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Welcome steps to overhaul the Budget
September, 22nd 2016

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 and to dispense with Plan-non-Plan dichotomy in expenditure.

All three 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. Similarly, counting disinvestment proceeds as non-borrowed capital receipts to reduce the fiscal deficit fails to conform to the International Monetary Fund’s standard of measuring the gross public sector borrowing requirement. We hope these changes would also be made, while the Budget overhaul is on.

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 will have to work hard over two months to vet Budget proposals, for this to work. We do not expect our people’s representatives to resent such labour. The distinction of expenditure between Plan and non-Plan had become dysfunctional, and hindered holistic evaluation of the outcome achieved via the two modes of spending. In any case, with planning and Plans having been phased out, this distinction also had to go. Expenditure will now be classified as revenue (current) or capital (with future income/expenditure implications).

The Railways should be corporatised and cease to be a government wing. Not having a separate budget for it prepares the ground for such a change. The railway budget had evolved into a slippery slope down which the Railways slide into populist waste and inefficiency. In the interim, till the Railways are corporatised, their accounts will have to be scrutinised by a committee of Parliament. However, there is no logical reason why a merged Budget should scrap dividend payments by the Railways.

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