How the Union budget is losing its mojo
The Union budget is now evolving into more of an annual macroeconomic statement, especially the centre’s stance on the fiscal deficit
It all started with Haseeb Drabu, the erudite finance minister of Jammu and Kashmir, asking me on Twitter earlier this week as to how many Union budgets I have mapped in my three decade career as a hack.
It forced me to look back. The quick summation is that while this period has witnessed an incredible transformation of the Indian economy, the scope and significance of the Union budget is shrinking progressively. Even in the mind space, despite the showbiz twist by electronic media (one TV channel had a live bovine presence on the sets), the Union budget is no longer all-consuming.
Obvious questions then: How did things come to such a pass? Is it a good thing or a bad thing?
The latter first: It is definitely something that needs to be welcomed as it is a reflection of maturing of the Indian economy in which the share and role of the private enterprise is rapidly expanding.
A simple example should illuminate this point: The very first budget I was associated with was in 1987, working for a now extinct fortnightly, PTI Corporate Trends. At that time, there was only the landline and they probably counted in a few millions. In 2018, there are about 800 million cellphone connections and bulk of them are what we call “smartphones”.
This transformation has been built on an equally important structural makeover redefining the role of the state. In the 1980s, even though the liberalization process had already been initiated, the state was the most powerful economic entity. The government transported us, clothed us, educated us and so on.
The Union budget not surprisingly therefore occupied centre stage in the economic calendar of the nation. It was also a moment for distribution of largesse through the tinkering of the indirect tax rates (what we know as the erstwhile excise and sales tax).
The big game then was to watch how these rates moved to figure whether the toothpaste would be costlier or whether it would be more expensive to buy clothes made from synthetic yarn. Effectively, the budget instantly affected our lives. The budget also, through the Planning Commission, ran a raft of centrally sponsored programmes in states, thereby influencing the federal allocation of fiscal resources.
However, over the next decade and more, especially after the big burst of reforms in 1991, the private sector began to enjoy a larger role (another matter that it later degenerated into a prolonged bout of crony capitalism). This consequently demanded new roles where the government could no longer be a competitor and also a regulator. Thus began the step-by-step redefining of the role of the Union government.
This process witnessed an acceleration in the last few years. The decision to abolish the Planning Commission, accept the recommendations of the Fifteenth Finance Commission—which dramatically enhanced the share of state governments in national tax revenues—and finally the implementation of the goods and services tax (and the creation of the GST Council made up of state FMs and chaired by the Union government FM) altered the fiscal relationship between the centre and the states. Consequently, the Union budget is no longer the dominant nucleus of economic activity.
The implementation of GST also meant that the Parliament gave up some of its sovereign rights and vested it in the GST Council. And without the excise component (after it was absorbed in the GST levy), the finance bill shrank dramatically.
Add all this up and it is apparent that the role of the Union budget is considerably diminished—and this even after the Railway budget was merged with it.
It is now evolving into more of an annual macroeconomic statement, especially the Union government’s stance on the fiscal deficit (in ensuring that it is in sync with the monetary policy).
This year, the extra zing in the air was due to the fact that this Union budget would set the tone for a bruising electoral calendar ending with the 17th general election next year. But for the two marque interventions—the ambitious health programme designed to cover 50 crore individuals and the extending the farm price support scheme to all crops—this year’s effort would have failed to catch the national play that it finally did get.
Guess it is time to acknowledge the new economic reality.
Anil Padmanabhan is executive editor of Mint and writes every week on the intersection of politics and economics.
His Twitter handle is @capitalcalculus.Respond to this column at firstname.lastname@example.org.
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