Presentation of Union Budget in the last day of the February every year has been an event that the media and the general public would look for. This has been so since independence and it has become more popular since early 1990s, because of the greater awareness of the public and its expectation from the government to address various economic issues of the day. The growth of internet and television media also contributed to this intellectual event. Surprises are built in the presentation of the budget by keeping the whole exercise secret. We have moved slowly from discretionary to rule based fiscal policy with the passage of FRBM Act, 2003 that stipulates the level of fiscal deficit to be achieved and also self-imposed regulation of the government to move towards rationalizing tax system. Still surprises in terms of allocation of funds to various sectors signaled the changing priorities of the government.
After demonetization on November 8, 2016 there was increased hype about this budget, as it was expected to distribute the dividends of this exercise to the public, which suffered the transition to the really cashless economy without any alternative medium of exchange. On the contrary Budget 2017 is not as attractive as in the past. This is in spite of the fact that many new beginnings have been made such as the presentation of budget is advanced by one month, railway budget is merged with the regular budget and plan and non-plan categorization of the expenditure is removed. The real reason for this is the evolution of market friendly economic policies in the last two and a half decades.
Philosophy Underlying Budget
The proposed total expenditure for the fiscal 2017-18 is Rs 2,146,735 crore. This is 6.6 per cent over the current year’s revised estimate of Rs 2,014,407 crore. In terms of expenditure-GDP ratio, it has come down from 13.26 per cent to 12.74 per cent. The declining expenditure ratio reflects the intention of the NDA that a smaller government is a better government.
The fiscal deficit ratio is reduced from 3.5 per cent in 2016-17 to 3.2 per cent in 2017-18. While the gross own revenue – GDP ratio declined from 9.74 per cent to 9.50 per cent, the expenditure ratio declined by 0.52 per cent points. The present government thinks that the public sector is inefficient, so let us collect lower amount of public revenue and expend still lower amount of money, so that more money will be left in the hands of the private sector, which it thinks can spend efficiently and contribute positively to the economic growth. The pro-market economic philosophy has been with various governments in the Union and state governments in India since 1990s. With establishment of pro-market rule based economic policy, there is little left in the Budget to give surprises any more.
Cooperative fiscal federalism
This budget has made a new beginning in doing away with the bifurcation of public expenditure into plan and non-plan. The Planning Commission was largely seen as a non-democratic body with the inherent centralization of economic policy and administration of the Nehruvian era. With the closure of Planning Commission and replacing with the Niti Aayog, the Union government has closed the planning process in India. But the attended consequence of this is the removal of formula based grants for the State Plans. The erstwhile Planning Commission used the Mukerjee formula to distribute plan grants among states. This formula based grant system considerably reduced the discretionary nature of distributing plan grants. For instance, in 2015-16 the formula based plan grant was 70 per cent of the total plan grants to the states. From the fiscal 2017-18 this formula based plan grant is removed and the grants are restricted to implementation of central schemes which are mainly centrally sponsored schemes. Though the present Union government sold the idea of cooperative federalism by making all the state Chief Ministers as members of Niti Aayog, it has not taken the states into confidence in the decision to remove formula based plan grants. Ironically the states are also quiet about this. This is how cooperative federalism unfolds in India.
Another point that emerges from the series of budget since 2015-16 is that the Union government has to give away 42 per cent the tax revenue to the states according to the recommendations of the 14th Finance Commission. This sharply reduced the net tax revenue with the Union government. Once again, the Union government has a found way to overcome this hurdle. The Union government started mobilizing more of the non-divisible tax revenue through cess and surcharges and non-tax revenues like dividends from public sector enterprises, fines and penalties, user-charges, recoveries of loans, spectrum sale, and disinvestment proceeds. Thus, the total transfers to the states as a proportion of the aggregate own revenue of the Union governments remains at 47 per cent throughout these three years. Thus, the Union government has not lost any money to the states due higher states’ share in tax revenue but it continues to have a substantial amount of public revenue for its discretionary spending.
All that we could get from Budget 2017, it is a continuation of the long held policy of Delhi under different regimes - the public policy should be market enabling through minimizing public sector. Politically the centralization of economic policy making and administration has taken a new avatar with the establishment of Niti Aayog and removal of formula based plan grants.
(R. Srinivasan is an Associate Professor, Department of Econometrics, University of Madras, Chennai)
