Advancing of Budget

This year the Union Budget was presented on February 1, a month before the usual schedule. Although there is no provision in the constitution about the date of presenting Union Budget, the convention had been that the budget was presented towards the end of February or early March. 

Along with merger of Railway Budget with Union Budget and doing away with plan and non-plan classification, advancing of the budget has been one of the major budgetary reforms introduced by the government of the day.

 

Until now the convention had been to present the budget on the last working day of February. The budget so presented was debated by parliament and was approved by mid-May. Since the constitution demands that no money can be withdrawn from consolidated fund without parliamentary approval, usually the first quarter of every financial year (April-June) saw no or little public investments. The second quarter is monsoon season for entire country and hence it is tough to initiate new projects and programmes or sustain the old ones.

This means that effectively there were only two quarters left in the financial year to spend the amount allocated to a programme or project. This led to rush of expenditures during last two quarters leading to ineffective and irrational utilization of public funds.

This ineffective utilization of public funds due to delayed allocation has been the major push for advancing the budget date. The government aims to ensure that all the parliamentary scrutiny (in house discussion and scrutiny by Departmentally Related Standing Committees) is done by end of February and the allocation to various schemes and projects is done by the beginning of the new financial year in March. This will ensure that there is optimum and effective utilization of public funds across the year. 

Advancing of budget will also ensure that the states get their allocations under various schemes and programmes at the onset of the financial year itself (instead of second quarter) and hence can more efficiently utilize the funds in the upcoming year.

This focus on effective utilization of public funds gains more significance in the contemporary times as amidst global slowdown and declining investor confidence, government remains the major investor in the economy.

The advancing of budget will also do away with the provision of ‘Vote on Account’ (article 116) that allows government to appropriate some lump-sum amount from the consolidated fund to meet its expenses until passage of the Appropriation Bill (annual budget. This will ensure more transparency and definiteness in the allocation of public funds to the executive.

Finally, the investors will also benefit from this process of budget advancement. Till now the investors were wary of making investments early in the financial year as they were unsure of budgetary proposals and new taxation provisions proposed in the Appropriation Bill. With Appropriation bill being approved before the beginning of the new financial year, the investors can have a clear picture of the upcoming rules or provisions and can plan their investments better.

 

Earlier the appropriation bill was presented on last day of February and it was approved by parliament till mid-May. This gave the Parliament sufficient time to scrutinize the various aspects and proposals in the appropriation bill (through in house debates and through Departmentally Related Standing Committees). 

This scrutiny is an essential element in the parliamentary budget approval system as the standing committees eventually are the only public institution where a relatively detailed and dispassionate examination of the components of the ministerial budgets is possible. It is doubtful if adequate time would be available to these committees during the advanced budget session period as the whole process is now to be completed within a period of a month.

Experts fear that more and more demands made in the appropriation bill will be guillotined thereby reducing parliamentary control over the executive.

Also, till now, the executive was able to formulate the next year`s Budget reckoning the expenditure classified in government accounts till as late as February, that is, of 10-11 months of the current financial year. This ensured that the budget estimates for the upcoming financial year were fairly accurate.

This will not be feasible if the ensuing budget perforce has to be based on three quarters of the current year’s expenditure and partially on anticipated trends till the end of the year. According to the former finance minister, Yashwant Sinha, the outgoing year’s fourth quarter will remain a “dark area” while formulating budget for the next year.

Another concern is that for nearly 10 days in the latter part of January, ministers and their officers are distracted from parliamentary work owing to their involvement with Republic Day celebrations and follow-up events. This distraction during the phase of preparation of budget/appropriation bill could affect the accuracy of the budgetary estimates.

 

Now that the budget date has been advanced it should be ensured that all the departments, ministries and institutions are geared up to provide data and figures for the current financial year by the end of third quarter and any extrapolation or fine-tuning for the rest of the year should be done carefully.

Also, the Niti Aayog reported that there is a need to change the financial year for better Budget planning, and has noted that January-December is most widely followed across countries and by UN bodies and also by 70 per cent of the top 50 Fortune 500 companies. (The proposal is under consideration by Shankar Acharya committee)

A more meaningful exercise could be for the government to encourage larger public participation in Budget-making. It can do so by placing the proposed expenditure plan for the forthcoming year in the public domain. This will lend itself to wider discussion and debate ahead of the actual presentation of the Budget and perhaps influence a more efficient spending programme. Also it could make up for the some of the loss of the Parliamentary scrutiny due to advancing of budget.