The basic purpose of a budget is to make ends meet. The experts who have been criticising yesterday's pragmatic Railway Budget seem to have lost sight of this basic fact. Rattled by the stock market reaction to it, the budget has been faulted for not being 'visionary', for not signalling any break from UPA and for its lack of 'big bang' announcements. “What happened to the promises of acche din?” many have demanded.
But given the precarious state of Railway finances; the institution's costs eat away 92 per cent of its revenues; it is hard to see where the minister would have found the money to finance 'big bang' projects or 'visionary' moves. Thankfully, he chose to make a break from the past, and not announce plans which would never be implemented for want of funds. Pragmatically, he has stuck to fixing the finances before announcing grand plans.
As markets await the Union Budget with a similar mountain of expectations, they would do well to keep these ground realities in mind. Tax revenues aren't growing, the subsidy bill is galloping at a furious pace, and yet the Finance Minister is faced with the task of pepping up the economy, while keeping the fiscal deficit under check. If the deficit bloats, inflation will follow suit and interest rates, a key variable to stimulate the economy, can never come down.
Therefore, what the economy really needs from the Union Budget, first and foremost, are five basic things which a budget is originally intended to do:
- Clean up the books: Present a realistic picture of the government's revenues and expenses in the year ahead without resorting to gimmicks like delaying payments to oil and fertilizer companies, forcing PSUs to foot the bill for welfare and terrorising existing taxpayers into paying more
- Spend within means: Announce plans that can be implemented and plug leakages in the spending. Stimulate the economy with government spending and infrastructure building if need be, but let the plans be within the Centre's means
- Look for higher revenue generation: Offer direct and indirect tax concessions only if they can be compensated by expanding the tax base. Yes India Inc is clamouring for all kinds of tax breaks. But the FM needs to ensure that a lower rate of tax does not shrink the government's revenues. We cannot afford it in a year where infrastructure, health and education badly need budgetary support
- Rein in subsidies: Cut back on food, fertilizer and fuel subsidies through graduated price hikes. This won't be popular with consumers, but it is the only way to bring the Rs 2.6 lakh crore subsidy bill under check. Plug the enormous leakages in the subsidies through direct transfers
- Focus on a roadmap to reforms: Big bang announcements in the budget often fizzle out later because they're made without consulting the investors, participants and other key stakeholders in the affected sector.
There is no reason why the budget should be the sole platform for the government to announce its entire reform agenda for the full year. Instead, reforms can be rolled out through the year, after a thorough consultative process which irons out the glitches in actual implementation. Presenting a back-to-basics budget on these lines may not have the markets partying on Budget day or market experts lauding the FM for a 'dream' budget.
But getting its finances in order in is critical, if the government is keen on following through with initiatives needed to rebuild the economy. There's no point in presenting a budget that is big on vision but completely lacking in execution. So, let's not forego many acchesaal to come, just so that markets can enjoy one accha din on July 10.