Will advanced budget date help?
The Union Cabinet has undertaken three key reforms in Union budget-advancement of the date of presentation by a month, dropping the classification of expenditure as Plan and Non-Plan and doing away with the Railway Budget. Though railway budget merger has garnered more spotlight, it is equally necessary to understand if the advanced budget presentation will help government functioning.
The present norm
- Usually, the budget session begins in the last week of February and runs till mid-May with a recess in between.
- Both Houses of Parliament clear the appropriation bill only in the second half of the budget session.
Changing the practice
- The Cabinet has decided in principle to advance the presentation of the Union Budget by a month, from February to January. (date will be fixed later)
- Objective: to have the Budget constitutionally approved by Parliament and assented to by the President and, all allocations disseminated to budget-holders before April 1.
- Why:
- All spending authorities within the system and those financially dependent on the Centre can be in a position to work out their activities with assured resources in the beginning of the year itself.
- A more planned and regulated expenditure profile during the year is expected as the annual financial resources will be approved and granted on April 1.
- Impact: it will eliminate the need for the executive to obtain a vote-on-account budget approval to incur expenditure during the first two months, which normally is in the second fortnight of May.
- Vote on account- Art 116 of Constitution of India- As the appropriation bill is not passed by parliament till April 1, the government was given 2 month's funds which was approx. 1/6th of total expenditure under various grants.
Understanding the two sides of advanced budget date
-Beneficial
- Parliamentary approval for additional budgeted funds and re-appropriation relating to the current financial year may be feasible a few weeks before the end of the financial year. This will enable additional releases from the Centre to the States in February or early March.
- The State governments will consequently get more time to actually utilise the funds which may become available to them as a result of these approvals, in the year of release.
- Thus, the funds at the disposal of the executive authorities entrusted with Budgets and expenditure responsibilities, to the full extent of their annual requirement by March 31, has its positive attributes.
-Eroding efficiency
Not enough time to deliberate the budget
The main question arises is that if the Parliament and its standing committees will get adequate time to deliberate on the budget?
- For instance, the budget in general and the detailed demands for grants from a number of ministries with annual allocations of over Rs. 10000 crore are deliberated upon by the standing committee.
- This is then debated and voted by the houses before the Appropriations Bill (legislature's approval to the executive to draw from the Consolidated Fund of India), is passed by Parliament and assented to by the President.
- This process requires 10-11 weeks.
- A re-scheduled session may not provide adequate time to Parliament as for nearly 10 days in the latter part of January, ministers and their officers are distracted from parliamentary work due to their involvement with Republic Day celebrations and follow-up events.
- The scrutiny by the standing committees of the parliament, which examine the justification of the ministry-wise allocations and funding needs of associated programmes included in the Budget, takes place during 2-3 week gap within the budget session period, when the houses are adjourned.
- This scrutiny is an essential element in the parliamentary budget approval system.
Increased need of strict scrutiny
- Though the forcefulness of this scrutiny has declined over the years, these committees still exercise an oversight over the Budget formulation and appraisal processes.
- There is an interface between parliamentarians and secretaries, financial advisers and other senior officers of the ministries in the standing committees. When the latter remove and give evidence before the people's representatives, it creates a healthy part of the public oversight and budget appraisal mechanism.
- Its importance has increased in the past as many of the Budget demands have had to be guillotined without debate in Parliament owing to paucity of time. (Parliament's time is wasted in acrimony on the floor on different on contentious issues, which is not a healthy phenomenon)
- Hence, these standing committees are the only public institution where a relatively detailed and dispassionate examination of the components of the ministerial budgets was possible.
Narrow window to derive estimates
- The executive till now was able to formulate the next year's Budget, reckoning the expenditure classified in government accounts till January. It gave them 10 months of the current financial year.
- The expenditure budget ceilings concerning different ministries for the next year's budget are firmed up by the finance ministry by the third quarter of the current year. Here, the fine-tuning was possible till the first fortnight of February.
- With the advanced date, the budget will be now based on three quarters of the current year's expenditure and partially on anticipated trends till the end of the year. This may not be feasible.
- According to a former finance minister, the outgoing year's fourth quarter (January to March) will remain a "dark area" while formulating budget for the next year.
Public Fund Management System
- PFMS was introduced by Centre to track its fund flow-based expenditure up to the lowest tier where goods and services are obtained against payments.
- Purpose: to monitor expenditure on real-time basis, reduce quantum of funds at intermediate tiers as floats, and estimate realistically.
- However, PFMS does not encompass all State government's tiers and establishments, although Central funds are being spent by the states to a large extent under centrally funded schemes and projects.
- Thus, inputs from the PFMS on the entire gamut of the Centre's expenditure are not expected to be fully available for assessing expenditure in the terminal phases of the current year to enable budget preparation of the following year.
Conclusion
- The Budget will now stand a lot more on estimates than actual numbers which means that projections need to be as close to accurate as possible.
- The tweaks in the process and schedule of the budgets happen at a time when India is in the middle of its transition to a new federal polity.
- The idea is to make budgets more predictable, with greater emphasis on expenditure and less on revenue aspects.