Back to Feb 28

Advancing the Budget by a month not working out

The interim Budget — which was more like a full Budget than previous votes-on-account — was presented on the first day of February, as has been the case for the two preceding Union Budgets. This follows a decision taken during the 2016-17 financial year to advance the Budget presentation date by a month, ending the long tradition of presenting it on the last day of February. The first indication of this change came on October 26, 2016, when Prime Minister Narendra Modi — while chairing one of his meetings on timely implementation of schemes with states — urged bureaucrats to align their planning to this new schedule so as to benefit as much as possible from it. The hope was that an earlier Budget date would be able to provide greater certainty earlier in the year, and front-load expenditure somewhat. There had been complaints from various centres of expenditure in the Union and state governments that they tended to be somewhat short of disbursements in the first quarter of any financial year, as the government machinery responded too slowly to the Budget decisions announced in end-February. Legislative approvals for all spending should ideally have been undertaken during the month of March, so as to be ready for the new financial year in April — and sometimes there were delays.

But in the two financial years that this practice has been in place, the decision’s drawbacks have become clear. Most importantly, there simply isn’t enough data in place for a proper and effective budgeting process. Consider, for example, the headline numbers of any Budget — the fiscal deficit for the ongoing year, and the fiscal deficit target for the next financial year. While the latter is always an unknown value, the current year’s fiscal deficit depends on the data available of spending and revenue over the months so far and expectations for the remaining months. When presented on February 1, not only is less known about expenditure — this is a surmountable problem, given expenditure choices are the government’s — there is crucially too little known about revenue. This has led to revenue projections in the Revised Estimates being often the same as the Budget Estimates. If we don’t have real revised numbers, it becomes harder to budget accurately for the new year. This takes away from the credibility of the fiscal deficit number. Even more worrying is the denominator of how the fiscal deficit is generally presented — as a fraction of gross domestic product (GDP). Unfortunately, the first Revised Estimates for GDP are only known by the end of January. The Advance Estimates of GDP, which are used instead, have been subject to major revisions recently. Some government officials highlighted, after the interim Budget, the difference that using the Revised Estimates would make to the Budget’s predictions regarding the fiscal glide path.

There are several other ways in which the paucity of data makes a Budget-preparation exercise that targets February 1 far less useful than one targeting February 28 or 29. The only way to correct this is to return to the original date on which Budgets were presented — while improving the speed of disbursements of funds. There is no substitute for a sensible and clear Budgeting process.