The Big Picture- Merging Budgets: What Are The Benefits?

Print Friendly, PDF & Email

 

 


The Big Picture- Merging Budgets: What Are The Benefits?


 

 

The decades old practice of presenting two budgets i.e. the railway and the general budget separately has come to an end. From next year onwards, the two budgets will be merged into one and will not see the Railway Minister presenting his own budget. The Union Cabinet also approved Finance Ministry’s proposal to advance the presentation of general budget by a month which used to be the last day of February conventionally.

Benefits from the merger:

  1. This step was long overdue and it will improve the efficiency of expenditure that the government is incurring in various sectors like infrastructure etc. The Railway budget was being presented separately because of historical reasons but in past few years this has created problems for functioning of railways as it made the decision making process very politicized like setting of fares which will come to an end with the merger.

 

  1. Financial autonomy of the railways should be preserved as it works round the clock, runs 20,000 trains per day and decisions are to be taken on a lot of issues on a daily basis. Railway Minister has lot of power to take decision on the funds. She/he can transfer the funds to the projects which are more urgent, take out money from those projects which were lagging behind to put into important areas. Whether this autonomy will remain or not in future is a question.

 

  1. The purpose of this merger is to develop railways fast. Railway gets required help from the national exchequer for its projects. Right now, railway gets General Budgetary Support (GBS) which should increase after the merger as railway will not gain anything if it decreases. There should not be a fund crunch. Finance Ministry should not micro manage the railway finance.

Removal of planned and non-planned expenditure and advancement of budget presentation:

This was a part of Rangarajan Committee recommendations. Since the Planning Commission has been done away with, there is no requirement of planned and non-planned expenditure any more. How centre-state relation develops in this new aspect is important. There is a requirement of mechanism for state governments to adapt to these changing patterns of revenues and expenditures.

Budget making is basically projecting the revenues and expenditures for coming year. Before going to the budget, there is a need for information on expenditure projection and revenue as well apart from expenditure such as the information on GDP growth for next year. Even the advanced estimate that comes in February has its own limitations. How much weightage should be given to the information which is available one quarter before the financial year is crucial. All the revenue projections made in past few years have been off track. Most of the revenues and expenditure comes in the last quarter of the year. Given that kind of situation, how revenue and expenditure will be tracked has to be seen.

CSO can provide the basic information on the kind of economic growth being projected for next year. Nominal growth rate is what is considered which has two components- real GDP growth and inflation estimate. Inflation estimates are provided by Economic Division of the Finance Ministry. Real GDP growth rate projection is done by CSO. Therefore, Economic Division might have a greater challenge to provide a nominal growth rate on which the deficit ratios for the next year will be fixed. Indirect taxes take immediate effect in a budget which affects inflation and this year GST might roll out from 1st April. Revised estimates number on the expenditure side has to be obtained. These problems might be seen in the next year by the advancement of the budget.

Conclusion:

The Railway budget is not gone and dead. It will continue and there will be need for the Railway Board Members to explain the rationale of that budget. There is a need to be wary of the fact that the rights which belong to the railways like fixing fares should not be seeded to the Finance Ministry. Only presentation is off but the budget stays. Regarding the merger of the Railway and General Budget, the Finance Minister also said that the distinct identity of the Railways and its functional autonomy will continue.