Budget – why this big bang approach?

By definition, the Budget is an accounting statement providing an estimate of the government’s income and expenditure for a set period of time. However, over the years, India’s Budget has gained the status of being a ‘statement of policy roadmap’. Yes, it can be a good opportunity to announce major reforms and plans, but it is definitely not the only occasion. The tendency of successive governments to announce key policy decisions on Budget day has somehow made this an annual ritual.

An unintended consequence has been the heightened expectation preceding the Budget, which then forms the basis of judging the government’s performance from a single day’s announcements. What many conveniently overlook is that reforms often entail step-by-step changes. Ideally, reforms have to be an ongoing exercise. The Budget may signal a policy direction but it cannot be the be all and end all of reforms.

The bigger question is, what constitutes reforms? Reforms cannot be limited to a policy statement or a legislative agenda. They encompass the entire gamut of governance, right from perception to implementation, and should include measures aimed at unwinding all possible structural bottlenecks that have plagued growth and development.

In the last six-seven months, a series of policy measures have been taken up across infrastructure, taxation, labour, land, power, skill development, agriculture, financial inclusion as well as social issues such as sanitation. While the mechanism of reform measures has varied, encompassing a mix of executive and legislative decisions, the underlying intent is higher growth and development.

What should we realistically expect out of the 2015-16 Budget? The key takeaway would be how the government is able to manage its finances, while pushing for growth through enhanced public expenditure in productive sectors. To this end, we will look out for a plan of action in certain major areas.

First and foremost, we expect prudence on the revenue expenditure front, especially through rationalisation of subsidies. Over the last few years, fuel, food and fertiliser subsidies have roughly accounted for almost 15 per cent of the total budgetary expenditure. The cooling of global oil prices will definitely give some respite on the oil subsidy bill this year. Nevertheless, there is a need to bring down this huge expenditure, as a large portion of it is misdirected. The process has to be gradual and aimed towards directing the benefits to those who really need it. The government has initiated steps in this direction through deregulation of diesel prices and direct cash transfer of LPG subsidy. The report of the Expenditure Management Commission will provide a concrete roadmap and it is hoped its recommendations will be taken up.

Second, while curtailing revenue expenditure for fiscal consolidation is important, the government should enhance capital expenditure for productive investments in sectors such as infrastructure. There needs to be greater allocation of funds for roads, highways, railways, freight corridors, inland waterways, ports and for improvements in rural and civic infrastructure. This will facilitate acceleration of other economic activities, attract more private investments and simultaneously create largescale job opportunities.

Third, there should be an end to tax aggression. Revenue estimates and targets should be arrived at realistically. We expect some policy announcements entailing reforms in tax administration that will create a genuine non-adversarial and conducive tax environment. To enhance revenues, the government should focus on widening the tax base by extending it to non-taxpayers who otherwise have the ability to pay, and exploring alternative non-tax revenues, especially through strategically planned disinvestments.

Fourth, we expect a rational tax structure that will give a boost to demand as well as investments. Implementation of a meaningful GST, correction of inverted duty structures, desired changes in MAT, and Dividend Distribution Tax and deferment of GAAR will enhance the confidence of investors. Additionally, some relaxation in taxes will improve disposable incomes and boost consumer sentiment, thus driving demand.

We are hopeful of reform-oriented action throughout the year.

The writer is the secretary-general of Ficci