Finance Minister P Chidambaram should show more openness in Budget-making
January, 24th 2013
In his first stop during a four-nation trip to meet potential investors, finance minister Palaniappan Chidambaram has outlined his priorities for the forthcoming Budget. These include stable tax rates, a commitment to fiscal discipline and more reforms. Earlier, this would have been interpreted as a flagrant breach of the wall of secrecy that surrounds the Budget-making process. Whether that veil is really necessary is doubtful. In any case, we welcome the finance minister's move to bring some openness into the Budget-making process. His words are likely to soothe the nerves of investors wary of what Budget 2013 might bring. It has been speculated that this would be an 'election Budget', laden with sops and handouts. That, in turn, provoked fears that spending would get out of hand, enlarging the fiscal hole or prompting the government to winkle out more revenue through higher tax rates. Chidambaram's remarks are designed to allay such fears.
Over time, India's policymaking has gradually moved from being highly discretionary and wilful, towards more rule-based processes. If it progresses in the same direction, the secrecy around the Budget-making process will become totally unnecessary. To see why, consider the goods and services tax (GST). Once this is implemented, there will be one set of indirect tax rates all over the country, requiring no tampering with in the Budget. Once incentives and exemptions are taken out of the direct tax system, these rates can also stabilise at reasonable levels, requiring little or no tinkering within the Budget. One of the primary objectives of Chidambaram in his forthcoming Budget should be to move towards these goals. The implementation of the GST will need a buy-in from states, but he can make sure that rates converge towards those envisaged by the legislation. Some exemptions and incentives have been ironed out of the direct tax system, but many remain. They should go. His other priority should be to tilt public spending away from consumption, towards smart investments with positive social and economic returns.