Changes in Budget

The government has decided to carry out three kinds of changes in the Union Budget:

  • To advance its presentation by 27 days.
  • To do away with a separate railway budget.
  • To dispense with Plan-non-Plan dichotomy in expenditure.
Merger of rail budget with general budget:
After 92 years of seeing them separately, the next year will witness Railway budget merged into Union budget. This move is being lauded for it will be beneficial for the economy at large and there will be positive influence in the development in railways.
What necessitated this move?
During the British reign, having a separate Railway budget made sense because a larger part of the country’s GDP depended on railway revenue. The tradition of having the budgets separately continued when India gained freedom even though the revenue from railway continued to go lower than most of the organizations in the public and private sector.
However, the railway budget has now evolved into a slippery slope down which the Railways slide into populist waste and inefficiency. Hence, there was a strong demand for corporatization of the Railways. Not having a separate budget for it prepares the ground for such a change.
The merger has been approved with the following administrative and financial arrangements of Railways
  • It will continue as a departmentally run commercial undertaking to maintain its distinct entity as at present.
  • It will retain its functional autonomy and delegation of financial powers etc. as per the existing guidelines.
  • Its existing financial arrangements will continue wherein it will meet the revenue expenditure from revenue receipts.
  • The Capital at charge estimated at 2.27 lakh crore rupees on which Railways pays annual dividend will be wiped off.
  • Consequently, Railways will not have dividend liability from 2017-18 and the Union Ministry of Railways will get Gross Budgetary support.
  • It will save Railways from the liability of payment of approximately 9,700 crore rupees as an annual dividend to the Central Government.
Why this is a good move?
  1. The scores: During the British rule Railways took up to 85% of the yearly budget while now it has gone down to about 15% only. Having separate railway budget stopped making sense long ago but the old tradition was not done away with. Scrapping the old for the renewed and better is always a positive change to look upon.
  2. Better policies: Now that the Railway budget will be introduced along with the union budget, there will be less wastage of time when a new policy is to be initiated and implemented. Keeping them separate resulted in a lot of drawbacks and hindrances that had to be faced by the railway ministry before it could decide upon a solution.
  3. Party politics: Minority parties fighting to meet their intentions and ministers of certain states arguing new railways and trains for their region has always been known to result in an everlasting brawl. There will be less of political pressure on the Railway budget and the centre will have the ultimate hold of the decision making.
  4. Goodbye to annual dividend: When Rail budget had to be introduced separately, the railways needed to pay an annual dividend to render its budgetary support to the government. The railways will be free of this now and the same fund could now be used in better ways for development the conditions of Indian railways.
  5. The huge loss: Our railways are running on loss. There are lesser funds for development plans and most of them are wasted in wrongful manner when there emerges a demand from the regional MLA who promised new trains and stoppages for their location during the time of election. When it goes into the hands of finance ministry, it would mean and absolute end to this and a more commercialized distribution of resources.
What’s not so good about this move?
  1. The rise and fall: Henceforth, the distribution and allocation of funds to various departments will all go under the finance ministry, which will take decisions according to rise and fall of budget. A fall in the annual budget will mean a similar cut in the railway and other budgets. This will be something unusual for the railways and they might not react supportively to that.
  2. Conditions of government departments: The depleting conditions of the various departments under the government have always been prominent. There is lesser attention paid to the responsibilities and everyone is busy sorting out their own means. Railways might see drastic disadvantage if the merging doesn’t reap the desired result.
  3. Goodbye to privatization: There have previously been talks of privatization of Indian railways in order to improve and develop them with world class facilities and cleanliness. It was not well received earlier and after the merging, there will a complete end to any future chances of privatization. At the efficient hands of government employees, nothing big could be expected.
  4. Loss for the railways: We know how much our parties love making promises and then reducing price to earn the favor of the voters. Not in their wildest dreams would they want to hike the railway prices and lose the vote bank that flows from commuters. Lesser hikes in price might pose loss for the railways department.
