FEBRUARY 04, 2019

By Naresh Minocha, Consulting Editor

"IN one village, one person asked another: 'What is an Interim Budget?' Another replied: 'It is a Budget presented by an Interim Government'. Then, the first person asked: 'What is an Interim Government?' The next person replied: 'The Interim Government means that the Government does not know whether it will come back after the next elections or not'."

BJP veteran P.S. Gadhavi from Kutch cracked this joke in Lok Sabha on 20th February 2009 while lambasting UPA's interim budget (IB) for 2019-10. He also recalled Arun Jaitley likening IB to 'Satyam's balance sheet'.

Would this anecdote turn out to be real jolt for the NDA? It is perhaps this fear of loss at 2019 polls that led Modi Government to throw to wind all constitutional conventions to announce populist schemes.

It is lust for power that compelled Modi Government to offer substantial income tax sops to the middle class in IB for 2019-20 presented on 1st February 2019.

IB turned blind to the fact that India has the world's highest corporate income tax (CIT) of 48.3 percent. This is inclusive of tax on distributed dividend, explains OECD's 'Corporate Tax Statistics Database' released on 15th January 2019.

Companies are not vote banks. They are only poll financiers. The ones, lapping up electoral bonds or donating through other means, can thus wait. They can now only pray for return of Modi Government to ride on the next wave of crony capitalism.

The income tax sops in IB came close on heels of 10% quota for Govt jobs and seats in educational institutions for general category economically weaker sections (EWS) introduced recently through a constitutional amendment. In this case too, Government trashed all conventions to push through amendment at speed of bullet train.

It is here pertinent to recall sage words of Dr. Rajendra Prasad, India's first President. On 26th November 1949, Presiding over Constituent Assembly, Dr. Prasad stated: "We have prepared a democratic Constitution. But successful working of democratic institutions requires in those who have to work them willingness to respect the view points of others, capacity for compromise and accommodation. Many things which cannot be written in a Constitution are done by conventions. Let me hope that we shall show those capacities and develop those conventions".

Adherence to conventions is becoming an aversion for both the ruling party and the Opposition. It is the disrespect for conventions that led Modi Government to turn IB into a de facto regular budget.

The convention right from the days of Provisional Parliament is that interim budget would be a Vote on Account. The new Government, formed after the elections, would present a regular budget.

To get a feel of the convention, refer to 4-page IB speech for 1952-53 delivered by C.D. Deshmukh on 29th February 1952.

In the second sentence of speech, Mr. Deshmukh explained: "This is only an interim budget although it has been prepared as usual for a full year. Its main purpose is to place before Parliament an account of the finances of the Central Government for the current year and the prospects for the coming year on the existing basis of revenue and expenditure".

None of the 13 previous IBs departed from the convention in a manner the latest budget has done. To be fair to officiating Finance Minister, Piyush Goyal, the first breach of convention happened in the IB for 2014-15.

In this UPA's IB, P. Chidambaram announced a slew of populist initiatives with modest allocations on 17th February 2014. He also rolled out eye-popping excise duty cuts especially for the automobile industry.

This prompted BJP to issue a stinging reminder to UPA especially Congress on breach of conventions. A BJP release had stated: "Finance Minister has transgressed the Constitutional framework of Article 116 of the Constitution which specifies clearly the powers of the Government in taking a Vote on Account, and does not allow the Government to indulge in grandiose announcements".

The Congress Party reacted in a similar fashion in its response to Modi Government's IB. A Congress release quoted Mr. Chidambaram as saying "It was a full-fledged Budget accompanied by an election campaign speech. By doing so, the government has trampled on time-honoured conventions. A government confident of returning to power would have respected the conventions. It is crystal clear that the government has no hope of returning to power and has, therefore, acted desperately and recklessly, and in violation of the Constitution".

This is a classical case of pot calling the kettle black.

Mr. Goyal rolled out tax proposals in the manner akin to the one adopted by Chidambaram.

In IB 2014-15, Mr. Chidambaram stated "I do not propose to make any announcements regarding changes to the tax laws. However, the current economic situation demands some interventions that cannot wait for the regular Budget. In particular, the manufacturing sector needs an immediate boost".

