Soon after Manmohan Singh’s famous July 24, 1991 Budget that signalled the dismantling of the licence raj, opened up the economy to foreign investment, and heralded changes in tax policy and reforms in the financial sector, an interesting exchange took place at a meeting of the P V Narasimha Rao Cabinet. With India’s balance of payments position precarious and the Cabinet committee required to take a difficult decision on imports, a senior Cabinet colleague of Singh’s told the Finance Minister bluntly: “We are in trouble; if you succeed, well and good, we will all take the credit. But if you fail, you should take the blame.” Several others seconded the minister.
This was an indicator of the kind of internal political challenge that Singh, an economist by training, had to overcome while working on his first Budget. He had the support of Rao, and as with all central government Budgets, there were consultations with the Prime Minister and the Budget group comprising the Finance Secretary, Revenue Secretary, Expenditure Secretary and Chief Economic Advisor. Singh had a relatively free hand, even though there were tense moments after the proposal on industrial de-licensing — which was to be part of the memorandum of agreement with the World bank and IMF who were lending to India — was leaked to a national daily. Senior Finance Ministry officials had opposed the proposal, and extraordinarily, the leak was traced to the Prime Minister’s Office!
Singh vetted the Economic Survey and Budget speech, and modified some of what his officials had written. He also added what has since come to be recognised as the signature line of the 1991 Budget — Victor Hugo’s remark about it being impossible to “resist an idea whose time has come”. The next Budget carried the momentum forward, before the Ayodhya demolition and riots took a political and economic toll — and reform fatigue set in by the middle of the Rao government term.
When the United Front government came to power in 1996, it helped that Finance Minister P Chidambaram had only to reckon with a Prime Minister like H D Deva Gowda who was completely new to Delhi and the national stage then. That, and perhaps the recognition that it was going to be a short-lived government, appeared to have prompted Chidambaram and his team to go virtually for broke in 1997 in what was labelled as the Dream Budget. Tax rates were slashed. So were peak tariffs in India, which were way higher than in Asean countries — the Minister opting to take the risk even though some of his senior officials said revenues would be hit badly. Earlier, one of the economic advisers in the Finance Ministry had worked on a detailed paper on India’s tariffs and tax structure, and the need to realign it. That Budget was very well received.
In 1998, in the run-up to the first Budget of the National Democratic Alliance government, Prime Minister Atal Bihari Vajpayee told Finance Minister Yashwant Sinha to take into consideration the interests of farmers and the rural sector. Once the details were finalised, Sinha had a few meetings with Vajpayee, including on specific proposals. In India’s budget-making process, other ministers are not involved — and the President and Cabinet are provided with a summary only hours before it is presented in Parliament. Finance Ministers discuss the Budget speech with the PM; no file goes to the PMO.
In 1999-2000, when Sinha’s team proposed to raise duties across the board, Vajpayee, who was being briefed by the Budget group, had three broad questions: would it be inflationary; would it hit the poor; and whether it was going to be an ad hoc measure. He added mischievously, “Parliament mein pass ho jayenge?”
While Sinha preferred to walk across to the rooms in the other wing of the Finance Ministry which houses the Central Board of Direct Taxes or the Central Board of Excise and Customs to sit in on presentations by officials of the tax planning units, Chidambaram was known to be very hands-on on the Budget and policymaking. Sinha reckoned that those rooms were far safer than his own room in North Block!
Jaswant Singh who succeeded Sinha in 2002 made it clear to everyone that he wasn’t an economist, but could visualise the big picture. It was Jaswant who pushed the debt swap scheme in his Budget, which later paved the way for a secular decline in the revenue deficits of state governments and improved their finances. An attempt to provide throwaways in the interim Budget of 2004 backfired, as the NDA lost the elections that year.
Things worked well in the first four years of the UPA government, with an experienced Finance Minister, Chidambaram, working well with Singh, a former Finance Minister. That alliance snapped after Chidambaram was moved to the Home Ministry and Pranab Mukherjee came to North Block, leading to decisions in the Budget such as the proposal on retrospective tax and continuing with the fiscal stimulus well after the 2008 global crisis — at variance with the ideas of the PMO.
In the current government, some of the Rs 100 crore schemes have been reported to have been introduced at the initiative of the PMO.
And yet, it remains ironical that India — which is projected to be the third largest economy in the world by 2030, and which is now part of the global high table — still continues with the practice of complete secrecy on what is intrinsically a statement of revenue and expenditure, and making a spectacle of it. In most major economies, most proposals are debated before being voted upon. Similarily, there is no clear rationale in India even now for not making a distinction between Plan and non-Plan expenditure — especially when Finance Minister Arun Jaitley has the good fortune of not having to deal with a body such as the Planning Commission. Jaitley said last year that this was a government that worked round-the-clock, all the year around. All the more reason for doing away with some of the colonial practices.