Arun Jaitley's next Budget may not just be a pre-election exercise

The Union Budget for 2017-18, which Finance Minister Arun Jaitley presented on February 1, had introduced three new features. One, it advanced the presentation of the Budget by about a month. Two, it abolished the distinction between Plan expenditure and Non-Plan expenditure. And three it subsumed the Railway Budget, obviating the need for the railway minister to deliver a separate speech.

No Budget in recent years has introduced as many innovations in a single year’s annual financial statement as Mr Jaitley has done. But what has been the outcome of these three initiatives?

The latest expenditure figures for the current financial year provide a clue to the impact of the first initiative. By the end of April 2017, the government has spent Rs 2.4 lakh crore, compared to Rs 1.6 lakh crore spent in the same month of 2016, when the Budget presentation cycle had not been advanced. The increased expenditure amounts to over 11 per cent of the total government outlay of Rs 21.47 lakh crore for the current year. Last financial year, only about 8 per cent of the total annual expenditure of Rs 20.14 lakh crore could be spent by the end of April. What makes it commendable is that April’s share in total spending this year has taken place on a much higher outlay base.

Finance ministry officials have no doubt that the increased expenditure in the first month of the financial year is a direct outcome of the decision to advance the presentation of the Budget and get it passed before the end of March or the start of the next financial year. Since the Budget would earlier get passed by Parliament only by the middle of May, the government’s expenditure initiatives outlined in the Budget would gather momentum only after that. Apart from delay, this also used result in bunching of expenditure in the latter half of the year. All that has changed now and as the April figures testify, the momentum of expenditure has picked up right from the first month of the financial year.

The impact of the abolition of the distinction between Plan and Non-Plan expenditure in the Budget accounts has been admittedly less significant. But in spite of that, finance ministry officials point out, there is now a faster pace in rolling out government schemes. Plan programmes were always more difficult to implement, with so many agencies including central and often state-level bodies having a say in the manner in which the money allocated should be spent. That meant delay. But now with the distinction being restricted to only between revenue and capital, decisions on schemes are being taken faster, say these officials. Also, there is now less emphasis on what is purely capital expenditure, as many items of revenue expenditure are considered equally important for securing improved returns on the government expenditure.

The abolition of the age-old system of a Railway Budget presentation has meant greater scrutiny of railway expenditure, which is now being monitored also by the finance ministry. The new message that has gone to the railway ministry is that it should focus on making the Indian Railways run more efficiently as the country’s largest transporter of goods and people, while the finance ministry should ensure that the money allocated is spent more efficiently. The railway ministry may not like this, but from an overall financial governance perspective, the larger benefits are too obvious to be ignored.

So, what should the next Budget look like? And can it have more innovations to offer? One possibility is to advance the presentation of the Budget even earlier to perhaps the first week of January, in preparation of a switch-over to a new January-December financial year cycle for the government from 2019 onwards. But no decision on this has been taken as yet, although finance ministry officials say that if advancing the Budget presentation this year could happen by a month, a further advancement by a month for next year is feasible.

Apart from that, there are four new initiatives that could be rolled out from the next Budget. One, the review of existing schemes has already begun within the finance ministry. With about 225 such central schemes and 28 centrally sponsored schemes, the finance ministry’s task to review their performance and future course is cut out. An attempt is now being made to evaluate each of these schemes to decide if they need to be continued beyond the next year and even if these have to be continued, whether the same amount of resources should be deployed in them. A cost-benefit analysis is being undertaken in the finance ministry, which would result in more efficient allocation of resources to only those schemes that are yielding results, while those that are failing to make an impact may either be wound up or phased out gradually.

Two, the finance ministry is now grappling with the recommendations of the N K Singh committee on fiscal responsibility. The idea of creating a Fiscal Council seems to have received broad endorsement and it appears that the new advisory body is likely to be created by the time the next Budget is presented. Also, the new fiscal deficit targets along with the debt parameters would have to be kept in tune with what the N K Singh committee has recommended. So, the next Budget would reveal all those new fiscal parameters.

Three, the implementation of the goods and services tax during the few months of the current year would provide an opportunity to the finance ministry to work out what further needs to be done to fine-tune the new indirect taxes regime. And finally, the finance ministry can be expected to provide a road map for the implementation of the remaining recommendations of the Expenditure Management Commission, which was headed by former Reserve Bank of India governor Bimal Jalan, and whose reports are yet to be made public.

Finance ministry officials point out that almost 79 per cent of the recommendations made by the Commission have already been implemented and the remaining ones are those that require at least a two-year time frame. The next Budget would provide an indication of how that work on implementing them over the next two years would be undertaken.

In short, the next Budget, Mr Jaitley’s last full Budget during the current tenure of the government, may not just be a pre-election exercise. Instead it may well have a lot for economists and analysts to mull over.