Home >Opinion >Online-views >Opinion | NDA has made budgets boring, even irrelevant

As we look forward to the National Democratic Alliance (NDA) government's last budget in February—an interim one that may yet contain some direct tax proposals—it is a good time to ponder over one of the great paradoxes of the Modi government’s budgets. None of the five regular budgets presented so far set the Yamuna on fire. They were, to put it mildly, underwhelming. Barring a promise in the second budget to bring corporate taxes down to 25%—a promise still to be fully kept—there was nothing particularly innovative in them. 

In contrast, the big NDA innovations have happened outside and around the budget. Thus, while the budgets themselves were insipid, they have been revolutionized in their innards. Revenue and expenditure management is now a year-round process, not a one-off exercise focused on the budget.

Consider: with the abolition of the Planning Commission, our budgets abandoned the old outlay bifurcations into plan and non-plan. It’s now all about revenue and capital. Then, in one of the biggest moves towards reducing populism and bringing focus to execution, the railway budget got merged into the general budget two years ago. With the advancement of budget day by a month, spending now can begin from the start of the fiscal year on 1 April. And, with the implementation of the goods and services tax (GST) from July 2017, revenue proposals involving most indirect taxes were tossed out of the budget speech and into the GST Council’s lap.

Even the fisc is now getting fixed outside the budget, with excise hikes being notified regularly as oil prices started crashing in 2014. Interest rates were brought down and tax compliance improved through a non-budgetary measure—demonetization. Compliance has also been pressured by linking PAN with Aadhaar.

To be sure, some of the big game-changing social sector moves of the government have come through budgetary proposals, but most of their implementation is outside the mainstream government machinery. Thus, the Jan Dhan Yojana, which was important to make the direct benefits transfer scheme work, was implemented by public sector banks.

Subsidies on LPG (liquified petroleum gas) were cut by exhorting people to #GiveItUp, with some of the savings going to fund other subsidies (eg, the Ujjwala scheme). The Aadhaar (Targeted Delivery of Financial and Other Subsidies, Benefits and Services) Act, 2016, was smuggled through as a money bill—a quasi-budgetary exercise—and managed to pass muster with the Supreme Court in September. Capital-short banks themselves have been recapitalized less through budget provisions and more through bonds that don’t impact the fiscal deficit immediately.

The purpose of enumerating all this is simple: increasingly, the excitement surrounding the budget has been steadily reducing, and we no longer need to wait for the finance minister to arrive with his black box to know what’s in store. Budgets in the future will thus be more about bhashans and enunciating politico-economic priorities, with only some elements of direct taxes and import duties now amenable to yearly changes. And even this may end once we adopt a new Direct Taxes Code, and customs duties settle at a steady level after the current bout of trade wars end.

In interim budget 2019-20, finance minister Arun Jaitley can do two more things to make direct taxes predictable and boring in future years. First, he can cut corporate taxes to 25% for all companies, as promised in his 2015-16 budget.

Next, he can inflation-index income tax exemption limits, so that this no longer needs to come as budget announcement every year. If retail inflation is up 5%, the basic exemption can rise by the same proportion automatically, subject to some rounding off. And, instead of item-specific deductions, section 80C can have an omnibus limit of, say, 3 lakh, which can be used for provident fund, principal and interest repayments on home loans, insurance, post office schemes, equity-linked savings scheme (ELSS) and subscriptions to the national pension scheme, among other things.

Thus, instead of incentivizing this specific kind of saving or that, the choice will be left to the individual taxpayer.

For long-term stability in terms of expectations, budgets need to be boringly predictable for all classes of taxpayers, from corporates to individuals. Jaitley, true to his past practice of producing boring budgets, should attempt these changes so that budget day fades into irrelevance.

R. Jagannathan is editorial director of Swarajya magazine.

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