Time For A Change, Bud, Get It?

Honourable Parliamentarians,

Ten days from now, the nation will be presented with its 56th budget. This will also be Yashwant Sinha's fifth consecutive budget, a record for a non-Congress minister and deservedly so. Despite this unique distinction, the budget event has failed to raise much heat and dust this year. Even my traditional wife, who has been a "keen budget observer" (read, price-level watcher), is subdued. When I asked her, she puckered her face: "What's the big deal about yet another budget? Some tax hikes, duty cuts, price rise, some lines of poetry." Taken aback, I went to my best buddy. "Say, what's the dope about the budget? I heard they're going to take off all tax concessions?" I ventured. "S.... the budget," my friend said, and launched into a speech on how the budget brouhaha had become entirely irrelevant to the way India was being financially (mis)managed. He also reminded me how, days after the second nda government took over, the prime minister told a cii conference rather proudly: "The budget is always a bit of a mystique!"

Is there, honestly, a reason to be so? Isn't it time the Indian Parliament and people behaved with maturity towards the budget? Let's face it: budgets have rarely made or broken the economy except in two years in the last decade—the ground-breaking Manmohan Singh budget in 1991 and the 1998 Chidambaram budget which slashed income-tax and reduced other duties (but collapsed too soon). And the most important decisions of 1991—trade policy, exchange rate reforms, devaluation—and many others were announced outside and before the budget.

Budget as a reforms statement is exclusively a '90s phenomenon, shaped largely by Dr Singh. Says Saumitra Chaudhury, advisor, icra: "The budget became an annual reaffirmation of reform, in part because Dr Singh made it so. In each of his budgets he had something substantive to say." It was a welcome change from the planned economy heyday, when budgets were instruments to change taxes and duties. During the licence permit raj, they would help the ruling class to dis/favour various groups and play them against one another. Policy, if you care to call it that, changed little. "Big issues" like new investments came from the Planning Commission, garibi hatao and bank nationalisation from the political battleground and liberalisation of imports in the '80s out of the commerce ministry. In the original British tradition, the budget consisted of securing parliamentary approval for any new taxes and for the budgeted expenditure. The secrecy was unavoidable as we were a colony, there was a time difference and global funds had to be attracted. Says former economic affairs secretary E.A.S. Sarma: "It is the prerogative of Parliament to be the first to be informed of the government's programme for the year."

The first budget was presented on November 26, 1947, by Shanmugam Chetty. He had several problems, few options. Huge fiscal liability to Pakistan due to the Partition, the refugee influx, big defence outgo and a depressed global economy. What Chetty did became standard practice in Indian budget-making: he appropriated the railway surplus of Rs 4.5 crore, raised taxes, borrowed cheap from the rbi. The arbitrariness came in mainly thanks to those at the helm and the power they had. For instance, the huge drawdown in sterling balances in 1949 resulted in B.K. Nehru (he eventually became economic affairs secretary in 1957) issuing a couple of instructions which became a rigid forex policy. The practice of issuing T-bills (note printing, in layman terms) was also begun by him in 1955. Just like that.

Can we really say we've got rid of the arbitrariness? Against a Rs 1,365-crore deficit in 1979, the year that marked the era of runaway deficits, the fiscal deficit in this budget may finally stick to target, thanks to a 4 per cent gdp forecast.But it will still be about 90 times the amount. Economist Surjit Bhalla finds that even after 1991, the economy has had several Hindu constants—industrial and gdp growth rate of just under 6 per cent, money supply growth of 17.5 and a real interest rate of 8. The only thing that's dipped is inflation, due to globalisation, which only makes interest rates look criminal. What on earth have these budgets been doing?

This year's subdued pre-budget mood could well reflect this incompetence: public expectation is at an all-time low, slowdown bite at its highest, market mood despondent, and belief in the FM at its nadir. But this has nothing to do with the latest gdp forecast. It is because over the past several years, budget promises have rarely been kept. What happened to full power sector metering by December 2001? Wasn't pds supposed to be passed to the states? Ditto for the fate of labour law changes. What's the implementation review committee doing? Isn't it convenient that the Fiscal Responsibility and Budget Management Bill was diluted to take out the targets? Why bother about the fiscal deficit now?

