OCTOBER 15, 2014

By TIOL Edit Team

'THE Budget Circular 2015-16' issued by Ministry of Finance to all ministries is a both a cause for hope and disappointment. It has created expectations about the favourable impact that a regular budget would have on the economy. The expectations are high as it would be the first budget for full year to be presented by the New Government after getting an inside and comprehensive view of the state of the economy and governance.

Both the industry as well as the common man expect the Modi Government to transform its first full-year budget into a credible platform for heralding Achche Din for all.

The 100 pages-plus circular, is however, disappointing because it lacks new initiatives in the preparation of the budget. One has to struggle to find the difference between the latest circular and the ones issued over the last couple of years. Like the previous ones, the latest circular is a compilation of same set of guidelines and instructions issued over the years.

Even the proposals already implemented figure as statement of intent. The advisory, for instance, in the case of annuity-based projects has not been paraphrased or updated.

The sentence that appears verbatim in the two previous and the current circular reads as: "It is proposed to Consolidate information relating to Commitments on account of ongoing annuity projects under various Ministries/Departments. Information in this regard should be provided in the prescribed format in Appendix XI for publishing it in Receipts Budget."

The latest circular is embodies the same mundane and mechanical exercise to garner all information and data that go into preparation of a set of annual budget documents. This only reinforces the general impression in the business circles that the NDA Government is largely struck in the ‘business as usual' groove.

If Finance Ministry can't reinvent or inject an element of innovation in the budget-making process, then it would imply that the existing arrangement is the best that can be thought of.

What prevents Finance Ministry from having a consultative paper on substituting an annual budget with a five-year one that provide stable taxes and thus ensure buoyant revenue receipts? Why is it not re-introducing zero-based budgeting? It is pertinent to note the concept of zero-budgeting figures in an annexure to the Circular as a passing reference in the guidelines issued by Planning Commission in August 2006.

Zero-based budgeting is like preventing the dubious black-hole budgeting, a phenomenon where the money keeps disappearing in the gargantuan government machinery without any appreciable improvement in governance and efficiency.The unproductive funds saved through zero-based budget, which was first introduced in the mid-eighties, can be deployed in areas that generate growth and revenue.

As put by three McKinsey & Co consultants in a paper published this month, "Zero-based budgeting can drive significant and sustainable savings, but it is much more than simply building a budget from zero. World-class zero-based-budgeting programs build a culture of cost management through unprecedented cost visibility, a unique governance model, accountability at all levels of the organization, aligned incentives, and a rigorous and routine process. Zero-based budgeting frees up unproductive costs and allows those savings to be taken to the bottom line or redirected to more productive areas that will drive future growth."

The Paper captioned 'Five myths (and realities) about zero-based budgeting' is focused on companies but is very much relevant for Governments keen to wipe out fiscal deficits.

It says: "When properly implemented, zero-based budgeting can reduce sales, general, and administrative costs by 10 to 25 percent, often within as little as six months."

Leave aside attempting innovations in the budgetary process, the Circular has not even advised the ministries and departments to align their existing schemes with promises made by the BJP in its Lok Sabha Manifesto and the agenda for growth enunciated by the President in his address to Parliament after the formation of the new Government in June 2014.

The Circular should have provided for an explicit guideline to all ministries to allocate their estimated plan and non-plan expenditures in such a manner that they help the Government effectively implement the electoral promises.

As for introduction of new schemes, the Circular should have asked the ministries to conceive new schemes or re-formulate the proposed ones to incorporate unattended electoral promises in the budget.

We hope Finance Minister, Arun Jaitley, would advise Department of Economic Affairs to issue an addendum to the Circular, focusing on the need to implement the commitments made in both the President's Address and BJP's Lok Sabha Manifesto.

The industry is also hoping the Budget would provide for clear and time-bound road map for tax reforms including direct tax code and goods and service tax (GST).

As put by OECD in a document titled 'OECD Best Practices for Budget Transparency' published in 2002, "The budget is the single most important policy document of governments, where policy objectives are reconciled and implemented in concrete terms. Budget transparency is defined as the full disclosure of all relevant fiscal information in a timely and systematic manner."

Mr. Jaitley should thus aim for the best budget that paves for sustained double-digit, inclusive growth with modest inflation.