It is Budget-making time once again. It won't do for the Finance Minister, Mr Pranab Mukherjee, this time around merely to push allocations up or down taking account of past trends and inflation, tweak some rates and taxes here and there, tote up the totals and serve it along with a soporific recital of the various schemes in a long speech. His task is not just one of building into the Budget a litany of incentives and facilities, for, they alone, without there being a willingness and wherewithal to get the best out of them, will serve little purpose.
What the Finance Minister, therefore, faces is the formidable challenge of restoring the level of confidence and conviction in economic players about their and the Government's ability to rev up a sluggish economy and place it again on the growth path. He has to make the Budget inspirational, casting aside past inhibitions.
Now that Budget-process has been considerably demystified, he could even think of importing into it an inclusive approach in the sense of making it a collective exercise, involving business and industry in both private and public sectors as partners.
The partnership could even include labour unions. This is not as fanciful as it sounds. It certainly goes against conventional wisdom, but Israel provides the salutary example of a country which has reaped enormous advantages by practising this strategy. It gave Israel respite from industrial disputes, loss of production in strikes, and even won the united support of workers and employees in terms of efforts and funds to make a success of measures against unemployment.
INCREDIBLE TURNAROUND
The great advantage of such a partnership is that the strength and synergy flowing from it will ensure that the problems are solved in a constructive, cooperative spirit, and not in a fault-finding and blame-throwing mode. It will also encourage the partners to take risks to which they would be otherwise averse, with no need to be constantly looking back over their shoulders.
Mr Pranab Mukherjee may well profit from Israel's experience of yet another innovation in Budget-making: Making Budgets biennial, instead of yearly.
Israel's Finance Minister, Mr Yuval Steinitz, claims an incredible turnaround in its economy following the introduction of biennial Budgets: The GDP growth rate which was negative in 2009 shot up to 4.5 per cent in 2010, new jobs created over the year touched 120,000, and unemployment dropped to the pre-financial crisis level of 6.7 per cent. Isreal has been able to earmark 8 to 9 per cent of its GDP to human capital because of which, Mr Steinitz says, Israel has the most high-tech start-ups per capita than any other country, and the largest number of Nobel laureates.
BOOST FROM IMF
He has roundly condemned annual Budgets “a terrible mistake”, adding: “It's totally unreasonable to run a country on an annual budget because it takes six months to prepare a Budget. You're then left with just six months for implementation…It's a logical necessity having six months to discuss a Budget, debate in Parliament, present ideas in public, then have 18 months for implementation…In my understanding, sooner or later, most countries will shift to biannual Budgets…I believe it will contribute to stability and economic growth worldwide if countries across the globe adopt a two-year budget cycle.”
Israel's adoption of biennial Budgets has got a boost from the IMF which regards it as one of the factors helping Israel come out of the global crisis better than other countries.
In fact, 19 out of the 50 States in the US have two-year Budgets. Last October, two prominent Senators have called upon the US Congress to implement a two-year Budget process, arguing that this will enable the Congress to devote more time to enforce accountability and supervision, and make “federal agencies more efficient by allowing them to devote less time to the budget process and more time to doing their jobs.”
It is time the Central Government too gave serious consideration to the idea. The first step could be to request the Prime Minister's Economic Advisory Council to go in depth into the proposal and come up with its recommendation within three months or so.