Get rid of this annual spectacle

Rajkamal Rao | Updated on February 02, 2018

No big deal Just a reality TV-type extravaganza

Only the first budget of a ruling party matters, to show its commitment to election promises. The rest is course correction

Just like the world ushers in each new year with pomp, show and song, Indians are treated to another annual spectacle. The finance minister, with his briefing books tightly sealed until D-Day, makes his much-awaited trip to Parliament to announce a host of new budget measures for the coming year. From an accounting perspective, budgets are important because they establish the nation’s priorities about taxing and spending. But in a democracy, these priorities among others, are set every five years when we vote.

So do we really need an elaborate, reality-TV based annual budget exercise?

Plain overkill

In a sense, the ruling party’s first full budget is important because it demonstrates how closely it is hewing to what it promised in its election manifesto. Once this is set in stone, course corrections are necessary in future years but by definition, these ought to be minor and need not involve the entire country. These should be no different from the driver of a car making minor steering adjustments to keep the vehicle in the middle of the lane. After all, the destination and the route are already set when the trip started.

Consider one highlight: “The deduction of 30% on emoluments paid to new employees under Section 80-JJAA will be relaxed to 150 days for the footwear and leather industry, to create more employment.” Seriously? Does this even merit a mention in the finance minister’s speech? It is so microscopic that it is equivalent to a grain of sand in a vast desert.

Even the larger proposals in the 2018 budget speech are not big enough to make a significant dent. Much of India’s budget is non-discretionary and mandated by law. Defence and domestic security expenditures, salaries and operating expenditures for the vast bureaucracy, support for PSUs and the Railways, pensions and benefits for retirees, interest on government debt are all non-negotiable and must be appropriated each year, whether one likes it or not. Generally, these items only record spending increases over time as no political party is wont to reducing spending.

India’s private economy and the overall population have shown incredible resilience to weather policy headwinds. Many policy changes are announced and implemented throughout the year. Even GST, demonetisation and Aadhaar compliance had little to do with prior year budget speeches, yet they barely nudged the India GDP growth needle. True, growth suffered a little in 2017 and there were millions of sob stories because these actions were all inflicted in a period of just eight months. But at 5.8 per cent, the low point during these troubled times, India was still one of the world’s fastest growing economies. Today, most experts are forecasting growth back in the 7.5 per cent range.

That the budget speech is more a political exercise was evident when the New York Times wryly noted that the Government had allocated just $314 million for the new health care proposal for the country’s poor, when it could easily cost billions of dollars per year. “A prior plan announced by the government in 2016 to provide 100,000 rupees of health coverage per family was never funded”, the Times pointed out.

Waste of talent

All of which brings us to the very philosophy governing these budget dramas. In an extremely dynamic business world, it is naive to think that our government bureaucrats appear to know all and can make policy once a year for the rest of us; that somehow, they can lay a hand on the till and the boat will readily respond, as intended; and that the intention represents the will of the people in the first place. Can anyone explain why imported raw cashew nuts should be made cheaper, but imported puzzles for kids be made dearer? How could anyone pick winners and losers in this fashion? This is why we should consider abolishing the annual budget spectacle as a tool of finance.

There is a precedent to the argument that annual budgets are overrated. Until 1974, the US, the world’s wealthiest democracy, had no formal budget process at all. According to Pew Research, in the four decades since the current system for budgeting and spending tax dollars has been in effect, Congress has managed to pass all its required appropriations measures on time only four times: in fiscal 1977, 1989, 1995 and 1997.

So how does the US function? Largely by autopilot — such as hard caps, automatic across-the-board spending cuts and Continuing Resolutions, which keep the government alive by extending funding for existing programmes at current levels. Has the lack of a formal budget during the last 20 years caused the US government or the economy to come to a halt? No, on the contrary, these two decades have seen the US government endure 9/11, prosecute two wars, dramatically increase funding to fight terrorism and withstand the 2008 financial crisis.

India’s annual budget exercise consumes millions of hours of effort and crores in expenditure involving thousands of bureaucrats, tax professionals, industry veterans and journalists, the product of which expires in 12 months for a brand new start. The talents of these individuals ought to be put to better use than to micro-manage, in small increments, the world’s fifth largest economy. In the meantime, if we want a diet of political speeches, we can wait for the campaign season to start.

The writer is MD of education consultancy Rao Advisors LLC

Published on February 02, 2018

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