MEDIA reports of late have been agog with news about the changes to be made in the Union Budget, inter-alia, with the prospect of the merger of the Railway Budget with the Union Budget. The Cabinet okayed this proposal on September 21, 2016. Apart from the merger of the two budgets which were separately presented till last year, the Cabinet meeting also gave approval to a few other proposals concerning the annual budget making.
Budget making in the context of the Central Government involves carrying out resource estimation for funding of various Central schemes and programmes as well as Central-funding for States and UTs’ programmes and schemes besides estimates of public spending. The annual exercise aims at detailing the roadmap for efficient use of public resources taking into account socio-economic and political priorities. Budgeting involves determination of what is to be done, the manner in which it is to be done and the resources required for it. Cabinet’s three-pronged approval can be considered under the following heads:
Merger of Union and Railway Budgets
The approval for merger of the two budgets will end the practice of separate budgets for the Railways since nearly 92 years—the practice having been started in the year 1924. The impact of the change from railways angle could be that:
- There would be no separate budget for the Railways for FY 2018— the same getting merged with the Union Budget.
- FM will present the railway accounts also with general budget, dispensing with the practice of the Railway Minister making a separate budget speech and presenting railway’s financial proposals a day or two earlier to the presentation of the general budget.
- The Railways, henceforth, would work like a commercial unit of the Government of India, having a distinct identity.
- The general budget will have separate sections for demands, grants and expenditure for the Railways.
- After merger, the Railways will not be required to pay any dividend to the Government of India, currently to the tune of nearly `9,700 crore. Simultaneously, the concept of capital charge will also go and the Railways will get support from the Central Government for capital expenditure. There would be a separate discussion on railways receipts and expenditure in Parliament besides the general government budget.
- Railways will continue to enjoy financial autonomy.
- The Railways are expected to get an independent regulator (yet to get Cabinet clearance), who would be free to recommend fares and freight rates and rationalise the fare structure, which would mean a big transformational change for the organisation.
But, the merger of the two budgets may pose a problem if the government decides to corporatise the Railways.
Other changes approved by the Cabinet
There is a proposal for advancing the date of presentation of the general budget though no finality has been reached in this regard, which date is expected to be fixed after the announcement of election schedule. However, the target is to finish the budget process by March 31. Currently, the budget process extends up to May 31 and direct tax changes are made applicable from June 1.
The present practice of showing plan and non-plan expenditure in the budget making will end. There will be no such classification in the coming budget. With planning and plans becoming dysfunctional, this distinction loses its relevance and needs to go, it was felt.
The Finance Ministry has issued a detailed budget circular – a set of instructions – to kick start the making of the government annual accounts, switching to a completely online system and prescribing strict and compressed time lines in keeping with the big changes announced to the process. Due to the change in date for the presentation of the budget, the timelines and the informational requirements from the different ministries have also changed. These have been duly incorporated in the budget circular.
Budget planning will now have to start a month earlier because of the expected change in budget presentation date to February 1.
After merger, the Railways will not be required to pay any dividend to the Government of India, currently to the tune of nearly `9,700 crore. Simultaneously, the concept of capital charge will also go and the Railways will get support from the Central Government for capital expenditure
CHANGE, as the saying goes, is the law of nature. No progress or development can take place if one is static. Water in a pond gets contaminated, but not in a flowing river. Hence, the changes proposed in regard to budget exercises are to be welcomed, and are in line with systemic changes for the better. The Parliament session will have to start earlier and standing committees will get shorter time to debate budget proposals. Also, the data expected to be considered will be a month shorter but according to government officials, this will not make much difference.
The impact of merger of the Railway Budget with the Union Budget could create some initial problems. Also, Railway Budgets in the past have been used as a political tool by Railway Ministers; as a measure of getting popular. All past Railway Ministers have used the Railways to improve their images by doling out benefits
for their constituencies while neglecting national priorities. With the merger of the Railway Budget with the Union Budget, this practice is expected to end.
Various other benefits are expected with the merger and the Railways can hope to return to better revenues not in very distant future.
Other benefits are also expected to result by the proposed changes in budget making. Dispensation with classification of expenditure, the plan and non-plan expenditure is greatly welcome. Advancing the budget presentation date to April 1 is a good move as the new financial year from April 1 can start without any hang ups . It would do away with exercises like vote on accounts, etc. But, with these changes, the proposal for changing the financial year will need to be dropped and the committee, constituted for examining this issue, disbanded.
There has been a spate of changes made/proposed in the past. Much time and effort need not be wasted on changes emanating from emotions such as changing of the names of roads like Race Course Road, Aurangzeb Road or some buildings or cities. Such decisions, in many cases, cause undue hardship and financial burden on the citizens without any benefit in intrinsic terms.
The writer is former Chairman, CBDT