Way ahead:
There have been mismanagement of the highest order in Indian railways and if there are chances of seeing it improve, merging it with the Union budget is just the solution that could help. The falling revenue and more projects for new trains and stoppages have been a difficult project for the railway ministry which took the right step by merging the two budgets.
Budget advancement:
The objective behind this move is to have the Budget constitutionally approved by Parliament and assented to by the President, and all allocations at different tiers disseminated to budget-holders, before the financial year begins on April 1.
  • The proposal for a change in the budget presentation date was first mooted by some of the government’s senior most bureaucrats as part of a ‘Transforming India’ initiative in January 2016.
Presenting the budget earlier comes with both advantages and disadvantages.
  • In the existing system, the Lok Sabha passes a vote on account for the April-June quarter, under which departments are provided a sixth of their total allocation for the year. This is done by March. The Finance Bill is not passed before late April or early May. If the Budget is read in January and passed by February-March, it would enable the government to do away with a vote on account for the first three months of a financial year.
  • Retired and serving officials say the biggest plus would be that the Finance Bill, incorporating the Budget proposals, could be passed by February or March. So, government departments, agencies and state-owned companies would know their allocations right from April 1, when the financial year begins.
  • It would also help the private sector to anticipate government procurement trends and evolve their business plans. And, civil society could deliberate on and give feedback in time for the parliamentary discussions.
  • One big disadvantage of advancing the Budget preparations is lack of comprehensive revenue and expenditure data. Currently, work on the Budget begins in earnest by December. By the time it is finalised in mid-February, data on revenue collections and expenditure trends is available for the first nine months of the financial year, i.e April-December. Based on which, projections for the full year can be made.
  • To read the Budget in January, the centre will have to start preparing it by early October. To go by less than six months of data and making projections for the full year and the next year, based on such an incomplete picture, will be an impossible task.
  • Advancing the Budget dates would be fraught with practical difficulties. Effective Budget planning also depends on the monsoon forecasts for the coming year, making the advancing the whole exercise even more difficult.
  • Besides, whether the chambers of Parliament and its standing committees will get adequate time to deliberate on the budget is a moot point. The standing committees of Parliament, whose charter is to examine the justification of the ministry-wise allocations and funding needs of concomitant programmes included in the Budget, undertake their scrutiny during a two to three-week gap within the budget session period, when the houses are adjourned. This scrutiny is an essential element in the parliamentary budget approval system.
Way ahead:
Advancing the presentation of the Budget, so as to allow Parliament to vote on tax and spending proposals before the beginning of the new financial year on April 1, is a good idea. It would do away with the need for a vote on account and allow new direct tax measures to have a full year’s play. Members of Parliament now will have to work hard over two months to vet Budget proposals, for this to work.
Merger of Plan and Non Plan classification in Budget and Accounts The Union Cabinet also approved proposal of Union Finance Ministry to do away with the Plan and Non-Plan expenditure classification from 2017-18 and replace with ‘capital and receipt’.
The relevance of plan and non-plan expenditure was lost after the abolition of the Planning Commission.
However Budget will continue earmarking funds for Scheduled Castes Sub-Plan/Tribal Sub-Plan and similarly, the allocations for North Eastern States.
Plan/Non-Plan will help in resolving the following issues
  • This distinction of expenditure had led to a fragmented view of resource allocation to various schemes.
  • It had made it difficult to ascertain cost of delivering a service and also to link outlays to outcomes.
  • It had led to bias in favour of Plan expenditure by Centre as well as the State Governments and had neglected essential expenditures on maintenance of assets and other establishment related expenditures to provide essential social services.
  • The merger is expected to provide appropriate budgetary framework that will have focus on the capital and revenue expenditure
These reforms make sense, but Budget reform has to go further, to incorporate a multi-year time horizon and shift to outcome-linked expenditure management, as had been recommended by a committee headed by C Rangarajan in 2011.



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