Mr. Goyal, in his IB speech, stated: "Though as per convention, the main tax proposals will be presented in the regular budget, small taxpayers especially middle class, salary earners, pensioners, and senior citizens need certainty in their minds at the beginning of the year about their taxes. Therefore, proposals, particularly relating to such class of persons should not wait".

Breach of conventions, henceforth, is likely to persist as new-age political dharma is: Do anything and everything to grab power, pelf and publicity (3Ps). Similarly, the Opposition's criticism over IB would become sharper in the murky politics of propaganda, half-truth and lies.

Mr. Goyal has set the bar very high for uninhibited IB rhetoric. He over-loaded his speech with outrageous claims and promises that voters would find it difficult to stomach. He trumpeted what was pleasant and blacked out the unpleasant.

Take the case of the Railways, which is his main portfolio. He dubbed 2018-19 as "safest year" in its history, overlooking several horrible accidents including Dussehra-linked Amritsar train tragedy.

He mentioned about "next generation infrastructure" of rail, etc while explaining the first pillar of 10-pillar vision for the next decade. What he did not mention is that the Railways Board has ordered use of second-hand rail on loops and sidings in all new line/gauge conversion/doubling lines projects!

Mr. Goyal mentioned that Railways Operating Ratio (OR) is expected to improve from 98.4% in 2017-18 to 96.2% in revised estimates (RE) for 2018-19. What he didn't disclose is it has failed to achieve budget estimate (BE) of 92.8% for 2018-19.

OR is operating expenses computed as percentage of gross earnings. It is an indicator of the financial health of the Railways. FM also failed to mention that railways net revenue for 2018-19 has been slashed by about 54% to Rs 6014 crore under RE from Rs 12990 crore in the BE.

After merger of rail budget in general budget, disclosures about Railways' performance has been reduced to a mere passing reference in FM's budget speech.

What else can one expect from the Government for whom fiscal opacity has become core competency. This fact was amply underlined by Comptroller and Auditor General in its recent report on 'Compliance of the Fiscal Responsibility and Budget Management Act (FRBM), 2003 for 2016-17.'

One can specify several glaring omissions in other domains covered in the speech. The basic point is that no budget speech should excel in projecting an image that is totally divorced from the reality.

This is because illusive Vision creates frustration in the mind of masses after a few years. This is one of the reasons for growing unrest in the country. Leaders should always present realistic picture about the country while selling dreams.

The most shocking omissions in the IB's 10-pillars Vision for 2030 are two key words: 'population' and 'per capita'. Any Vision to achieve anything can't turn blind eye to the needing for controlling runaway growth in population, which is shrinking or checking growth in per capita availability of land, water, income, etc.

To have credibility, the Vision document should list grave challenges faced by India due to over-population, extreme poverty, social strife and malnutrition, etc.

It is pertinent to cite here a World Bank Study titled 'India Systematic Country Diagnostic- Realising promise of prosperity' released last year. The study foresees India becoming the world's largest economy after 2075.

It points out that India's GDP per capita is currently a mere quarter of China and 5-6% of the United States and European Union. On current trends, India's per capita GDP would reach two-thirds that of China in the 2070s.

Mr. Goyal delivered the longest IB speech running into 22 pages. The previous record was set by Mr Chidambaram with 14-page speech. The length of IB speeches has been growing gradually with passage of time. The average length of 13 previous IB speeches including Chidambaram's was 7.61 pages. The shortest 1977-78 IB speech was of 2 pages.

Wise persons know that IB speech is like a drop in the ocean of demagogy. The ocean grows stormy & uncertain as it touches the shore - polling dates. The self-congratulation, the self-certification and the never-achievable promises then get submerged in the ocean.

Let all Indians first demand revival of the convention of presenting IB without announcing new schemes or tax initiatives. The brief IB speech should be accompanied by a white paper on Missed Opportunities & achievements during the ruling party's tenure. It can have a chapter on Challenges and another one on promises, which the new Government should aspire to attain.