The Budget - some reminders

THE FORTHCOMING budget offers the Union Finance Minister a unique opportunity to show his commitment to fiscal reforms. It is time to go beyond the indicators and numbers and deal with the basic underlying tax and expenditure issues. The accent should be on action and implementation of promises, policies, programmes and projects. Here are a few suggestions.

(1) The budget speech, 1998-99, referred to a proposal to constitute a task force to examine the adverse effect of the Plan/non-Plan distinction on expenditure priorities. A task force was to be set up to make recommendations for a functionally viable and more focused presentation of government expenditure in the budget. The task force will also advise on rationalisation of Central sector and Centrally sponsored schemes to reduce overlap, modify procedures and norms. The budget speeches for the next two years, 1999-2000 and 2000-01, did not make any mention about the specific recommendations of this task force, the action thereon and the effect on the budget. This needs to be addressed in the coming budget.

Expenditure reforms

(2) The Finance Minister, in his budget speech for 1999-2000, promised to constitute an Expenditure Reforms Commission and initiate a system of zero base budgeting in preparation for the next year's (2000-01) budget. While presenting the 2000-01 budget, there was only a cryptic reference that zero base budgeting was completed in eight departments and 69 schemes were to be discontinued or merged. We do not know which departments were covered, the size of their budgets, the list of schemes discontinued and the amount of budgetary savings effected so far in 2000-01 and projected for later years. One would expect more information on these aspects. Considering that zero base budgeting was introduced as early as in 1986 in the Union Government, the Minister should tell us the reasons for failure of the earlier attempt, the specific steps taken to remedy these, especially in the areas of the scope and methodology. The Expenditure Reforms Commission has submitted its interim reports. We expect to be told about the action taken on these as well as the future programme of the Commission.

(3) When presenting the budget for 2000-01 the Minister laid down the policy on the public sector that included closing down units that cannot be revived, restructuring and reviving potentially viable units and disinvesting shares in non-strategic units. We expect to see the effect of implementation of this laudable policy in the new budget. The Minister may indicate how the dependence of public sector enterprises on the budget is being reduced and how their contributions to the budget are being improved.

(4) Downsizing of government was mentioned in the budget speech for 1999-2000 with abolition of four Secretary level posts as a beginning. Downsizing is a comprehensive exercise involving redefinition of the role of government, review of present functions and activities in the light of the new role and giving up non-essential activities and schemes. According to the Minister, the Expenditure Reforms Commission will help reduce the role and administrative structure of the government. The Minister has to state the progress made and the action plan for the future in this area of fundamental importance to any worthwhile scheme of expenditure management.

Medium term projections

(5) The fiscal responsibility bill introduced by the Finance Minister in Parliament in the last session contains a key provision of a medium term (three years) projection of receipts and expenditure as a framework for the annual budget. This can be presented for the forthcoming budget without waiting for the bill to be passed. This will help lend realism and credibility to budget estimates which are sadly lacking. During each of the last three years, 1997-2000, the Revised Estimate had shown a higher fiscal deficit than the Budget Estimate. It will also set out clear sectoral priorities for the medium term and focus on the sustainability of funds for new schemes and projects. The major assumptions such as GDP growth rate, inflation, crude oil prices underlying such medium term and budget projections should be spelt out.

(6) Any plan to reduce revenue and fiscal deficit can work only if the outstanding public debt and the interest burden is reduced. It is to be hoped that the proceeds of disinvestment of shares in public sector enterprises will be fully applied to retire public debt instead of some portion being used as revenue to finance expenditure.

(7) Over the years, the budget documents have increased substantially in volume. While we are better informed in the process it cannot be said we are always more knowledgeable. There is scope for making the budget more transparent and analytical.

Subsidy on kerosene and LPG does not figure at all in the budget. It is anomalous that this item, costing more than Rs. 13,000 crores a year, is outside the budget. This and the oil pool account transactions involving the Government have to be included in the budget with suitable explanatory analysis.

Collection of dues

There is no information in the numerous budget documents on the efficiency of collection of dues to the government. According to data collected from other sources, these dues are substantial and their realisation will help reduce the fiscal deficit. For example, State electricity boards owe Rs. 2,000 crores to the Railways and Rs. 10,000 crores to the National Thermal Power Corporation and Coal India. Top industrial houses owe Rs. 37,600 crores in tax arrears, as informed in the Rajya Sabha in November 2000.

It is not too much to look to the budget documents for a clear analytical picture of collection of dues of government and public sector enterprises (which depend on government budget support) with a timeframe for arrear collection and the amount targeted for the forthcoming budget.

The debate on public debt, that is, the debt owed by the Government, has diverted attention from the state of health of loans given by the Centre to State governments, public sector enterprises and others. The budget papers should highlight the arrears of principal and interest due for realisation and the amounts waived in these cases. The accuracy of the loan records has to be ensured in the absence of accrual accounting in government.

The Government guarantees loans taken by non-government bodies. These constitute contingent liabilities of the Government and potential expenditure if the loans are not serviced by the borrowers.

We do not get a full and clear idea of this important item. The statement on guarantees in Expenditure Budget Volume I merely shows the number and the total outstanding amount of guarantees. The budget for 2000-01 indicated a figure of Rs. 74,606 crores as on March 31, 1999. Instead of this dated and scanty data, the statement should show the purpose and beneficiaries of the guarantees, the amount paid by the Government due to invocation of the guarantees and the state of health of the outstanding guarantees.

Exemptions as tax expenditure

A number of tax exemptions and concessions are given for various purposes. These result in loss of revenue forgone. A reading of the budget papers does not help understand the budgetary impact. Revenue forgone is nothing but expenditure and it should be treated as such.

The advantage of showing this as tax expenditure is that it will facilitate better monitoring of the cost of these concessions and an assessment of purposes served.

Project and schemes implementation has a dismal record as evidenced by time and cost overruns. A statement on the status of implementation of major projects including utilisation of external assistance can be a useful addition. The budget continues to be a financial document with no linkages to output, outcome and cost. The Finance Minister can make a beginning to present an output oriented budget.

(8) Introducing the budget for 1991-92 which started the reform process, the then Finance Minister observed: ``There is no time to lose. Neither the Government nor the economy can live beyond its means year after year. The room for manoeuvre, to live on borrowed money or time does not exist anymore." Let us act at least now.

A. Rangachari

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