Budget in January can front-load spending

Updated - January 17, 2018 at 05:40 PM.

Govt can hit the ground running as fiscal year starts; ministries can pace allocations

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What does the Centre hope to achieve by advancing the Budget presentation to the last week of January from the last day of February, as has been the practice for long? Much, it would seem. The move can help the government hit the ground running as the fiscal year starts, on April 1. It can front-load fiscal activity that now tends to pick up only in the second half.

Typically, there is little critical spending in April and May, the months preceding the monsoon. As a senior Finance Ministry official said: “Usually there is little expenditure in the first quarter of the fiscal. Ministries wait for the Vote on Account to be passed before taking up big-ticket expenditures. If the Budget is passed by March 31, it will give ministries more time to spend.”

Data with the Controller General of Accounts corroborate this. The total spending in April and May has ranged between 13.1 per cent and 15.9 per cent of the total expenditure target for the fiscal. In some years, the expenditure in the first two months has been even lower: in May 2005, it was just 11.6 per cent of the full-year target. Rani Singh Nair, Chairperson, Central Board of Direct Taxes, said that advancing the Budget would help save the 2-3 months that otherwise go in the process of discussing and passing the annual financial statement.

The spending can be evenly spread and there need be no rush to exhaust the allocation towards the end of the fiscal, as often happens.

Timing is the key

Finance Ministry, officials, however, say the Budget presentation would have to be timed such that Parliament has enough time to pass it by March 31.

Moreover, much would also depend on the report of an expert panel tasked with considering the change to the fiscal year cycle itself.

Most experts welcomed the proposal, but warned that the Centre would have smaller data-sets for policy planning. “Advancing the Budget is desirable as the stimulus from expenditure takes some time to transmit. By the time Ministries begin to spend, the monsoon sets in and effective capital expenditure only takes place in the second half of the fiscal,” said DK Srivastava, Chief Policy Adviser, EY (India).

Too much happening

But others noted that several other changes were kicking in next fiscal, including the merger of the Union and the Railway Budgets, removal of the distinction between Plan and Non-Plan Expenditure, and the introduction of the GST regime. “These are too many changes for companies to absorb. Perhaps the Budget advancement can wait,” said an analyst.

Aditi Nayar, Senior Economist, ICRA, pointed out that at end-January, fiscal data would be available for only nine months, “which may impair planning, particularly given the higher concentration of tax revenues during the fourth quarter. GDP data would be available for only the first half of the fiscal by January. Further, some listed companies declare their third-quarter results at that time.”

Published on August 24, 2016 17:20