One suspects the lobbying elements of the pre-'90s have made a quiet comeback. Pending a complete indirect tax reform, cry-baby industries will continue to allow the FM to truck with his babus and take a few claps here and there. Says economist Bibek Debroy, "Till you reduce average tariff to 30 per cent, there's a lot of room for discretion." Rues economist D.R. Pendse: "Our budget process is already badly eroded and budget estimates are made to order. They're so bereft of any sanctity that the extra expenditure can, is and will always be shown in only that category that will get votes. Once the budget is passed, funds are diverted. Some pedestrian explanation is given the next year but who'd remember?"

Take budget revenue estimates. The budget is made on February 28, a month before a new fiscal year, riding on expectations, and the gap between the revised and the actual becomes public three months later when the government is well into its borrowing programme. Says Sarma: "Many policy announcements in Part A of the budget speech may not always be based on a consensus within the government as they are processed in a hurry. This does not allow the detailed analysis essential for good policy. Just look at the paragraphs on disinvestment from 1991, they are not at all consistent."

The secretariat for the National Plan of Action for Palestinian Children, with help from Sweden's Save the Children, wrote a study in 2000 which was a guide to the Palestinian budget from a child rights perspective. I wonder where an Indian budget would rate on that scale. For North Block, the budget is still little more than a yearly theatrical performance, though budget decisions should really have a deep impact on citizens. Says World Bank consultant Swaminathan Aiyer: "A country should have an annual economic exposition simply to chart what is expected next year. But there is no reason to lump the whole economic path into the budget; it can be done as a sort of annual plan instead (the Planning Commission certainly felt so in the '60s)".

One advantage of that system is to have the targets and their bases open to public scrutiny—Andhra has done it (see box). The US budget, done by a non-partisan Congressional Budget Office, is available for about six months before it's passed. The 600-page 2003 US budget has many firsts: colour and photos, lack of jargon and the fact that it "takes the first step towards reporting to taxpayers on the relative effectiveness of the thousands of purposes on which their money is spent...asks not merely How Much but endeavours to explain How Well". It also looks five years ahead, changing the old practice of 10-year forecasting.

For a country that passed the Government Performance and Results Act in 1993, this may be routine. But some developing countries? The Brazilian Constitution mandates the publication of a summary report on budget implementation every two months—in Israel, this is mandatory every year—and disallows any programme or scheme to be started outside the budget.

The call for accountability arises from the need for transparency—the oecd Best Practices seek publication of pre-budget, monthly, mid-year, year-end, pre-election and long-term reports besides the budget. In many nations, the key issue is not where money comes from but what it is spent on—it's in health in the UK, defence and welfare in the US. What is it in India, other than populist schemes?

It's a long road to transparency for India. Hear out Sarma: "The budget document in its present form is somewhat misleading. The expenditure items may often be the funds released to an agency and they may not have been actually spent! Some of the guarantees obliquely referred to somewhere in the budget papers may amount to huge real liabilities. Revenue receipts may not fully represent the collectible arrears."

So isn't it time we shifted our laser beam to the entire government? Most second-generation reforms are with other ministries or in states. And much of what is wrong in the management of public finances is rooted in the rest of government, be it incomplete labour reforms, excessive regulation of industry, dysfunctional public utilities or under-provided and inefficient public schooling. The finance ministry has no exclusive power to monitor or speed up reforms here, it must depend on the cabinet or states. Says S.N. Rajan, chief investment officer, Kotak Mahindra MF: "The budget has no relation to efficiency of governance and speed of decision-making."

Globalisation means the disappearance of government as we have come to know and hate. In a very small way, this has happened in India. The roadmap is getting clearer. As K.N. Memani, president, Ernst & Young, says: "The government has already spelt out the way indirect taxes would be reduced in the next three years. Plus there're the wto targets." The socialists think reforms will hurt the poor, the industrialists know reforms will hurt them, the middle class whom reforms have actually hurt the most want status quo and the poor, the real beneficiaries, have little voice. Debroy thinks that the voice will get shrill enough to unleash completion of reforms around 2015, that's when the post-independence generation who've tasted the sweet fruits of reform will mature and take over some of the administration.

It may happen earlier. Till that time, spare us the table-thumping and the hear-hears. Spare us the electronic media and pink-paper frenzy. Spare us the Part A and the couplets. Let policy-making be a 365-day affair culminating in an open budget.

Sincerely,

Bharat Kumar