Completing its 16 year old journey from the Vajpayee Government to the NDA’s, the Goods and Services Tax (GST) has been subject to quite a lot of deliberation. Much of the furore and energy has been spent on the GST in this financial year and quite rightly so. It stands to be the most reformative measure of the indirect tax structure in the history of our nation. Surprisingly though, we will not talk about the GST today. We will talk about two things, though not as portentous but sufficient enough to be watershed moments.
Advancing the budget
The practice of presenting the budget is a colonial legacy. The first Indian budget was presented in 1869 by James Wilson, the finance member of the Indian Council that advised the Indian Viceroy. We have come a long way since then. Fast forwarding to a Republican and an independent India, the Indian Constitution does not dictate a specific date to be set for the presentation of the budget. Article 112 of the constitution states ,‘The President shall in respect of every financial year cause to be laid before both the Houses of the Parliament a statement of estimated receipts and expenditure of the Government of India for that year…..’. The practice has however been to present the budget on the last working day of February, more or less a month before the annual financial year is set to begin.
This practice albeit a legacy, is reprehensible. The budget is presented on the last working day of February, it has quite a lot of voting to go through before it can be passed as an appropriation bill. This is because the voting on demand for grants, which is the voting on the estimates of the annual budget for the next financial year, takes at least till mid-May, which is an antecedent to the passing of the appropriation bill. The appropriation bill gives the government the authority to withdraw funds from the consolidated fund of India. But since the financial year has already begun on April 1st, the parliament also has to ‘vote on account’ in order to draw funds from the consolidated fund of India when the budget is still undergoing voting on demand for grants. This is done so that the government has funds for its functioning until the appropriation bill comes into place. This exercise of voting on account and simultaneously voting on demand for grants, and finally an appropriation bill takes a long time to materialize. The government thereby stands to lose a huge chunk of the financial year in the Parliament itself. Further exacerbating the problem, post-May is when the monsoon season starts, during which most the departments are not able to undertake the schemes/projects for which funds had been set aside in the budget. Post monsoon there is a haste to get the projects done on time which largely affects the efficacy.
The new decision is to advance the budget presentation by a month. So the budget in 2017 would be presented in the last week of January and not the last working day of February as earlier practiced. This makes the process pretty straightforward and simple. It essentially abolishes the two step process required for the budget. It would do away with the vote on account; the parliament would not have to waste their time on vote on account, since the budget would be presented a month earlier. This simple yet revolutionary step would make the entire process more efficient and less tedious. The parliament can also focus on other non-budget related legislations and debates since a considerable amount of time would be saved.
This move also comes in the light of the decision to roll out the GST from 1st April ’17. The budget being presented earlier would give a much smoother implementation, it is believed. There is also some political mileage behind this move. There is a reason why the government is so hell bent on implementing the GST from 1st April 2017. The GST is bound to have an inflationary impact, with the bulk of the goods and services to be taxed at 18% (decided at the recent GST council meet). This inflation would take at least 2 years to subside, which so happens to be the election year for the Lok Sabha. Obviously, inflation is not a vote attracting phenomenon, which could very well dent their chances of coming back into power.
Abolishing Plan and Non-Plan expenditure
To first understand the abolition, we need to understand what plan and non-plan expenditure is. Plan expenditure is the cost incurred by the government on new programs, flagship schemes, etc…basically in creating new capital assets. Non-Plan expenditure on the other hand is incurred on the maintenance of these schemes. This distinction was set up in the background of India adopting a planned model of economic growth. Now that the Planning Commission is no longer there, a need for having a plan and non-plan expenditure was seen as irrelevant. Moreover, there was a common misconception in the minds of the people that more the plan expenditure the better. This thinking is misplaced as higher plan expenditure did create capital assets, but a low non-plan expenditure created low maintenance. Therefore this led to deterioration of capital assets over a longer period of time. This for example created schools without teachers or institutions without employees.
These measures combined certainly change the way in which the annual financial statement would be seen starting the next financial year. The straitjacket of the budget has been taken off with its impact yet to be judged. However the revolution it is about to bring is unprecedented.
Subscribe to our weekly newsletters.
Get all our posts, blogs and video content via e-mail.