Relevance and use of the article in UPSC prelims and mains examination: Dear aspirants, this article is about budget reforms as we can see the step taken by government regarding budgetary reforms is Ending a nearly century-long practice, the Cabinet decided to scrap a separate budget for railways and merge it with general budget, presentation of which will be advanced to spur spending and boost economy.and "Advancing the date of Budget presentation to January-end is a suggestion with this There are some data related issues Reforms from advancing the budget to merging rail and Union budget along with doing away with plan and non-plan expenditure may not be as easy as they sound. Besides this there are many other things which need to be known.
The finance minister has announced three significant reforms in framing of the Union Budget.
These relate to :
- Advancing the date of presentation of budget by one month, to February 1,
- Merger of the Railway Budget with the Union Budget,
- Classification of plan and non-plan expenditure and instead classifying all expenditure only on capital and revenue account.
Reasons behind these move:
- The proposal to advance the presentation of the Union Budget by a month, to February 1, will be a welcome move. This proposal, as also a proposal to change the fiscal year, has been discussed by the finance ministry in the past but could not see light of the day. Budget-making and its parliamentary approval is currently not synchronised with the start of the fiscal year, as budget is presented to Parliament in end-February and parliamentary approval process is completed by mid-May.
- This curtails the working season for implementing programmes and projects on the ground. If the budget-making and approval process can be completed before the start of the fiscal year, many of these problems will be resolved and it will also do away with the need to seek a Vote on Account.
- There are, of course, some real issues that need careful consideration. Budget-making involves estimating expenditure and receipts for the coming year.
- GDP growth rate forecasting will suffer from similar uncertainties.
- There will be similar issues in forecasting fiscal deficit numbers.
- The proposal to do away with the distinction between plan and non-plan expenditures will have far reaching implications.
“Efficient Management of Public Expenditure”
- Distinction between plan and non-plan expenditure had got blurred over the years. While non-plan was basically revenue expenditure for running of administration and maintenance of assets, development was identified with capital expenditure in annual plans.
- The plan has been the development face of government and the quantum of plan expenditure signifies the development dimensions of the budget. Budget -making involves balancing of conflicting claims on government resources.
- The erstwhile Planning Commission was the development voice in budget-making and the finance ministry had to balance the demand for higher Gross Budgetary Support (GBS) for the plan with competing demands for subsidies, defence, security and other forms of expenditures.
- Classification of expenditure in only capital and revenue categories will also mask the development nature of many types of revenue expenditures.
- In the new expenditure classification, government will need to ensure that the development orientation of budget does not suffer. Most new projects, new development initiatives have been part of the plan.
- The government will need to ensure that many flagship programmes like Swachh Bharat , MGNREGA, rural roads, rural housing, drinking water in rural areas, Sarva Shiksha Abhiyan, infrastructure development,etc, are adequately funded in the budget.
- A very careful review and limiting increase in what was earlier termed as non-plan revenue expenditure would need to be done so that such expenditure does not crowd out development expenditure whether on capital or revenue account.
Does it affect railway functioning:
- Indian Railways is the largest infrastructure sector in India and plays an important role in our growth and development. Efficiency of the Railways impacts significantly on our growth outcomes.
- At one plane, it can be argued that Railways is a ministry and Railway revenues and expenditure are incorporated in the Annual Financial Statement of the government and merger of the two budgets is a mere accounting exercise.
- Budget-making is a basic tool for financial management both on the expenditure and revenue sides. For revenue receipts, parliamentary approval is required only for taxation proposals.
- Because of over-politicisation of budget-making and approval process, Railways have not been able to keep fares and freight in tune with rising costs.
Rise in Inefficiencies, or not?
- This will led to goods-traffic subsidising passenger-traffic. With increasing competition from road traffic,Railways are being gradually priced out. In addition, railways are left with hardly any resources for expansion or modernisation of existing tracks.
- Merger of the Railway Budget with Union Budget cannot of course solve all these problems. But it can provide a framework that will, to some extent, depoliticise the process, make it more commercially tuned and make budget-making a more efficient tool of financial management. Railways will also get some fiscal benefits.
- The budgetary support currently provided to the Railways is treated as a loan in perpetuity with a liability of dividend payment representing interest on this loan.
- There are some who feel that merger will be a retrograde step because Railways will lose its commercial character and that may be a setback for future reforms which have the objective of greater private sector competition. These fears are not entirely misplaced. To guard against these and to fully benefit from the budgetary merger, the government will need to follow-up in many areas for structural transformation of Railways.
- All in all, the budgetary reforms unveiled by government are positive. They have the potential of making the Union Budget a tool for more efficient financial management. But there are many pitfalls and unless they are carefully resolved there is a danger that we may end up throwing the baby out with the bath water.