FEBRUARY 03, 2018

By TIOL Edit Team

FORMULATION of Union Budget is a challenging task even in a year when all variables are benign. It is challenging because budget is perceived as Santa Claus bag by all stakeholders of economy from the humble housewife to networking crony capitalist. And Finance Minister of the day loves to enjoy playing Santa Claus even if he/she gives lollipop with one hand and lightens the purse of beneficiary with the other hand.

The task becomes tougher in the year when economy has not rebooted back to robust growth path from vortex of uncertainty. In the instant case, uncertainty was triggered by factors such as GST rollout, demonetization and enhanced turmoil in global marketplace.

The budget-preparation task is toughest in a year that serves as the last, biggest opportunity for ruling alliance to showcase its governance before discerning voters.

Viewed against this background and the compulsions of fiscal discipline, the Union Budget for 2018-19 appears to be a commendable exercise. It has attempted to appease as many 'me-too' sop seekers as possible.

A Government Budget can be perceived as innovative or run-of-the-mill, Pakoda or Vikas budget, opaque or transparent, rhetorical or substantive and so on, depending on the assessment criterion.

Judged from all angles, the Budget can be rated as above average. It scores very high on rhetoric that is nicely woven in the Budget Speech. It scores low on parameter of fiscal transparency. Several announcements in the Speech are either open-ended or lack clarity or accountability.

Take the case of big-bang national health protection scheme (NHPS) that Finance Minister Arun Jaitley has announced. The scheme would provide annual insurance cover of Rs 5 lakh/family to 10 crore "poor and vulnerable families (approximately 50 crore beneficiaries)". This annual insurance cover would be available for "secondary and tertiary care hospitalization".

Mr. Jaitley has not announced any timeframe or guidelines for the scheme. He even failed to mention the fact he had announced the same scheme in his budget speech for 2016-17!

On 29th Feb 2016, Mr. Jaitley stated: "Catastrophic health events are the single most important cause of unforeseen out-of-pocket expenditure which pushes lakhs of households below the poverty line every year. Serious illness of family members cause severe stress on the financial circumstances of poor and economically weak families, shaking the foundation of their economic security".

He continued: "In order to help such families, the Government will launch a new health protection scheme which will provide health cover up to Rs. one lakh per family. For senior citizens of age 60 years and above belonging to this category, an additional top-up package up to Rs 30,000 will be provided".

On Ist February 2017, Finance Ministry disclosed that "Cabinet Note on National Health Protection Scheme (NHPS) has been forwarded to Cabinet Secretariat on 25.10.2016, for consideration of the Cabinet". It also stated that scheme component relating to senior citizens has been implemented.

In keeping with fiscal accountability norms, Mr. Jaitley should have disclosed why the Government put NHPS in deep freezer for two years.

We can cite several other announcements in the Budget Speech where sentences don't give a complete picture. Take the case of sentence: "Revised Fiscal Deficit estimates for 2017-18 are Rs 5.95 lakh crore at 3.5% of GDP". The revised target has to be compared with budget estimate (3.3%) which was not mentioned in the speech.

Similarly, the decision "to bring down Central Government's Debt to GDP ratio to 40%" is incomprehensible. The Speech should have mentioned the present ratio (estimated at about 50.1% in 2017-18) and the fact that target ratio would be achieved in 2024-25.

FM should have explained the significance of his decision. Reduction in this fiscal indicator would ease interest burden on the Government and help it increase capital expenditure and thus spur growth.

Put simply, there is plenty of room for improvement in budgetary announcements.

Some of the major decisions don't find a word in the budget speech but are tucked in other documents that most analysts don't get time to read. The Union Budget for 2018-19 thus reinforces the idiom that 'devil is in the detail'.

An instance in point is proposal to do away with two important fiscal discipline indicators – revenue deficit and effective revenue deficit. This important move merits inclusion in speech with statement that rationale is explained in the Medium Term Fiscal Policy Statement (MTFPS).

In fact, major announcement about other ministries such as the one about minimum support prices (MSPs) for major crops should either be avoided or backed with details in other budget documents. MSP announcement has thus invited doubts and derision from a section of experts.

The objective of effective communication should not be compromised due to compulsions to pack the Budget Speech with something for everybody.

As for growth, it is difficult to say whether budget would catalyze growth process because it is too complex one and influenced by too many factors. Announcing schemes and outlays is one thing. Implementing them efficiently is another.

As put by MTFPS, "the economy is still not completely out of the rough".