DECEMBER 22, 2020

By TIOL Edit Team

FINANCE Minister Nirmala Sitharaman has set the bar very high by promising a "never before" like Union Budget. She made this offer while urging the industry representatives to give inputs and wish list. It is rare to see a finance minister publicly fixing a challenge for herself / himself.

Addressing a CII meeting the other day, she reportedly stated: "Without that, it is impossible for me to draft something which is going to be that Budget like never before".

Like FM, Prime Minister Narendra Modi has been stirring afresh groundswell of expectations through his recent positive speeches at different forums. On a recent visit to Gujarat, Mr. Modi said one has to keep up with the changing times and embrace global best practices.

In his inaugural address at FICCI's annual Convention held this month, PM said that, in life as well as governance, a confident person never hesitates in giving space to others.

He stated: "A strong government, backed by massive mandate exudes that confidence and dedication. A decisive government always strives to remove obstacles for others and always tries to contribute towards the society and the nation. Such a government doesn't want to hog the control and initiative".

We believe these ideas constitute an unfolding agenda for reforms and growth for the post-Covid-19 period. The inputs for reforming budget have been flowing into finance ministry like the perennial river over the years. Many good suggestions get submerged in the river-bed.

A content analysis of pre-budget memorandum of all key stakeholders of last two decades should serve as valuable input for forthcoming budget. Such analysis would help the Ministry spot new ideas for the Budget slated for presentation on 1st February 2021.

Successive Finance Ministers' reluctance to bite the bullet have made annual budgets a routine product of political compulsions, corporate lobbying and tight-rope walking among diverse stakeholders clamouring for more resources in varied forms including tax incentives.

We all know that entities right from house manager/wife to Fortune 500 Industrialist wants a stable and clear business environment in which risks and opportunities are managed effectively. The annual budget disturbs this environment every year. Yearly changes in economic parameters thus saps the growth prospects.

It is thus high time to announce budget for five years with clearly defined road-map for direct and indirect taxes. The tax rates should not be tinkered every now and then as is the case with goods and services tax (GST). Tax rates should be adjusted only in cases of inverted duty structure and to comply with tariff protection ordered by anti-dumping and safeguard duty authorities.

What applies to taxation holds equally true for central, centrally sponsored and other schemes. Freezing of the number of such schemes and budgetary allocations for them would improve economic certainty.

Such stability and certainty help entities to work for increase in total factor productivity. The Union Budget should thus be transformed into a productivity-enhancing tool.

The Budget should also unveil blueprint for phased reduction of public debt (Centre & States combined borrowings) which has risen significantly due to Covid-19 and associated lockdowns. The debt might rise further in 2021-22. The Government has borrowed more both in domestic capital markets and from the global multilateral financial institutions to cope with slowdown accelerated by lockdowns.

There is a need for a statutory framework on public debt transparency and ceiling. The Finance Ministry should revisit 14th Finance Commission's recommendation on this issue that it rejected. The Commission recommended replacement of Fiscal Responsibility and Budget Management Act (FRBMA) with a Debt Ceiling and Fiscal Responsibility Legislation, specifically invoking Article 292 of the Constitution.

The 15th Finance Commission (15th FC) might have made a similar recommendation in its final report that is expected to be made public along with the presentation of the budget.

It is here apt to note that 15th FC had commissioned a study on this aspect.

The study captioned 'Elements of a Public Finance Management Law for India' has recommended enactment of 'the Public Finance Management Act'

There is suspense in the air as to how much Government would borrow from International Monetary Fund (IMF). We hope the big-ticket loan is sanctioned before the presentation of the Budget.

Economic analysts are eagerly waiting for the country report that IMF would issue along with loan sanction. Such report is very comprehensive & gives an independent view of fiscal health of country.

It is here pertinent to quote an IMF Working Paper (WP) captioned 'Enhancing Fiscal Transparency and Reporting in India' released last month. As put by WP, "Current fiscal transparency and reporting practices in India place it behind most peer G20 economies, implying that policy makers are lacking critical data to ground their fiscal and other economic planning decisions".

It notes: "The increasing use of off-budget financing at the central government level in recent years represents one key example of reduced transparency-we provide estimates of the public sector borrowing requirement and an extended notion of the fiscal deficit, each of which shows a more expansionary stance in recent years than 'headline' deficit figures presented in budget documents".

The 'Never Before Budget' should demonstrate fiscal credibility by taking into account the observations and conclusions about fiscal opacity drawn by IMF, Comptroller and Auditor General (CAG) and other entities over the years.

The Budget for 2021-22 should stand out as class apart by embracing credible transparency. Let the Finance Ministry accept repeatedly rejected suggestion of IMF and Finance Commission to constitute independent fiscal council. The more information it makes public with regular periodicity, the better it is for the economy. It would help enterprises take correct and timely decisions.

NDA Government has been stingy about making public reports of Committees. There is no reason why it should not make public reports of Expenditure Management Commission constituted in September 2014. In fact, expenditure control is one area which deserves regular public scrutiny. The reports of Economic Advisory Council to PM are not made public. This is in sharp contrast to regular disclosure of EAC reports by UPA Government.

The list of reports kept under wraps by different ministries is long. All this makes economic environment uncertain. Let forthcoming budget walk the talk of PM's suggestion that we should embrace best global practices.

We hope Finance Minister would give due weightage to IMF's recommendations. IMF's WP contains a slew of suggestions. A key recommendation is: "The Union government should move towards the calculation of a full central government deficit in line with GFSM 2014, along with a commitment to refrain from deferring cash payments, including unduly delaying tax refunds, and recourse to off-budget operations".

The eagerly awaited 'Never Before Budget' should be built on four pillars: 1) Economic certainty 2) Enhanced fiscal transparency 3) Improved accountability and 4) Minimal post-budget tinkering with focus on implementation of initiatives over five years.