Ever since then finance minister Shanmukham Chetty presented India's first
budget in 1947, the event has been eagerly awaited as the first big-ticket
political event of the year. Consequently it should come as no surprise that
even a fortnight after Arun Jaitley presented the budget for 2016-17,
commentaries continue as to whether this was finally the long-awaited budget
or whether it was devoid of the much-needed big bang vision.
This oscillation between applause and disappointment is equally
understandable, as it reflects perceptions of how realistic the government's
aspirations are and whether it would achieve its stated objectives. This is
because a budget is essentially a statement by the government of what its
priorities are for the year. The budget document is, in other words, an
allocation of funds and the sectors for which allocations have been made.
Allocations are not, however, a sanction for expenditure.
Expenditure is incurred on the basis of prescribed administrative and
financial procedures that need to pass audit scrutiny, failing which it
becomes an audit objection and in the worse-case scenario, feature in the
Comptroller and Auditor General's report, which is presented to parliament.
To that extent, actual expenditure incurred usually falls below allocations
because of reticence in giving approvals.
Fear of reprisals after change of government or investigations by vigilance
on the basis of complaints of misappropriation of funds can be a
significantly demotivating factor for bureaucrats in approving proposals.
Delays become the norm. Consequently, at the Revised Estimates stage,
progressive expenditure statements and the ability to spend determine fund
allocations and tend to be substantially lower than the Budget Estimates.
This is the real challenge that governments face. In short, will the central
government spending for the financial year utilize the allocations or will
funds lapse, as has been the case on innumerable occasions in the past with
successive governments? Utilization and thus, implementation will be the
litmus test of the government's resolve in matching its aspirations with
achievement. Shortfall will attract criticism that the government falsely
raised expectations.
To that extent, all budgets face the critical challenge of implementation.
Consider some allocations in the 2016 budget, for instance. Under the
Accelerated Irrigation Benefit Program [AIBP], Jaitley said that there were
89 pending projects and their completion would require Rs.17,000 crore next
year and Rs.86,500 crore in the next five years. In parliament, he conveyed
the government's commitment in ensuring 23 projects would be completed
before the end of the financial year.
It bears recalling that the majority of these projects have been languishing
for years. What miracle wand will now see fast-tracking and thus,
completion? Indeed, the genuine fear is that incurring expenditure would be
confused with project completion when in reality it would only push open the
door to corruption even wider. Ensuring that the allocations go to the
intended beneficiaries within the stipulated time frame will be the biggest
challenge the central government would face.
Similarly, Prime Minister Narendra Modi's pledge to double the income of
farmers by 2022 was rejected by his predecessor, Manmohan Singh, as being
~an impossible dreamT despite it being a big idea.
Indeed, Modi himself indicated that the goal would be achieved only if the
state governments gave priority to agriculture. As the history of India's
centre-state relations has repeatedly demonstrated, this is an uneasy
relationship where state governments that are in opposition to the central
government and rarely sing the same tune. Consequently, the sole big idea
might fall by the wayside, as its success is entirely dependent on the
proactive manner in which state governments take interest in the rural
sector and in agriculture.
Consider the ease of doing business. At a talk recently delivered at the
Mumbai campus of the SP Jain School of Global Management, the response of
Mark Thirwell, Chief Economist with Austrade, in response to a query on how
India was perceived by Australian companies, is worth recalling.
He said when Australian companies were asked to identify the top five
exciting destinations in the world for investment, India would invariably
feature. At the same time, if Australian companies operating abroad were
asked which they felt were the top five most difficult places to do
business, India would invariably feature! In other words, India represents a
clear mismatch between expectation and delivery. The importance of
addressing how important it is to improve conditions for doing business in
India cannot be over-emphasized.
The government has announced the ease of doing business as among its top
priorities. For this, a number of amendments to the Companies Act are
required but can only be achieved with the approval of parliament.
Experience suggests that this is not likely to be an easy task given the
manner in which parliamentary proceedings have been stalled over the past
several months and the passage of important bills, especially GST. It is,
however, good news that the opposition has agreed to the passage of some of
the bills.
The government's commitment on fiscal consolidation is also excellent news.
All this impacts the way in which India is perceived by foreign investors.
Two important challenges confront all governments: first, the ability to
spend allocations and ensure that the funds reach the intended beneficiaries
and second, to see the budgetary exercise as being in conjunction with a
series of other enabling executive actions.
For transformative change to take place in the Indian economy, tough
economic reforms are required. A pro-poor budget does not work without an
economic liberalization programme that attracts domestic and foreign
investment coupled with expenditure in the social sector.
Simultaneously, the government needs to visibly demonstrate political will
in tackling corruption at all levels, especially the connivance between
local politicians, law enforcers, contractors and the multiple gatekeepers
who thrive on speed money. Unless corruption is addressed, investors would
not back the India story.
A dream budget is one that can be implemented. At the end of the day, a
budget and its implementation need to be seen as setting the tone for
inclusive growth in a country where the Mars mission and farmer suicides are
a grim reality and take place simultaneously. Unless this is a collective
end-objective, India will again represent the inability to deliver on
aspirations. Yet again, the people would have lost.
(13.03.2016 Amit Dasgupta, a former diplomat, heads the Mumbai campus of the
SP Jain School of Global Management. The views expressed are personal.
