Opinion When will we end the budget hype?
Annual budget-making exercises are characterised by hype and media and other attention.
Annual budget-making exercises are characterised by hype and media and other attention. There is no Constitutional requirement for this. Constitutionally,all that is required is the Central government’s annual statement of receipts and expenditure to be placed before Parliament. Without Parliamentary sanction,expenditure from the Consolidated Fund of India isn’t permissible. In the perennial debate about reforms in India,the core issue still remains the role of government and what we expect it to do. The minimal government role is law and order and some areas of physical and social infrastructure. On this,left and right will agree and so will the ubiquitous,but elusive,aam aadmi.
It is a sad commentary on the state of school education that most of us don’t remember what school social studies textbooks taught us. In our federal country,these areas are mostly state subjects. Does similar hype characterise state budgets? Is there equivalent scrutiny of disbursements made to states through the planning commission,finance commission and central sector and centrally sponsored schemes?
Therefore,one isn’t interested in the budget to figure out what the government is doing for the country. One is trying to figure out what the government is doing for me,meaning primarily,taxes. But before that,there is a myth to be disposed of. That myth is about the budget pushing reforms,a myth propagated since 1991. Unless reforms are about taxation,what do they have to do with the budget? Plugging them into Part A of the budget speech may earn brownie points. But no more than that.
Their entry into budget speeches is no guarantee that they will be implemented. Barring that first budget of 1991,every budget since then has several instances of successful exit. One should go back and read UPA-I’s first budget of 2004-05 to discover that many promises are now likely to be repeated in UPA-II’s first budget for 2009-10.
Even if made,some promises will get bogged down in inter-ministerial wrangles,others in state-level implementation,and still others in getting legislation pushed through Parliament. Mention of pensions,insurance,FDI in retail or civil aviation,subsidy-targeting,APMC Acts,APM for petroleum products,disinvestment,police reforms and even food security in the budget speech is neither necessary nor sufficient. Even if there is PMO and cabinet approval,the budget is really a finance ministry exercise. Finance ministers can’t drive reforms alone. Nor should one ignore resistance to a finance minister appropriating glory from a reformist idea. Witness the wrangling over who should receive credit for NREGS and one doesn’t mean the left. True,budgets since 1991 have become equated with big bang policy announcements in Part A of the budget speech.
But for reasons just mentioned,the shorter the Part A,the better. In an ideal reformer’s budget,there should be no Part A at all. More of that in a moment. Let’s turn to taxes.
The core tax reform agenda is one of unification,harmonisation and removal of exemptions. Without that,compliance costs can’t be reduced either. Nor can the tax base be broadened. The Laffer curve is nothing but this,for both direct and indirect taxes. There is a double problem with discretionary taxes.
First,it encourages lobbying. Witness queues in North Block before the budget and industry chambers falling over backwards to invite finance ministers to their gatherings. Second,a relative preference in favour of any category is always at the expense of some other category. Why should housing exemptions be superior to those in favour of human resource development? True,discretions grant sense of power to finance ministers. But that shouldn’t be the point. A discretionary case can always be made out in favour of every sector. Imperial Rome taxed urine (tanneries using urine actually),Tsarist Russia taxed beards and Pitt’s Britain taxed windows. In each case,there was a valid reason. The case for non-discretionary tax reform has been argued out by several committees,the three Vijay Kelkar Task Forces being the most cogent.
However,few finance ministers since 1991 have walked along that indicated path. The two obvious ones are Manmohan Singh during 1991-96 Congress government (for import duties) and Yashwant Sinha under NDA (for excise). The predilection has generally been for what can be called N.D.Tiwari-type sindoor budgets.
UPA-I didn’t take India towards that tax reform agenda. Instead,there were deviations and the system was cluttered up. By all indications,2009-10 will continue along the deviant path. FM isn’t going to announce standardised direct and indirect tax rates (including GST) with clear time-lines for attaining them. (At best,import duties can be left dangling,since they depend on negotiations.) Therefore,not only will Part A remain because of policy announcements,it will also remain to justify arbitrary and discretionary tax proposals.
For FM,85 per cent of expenditure is actually exogenous. For the remaining 15 per cent,this is what a reforming FM should actually tell Parliament: These are the tax and non-tax revenue resources I possess. In terms of priorities,this is what I propose to spend those resources on. No FM since 1991 (or before) has dared state prioritisation of resources or their opportunity costs in such stark terms. Because once one does that,one can’t please everyone,or at least convey that impression. That’s the reason we are stuck with budgets,inordinately long budget speeches and hype. We don’t need a budget. No diabetic needs sugar. But like diabetes,addiction overcomes common sense.
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