The first budget in the aftermath of the pandemic will be presented by the Finance Minister Nirmala Sitharaman on February 1, 2021. Individuals as well as the industry have high hopes from this Budget.
India’s economy is expected to contract by 7.5% in FY 2020-21, according to the Reserve Bank of India, as the lockdowns impacted lives, livelihoods, production, investments and demand.
Everyone hopes the budget will propel growth, boost investments and demand. The budget is expected to give relief to the middle class to drive consumption and provide incentives to industry to commit fresh investments.
The government is expected to announce a mega infrastructure push which would create employment and provide a fillip to GDP growth. The finance minister has promised a budget the likes of which has not been seen in a 100 years.
The Budget exercise, however, needs a revamp in light of the new challenges.
The Budget is an estimate of income and expenditure of the central government over the next financial year. How does it hope to earn revenues and how does it intend to spend the income?
However, over the years we are witnessing that these estimates are revised during the next year Budget as actual figures are quite different from the projections.
While this is fine as nobody has a crystal ball to gaze at the future, it also shows lack of thorough scrutiny during preparation. Why did the estimates go wrong? What impacted the estimates and how lessons can be drawn from them to project better estimates for next year?
This is very important and helps build in accountability in the system as it impacts government borrowing, fiscal deficit numbers and ultimately the credit rating of the sovereign.
For example., we all know that government receipts for this year (FY 2020-21) are likely to be lower than budgeted due to the effects of the pandemic and the resultant lockdowns.
However, the budget needs to specify how much of the decline in revenues is due to COVID-19 effect and how much is due to other reasons.
Blaming everything on COVID-19 will be lazy economics. India was already suffering from a slowdown before the pandemic struck. India’s GDP growth for FY 2019-20 was 4.2% much lower than FY 2018-19 growth of 6.1%.
This bifurcation is very important to understand the reasons behind the decline in income and take appropriate actions to tackle it. COVID-19 impact requires short term policy tweaks and may correct over time. However, decline in revenues and growth due to other issues requires structural reforms.
The Budget speech should follow the KISS principle - Keep It Short and Simple. It should not be confused with a political speech or a shayari event. It should focus on the numbers of the previous year, what went wrong / right with the estimates and why.
It should then present the roadmap for the next year, explain the rationale for changes in allocation across departments. The Budget should talk about the numbers as it is all about numbers and nothing else.
It should highlight the changes in duties and tax structures as they are important for corporates and individuals to do their planning.
Lately the speeches have been everything and anything but not the numbers. They have been long and boring. Seetharama spoke for 2 hours 15 minutes in 2019 and 28 minutes more in 2020. She even didn’t talk about the projected fiscal deficit number.
Please spare the audience this time around. Budget should focus on quality rather than quantity.
COVID-19 has shown that full year estimates don’t mean much during an ever changing and dynamic world environment.
It is the right time to introduce a half yearly review of the receipts and expenditures and make corrections accordingly.
It would give a better indicator of the ground realities and help in making better projections for the year ahead apart from revising the fiscal deficit figures which the market has been guessing for almost the entire year.
To sum it up, a system of checks and balances, responsibility and accountability needs to be brought into the Budget exercise. Transparency and adoption of KISS will go a long way in making the Budget more effective and easy for common man to understand.