What is this Indian obsession with the Budget? Yes, the media makes crores on advertising revenues, and the Finance Minister gets more coverage for a few days than the PM. But isn’t it time we grew up?
With every passing year, the Union Budget Circus has become bigger even as the importance of Budgets for the economy has become smaller. There are two major parties with a vested interest in making Budgets bigger than they ought to be. The first is the Finance Minister himself. For two whole hours, and for several days before and after Budget Day, the media ensures that he is the cynosure of all eyes. Even the Prime Minister does not often get this kind of billing by the media. The second reason is the media’s all-too-apparent self-interest. If the Budget is not hyped up, it can kiss goodbye to crores of advertising and sponsorship money.
However, we are now reaching the point where excess hype around the Union Budget is becoming counter-productive. Not only are several square miles of forest being demolished to print the Budget outpourings of journalists, policy-makers, economists and businessmen (often with no reader for even a fraction of the stuff written), but TV channels also spend hours, if not days, trying to milk the occasion for juice and inane soundbytes.
The biggest casualties of hype are also the beneficiaries themselves: most Budgets do not live up to expectations, with Finance Ministers being routinely panned for their misses; the media itself loses credibility every time Budgets belie their guesses and predictions. If Arun Jaitley’s two Budgets drew less than enthusiastic responses, it’s because we expected him to walk on water and fly to the moon by flapping his fiscal wings, but he couldn’t do that.
Truly transformational Budgets are few and far between, with the last one going as far back as Manmohan Singh’s 1991 one. The next one could have been P. Chidambaram’s “Dream Budget” of 1997, but so many things turned out to be a nightmare that year that few would credit “greatness” with that Budget in hindsight. It just had a good catchphrase associated with it. Crisis made Singh’s Budget transformational; the “Dream Budget” tipped the Indian economy back into a crisis from which it took the country five or six years to recover.
But there are even better reasons to de-hype the Budget.
First, by making Budgets such big events, the pressure on the Finance Minister to hold forth and make all kinds of announcements is huge. In 2014, presenting the first Modi government Budget, Arun Jaitley’s speech went on for so long that he himself had to ask the speaker for a time-out—probably a first in Budget history.
His speech had 16,536 words, leaving Yashwant Sinha’s 15,882—and Jaswant Singh’s 15,081-word Budget records in the dust. In contrast, UPA Budget speeches huffed and puffed to cross 14,000 words, with Pranab Mukherjee crossing that milestone only in his last Budget with 14,157 words.
Jaitley, after the 2014 time-out, saw discretion as the better part of verbal valour and restricted his 2015 Budget speech to 11,424 words—a 31 per cent chop of wisdom. Relative brevity enabled him to produce a better second Budget than his forgettable first.
Second, qualitatively speaking, the problem with long Budget speeches is the tendency to keep tinkering with this duty and that tax, leading to a moral hazard: frequent changes increase economic instability by making the playing field unpredictable. Budgets and taxation ought to follow simple principles where the year-on-year changes are few and far between. For example, what is the purpose of announcing yearly changes in the tax-free limit for individual taxpayers when it could be done once for all by simply indexing the tax-free limit to inflation?
For indirect taxes, the trajectory should be clear—largely downwards—and not change from year to year. Frequent changes in taxation through the Budget adds one more unpredictable element for businesses.
Consider the seven excise and customs hikes in petrol and diesel prices since November 2014. Since the idea of raising duties makes eminent fiscal sense in the context of a tough deficit target and also to avoid making fossil fuels too cheap (leading to overconsumption), why could this not have been done with a simple formula? Jaitley could simply have announced that half the fall in every $5 drop in oil prices will be recouped through taxes, and above a certain threshold, this hike will be reversed (say, after oil breaches $70 a barrel). This makes businesses clear on what to expect, instead of being hit from behind with sudden increases in duties or delighted with sudden cuts.
A related point is this: if taxes can be raised or lowered all through the year as oil or other prices are unpredictable, what is the point of having a Budget on the last day of February to announce the entire year’s tax proposals?
Third, a mature democracy should move away from excess secrecy in Budget-making. If Budget options are discussed openly and freely, the actual taxation and other economic decisions need not be kept a secret till February-end, with businessmen paying bribes to know in advance what may be in store for them. Secrecy and Budgetary hype are two sides of the same coin—with opportunities for corruption being the side-effect. Budget secrets are now treated more circumspectly than military ones—when it should be the exact opposite.
Fourth, with 62 per cent of the nation’s revenue resources now with states after the 14th Finance Commission, one would have thought that there should be more focus on state Budgets and finances. But the national media has no clue about what is happening in states. The two issues are inter-related: the more hyped up the central Budgets get, the less the importance given to state Budgets, even though they are the ones with the real spending power. No national channel broadcasts state Budget speeches live, even Budgets presented by the biggest states in the country. Maharashtra presented a Budget worth nearly Rs 2,00,000 crore last year, but it barely got a mention in the national media. Only the Marathi media made a meal of it.
By making Budget Day the focus of the year, both the media and the Finance Ministry are doing the country a disservice. Reason: the Budget is a mere statement of accounts, something like a corporate annual report, but the real work of the Finance Minister relates to what he does (or has to do) for the rest of the year: monitoring how the money is spent. This is where Finance Ministers have repeatedly failed, with actual spends often falling drastically below outlays, and outcomes even lower.
Between 2011 and 2015, Finance Ministers were more keen to ensure that outlays were not spent due to the yawning fiscal deficit, which had to be closed by hook or by crook. This is like saying that bloodletting is the right way to treat wounds.
Contrary to what the hoopla around Budget Day suggests, the Finance Minister’s real job is to deliver bang for the buck, by putting in place the monitoring and evaluation mechanisms to ensure that all outlays are spent in the right way and right quantities to guarantee better outcomes.
The Finance Minister really has two jobs: one is to chase revenues at the lowest cost of collection; the other is to chase expenditures, so that waste is weeded out. Maybe we should have two Finance Ministers, one to manage revenues and the overall Budget, and another to just monitor expenditures.
Perhaps the biggest change Arun Jaitley can bring about are the following:
• Make the speech really short and focused on tax principles, not specific proposals. Any Budget speech longer than 5,000 words is a waste of breath, newsprint and prime time. Tax proposals should be driven by an underlying formula or approach, not subject to year-to-year changes.
• The actual financial numbers can be placed on the internet days before the Budget, and only the actual and final numbers, as modified by the tax and spending proposals, if any, can be revealed on Budget Day. Over time, these changes should be minimal.
• Make the numbers transparent by shifting to an accrual-based system of accounting for revenues and expenses.
A boring, but clean and honest Budget is what we need for 2016-17, Mr Jaitley.
This will seal your date with history.
The author is Editorial Director, Swarajya. He tweets at @TheJaggi.