meeting of the union Cabinet chaired by prime minister Narendra Modi.
The change has been touted as a break from the colonial past.
Here are the key facts about the entire exercise:
1) The move is aimed at getting all the legislative approvals for the annual spending and tax proposals before the beginning of the
new financial year on April 1. Accordingly, the beginning of budget preparation will be advanced to early October. The government is likely to convene the Budget Session of Parliament before 25 January 2017, a month ahead of the current practice. The pre-Budget Economic Survey will also be advanced.
2) The advance estimates for GDP will have to be made on 7 January instead of 7 February and mid-year review of expenditure by various ministries is proposed to be completed by November 15. However, a report in The Business Standard on Wednesday said the ministry of statistics and programme implementation, which releases the data, has told the finance ministry that it may be able to give only some data that early.
3) Once the rail and general Budgets are merged and the date of presentation is advanced, there will be no requirement of separate Appropriation Bills as well as Vote on Account, as is the current practice.
4) With the advancement of the Budget and completion of the legislative processes before 31 March, the budget cycle will itself will be advanced. This will enable ministries and departments to ensure better planning and execution of schemes from the beginning of the financial year. Until now Budget was presented on the last day of February and it is not until mid-May that the Parliament approves it in two parts. And with the monsoon arriving in June, most of the schemes and spendings by states do not take off until October, leaving just half a year for their implementation. The change in budget presentation date has been decided so that the all proposals can be implemented and expenditure started from 1 April itself. This is expected to ensure better implementation.
5) The government will have to start pre-budget consultations with industry and other stakeholders without much delay as these will have to be ended by 25 December. The ministries and departments will also have to present their detailed demand for grants earlier to parliament.
6) The Cabinet also approved removal of distinction between Plan and Non-Plan expenditure as the present classification resulted in excessive focus on former with almost equivalent neglect to items such as maintenance which are classified as non-Plan. The Cabinet felt it is the total expenditure, irrespective of Plan or Non-Plan, that generates value for the public. Plan expenditure was for the first time presented separately in the budget for 1959-60.
7) Once the rail and general budgets are merged, Parliament will have approve only one Appropriation Bill. Usually, the government introduces the Appropriation Bill, which gives it the authority to incur expenditure from and out of the Consolidated Fund of India, after the debate on the Budget proposals and Voting on demands for grants. This will have to be taken up in Parliament on or before 24 March 2017.
8) The case for abolishing a separate Budget for the Railways has been argued many times earlier. "Like a defence budget or a civil aviation ministry budget, the railway budget does not require a speech to be made, only a set of accounts to be presented to parliament once a year, since the undertaking is owned by the people of India," Firstpost columnist and Swarajya editorial director R Jagannathan had written in this article in July 2014.
"The budget of a commercial undertaking is no different from that of a corporation like Infosys or a public sector company like Bharat Heavy Electricals. There is need for account-keeping, budgeting, and the presentation of annual reports, but there is no need for a railway budget speech or the hype and hoopla associated with such events," he points out.
9) However, according to a PTI report, even after the merger of the railway budget, the Indian Railways would continue to maintain its distinct entity status as a departmentally run commercial undertaking as at present. Also, the Railways would be allowed to retain its functional autonomy with delegation of financial power rules to continue as is the case now. Finance minister Arun Jaitley said in the press conference that Parliament have separate discussion on the Railways.
10) The most important fact is that after the merger, the Railways would not have to pay dividend to the central government and its capital at charge would stand to be wiped off. The Railways used to pay up to Rs 10,000 crore as dividend to the government. The Railway Convention Committee, which reviews the rate of dividend payable by the railways to the government, will be disbanded. Currently, the panel also suggests the level of appropriation to various funds of the railways such as depreciation reserve funds, development fund and pension fund.
11) Explaining the likely impact of the overhaul, DK Srivastava, chief policy advisor, Ernst and Young, said the advancement of the Budget presentation dates and processes will have tangible benefits. According to him, it would enable the govt to release its capital expenditure before monsoons, which is an important development.
"Under the present system, infrastructure spending, which is the government's key spending, usually gets delayed as the rains start soon after the budget is approved. The whole exercise gets delayed 4-5 months as during the rainy season not much work in this sector happens. Under the new system, the funds can be released as early as April. This will give the government at least two-and-a-half to three months to spend on infrastructure, before the rain starts. This is the main advantage and has potential to boost the economic growth in the long run," he said. He also said the move will help improve the quality of revised Budget estimates.
This tradition was discontinued after 92 years when the Narendra Modi government approved the merger of the Railway Budget with the Union Budget on 21 September 2016.
Looking at advancing the date of Budget presentation to February 2 or even earlier, the Finance Ministry today briefed a Parliamentary panel on the proposed change as also the government's decision to merge railway budget with general budget.
Finance Minister in Budget 2015 is expected to incorporate Finance Commission's recommendations and cut government allocation for social sector spending by 25-30 percent.