bBudget 2023 is almost a week away. Newsrooms across the country are thinking of ways to package their coverage in the most engaging ways. Consulting, Investment Banks, As for research agencies, every financial organization worth its salt is busy explaining its budget expectations to anyone who will listen. But all of them seem to be missing a fundamental question: Has the budget become so important now?
The Union Budget had its beginnings as a statement of accounts – giving the position of revenue and expenditure for the past year and for the coming year. Budget speeches between 1947 and 1970 were dry affairs and were essentially recitations of facts and figures. However, this began to change after the 1970s. Budget speeches became more political and started incorporating slogans and jumlas.
More recently, this balance has shifted in favor of rhetoric over substance. Things like revised estimates for the year and a deep look at the economy have been skipped in favor of long speeches announcing all the new schemes and initiatives.
But the importance of the Union Budget has waned for reasons other than the dwindling essence of budget speeches.
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Rhetoric trumps substance
Let’s start with taxation. The Union Budget used to be the major policy document regarding the taxation proposals of the year. It was in the budget that the government announced changes in income tax, corporate tax, excise duty, customs duty, service tax and other taxes levied by it.
Now come to July 2017, when the Goods and Services Tax (GST) was implemented in India. In one stroke, proposals relating to 45-50 per cent of the government’s tax revenue were taken out of the budget and placed under the GST Council. Incidentally, GST itself was launched in a special joint parliamentary session.
With this, the bulk of public interest in the budget – from what is going to be cheaper to what will be more expensive – also ceased to exist.
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Tax proposals are not limited to the budget
As a result of most indirect taxes being taken out of the budget, Part B of the document, which deals with all taxation proposals, has been diluted considerably. However, since it still contains income tax and corporate tax proposals, one can assume that it still holds great importance for tax policy. Of some value, yes, but hardly significant.
Of course, the budget contains important direct tax proposals, but it is not that important direct tax proposals are confined to the budget document. Take corporate tax for example. In September 2019, Govt. announced Drastic cut in corporate tax rates. Considering that the 2019 budget was presented in July after the Lok Sabha elections, keeping such a crucial decision out of the budget should have been a conscious call by the government.
The only item of public interest that remains the sole domain of the budget is income tax. Tax cuts are expected, but those hopes are often dashed. Perhaps Budget 2023 will be different; let’s watch. There is also a possibility that a decision will be announced outside the budget and closer to the date of the 2024 Lok Sabha elections.
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Important decisions don’t wait for the budget
In the past too, several important decisions—such as bank nationalization of 1969, demonetisation of 1978 and 2016, launch of the Mahatma Gandhi National Rural Employment Guarantee Act 2005, rollout of the National Food Security Act 2013, launch of the Insolvency and Bankruptcy Code 2016, and the 2020 Various bank mergers—all were kept out of the budget.
One would think that the Covid-19 pandemic would have increased the importance of the budget as a tool for recovery, but quite the opposite has happened. The multiple Atmanirbhar Bharat packages announced in 2020 and 2021 meant that the government set a strong precedent for taking its key decisions periodically throughout the year, rather than once in the Budget.
In fact, given the geopolitical volatility in the region, it may be a better idea to stick with this new approach as it allows for periodic recalibration.
Another reason why the budget is no longer as important is the nature of government spending. The total expenditure of the government is broadly divided into two categories – revenue expenditure and capital expenditure. Despite this government’s push to increase capital expenditure, the bulk of it Expense (about 80 per cent) goes as revenue expenditure.
Revenue expenditure refers to recurring expenditure such as salaries, pensions, interest payments on loans taken by the Centre, subsidies etc. Now, salary and pension for central government employees are frequently modified Out-of-budget by the Union Cabinet, and changes are recommended by the respective Pay Commissions. Therefore, the Budget is hardly the last word on such matters.
Interest has to be paid no matter what, so there is no real point in the annual financial statement of the government either. Subsidy is one major area where the budget can make a difference, but it is not the case here either. In college budget that can make a Difference,
Budget time has become more about sensation than substance. Don’t count the people whose jobs depend on when was the last time you met someone really Interested in what the Finance Minister had to say on February 1st?
(Edited by Zoya Bhatti)