Time to give up old budget-making process

Subir Roy | Updated on February 06, 2020 Published on February 06, 2020

The underwhelming policies announced this time suggest that opening up the budgetary exercise to greater scrutiny might help

The experience of Budget 2020 has rekindled the long-term issue of the relevance of the budgetary exercise in its present form. As is customary, keen anticipation had been built up in the run-up to the Budget, not the least because of media men who need to have something to say when the public wants it, even if there is nothing concrete to report.

But what seems extraordinary is the government’s unwillingness to live up to or even acknowledge the expectations. The severe slowdown that the economy has been experiencing had created the expectation that a big, bold revival plan would be unveiled. But the policy pronouncements were mostly a reiteration of existing policies and schemes. Perhaps inevitably, this led to a dull, long speech signifying precious little.

If the dominant public mood has been so pointedly ignored, there is bound to be speculation as to what it implies. The best explanation that can be conjured up is that economic policy does need a big-bang push. But since this is so important, the Prime Minister himself will unveil what the government has in mind at a time and occasion of his choosing. This is because an enormous amount of power and focus of this government is concentrated in the PM and his Office.

Few takeaways

When it came to details of taxation, the Budget did indeed have something to say (but this is also less than earlier, as a chunk of indirect taxes have been subsumed in the GST, which is not the sole prerogative of Delhi.) The Budget sought to slash income tax rates at the lower end, which will be of enormous interest to the middle class. But the impact was spoilt by the government leaving an option in the hands of taxpayers to either opt for the new rates and give up exemptions and concession, or stick to the old regime. The immediate question in everyone’s mind is: which will be good for me? Finding this out will involve detailed consultations with one’s tax adviser. Until then, there will be confusion over whether the new tax rates are beneficial or not.

If individual taxpayers are confused, the business sector — in particular, large corporates — are downright disappointed. There was keen expectation of a set of concessions putting more money into the hands of the consumer so that consumption and demand could rise and enable firms to get back to operations at near capacity; maybe even think of investing in fresh capacity to meet anticipated demand. Two sectors, FMCG and automobiles, which have been the most affected by the slowdown, are the most disappointed.

It is not as if nothing has been done for business. There is an attempt to raise public investment in infrastructure, which is likely to create fresh demand for those in the supply chain for construction, like cement and steel. In fact, one fresh move which will affect the entire corporate sector is the abolition of the dividend distribution tax. This will leave more resources in the hands of managements so that they can please shareholders as they like.

The non-adventurous nature of the Budget is further underlined by the attitude towards the fiscal deficit, perhaps the most important number in a budget. Again, it was anticipated that as the government would seek to spend its way out of the slowdown, it would temporarily allow the fiscal deficit to go up beyond what is conventionally considered prudent. But even this has not happened. From a revised estimate of 3.8 per cent for 2019-20, it is projected to go down to 3.5 per cent in 2020-21. This is hardly earth-shaking and buries all hopes of a fiscal stimulus to pep up demand.

There is also a half-hearted attempt to address the widespread scepticism over the fiscal deficit figure, that is officially touted as it has been kept artificially low by taking recourse to extra-budgetary borrowing. A figure inclusive of such borrowing has been handed down, but there is no clarity on how comprehensive this is. If the government was serious, it could have introduced the concept of the ‘public sector borrowing requirement’ which would have included the resource shortfall of central public sector enterprises as well, but this has not been done.

Allow for scrutiny

As the Budget says so little, it is necessary to ask whether the whole matter of secrecy over its contents, particularly the tax proposals, is essential. This is but a British legacy. Instead, we could adopt the American model.

The US federal budgetary exercise begins when the President sends his budget proposals to Congress in February and ends with the President signing into law the Appropriations Bills passed by Congress in time for the US financial year, beginning October 1. During the eight-month period in between, there is intense public discussion and bargaining.

The absence of secrecy will relieve the media of the need to speculate ‘what the Budget might hold’ (a non-productive exercise) and create the space for detailed legislative examination of tax proposals. If big-bang economic announcements will be made only by the Prime Minister, then there is everything to gain from the budgetary exercise being made more open with rigorous scrutiny. That way, we will get a better budget.

The writer is a senior journalist

Published on February 06, 2020
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