wWith just over a week into the budget ‘quarantine’ or ‘quiet’ period, the Narendra Modi government still has plenty of time to remove the last vestige of colonialism attached to the budget-making process: secrecy. This will be in keeping with the reforms related to the last budget which the BJP government has already implemented.
The quarantine period begins in December and continues till the budget is presented on February 1. Journalists, policy advisory groups and industry bodies are barred from entering the Finance Ministry during this period. Officials crucial to the budget-making process go into lockdown, many of them spending most of the quarantine period in the ministry, not going home until the budget is presented.
The introduction of a digital-only budget in 2021 meant that the number of people who have to go through such lockdowns and the duration has come down significantly. However, secrecy around the budget is still considered paramount.
Budget secrecy is something that has plagued Indian policy makers since independence. Secrecy was important during the colonial period as the budget was presented in the British Parliament after it was presented in India. This allowed British and Indian officials to use insider information on proposed tax changes to profit from the stock market.
Therefore, it had become absolutely necessary that the contents of the budget should be communicated to only a select few officials before it is presented in the Parliament. It has continued in independent India as well. But this secrecy is no longer needed for a number of reasons, and taking it away would actually benefit policymakers.
It is also one of the main reasons why the Union Budget has given up its place of pride as the key policy document.
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Reform that made budget secrecy irrelevant
Before the Goods and Services Tax (GST) was rolled out in July 2017, the Union Budget had a huge ‘Section B’ dealing with taxation proposals. This included not only direct tax proposals (income tax, corporate tax, wealth tax, capital gains tax, etc.), but also all indirect tax proposals (customs duty, excise duty, service tax, etc.).
With the implementation of GST, not only were most of these indirect taxes subsumed into the new tax, but the decision on GST rates was also taken out of the budget and placed under the GST Council. In other words, it is no longer up to the budget or, in fact, the central government to set rates on the bulk of indirect taxes.
This has significantly diluted Part B of the budget, and dealt a major blow to the arguments in favor of privacy.
Direct taxes are still in the purview of the budget, but with the possible exception of capital gains tax, they have no real impact on the stock market. And also because any changes announced in the budget are implemented only at the beginning of the next financial year, on April 1.
This brings us to one of the budget-related reforms that the Modi government has already implemented. From 2017 onwards, the budget is presented in Parliament on 1 February instead of the last date of February as it was done earlier.
This means that individuals and companies have two full months (February and March) to digest the announcements made in the budget before implementing them. Keeping the announcements secret before February 1 is not really going to help in this matter.
Incidentally, Budget 2017 was also the first where the Rail Budget was merged with the Main Budget, ending yet another colonial practice of keeping them separate. Earlier, in 1999, the budget presentation was brought forward from 5 pm to 11 am to break a habit induced by the time difference with the United Kingdom.
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How to deliver the final blow to the colonial hangover
Part A of the budget deals with policy announcements, budgetary allocations and new schemes. It remains an important part of the budget, but the government is handling it backwards. Currently, the government announces policies on 1 February (after some limited consultation), receives post-budget feedback and/or criticism, and then tweaks the announcements.
By early December, the government will be in a better position to put the bulk of its planning and policy proposals in the public domain. It may then invite comments, generate discussion and announce the final version on February 1.
Apart from doing away with the secrecy of the budget, the central government could also take a lesson from its own book on handling the pandemic and make the budget a biennial affair instead of just once a year. In 2020, the budget presented in February was almost immediately rendered irrelevant by the COVID-19 pandemic. Instead, the government was forced to revise its policies regularly as various Atmanirbhar Bharat ‘Small Budget’,
This year, the Russia-Ukraine war that began in late February, and the high inflation and low demand that followed, meant that Budget 2022 could also benefit from a mid-year policy change.
Currently, supplementary demands for grants are just an accounting exercise – more money is given where it is needed. While there is a need for policy stability, where a vision for the year is laid out in the main budget, a formal system for mid-year reconsideration in response to short-term factors may be useful.
But it may be too radical a change right now. Even privacy can be slowly chipped away. Let’s start with Part A, which would benefit most from an early public release. This policy change will be the final blow to India’s colonial hangover in the budget making process.
Thoughts are personal.
(Edited by Prashant)